Over the next several weeks, Gateway2Russia will present highlights from this year’s Expert 200, Expert RA Rating Agency’s annual rating of Russia’s 200 biggest and most dynamic companies.

Ferrous Metals

A market upswing made ferrous metals producers some of the leaders of the Expert 200 in business growth. On the agenda: further consolidation and acquiring new foreign assets

Last year’s pessimistic projections of unfavorable world market conditions for ferrous metals proved false. After an unsuccessful beginning of 2002, world prices actually began to increase by an average of 3.5% for the year (Chart 27). At the same time, a variety of countries, including the US, decreased limits on the amount of ferrous metals that could be imported from Russia. Thanks to these factors, the earnings of some of the major companies that made it onto the Expert 200 (and their number increased from 24 to 26) grew by 23.3%, by far exceeding the average rate for large Russian companies. In terms of profitability, however, metal companies are still lagging (Chart 28), but even in this area, some progress is noticeable. In 2002, their profitability increased by 0.9 percentage points from 5.9% to 6.8%.
One could get the impression that the growth in earnings was due exclusively to market conditions. Production by ferrous metal companies only increased by 3% for 2002. However, this is not really the case. Export of rolled products included a greater portion of sheet metal products, more expensive compared to blanks or rolled sections. Its share increased to 38.7%, while the volume weight of less expensive products was reduced.
Metal companies were forced to pay for the increased exports by reducing their supply to the Russian domestic market. In part, Russian automakers are to blame for this decline, as they reduced their production and purchased less.
The process of consolidation proceeded against the background of high export achievements in ferrous metallurgy. A Chelyabinsk-based metallurgical complex, Mechel acted most noticeably: in the spring of 2002, it announced its plans to set up a vertically integrated holding, establishment of which was completed in June 2003. The deal on selling controlling stakes in plants owned by Pipe Metallurgical Company (or TMK) passed unusually peacefully as well.
As of today, most significant enterprises of the industry are involved in the field of some or other financial-industrial groups’ interests. Integration processes in the industry and metallurgists’ attempts to set up transnational companies were concerned, apart from the increase in economic efficiency and expansion of distribution markets, with the necessity of ensuring entry to the international capital markets so as to raise large-scale investments in technological re-equipment of enterprises.
So far, in most cases, metallurgists have expended predominantly their own funds, quite large amounts at that, on modernization, without which it is impossible to widen assortment of products, nor is it possible to improve their quality.

Non-Ferrous Metals

Slack world market conditions have limited the development of Russian non-ferrous metal producers for two years running. The development of processing productions has enabled them to offset at least part of the losses

In non-ferrous metallurgy, the slight increase of aluminum output (1.2% versus 2001) was fully cancelled out by a decline in world prices for this commodity. The prices for unprocessed aluminum fell for most of 2002 by an average of 6.5% (Chart 31). Domestic producers are unable to offset their losses by increasing exports. Over 80% of the aluminum produced in Russia already goes abroad. The market conditions were also far from kind to copper producers. Prices for copper plummeted in the second half of the year. Nickel market conditions were more stable.
Gains by non-ferrous metals producers would have been even more modest, had it not been for the gradual development of metal processing in Russia. Processing companies are incorporated in most of the leading domestic holdings, and it’s largely these companies that were centers of growth. Thus, for example, in 2002 rolled aluminum output increased by 11.7%, rolled copper – by 5.1% and rolled titanium – by 5.6%.
This sector’s development was maintained by increased demand from the domestic market, specifically transportation, construction, and the defense industry. The share of rolled metals in the total output for non-ferrous metals remains small, however, and this type of product doesn’t play a key role in the industry now. Thus, large producers of non-ferrous metals have no choice but to rely on improved market conditions. It seems the situation became more favorable in the first half of 2003, and this enables one to hope that non-ferrous metallurgy will overcome its stagnation.

Read also:
Russia`s Biggest and Brightest: The Expert 200 for 2003
The Expert 200. Financial markets
The Expert 200: Oil and Natural Gas; Energy and Electricity
The Expert 200: The Machine Building Industry