This is a follow-up from my last post regarding the impact of sanctions on large companies in Russia.
I was reading the other day, not about the impact that sanctions are having on Russian companies, but of the lack thereof. Large Russian companies seem little deterred by sanctions from America and the European Union and this attitude is continuing into next year.
Large companies like Upravlayushaya Kompaniya Agroholding Kuban will continue with business as usual next year as they plan to sow the same amount of wheat in 2015 as they did in 2014. Out of the 59 million metric tons of wheat produced last year, only about 5 million metric tons were shipped to other countries, meaning that production will keep up with local demand and feel little threat from international sanctions.
Another big player, Norilsk Nickel, will not only meet production expectations for 2015, they predict that nickel will actually run a deficit as supply cannot keep up with growing demand.
The attitude of ‘business as usual’ comes as no surprise to myself or many others. Sanctions have done little to deter large companies from turning a profit, or even expanding into Asia as we’ve seen many do in recent months.
Sanctions have succeeded in constricting lending and raising borrowing rates, but that only impacts small producers reliant on banks like the Russian Agricultural Bank, although even they have claimed to have only ‘insignificantly’ raised interest rates. Large producers are not, nor should they be, making concessions over these sanctions as their cash holdings and cash flow more than make up for loan availability for new projects.
While I do not expect to see major expansion over the coming fiscal year, I would be surprised if large producers significantly limited their output in the face of toothless sanctions.