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. Last Updated: 07/27/2016

Government Forces Steelmaker, Carmaker Compromises

LAPPEENRANTA, Finland — Russian carmakers are ready to accept slightly higher steel prices as part of a compromise with steel firms now being negotiated by the government, Deputy Industry and Trade Minister Andrei Dementyev said Thursday.

He said acceptable increases would vary, depending on different kinds of steel, but would average about 17 percent.

"One of the possible forms of a compromise is that carmakers accept slightly higher steel prices," Dementyev told reporters on the sidelines of a Russian-EU innovation forum.

Car manufacturers reported earlier this month that domestic metal producers had notified them about planned price increases of up to 30 percent in the second half of the year.

Prime Minister Vladimir Putin this week described the proposed rises as inexplicable. The Federal Anti-Monopoly Service is investigating following complaints from the oil sector about surging pipe prices, top carmaker AvtoVAZ and some defense firms about steel prices.

Dementyev said that by raising prices, steel firms were violating contracts with automakers that they signed at the start of the year.

Top officials, including Putin, will next week question leading metals firms on the rises. Dementyev said the hikes were threatening Russia's support programs for the auto sector.

At a meeting with the anti-monopoly service's chief, Putin singled out London-listed steel firm Evraz Group, questioning its proposed price increases.

Dementyev said the existing formula allows a review in the initial contract price after a 20 percent change in market prices for metals, following which the contract price can be increased by half of the underlying metal price increase.

"The car industry simply wants the steelmakers to abide by the contracts signed at the start of the year," Dementyev said. "The steel makers want to get the extra mark-up exceeding this half [of the global price jump]."

Dementyev, who participates in negotiations between the government and related industries, has ruled out plans to return to direct regulation of steel prices.

He said the government's main condition to steelmakers was uninterrupted supplies in case of price disputes.