Vladimir Putin's opening remarks at the meeting: 

Good afternoon,

You know that during the past year we have been holding regular meetings involving industrialists and business people on the problems facing various industries: aviation, shipbuilding, machine-building, the automobile industry. More recently we discussed water resources. Today we will discuss one of the key industries, ferrous metallurgy, and the situation in the metal market.

It is one of the key sectors which has been making steady progress in recent years. The favourable market conditions have substantially improved the financial position of enterprises. Our metallurgists have managed to restructure the industry and launch the investment process.

In 2007 Russia produced 72.4 million metric tons of steel, putting it in fourth place in the world. Most of this output already comes from modern facilities with a high labour productivity.

While output has increased by 29% the workforce in the industry has shrunk by 7%. It means that labour productivity has grown by about 40% in seven years. A very good indicator. What we seek to achieve in other sectors, metallurgy is by and large achieving.

The country's metallurgical industry, especially considering the acquisition of foreign assets, is tightly integrated into the global market of raw materials and metals.

Russia is the third biggest exporter of steel in the world, 27.6 million metric tons worth $26.5 billion. Consumers see us as a reliable supplier.

Meanwhile more than 60% of the export of our ferrous metallurgy is raw and semi-processed goods: pig iron, ingots and blanks. In other words, we do not occupy the most advanced, hi-tech niches.

In spite of the generally favourable picture in and around the sector, some problems persist which call for serious decisions at the government level.

The most acute of the problems is the growing price of metal. We recently had a similar meeting with the energy people, and one of the main problems in the energy field today is the growing prices of metal products. And you are short of energy. The growing prices in your sector are a break on your development.

Prices for many products increased by about 50% in the first half of this year. Metallurgists of course are aware that such price leaps create problems not only in related industries, but in the long run for their own industry.

The reasons for the soaring prices are known. They are the increased demand in the new industrialised states, instability of world markets, growing production costs and growing prices for raw materials in metallurgy.

We too have problems here which we must address together. Just by way of an example. We have a highly regarded company called Mechel. By the way, we have invited the owner and head of the company, Igor Zyuzin, to this meeting today, but he suddenly fell ill. Meanwhile it is known that in the first quarter of this year the company was selling raw materials abroad at prices that were half of the domestic and world prices. And whatever happened to the margin in the shape of taxes for the state?

Of course, illness is illness. But I think that Mr Zyuzin should get well as soon as possible. Otherwise we will have to send a doctor to him to sort out all these problems. I would like the Federal Antimonopoly Service to pay particular attention to this. Perhaps even the Investigative Committee of the Prosecutor's Office should be brought in. We should look carefully into what is happening there.

Meanwhile consumption inside the country is growing, and the trend is intensifying. We are entering the phase of implementing major infrastructure projects, we are building up housing construction, developing aviation and shipbuilding, engineering and other sectors.

Experts put the demand in the Russian market in 2015 at about 70 million metric tons of rolled steel. That is practically the amount that we produce today.

To meet that demand and simultaneously preserve the export potential, output should increase and technology should be upgraded.

I would like to stress that the current situation in the market must not destabilise the operations of the main metal consumers.

I believe that the main producers and consumers of metals could take steps to switch to long-term contractual relationships.

We have just visited one enterprise, the Vyksa Metallurgical Plant. They have signed long-term contracts with RZD. As Mr Sedykh (chairman of the Vyksa Metallurgical Plant board of directors) has said, they are pleased because they are now assured of a market for several years ahead. It enables them to work at a steady pace, to develop production and to invest.

Of course such long-term contracts, such approach should be practiced throughout the supply chain: from raw materials to the end product. We must seek to have such long-term contracts play the leading role in the market.

At the same time we should develop exchange trade, above all trade in iron ore. We should get rid of unnecessary middlemen. At present the share of middlemen varies between 25% and 45% for certain types of products.

To cut production costs I think we can consider establishing "zero" import custom duties on iron ore and also some types of rolled steel of which we do not produce enough domestically.

I would like to dwell on the problem of ferrous metal scrap. I don't think an effective and comprehensive solution has been found. In fact, no solution has been proposed. That applies, by the way, to non-ferrous metals as well.

