By Maxim Shakhov
The Government decided to accommodate the world's largest nickel producer Norilsk Nickel and has abolished export duties on nickel and copper cathodes. Other manufacturers, the Urals Metallurgical Company (UGMK) and the Russian Copper Company (RMK), will also benefit from the Government's decision. The total savings for nickel and copper exporters in 2009 will amount to about $300 million.
Yesterday, Prime Minister Vladimir Putin signed a government resolution setting the export duty rates on unalloyed nickel and copper cathodes, Prime-TASS reported. The document abolished the duties on the above products (previously they were set at 5% and 10%, respectively) and kept the duty on copper alloys at 10%. The resolution will come into effect within seven days from the day of its publication.
The decision was announced during the Prime Minister's meeting with Economic Development Minister Elvira Nabiullina and head of Norilsk Nickel Vladimir Strzhalkovsky. "We would like to request that the Government consider the possibility of abolishing the duties," said Mr Strzhalkovsky (quoted by Prime-TASS).
He justified the request by the fact that Russian metallurgical companies were facing a less favourable business environment than their competitors abroad. "All nickel and copper producing countries have already abolished export duties, whereas in Russia, export duties are still levied," he said. "We have discussed and approved the proposal to abolish export duties on nickel and copper cathodes. It has to do with the fact that world prices have fallen sharply," Ms Nabiullina said. "Given the current production cost and the world nickel prices, production would be inefficient if export duties are not abolished. If we eliminate export duties, it will provide additional resources for the companies."
The downturn experienced by the world metallurgical industry is evidenced by the daily reports on production decline and layoffs coming from the largest companies in the industry. Yesterday, for example, the British-Australian BHP Billiton, a leading international company, announced that it was laying off 6,000 employees and closing its largest nickel producing enterprise, Ravensthrope in Australia, with an output of 50,000 tonnes per year. Similar measures have been taken by other industry leaders, such as Rio Tinto, Xstrata, Alcoa, and others.
Experts believe that abolishing the duties will be very helpful for Norilsk Nickel and other metallurgical companies. According to customs data, 230,000 tonnes of nickel and 181,000 tonnes of copper were exported in the 11-month period. Ms Nabiullina estimates that producers will save $300 million in 2009 due to the duty cancellation. Mr Strzhalkovsky predicted recently that Norilsk Nickel's revenues (including assets abroad) would decline almost twofold in 2009, to $8 billion.
According to Dmitry Skvortsov, a Bank of Moscow expert, the cancellation of duties will allow Norilsk Nickel to save up to $200 million.
UGMK and RMK did not make any official comments on the Government's decision. However, according to RBC Daily's sources inside the companies, they do support the decision. The sources told RBC Daily that export duty cancellation will allow the companies to make additional profits and help solve the issue of "grey" exports - export of copper under a different name.