10 September 2006
Resource Extraction and Export
The following resource focuses on resource extraction and export in Russia, which contributes not only the majority of Russia's GDP, but also greatly to Russia's political power. We've structured this entry to give a wide view of the Russian markets, Russia's position in world markets, and the political implications of both.
Color Code: Red links are to sites only in Russian.
Gray links have English available. What is "The Library?"
1. Russian Resources and Related Companies report an error back to top
Please note that Russian resource markets have been incredibly dynamic in recent years. Company mergers, growth, and recent discoveries of new deposits have kept statistics, names, and ownership in constant flux. The following information is current as of at least 2004. Most resource statistics were taken from the 2008 edition of USGS mineral report.
A. Aluminium report an error back to top
Aluminium is obtained from alumina, which itself is obtained from bauxite ore. Russia controls less than 1% of the world's bauxite but produces 11% of all aluminum. This is possible in large part due to Russia's cheap supplies of electricity. Aluminum is useful in food packaging, but also essential to modern aircraft (including commercial airliners, space shuttles, and fighter jets).
Rusal controls 15% of the world's production of aluminum (it also owns smelters in Africa). It's recent 8 billion expansion project involved buying Sual, its only major Russian competitor, to push it to number one in the world in aluminum production, taking the title from Alcoa, an American company that now stands in second place.
B. Diamonds and Gemstones report an error back to top
Russia is a world leader in both natural diamond and artificial diamond production. In volume, Russia controls nearly 35% of global gemstone production and 20% of the global production of industrial grade diamonds.
Alrosa is Russia's diamond monopoly. Federal, regional, and local governments own about 77% of the company, with the rest held by employees and other investors. The company is worth upwards of 6.5 billion USD and declared some 650 million in profits for 2006.
Lev Leviev is also worth mentioning. He assisted the former Soviet Union in setting up its diamond enterprises in the 1980s. He later took over several of them in Central Asia in the 90s. He has since become a major competitor for DeBeers and now controls as much as one third of the world's diamond trade. Leviev distributes 30 million USD a year in the FSU to restore synagogues and "support the restoration of the Jewish way of life." He now holds Israeli citizenship.
C. Gold report an error back to top
Russia is considered the world's largest unexplored gold territory, with many of its sizable deposits having been only recently discovered. Estimates vary quite widely, but Russia likely holds 25-40% of the world's unmined gold supply. Russia is currently the fifth largest gold producer in the world, yet holds the world's second largest gold reserves (after South Africa).
Polyus Gold was formed when Russian metals giant Norilsk Nickel spun off its holdings in gold. Both companies are owned by Interros, a conglomerate that also spans banking, agriculture, and communications. Polyus is the largest Russian gold producer and holds a 20% stake in Gold Fields, one of Africa's largest gold producers. Profit for 2006: more than 300 million USD. The company is traded on the Russian, London, and New York stock exchanges and is worth about 9 billion USD.
Polymetal is Russia's number three gold producer. It also holds the number one slot for silver production in Russia (and the number five slot in terms of world production). Profit for 2006: more than 60 million USD.
The gold industry is still highly fractured in Russia, with over 600 companies in play. The development of large Russian holdings such as Polyus and Polymetal, as well as the entry of international gold giants such as Peter Hambro Mining (currently Russia's number two gold producer) and Barrick Gold should help the Russian market continue to grow by providing companies with the resources necessary to develop large, new fields.
D. Iron, Coal, and Steel report an error back to top
Russia may hold as much as 30% of the world's iron. It is the world's third largest exporter of hard coal and contains coal reserves second only to the US. Russia also produces 5% of the world's steel and is the world's fifth largest steel exporter. Because of the abundance of both iron and coal, Russian steel companies are some of the world's most profitable. The companies below, like most steel companies world-wide, hold interests in all three resources.
Severstal posted two billion USD in profit for 2007. The company was led to its current status by Alexey Mordashov, its Russian CEO who is also a major shareholder. The company was involved in 2006 in a highly publicized merger deal with Arcelor, a Luxembourg-based steel company, that would have created the world's largest steel producer. The deal fell through and Arcelor was then merged with Mittal (which already was the world's biggest steel company). Severstal continues to push for a global reach however, and says that 40% of its steel is now produced outside of Russia and half its Russian production is exported.
