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15 Aug, 2007 04:05

Russian steelmakers think big

Russia's steel industry needs investment to replace equipment and outdated production technology. Despite this, Russian steel players are emerging as big players on the international stage – among them are Severstal, Evraz and Mechel.

Russia is among the top five steel producing countries, ranking fourth after China, Japan and the U.S. Several factors lie behind the competitive advantage of Russian companies – low production costs, including energy, a geographically diverse revenue base and strong demand for steel products in its home market, analysts say.

“Another factor driving the expansion of the Russian steel industry is the construction activity, which is extremely robust on the Russian market. They are investing heavily into modernisation of their production facilities, which will lead to cost-cutting initiatives and will also in turn support their profitability,” says Angelina Valavina, Fitch Ratings analyst.

We are currently reviewing several projects that would enhance our presence in the construction steel and railway product markets in Russia. The last bit of the programme is probably South Africa. That is a stand-alone approach for us. We've bought a steel mill which is not in the best shape, but has an enormous potential. So we will spend significant amout of money on upgrade of the steelmaking capability.

Pavel Tatyanin,
Senior Vice President, Evraz

Steel production in Russia is expected to continue grow at almost 7% over the next year driven by GDP growth and increasing construction activity. Other factors for growth are merger and acquisition activity and the steel companies' own investment programmes.

Over the past three years the country's steel market has seen a wave of consolidation. Steel giant Evraz spent almost $US 3 BLN on international acquisitions, and Severstal invested $US 900 MLN in foreign assets.

But the steel boom is attracting new entrants – China became a net exporter of steel last year. Analysts say if Russian companies are to stay ahead of the pack, they must continue to invest in the latest technologies and updated capacity.