Russia steps up efforts to control high metal prices

Russia's government has widened the scope of its efforts to control record-high metals prices through direct political intervention.

Several large steelmakers were yesterday invited to a meeting with industry and trade minister Denis Manturov for discussions focused on securing steel supply for state defence enterprises and construction products under long-term contracts at fixed or formula-based prices with discounts.

The possibility of purchases by the federal agency for state reserves, Rosreserv, was also discussed.

"Steelmakers confirmed their readiness to provide discounts for such contracts," the ministry said after the meeting. "The ministry of industry and trade together with the ministry of construction will work on determining the beneficiaries of such contracts."

The meeting followed comments on 31 May by first deputy prime minister Andrey Belousov that domestic metallurgical companies had "stiffed" the country for around 100bn roubles ($1.36bn) in relation to their pricing policies for public investment and defence industry orders over the past year. Belousov said these companies have to pay this money back to the country's budgets in the form of taxes and tariffs.

Russian anti-monopoly watchdog FAS said yesterday that its regional departments will conduct additional inspections as part of an investigation of the domestic steel market amid a number of complaints this year from steel buyers over inflated prices for rolled products.

And parliament speaker Vyacheslav Volodin said on 31 May that parliament is going to prepare proposals aimed at solving the problem of rising steel prices within a week. "It is unacceptable when domestic prices are rising unreasonably while steel producers retain windfall revenues, perfectly knowing at whose expense," he said.

Steel producers could agree to sales at discounts to state-owned companies to avoid the risk of restrictions on exports, market participants said.

Deputy industry and trade minister Viktor Yevtukhov last week did not rule out the possibility of the government introducing temporary 20-30pc export duties for a range of ferrous and non-ferrous products, following a move to lift duties on ferrous scrap exports to €70/t ($85/t).

In May, the ministry drafted a list of products that could be subject to export duties. As of early last week, that list included semi-finished steel products, flat-rolled steel, refined copper, copper products, scrap and alloys, and aluminium.

The list was sent to the economy ministry for consideration but the ministry said there is a lack of grounds for placing export duties on non-ferrous products and suggested excluding them.

"Russian exports of aluminium and aluminium products, copper wire and wire rod averaged 80-85pc of annual production in 2015-20," the ministry said. "Customs data for 2019-20 and the first quarter of 2021 showed no exports of refined copper alloys, or copper billets for wire production."

Market participants familiar with the situation said that aluminium and copper were subsequently taken out of the industry ministry's potential export duties list late last week, although Argus has so far been unable to verify this.

"To put non-ferrous products on the restricting list was a mistake done by a steel lobby, which has now bumped into a non-ferrous lobby," one trader said. "Shares in some non-ferrous producers also fell after [the deputy prime minister's] comments yesterday. I guess we will see a sort of war of the lobbies in the near future."

While state projects and enterprises are key customers for Russian steel producers, offering them discounted prices is unlikely to cool domestic prices in general — for steel products or scrap.

"Mills will obviously seek to offset losses on state contracts through higher prices for export and non-state domestic business," a scrap market participant said. "If this happens, all this recent ado around the scrap exports duty will turn out to be totally unnecessary and pointless."

By Valery Zavyazkin