Magnitogorsk Iron and Steel Works (Magnitka; MMK) posted 1.8 billion USD in profit for 2007. The original factory was pronounced a "hero factory" of the Soviet Union for the steel it made for Soviet tanks, but today is completely held by private investors. It recently began a new factory in India worth 10 billion USD, and has purchased plants in Turkey and Ohio for about 2 billion total.
Mechel claimed 600 million in profit for 2006, but holds more diversified interests in nickle and trade ports.
Evraz produces more steel in Russia than any other company and recorded nearly 1.4 billion in profit for 2006. Evraz accounts for 23% of the world's production of rails for railroad construction. Russian railways buys nearly 60% of this production. While nearly all Evraz's activities are in Russia, and while nearly all staff including management are Russian, the company is registered in Luxembourg.
E. Oil and Gas report an error back to top
Russia may contain as much as 35% of the world's supply of natural gas. It has proven reserves nearly twice that of Iran, the number two spot holder. It's reserves of oil are debated, but the US Geologic Survey estimates that they may be as high as 25% of the world's oil. The US Department of Energy states: "Russia is also the world's largest exporter of natural gas, the second largest oil exporter, and the third largest energy consumer."
Gazprom is Russia's largest company overall and produces one third of the world's natural gas. Via its purchase of oil company Sibneft, now renamed Gazpromneft, the country also controls substantial amounts of oil. Gazprom is the world's seventh largest company in terms of market capitalization (just behind Microsoft). 2006 profits were declared at more than 14 billion USD. Gazprom has a monopoly on natural gas exports from Russia, but not on domestic production; both Lukoil and Rosneft also produce substantial amounts of natural gas. More info on Gazprom Assets from the SRAS Encyclopedia. Read more from Wikipedia.
Lukoil is Russia's largest oil company (and sixth largest in the world). It owns wells, refineries, and a chain of gas stations which has been franchised into the US. Net income declared for 2006 amounted to nearly 7.5 billion. It is unique among Russian hydrocarbon companies in that the majority of its shares are held by minority stock holders.
Rosneft became a major player in Russian oil after its controversial takeover of Yukos' main oil production unit. For 2006, total profits were reported at more than 3.5 billion USD. Rosneft is majority owned by the Russian government and has recently made headlines for a planned 20 billion USD IPO, which was opposed by such figures as George Soros who said that if investors bought stock in Rosneft, it would be tantamount to approving of robbery (referring to the Yukos takeover). Rosneft has revised its IPO to 10 billion (it actually made 10.6 billion, making it the fifth largest ever IPO). As Erik Kraus, a Moscow financial analyst, forewarned, investors, knowing a profitable proposition when they see one, will "hold their noses" and buy.
Surgutneftegas is another of Russia's largest publicly traded oil companies. With revenues of more than 15 billion per year, it's also among the world's largest companies. It also stands out on the Russian market as a company dedicated to reinvesting profits into new technologies and exploring new deposits.
Article: Oil Reserves by Category (wikipedia entry)
Article: The Bases of a New Organisation of the Russian Oil Sector: Between Private and State Ownership (highly informative on the current situation in Russia).
Also: Yukos was once one of Russia's largest and most profitable oil companies. After it was accused of tax evasion and its CEO placed in jail on a multitude of charges that many say were politically motivated, the company went through a prolonged bankruptcy and was dissolved at the end of 2007. It's website has since been taken offline. More information from SRAS
F. Other Metals report an error back to top
Russia produces 19% of the world's nickle (used in making stainless steel and the batteries used in many hybrid cars). Russia also produces 41% of the world's palladium (used in everything from catalytic converters to electronics to dental equipment), 8% of the world's cobalt (essential in the construction of space craft and turbine engines), 9% of all boron (used in the manufacture of glass and ceramic), 6% of all cadmium (household batteries), and 5% of all tungsten (light bulbs, electronics, heating equipment).
