Not three topics you would necessarily lump together in one post, unless of course you were being lazy. You will be pleased to know I am never lazy on days that don't end in “y”.
The UBS gas report I posted on here talked, inter alia, about the risk of significant cost increases for domestic industry due to a tight gas supply/demand scenario and the not illogical desire of the Turkmenbashi to get a reasonable price for its gas.
So its not entirely surprising that GAZP have agreed to buy Turkmen gas at $100 per thousand cubic meters (mcm). That's an increase of $35/mcm or 53%. The easy reporting will talk about the impact on Ukraine's heavy industry; which in reality has known that the price hike has been coming for a while. Indeed the price increase has been signaled for some time and the new Ukraine government has already agreed to, and budgeted for, the price increase. The agreement between the great Turkmenbashi and GAZP also forecasts a reduction in gas sales from 80BCM (billion cubic meters) to 50BCM per annum over the three year agreement. Prices up 53%, supply down 38%. What was that UBS said about the supply risks all being on the downside?
Meanwhile domestic inflation leapt in August, traditionally a month in which it decreases. Something to do with everyone living out at the dacha and living on pickled garlic. It's the detail rather than the headline that matters;
Consumer Prices Item Change since January 2006
Fruit and vegetables +21.6%
Alcoholic drinks +6.2%
Sugar +41.5%
Gasoline +9.3%
TVs, radios, etc. -1.2%
Construction materials +6.0%
Garbage removal +15.9%
Kindergarten/preschool +23.7%
Education +5.9%
Overall consumer price index +7.1%
The pain will be felt most by the consumer.
To control inflation the Central Bank has let the Ruble appreciate. Yesterday alone the Ruble appreciated 0.3% against the US$. A range of investment banking analysts have a range of year end Ruble prices ranging from RUR25.3 - RUR26.3:US$1 from yesterdays RUR26.7 and todays RUR26.64. So price inflation, which leads (inevitably) to salary inflation, Ruble inflation, input price inflation. Something has to give; the first place we will see it is in domestic profitability reported in RUR. Currency appreciation will hide a number of sins until it is stripped out, but its not real its an accounting provision.
Oh and I was lying about being worried about Ukraine; you've made your bed now lie in it.
[composed and posted with ecto]
Technorati Tags: Commodities, Energy, Gas, GAZP, Russia, Turkmenistan
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