2000 2001 2002 2003 2004 2005 2006 Balance Export Import Source: Central Bank of the Russian Federation Figure 1. Main Indices of Russian Foreign Trade (as USD bln) Ma Ma Ma Ma Ma Ma Ma Ma Jan Jan Jan Jan Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep Sep Sep Sep In January 2008 export from Russia was equal to USD 34 bln, which exceeds the figure of January by 57.9% and is the highest year increase in export over the last 17 years. Such a gigh index is mainly accounted for by prices for oil – whereas last January it reached local minimum of USD 50 per barrel, in January 2008 the average monthly figure was USD 92.4 per barrel. At the beginning of January oil price at the world markets crossed the threshold of USD 100 per barrel for the first time. As compared with January 2007, price for oil grade Brent increased by 68.5%.
On its regular meeting, taking place on 5 March 2008 Organization of Petroleum Exporting Countries (OPEC) decided to maintain oil production at the current level of 32 mln barrels a day. OPEC’s decision is accounted for by apprehensions that oil consumption will decrease due to possible economic recession in the USA and traditional for the 2nd quarter seasonal reduction in demand for mineral resources used as sources for power. Growth of oil prices up to record-breaking levels is connected with factors that are out of cartel’s competence, such as dollar’s depreciation and sharp inflow of speculative capital.
The last time the cartel agreed to increase production by 500 thousand barrel a year was 11 September 2007. New limit for oil production came into effect on last year’s 1 November. Since 1 December 2007oil production quote of 10 countries of the cartel – not including Angola, Iraq and Ecuador – is 27.253 mln of barrels per day.
In connection with continuous growth of oil prices at the world market export duty for oil will increase from USD 333.8 per ton to USD 340.1 per ton from 1 April 2008 and will set a new record. Export duty for light oil products will be USD 241.4 per ton, for dark oil products – USD 130.1 per ton. At present they are equal to USD 237.3 and 127.8, correspondingly.
In January 2008 prices for oil products were bigger than a year ago. Petrol premium cost USD 2.38 per gallon, which is by 49.6% more than in January 2007.
In 2007 average contract price for Russian natural gas exported to the countries of Western Europe increased by 6.1% as compared with the level of 2006. In January 2008 the price for oil increased by 13.4% as compared with the level of January 2007 and by 8.7% as compared with the level of December 2007.
In comparison with December 2007 in January 2008 prices for copper, nickel and aluminum rose, correspondingly, by 7.3%, 6.5% and 2.7%, and as compared with January 2007 - prices for copper increased by 24.6%, and for nickel and aluminum decreased by 24.7% and 12.9%, correspondingly.
Table Average Monthly World Prices in January of the respective year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Oil (Brent), 23.4 15.3 11.3 25.5 26.0 19.4 28.1 31.3 42.9 62.5 54.8 92.USD/bbl Natural gas, USD /1 mln 2.486 2.097 1.426 2.431 5.214 2.146 5.048 6.156 6.907 9.725 6.917 7.BTU Petroleum, 0.685 0.507 0.494 0.739 0.865 0.573 0.852 0.992 1.291 1.849 1.59 2.USD /gallon Copper, 2400 1682 1528.2 1887.9 1849.6 1557.8 1571.3 2441.9 3170 4734 5668.7 7061.USD/ton Aluminum, 1598 1480 1301.4 1695.5 1641.5 1377.9 1291.1 1608.2 1832 2378 2808.3 2445.USD/ton Nickel, 7485 5496 4550.8 8338.1 7091.3 6094.6 7643.9 14855 14505 14555 36795 27689.USD/ton Source: calculated on the basis of London Metal Exchange, International Petroleum Exchange (London) data Over January 2008 export value volume of energy commodities increased by 66.8% up to USD 24.5 bln, including oil – by 73.7% up to USD 12.9 bln, gas – by 54% up to USD 6.1 bln.
Export of metals and goods thereof rose over January 2008 by 30.1% up to USD 3.9 bln, including ferrous metals and goods thereof – by 19.5% up to USD 2.0 bln, non-ferrous metals and goods thereof – by 43.4% up to USD 1.7 bln.
Export of machinery, equipment and transport vehicles increased by 60.6% up to USD 1.2 bln, chemistry industry production – by 42.3% up to USD 1.8 bln, wood processing complex – by 29.5% up to USD mln, foodstuffs and agriculture raw commodities – by 56.8% up to USD 577 mln.
