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6 Aug, 2008 02:49

Evraz may overreach with AK Steel bid

Russia's Evraz will overreach itself with a bid for US number three steel firm AK Steel. That's according to analysts, who worry it's already spent too much on the flagging American market. Experts are favouring the strategy of rival Severstal, which on T

Evraz has officially denied bidding for AK Steel for the first time. On Tuesday, Deputy CEO Vasily Migunov told Business Today by phone it had ‘no interest’ in the Fortune 500 company.

However sources familiar with AK negotiations say both Evraz and Russia's largest steelmaker Severstal are involved. That would become Evraz's 3rd multi-billion dollar swoop on North America . It’s already bought Oregon Steel Mills and IPSCO. Dr. Vladimir Zhukov, Executive Director at Lehman Brothers Russia believes the focus on the US market may come at the cost of opportunities in Russia.

Buying AK would be a little over the top, because getting too much US exposure automatically reduces exposure to Russia, and the fundamentals of the Russian steel market are much more attractive than the US.

Severstal's trying a different tack. On Tuesday Esmark joined WCI and Sparrows Point as its 3rd loss-making US buy this year. New York-based metals analyst Charles Bradford doubts they were worth getting even as quote “scrap”. But Russians are masters of the business turnaround, and Severstal may just end up trumping Evraz. Marat Gabitov, Metals Analyst at Unicredit Aton says at may be a successful strategy over the longer term.

Severstal is riskier because it still needs to integrate these assets, but it may be more successful in 2 to 3 years' time.

Evraz and Severstal now control almost 10% of the US steel market. But sales there are sinking 10% year on year, which is why American politicians are allowing any rescue bids, whatever country they come from.