Norilsk Nickle is one of Russia's largest mining and metals companies. It controls the majority of Russia's nickle, copper, and palladium production, and faces only fractured competition from within Russia. It produced 244,000 tons of nickle in 2006 alone. Norilsk Nickle is owned by the conglomerate Interros Holding, headed by Russian billionaire Vladimir Pontain. It's fate has long been undecided, however. In 2006, it was rumored that it may be merged with Alrosa, Russia's diamond monopoly in a move some analysts say may be the beginning of a state-controlled mining monopoly. That move never happened. Now, Rusal, Russia's number one aluminum producer is poised to buy a blocking share of the company. Investors are wondering, however, just how advantageous the move will be for either company.
Mechel, primarily a steel producer, also produces nickle (about 5% of Russian production).
UfaleiNikel is also often listed as major producer, though its production of 10,700 tons per year is dwarfed by Norilsk's production.
Two companies that are often listed as "major competitors" for copper production: UGMK, and Russian Copper Company (no website).
G. Titanium and Magnesium report an error back to top
About 23% of the world's titanium sponge extraction occurs in Russia. Titanium sponge is the major source of titanium, one of the world's strongest metals, which is used in military vehicles, arms manufacture, nuclear power stations, aircraft and shipbuilding, and drilling equipment. Russia also produces about 7.5% of the world's magnesium, most often used to raise the melting point of alloys (but has widely varied uses in agriculture, medicine, industry, and chemistry).
VSMPO-Avisma is the world's largest titanium company, controlling 30% of the global market and all of Russia's exported titanium. VSMPO-Avisma also mines substantial amounts of magnesium. Rosoboronexport, Russia's state arms export monopoly, owns 51% of the company, with the rest held by private Russian investors. The company is tentatively planning an IPO for 2009. Note: the company has two websites, one for products and a second covering mining.
Solikamsk is Russia's number two magnesium producer - producing 17,600 tons per year, just behind VSMPO-Avisma's 19,000.
H. Uranium report an error back to top
Russia controls 14% of the world's total uranium reserves and supplies about 8% of the world's needs. Both numbers are significantly higher if Russia's interests in uranium mining and export in Ukraine, Kazakhstan, Mongolia, Uzbekistan, and Kyrgyzstan are also considered.
TVEL is a private company, but wholly owned and managed by the Federal Atomic Energy Agency (FAAE). TVEL controls 100% of uranium mining in Russia, which takes place mostly in the Chita Region by a TVEL subsidiary, the Priargunskiy Mining and Chemical Combine (PMCC).
Texsnabexport (Tenex) is also registered as a private company and is owned and managed by the FAAE. It controls 100% of uranium exports from Russia as well as supplies various materials to factories owned by the FAAE and commercially imports speciality goods such as medical, biotech, and scientific equipment and protective clothing.
2. Russian Agriculture report an error back to top
Agriculture in Russia collapsed following the fall the USSR and has since suffered from underinvestment and problematic legislation on land ownership. Russia has long imported much of its agricultural needs from as far away as America and Argentina. That is beginning to change, however.
A. Crops report an error back to top
Russia produced 44.9 million metric tons of wheat in 2006, or about 7.5% of the world's total production, putting Russia in 4th place in this category. However, Russia's capacity for agricultural production is considerably greater. If Russia were to achieve the production levels recorded in 1992 again, it would be in first place in grain production overall. Russia is also number two in potato production Ц accounting for about 11% of world production. However, in this category as well, Russia's potential is far greater Ц a majority of those potatoes are grown on small farms Ц often without machinery, fertilizer, or even extensive irrigation.
B. Livestock and Dairy report an error back to top
While the total amount of livestock in Russia is only about 60% of 1993 levels, production efficiency has approximately doubled. In 2007, Russia ranked fourth in milk production (in calculations that took Europe as a single entity). While production of most products is still quite small on world standards, as much as 80% of Russia's potential agricultural land is currently unused, meaning that the production potential is great.
C. Agribusiness in Russia report an error back to top
Most major agribusiness companies in Russia are run by foreigners. Most are also looking to aggressively expand.
Black Earth Farming is a Swedish company that recently made considerable noise when it raised more than 115 million dollars from investors for an ambitious expansion. The company now controls about 244,000 hectares (over 1100 square miles) in southern Russia.
Russian Farms is a Russian group of companies chaired by a dual Russian-American citizen and which is attempting to bring modern machinery, processing, and distribution to Russian agriculture. The firm has recently received media coverage inside Russia when President Putin visited one of its dairy production units.
