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O. Izryadnova Industrial Environment in Russia in September No significant changes were noticed in the trend of most of the parameters of Russian industrial environment in September 2006. Growth rates in demand and output, as well as their forecast, remained the same. Satisfaction with demand hit its record high level two thirds of the domestic manufacturers are currently regarding their sales volumes as normal.

According to the data published by the Federal State Statistics Service, the upward trend in industrial production kept growing in August 2006. The average daily output increased by 0.6 % (seasonal factor was no longer present ), according to the estimates of the Center for Macroeconomic Analysis and Short-Term Forecasting. In general, the average monthly growth rate in production reached 0.4 % during the latest two months of the 3Q 2006. At the close of 2006, the industrial production growth rate is estimated to vary within 104.6 104.9 % according to the method used in the Federal State Statistics Service, and 105.2 105.5 % according to the method used in the Center for Macroeconomic Analysis and Short-Term Forecasting ( January July 2006 against January July 2005: 104.3 % according to the estimates of the Federal State Statistics Service, and 104.7 % according to the estimates of the Center for Macroeconomic Analysis and Short-Term Forecasting ). In July and August 2006, the trend in consumer costs was found to be much higher than that in the previous year. In July 2006, inflation accounted for 100.7 % against 100.5 % in 2005, and 100.2 % in August 2006 ( against 99.9 % in 2005 ).

According to the reports of enterprises, growth intensity in product sales stopped to decline and started to grow by 3 % in all industries in September 2006 mainly in wood working and food industries. The same parameter remained unchanged for machine building industry.

However, such tiny changes in the demand were sufficient to lead to a significant review of the estimates at a higher/lower-than-normal scale. In August 2006, satisfaction with demand increased up to 67 % to reach the absolute record high for this parameter. Hence, two thirds of the Russian industrial enterprises are currently satisfied with sales volumes of their products. One hundred per cent of enterprises in fuel industry, 90 % in metallurgy, 70 % in chemistry and petrochemical industry, 63 % in light industry, and 61 % in machine building industry are currently regarding the demand as normal.

In September 2006, growth rates in output changed against those in August of the same year, as evident from questionnaires. Hence production keeps growing, but not as much intensive as in the 2Q 2006. Absolute reduction in production was recorded ( due to seasonal factor ) only in building materials industry, while the most intensive growth was reported in machine building industry.

Excess in stocks of end products ceased to reduce in September 2006. The balance of responses ( higher/lower than normal ) grew by 2 balance points ( due to a bigger number of higher-than-normal responses ), but still remains unexpectedly low for the level of 2001 2006. However, a share of lower-than-normal responses kept growing since the beginning of the year to reach the two-year maximum ( 17 % ). Hence enterprises are either losing their ability to instantly satisfy new ( unexpected ) orders due to production problems, or transiting to a new model of end product stocks management through improving planning of orders and delivery engineering.

It has been for the sixth month that profits in Russian industries have been growing, according to the responses of enterprises. No such a long-lasting and sustained growth of this parameter has been recorded since the commencement of its monitoring in 2002. With regard to industries, upward trends have been recorded in chemical and petrochemical industries, machine building industry, as well as wood working and building industries.

Borrowings have been becoming more available for Russian industrial enterprises. In 3Q of 2006, the normal availability level reached 77 % ( an absolute record high level ). Borrowings in chemical and petrochemical industry ( 97 % ), metallurgy ( 87 % ), electric power industry ( 81 % ) and food industry ( 79 % ) were found most available. Seventy four per cent of enterprises of machine building industry show normal availability.

Forecasts of changes in the demand for September 2006 remained the same as in August of the same year, when the highest figures were predicted through the entire period of monitoring. The demand is expected to keep growing in all industries, exclusive of ( due to seasonal factor ) building industry. Most optimistic results are expected in metallurgy, food industry, light and wood working industries. Production plans of 73 % of enterprises correspond to the demand forecasts. Output of % of enterprises may grow at a more rapid rate than that of the demand. In general, however, both output plans and demand forecasts remained unchanged as compared to August 2006 thus showing ( after seasonal clearance ) 32 balance points against 40 balance points at the beginning of the year.

Tsukhlo S. V.

