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23 Jul, 2010 08:14

Pricing issues defer domestic steel consumption rebound

Russia's iron and steel producers have come in for fierce criticism from the government for their pricing policies. Metal consumers, such as car makers, have deferred purchases citing high prices.

The crisis pulled the ground from under the steel producers’ feet. The recovery brought revival to the sector, with prices for metals rising.

The main steel consuming sectors such as construction, carmaking, Russian railways, and oil and gas companies have reduced their purchasing and postponed projects, accusing steel makers of hiking prices.

Evraz currently faces criminal charges for price fixing. It’s a problem that’s drawn the attention at the highest levels of government. The Antimonopoly service is conducting a wide ranging investigation including a number of the major producers.

Kirill Chuyko, Senior analyst, chemicals director, UBS securities doubts the accusations over price fixing, pointing out that the cost of steel in Russia follows global tends.

“Russia is an export-oriented country with respect to the steel market nearly half percent of the volumes is exported, so basically the Russian domestic trends are highly correlated with the global trends in steel prices.”

The dispute drawn the attention of Russian Prime Minister Vladimir Putin who visited Chelyabinsk to discuss the main issues and open a new large-diameter pipe production line with an annual capacity of 600 thousand tons.

Chelyabinsk Tube Rolling is the country’s third largest steel pipe producer. The company has even introduced new term – white metallurgy – to signify its innovative new approach to metallurgy.

Andrey Komarov Chairman of board, Chelyabink tube rolling plant says that the plant possesses high innovation potential and will continue to modernize.

“We should go on with the modernization. Over the next five years we expect an innovative breakthrough in the pipe industry. We are not only renovating the capacities but creating new ones from scratch that will allow our clients to work in tough conditions – primarily in the oil and gas sectors.”

The Prime minister together with representatives of the sector will discuss a steel price formula that is suitable for all and will allow longer term contracts to be established. It seems political intervention is needed, since at the moment the consumers are not willing or are unable to pay what the producers are asking nor do producers wish to lower the price.