Russia's largest carmaker AvtoVAZ and the Russian steel producer Magnitogorsk Iron and Steel Works (MMK) have signed an agreement on prices for the supply of steel products for the first half of 2011.
The conditions of the agreement have not been disclosed, but AvtoVAZ said in its statement that "a compromise was reached and the sharp rise in steel price has been avoided."
In April 2009, MMK and AvtoVAZ signed a long-term general agreement on cooperation and partnership, while in October 2009 the companies reached an agreement to expand the supply of new steel grades, as well as organizing additional steel warehousing at the car plant.
AvtoVAZ continues negotiations with Severstal on 2011 steel product deliveries
On the other hand, earlier this month AvtoVAZ lodged a complaint with the Russian Federal Antimonopoly Service (FAS) regarding the increased 2011 prices for flat steel products of another of its another suppliers, namely, the Russian steelmaker Severstal. ArtoVAZ said that Severstal's planned increase of up to 30 percent in steel product prices could lead to a growth of 3.5 percent in prices of its own products in 2011.
For its part, Severstal said that the higher prices for its products are justified, as in 2011 it expects at least a 15 percent rise in its production costs. In addition, Severstal also said that in 2010, despite low sales overall, it delivered to AvtoVAZ about 200,000 mt of cold rolled steel, which was almost double the agreed volumes. Severstal also noted that the increase in the average cost of domestic vehicles from 2005 to 2010 amounted to 34 percent, while the price for steel products went up just by 7.3 percent in the same period. Severstal is AvtoVAZ's exclusive supplier of six types of products. An agreement between the companies for 2011 deliveries has not been reached yet.
AvtoVAZ buys about 500,000 mt of auto sheet per year. In 2010, steelmakers' average increase in prices for steel products for AvtoVaz amounted to 15 percent.