Russian Industry: Results of February 2020

The Institute for Problems of Natural Monopolies (IPEM) analyzed the results of the Russian industrial complex in February 2020. Over the past month, the Institute noted a slight increase in production against the background of a decline in demand for industrial products.

The indicators of the state of production and demand for industrial products calculated by IPEM in Russia at the end of February 2020 demonstrated a multidirectional dynamics: the IPEM Production Index grew by 0.6% (as compared to February 2019), the IPEM Demand Index accelerated the fall and decreased by 2.6%. According to the results of January-February, both the IPEM Production Index (-0.2% as compared to the same period of 2019) and the IPEM Demand Index (-1.8%) registered negative values. For index calculation methodology, please refer to the reference information.

In February, the demand for the products of the extractive industries grew by 0.8% as compared to the same month of the previous year. Following the results of two months of 2020, a decrease in demand by 0.7% was recorded.

Oil production in February 2020 against February 2019 rose by 3.2% to 44.7 million tons (in January-February - by 1.2% to 92.5 million tons). Oil exports rose by 5.4% to 23.5 million tons in February, while the growth amounted to 2.3% to 48.1 million tons for two months. The average Urals price in February updated the two-year minimum against the background of pressure from both global demand, which declined due to a number of largely non-systemic factors, and excessive supply due to the lack of an agreed position of OPEC+ on new production constraints.

Last month's natural gas production in Russia was 60.4 bcm, 2.4 percent less than in February 2019 and 126 bcm over two months, 2.7 percent less than last year's results. Exports to non-CIS countries also continued to decline (-7.7% to 14 billion m3 in February and -16.7% to 27.3 billion m3 since the beginning of the year).

Coal production continued to decline: by 6.6% to 32.6 million tons in February (-6.5% to 66.5 million tons for two periods since the beginning of the year), while exports fell by 15.5% to 12.6 million tons.

Low-technology industries have been showing steady growth in demand since July 2019. In February, the growth was 8.2%, while in January-February - 5.4% compared to the same period last year.

Almost the entire range of medium-technology industries demonstrates a decline in demand for their products. Demand has been declining for the tenth consecutive month: in February, the demand indicator was -2%, since the beginning of the year - 1.7%. In domestic consumption, the demand for ferrous metals has decreased (-5.5% in February, -1.6% YTD) and non-ferrous metals (-14.1% and -1.1% respectively). The same trend was observed in the external demand: -7.8% for the month and -16.5% since the beginning of the year in the segment of ferrous metals, -15.7% and +1% - non-ferrous metals.

In high-tech industries, IPEM records a 4.9% drop in demand in February (-2.3% in January-February). Machine-building products shipment on the railway network continued to fall in February 2020 (-15.8% compared to the same period last year, -16.6% in January-February 2020). At the same time, a stable decline in shipments is observed both on the domestic (-15.3%, -18.1%) and foreign markets (-19.7%, -2.2%).

"The coming months will be a test of strength for most industries, and this time a significant dependence on exports may be an additional risk factor," said Deputy Head of Research Fuel and Energy Complex IPEM Evgeny Rudakov. - The reset of trade links in the global economy will create a certain window of opportunity for Russian exports of phosphate fertilizers, as well as for the majority of industries aimed at the domestic market, the development of which in recent years has been influenced by import substitution.

Background information:

The calculation of indices is based on indirect integral indicators, which are highly reliable and timely - electricity consumption and cargo loading by railway transport.

The calculation of the index of industrial production (IPEM-production) is based on the fact that electric power is the means of production for any industrial process. The index is calculated on the basis of data on electricity consumption, structured by consumer categories, cleared of seasonality factors, the influence of non-industrial consumers and random temperature factors.

Industrial Product Demand Index (IPEM Demand) is calculated on the basis of operational data on loading of industrial goods by railway transport. Railway transport in Russia carries up to 80% of industrial goods and raw materials, so it is the railroad transport characteristics that reflect the aggregate demand for industrial products in the economy.

About the organization:

The Institute for Problems of Natural Monopolies (IPEM) is a Russian independent research centre for infrastructure and related industries. It was founded in 2005. The Institute's research team consists of 30 specialists, including 5 doctors and 5 candidates of science. Over the 14 years of work, more than 500 research papers have been carried out. IPEM actively works in more than 30 expert councils and working groups of authorities, infrastructure companies and industry associations. More information about the Institute can be found at www.ipem.ru.

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