Heartland Farms Penza is a British-run business controlling 27,000 hectares in the Volga Region. They are currently seeking additional funds to expand (by perhaps as much as 150,000 hectares) and is currently working on contracts from Pepsi and Heinz.
3. Timber in Russia report an error back to top
Russia contains the world's largest forest reserves, roughly twice that of Brazil, which holds the number two spot for forested land and three times that of Canada, which is third. As of 2005, Russia was the world's fourth largest producer of forest products by volume, although it may be operating at as little as 10% of its sustainable capacity.
More on this section coming soon.
4. Freight Transport report an error back to top
Gazprom operates the world's largest gas pipeline network, known as The United Gas Transmission System. It includes the controversial Blue Stream pipeline in the Black Sea and the equally controversial North European Gas Pipeline (which has greatly angered Poland for bypassing its territory) as well as investments in the pipelines of other countries.
Transneft is Russia's state run oil pipeline company and is responsible for transporting the vast majority of Russia's crude. Profits for 2006 were almost 3.5 billion USD.
Caspian Pipeline Consortium is owned by Russia, Kazakhstan, Oman, and private investors. Its one pipeline carries crude oil from Tengiz, Kazakhstan to the Russian port of Novorossiysk.
Russian Railways is Russia's state-owned railway monopoly and ships most of Russia's non-hydrocarbon exports. It is also involved in most major resource developments, providing transport for both hydrocarbon and mineral resources. The company earned nearly 6 billion USD in profits for 2006. Vladimir Yakunin, its president, is widely known for his charisma, energy, and efficiency. He is also a close personal friend of Vladimir Putin and was rumored to be an underdog on Putin's shortlist of possible presidential successors for the elections in 2008.
Sovcomflot is Russia's largest shipping company and is specialized in shipping energy products. Originally a part of Soviet navy, it was privatized in 1988 but remains majority owned by the state. It operates a total of 59 ships and has another 11, including two LNG (liquefied natural gas) tankers, on order.
Other ship-owning companies serving Russian freight markets are Prisco, which operates another 35 tankers and Novoship, which operates a total of 58 ships and which Sovcomflot is currently finishing a takeover of by purchasing the remaining 9.5 share of the company it hasn't already purchased.
5. Government Agencies report an error back to top
Ministry of Natural Resources is charged with overseeing the "study, renewal, and conservation" of Russia's forests, subsoil resources, water supplies, and habitats.
The Federal Subsoil Resources Management Agency (Rosnedra) grants subsoil use (mining) licences in conjunction with regional authorities and regulates subsoil activities. The agency funds and manages scientific studies, expeditions, and appraises the worth of subsoil resources.
The Federal Supervisory Natural Resources Management Service (Rosprirodnadzor) oversees geological surveys, exploitation and protection of natural resources, and compliance with Russian and international law. It may inspect enterprises and suggest government policies but may not charge for its services or create regulations.
Ministry of Industry and Energy (Minpromenergo) develops energy policies and regulations governing the sector. It also oversees all Production Sharing Agreements (PSA) involving the use of subsoil resources.
Federal Agency for Energy (Rosenergo) suggests state policies, manages state funds and property that pertain to energy, including those going towards investment, research, and energy-related PSAs (see above). Note: there is also a business group named Rosenergo.
Federal Agency for Industry (Rosprom) suggests and enforces state policy as well as manages state funds and property that pertain to "mechanical engineering, metallurgical, chemical, petrochemical, biotech, medical, light industry, timber, pulp-and-paper, woodworking, aviation, ship-building, electronics, radio, communications, ammunition and speciality chemistry, chemical disarmament, and conventional arms." Also in charge of implementing state policies on PSAs (see above) relating to its fields of expertise.
The Federal Atomic Energy Agency (FAAE; Rosatom) replaced the Ministry of Atomic Energy in 1992 (although the web site still bears the MinAtom name). The agency has control over all use and production of radioactive materials in Russia. It grants certification for using such materials, but is structured so that most activity stays within the agency (see "Uranium" above).
The State Fund of Precious Metals and Stones for Securing, Issuing, and Utilizing Precious Metals and Stones (Gokhran), a division of the Ministry of Finance, is responsible for the government reserves of precious metals and stones. It is a major purchaser of raw diamonds and gold, and a major supplier to jewelry makers and gem finishers.
