OREANDA-NEWS. June 01, 2010. The conflict between metal producers and consumers was defused at a meeting with Prime Minister Vladimir Putin. No harsh criticism was leveled against any specific company or the sector in general at the meeting. We believe that the risk of tougher state regulations in the metal industry has abated after the meeting, which should evoke a positive response from investors.

The conflict between metal producers and consumers was defused at a meeting with Prime Minister Vladimir Putin on May 31. Neither a specific company nor the sector in general was subject to harsh criticism from state authorities at the meeting. As to the main results of the meeting, we single out the government’s recommendation to switch over to long-term contracts, which rule out sharp fluctuations in prices, and its promise to cap growth in natural monopoly tariffs.

The meeting ended with no specific terms for the conclusion of long-term contracts, while Severstal announced that its prices for Avtovaz and Sollers have already been raised as of June 1, and long-term contracts have already been signed with both customers.

What is important is that no criticism was leveled against producers of metallurgical raw materials (coking coal and iron ore), despite the fact that price hikes on their products have been the key factor behind price increases on steel and that these companies enjoy the highest margins in the entire production chain.

We are upbeat about the settlement of the conflict between metal producers and their customers. The risk of tougher state regulations in the metal industry has abated, which should evoke a positive response from investors. We highlight Mechel, as well as its raw materials subsidiaries, Korshunovsky GOK and Southern Kuzbass, as the most interesting investment opportunities in the sector.