Thursday , 28 March 2024

Commodities: How Big a Player Is Russia & How Best Can Its Strengths Be Played? (+2K Views)

So writes Justin Kuepper (http://commodityhq.com) in edited excerpts from his original article* entitled A Deeper Look At Russia’s Commodity Industry.

This article is presented compliments of www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Kuepper goes on to say in further edited excerpts:

Mining

Russia is ranked among the leading world producers of minerals ranging from aluminum to vanadium. According to InfoMine, the country is:

  • the world’s largest producer of:
    • chromium (30%),
    • nickel (19%) and
    • palladium (43.3%), and
  • the world’s second largest producer of:
    • aluminum (10.3%),
    • platinum (11.6%) and
    • zirconium (18.7%).

These activities contribute to approximately 20% of the country’s industrial output, with minerals representing about 15% of its total exports with ferrous and non-ferrous metals representing the majority.

Unfortunately, Russia’s mining industry suffers from a number of problems. The country’s regulatory framework has made it difficult for many international companies to participate in mining activities, with a number of state-sponsored giants in control, while its depleting reserves and low discovery rate for new reserves paints a very bearish long-term picture. However, some changes to the country’s regulatory framework were made in 2005, including removal of certain state secrecy laws and easier access to capital in Western marketplaces.

Energy

Russia is perhaps best known among investors for its energy industry where it controls the world’s:

  • largest supply of natural gas,
  • second-largest supply of coal and
  • the eighth-largest supply of crude oil.

In 2010, according to the International Energy Administration, the country was:

  • the largest oil producer,
  • the largest producer and exporter of natural gas and
  • the fourth-largest energy consumer after China, the United States and India

Despite these enormous reserves, the corporate landscape is dominated by state-owned monopolies rather than private enterprises:

  • Gazprom is the largest gas exploration and production company in the world,
  • Lukoil controls the country’s crude oil production,
  • Rosneft controls exploration, and
  • Transneft holds a monopoly on the country’s network of pipelines.

According to the World Energy Outlook 2011, the country’s inefficiencies contributed to some 200 million tons of oil equivalent of waste, or 30% of its consumption that year.

Agriculture

Russia’s agricultural industry primarily produces wheat and barley, but sunflower oil remains its most consistently profitable crop. The majority of these farms are made up of state-owned or collective farms of 5,000 hectares while smaller 50-hectare farms make up the rest of the market. Notably, private household plots that are only a few hectares produce a high percentage of the country’s potatoes and vegetables for both personal consumption and sale at local markets.

Not surprisingly, the country’s agricultural industry was the most severely affected industry following the transformation from a command economy to a market-driven economy in the 1990s. The sudden loss of funding caused a significant contraction in livestock inventories and a significant drop in grain production and demand. After nearly 10 years in decline, however, the industry has started to show some signs of improvement in the 2010s, with increasing efficiency and a production skew towards smaller farmers over large corporate farms.

Stocks/Funds To Play Russia’s Strengths

Russia’s influence on the global commodities market has a significant effect on a large number of stocks and funds, but the country’s closed economy somewhat limits investor participation. [Here’s how best to play its strengths:]

  • iShares MSCI Russia Capped ETF (ERUS) offers a great way to participate in the country’s energy and material sector, with a combined 63.45% weighting in these sectors, $253.57 million in assets and an expense ratio of 0.61%.
    • With a 51.42% weighting in energy,
      • Gazprom as its largest holding (18.2%)
      • Lukoil as its third largest holding (12.49%).
    • Materials companies like MMC Morilsk Nickel OJSC also represent an aggregate 12.03% of the ETF’s overall holdings.
  • Those looking for a more direct approach may also want to consider ADRs or stocks traded on European stock exchanges…[such as]:
    • energy giants like:
      • OAO Gazprom (PINK: OGZPY),
      • OAO Lukoil (PINK: LUKOY) and
      • OJSC Rosneft Oil Company (PINK: RNFTF) as ADRs on U.S. exchanges.
    • fertilizer company Uralkali (PINK: URALL) offers exposure to the agricultural industry, while
    • mining stocks like MMC Norilsk Nickel JSC (ETR: NNIA) can be purchased on European stock exchanges.