Foreign Trade The further rise in value volumes of Russias foreign trade has been fueled by a substantial growth in its export supplies. They in turn are stirred by a favorable state of affairs on the market for energy sources and a notable rise in imports generated by a soaring domestic demand. However, growth rates of the value volumes of the national foreign trade turnover have been in decline, because of a deceleration of growth rates of the price rise across main commodity items of Russias export and import In July 2006, the nations foreign trade turnover, computed by the balance-of-payments methodology, grew up to USD 39. 5 bn., or at 23.1% vis--vis the respective period of 2005. The same month, the volume of the nations export hit a record-high level of USD 25.8 bn., or at 20% more than in July 2005.Russians exports to the Far-Abroad countries accounted for USD 22.0 bn., (+18.3% vs. July 2005), while those to the CIS countries totaled USD 3.8 bn. (+30.6%). In July 2006, the volume of import supplies to RF made up USD 13.7 bn. (+26.7% vs. July 2005), with their volume from the FarAbroad countries accounting for USD 11.6 bn. (+28.4% vs. July 2005) vis--vis a USD 2.1 bn.- worth volume of import supplies from the CIS countries (+ 18.3% vs. July 2005). Russias positive foreign trade balance thus accounted for USD 12.1 bn. in July 2006, or at 11% up vs. its respective period in the prior year.

2000 2001 2002 2003 2004 2005 Balance Export Import Source: CBR The nations balance of foreign trade, computed by the balance-of-payments methodology, grew by 28.3% between January and July 2006 vs. the last years respective period and accounted for USD 253.065 bn. Exports rose at 29.4%, up to the level of USD 169.857 bn., while imports soared by 26.2% and reached the level of USD 83.208 bn. In the period in question, Russias positive balance of foreign trade rose up to USD 86.649 bn. vs. 65. 349 bn. reported a year ago.

The high growth rates of the value volume of export supplies are still explained by an extremely favorable state of affairs on international markets. According to the Bank of Russias assessments, in July 2006 the world prices, with account of Russian exports across the totality of the commodities that account for 70%-plus of their total value demonstrated a 5.5% growth vs. the prior month, while between January and July 2006 vis--vis the respective period of 2005 they exhibited a 29% rise.

In July 2006, the international oil markets mostly witnessed oil prices soar. The price rise was driven upwards by the market participants concern of a possible intensification of shortages of gas in the US, due to seasonal demand hikes, along with the rise in political challenges worldwide, which were generated by Iran, Nigeria and Iraq. The war on Hezbollah in mid-July and a dramatic exhaustion in the US crude oil reserves catapulted the world oil prices up to new record-high values. More specifically, on July 14, 2006, Urals was traded at USD 72.0/barrel, while Brent 76.1.

The June-to-July 2006 price rise for oil was: 6.1% for Brent, Dubai and WTI and 7.7% for Urals (up to USD 68.9%/barrel). Overall, between January and July 2006 (here and henceforward vis--vis January- July 2005) the oil prices appeared on average at 33% higher. In July 2006 prices for petroleum derivatives soared by 5.3% on average, including: for diesel by 1.9%, gas 7.8%, black oil 9.7%. Between January and July 2006 vs. the respective period of 2005 the oil prices were on average at 34% greater (with those for diesel fuel at 26%, premium gas 35% and black oil- 46% up).

Between January and July 2006 the European prices for natural gas climbed up at 3.5%, while those in the US -at 1.8%. During the period in question vs. the same period of 2005 the former prices rose by 41.3% vs. a 2.4% rise of the latter ones.

The world prices for the produces of Russias fuel and energy complex rose in July 2006 at an average 6% vs. June 2006, while for the seven first months of the year they proved to be at 34% greater than over the respective period of 2005.

Jul Jul Jul Jul Jul Jul Okt Okt Okt Okt Okt Okt Jan Jan Jan Jan Jan Jan Jan Apr Apr Apr Apr Apr Apr The main factor fueling the price rise for non-ferrous metals in July 2006 appeared to be some depreciation of the USD vs. Euro. In addition, London Metal Exchange reported a decline in the stock of copper and nickel, with the latter falling to the lowest level since January 2006. The conflict in the Middle East as also contributed to the price rise for nickel, hence maximum prices for this particular metal.

