UPDATE 2-Russia to demand Mechel cut coal prices 15 pct

(Adds analyst comment, Putin quote, share price)

By Robin Paxton

MOSCOW, Aug 19 (Reuters) - Mechel (MTL.N), the Russian miner savaged by Prime Minister Vladimir Putin last month, will escape with an enforced 15 percent reduction on coal prices for the steel sector from Sept. 1, less than had previously been feared.

Mechel will also be fined 5 percent of last year's coking coal revenues, or about 790 million roubles ($32.2 million), for abusing its dominant market share, Interfax news agency quoted the head of Russia's anti-trust watchdog as saying on Tuesday. "It's lower than the higher end of the range so, from this perspective, it's favourable for the company," Alfa Bank mining analyst Maxim Semenovykh said, estimating lost revenues of about $45 million for Mechel in the last four months of the year.

"The price decrease is serious, however, for the company and for the market in general. Mechel will just be the first: they will try to implement this price decrease for other coking coal producers and eventually for steel producers," Semenovykh said.

Russia's government, struggling to rein in inflation running at an annualised 15 percent, has expressed concern at the high price of raw materials used to make steel, which in turn is crucial to building the country's infrastructure and economy.

Mechel's case has drawn special attention after Putin twice last month attacked the company's pricing policy, triggering a sell-off that erased $8 billion, or half the New York-listed company's market value, in the space of three trading days.

"We will recommend the company lower its prices by 15 percent to the end of the year from September 1," Interfax quoted Igor Artemyev, head of the Federal Anti-Monopoly Service (FAS), as saying after meeting Putin on Tuesday.

Mechel officials were not available for comment.

The anti-monopoly service, in a ruling last Thursday, found Mechel guilty of abusing its market position and said a fine of between 1 percent and 15 percent could be imposed. Russian media had said the miner could be forced to cut prices by 30 percent.

Mechel, majority owned by billionaire Igor Zyuzin, is Russia's largest producer of coking coal for the steel industry, a commodity whose global price has soared as a China-led boom in demand coincides with tight supply.

PAYING HEED TO PUTIN

Raspadskaya (RASP.MM), Mechel's closest competitor in coking coal, is also subject to an anti-trust investigation, along with a trading unit of steel maker Evraz Group (HK1q.L).

Interfax quoted Artemyev as saying both companies would be subject to the same demands and sanctions as Mechel. FAS has not yet ruled on the fate of these two companies, and both declined comment on Tuesday.

FAS said last Thursday Mechel, which has angered some Russian steel makers by cutting supplies this year, would also switch to long-term coking coal supply contracts from 2009.

Prime Minister Putin, addressing a meeting on competition, said raw material suppliers to the steel industry had already heeded his calls to observe competition laws and that steel makers -- the immediate beneficiaries of any price cut -- should follow this example when agreeing contracts with customers.

"I'm pleased to note our discussions have produced positive movement," Interfax quoted Putin as saying. "Steel makers themselves need to reach agreements with their customers." He added: "We should create a system that will regulate the competition situation justly and rationally."

Mechel's New York-traded stock traded up more than 4 perecnt when the market opened. By 1420 GMT, it was up 1.6 percent to $26.30.

This was 28 percent below the closing price on July 23, the day before Putin launched his first public attack, but 63 percent above the low of $16.12 to which the stock plunged after his July 28 accusation that the company had evaded taxes. (Additional reporting by Polina Devitt; editing by Michael Roddy)