Putin Attacks Steel Price Hikes

BloombergAn employee working at a Nizhny Tagil steel mill. Steelmakers will be able to raise their prices by 22 percent.

Prime Minster Vladimir Putin lashed out Monday at a price hike planned by metals makers, questioning its economic feasibility just as the industry agrees to a compromise increase of 22 percent.

International metals prices are higher than a year ago, Putin acknowledged at a meeting on pricing issues.

But “even taking this into account, a single-step price increase of 25 to 30 percent for domestic consumers goes beyond the normal economic logic,” he said.

Metals prices are expected to soar by up to 30 percent starting in June, a shift that has already caused the oil sector to complain about increasing pipe prices. Carmakers AvtoVAZ and KamAZ said metals makers have threatened to stop supplying them with steel until price negotiations are concluded.

The government and steelmakers have agreed to raise steel prices by 22 percent, which is a considerable discount from the initial amount demanded by the steel industry but still higher than the 17 percent increase that carmakers had hoped for, Sergei Chemezov, head of Russian Technologies, the major state-owned shareholder of AvtoVAZ and KamAZ, said after attending the meeting chaired by Putin on Monday.

Disagreements on pricing should not go to extremes and paralyze industries, Putin said, citing Gazprom as an example of a company that does not halt supplies when negotiating price changes.

“Commercial debates about the agreements should be resolved through negotiations, or at least in court, and not by driving your partners to the corner,” Putin said. “It's unacceptable that business conflicts have caused the enterprises to shut down, affecting the interests of the workers.”

The government will ask regulators to review the economic feasibility of new metals prices and will continue to monitor the situation in the future, Putin said.

Putin named steelmaker Severstal as an example of a company that intends to raise prices for its production despite benefiting from a decrease in electricity prices over the past year.

Severstal officials could not be reached for comment Monday, but Ilya Makarov, metals analyst at Rye Man & Gor Securities, called the example inaccurate because electricity prices were not the main reason for the current price hike.

“It is the prices for iron ore concentrate and coking coals that account for 50 percent of the cost of the production of the metals industry, and these have been rising significantly since the start of the year,” he said. “The cost of railway transportation has also been constantly increasing.”

The new 22 percent increase appears to be a compromise between steelmakers, which cannot operate below profit margins, and carmakers, which are still kept afloat by state subsidies, Makarov said. “But it would be more economically logical to do the same by lowering the duties on iron ore concentrate or compensating metals makers for railway transportation rather than using administrative means,” he said.

In a move that would sweeten the pill for metals makers, Putin promised on Monday that railway tariffs would grow less than the tariffs of other state monopolies during the yearly readjustment in 2011.

See also:

First Decline in Car Showrooms in Russia Since 2009

Russia's AvtoVAZ Carmaker to Slash Staff Pay

Car Production in Russia Down 28% in 2015