Trends/Developments To Watch

There are several trends towards privatization and increased efficiency to watch in Russia that could pave the way to better investor returns. For instance, in 2008, President Medvedev announced new initiatives designed to reduce the country’s energy intensity by 40% by 2020, which could have significant implications for energy use, according to the IEA. At the same time, Russian stocks remain cheaply priced relative to many other similarly developed countries, trading at just five-times forward earnings.

Despite these positive developments, the country still appears to be run by a large centralized government that maintains a lot of control over the private sector. So-called “loans-for-shares” programs turned many formerly state-owned firms into politically connected oligarchs and left equity ownership highly concentrated among Moscow’s billionaires.

The Bottom Line

Looking ahead, it’s clear that Russia has enormous potential, as its relatively inefficient economy has tremendous room for growth, particularly in natural resource sectors. [Nevertheless,] while the economy has been opening up since 2010, politicians and oligarchs still exhibit a high amount of control over the country’s commodity industry, making it a risky place for many investors. As a result, those looking for exposure may want to seek out diversified ETFs like ERUS instead of pursuing individual companies trading as ADRs or foreign stocks.

Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://commodityhq.com/2013/a-deeper-look-at-russias-commodity-industry/ (Copyright © 2011–2013 Commodity HQ; Don’t forget to subscribe to our free daily commodity investing newsletter)

Related Articles:

1. Which Countries are Most Risky for Mining/Oil and Gas Companies? Here’s the List

The Behre Dolbear Group has recently published its annual comparative country risk assessment of twenty-five countries that host the global mining industry. [If you own, or are thinking of buying, stocks of companies in this sector print, then I suggest you give the Report your full attention and pass this commentary on to friends, acquaintances and colleagues interested in the Resource Sector, and to your Investment Advisor. Words: 437

2. U.S. Has 3rd Largest Natural Gas Field in the World – Which Other Countries are Included in the Top 10?

Natural gas is increasingly becoming an important fuel in meeting the global energy needs. Let’s take a quick look at the largest natural gas fields in the world. Words: 300

3. Russia & China Have Power to Collapse U.S. Economy! Is Hoarding of Gold Their First Step In Doing So?

Most Americans simply don’t understand that Russia and China have the power to collapse the U.S. economy by going to a gold for oil system.  All they have to do is pull the trigger. Let me explain. Words: 1515

4. Watch Out! Russia & China Stripping USD of Its Dominant Role in World Trade

Before China and Russia can boot the U.S. military out of Asia and Eastern Europe, they have to strip the dollar of its dominant role in world trade, especially of Middle Eastern oil and that’s exactly what they’re trying to do. [Let me explain.] Words: 816

Other Commodity HQ Articles:

1. Interested in Buying Physical Gold and/or Silver? This Site Provides Everything Needed to Buy Intelligently

For those new to the metals space, knowing where to go to buy or sell physival gold for a fair price is difficult. That’s where APMEX, formerly known as American Precious Metals Exchange, enters the scene. APMEX has become a favorite among precious metals buyers and sellers for a few key reasons noted below.

2. George Soros: A Professional & Personal Profile

While George Soros spent over 40 years managing funds at Soros Fund Management, racking up an incredible average annual return of 20%, he is arguably most known for the huge bets he made against the British pound in 1992. He felt that the European Exchange Rate Mechanism overvalued the pound and that the system was inherently unsustainable so he bet $10 billion on this view and reaped more than $2 billion in profits from his trades. [This article outlines his the life – both professional and personal – of this epitome of a hedge fund manager.] Words: 972

