. Last Updated: 07/27/2016

Norilsk Averts Dockworkers' Strike

Norilsk Nickel, the world's second largest nickel producer, averted a dockworkers' strike Monday but spoke of its dire financial straits and told employees to steel themselves for cutbacks.


A group of workers in the Arctic town of Norilsk called off their threat to stop loading metals for export from the port of Dudinka, Norilsk spokesman Sergei Vetchinin said.


But he said the company was in deep financial trouble -- surprising analysts who had thought RAO Norilsk Nickel's new majority shareholder, Uneximbank, was closer to turning the giant nickel, copper and precious metals producer around.


"There is an appalling collapse at Norilsk," said metals trader Ruslan Fedorovsky of Barclays Physical Trading Ltd. in London.


"It's a complete breakdown and there is little control over the situation."


Vetchinin said layoffs could hit 80,000 non-production employees at Norilsk's flagship combine.


"We've described the depths of our financial crisis and they understand," he said, adding that 800 million rubles ($150 million) of delayed wages would be paid off by November.


But Norilsk workers, once laid off, have nowhere to go -- leaving markets to wonder how labor unrest and sluggish cash flow could affect the company's production and exports.


"A number of us were surprised by the depth and severity of the problems there," said metals analyst Raj Kohli of MC Securities in London. "There will be some ongoing disruptions."


Norilsk is looking to state bailouts and a share issue to pay off its total 13 trillion ruble debt and plans a new financial austerity program by November as part of its restructuring scheme, Vetchinin said. But he said powerful Uneximbank had no more cash to pump into Norilsk.


Metals analysts are surprised that Norilsk's strong 1995 pre-tax profit of nearly 5.5 trillion rubles has not translated into enough cash to meet immediate needs like overdue salaries and back taxes.


Vetchinin said that softer world metals prices meant that even exporters who pre-paid were not providing enough cash. Norilsk produced 180,100 tons of nickel in 1995, up 11 percent compared with 1994, and sees 1996 production rising 3 percent.


"The more major issue is how much longer it can go without big investments in its fixed assets," Kohli said, adding that around $1 billion was a ballpark figure needed. "But we're optimistic, because as an ore body it's extremely wealthy and can produce large volumes at relatively low cost."