The State Committee of the Russian Federation for Standardisation and Meterology (Gostandart; Gost) regulates production processes, measurements, and environmental and physical safety in industries that include refining, mining, oil and gas pipelines, etc. With two partner agencies (ZNEENMash and Mintopenergo), Gostandart is also at the spearhead of government efforts to push energy efficiency in Russian production and products.
More Business Government Links>>>
6. Business Unions report an error back to top
The International Metallurgists Union is a Russia-based organization uniting metal producers from throughout the FSU and a few from other countries as well (mostly Germany). The union seeks to lobby government policy as well as encourage efficient management of and cooperation between those involved in the production of metal.
Ural Metal Producers Union unites the metal producers of the resource-rich Urals to influence government policy and to encourage cooperation in the market.
Russian Union of Metal and Steel Suppliers is, in large part, a marketing organization seeking to improve the position of Russian metals at home and abroad and to educate metal producers in marketing and sales.
Russian Aluminum Union is another lobbying and marketing organization for those involved in the use and production of aluminum.
More Russian Business Organizations >>>
7. Labor Unions report an error back to top
The Coal Miners Union of the RF was one of Russia's strongest unions - and enjoyed high wages and wide benefits throughout the Soviet era. The miners' strikes in 1989 and 1991 proved to be important events in what would eventually be the complete dissolution of the USSR. In recent years, however, as several mines in unprofitable areas have gone bankrupt, and new mines are more automated, membership in the organization has plummeted as has its political clout.
Russian Union of Metal Workers and Miners has been around since tsarist times. They were last featured in the international media when contract talks with Norilsk Nickle failed and 57 of its members went on a hunger strike until the government stepped in to restart the negotiations.
Russian Oil, Gas, and Construction Workers Union is Russia's largest with 1.5 million members. It is also one of the quietest, with no major contract disputes or strikes in recent history.
Russian Association of Oil and Gas Engineers works to support the rights and advance the interests of engineers in the Russian oil and gas industries.
More Labor Unions >>>
8. Related Education Programs in Russia report an error back to top
Politics in Russia - a full page of programs focused on politics, history, and language.
Article: Choosing an MBA program in Russia
MIRBIS is Russia's premier business school, offering regular semester visiting scholar programs as well as an MBA program.
9. More Information and News report an error back to top
Neftegaz.ru delivers comprehensive information on all aspects of the oil and gas industry.
Russian Petroleum Investor is the major English language publication covering the oil and gas businesses in Russia and Central Asia. The website gives free synopsis for articles (themselves informative), but full articles are available by subscription only. Russian Petroleum Investor is owned and published by WorldTrade Executive, a business publishing house and information service located in Concord, Massachusetts.
RosUgol.ru is an online resource providing information about the Russian coal industry.
SteelOnTheNet.com offers substantial information about the world steel industry and markets.
The National Threat Initiative is an organization devoted to reducing the threat of nuclear attacks. As part of this effort, they provide one of the most informative websites about the world uranium market. Note that the website is available in two languages: Russian and English!
The Aluminum Association delivers a free news service, a monthly online publication, and market analysis for the aluminum industry.
The Jewellers Guild of Russia offers a free news service on precious metals and stones.
The Passat Trading House in St. Petersburg provides this list of links for the metal industry.
More Russian Business News Sources >>>
10. Events and Other Links report an error back to top
Russian Oil and Gas Week is an annual, week long series of presentations and speeches about the Russian market and Russia's place in international markets. Hosted by RosCon, a major Russian consulting firm for oil, gas, mining, and technology firms.
International Week of Metals is a similar event hosted by RosCon.
Metal-Expo is an event hosted in Russia that attracts hundreds of metals companies from the world every year.
Mining World is a series of trade shows in Russia, Central Asia, and China where mining equipment is showcased.
Russian Metal and Steel Market is an annual event for producers and buyers of metal.
CIS Coal Summit is organized yearly in Moscow by Adam Smith Conferances.
International Jewelry Moscow is Russia's major exhibition of jewelry and gemstones.
USRCCNE's Internet resources is compiled in partnership with member firm The School of Russian and Asian Studies as part of a larger project entitled "The Library," which seeks to bring students Internet resources to research topics about Russia.