Photo: Bloomberg

Metallurgists are planning the first price increase in a year by 3.5–5%. This will force car factories to raise prices. In the last crisis, conflicts between metallurgists and their clients had to be resolved by Vladimir Putin.

Rental prices are rising

Despite the fall in demand, prices for hot-rolled steel in Russia will increase by 5% in February, the BKS company reported in its steel market review. Domestic prices follow export prices with a lag of two months, and the rebound continues in global markets, BCS analysts write.

Metallurgical companies themselves are warning consumers about the upcoming rise in prices. “The stabilization of prices in export markets and the devaluation of the ruble will contribute to an increase in steel prices on the domestic market in February-March 2016,” says the comments to the operating results for the fourth quarter of 2015 of the Magnitogorsk Iron and Steel Works (MMK). The plant intends to increase product prices for the domestic market by 5% from February 1, Metals Supply and Sales magazine reported at the end of December, citing sources close to MMK. In January, MMK's plans to raise prices were confirmed to the TASS agency by a metal trader working with the company, who added that the increase could be 7-10%.

The main consumers of hot-rolled and cold-rolled steel are machine builders and manufacturers of automotive components. A representative of the largest Russian manufacturer of wagons and tanks, Uralvagonzavod (UVZ), confirmed to RBC that MMK has already announced a price increase for February 2016, and the company is negotiating with other manufacturers - Severstal, NLMK, Metalloinvest, and a preliminary analysis shows that they also intend to increase prices. According to estimates from a Severstal representative, in February the price increase on the Russian market could be 3–6% for hot-rolled, cold-rolled and long products, and 1–3% for coated rolled products. The company expects prices to rise further in March. According to BKS, the Novolipetsk Iron and Steel Works (NLMK) also planned to increase domestic prices for hot-rolled steel by 3.5–4% in February. A NLMK representative declined to comment.

Automakers are reluctant to comment on the upcoming price increases. Ford has long-term contractual relationships with all suppliers, and price changes are governed by those contracts, a company spokesman said. KamAZ continues to work with suppliers under previous contracts, but will not disclose details, a company press secretary told RBC. Representatives of Renault, the GAZ group and AvtoVAZ did not comment on rental prices.

The dollar is more important than raw materials

World steel prices have been falling for three years now and are now at the bottom. The export price of a ton of hot-rolled steel delivered to the Black Sea ports in 2011 was $579, now it is $262. Russian prices follow export prices: currently, the price of hot-rolled steel on the domestic market has decreased by about 30% and by 20% for cold-rolled steel,” says VTB Capital analyst Boris Sinitsyn. He believes that the increase in rental prices in February and March plays out the devaluation of the ruble at the end of last year. “So far, capacity utilization in the world is at its lowest level since 2008,” the analyst states. The rise in prices is unlikely to be long-term; rather, we are talking about a short-term recovery in prices under the influence of replenishment of inventories, says the BCS review.

Automakers react to rising prices faster than all rental consumers. VTB Capital analyst Vladimir Bespalov says that in February the increase in car costs could be 0.3–0.4% if prices rise. “If the rise in metal prices also leads to an increase in prices for components, then we can talk about an increase in production costs by 0.7–1%,” the analyst adds. Rental takes up a small part of the cost of a car, so an increase in rental prices will have almost no effect on the price, says Igor Vasiliev, senior analyst at Sberbank CIB. Due to the large number of imported components, the dynamics of the ruble exchange rate affects prices much more, he says.

How steel is becoming more expensive