Gazprom Slumps on Ukraine Protests: Russia Overnight

OAO Gazprom declined to a three-month low in New York amid the biggest political protests since 2004 in Ukraine, a key route for natural gas shipments to the European Union.

American depositary receipts of Gazprom, Russia’s natural-gas export monopoly, fell 3 percent to $8.41, after dropping in Moscow 1 percent to 141.5 rubles, the lowest level since Sept. 5. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in New York dropped 0.9 percent to a two-month low of 97.21, led by OAO Mechel. (MTL) RTS Index futures expiring in December decreased 0.7 percent to 138,760 in U.S. hours.

Russia will offer cheaper natural gas to Ukraine if the government in Kiev opts to join a Moscow-led economic bloc after halting free-trade talks with the EU, according to First Deputy Prime Minister Igor Shuvalov. While Ukrainian President Viktor Yanukovych reiterated that the country’s goal is European integration, his about-face on the EU agreement has sparked the biggest street protests since the 2004 Orange Revolution.

“Gazprom is facing major risks because of street protests in Ukraine,” Mansur Mammadov, a money manager at Kazimir Partners, which oversees $300 million including Gazprom shares, said by phone from Baku, Azerbaijan, yesterday. “Gazprom will most likely have to cut a very high price that it charges Ukraine for gas supplies, while Ukraine may seek to increase the cost of transportation services via its territory to Europe.”

Future contracts on Gazprom fell 0.3 percent to 141.44 rubles in U.S. hours.

Europe’s Demand

Russian gas supplies to Europe, comprising about a quarter of the region’s demand, have been halted several times in the past decade amid disputes over price and transit arrangements with Ukraine. The nation, which depends on Russia for more than 60 percent of its gas needs, sends more than half of Gazprom’s exports to Europe via its territory, Mammadov said.

Protests began on Nov. 21 when Yanukovych suspended progress toward an association agreement with the EU, opting instead to strengthen ties with Russia. They intensified this weekend after the president failed to reconsider the deal at an Nov. 28-29 EU summit in Vilnius, Lithuania. A throng estimated by the opposition at about half a million converged on central Kiev yesterday to hear boxing champion Vitali Klitschko appeal for a new government.

Ukraine will negotiate a new price for natural gas supplies from Russia in two weeks, Ukrainian Prime Minister Mykola Azarov said in an interview with private television channel Inter Dec. 1. The country, which paid an average price of about $430 per 1,000 cubic meters of gas in the fourth quarter of 2012, believes a “justified” price is $300, Ukraine’s Energy Minister Eduard Stavytskyi said in Vilnius, Lithuania, Nov. 28.

‘Selling Pressure’

“What they charge Ukraine now is not a realistic price, it’s political price,” Ian Hague, founding partner of New York-based Firebird Management LLC, which manages $1.3 billion of assets including Russian stocks, said by phone yesterday. His firm doesn’t own Gazprom shares. “Gazprom is under selling pressure because Russia has offered Ukraine a dramatically lower price for not signing the EU deal.”

Gazprom fell 1.2 percent to $8.53 in London, the lowest level since Sept. 6. One depositary receipt equals two Moscow-listed shares.

Sergei Kupriyanov, the Moscow-based Gazprom spokesman, didn’t reply to a request for comment on whether Ukrainian protests impact on the company when contacted by Bloomberg News by phone outside of normal business hours.

Mechel, the nation’s biggest producer of coal for steelmakers, slumped 6.2 percent to $1.97. That’s the lowest level since the company’s U.S. initial public offering in 2004.

The Market Vectors Russia ETF (RSX), the biggest U.S. exchange-traded fund that holds Russian shares, slumped 1.6 percent to $27.76 yesterday. The RTS Volatility Index, which measures expected swings in the index futures, jumped 9.3 percent to 27.27.

United Co. Rusal (486), a Moscow-based aluminum producer, dropped 0.9 percent to HK$2.31 in Hong Kong trading as of 10:05 a.m. local time. The MSCI Asia Pacific Index fell 0.2 percent.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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