Institute of Natural Monopolies Research published the results of monitoring of the situation in industry in September 2015. The review is in the abbreviated form below.
Stable fluctuations of IPEM-production index* around zero (+0.8% in September 2015 to September 2014) give the impression of a lack of serious crisis. Indicators of demand for industrial products, which are moderately, but steadily decreasing (IPEM-demand index 2.1% in September 2015), are much closer to the real situation in the economy.
IPEM-production index increased for the period January-September 2015 by 0.6% over the same period of the last year. IPEM-demand index showed a drop of 2.5% from the beginning of 2014.
Calculation of the IPEM-demand index** shows that demand growth in annual terms was observed only in the extractive industries. In addition, a recovery in demand in low-tech industries is observed in recent months. These are: food production, textile and clothing manufacture, manufacture of leather products and footwear, wood processing and manufacture of wood products, pulp and paper production, publishing and printing.
Medium technology industries (production of coke and petroleum products, chemicals production, production of rubber and plastic products, manufacture of other non-metallic mineral products, metallurgical production and production of finished metal products) show a negative trend 3.4% to September, 2014 and 1.4% to early 2015. Recovery in the medium technology industries continues to largely depend on the recovery of domestic demand in the steel sector. The low level of investor interest and a significant drop in the prices of basic metals create an extremely negative market conditions in the steel sector. The main players are forced to work on the verge of profitability. Keeping prices at current levels threatens to freeze a number of major projects already by the end of this year. Exploitation of devaluation effect of the fall of the ruble is a key factor that does not allow the sector fall much in the current conditions. There is continuing growth of exports of ferrous metals (+9.8% YTD) and non-ferrous metals (+1.7%) against this background. In connection with the implementation of new pipeline projects the pipe segment of the market continues to gain momentum, statistics of production of large-diameter pipes is especially noteworthy (+ 38.8% in January-August). According to the latest results of exports of chemical and mineral fertilizers (+4.8% in September, +3.0% in August, +3.2% in July, +1.2% in June), the effect of devaluation has not yet been exhausted.
Monthly dynamics of demand in low-tech industries in the second half of 2015 gives us some hope (+1.5% in September, +0.6% in August, +0.9% in July), however, the annualized result has been still negative (0.7%). Most likely, against a ban on the import of certain products and the sharp rise in the cost of imports, we are seeing a certain redistribution of the market, mainly in the volumes to which the Russian facilities had previously been underutilized.
Demand in high-tech industries (production of vehicles, machinery and equipment, manufacture of electrical and optical equipment) continued to shrink in September 2015 21.3% in September 2014 and 25.3% YTD. It is noteworthy that the shipment of machinery products in the domestic direction showed a positive growth (+ 2.1% in September) for the first time in more than 3.5 years. In the near future export route can begin to recover: a weak ruble makes exports of products manufactured in Russia attractive for foreign automobile makers. For example, Renault company has increased export of cars by 20% over the 8 months of 2015.
Prospects for the development of the situation in the industry, the reflection of which is the dynamics of investments in fixed capital, are less rosy. According to Rosstat, the investments in fixed capital at constant prices in January-August 2015 decreased by 6% comparing to the same period of 2014. It should be noted that the statistics of investments is carried out in rubles, and the cost of many important investment goods is set in foreign currency. This means that the physical volume of imported goods purchased should be adjusted by the difference in rates for the period from January to August ($ 2015 / $ 2014 = 1.69). And it is necessary to evaluate the dependence of investments on imports for the contribution of this factor in the outcome indicator of the dynamics of investments. For example, about 35% of total investments are from the category of "machinery, equipment and vehicles". Dependence on imports is maximum in this category and is more than 50% (the domestic consumption = production + imports exports). The simplest calculation, taking into account the decline in purchasing power of ruble, where a high proportion of purchases of imported equipment is, shows: the real decrease of physical volume of investments in fixed capital may be 10 percentage points higher than the official statistics reflects.
* The fact that any industrial process uses electricity as a means of production is laid into the basis for calculating the index of industrial production (IPEM-production). IPEM-production index is calculated based on power consumption data, structured by customer categories, cleared of seasonality factors, of the influence of non-industrial consumers and random temperature factors. Adjustment on the length of daylight has been made since 2011 for a more accurate account of seasonal factor. IPEM-production index allows obtaining timely and accurate information about the state of the industry (including informal, illegal activities).
** The basis for calculating the index of demand for industrial products is the following assumption: the time of consumption of industrial products corresponds to the moment of its transportation. IPEM-demand index is calculated primarily on the basis of operational data on the loading of industrial goods for railway transport. That is the data on the loading at the Russian stations what allows to remove the data on the transit and import loads from the data on the railway transportations, but to consider the exports. It is transported up to 80% of industrial products and raw materials by the railway transport in Russia, so it is the characteristic of railway transport what reflects the aggregate indicator of the demand for industrial products in the economy. Stable correlations of the dynamics of production of various industrial goods with loading of these categories of goods to railway transport are the basis for the support of the calculation. IPEM-export and IPEM-import indexes are calculated on the basis of statistics on the carriage of goods in export and import directions.