Russian multi-metals mining group Norilsk Nickel (Nornickel) announced a year-on-year fall in its 2022 revenues last week, as the fallout from the Ukraine war hit its operations and supply chains and a wave of western sanctions drove a decline in its metals sales.
Nornickel's consolidated revenue for the year declined by 5pc on the year to $16.9bn, it said. While the group benefited from higher nickel and cobalt prices and the recovery of production volumes following disruption at its Oktyabrsky and Taimyrsky mines as well as the Norilsk concentrator in 2021, the losses from having to alter its supply chains to circumvent Europe and an increased focus on redirecting sales to new non-European markets ultimately weighed on its revenues. Finland-based major stainless steel producer Outokumpu said last week that it was no longer buying Russian nickel for its operations as of 2023 and other large European users are also said to be looking away from the country for their supplies.
Lower copper and platinum grade metal prices also affected its financials, Nornickel said.
"Economic restrictions imposed on Russia by a group of countries pose risks for operating, commercial and investment activities of the company," Nornickel said "To mitigate these risks Nornickel is developing relationships with alternative clients and suppliers, setting up new logistic routes and exploring new capital markets."
Vladimir Potanin, Nornickel's largest stakeholder, said last month that the company was in the process of rearranging logistics chains to "friendly countries" following the western sanctions, including to China, Turkey, Morocco and central Asia.
Nornickel's earnings before interest, taxes, depreciation and amortisation (ebitda) fell by 17pc in 2022 to $8.7bn, led by higher operating cash costs such as increased labour expenses and repairs. The group's overseas equipment and spare part suppliers mostly stopped doing business with Russia as a result of the war in Ukraine, compromising Nornickel's capability to undertake planned maintenance and machinery repairs. And Finland's state-owned rail network operator VR severed ties with Russia and stopped accepting freight traffic from the country in December, affecting the flow of Nornickel's feed from Russia to its Harjvalta refinery in Finland.
The group acknowledged an increase in its accumulated metal inventories in 2022 as a result of the operational issues and lower uptake, causing a reduction in its cost of metal sales of $788mn. It hopes to find new markets for these inventories this year, with European market participants widely expecting Nornickel to increase sales to China.
The downturn in Nornickel's revenues was further exacerbated by adverse macros, it said, as slowing global demand across all industrial metals amid high energy prices, an underlying weakness in the Chinese economy, a strong US dollar that scaled two-decade highs at one point, and aggressive monetary policy tightening by the world's leading central banks in response to soaring inflation all weighed on its financial performance.
Extraction of metal ores in 2022 fell by more than 10pc year on year in Russia's Murmansk region, where Nornickel has mining and smelting operations, according to the official data on industrial production provided by Murmanskstat, the regional branch of Russia's statistics service. Production of nickel ore fell by 19.6pc on the year, while output of platinum group metals increased by 23pc.
Nornickel expects a nickel market surplus of 120,000t in 2023, driven by the ramp-up of new NPI and NPI-to-matte capacities in Indonesia. But it argued fundamentals could tighten in the near term owing to the possible underperformance of the new Indonesian capacities and limited supply of high-grade nickel deliverable against the London Metal Exchange nickel contract.
Primary nickel demand will rise to 3.35mn t in 2023 on the recovery of stainless steel output alongside the robust growth in the battery sector, Nornickel said, against supply of 3.47mn t. The group has lowered its 2023 nickel production guidance by 5pc relative to its 2022 output of 219,000t.
Nornickel expects policies supporting the electric vehicle industry around the world to continue to support strong growth for nickel in the battery market. It estimates global capacity of battery manufacturing to more than quadruple from 2022 levels to at least 4.5TWh by 2030, requiring more than 1mn t of nickel or 30pc of total nickel demand over that period. And high-nickel bearing chemistries will continue to garner the most market share, Nornickel said, on account of the higher energy density and better recyclability achievable. Argus Metals
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