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Non ferrous metals were in great demand in 2004. Price rise on plumb, zinc, copper, tin and aluminum was found to be substantial as compared to that in 2003. The price ex plosion was caused basically, besides general factors, by a growing demand for these products in rapidly developing Asian countries. In addition, metal supply to the world mar ket was reduced due to increased metal consumption in metal producing countries. There was a marked downward trend in reserves of several groups of metals (aluminum, tin, copper, plumb) at warehouses of the leading world commodity exchanges. The majority of metals reached their price maximum in fall. Non ferrous metals were more expensive by average of 34% in 2004 against 2003 (aluminum by 18.8%, copper by 57.3%, nickel by 43.6%), iron ore by 19%, price index of steel production increased by 54%.

Prices of aluminum remain high mainly due to growing demand for aluminum in China, as well as deficit in alumina and electric power. According to Metal Bulletin Re search, deficit in aluminum in the world market was 460 to 550 thousand tons by the end of 2004. Aluminum consumption in China increased by 16 to 17%.

In last January, price of nickel reached its maximum over the last 14 years. World nickel production volumes do not meet the demand yet, primarily in Asian countries. The world nickel supply will not be able equal the demand until 20062007, provided that major nickel mines are put into operation in Canada Australia.

The world copper market situation was quite favorable for copper producers in 2004.

Prices of cooper have steadily been growing over the last three years. the world market prices copper prices grew by merely 8.4% in 2002, by 38% in 2003, and by 42.9% more in 2004.

Copper prices were changed due to a variety of factors :

first, deficit in copper in the world market. Though the copper supply met and even ex ceeded the growing demand in the market in 2002, there was a deficit of 376 thousand tons in 2003 and 701 thousand tons in 2004, which resulted in price rise ;

second, growing copper production costs (mainly due to increasing prices of raw ma terials) ;

third, transition of product markets to new price levels that was under way throughout a period between 2003 and 2004.

Section 3.

The real sector In 2005, the copper market situation will become more attractive than in 2004. In par ticular, copper production is expected to increase by 7.7% (up to 17 094 thousand tons) with simultaneous growth in demand by 4.1% (up to 17 146 thousand tons). This is ex pected to improve the balance of the world copper market and reduce substantially the deficit in cooper in the market.

With this situation in mind, one can forecast in 2005 a growth in prices of the metals traded at stock exchanges due to growing demand in several countries, primarily in the United States and China. There is no reason, however, for expecting growth rates similar to those of the pervious year, because the growing demand resulted in boosted production of the metals being in shortage, which provides no stability whatsoever for the world mar ket in general.

As a result of unfavorable world market situation, unprecedented high growth rates in Russian exports was noted during 2004, its monetary volume being increased by 34.8% against 2003 to break the record over the last decade $183.2 billion (Table 48).

Table Russian Exports Movement 1996 1997 1998 1999 2000 2001 2002 2003 Export, USD billion. 89.7 86.9 74.4 75.6 105.0 101.9 107.2 135.4 183.Including :

Foreign countries other than 71.1 67.8 58.7 63.6 90.8 86.6 91.0 113.9 152.CIS countries.

Growth rates, % of the previous year Volume of exports index. 100.1 101.8 99.7 109.4 110.2 104.2 115.0 109.5 111.Price Index. 108.6 98.1 84.2 92.1 128.2 93.8 86.0 113.4 120.Source: the RF Central Bank.

However, the quantitative growth had no impact whatsoever on the quality of Russian exports still facing a major problem of inefficient structure of goods. Though several ma ture economies (for example, Canada and Norway) have a substantial share of raw materi als in their export, they also export end products, including high technology products. A share of processed goods in Russian exports is miserable. Furthermore, this share is get ting smaller (according to the corresponding parameter calculated for Russia by using the World Banks method, the share is not over 30% over the last few years). The share of Russia in the world sales volume of machinery and technological equipment accounts for 0.3%, vehicles 0.1%, electronic goods 0.04%.

Thus, Russian specialization in raw materials trade, which can be deemed applicable at a certain period of time and under certain conditions, is not evolving into more devel oped forms related to raw materials processing thus interfering with increasing Russias share in the world market.

Russian export growth still remain based mainly on the two product groups: fuel and energy products whose export increased by 34.9% in value terms in 2004 as compared to 2003, as well as metals and metal based products which grew to 64.8% (Fig. 72).

RUSSIAN ECONOMY in trends and outlooks Other products; 1.1% Machinery, equipment and vehicles; 7.2% Food products and agricultural raw mate-rials; 1.4% Metals and related products; 16.8% Precious stones, pre-cious metals and re-lated products; 3.8% Mineral products; 58.8% Textile, textile prod-ucts and footgear; 0.4% Lumber and paper-pulp products; Chemical industry products, raw 4.0% rubber; 6.4% Rawhide, peltry and related products; 0.1% Source: the RF Federal Customs Service.

