FAS proposed to sell 5% of fittings on the stock exchange

The FAS sent for approval to the Ministry of Industry and Trade and the Ministry of Construction an order to introduce a mandatory minimum of exchange trading in fittings – no less than 5% of the monthly production of the largest manufacturers. If the order is approved, it will affect Promsort, Novostal-M, Mechel and Evraz. Suppliers, in turn, offer to provide them with the opportunity to set their own starting price for the start of trading, which differs from that calculated by the exchange.

The FAS wants to oblige companies that dominate the valve market to sell at least 5% of the monthly output on the stock exchange. The regulator announced this on March 26. The joint order was sent for approval to the Ministry of Industry and Trade and the Ministry of Construction. In October 2023, the FAS established that the dominant position in this market is occupied by Promsort, Novostal-M, Mechel and Evraz. The companies and the Ministry of Industry and Trade did not comment at the time of publication. The Ministry of Construction reported that they had received the draft order and would forward the position to the FAS based on the results of a detailed review.

The order establishes requirements for exchange trading, during which transactions with reinforcement are concluded. “In particular, it is planned to determine which transactions will be taken into account when determining whether the volumes of reinforcement sold on the exchange correspond to the minimum value, as well as when setting the starting price on the exchange,” the FAS said in a statement.

According to a Kommersant source familiar with the discussion of the initiative, questions remain regarding the draft order. In particular, there is a proposal to provide the supplier with the opportunity to set its own starting trading price, different from that calculated by the exchange, with a division between the recommended and the starting price set by the supplier. It is also proposed to define the terms “rebar” and “type of reinforcement” in the order. “Solving these and some other issues will make it possible to create an economically sound indicator of the cost of fittings,” says Kommersant’s interlocutor.

Prices for reinforcement began to rise in March amid the start of the construction season.

According to Metals & Mining Intelligence (MMI), over the past month prices for fittings have increased by 4%, to 64.7 thousand rubles. with VAT at the trader’s warehouse in Moscow. For comparison, in March 2023, a ton of reinforcement cost 56 thousand rubles.

The agency in its review notes that metal dealers are trying to bring sales to an acceptable level of profitability, taking into account prices on the primary market. MMI does not rule out that prices will continue to rise next week, given the upward trend in the primary market. “One of the large manufacturers came out with an official price list for A500S reinforcement 12 mm for April with a price level of 66 thousand rubles/t CPT including VAT,” writes MMI.

The FAS consistently advocates exchange trading in industrial goods, considering it a way to combat the dominance of large suppliers. In addition, the presence of a stock exchange indicator allows the FAS to justify the use of antimonopoly instruments. In October 2023, the service opened a case due to a 25% increase in prices for reinforcement during the fall. The Ministry of Industry and Trade called the reason for the rise in prices “the subjective decision of individual market participants,” who consolidated 35% of the volume of valve production in Russia. We are talking about Promsort, which became the largest manufacturer of fittings after purchasing NLMK factories.

Today, the domestic reinforcement market in Russia is estimated at 8.5–8.6 million tons, comments Sergei Grishunin from the NRA, that is, the volume of exchange trading could reach 425–430 thousand tons. At the same time, questions arise about the convenience of the location of the exchange warehouses, as well as the risk that large metal traders will buy up the entire volume and create price imbalances, the expert admits. Most likely, prices on the exchange in the first days of trading will be higher than factory prices and will approach the price tags of metal traders. On the other hand, exchange trading will allow the pricing of reinforcement to be taken out of the gray zone, when the true price can only be found out in a conversation with a specific trader manager. The initiative, concludes Sergei Grishunin, is unlikely to curb prices for reinforcement, but it can create an indicator for the market.

Evgeniy Zainullin