Kazakhstan’s Subsoil Sector Productivity: Why Markets Matter
Kazakhstan’s public and private enterprises engaged in digging, drilling and pumping valuables out of the ground often still speak in terms of “plans” where output targets area concerned. Old habits die hard. But whether “planned” productivity, also defined as targets in modern jargon, fully correspond with realities on the sales side requires a closer look at facts and figures.
It looks horribly unfair which it is. But these days, “markets” meaning groups of hardly ore than a thousand people each can make or break entire national economies (as they did back in 1929). So-called emerging economies are particularly exposed to the whims of such small bunches of mostly not very erudite and unpredictable “golden boys” where it comes to the sales value of the “finite” (i.e. one day coming to an end) commodities sales of which determine their national prosperity to worrying extents.
This preposterous situation has emerged out of the transition of economies by productivity-driven ones to cash-driven ones. Simply said: till the middle of the XIX Century productivity was the main parametre of a nation’s economic state of affairs. Supplies of goods and services, measured in quantity and quality, following the doctrines formulated by the likes of Adam Smith, David Ricardo and Jeremy Bentham, indicated how “rich” a nation was, and not the amount of cash piled up at national banks and circulating among the population. This changed with the emergence of bourses halfway the XIX Century, which gradually took control over sales out of producers’ hands.
It is that process, in which trade in paper, meaning speculative purchasing options of merchandise of which only a mere fraction really exists, was added to cash deals in such a way that supplies became subordinate to cash rather than cash subordinated (which is why money was invented in the first place many centuries earlier) to supplies. In the second half so-called monetarism, imposed by the American Allies towards the end of the Second World War as a prize for their military intervention against the nazis, gave traders a free hand, protected by fixed, independent cash values maintained by the American Federal Bank and its puppets across the Atlantic and the Pacific, to determine the income on produce for its producers. The latter are thereby forced to cut output, whether buyers want it or not, whenever traders move to squeeze them by low bidding.
“Winners”, “strugglers” and “losers”
It all means that today, mining and oil and gas production enterprises have to work in an economic limbo, not knowing whether what they are taking out of the ground is worth the costs, let along having even a faint idea concerning any profit the enterprise is going to make on them. This largely explains the striking discrepancies one finds if comparing production results of Kazakhstan’s subsoil industries with the trends and developments in sales prices through the same period.
Looking at price indications of subsoil resources (see table I) over the last two years, it becomes clear that if one divides the producing sectors into “winners”, “strugglers” and “losers”, the first category includes zinc, tin and lead (together with aluminium, the latter has posted remarkable gains this year since the end of 2016), and silver. Copper still falls under the category of losers: it has slightly recovered into 2017, but not enough for the loss in position it suffered since the beginning of 2015 – leaving gold as a “struggler” with conflicting market forecasts keeping it in the same balance as it has been hanging over the last two years. The same can be said of Brent, the main trend-setter in the pricing of Kazakhstan’s Urals blend. Coal and uranium fall definitely under the “losers” category with little hope for recovery on a short or even a mid-term.
|TABLE I: PRICES OF SUBSOIL COMMODITIES ON GLOBAL MARKETS RELEVANT FOR KAZAKHSTAN|
|USDc = US dollar cent; EURc = euro cent|
|gold||London Bullion Market 1]||ounce||USDc||119990||116910||120600|
|silver||London Bullion Market 1]||ounce||USDc||1706.00||1588.50||1597.00|
|aluminium||London Metal Exchange 2]||tonne||USDc||183900||171350||n.a.|
|copper||London Metal Exchange 2]||tonne||USDc||570600||550100||628425|
|lead||London Metal Exchange 2]||tonne||USDc||230900||198500||185675|
|tin||London Metal Exchange 2]||tonne||USDc||2020000||2110000||1891000|
|zinc||London Metal Exchange 2]||tonne||USDc||273650||256300||217950|
|cobalt||London Metal Exchange 2]||tonne||USDc||3600000||3290000||n.a.|
|molybdenum||London Metal Exchange 2]||tonne||USDc||1525000||1525000||n.a.|
|steel||billet London Metal Exchange 2]||tonne||USDc||32500||32500||n.a.|
|Brent||InterContinental Exchange 3]||barrel||USDc||5549||5682||5755|
|Urals||InterContinental Exchange 3]||barrel||USDc||5380||5356||n.a.|
*as of January 16
Looking at Kazakhstan’s productivity numbers in 2014 and 2016, as supplied by the National Statistics Agency (see table II), one can see that as opposed to global price-setting trends, production of virtually all commodities listed by the Statistics Agency have been in decline in the last three years, though not to dramatic proportions. The sharpest declines can be seen in the output of iron ore and manganese. Only the output of copper has doubled between 2014 and 2016 – against all odds if one keeps its international price-settings on the London Metal Exchange in mind.
Gold, of which Kazakhstan witnessed an increase of 21.6 per cent to 37.74 tonne in the last year, and and silver, which saw a decline in output of 10 per cent to 1,176 tonne in 2016, are not on the Stataistics’ agency’s list, even though news media reported on their numbers did so with reference to the Agency. The same is true for uranium, which has just been cut by 10 per cent from the original target for this year due to market constraints.
“Kazatomprom Chairman, Askar Zhumagaliyev, announced that due to the prolonged recovery in the uranium market, planned 2017 production from Republic of Kazakhstan will be reduced by approximately 10%. This will amount to a volume greater than 2,000 MtU or more than 5 million lb U3O8 reduction in 2017 planned output. In a greater context, this is equal to 3% of total global uranium production (based on 2015 UxC Consulting figures),” n the words of a recent press release from state company Kazatomprom.
|TABLE II: OUTPUT OF SELECTED KAZAKH SUBSOIL COMMODITIES IN 2014-2016|
|in million tonne; natural gas in million cubic metre|
source: Kazakh State Statistics Agency
It leaves the capital valuation of Kazakhstan’s subsoil industry sectors (ss table III), a selection of which has been given by the Statistics Agency for the first time over 2016, with much to be wished for. Some companies, especially those that have stock and other paper traded on international exchanges, give detailed overviews of their output-sale-income ratios. What is clear, though, is that with 60 billion greenbacks in capitalisation for the entire industry and about half of that on the account of subsoil sectors (manufacturing accounts for just over one-third), Kazakhstan is still a long way from entering the company of net commodity-consuming economies in the world.
|TABLE III: CAPITAL VALUATION OF CORE SUBSOIL SECTORS’ OUTPUT IN 2016|
|in billion local currency cash value (1USD = KZT333.50 as of end-2016)|
source: Kazakh State Statistics Agency