Fig. 72. Russian Export Structure in 2004 (%) In 2004, a share of fuel and energy products accounted for 58.2% of the total Rus sian export structure, which is slightly bigger than that in the previous year (57.8%).

Foreign exchange proceeding from exports of Russian oil amounted to $55,0 billion in 2004 and exceeded by 49.3% that in 2003. Total oil production in Russia in amounted to 459,0 million tons and exceeded by 8.9% that in the previous year. Oil sales in the domestic market increased by 2.1% up to 177,6 million tons; export supplies increased by 13.3% up to 239,6 million tons.

A share of export in total oil export volume in Russia in 2004 accounted for 32.3%, and 55.5% in export of fuel and energy products (in 2003, the figures were 29.2 and 50.5% correspondingly).

A share of supply volume in export of oil products grew by 4.5%, from 77,4 million tons up to 80,9 million tons. Export volume in money terms increased by 35.4%, up to $19,0 billion against $14,03 billion in 2003.

2004 saw the highest growth rates in prices of metals since 1992. This was responsible for an increase from 14 up to 16.8% in a share of the group of goods (metals and related products) which is the second one in order of importance in Russian export (mainly through export of ferrous metals to foreign countries other than CIS countries, which grew by 82.1%).

A share of exports of machinery and equipment (7.2%), chemical products (6.4%), and lumber (4%) in total export volume of products in the Russian Federation remained the same as in the previous year.

Negative effect in the Russian export movement was caused by a 16% decrease in value of food products and related raw materials which resulted mainly from reduction in export supplies of grains.

High prices in the world market fostered growth in contract prices almost of all basic range of Russian export products (Table 49).

Section 3.

The real sector Table Average Contractual Prices of Basic Russian Export Products (supplies to foreign countries other than CIS countries, USD/ton) 1996 1997 1998 1999 2000 2001 2002 2003 Crude oil 133,5 118,5 74,4 110,9 179,9 156,4 162,4 181,2 231,Oil products 129,9 115,7 75,7 94,5 171,9 145,2 147,9 180,2 230,Natural gas, thousand 84,2 88,6 72,2 55,31 85,91 105,21 91,4 112,3 113,cubic meters Hydrogen nitride 125,6 113,0 83,1 53,0 97,5 81,7 72,4 118,5 158,Nitrogen manure 128,0 90,3 58,3 36,8 57,9 61,8 60,6 76,0 103,Potassic menure 7,2 79,7 87,4 86,4 86,6 76,8 74,9 77,8 94,Lumber, cubic meters 59,4 57,5 46,9 43,5 43,4 45,6 44,8 47,8 56,Cellulose 407,3 373,5 342,9 274,0 352,2 293,4 300,0 321,7 371,Newsprint paper 473,7 383,4 394,0 349,5 386,6 421,7 332,2 338,3 387,Cast iron 136,8 124,2 104,3 66,8 80,7 86,2 91,1 126,8 242,Ferrous based alloys 1114 819,2 740,8 548,2 625,6 601,7 625,7 634,6 1097,Copper 2143 2099 1655 1495 1675 1465,3 1371,4 1564,9 2587,Nickel 7272 6733 5140 5761 8629 5730,9 6143,9 8584,0 1266,Aluminum 1500 1401 1352 1157 1296 1176,3 1036,9 1050,0 1162,Source: Customs statistical data.

A share of export is nearly 1/3 of total sales volume of industrial products (consider ing transportation costs and trade markup). The share of export is exceeding substantially the average figure in a variety of industries.

Raw materials industry and primary process industries, primarily fuel industry, metal lurgical industry and timber and paper industry, as well as in production of special types of basic chemical products and mineral fertilizers, are most oriented at and dependant on export.

A share of export in industries of high level processing is normally smaller due to poor competitiveness of the manufactured products (Table 50).

