Russian efforts to put pressure on big business

17 March, 07:57 PM
Russian dictator Vladimir Putin and Industry Minister Denis Manturov (Photo:Kremlin)

Russian dictator Vladimir Putin and Industry Minister Denis Manturov (Photo:Kremlin)

The Russian government is bullying the country’s wealthiest businessmen into lowering metal prices. Those who resist are threatened with “investi-gations” by law enforcement and state controls. Similar pressure is ap-plied to the agriculture, fertilizer, and construction sectors of Russia’s economy.

Last week, Russia’s Ministry of Industry held a meeting with representatives of over 30 of Russia’s largest metallurgy and metallurgy-adjacent enterprises. The meeting was chaired by Deputy Minister Victor Yevtukhov, who addressed companies that are owned by some of Russia’s largest businessmen, including Roman Abramovich, Alexei Mordashov, Vladimir Lisin, Victor Rashnikov, among others.

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Attendees listened to Yevtukhov for over 20 minutes, while he demanded they reduce their prices on Russia’s domestic market, open their books, eschew profit margins, and make their products available to all Russian customers. Those who would resist were warned they would be referred to“relevant authorities” and cut off from the market.

As an additional proverbial “stick”, Yevtukhov threatened the businesses with the imposition of price controls on metals and other markets. Industry Minister Denis Manturov will soon be making the rounds in person to impress this on Russian oligarchs at a later date, Yevtukhov announced.

He (Manturov) will provide details on the consequences that would be facing those who refuse to do this,” Yevtukhov said.

NV Business has access to a recording of Yevtukhov’s speech, which could be useful in discerning the attitudes of Russian business elites. We are publishing an edited transcript of it. The Russian government has evidently given similar treatment to the other industries as well.

Yevtukhov: Comrade industrialists! Current metallurgy prices are unacceptable; they must be lowered.

To this end, you provide us with data on operational inputs of your production. I have some rough numbers on hot-rolled metal. Your prime cost is around RUB 40,000, perhaps at RUB 45,000 given slightly more expensive coke. It was around RUB 43,000 last November. In this light, you can’t really keep selling the final product for RUB 72,000.

The upper bound of the markup we can allow is 20%, maybe 25%. Prices must be lowered, and substantially so! That’s why I’m asking for your prime costs, and for you to adjust your calculations and come with a new joint proposed price.

Relay this to your shareholders. The minister will meet them after. I assume he will specify what consequences will be facing those of you who refuse, in person.

Second, you must provide the lists of your contractors and indirect customers: your metal servicing businesses and other organizations. And then you will outline their markups, agreed upon with us. We’re ready to discuss various proposals – 3%, 5%, 7%. For both your own resellers and others.

Those unwilling will be purged from the market! They won’t be able to do business and will be left to go bankrupt. You’re welcome to absorb them later, if you want. If they do not heed your instructions – do not sign con-tracts with them.

All existing contracts for this year will have to be renegotiated, based on the prices we will agree on.

You have until Monday to give us the details of your operational inputs and the structure of your prime costs. You can do it jointly, if you want. But the prices must be lowered. Lowered Considerably! On all products.

Now on to resellers. If we find out that you keep reselling and setting up some schemes, you will have to deal with prosecutors and anti-corruption officials. If you start inventing schemes – we’ll wash our hands (of you).

Metal products in the country have to be cheaper. Foreign markets are of no concern at this point. You can charge whatever you want abroad.

Those trading in scrap metal should also come up with a new price. Other-wise, we’ll ban all scrap exports and introduce price controls.

If don’t come to an arrangement, we have a bill that would empower the government to set prices of metal and construction materials. In that case, we will determine prices and you will have work with those.

I’m warning that companies that reduce production and create deficits will be referred to relevant authorities.

This is how we’ll work in the next several months, I think. You’re free to disagree. But by Monday, I request everyone to come with a new price point, and details about the structure of your prime costs and your con-tracts.

Now on to contracts with servicing companies. Leave them no wiggle room. If they are willing to do business – set their markups accordingly. Otherwise, move on to signing more direct contracts instead.

At this point, Alexei Sentyrin of Russkaya Stal said that these proposals were already discussed with shareholders, and some of them had agreed to full compliance.

Sentyrin added that new vertical integrations have to be established with suppliers of raw ores as well, in particular when it comes to non-ferrous metals.

Yevtukhov responds:

All this relates to all companies, non-ferrous included. These demands are universal!

When it comes to your supply chains – refer your suppliers to us, we’ll see what we can do. If they refuse... Our new procedure is simple: we get a form, fill in and submit it, and at that point it’s no longer up to us.

Our singular goal is to reduce the current outrageously high prices! All of you made out like bandits last year! Now it’s time to work for the country. Sure, some may have had increasing costs, so let’s examine those.

You’ll have to work at low profit margins, so likely no dividends next year. Modernization program may get delayed a bit...

That’s how we’ll have to work, given everything that’s going on. At least for the next six months.

One of the participants’ dog starts barking.

Please, I’m ready to take questions, even from the doggie.

Sentyrin: Companies requested exports to remain unregulated, for us to be free to set prices. But you’ve covered that already.

Yevtukhov: One moment. Alexei Vladimirovich (Sentyrin), what exports controls, what are you talking about? Who’s going to regulate exports?

Sentyrin: Who knows, maybe they’ll want to introduce export tariffs and fees.

Yevtukhov: They won’t! They will not! If domestic prices will be regulated, exports will remain completely free. Entirely! Domestic market has to have enough to satisfy demand, though. At an acceptable price.

If internal demand is not satisfied – we’ll have to restrict exports, of course. We can do that via presidential executive orders. But I hope it won’t come to that.

I think we have enough output. Especially since your usual export chains are getting... somewhat constrained, unfortunately.

Our current task is to satisfy domestic internal demand. This task is facing construction materials producers as well.

The same goes for agriculture, fertilizers, heavy industry, for everyone!

They will also reduce their costs, since your efforts will reduce their primes, which will also be calculated by corresponding departments and organizations.

If the government gets price controls authority, it will make use of it, I’m afraid. You know better than me who will demand this. We have some recently elected colleagues who are already raising these questions. We al-ready have these powers when it comes to food, even if are yet to lever-age it. I’m afraid we might have to do so with food, given our current predicament.

A question from some reseller: What are we to do if deficits arise?

Yevtukhov: Why will that what happen? We are sometimes asked “What should we do if there’s not enough sugar?” We tell them that we don’t have a deficit of sugar, we have plenty of it!

It’s just some intermediaries and traders are sitting on stockpiles of sugar, not making deliveries to retailers, waiting for sugar to skyrocket by 50% in price, and then claim that there is a deficit.

There’s another question relating to a surge in exports to Central Asian countries that could lead to a metal deficit.

Yevtukhov: We’ll investigate any such reports you submit. You are all looped in, we have all these group chats. Even if we don’t always respond instantly, we read them all and take necessary measures.

We’re in contact with customs. One phone call to deputy customs chief, and the shipment will be immediately looked at.

I think we’ll weather this. I think it will last a couple of months and then it will start getting better.

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