The Russian steel producer Magnitogorsk Iron and Steel Works (MMK) has proposed to local mining and steel producing company Mechel that the long-term coking coal supply contract signed between the companies in September 2008 should be revised, as neither the prices nor the supply volumes agreed are convenient for the steelmaker in the current crisis period.
MMK has proposed that the effective date of the contract should be delayed by one year to April 1, 2010, or that the prices and volumes of deliveries should be revised every month. However, Mechel said that it is against such measures and insists on the earlier agreed volumes and prices, tied to the Australian FOB contracts of the world's largest coal producers, BHP Billiton and Rio Tinto.
According to the company's representatives, in Q4 2008 MMK agreed new prices and supply volumes with all its raw material suppliers, excepting Mechel, and is currently purchasing coking coal at a price of about Ruble 1,800/mt ($54/mt), while Mechel offers a price of Ruble 2,850/mt ($85/mt).
MMK plans to sue Mechel in order to invalidate the contract agreed in September 2008 for 2009-2013 deliveries of coal. The agreement was to be effective from April 1, 2009.
The Russian Federal Antimonopoly Service (FAS) has said it will return a verdict concerning the system of long-term coal supply contracts; however, it does not intend to cancel the system.
In August 2008, at the end of the investigation against Raspadskaya and Mechel, FAS recommended these companies to conclude minimum three-year supply contracts with steel producers.