Russian metallurgical ambitions

Tuesday, 11 April 2006 16:40:33 (GMT+3)   |  
       

Russian metallurgical complex came to completely new phase of development. If only a couple of years ago, the largest companies of the industry were trying to adjust themselves to the market economy by modernization of the production, now the time came for expansion in the way of acquisition of foreign plants. Until recently the development of Russian metallurgical companies followed the singular scenario. In early 90s, the main priority of the enterprises was the modernization of the methods of the production. Since to export was the only way of survival for deeply depressed Russian economy in general and for the metallurgical industry in particular, the products quality was to reach international standards to be competitive on the world market. The vertical integration followed: the enterprises were buying intensely raw materials suppliers and ports to reduce the cost of production and transportation. As a result, the largest Russian companies were able to introduce low cost - high quality products and able to sell them on the world market at very competitive price. Now, the Russian metallurgical complex, although skipping traditional consolidation inside the country phase, have came to the new phase – acquisition of foreign metallurgical assets. Russian capital is already long time present in Europe: TMK owns Romania Artrom, Mechel bought Romanian plant Cost and S.C Industria Sarmei and Mechel Zeljezara in Croatia. The leader in this sphere is Severstal, which owns American Rouge Industries and Italian Lucchini. Evraz Holding has large assets in Europe, in the face of Czech Vitkovice Steel and Italian Palini e Bertoli. Other major metallurgical companies followed the suit. Recently, MMK did the first step in acquisition of foreign assets: its consortium with companies from Saudi Arabia and Pakistan won the tender on development of Pakistan Steel. Although the share of MMK in Pakistan Steel is only 40 percent, it was very perspective step: for comparatively low price (about $145 million) MMK bought large share of the profitable company. In addition, MMK has began negotiations with Indian Government to build $6.6 billion worth rolled steel plant in the country. Thus, Pakistan Steel and possibility of new Indian assets provided MMK firm ground on South Asian market. The other Russian plant, which achieved success in buying international metallurgical assets, is NLMK. After acquiring 100 percent of shares in Dutch Dansteel, NLMK is intending to buy 15 percent of shares of the world's second biggest steelmaker - Arcelor. By following their strategic aim of international consolidation, the Russian metallurgical enterprises are already ’crossing the road' of the world leaders in international expansion such as Mittal Steel and Arcelor. Thus, Evraz Holding snatched out Czech Vitkovice Steel from the hands of Mittal Steel by offering higher bid, whereas NLMK has intentions to buy 15 percent of Arcelor's shares, complete absorption of which Mittal Steel is trying, so far unsuccessfully, to perform for the last couple of months. The main advantage of the Russian enterprises against Mittal Steel is the ability to supply low cost semi finished products to their foreign plants, so necessary for production of high quality low price rolled steel products. However, this advantage might be turned in to negative aspect and slow down the Russian companies' consolidation on the world market. Thus, already now, many Russian steelmakers meet antidumping barriers on the world markets, especially in the US and Europe.

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