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Russian metals giant Mechel’s stocks continued plunging July 29 after Russian Prime Minister Vladimir Putin publicly railed against the company for deceiving the Kremlin and swindling the Russian people. This has led to a flurry of rumors in Russia that Mechel could go the way of Yukos. While this is definitely possible, the developments surrounding Mechel also follow a trend that Stratfor has been watching: a resumption of Russia’s metals wars. Mechel’s situation is even more complicated than a competition between metals companies because the Kremlin has stepped into this particular fray — showing that it, too, has a bone to pick with Mechel and the metals industry as a whole.
The Russian government started hinting in 2007 that it could be interested in consolidating the country’s metals sector, just as it had consolidated other major industries such as energy and defense. The Kremlin has been setting up so-called national champions — like Gazprom, Rosneft and Rozboronexport — which are reminiscent of Soviet-era champions. These national champions have let the government shove many foreign firms out of Russia and use the champions as political weapons domestically and abroad. However, the metals and mining sector was one area the Kremlin was loath to touch.
The Kremlin had two reasons to be wary. First, the metals and mining sector is enormous and highly diverse both domestically and internationally — with projects in Africa, East Asia and Latin America. Second, the metals sector — especially steel firms — had an extraordinarily nasty series of battles (even by Russian standards) in the 1990s and early 2000s. The literal body count from the so-called Steel Wars is hard to gauge; targets ranged from billionaire company heads to basic employees and their families. The metals firms that survived did so only because they fought the hardest and most ruthlessly. Though the Kremlin has been in some tough fights, taking on the metals oligarchs is a monumental and dangerous task. The Kremlin wanted to make sure its control was fully consolidated in most other arenas before it took this one on.
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