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Putin’s Trade Blow Throws Finland’s Exporters Into Shock

Aug. 7 (Bloomberg) -- Bloomberg's Alan Bjerga reports on the Russian ban on food imports from the United States, EU, Canada, Australia and Norway as President Vladimir Putin retaliates against sanctions levied on the nation. (Source: Bloomberg)

Some of Finland’s biggest exporters have been thrown into survival mode as they struggle to work out how to cope with Russian import bans unveiled yesterday.

No euro nation is more reliant on trade with Russia than Finland. Its exports to its eastern neighbor have already contracted since the crisis in Ukraine intensified in March. In a counter-move to western sanctions, President Vladimir Putin slapped import bans yesterday on an array of foods, including dairy and cheese. With 14 percent of Finland’s trade coming from Russia, those developments are exacerbating the Nordic country’s fight to exit its second recession since 2008.

Valio Oy, a cooperative dairy producer that accounts for about 40 percent of Finnish food exports, yesterday “halted all production lines making goods for sale in Russia,” Chief Executive Officer Pekka Laaksonensaid by phone. “They will remain halted until we can sell in Russia again. Time will tell what the financial impact is.”

Waging Financial War

Valio isn’t the only company suffering. Finland exported 400 million euros ($535 million) in food to Russia last year. Wholesaler Oriola-KD Oyj, paint maker Tikkurila Oyj and house builder YIT Oyj have all reported falling demand in Russia. Nurminen Logistics Oyj said its net sales will decline this year as sanctions cut rail transport volumes. Department-store owner Stockmann Oyj and retailer Kesko Oyj bear the brunt of slowing economic growth as Russians spend less.

Photographer: Henrik Kettunen/Bloomberg

Valio Viola soft cheeses are advertised two for 4.40 euros in a market in Helsinki. Valio Oy, a cooperative dairy producer that accounts for about 40 percent of Finnish food exports, yesterday “halted all production lines making goods for sale in Russia,” Chief Executive Officer Pekka Laaksonen said. Close

Valio Viola soft cheeses are advertised two for 4.40 euros in a market in Helsinki.... Read More

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Photographer: Henrik Kettunen/Bloomberg

Valio Viola soft cheeses are advertised two for 4.40 euros in a market in Helsinki. Valio Oy, a cooperative dairy producer that accounts for about 40 percent of Finnish food exports, yesterday “halted all production lines making goods for sale in Russia,” Chief Executive Officer Pekka Laaksonen said.

The Finnish government will study the impact of the ban and consider ways to minimize the fallout, it said in an e-mailed statement yesterday.

Economic Isolation

Russia’s increasing economic isolation couldn’t come at a worse time for Finland, which had pegged its recovery hopes to a rebound in exports. Gross domestic product contracted for a second quarter in the three months through March, while unemployment reached 9.2 percent in June, compared with 7.8 percent a year earlier.

The yield on Finland’s two-year note traded at about the same level as similar-maturity German debt this week, at 0.02 percent. At the end of July, Finnish two-year notes yielded two basis points less than German debt.

Finland “looks rich against Bunds,” according to Chiara Cremonesi, a strategist at UniCredit Bank AG in London. With most of Finland’s government bonds in foreign hands, the country is vulnerable to shifts in sentiment, she said.

Selling Finland

Investors should short Finnish 10-year notes in favor of Italy and Germany, equally weighted, Cremonesi wrote in a note.

Photographer: Munshi Ahmed/Bloomberg

Neste Oil Oyj, Finland’s only oil refiner, brings about 65 percent of its crude oil from Russia, Chief Executive Officer Matti Lievonen said. Close

Neste Oil Oyj, Finland’s only oil refiner, brings about 65 percent of its crude oil... Read More

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Photographer: Munshi Ahmed/Bloomberg

Neste Oil Oyj, Finland’s only oil refiner, brings about 65 percent of its crude oil from Russia, Chief Executive Officer Matti Lievonen said.

Any further worsening of Russia’s economy, or more trade restrictions, will put Finland’s recovery at risk, according to Wilson Chin, strategist at HSBC Securities Inc. He’s advising investors to sell Finnish 10-year bonds and buy similar-maturity Belgian debt instead.

Finnish corporate debt is also showing signs of the strain. The yield on Oriola-KD’s 7 percent perpetual junior subordinated bonds rose to 6.48 percent yesterday, the highest since February. Stockmann’s 3.375 percent 2018 notes yielded 3.74 percent, compared with a low of 3.43 percent in February.

“The impact of the crisis, and measures against Russia, comes through the Russian economy and its weak domestic demand,” Chief Economist Anssi Rantala at Aktia Bank Oyj said by phone Aug. 1. “It’s clear the impact on Finland is negative.”

Seeking Compensation

The Nordic nation may seek compensation from its fellow European Union countries, Prime Minister Alexander Stubb told reporters Aug. 6, without giving details.

“If a particular country suffers particularly badly, then we need to look into it,” said Lenita Toivakka, minister for European affairs and foreign trade. “Sanctions as a rule should have an equal impact on member states.”

More than 80 percent of Finland’s imports from Russia are energy products, according to the customs office. Neste Oil Oyj, Finland’s only oil refiner, brings about 65 percent of its crude oil from Russia, Chief Executive Officer Matti Lievonen said in an interview on Bloomberg TV on Aug. 5. The company isn’t feeling an impact from the sanctions and could find other suppliers, though that would increase transportation costs, he said then.

Germany surpassed Russia to become Finland’s biggest trade partner in the first quarter. The Finnish government hasn’t changed its economic forecasts since June and still sees 0.2 percent growth for this year, Finance Minister Antti Rinne said on Tuesday.

Losing Tourists

Finland also faces losses in its tourism industry. The northernmost euro member has a longer border with Russia than the other 27 EU members combined and a third of the tourists arriving in Finland come from Russia. That’s more than twice as many as from Sweden or Germany. Overnight stays by Russians are down 11 percent so far this year, according to Statistics Finland.

“Russia is for many Finnish companies a kind of a domestic market,” Rantala at Aktia said. “Finland is among the most affected by the weakness in the Russian economy.”

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net Tasneem Hanfi Brogger, Jonas Bergman

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