Russian metals giant Mechel's stocks continued plunging July 29 after Russian Prime Minister Vladimir Putin publicly railed against the company for deceiving the Kremlin and swindling the Russian people. This has led to a flurry of rumors in Russia that Mechel could go the way of Yukos. While this is definitely possible, the developments surrounding Mechel also follow a trend that STRATFOR has been watching: a resumption of Russia's metals wars. Mechel's situation is even more complicated than a competition between metals companies because the Kremlin has stepped into this particular fray — showing that it, too, has a bone to pick with Mechel and the metals industry as a whole. The Russian government started hinting in 2007 that it could be interested in consolidating the country's metals sector, just as it had consolidated other major industries such as energy and defense. The Kremlin has been setting up so-called national champions — like Gazprom, Rosneft and Rozboronexport — which are reminiscent of Soviet-era champions. These national champions have let the government shove many foreign firms out of Russia and use the champions as political weapons domestically and abroad. However, the metals and mining sector was one area the Kremlin was loath to touch. The Kremlin had two reasons to be wary. First, the metals and mining sector is enormous and highly diverse both domestically and internationally — with projects in Africa, East Asia and Latin America. Second, the metals sector — especially steel firms — had an extraordinarily nasty series of battles (even by Russian standards) in the 1990s and early 2000s. The literal body count from the so-called Steel Wars is hard to gauge; targets ranged from billionaire company heads to basic employees and their families. The metals firms that survived did so only because they fought the hardest and most ruthlessly. Though the Kremlin has been in some tough fights, taking on the metals oligarchs is a monumental and dangerous task. The Kremlin wanted to make sure its control was fully consolidated in most other arenas before it took this one on. The first rumbles of a resumption of the wars came when the Kremlin decided upon a merger between steel company Metalloinvest and nickel giant Norilsk Nickel with the hope that Norilsk's new partner, aluminum giant RUSAL, would soon turn the behemoths into a super-behemoth. However, the heads of each of the companies refused to put their egos aside to follow the Kremlin's plan. Moreover, RUSAL owner Oleg Deripaska has vowed to fight the other two companies for total control of at least Norilsk. But now a struggle with the steel and coal giant Mechel has taken center stage. There was a clear sign that Mechel would most likely be the next in line to receive the Kremlin's attention in May, when the head of Rosprirodnadzor — one of Russia's environmental watchdogs — said the company was unlawfully mining in Russia and "harming" the environment in the process. Rosprirodnadzor is one of the largest and most frequent tools that the Kremlin uses to pressure companies; it was one of the ways that the Kremlin pressured Royal Dutch/Shell to allow Gazprom in on its joint venture in Sakhalin II. However, when Rosprirodnadzor goes after Russian companies, they are typically already in trouble with the Kremlin — or else the environmental cautions are an alert for the companies to get in line with the Kremlin's demands. Sources in Moscow told STRATFOR that this first warning toward Mechel was due to a disagreement with rival steel company Novolipetsk over Mechel's decision to suddenly stop supplying Novolipetsk with coal concentrate — a move Novolipetsk claims was meant to sabotage it. Novolipetsk's owner Alexei Lisin has some powerful connections and immediately brought the Kremlin into the fray through his close ties with Deputy Prime Minister Igor Sechin, who happens to oversee the Cabinet posts involving energy and industry. Sechin is one of Putin's two right-hand men and leads one of the largest clans in the Kremlin; thus, his authority packs a punch. But Sechin's involvement has turned the disagreement between two metals companies into a full Kremlin affair, with Putin himself leveling some heavy accusations against Mechel. Putin accused Mechel of price-fixing, cheating the government and the Russian people. According to Putin, Mechel has been selling its products abroad for half the price it was selling at home and holding much of its cash outside of Russia to try to avoid paying taxes. These are serious accusations, and they were compounded when Putin verbally attacked Mechel's billionaire owner Igor Zyuzin, who has been "sick" in the hospital since Putin first publicly criticized his company and has missed several meetings at the Kremlin. Putin has demanded that he get well, "or else." Putin tends to not take sides in the company rivalries within Russia. He may intervene when things get out of hand, but rarely does he actually verbally attack one company. So his warnings to Mechel and its oligarch have led to a firestorm of rumors that the steel giant will be the next Yukos — meaning its owner will fall and the company will be crushed and left for the vultures to pick apart. But Putin is under a lot of pressure domestically with inflation soaring, demand for construction material at an all-time high and towering metals prices — the latter being something the government could also cash in on, since taxes on the metals companies are heavy in the country. Mechel was not only taking part in the resumption of the metals wars that the Kremlin dreads, but was cheating the government out of the benefits of looking the other way while the steel companies fight among themselves. The Kremlin does not take too kindly to being duped, and though it wants to avoid another highly public Yukos incident, Mechel must be made an example of. This does not mean the end of Mechel is definite, but some major concessions must be made, and Mechel — which is used to flying under the Kremlin's radar — will have to start following every rule and command from the top. If it fails to obey and make up for its disobedience, Mechel will be smashed not by the other metals companies, but by the Kremlin itself.