Assault on Russian Metals Industry Continues

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The story in Russia rumbles on. After last week’s news of TNK-BP and the Kremlin led onslaught at Mechel, Russia’s largest steel and coal company, Vladimir Putin has turned his attention on coal companies Evraz Holding and Raspadsky Coal. As this wave of interference rolls on Russian share prices have been sliding as investors take flight.

Commenting on the situation, Robert Amsterdam, lawyer to the now jailed ex-head of Yukos, Mikhail Khodorkovsky (following a widely discredited trial), said there is probably an ulterior motive behind the latest wave of probes. “We have reached a point in Russia where nothing can be treated as a one-off affair. There is a systemic raiding-mechanism directed by the top,” he said. “These types of attacks are usually combined with ‘short-trading’ by people inside the government, or they are a hard-ball tactic for extracting contracts.” Can you imagine members of the US or west European governments announcing an investigation into a company at the same time as they short the shares?!

Mr Putin appears to view the resource companies as prime villains behind Russia’s spiraling inflation, now nearing the danger level of 15 percent. Most economists say the real cause is failure to stem overheating caused by the commodity boom. In addition with revenues down from oil, metals and coal are seen as the next targets to raise revenue or return to state control.

So violent has been the onslaught that it appears to have even opened up rifts in the Russian government as Vladimir Putin’s groomed replacement president, Dmitry Medvedev went public last week to insist that the Russian government should not “terrorize” business.

Fascinating as the power play is to outsiders it is unlikely to significantly impact metals production, however if Mr Putin has his way (and who’s to stop him?) it could impact exports of coal and metals onto the world market as he seeks to curb exports to depress domestic prices and hence inflation.

The big ticket items are the most likely to be affected, steel, coal, aluminum and nickel. So far the markets have ignored the goings on and metal prices have continued to slide, probably assuming that in the end Russia can no more afford to do without commodity exports than the world can do without access to Russian metals.

–Stuart Burns

Comment (1)

  1. James says:

    Thanks for mentioning Amsterdam … runs a pretty popular blog at the address above for those who are interested in learning more.

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