Norilsk Nickel Seen Best-Placed as Ukraine Crisis Unfolds
OAO GMK Norilsk Nickel, Russia’s largest mining company, may be the least affected among its peers by the Ukraine crisis because of its dominant position in global nickel and palladium supplies and financial strength.
Norilsk’s position is fortified by its 17 percent share of worldwide nickel output and 41 percent of palladium, Dmitry Kolomytsyn, a Moscow-based analyst at Morgan Stanley, said by phone. The metals are priced in dollars, which reached a record high against the ruble today.
“Norilsk is too large a company to be seriously affected by any possible trading sanctions,” said Kolomytsyn. “It has the strongest financial balance, especially after the ruble weakened, with almost all of its revenue coming from exports.”
The U.S. is weighing sanctions against Russia after President Vladimir Putin got lawmakers to rubber-stamp troop deployments. The move prompted U.S. President Barack Obama to protest Putin’s “clear violation” of Ukraine’s sovereignty n a 90-minute call yesterday.
Ukraine yesterday mobilized its army as gunmen surrounded military installations in Crimea. The Black Sea region of Crimea, where Russian speakers comprise the majority, has become the focal point of Ukraine’s crisis after an uprising that triggered last month’s overthrow of President Viktor Yanukovych.
Norilsk dropped 3.2 percent to 5,798 rubles by 1:17 p.m. in Moscow trading, while the benchmark Micex Index fell 8 percent. The ruble, which has weakened 9.9 percent against the dollar this year, reached a record 36.49 per dollar today.
While OAO Alrosa, the world’s largest diamond company by production, is in a similar position to Norilsk, Russian steelmakers could be “hurt by possible sanctions, involving European and U.S. bans on Russian steel exports,” Kolomytsyn said.
OAO Novolipetsk Steel (NLMK), known as NLMK, fell as much as 16 percent, the biggest intraday slump since October 2011. OAO Magnitogorsk Iron & Steel fell as much as 18 percent, the largest plunge in more than five years. OAO Mechel stock was temporarily halted after a 27 percent decline.
Norilsk is always able to find a market for its products because it is “too large to fail,” said Sergey Donskoy, an analyst at Societe Generale SA. The situation is different for Russian steelmakers, he said.
“Any kind of trading ban is seen as a higher risk for them as they also may be hurt by a decline in domestic demand if the economy slows should the tensions between Russia and Ukraine lead to sanctions,” Donskoy said.
NLMK’s position would be weakest among Russian steelmakers in the event of a European and U.S. ban on exports of the metal, as it ships steel slabs to its own mills in Europe, Kirill Chuyko, a head of equity research at BCS Financial Group said by phone today. Sergey Babichenko, a spokesman for NLMK, declined to comment.
Russian metal companies face limited direct threats to their operations from events in Ukraine because they have few assets there, said Morgan Stanley’s Kolomytsyn.
“Those assets are quite marginal and should anything happen to them, it wouldn’t affect the companies’ businesses seriously,” he said.
Mechel has a steel smelter in Donetsk, in Ukraine’s east, which is idled because it was losing money.
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