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By John Helmer in Moscow

An application by three of Russia’s most powerful steelmakers to have the government impose penalty duties on imports of coated steel, primarily from China, has failed. This is the first sign from the Kremlin that applications by Russian steelmakers that threaten political and trade relations with Beijing, and risk Chinese retaliation, will not be allowed.

On August 26, the Ministry of Industry and Trade in Moscow announced that it will not raise import duties, and that a study of the coated-steel market in Russia had not substantiated the claims of domestic injury, filed in March by Severstal, Novolipetsk Metallurgical Combine (NLMK), and Magnitogorsk Metallurgical Combine (MMK).

The main sources for imported polymer-coated steel in 2008 were China, Taiwan, South Korean, Belgium, Finland, and Kazakhstan. Roughly half of the domestic consumption of the product was supplied by imports during 2008. Last December, according to a briefing the steelmakers gave a Moscow newspaper in March, when the ministry’s import study commenced, the Russian mills shipped 55,000t of polymer-coated steel, while imports were roughly equal in volume.

The trade division of the ministry was asked to impose penalty duties of 36.1% for imports from China; 80.9% for Taiwan; 17.9% for South Korea; 28.3% from Belgium; 21.3% from Finland; and 10.9% from Kazakhstan.

The steelmakers have beenunwilling to acknowledge publicly their lobbying for protection from imports, not least of all because Prime Minister Vladimir Putin issued an ambiguous signal at Davos in February, when he said that government policy on limiting imports should be a “moderate” one. “Even if in conditions of the crisis,” Putin said, “a certain increase in protectionism proves to be inevitable, here we all need to know a sense of moderation.”

In its announcement this week, the ministry said the import of color-coated steel to Russia had tripled in volume during 2007, but that in parallel, and over the same period, the domestic output rose by 2.5 times. Domestic sales of the coated steel had increased by almost 200%, the ministry now says, and export sales by 37.4%. Accordingly, the ministry ruled that the evidence was lacking to substantiate domestic injury to the Russian applicants.

“The news is neutral for the sector and major Russian flat steel producers, in our view,” Renaissance Capital reported to clients on Thursday, with the added caution: “The anti-dumping case submitted by the Russian mills was based on 2004-2007 statistics. We do not exclude the possibility that the Russian mills may initiate a new study based on 2008-2009 import data.”

Trade Ministry sources acknowledge that at the same time in March, when the three Russian steelmakers initiated their attempt to protect polymer-coated steel from Chinese competition, they also launched a parallel protectionist attack on imports of zinc-coated, galvanized steel. The main sources for Russian imports of this product are China, Kazakhstan, and the Ukraine.

Six months ago, the domestic steelmakers complained that domestic demand for zinc-coated steel had contracted by 80%, compared to the pre-crisis level of 2008. The loss of demand reflected the collapse of the biggest consumer of the product, Russian automobile works. in the application for protection — again, not admitted publicly by the steelmills — it was claimed that imports of galvanized steel amounted to 40% of the the turnover in Russia at prices that were alleged to be about 20% below the levels charged by the Russian mills.

To keep the Chinese product out of the market, and protect their profit margin, MMK, Severstal, and NLMK applied for an increase in the prevailing import duty of 5% to 33%.

A Trade Ministry source said today that the ministry investigation of this claim is contuining, without conclusion. “No decision has been taken yet on whether to impose the duty or not.”

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