Wartime stresses can produce some unusual alliances. Consider the potential combination of Vladimir Potanin’s Norilsk Nickel with aluminium maker Rusal founded by Oleg Deripaska. On Tuesday Potanin told Russian media that he would countenance a merger that created a national metals champion. That hints at domestic problems for both companies.
The two oligarchs are hardly friendly, having sparred publicly in the past. Deripaska has coveted more control over Norilsk’s cash flows for use by Rusal, which owns 26 per cent of Norilsk. The two have starkly different views, according to Potanin, about governing a publicly listed company.
A deal might reflect Potanin’s short-term concerns about toppy metals markets as a global recession approaches. Indeed, on current price estimates for this year, Citi believes that the value of all commodities — from metals to energy to agriculture — represent more than 13 per cent of nominal world GDP. That has not occurred since the early 1980s.
Norilsk is the world’s largest producer of refined nickel, which at $22,750 per tonne trades well above its production costs. Even high cost producers of nickel can make a decent living at these prices. While inventories at five weeks of consumption are historically very low, the supply of nickel ore (to make the metal) will grow by a fifth year on year in 2022. Meanwhile, stainless steel, which accounts for more than two-thirds of nickel demand, has tumbled towards one-year lows.
Creating a national champion from a nickel (and palladium) producer with Rusal, one of the world’s leading aluminium makers, does not immediately suggest cost benefits. What the combined group might have is more clout with the Russian state to finance any capacity growth longer term.
That sounds suspiciously like imminent nationalisation. Potanin’s comments hinted strongly that Norilsk dividends — its yield is in the low teens — are at risk. At the end of June, Gazprom, another national champion, chose to redirect any minority shareholder dividends to the Russian government.
Potanin and Deripaska would make an odd couple. Any deal talk requires healthy scepticism. Otherwise, it hints at future problems for oligarch owners of state resources.
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*This article has been changed to say that Rusal was founded by Oleg Deripaska.