The main reason for rapid growth of export is unprecedented growth of word prices for the main goods of Russian export. In January 2008 export prices indices considerably exceeded indices of physical volumes.
In January 2008 Russian import was equal to Usd 15.8 bln, which is by 34.3% more than the figure of January 2007. High rates of import growth in January 2008 correspond to those observed last year.
High growth rates of Russian import are accounted for by high growth indices of GDP (+107.4% January to January), real disposable population’s incomes (+112.9%, January 2008 to January 2007) and ruble appreciation with regard to main currencies, especially US dollar. According to the data of the Bank of Russia, as compared with last January, ruble strengthened by 16.6% as to dollar, by 4.8% as to euro, by 4.6% as to the basket of currencies of trade partners.
Table Goods Export Indices in January 2008 (figures of January 2007 taken as 100) Value Physical volume Price Total 157.7 113.3 139. Non-CIS countries 159.4 112.8 141. CIS countries 147.3 116.5 126.Source: Ministry for Economic Development and Trade Machinery, equipment and transport vehicles import increased over January 2008 by 51% up to USD 6.bln, foodstuffs and agriculture raw materials import – by 21.7% up to USD 2.0 bln, chemistry production import – by 35.3% up to USD 1.8 bln.
Increase in import value was mainly accounted for by increase in physical volumes from non-CIS countries. Recently, however, the significance of price factor has increased, for instance, prices for foodstuffs goods import and agriculture raw materials went up.
Table Goods Import Indices in January 2008 (figures of January 2007 taken as 100) Value Physical volume Price Total 139.5 130.1 107. Non-CIS countries 144.5 137.4 105. CIS countries 117.6 97.8 120.Source: Ministry for Economic Development and Trade Positive balance set new historical maximum and reached USD 18.3 bln. This is 86.3% higher than in January 2007. The former record of USD 14.2 bln, which was set in May 2006, was exceeded by 28.4%.
This January the balance turned out to be bigger than year figures of 1994, 1997 and 1998.
On 3 March 2008 within the framework of fulfillment of the main directions of customs and tariffs policy for middle-term prospect, which were approver at the meetings of the Government of the Russian Federation on 21 February 2008, the meeting of the Commission of the Government of the Russian Federation on protective measures for foreign trade and customs and tariffs policy was held.
In order to stimulate production development in the territory of Russia the decision was made to abolish import duties for plasma and liquid crystals display panels. At present import duty rate for plasma and liquid crystals display panels is 10%.
At the moment two South Korean firms are carrying out assemblage of their television sets in Russia – LG and Samsung. LG company started production in Dorohovo of Moscow region in September 2006. In it is planned to increase annual production of television sets by 1.1 mln of units. Netherlands branch of Samsung has made its production based on outsourcing since the end of 2004 in the territory of Kaliningrad region. Construction of plant Samsung Electronics Russia started in eptember 2007 in Kaluha region. It is expected that the first facilities of the plant will be put into commission in November 2008, and the plant will have reached its maximum capacity (about 2.2 mln of production units) by 2010.
Duties nullification will undoubtedly have a positive effect on the further development of the market and will result in reduction of “gray” import of this kind of goods.
As a result of the Commission meeting it was also decided to abolish import duty rates for raw materials and components for glasses rims production, as well as export duty rates for ethylene polymers. At present import duty rates for raw materials and components for glasses rims production are 15-20%. Export of ethylene polymers, which is also used in production of packing and plastic bags is subject to 6.5% duty rate.
Besides, in order to legalize import of goods for which domestic light industry is sensitive the suggestion to decrease ad valorem component of combined import customs duty for clothes and hats was adopted.
In order to satisfy demands of Russian agriculture commodities producers in high quality import equipment the Commission will also recommend the Government of the Russian Federation to prolong temporarily action of 5% of the customs cost import duties for new harvesters and ensilage-harvesters.
The Decree of the Government of the Russian Federation on introduction of customs duties for chemical fertilizers export to countries that are not members of Customs union was published on 18 March 2008. Duty rates for complex and nitrogenous fertilizers are established at the level of 8.5% of customs value, for potash fertilizers they will be significantly lower – only 5%. The decree comes into effect in a month after its official promulgation and will be in force till 30 April 2009 inclusive.
