Comment by HGK: Croatian exporters to Russia should insure themselves from currancy risk due to ruble decrease

Since February till the end of September the ruble exchange rate was around 50 ruble for 1 euro, then it was the fast increase of euro, that culminated in the middle of December when it got closer to the level of 100 ruble just for a short time, just after the intervention of Russian bank by increasing the interest rates from 10,5 % to even 17%. But after the talk by Russian president that Russian foreign exchange reserves and limitations of grain exports and measures on capital control, the falling trend had been stopped and currently the value of ruble is around 69 ruble for euro. So, at the end of December euro was 38% stronger comparing to ruble than 3 months before, and we concluded that the trend is moving towards the stability of exchange rate.

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It should be said that official statistics on commodity exchanges of Croatia with Russia did not show visible deviations: total export in first 9 months was increased for 12% (closely to 20 million euro), in the context of increase in the value of ruble towards euro of 15%. Of course, during last quarter the decrease of ruble was much sharper, so we expect that the results of Croatian export in Russia till the end of the year will be worse, but not so dramatic.

By decrease of ruble towards euro (and American dollar) all exporters on Russian market, as well as Croatian ones, become non-competitors comparing to domestic Russian producers of the same goods: the same product whose price till last few months was 50 ruble (or 1 euro) now it has the price of around 69 ruble (1eur again). This, on long term, cuts down on Russian demand for exported products, which influence business with all companies exporters to Russia, even on Croatian, most dramatically in those whose business is in great amount drawn towards Russian market.

But macro economically speaking, as Croatian export to Russian makes only small part of Croatian export (only 2,5%), the crisis in Russia will not have huge impact on Croatian export. But it will, for sure, make an impact on single Croatian companies that does business on Russian market (according to the HGK some of the more important are Pliva Hrvatska d.o.o.; JGL d.d.; Belupo d.d.; Ericsson Nikola Tesla d.d.; Omco Croatia d.o.o.; Podravka d.d.; Končar – Energetski transformatori d.o.o.; AD Plastik d.d.; Harburg-Freudenberger Belišće d.o.o.; Končar – Mjerni transformatori d.d.; Adria Winch d.o.o.; MIV d.d.; Tondach Hrvatska d.d.; Piramida d.o.o.; D.E.M. d.o.o.; ACG Lukaps d.o.o.; Klimaoprema d.d.; Aluflexpack novi d.o.o.; WAM Product d.o.o.; DOK-ING d.o.o.) and some of the big and very important companies for Croatian economy. The decrease in the price of shares is visible on Croatian capital market.

AD Plastik whose shares price decreased in last three months for 30%, Podravka with estimated income decrease in next period due to Russian crisis, where the price of shares in last three months fell for 15%, and Končar with a fall of for 20%.The biggest Croatian exporters in Russia are companies in pharmaceutical industry; around 51% of total export in Russia is referring to medicine, on the level of around 49 million euro.

The fact that can make Croatian exporters in Russia to worry is long term economy situation in Russia which is significantly reduced (in third quarter 0,7%) which shows the contraction of demand which can result in smaller possibilities to place Croatian products on Russian market. The Russian market crisis ( that is estimated to be the most serious since 1998) confirmed by one of three leading world agencies for loan rating Standard&Poor’s that Russia could soon, first time in ten years, lose its investment loan rating and get into category sub investment range (“trash”). At the same time it is predicted that Russian economy activity could fall next year, what would be its first fall after 2009. It is estimated that the level of fall of Russian economy could be up to 4% if the price of barrel for raw oil stays on the level of around 60 days.

Croatian bank sector or the part of bank sector connected to money flow with Russia reacted after the dramatic fall of ruble by offering the insurance of currency risks connected to ruble (hedging), which would be specially useful to Croatian companies that are mostly exposed to Russian market. On Croatian financial market, hedging as an instrument of managing currency risk via derivatives like future contract, option or contract spot were not significantly used till now by Croatian companies, firstly due to not been informed about its possibilities and perception on its insufficient and too high price, but maybe the time of change has come in the light of economy and financial insecurity and severe shocks. Banks should play important role in better awareness of clients and transparent offer of service that allowes better managing of business risks.

 

Source: HGK

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