Mechel Fined $32M, Ordered to Cut Price

Mechel, the miner savaged by Prime Minister Vladimir Putin last month, will escape with an enforced 15 percent reduction on coal prices for the steel sector from Sept. 1, less than had previously been feared.

Mechel will also be fined 5 percent of last year's coking coal revenues, or about 790 million rubles ($32.2 million), for abusing its dominant market share, Federal Anti-Monopoly Service chief Igor Artemyev said Tuesday, Interfax reported.

"It's lower than the higher end of the range, so, from this perspective, it's favorable for the company," said Maxim Semenovykh, a mining analyst at Alfa Bank. Mechel could lose $45 million in potential revenues in the last four months of the year, he said.

Semenovykh said the price cut was serious for Mechel and the industry. "Mechel will just be the first: They will try to implement this price decrease for other coking coal producers and eventually for steel producers," he said.

The government, struggling to rein in inflation, has expressed concern over the high price of raw materials used to make steel. Mechel's case has drawn special attention after Putin twice last month attacked the company's pricing policy, triggering a sell-off that erased $8 billion, or half the New York-listed company's market value, in the space of three trading days.

"We will recommend the company lower its prices by 15 percent to the end of the year from Sept. 1," Artemyev said after meeting with Putin on Tuesday.

Mechel officials were not available for comment.

The anti-monopoly service, in a ruling Thursday, found Mechel guilty of abusing its market position and said a fine of 1 percent to 15 percent could be imposed. Russian media had said the miner could be forced to cut prices by 30 percent. Mechel, majority-owned by billionaire Igor Zyuzin, is Russia's largest producer of coking coal for the steel industry.

Mechel's competitors in coking coal, Raspadskaya and Evraz, are also subject to an anti-monopoly investigation.

Artemyev said both companies would be subject to the same demands and sanctions as Mechel. The companies both declined comment Tuesday.

The service said last Thursday that Mechel, which has angered some Russian steelmakers by cutting supplies this year, would also switch to long-term coking coal supply contracts from 2009.

Putin, addressing a meeting on competition Tuesday, said raw material suppliers to the steel industry had already heeded his calls to observe competition laws and that steekmakers should follow this example when agreeing contracts with customers.

"I'm pleased to note our discussions have produced positive movement," Putin said, Interfax reported. "Steelmakers themselves need to reach agreements with their customers."

He added, "We should create a system that will regulate the competition situation justly and rationally."

Mechel's U.S. shares rose jumped as much as 5.3 percent, the most in five days, and traded 2.1 percent higher at $26.44 as of 10:37 a.m. in New York, after falling Friday and Monday, Bloomberg reported.