UPDATE 4-Russia punishes Mechel with enforced coal price cuts

(Adds analyst comment, share price data)

By Polina Devitt

MOSCOW, Aug 14 (Reuters) - Russian miner Mechel (MTL.N) must slash domestic coking coal prices and pay a "below average" fine for abusing its market position, anti-trust authorities said on Thursday, as fears of a state attack on the company subsided.

Mechel, Russia's largest producer of coal for steel makers, lost half its market value in three trading days in July after Prime Minister Vladimir Putin twice attacked its pricing policy and sparked fears of a Kremlin-backed drive to punish the firm.

Analysts said potential lost revenues of $600 million in the second half of the year, plus a fine of up to $200 million, was a small price to pay for escaping the fate of YUKOS, the once-mighty oil company destroyed by massive back tax claims.

"The chances of this most radical of outcomes has been reduced to near zero," Alfa Bank analysts said in a note.

Mechel's case has drawn special attention after Putin's public attacks erased $8 billion off the company's value and triggered a wider sell-off that dragged Russian shares to their lowest levels in nearly two years when the war in Georgia also erupted.

The Federal Anti-Monopoly Service (FAS) found Mechel guilty of abusing its dominant market position and demanded the company, owned by billionaire Igor Zyuzin, switch to long-term contracts for its coking coal supplies from 2009.

"Our demand will be for a significant reduction," FAS head Igor Artemyev told reporters, referring to Mechel's coal prices. He did not specify the level of the reduction, which Russian media have reported could be in the region of 30 percent.

In return, Mechel would receive a below average fine, Artemyev said. Its violation carries a fine of 1-15 percent of annual revenues from sales of the commodity concerned.

FAS said it would rule within 10 to 20 days on the fate of Raspadskaya (RASP.MM), Mechel's closest competitor in coking coal, and a trading unit of steel maker Evraz Group (HK1q.L), which are also under investigation for alleged market abuses.

LOST REVENUES

The watchdog said Mechel had been penalised because it had set discriminatory conditions for some market players and refused without justification to trade with other participants.

A Mechel spokesman said the company would refrain from commenting until it received official notification of the FAS ruling. FAS has not publicly disclosed the size of the fine.

Mechel, also Russia's sixth-largest steel maker, posted 2007 revenues of $6.7 billion. Its mining segment contributed $1.8 billion, although it has not disclosed the contribution of its coking coal mines, the amount on which any fine would be based.