3. Is Gold’s 13 Year Run Almost Over?

[While] the price of gold has gone up for 12 straight years, and is on pace to make it 13 when this year comes to a close, it seems that despite all of the gold bugs calling for the metal to surge to unbelievable highs, major financial institutions are calling for the gold bubble to finally burst in the coming months. [Let’s examine what they and others have to say.] Words: 450

4. These 3 Metals Could Continue to Be More “Precious” Than Gold!

The movements and potential movements of the yellow precious metal often grab the spotlight, even if there are other assets outperforming it. It is always important for investors to look beyond the major headlines to get a better perspective of the trends impacting the overall commodity world. [This article does just that and also identifies 3 ETFs to possibly take advantage of these trends.] Words: 440

5. 3 Silver Miners & 1 Silver Streamer That Pay Dividends

For those looking at an alternative, or complement to their gold holdings, below we outline 4 silver companies (3 producers, 1 streamer) that currently pay a dividend and, as such, provide some yield during low interest rate times, and provide a hedge against inflation should it arise. Words: 1612

6. China Continues to Be an Enormous Force in the World’s Commodity Markets: Check Out These Investment Opportunities

With China becoming the #2 economy in the world it has, without question, transformed into an enormous force in the world’s commodity markets…with many years to come of major commodity production, consumption, and importation for China and the countries that serve that commodity food chain. [Let’s examine China’s dominance in the commodity industry and identify investment opportunities to take advantage of continued growth.] Words: 1282

7. Here Are 50+ Different Ways to Invest in Gold

Given the continuation of easy money policies by the Fed and other central banks around the world, as well as the very real possibility of more turmoil in the financial space, it isn’t surprising that many investors are looking to cash in on this modern day gold rush. For these investors looking to make a play on this elusive metal, we explore below every nook and cranny of the investing world to offer 50 ways to play gold. Words: 2600

8. Canada’s Top Commodity Exports/Imports & How to Invest Accordingly

Canada has the 7th largest economy in the world and is the 2nd largest country by land mass. It has a wealth of natural resources, making it a large energy and minerals exporter. For commodity traders looking to invest primarily in North America, Canada presents a compelling opportunity. [This article takes a look at Canada’s top commodity exports and imports and offers suggestions as how to invest in Canada’s commodity industry.] Words: 905

9. Deflation: What You Need to Know (and Fear) & How to Prepare for Such an Eventuality

All in all, deflation should be one of the most serious words in a commodity investor’s vocabulary and is something to always keep an eye on. While its presence may seem removed from our economy, the possibility always remains and preparation will be key to survive a deflationary environment.

10. Futures Investing: Should It Be In Your Future?

While there are a number of funds and stocks that can be used to gain exposure to commodities, futures investing has long been the most popular and direct means of establishing a position. [Let’s examine just what futures are, who should use futures and identify the various futures exchanges,] Words: 922

11. Commodity Trading: Which Option Options (if any) Belong in Your Portfolio?

Commodity investing has been around for decades, but it was only recently that their popularity has spread to the general public. It is now generally recommended that investors set aside anywhere from 5% to 10% of their capital for a commodity allocation, as these hard assets generally offer uncorrelated returns essential to diversification. While many investors utilize stocks, ETFs, and futures to obtain their commodity exposure, options contracts can often be a better alternative to not only your commodity holdings, but for the remainder of your portfolio as well [Let me tell you more about options and also why they might/should have a place in your portfolio]. Words: 995

12. Latest Comments By Jim Rogers, John Paulson & Jeremy Grantham On Gold

Gold is known as a solid inflation hedge, and could earn this reputation in 2013 if inflation picks up. Below are three well-known gold bugs (Jim Rogers, Jeremy Grantham and John Paulson)  and their bold predictions for investing in gold next year and beyond. Words: 525

13. Gold: The Top 10 Holders & Producers by Country– and 23 Investment Options

Gold is one of the rarest metals in the world, and has a long history as a valuable and intensely sought-after element. The precious metal has served as the basis for physical currency for thousands of years, and many monetary systems throughout human history have utilized a gold standard that focused on the precious metal. Exploration and production of gold has become a major industry in regions that maintain significant deposits of the metal, and quests for gold have been the impetus of countless expeditions and discoveries. [Below are a list of the top 10 gold producing countries, the top 10 gold producing companies and a definitive guide as to the multiple options of investing in the metal.]

