By John Helmer in Moscow
In a contest of bargaining power reminiscent of the 2005 battle between Alisher Usmanov of Metalloinvest and Victor Rashnikov, owner of Magnitogorsk Metallurgical Combine (MMK), MMK is demanding that Metalloinvest lower its iron-ore price, and is refusing to pay for previous deliveries. Metalloinvest says it has cut production at its two iron-ore mines, Mikhailovsky and Lebedinsky, by 35% since October 1, and that it is demanding Russian mill buyers pay up on arrears of Rb10 billion ($357 million).
Olga Paleva, spokesman for Metalloinvest, told CRU Steel News, “the company doesn’t want to name the buyers who owe Metalloinvest.” Lev Chesalov, steel analyst at Rusmet, said the only major Russian steelmaker which buys from Metalloinvest is MMK.
On Friday [21 November], MMK posted an announcement on its website withdetails of its crisis management programme. The company said it has agreed with its coking coal suppliers — Raspadskaya (an Evraz unit), Mechel, and Belon (part-owned by MMK) — to reduce the price of their deliveries by 30%, starting on December 1. Rashnikov’s mill has already announced a 70% price cut for scrap — supplied by a company run by Rashnikov’s brother — and a 30% reduction for ferroalloys. Rashnikov is cited as claiming that the plant can respond to a revival of demand by boosting output by 1 million tonnes per month, if the market conditions warrant. But the company announcement omitted to say what target cut in the iron-ore price it is seeking.
For several months in the spring of 2005, Usmanov tried to impose a blockade of iron-ore supplies on MMK as part of a a bid to buy control of the Sokolovskoye-Sarbaisky ore-mining complex (GOK) in Kazakhstan, which was the principal supplier to MMK. The takeover was foiled, and the cutoff of supplies from Sokolovka lasted until August.Usmanov’s attempt to lift Sokolovka pricing was rebuffed, and Rashnikov, with direct backing from the Kremlin and indirect help from the Mittal group in Kazakhstan, locked in long-term iron-ore supply arrangements.
Elena Azovtseva, Rashnikov’s spokesman, was asked to say whether the delay in MMK’s payment for Metalloinvest iron-ore represents a tactic in the pricing negotiations. She refused to answer.