Table Export Share in Production of Essential Goods (%) 1995 1996 1997 1998 1999 2000 2001 2002 2003 Crude oil 41,5 41,7 41,6 45,2 44,2 44,7 45,9 50,3 53,0 53,Oil products 25,8 32,4 34,7 32,9 33,6 36,0 39,8 40,9 41,3 52,Natural gas 32,2 33,1 35,2 34,5 34,6 33,2 32,8 33,1 32,6 34,Coal 17,1 15,8 14,5 15,7 16,7 25,7 39,7 37,2 48,9 25,Mineral fertil 83,9 85,9 80,6 86,5 83,2 82,9 81,8 78,1 75,izers Raw wood 22,3 23,2 29,3 34,1 40,1 42,4 53,4 51,0 50,9 42,Wood pulp 74,8 85,7 82,8 77,6 79,1 82,4 83,7 85,1 83,3 74,Newsprint 71,1 72,2 70,1 74,6 70,6 69,0 67,4 68,6 66,6 63,paper Plywood 71,4 63,2 67,0 67,2 69,2 65,8 64,5 64,2 61,4 61,Flat rolled steel and iron 53,1 59,7 58,6 63,5 60,6 55,3 43,0 50,5 47,1 44,products Cars 16,7 10,4 4,9 8,3 7,3 12,2 10,1 12,3 11,7 11,Trucks 25,4 17,4 10,7 9,6 8,3 7,0 12,3 20,8 19,2 21,Source: the RF State Statistics Committee; Customs statistical data.

Restricted access of Russian goods to foreign markets constitutes is a serious ob stacle for export growth.

RUSSIAN ECONOMY in trends and outlooks Russia is ranked second after China in the list of countries on which antidumping measures were imposed by the WTO countries in the first half of. As of October 1, 2004, 107 restrictions were imposed on Russian goods, including 53 antidumping duties, quota restrictions, 6 price restrictions, 1 product range restriction, 3 import prohibitions, additional taxes, and 1 protective duty.

According to the Central Bank of Russia, the export transitions efficiency index (ETEI) for an aggregate of goods including nearly 65% of the Russian export value, was estimated as 1,11 in January October 2004 (in was 1,12 in January thru October 2003). The de crease in the index was mostly caused by growth in prices of goods exported in the domestic market, which ran ahead of contact prices, as well as increased duties on oil and oil products.

Import movement was characterized by growing rates. Volumes import supplies in creased by 24.7%, up to $94,8 billion, which a record breaking figure over the last dec ade.

Growth in import volumes were basically responsible for import growth in 2004 (Ta ble 51), which reached 120.8% against a moderate growth in prices, 103.1%.

Table Russian Import (USD billion) 1996 1997 1998 1999 2000 2001 2002 2003 Total import 68.1 72.0 58.0 39.5 44.9 53.8 60.5 75.4 94.Including :

Foreign countries other than 47.3 53.4 43.7 29.2 31.4 40.3 48.2 60.0 75.CIS countries Growth rates, % of the previous year Import volume index 98.1 121.1 89.0 84.4 129.2 129.1 117.6 119.2 120.Price index 100.2 94.8 92.3 82.1 86.7 94.3 93.4 98.7 103.Data source: Bank of Russia.

The Russian import growth was mainly based on real RUR strengthening and good figures of economic growth which slowed down by the end of the year though.

According tot the Bank of Russia, in 2004, the RUR became stronger by 15.0% against the USD (4.2% were achieved in quarter IV), by 5.6% against the EURO and by 6.1% against the currency basket. By comparison, in 2003 a real strengthening of the RUR against the USD accounted for 13.6%, while by 0.8% to the currency basket.

The ongoing economic growth and relatively low inflation fostered real monetary per sonal income, which increased by 9% (by 13.6% in 2003) in 2004 against 2003. This re sults in consumer demand by individuals and industrial enterprises.

Growth in import of goods was mainly based on increased number of machinery and equipment (by 47.8%). Their share in total import of products increased from 37% in up to 41.6% in 2004, and from 40.8 up to 45.7% in the volume of goods imported from for eign countries other than CIS countries. Increased volumes of land transportation means (their value increased by 1,9 times) was responsible for a half of the growth achieved.

Reduction in volumes of purchases of meet products and sugar and consequent de crease in monetary volumes (by 9 and 25% correspondingly) had an effect on the de crease in a share of food products and related raw materials in total volume of foreign im ported goods from 21.2 to 18.5%.

A share of products of chemical industry and related industries accounted for 16.5%, which is almost equal to that in the previous year (Fig. 73). This item is ranked 3rd in the Russian import structure.

Section 3.

The real sector Food products and Other products;

agricultural raw 3.9% mate-rials; 18.5% Machinery, equipment and Mineral products;

vehicles; 41.6% 4.0% Chemical industry products, raw rubber; 16.5% Rawhide, peltry and related Metals and related products; 0.3% products; 7.4% Textile, textile prodPrecious stones, Lumber and paperucts and foot-gear;

pre-cious metals pulp products;

3.7% and re-lated 3.8% products; 0.3% Source: the RF Federal Customs Service.

Fig.73. Russian Import Structure in 2004 (%) Growth in import supplies has most adverse affect on Russian motorcar factories.

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