The adopted decision is aimed at restriction of internal prices growth that continue to grow steadily following the world ones. It is unlikely that as a result of duties introduction companies will considerably reduce the volumes of exported fertilizers, taking into account current level of world prices and narrowness of the Russian market. Such a measure is more likely to become an indicator for fertilizers producers not to increase prices at the internal market further.
Introduction of export duties will undoubtedly have a negative effect on profits of Russian mineral fertilizers producers, but this will be made up for by considerable growth of prices for the main kinds of fertilizers in the current situation. Thus, FOB price for ammophos has grown from USD 580 to 900 per ton since December 2007, for potassium chloride – from USD 340 to 510 per ton.
In the report of Food and Agriculture organization of the UN (FAO) devoted to the market of fertilizers up to 2012 the issue whether world deficit of fertilizers will arise is considered. FAO, however, believes that in the forthcoming years fertilizers production will remain at a high level, supply exceeding demand, and no deficit will evolve. According to the data of FAO at present (in 2007-2008) fertilizers production in the world will be approximately 206.5 mln of tons. According to calculations, in 2011-2012 this figure will increase up to 241 mln of tons. At present demand is equal to 197 mln of tons, in 2011-2012 – to 216 mln of tons.
Rapid growth of prices for fertilizers and demand growth is accounted for by growth of world prices for foodstuffs, which makes agriculture production more profitable. Demand for foodstuffs is increasing by all kinds of products, that is why there is demand for fertilizers.
Investment company Millennium Capital also draws attention to the EU claims that by 2020 20% of the power in the EU will be received from renewable sources of power, including biofuel. It is obvious that effective production of biofuel requires intensive use of fertilizers, ammonia in particular.
Thus, in Russia the problem of mineral fertilizers becoming more expensive is caused by the worldwide trends (increase in world prices as a result of anticipating growth of demand). Besides, established level of duties cannot equalize profitability of export and internal supplies.. Potash fertilizers cost USD 150 per ton at the internal market and from USD 240-270 per ton (for long-term contracts) to USD 500-600 per ton (at spot markets) at the world market. Export prices for nitrogenous fertilizers are 30-50% above the internal ones. The branch therefore if export-oriented.
However, if after introduction of limitations for mineral fertilizers export the situation at the internal market will not stabilize, the possibility of introduction of tariff quotes for export cannot be excluded.
Oil and Gas Sector Yu. Bobylev World prices for oil in the first months of 2008 were at exceptionally high level, crossing the threshold of USD 100 per barrel. At the same time a sharp decrease in oil production growth rates in Russia occurred.
In January-February 2008 increase in oil production was only 0.6% as compared with the corresponding period of the previous year. The volume of new oil producing facilities implementation has also decreased considerably. Start of new oil fields development requires improvement of tax system currently in effect, securing of stimuli necessary for investments in oil production.
World prices for oil in the first months of 2008 were at exceptionally high level (Table 1). In March they reached the level that had been unprecedented in nominal terms, exceeding USD 100 per barrel. It was a considerable inflow of capitals to the oil exchange market that contributed greatly to the price growth along with increased demand for oil, conservative policy of the OPEC, low oil production growth in countries that are not OPEC members, geopolitical risks.
Oil production in Russia in the first months of 2008 demonstrated sharp decrease of growth rates.
Whereas in 2002-2004increase in oil production reached 8.9-11% a year, in 2005-2007 - 2.1-2.2%, in January-February 2008 increase in production was only 0.6% as compared with the corresponding period of the previous year (Table 2). This testifies that the reserves for the rapid growth of oil production owing to the intensification of oil fields in operation exploitation are exhausted and it is necessary to developing new oil fields more actively (in the eastern part of the country, for instance).
Table World Prices for Oil in 20062007, as USD per barrel 2006 2007 2007 2007 2007 2007 2008 1 quarter 2 quarter 3 quarter 4 quarter January February Price for oil grade Brent, 65.16 57.75 68.76 74.87 88.69 72.52 92.00 95.the UK Price for oil grade Urals, 61.24 54.30 65.16 72.19 85.91 69.39 89.35 91.Russia Price for oil basket of 61.08 54.65 64.97 71.59 85.18 69.10 88.35 90.OPEC member countries Source: OECD International Energy Agency, OPEC.
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