The crime world still has a powerful influence in this sphere. All sorts of "grey" tax-dodging schemes - "fly-by-night" firms are widely used in the export of metal scrap.

Today practically all the developed countries consider scrap to be a strategic commodity and closely monitor its market. Unless we come to grips with that problem we may face a shortage of this valuable raw material.

By the way, we have repeatedly discussed that problem. Now the people with whom we discussed it are "either gone or far away". That was eight or ten years ago. Nothing has changed. The constant excuses that we are in the process of joining the WTO and have assumed some kind of obligations do not hold water. Especially since we want to join the WTO and will seek to join it, yet anyway we must ensure our own interests.

I urge you to examine the whole range of issues connected with clearing that sphere of criminals and to come forward with proposals on creating monitoring mechanisms, adjusting the rates of export duties and taxes in this sphere. Let us make up our minds whether we will continue to stimulate the export of these raw materials or keep them in our domestic market. Perhaps we can find a final solution by raising the customs duties, as we are doing with regard to timber. After all, we are doing it with regard to timber, and it works.

I am aware that our metallurgists have suggested that the government can buy all the ferrous metal scrap in the domestic market, including for building up buffer stocks for the future. I think there is a good case for this approach.

The situation with metal coke calls for a detailed analysis. Our consumers experience a shortage of coking coal. Yet this coal is exported abroad. Meanwhile the Russian steel companies have to make up for the shortage by importing coal. In that sense the situation looks absurd.

Further. We are still short of special steels and alloys. Such production can be organised, among other things, on the basis of private-public partnership. It also has to do with removing infrastructure restrictions that hold back the development of the mining and metallurgical sector, above all in the new industrial areas.

I believe it is necessary to implement a long-term strategy for the development of the metallurgical industry and tie it in with the plans for the power industry, engineering and transport infrastructure. We are currently discussing all these problems.

Finally, scientific and technical policy in the sector calls for particular attention. The sector is modernising, but chiefly through the use of imported technologies and equipment. That is a normal and necessary stage. However, we should not forget about the prospects for the development of our own research and design base and heavy machine-building.

We should devise effective and commercially viable schemes for the interaction of domestic companies and Russian research and design centres. Instances of this already exist, including the enterprise which I visited today, I have seen it.

A good deal needs to be done to raise the level of environmental and energy effectiveness of production. There are some positive trends emerging. But the metallurgical complex as a whole is still the least environment-friendly. In short, I have reviewed all the problems of the industry. Let us look at them in more detail.

* * *

Before the end of this year the government will take measures to meet the domestic demand for non-ferrous metal scrap, Russian Minister of Industry and Trade Viktor Khristenko told a briefing after the meeting conducted in Nizhny Novgorod by Russian Prime Minister Vladimir Putin.

According to Viktor Khristenko, the system of economic and administrative measures to meet to the Russian market's demand for this raw material will be finalised before the end of the year.
He added that the new measures will be economic, and not punitive.

According to the Minister, the Ministry is contemplating measures to protect the metal market from unfair competition, in particular the dumping of products from other countries in the Russian market.

Viktor Khristenko also said that a strategy of the development of heavy machine-building was shortly to be worked out.

The Minister said that the government intends to pay attention to the production of special steels used in the defence and aviation industries.

"For economic reasons that sector is in a difficult situation. Government support will be required," said Viktor Khristenko noting that the necessary measures will be worked out before the end of the year.

The Minister also expressed his confidence that the Russian metallurgical complex needed a system of long-term contracts.

"The system of long-term contracts throughout the chain from the metallurgists to the producers of raw materials and from the metallurgists to the consumers of their products must be the normal working positive practice for the Russian market as well," Viktor Khristenko stressed.

Asked by journalists about the situation around the Mechel company, which was criticised by Vladimir Putin during the meeting that preceded the briefing, Viktor Khristenko said that "the instructions have been formulated and the Federal Antimonopoly Service will now take up the case."

"As for the remarks regarding the performance of Mechel, they are not connected with metallurgy but with the coal part and the fairness of the decisions made on supplies of coking coal to the Russian market by one of the biggest suppliers in the free market for the companies which do not have their own coal base," the Minister added.