Mostly: Classical

[amarksp]

Russians and PGM metals
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When Almaz was recently asked to say what it planned to do about the delay in abolishing PGM quotas and the parallel delay in issuing export quotas, an Almaz official, who refused to give his name, referred the question to ""the person you need [who is] currently away, and he may not appear today and tomorrow.” Asked to identify him by name, the source said he "does not know him." Asked how it is possible to know his movements, but not his name, the source claimed “our company is a big one”. That's wishful thinking -- if and when Putin signs the abolition decree, Almaz is likely to shrink to the vanishing-point.
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Norilsk Nickel platinum group metal exports halted by Kremlin delays
By: John Helmer
Posted: '06-JAN-07 19:00' GMT © Mineweb 1997-2006



MOSCOW (Mineweb.com) --The London bullion market was busy cutting platinum $16 per ounce, and palladium $2 per ounce, in Friday trading, in lockstep downwards with gold -- apparently oblivious of a serious supply disruption in Moscow.

Starting from January 1, Norilsk Nickel, the single largest exporter of palladium in the world, is unable to obtain the government export quotas it requires to ship abroad platinum, palladium, or rhodium. The only source of Russian palladium that may reach the market for the time being is the metal which the state stockpile agency Gokhran has been holding for years now in a bank vault in Zurich.

Norilsk Nickel spokesman, Viktor Borodin, acknowledged there has been a delay in export quotas for platinum group metals (PGMs). He told Mineweb this has happened before, with delays that have in the past stretched for five months or longer. The "company will fulfill its obligations to traders and customers,"he noted, without explaining how timely delivery can be effected. There is no predicting when exports may resume, Borodin added.

What has happened to delay Russian PGM exports is easier explained than mended, because the quotas are linked to the slowness with which the United States, then a handful of other states, have tried to slow down Russia's accession to the World Trade Organization (WTO).

Several months ago, President Vladimir Putin received the text of a draft decree abolishing the traditional Russian mechanism for annual export quotas on PGM and diamonds. The gold trade was deregulated several years ago, but the government hung on to the restrictions for PGM and diamonds, because they gave leverage, and more, to state officials who supervised the process; and because Russia's trade negotiators wanted to use an offer to abolish the quotas as a bargaining card in the WTO negotiations.

It was for the latter reason, more than the former, that there has been a delay in Putin's signing the decree. In parallel, and anticipating problems with the WTO, Norilsk Nickel says it filed its annual application for an export quota for the year 2007 back in October. That has been approved at the Finance Ministry, but not by the Prime Ministry, which has been taking its cue from the Kremlin.

In the first half of 2006, Norilsk Nickel reports that it sold 1.5 million oz of palladium, almost all to export markets, for $559 million. The physical volume was down 1%, compared to H1 2005, but the revenues were up 37% year on year. Platinum volume in the same period was 336,000 oz and sold for $474 million -- volume was up 34%, revenues 26%, compared to the year before.

Rhodium production and sales data are not released by the company. Reporting the market consensus, Rob Edwards of Renaissance Capital estimates Norilsk's annual production of rhodium at 115,000 oz'; at current rhodium price highs in the marketplace, company revenues from rhodium may exceed the totals for palladium and platinum. Altogether, PGM sales account for about a third of Norilsk Nickel's revenues.

Delaying these sales for weeks or months will not matter to the revenue bottom-line for Norilsk Nickel if deliveries eventually catch up, and in the meantime prices rise on speculation of a lengthy period of disequilibrium between demand and supply. Upward pressure on the platinum and rhodium highs will be problematic for physical speculators, because there is no telling when a Putin signature will put an end to the delay.

Russian negotiators for accession to the WTO have already agreed to abolish the trade restriction on gems and precious metals, and in 2004 formulation of the presidential decree dismantling the old quota system started at the Ministry of Finance, headed by Alexei Kudrin. Kudrin is a safe pair of hands for a bureaucrat, but his knees turn to water when he passes through the Kremlin gate. He has not been able to persuade the president's advisors to move ahead of WTO accession with the quota abolition decree.

When resistance to Russia's joining the trade body by some WTO member states, led by the US, delayed agreement on accession, the presidential staff pigeon-holed Kudrin's draft decree. The Bush administration finally agreed to accession a few weeks ago, but there remain other, mostly procedural obstacles to completing the accession process. A source at the Ministry of Economic Development and Trade confirmed it has approved the abolition of the quotas. Lower-level government officials are hopeful the hold up at the Kremlin will end with Putin's signature during January -- unless further delays materialize in the WTO process.

A new spokesman at the Finance Ministry, Andrei Saiko, claimed the draft decree has been accepted in the Kremlin, but he could not say when the signature will be attached. He referred the question to Gokhran, which is an agency subordinate to Finance, but with a mind of its own. Olga Medunova told Mineweb she hasn't heard anything about the fate of the decree.

Gokhran remains the last relic of the Soviet system of PGM control, and it jealously and secretly guards its prerogatives. The size of the palladium stockpile in Switzerland remains a Russian state secret, even if Swiss bankers know the number precisely, and Swiss Customs publish regular bulletins when the palladium is sold out of the vault, and is exported from Switzerland to the US, Japan, or other destinations.

Even more secretive is another Finance Ministry agency in Moscow called Almazjuvelirexport (Almaz for short). It used to house the trading brains of the Soviet Union's PGM sales department; one man, Sergei Gorny, a deputy chief of Almaz, was the powerful figure in charge of releasing the metal -- Norilks's annual production, other mined platinum, and stockpiled PGM -- on to the market. For a time in 2002 and 2003, Gorny had hopes of obliging Norilsk Nickel to work with Almaz in a joint venture for marketing PGM in international markets. But the joint venture didn't suit the two oligarchs, Vladimir Potanin and Mikhail Prokhorov, who think of Norilsk Nickel's sales revenues as iintimately connected to their own pockets. Putin understood as much, and they were never powerful enough to persuade the Kremlin to privatize Almaz's US subsidiary and allow them to buy it.

Gorny hung on to his restricted sales function, but he has been slowly slipping on the deregulation banana-skin ever since, kept upright only by the intransigence of the US in the WTO negotiations.

Almaz retains its power to trade state stockpiled PGM on behalf of Gokhran, and if the export delay continues, Almaz might tempt the market into bidding higher for the Zurich stocks. Almaz is not talkative about its intentions. The last time Gorny spoke to Mineweb was in July 2003, when he claimed the joint venture with Norilsk Nickel "is still in the process of establishment. It doesn't carry out any operations yet." Asked to comment on whether there had been a change in government policy regarding coordination of sales of PGM between the government and Norilsk Nickel, Gorny replied that coordination is going on "in a working order". Both remarks were obfuscation.

When Almaz was recently asked to say what it planned to do about the delay in abolishing PGM quotas and the parallel delay in issuing export quotas, an Almaz official, who refused to give his name, referred the question to ""the person you need [who is] currently away, and he may not appear today and tomorrow.” Asked to identify him by name, the source said he "does not know him." Asked how it is possible to know his movements, but not his name, the source claimed “our company is a big one”. That's wishful thinking -- if and when Putin signs the abolition decree, Almaz is likely to shrink to the vanishing-point.