14. The Top 10 Silver Producing Countries & Companies – and Investment Options

Silver has been an important metal for thousands of years, often used as a medium of exchange or jewelry in ancient times….Today, silver still finds its way into jewelry and coins but it is now also a key ingredient in many ‘modern’ applications as well….Due to this multitude of uses the metal has continued to be a popular investable asset…[as well] as a store of value and an inflation hedge. Below are a list of the top 10 silver producing countries, the top 10 silver producing companies and a definitive guide as to the multiple options of investing in the metal. Words: 2091

15. Brent vs. West Texas Intermediate Crude Oil: Which is a Better Investment?

Beyond the attributes that set West Texas Intermediate Crude (WTIC) and Brent crude oil apart comes the question of which type of crude makes for a better investment. Recent historical data puts that question to rest, as one clear winner emerges. [Read on!] Words: 590

16. Major Investment Opportunities Exist In Agriculture!  Here’s 50

The agriculture sector has long been a popular place for commodity trading. After all, it was with agricultural futures that commodity trading got its start. Farmers had originally used these contracts to help offset any losses in crop yields. Now, the agricultural space has blossomed into a market chock full of options for investors, but many investors are still unaware of the vast opportunities that this sector offers. [Let us change all that!] Words: 2376

17. Invest in Natural Gas – Here’s How

[Although] investing in natural gas is an incredibly popular and active sector of the commodity world given its robust growth predictions,…it tends to exhibit violent daily swings with high and liquid volumes. While this can lead to significant losses, for those who play their cards right, trading natural gas can make for a nice short term reward. [That being said,] for the more traditional “buy and hold” investor there are still a number of options that, [while they] may not directly invest in the commodity, offer significant exposure under a safer structure. [In this article I have identified 25 ways to invest in natural gas to help investors pick the correct security for their portfolio]. Words: 1800

18. The “Ins” and “Outs” of Investing in Commodities

Commodities have obvious appeal to active investors looking to generate profits from short-term price movements [but while] the volatility of this asset class is ideal for risk-tolerant individuals who actively monitor their positions…commodities may also have appeal to the long-term, buy-and-hold crowd…These potentially appealing attributes come with plenty of risk, [however, as] the path to commodity exposure is full of potential obstacles and pitfalls that can erode returns and lead to a less-than-optimal investing experience. Here are ten rules of thumb that will help you achieve a more successful experience investing in commodity markets. Words: 2871

19. Want to Invest In Silver? Here are 25 Ways to Do Just That

Now that Q4 is underway, investors are scrambling to find the right asset class for this rocky environment. Last quarter wreaked havoc on a number of investments and portfolios alike, as the global economy seems to be on a downward spiral. Given the current environment, various investors have flocked to their favorite safe havens to wait out the storm. Gold is perhaps the most popular safe haven in troubled markets, though its actual use as a metal is relatively low. As such, there has been much speculation over whether or not the metal is overvalued, scaring a number investors out of gold and into another precious metal, silver. Words: 3422

20. Why You Should Invest in Silver and What Your Options Are

Silver is a popular investable asset, attracting investors from around the world thanks to its numerous industrial applications as well as its traditional role as a store of value and an inflation hedge. There are a number of different options for investing in silver, including exchange-traded futures contracts, stocks of companies engaged in the extraction and sale of the metal, and both physically-backed and futures-based ETFs and ETNs. Investors also have the option of buying coins or bars of the metal in order to obtain physical exposure. Let’s discuss the merits of investing in silver and review what the options are. Words: 2319

 

One comment

  1. How about Russia’s PM interests, that would make a great article!