The Antimonopoly Service found MMK, NLMK and Severstal guilty of setting monopolistically high prices on the flat-rolled metal market.
According to the agency, thanks to this, manufacturers have tripled their profits. The service ordered companies to stop abusing their dominant position, the fines will be determined separately.
The Federal Antimonopoly Service of Russia has completed an investigation that lasted almost a year regarding the monopolistically high prices in the flat-rolled metal market.
As a result, three metallurgical companies were immediately found guilty of violating antitrust laws. In particular, we are talking about such market giants as NLMK by Vladimir Lisin, MMK by Viktor Rashnikov and Severstal by Alexei Mordashov.
Only facts
The Federal Antimonopoly Service points out that the companies occupying more than 70% of the market obviously simultaneously and by agreement raised and kept prices on the hot flat steel market.
It should be noted that the argumentation of the position of the FAS sounds quite convincing. In particular, the department notes the fact that the rise in prices for hot-rolled steel was much more noticeable in contrast to the cost of production. At the same time, the FAS was not convinced in this matter by the companies’ arguments that buyers supposedly always had the opportunity to get a lower price as a result of negotiations. After all, if things were really like this, then the department would not have faced such a large flow of complaints on this issue.
Also, the antimonopoly service found out that last year there was no significant increase in demand from domestic consumers of the companies’ products, however, in such conditions, the business was able to triple its profits in relation to the period of 2019-2020.
Regarding the demand for products from foreign contractors, in this matter, metallurgists were unable to prove the presence of unsatisfied demand. Which, in turn, according to the FAS, once again proves the absence of market factors to increase domestic prices to the level of export prices.
Thus, the antimonopoly agency rightly concluded that companies that dominate the domestic market raised prices based only on the values of foreign quotations of their products and thereby flagrantly violated the first part of Article 10 of the law on protection of competition.
be fine
Based on the findings, the FAS issued an order requiring companies to stop the existing abuse of their dominant position. However, violating companies are unlikely to get off with just one order. In the near future, the FAS will initiate a case on administrative violations, and a fine will be calculated for each company.
As Vedomosti writes, referring to data received from a representative of the antimonopoly department, the fine for NLMK Vladimir Lisin, MMK Viktor Rashnikov and Severstal Alexei Mordashov can be calculated as a percentage of revenue in this market for 2020. As for more accurate values, the fine can range from one to 15% of the specified indicator.
According to the January review, presented by Bank of America (BofA) analysts, MMK can pay the largest fine – from four to 60 billion rubles.
For NLMK and Severstal, we can talk about amounts – from one to 15 billion rubles and from one to 16 billion rubles, respectively. Thus, the amount of fines for MMK will be 1-20% of EBITDA for 2022, for NLMK – 0.3-4% of EBITDA and Severstal – 0.3-5% of EBITDA, the review said.
Dissenters
As for the companies themselves, which were found guilty, their reaction turned out to be quite expected and even predictable. In particular, they stated that the decision of the antimonopoly agency was erroneous, and also announced their intention to go to court.
For example, the Severstal company described the FAS decision as a “dangerous precedent”, emphasizing that this is a threat to the mechanisms of the market economy in Russia, as well as discrimination against domestic producers in comparison with foreign competitors.
Representatives of NLMK and MMK note that they provided the antimonopoly agency with a lot of direct evidence that they do not occupy a dominant position in the hot-rolled steel market in Russia. Here they pay attention to the fact that the share of each of the major players in this market can be significantly adjusted during the year. However, this statement is not supported by any specific figures.
Obvious Benefit
Recall that cases against NLMK Vladimir Lisin, MMK Viktor Rashnikov and Severstal Alexei Mordashov were initiated by the antimonopoly service in April last year. As interested parties, large consumers of their products were involved in the investigation: Gazprom, Rosneft, SSK Zvezda, the Association of Carriage Builders and the Association of Shelving and Warehouse Equipment Manufacturers.
The Federal Antimonopoly Service made preliminary conclusions at the end of last year, and already on their basis it was possible to understand that the results of the trial are unlikely to suit the metallurgists.
The rise in metal prices in the global and Russian markets began at the end of 2020. If we compare the prices for hot-rolled steel in Russia, which were in effect at the beginning of last year, with those that were fixed almost five months later, the increase in the price of one ton is more than obvious. If we talk about specific figures, prices have increased from 65,000–70,000 rubles to 97,000–111,000 rubles per ton.
Such a jump in prices most favorably affected the incomes of metallurgists. For example, Severstal increased its revenue under IFRS in the first nine months of last year by 63%, NLMK – by 69%, MMK – by 87%.
Forced measures
As a result, the government was forced to introduce export duties on metal, which were in effect from August 1 until the end of last year. With the help of such a mechanism, it was planned to provide additional budget revenues in the amount of approximately 164 billion rubles.
Since the beginning of this year, another measure has been put into effect – it was decided to increase the severance tax for metallurgists – the indicator was tied to the quotations of raw materials on world markets, and an excise tax was introduced on liquid steel.
Due to such actions, the Russian authorities hope to withdraw from metallurgists in 2022-2024 over five hundred billion rubles of excess profits.
Judicial perspectives
As for the intention of metallurgical companies to challenge the findings of the FAS in court, according to lawyers, their chances for a positive outcome are minimal.
As Sergey Uchitel, a partner at the Pen & Paper Bar Association, notes, companies usually go to court with the intention of challenging the very fact of the offense, and not the specific amount of the fine. According to the lawyer, the amount of penalties can be reduced, but for this it is necessary to appeal with a large number of extenuating circumstances, which is unlikely in this category.
He also recalled that the decision or order of the FAS can be appealed within three months from the date of the decision or issuance of the order. In the event that an application is submitted to the court, the execution of the order will be suspended until the moment when the court decision enters into force.
Daria Shlyapnikova, a lawyer at Forward Legal, also speaks about the small chances of a judicial victory for the metallurgists. According to her, the statistics of such cases shows that the courts in most cases take the position of the FAS, and the agency rarely loses courts with its participation.