2 More Coal Firms Come Under Fire

The government's antitrust probe into rising coal prices widened Wednesday to include Evraz Group and Raspadskaya, just days after Prime Minister Vladimir Putin attacked miner Mechel.

The Federal Anti-Monopoly Service said in a statement Wednesday that it had launched an investigation into whether Evraz and Raspadskaya had abused their "dominant position in the market for coking coal, setting unjustifiably high domestic prices and discriminated against the domestic market."

The service said Raspadskaya's and Evraz's coal prices had "roughly doubled" from September through May.

Evraz is part-owned by former Chukotka Governor Roman Abramovich, a close ally of Putin's. Evraz owns 40 percent of Raspadskaya.

If the companies are found guilty of antitrust violations, Evraz could face a fine of up to $70 million, and Raspadskaya of up to $40 million, said Georgy Buzhenitsa, a metals analyst at UniCredit Aton.

The new probes come six days after Putin on Thursday urged an investigation into Mechel over price-fixing, criticized its billionaire owner, Igor Zyuzin, for not showing up to an industry meeting and proposed scrapping import tariffs on iron ore and coal to curb steel costs.

Putin followed up his criticism of the company Monday by accusing it of illegal transfer pricing. In response to the attacks, Mechel's shares shed 49 percent of their value by Tuesday's close.

But analysts and market participants on Wednesday questioned the credibility of the accusations against the three companies, which together account for more than 50 percent of the country's coking coal market.

No one at Raspadskaya, the country's second-largest coking coal producer, was immediately available for comment. Evraz declined to comment. In its only statement since the scandal broke, Mechel said Friday that it was ready to cooperate with the government and answer any "arising questions."

Evraz's London-listed shares fell as low as $85.40, or 7.2 percent, in early trading, then recovered to finish the day flat at $92, while Raspadskaya rose 1.9 percent to 161.74 rubles on the MICEX exchange. Mechel's New York-listed American Depositary Receipts were up 11.3 percent to $20.71 at 1.30 p.m. on Wednesday.

The ruble-denominated MICEX Index posted its first gain in seven days, led by steelmaker Severstal, and closed up 4.3 percent to 1,501.20. Norilsk Nickel, the world's biggest producer of the metal, advanced for a second day after it moved to consider an ally of Putin as chief executive.

Olga Mitrofanova, an analyst at UniCredit Aton, said in a note to investors Wednesday that the state's recent interventions in the metal sector were aimed at increasing control over the sector, as well as raising more taxes to fill in the gap left by recent tax cuts to the oil industry.

The Mechel case and Monday's announcement that Vladimir Strzhalkovsky, a longtime ally of Putin's, could become Norilsk CEO, were connected, Mitrofanova said. The markets "understood -- a state person in the company's management will decrease the risks," she said. Mitrofanova said she expected other metal companies to soon follow Norilsk's lead and offer top jobs to people with strong state connections.

A market source said the probes into Evraz and Raspadskaya rang a little hollow, as -- unlike Mechel, which pursued aggressive sales policies -- both companies were known for "their moderate client-friendly policies."

"The charges facing Evraz and Raspadskaya seem to serve as a screen to some different processes unfolding against Mechel, an aggressive leader on the country's coal market," a source said on condition of anonymity, citing the sensitivity of the issue. "We all understand what can happen with a company that has been criticized by Vladimir Putin, and has been criticized twice."

Gerard McCloskey, head of the London-based McCloskey Group, a leading authority on the world coal market, said the country's coal producers were being made scapegoats for the high prices being faced by some of their rivals in the steel industry. "Why should Mechel and Evraz pay for Novolipetsk's mistakes?" McCloskey said. "Mechel and Evraz have ... gone to the expense of investing in coking coal mines, while Novolipetsk left it late in the day."

"The world is critically short of coking coal, just as it is of oil," McCloskey said. "If Russia's oil companies can charge world prices for their oil supplies, why not the coking coal companies?"