Norilsk CEO Says Nickel Supply Concern on Sanctions Overdone

Apr 29, 2014 7:13 am ET

(Adds metal price movements in 14th paragraph.)

April 29 (Bloomberg) -- Vladimir Potanin, the billionaire who runs Russia’s OAO GMK Norilsk Nickel, said concerns that supplies of the metal will be disrupted by sanctions against the country over the crisis in Ukraine are overstated.

Nickel has jumped 31 percent this year after Indonesia banned exports of unprocessed ore and some buyers took the view that Norilsk, the world’s biggest producer, would have sales curtailed by widening sanctions aimed at punishing President Vladimir Putin’s government. Potanin said the medium-term outlook is for stable prices as Indonesia starts its own processed nickel production within the next two years.

“I see Indonesia as the key nickel price driver for the time being,” Potanin, Norilsk’s chief executive officer, said in an interview outside Moscow on April 24. “The rest of the factors have only marginal influence.” Indonesia is expected to invest in its own nickel production, which will compensate for the possible shortfall of metal supplies. Anti-Russian sanctions aren’t so far affecting Norilsk’s business, he said.

Nickel reached the highest price in almost 15 months in London yesterday before the U.S. imposed sanctions on seven Russian officials and 17 companies. The White House said Russia had done nothing to support a peace accord for Ukraine and had instead escalated the crisis. Russia contends that it is the Ukrainian government that has failed to meet its obligations.

European Customers

Norilsk continues to sign long-term supply contracts with European clients and to maintain relations with customers in the U.S., said Potanin, 53. The mining company has no problem arranging financing and this month agreed to $750 million of loans from a group of international lenders.

“The interest from the banks in this deal, and the cost of borrowing show that our Western partners, just as we do, do not believe in the scenario of additional sanctions” that will disrupt metals markets Potanin said. “It’s not realistic as both sides will suffer.”

Norilsk, also the largest producer of palladium, earned 52 percent of its 2013 revenue from Europe and 9 percent from North America, financial statements published this month show.

While the company plans to increase shipments to China, this has nothing to do with the Ukraine crisis, Potanin said.

“China is a serious driver of the world’s economy and we started to increase our sales there a long time ago,” Potanin said. The company plans to sell 100,000 metric tons of nickel in China this year, up from 70,000 tons in 2013. “This will be the optimal level for us at which our sales will be balanced between all regions.”

Indonesian Factor

Indonesia, the top nickel producer from mines, barred exports of unprocessed ore in January as the nation tries to move away from raw ore sales to processed commodities and higher-value products. The market for the metal, used to make stainless steel, faces a shortfall of 100,000 tons in 2015, the first since 2010, BNP Paribas SA said April 24.

“The Indonesian nickel ore ban will have a positive effect on the nickel price in the medium term, but we don’t expect any huge price jumps,” Potanin said.

Norilsk forecasts stable copper and platinum prices, and expects palladium to move higher in the medium term, narrowing the spread with platinum, Potanin said. Norilsk plans to market palladium and could help the Russian state sell some of its stockpiles of the metal, should it opt to do so, Potanin said.

Potanin’s Fortune

The palladium market would benefit if Russia chose to sell, Potanin said. “We could help, and not only by buying those volumes, but by marketing the deal. Many would be interested in such a transaction. I myself as a businessman would be interested to buy.”

The price of palladium has risen 11 percent this year and platinum 3.4 percent, while copper has fallen 8 percent.

Potanin is the sixth-richest Russian, with a fortune of $14 billion, according to the Bloomberg Billionaires Index. His Interros Holding Co. manages a stake of more than 30 percent of Norilsk. Interros in February said it transfered business assets, excluding those to be inherited by Potanin’s children, to charity.

Norilsk shares are an attractive investment, Potanin said. “I am not looking for this opportunity on purpose, and don’t seek to buy from the market, but if any investor were selling, I would buy.”

The stock has advanced 19 percent this year, even as Moscow’s benchmark Micex Index declined 13 percent. Nickel for delivery in three months reached $18,715 a metric ton on the London Metals Exchange yesterday, the highest since Feb. 4, 2013. Nickel’s gains this year make it the best performer among the six main industrial metals traded on the LME.