Deputy Prime Minister Andrei Belousov claimed that Russian metals majors have "cheated" the state of RUB100bn ($1.4bn) worth of capital investments and state military orders in an interview to RBC business portal.

Deputy PM Belousov noted that the missing RUB100bn could be reclaimed from the metals companies through fine-tuning the taxes on the industry, echoing recent statements by Prime Minister Mikhail Mishustin.

"Although the discussion about the growth of metal (we think primarily steel) prices with the government is intensifying, in our view the fact that there is no support for export duties on either side creates the possibility for a compromise between steel names and the government," VTB Capital wrote on June 1.

VTB Capital estimates that RUB100bn mentioned by Belousov makes 5% of companies' spot EBITDA run-rate, and would create mild downside risks to 2021 forecasts. The shares of Russian steel majors MMK, NLMK, Severstal and Evraz have underperformed global steels peers by 4-8 percentage peers, so the analysts believe this risk might be already be priced in.

Sources told RBC that Deputy Prime Minister Marat Khusnullin, who is curating infrastructure investment and construction, is directly interested in capping margins of metals companies, as the budgets infrastructure projects were drafted before the rise in prices.

As recently reported, infrastructure construction is likely to be the focus of state investment and unsealing the sovereign National Welfare Fund, with $12bn reportedly slated for infrastructure projects.

As followed by bne IntelliNews, as of end of 1Q21 steel prices were at their highest since August 2008. Russian steel and metals majors have shown strong results on recovering prices and demand, becoming top dividend payers in the Russian equity universe. 

Metals companies in turn argue that metals prices are cyclical and price growth could be short-lived, while the capital investments are at their highest in 20 years and tax payments in 1H21 are already expected to double to RUB200bn.

VTB Capital analysts estimate that an additional income tax from the industry could be up to RUB355bn, should spot steel/raw materials prices to stay for the next 12 months. "This would more than cover the RUB100bn costs overrun by the state, again creating the possibility of a compromise between the state and the industry," they believe.

The statements made by Belousov maintain the regulatory pressure on the steel and metals market in Russia that has persisted in the past months. 

These include possible export curbs for certain steel products, a price-fixing investigation of the Federal Antimonopoly Service (FAS) into steel producers Magnitogorsk Iron and Steel Works (MMK), Novolipetsk Mining Kombinat (NLMK) and Severstal, as well as the government reportedly also considering two potential moves to regulate steel prices and tax the sector. 

Previously unnamed sources told Vedomosti daily that also other latest private-state investment initiatives are another reincarnation of the so-called "Belousov List". In 2018 Belousov (then economic advisor to President Vladimir Putin) controversially proposed slapping a one-time selective tax on "extra revenues" of Russia's largest metals and chemical majors worth up to RUB500bn.

The idea caused a strong negative reaction on the markets and was opposed by the government, but evolved into a pretext to mobilise the capex of the companies for state-supervised spending.