(This is a guest post from Dances With Bears.)
Russia’s Prime Minister Vladimir Putin has requested that the Federal Antimonopoly Service (FAS) open an investigation of price rigging in the domestic sale of steel products. It is the first direct intervention by the prime minister against the pfoti-taking by oligarch-owned companies since August of 2008, when his last, if temporary victim was Igor Zyuzin, owner of the Mechel steel and mining group.
Putin acted on a complaint from Uralvagonzavod (“Ural Wagon Works”, UVZ), the state-owned manufacturer of railway cars and tanks, road-building vehicles, metallurgical products, tools, and the Russian Army’s main battle tank. In the complaint lodged by UVZ’s chief executive Oleg Sienko, it was reported that four steel suppliers — Evraz, Mechel, Magnitogorsk, and Severstal — had demanded price increases, starting on April 1, of 10% to 30% above the previous contract delivery level for UVZ.
Sienko’s submission to FAS argues that in principle the rise in costs of raw materials to the steelmakers, such as coking coal, iron-ore, and scrap, should not be passed on to consumers, and that domestic prices should be frozen for a year. If the steelmakers refuse, UVZ is calling on the government to increase foreign steel competition, forcing the domestic steelmills to lower their selling prices. UVZ’s complaint calls for cancellation of import duties on steel, and the introduction of a 15% export duty on steel shipped abroad; this is comparable to the 15% export duty on exports of scrap which has been in effect for more than a decade.
A report by UBS steel analyst, Alexei Morozov, told clients on Monday: “we don’t see any major price caps at this stage, especially as those would involve limiting growth in iron ore, coking coal and scrap prices, which may destabilize the whole steel production chain (affecting investment programs, destabilizing companies’ financial positions, etc.). However, we don’t rule out that longer-term contracts might be imposed domestically, both for steel and for raw materials.”
The involvement of Putin and FAS revives sore memories on the part of Mechel, whose chief executive, Igor Zyuzin, was publicly upbraided by Putin in July of 2008 for abusing his pricing power in the domestic market for coking coal. That public attack caused Mechel’s share price to drop by more than a third. The FAS went to penalise the coking coal units of Mechel, Evraz, and others. A report by Troika Dialog said Monday “whether this story will repeat itself and to what extent are the big questions.”
Business Insider Emails & Alerts
Site highlights each day to your inbox.