Russia pressures metals producers to keep prices at home low

Russia is in talks with metals companies to set prices for domestic clients below market rates for some period, three people familiar with situation said, as the country braces for a sanctions-induced downturn.

The government has asked steel, nickel and aluminum producers to maintain low prices at home as the part of the measures to support the economy under sanctions over the Russian invasion of Ukraine, the people said, asking not to be identified as the information isn’t public. Officials want to cap margins at 20% to 25%, they said.

Russia’s Industry Minister Denis Manturov and representatives of other ministries held a meeting with metals companies on Wednesday, his press office said in a statement.

The Industry Ministry has recommended that metals companies provide “a transparent domestic price” across the whole supply chain from the producer to the consumer, the authority said in a statement following the meeting. The ministry expects the Russian metals industry to submit a consolidated approach on the pricing mechanism for the domestic market until the end of March, it said.

The press services of leading metals producers Severstal, NLMK, Evraz, MMK and Norilsk Nickel declined to comment.

The proposals to rein in prices illustrate an increasing sense of urgency as the Russian economy reels from sanctions imposed to punish the Kremlin for invading Ukraine. Three weeks into the war, economists expect a sharp contraction this year and inflation has spiked, leading the authorities to impose capital controls and export restrictions.

The measures would impact the steel industry most, where domestic prices have already fallen by at least 15%, two people said. Steel prices in the European Union, by contrast, soared to all-time highs since the invasion.

Major Russian steelmakers averaged an Ebitda margin close to 40% in 2021, while Norilsk Nickel’s margin was nearly 60%.

Many Russian metals companies are already having trouble exporting their goods because many of their billionaire owners have been slapped with sanctions, curbing some shipments. Severstal suspended sales to Europe after owner Alexey Mordashov was hit by penalties last month. Evraz’s biggest shareholder Roman Abramovich, Metalloinvest’s Alisher Usmanov and Magnitogorsk Iron & Steel Works’ owner Victor Rashnikov have also been targeted by various countries.