In July 2006 vs. the prior month aluminum prices rose by 1.4%, copper ones- by 7.1%, nickel 28.1% (38%, 87% and 19% up between January and July 2006 vs. the respective period of 2005, respectively).

Table The average World Prices in July of the Respective Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 Oil (Brent), USD/barrel 18.25 12.96 18.8 28.4 24.62 25.7 28.25 38.2 56.4 72.Natural gas, USD/ 1mn 2.121 1.983 2.363 4.01 3.15 2.94 5.021 6.034 7.554 9.Gas, USD/gallon 0.594 0.423 0.6 0.935 0.732 0.804 0.896 1.306 1.601 2.Copper, USD /t 2481.7 1754.3 1744.8 1864.2 1541.4 1589.0 1730.3 2813.0 3614.0 Aluminum, USD/t 1563.7 1377.7 1403.5 1565.9 1412.2 1338.4 1434.9 1710.0 1779.0 Nickel, USD/t. 6737.3 4620 5273 8202.0 5956.8 7143.1 8790.6 15038 14581 Source: computed by the data of the London Metal Exchange (UK) and International Oil Exchange (London, UK) The rise in exports was boosted solely by the mineral sector of the national economy. Because of the soaring prices, the value volume of export of rude oil grew by 36.5%, while that of natural gas likewise grow and displayed a 42.0% rise vs. the respective period of the prior year, and the value volume of export of oil products displayed a 48.6% growth.

However, despite a breathtaking surge in the world prices for main Russian exports, July 2006 saw the continuing trend to deceleration of their growth rates, which can be attributed to a decline in the dynamics of the physical volume of the nations export.

More specifically, the exportation of crude oil plunged by 1.4% in natural terms over the first seven months of the year vs. the respective period of 2005 ( 146.6 mn. t. vs. ).

The exportation of natural gas in physical equivalent likewise slid by 5.8%, though different export directions manifested opposite trends: with gas supplies to the CIS countries falling by 38.1%, those to Far Abroad grew by 1%.

According to the Federal Customs Service, between January and July 2006 the specific weight of fuel and energy commodities in the goods structure of export to the Far-Abroad countries accounted for 70.9% of the total volume of exportation to those nations (vs. 65.5% reported over the respective period of the prior year). By contrast, the specific weight of all other groups of goods fell over the period in question compared with the noted respective period of 2005.

A considerable rise in the world prices for non-ferrous metals has failed to encourage a growth in the physical volume of their exportation. To cite a specific example, suffice it to note that the rise in aluminum export barely accounted for a meager 1.3%, while that of nickel 5.7% vs. the respective seven months of the prior years, while the copper export plummeted down at 3.7%.

In the absence of positive price dynamics, export of ferrous metals and intermediate and finished goods in value equivalent slid by 6.9%. As a result, the proportion of the metals and goods in the total volume of the national export shrank to 13.3% during the seven months of 2006 vs. 16.2% reported over January-to July period of 2005.

A high rise in the value of export of machinery and equipment (19.5% over the seven months of 2006 vs. the respective period of the prior year) appeared particularly notable. This can be partly attributed to a drastic fall in export by this particular group in the beginning 2005.On the other hand, the governmental initiatives on financial and guarantee-based support of industrial export have resulted in a number of huge contracts, however, their proportion in the aggregate volume of the national export dropped by 0.3. percentage points.

High import growth rates are fueled by rising incomes in the economy (with the real GDP growth rate accounting for 6.5% and the populations real disposable incomes for 11.4%) and appreciation of the Ruble, According to the Bank of Russia, between January to July 2006 vs. the respective period of 2005 Russias national currency has appreciated at 7.9% vis--vis USD, at 13.7% - Euro and 9.9% - against the basket of the trade partners currencies.

As concerns the goods structure of Russias import, some changes in that particular area is associated with the ongoing accelerated growth in the Machinery and Equipment group. The specific weight of the group in the value of Russian import rose from 41.1% reported in January to July up to 47.7% over the first seven months of 2006, with the growth rate of its value volumes accounting for 48.6%.

According to FCS, the share of the noted group in imports from the Far-Abroad countries grew from 46.7% up to 50.2% between January to July 2006.

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