Metallurgists were issued profitability – Newspaper Kommersant No. 55 (7500) dated 03/31/2023

The FAS proposed to limit the profitability of Russian metallurgists to the level of 2019 as part of negotiations on a settlement agreement between the regulator and companies, follows from a letter from NLMK to the service. NLMK believes that directive pricing will lead to a drop in production and tax payments. According to experts, with such regulation of marginality, metallurgists will abandon the least profitable types of rolled products, which will lead to an increase in the production of hot-rolled products, overstocking the market and a drop in profitability.

NLMK Vladimir Lisin does not agree with the settlement agreement proposed by the FAS, follows from a letter from the company to the service (Kommersant has it). As explained in the document, in the draft settlement agreement, the regulator proposes to set prices for hot-rolled flat steel in the domestic market at the price level of 2019, taking into account changes in the cost of iron ore (iron ore) and coking coal concentrate (to limit the profitability of 2023 to the profitability for the same period in 2019 ). The FAS did not respond to Kommersant at the time of publication.

The representative of NLMK confirmed the sending of the letter. “Directive pricing, including by limiting the profitability of domestic companies implementing large-scale investment and social programs, leads to economic destabilization,” he said. “The company is convinced that pricing for hot-rolled flat steel in the Russian market has been and remains economically justified and antitrust law.”

FAS in April 2021 excited three separate cases against Severstal, MMK and NLMK on the grounds of establishing and maintaining a monopoly high price for hot-rolled steel on the domestic market. According to the agency, producer prices for rolled products in the first half of 2021 increased by more than 50%. The steelworkers attributed the rise in prices on the domestic market to the world market conditions. Over time, the parties moved on to negotiations on a settlement agreement.

A Kommersant source in a large industrial company believes that the proposed FAS methodology will lead to a profitability of 8–10%, which is insufficient even to maintain production, including repairs.

The FAS proposals, according to NLMK, affect the amount of tax payments to the budget and create risks of a decrease in production volumes, as a result of which foreign suppliers operating within the framework of market pricing may take the place of Russian plants. According to a Kommersant source in the industrial holding, the fiscal burden affecting the cost has increased significantly: in 2021, the MET on iron ore increased by 2.5 times compared to 2020, duties were introduced on the export of metal products, in 2022 the MET on iron ore compared to 2021, it increased by another 2.9 times, an excise tax on steel was introduced on a permanent basis. According to his estimates, the total amount of taxes and payments only for companies participating in the FAS investigation for the period 2021-2022 amounted to more than 500 billion rubles. In addition, the government is preparing an initiative to introduce an additional fee from business in the amount of 300 billion rubles in 2023, which will be a double exemption from the ferrous metallurgy.

NLMK also considers the starting point proposed by the Federal Antimonopoly Service to be incorrect, since prices for rolled products have fallen since the start of the investigation, which led to a decrease in profitability. So, in the second quarter of 2022, the profitability of sales of rolled products in the Russian market was minus 9%, at the beginning of the third quarter it reached minus 17%. In August 2022, it was minus 6%.

Kommersant was not given any comments at MMK and Severstal. However, March 28 TASS reported that the Moscow Arbitration Court postponed to May 16 the consideration of the claim of Severstal against the Federal Antimonopoly Service in the case of price gouging. The FAS lawyer said that the draft settlement agreement was at the final stage, but “the circumstances associated with rising steel prices require additional negotiations.”

Independent expert Maxim Shaposhnikov believes that under the conditions of directive pricing, companies will be forced to curtail the production of the least profitable types of rolled products, including high-added products. In this regard, an increase in the production of hot-rolled steel is likely, which may lead to an overstocking of the domestic market, and even then profitability will go down under the influence of excess supply, the expert believes, saying that in this case, “the industry, which has already suffered from the actions of Western regulators, will receive additional problems from regulators in Russia”.

Evgeny Zainullin