Russian Railways will save on metallurgists

The management of Russian Railways has found a way to reduce costs. Russian Railways President Vladimir Yakunin agreed yesterday with Viktor Rashnikov, owner and chairman of the board of directors of the country's largest steel producer, the Magnitogorsk Iron and Steel Works, to reduce prices for rolled metal. According to the signed protocol, in the third quarter, Russian Railways will buy metal from Magnitogorsk at 6.3% cheaper than now (i.e. at the price at the beginning of the year). Russian Railways does not hide the fact that it expects to achieve a reduction in purchase prices for rolled metal by 10-20% in the third quarter from other metallurgists. Yesterday, Mr. Yakunin said that negotiations are already underway with Severstal, Mechel, Vyksa Metallurgical and Bezhitsa Plants. Russian Railways uses the argument that Chinese rolled products are becoming more competitive on the Russian market. “This is a signal to the market,” explained Mr. Yakunin after signing the protocol with MMK. - Today it would be nice for our partners to think that China also produces metal. What will happen if the largest consumer is brought to such a state that he cannot buy metal in Russia? First come first gets served.”

Last year, steel mills, citing rising prices for raw materials and global economic conditions, raised prices by 65%. Russian Railways believes that metallurgists did this unreasonably, since since June there has been a decline in the cost of rolled metal. The railway workers do not hide the fact that they intend to reduce product prices in the fourth quarter. According to Mr. Yakunin, if this succeeds, the company will save about 2 billion rubles in the quarter. with a total purchase volume of approximately 10 billion rubles.

Russian Railways has already established long-term contracts with some suppliers. The largest of them is an agreement with the United Metallurgical Company for the supply of solid-rolled wheels worth more than $1.2 billion by 2010. At the end of last year, a five-year contract was also signed with Evrazholding for the supply of carriage wheels and rails worth $4.5 billion dollars. However, for both OMK and Evrazholding, Russian Railways is the only consumer of rails and wheels in the country.

The market believes that by threatening metallurgists with purchases of Chinese products, the management of Russian Railways is bluffing. A surge in exports is expected in the next two to three years, but so far China is not supplying the metal. There is no data on how much metal products are produced and consumed in this country, explains Timur Pestov, vice-president of the investment company AG-Capital. Representative of Roszheldorsnab (a division of Russian Railways) Sergei Shchennikov told Vremya Novostei that ordering metal from domestic producers is a strategic goal of the state company.

Meanwhile, Russian Railways has a more significant lever for persuading metallurgists - tariffs for the transportation of ore and finished products. In April, while still vice-president of Russian Railways, Mr. Yakunin advocated re-indexing tariffs if the planned inflation rate was exceeded, pointing, among other things, to an increase in selling prices for metal. By the way, MMK had previously agreed with Russian Railways on the supply of ore from Ukraine (Poltava Mining and Processing Plant) at domestic Russian tariffs. So yesterday’s agreement can be regarded as a retaliatory step by Russian Railways, Mr. Pestov believes. And Mr. Rashnikov did not miss the moment and again turned to the management of Russian Railways with a request to lower transportation tariffs towards the Far Eastern ports. Mr. Yakunin only indicated that tariffs are set by the state.

Yana GODOVANAYA