Moscow (Platts)--14Feb2013/607 pm EST/2307 GMT
The commodities super-cycle is not over, but the growth of the century's first decade is unlikely to be seen in the years ahead, while the balance of profitability could switch back to steelmakers from miners in the next 15 years, the chief metals analyst at investment bank Renaissance Capital said Thursday. "The exponential growth witnessed in commodities is over... we now need to analyze each project company [on a case-by-case basis]," Boris Krasnojenov, the director of metals and mining research at the bank, said at the Adam Smith Summit in Moscow. This is not to say that commodity -- steel prices -- will be stable: unpredictability of the EU debt crisis, unreliable economic data from China are just some of the factors volatile pricing is likely to remain present. Following on from this point, Krasnojenov said vertically-integrated producers may lose some of their competitive advantages in a climate of slower steel production growth. While China is expected to grow until at least 2017 in terms of output, as shown by ISSB statistics, a lowering in demand for iron ore and other mined goods elsewhere could alter the costs of other producers. "Fifteen years ago steelmakers had margins of around 80%; now this is reversed," Krasnojenov said. "In 2010, miners had a similar profit margin, but in another 15 years this could turn around again." Krasnojenov added that for at least another five to 10 years, vertically-integrated producers will retain competitive advantages. Only once iron ore and coking coal move closer to cost of production levels will disadvantages appear. Robert Mantse, from Price WaterHouse Cooper's metals mergers and acquisitions department, agreed with Krasnojenov's time-scale, and gave the following forecast for 2013. "In 2013 steel prices will be rangebound; if there is a run-up in steel prices, you'll just see an increase in capacity utilization [currently around 75%], and then a correction," Mantse said. Despite continuing thin margins, however, neither financier expects Russian steelmakers to begin hedging their finished steel goods. "At the moment there is no incentive for Russian companies to hedge, even those who are non-vertically integrated buy their raw materials from different markets; for end-users such as Gazprom it does make sense to hedge using pricing formulas based on companies such as Platts' [assessments]," Krasnojenov said. On the sidelines of the conference, Mantse predicted no large M&A activity in the Russian market this year, although medium-sized purchases at $20 million-$100 million could happen.--Ciaran Roe, ciaran_roe@platts.com --Edited by Richard Rubin, richard_rubin@platts.com