OREANDA-NEWS. May 26, 2010. Severstal, which provides 60% of AvtoVAZ needs for cold rolled coil, halted shipment of its products during its price negotiations with the automaker, according to Reuters. AvtoVAZ’s director of external relations, Igor Burenkov, confirmed that Severstal has stopped supplying cold rolled coil to the auto manufacturer, which now is feeling the pinch of a deficit of raw materials. We note that key Russian car producers received notifications in mid-May from steel manufacturers about 10-30% hikes in metal prices, reported the press-centre of OTKRITIE Financial Corporation.

View: We do not believe that the production of cars will be disrupted. However, we do envision a 2-7% price hike for cars produced by AvtoVAZ in the near future, which will undercut its competitiveness. In general, the increase of the price of components could negatively affect the value of car sales and reduce the demand for key domestic car brands.

Valuation and Action: We view the news as negative for AvtoVAZ. Our valuation models and recommendations for domestic car producers are currently under revision.