The Russian metals sector will face headwinds over coming quarters as European and US demand remains weak and global oversupply weighs on metal prices. We expect production of key metals to remain modest, with company investment plans focusing on improving plant efficiency and reducing costs rather than building new plants or expanding production capacity. Despite weak growth, Russia will remain one of the world's largest producers of base and industrial metals including nickel, steel and aluminium.
Steel, Aluminium & Nickel Supply Glut To Weigh On Growth
We expect Russia's rank among global steel producers to come under threat, as the country's largest steelmakers experience squeezed margins resulting in production cuts. The global steel market will remain mired in significant overcapacity, sluggish demand and weak margins for the foreseeable future due to China's failure to reform its bloated steel sector.
Global aluminium oversupply will continue to precipitate weak aluminium prices. We expect prices to head modestly higher over our forecast period to 2018, but fail to return to their 2011 peaks. Aluminium prices averaged US$2,421/tonne in 2011, while we forecast prices to average US$2,000/tonne over the period 2014-2018. Russia's largest aluminium producer, Rusal, has demonstrated weak performance over the past financial year as a result of low prices.
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We expect weak growth in Russian nickel production of just 1.0% y-o-y from 2014 to 2018, reaching 292.0kt in 2018. Global nickel inventories continue to rise, compounding what is an already oversupplied market. LME stockpiles reached 256kt in Q413, with no reversal of this trend in sight.
Oligopolies To Remain In Place
Russia's metals output is highly consolidated within each metal segment, as restrictive foreign ownership rights and established oligopolies prevent foreign competition. Within nickel production, Norilsk Nickel is the primary producer and also a major mining company. Its vertical integration across mining and refining capacity will allow it to remain the largest nickel producer in Russia for the foreseeable future. Similarly, steel and aluminium production are consolidated among just a few producers. We do not expect the metals sector to diversify significantly over our forecast period to 2018.
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