Russia's men of steel snap up assets stateside

Russia's steel elite, with cash to burn from record profits, has accumulated almost 10 percent of US steelmaking capacity as it bets big that demand in the world's largest economy will ride out a global credit crunch.

Billionaires who built their fortune on Soviet-era steel giants have spent nearly $9 billion in the last few years acquiring US mills to expand their global presence. At today's knockdown prices, investors believe it's a gamble worth taking.

"They're buying them because they're cheap. The underlying motive behind buying these mills is making money, not enhancing the political glory of Russia," said Tim McCutcheon, a partner and fund manager at DBM Capital Partners in Moscow.

Betting on US steel is risky, say analysts, as the once-mighty automotive and construction sectors are in decline and demand growth has been eclipsed by emerging economies such as China and India.

But this has not deterred Alexei Mordashov, owner of Severstal, whose acquisitions have pushed his company into the top five steel makers in the United States - a scenario unthinkable when the countries were Cold War enemies.

"We remain committed to growth in North America and believe in the long-term promise of the US market," Mordashov, ranked the world's 18th-richest man by Forbes magazine, he said following his announcement of Severstal's latest acquisition last month.

Mordashov says the weak dollar is making Russian companies, which derive most of their revenues supplying a domestic market expanding at more than 7 percent annually, more competitive in the United States. The dollar has lost nearly 15 percent of its value against the Russian rouble in the last two years.

Changing world

Russia's foray into North American steel marks the growing power of its leading steel firms, which are unburdened by high raw material costs after absorbing their own mines during a carve-up of the country's mineral assets in the late 1990s.

Severstal was the first Russian company to buy a US steel asset when it bought Dearborn, Michigan-based Rouge Steel, once the in-house steel unit for Ford Motor Co, in late 2003.

Evraz Group, part-owned by billionaire Roman Abramovich, followed with the acquisition of Oregon Steel Mills and Claymont Steel Holdings. Last month it also agreed to buy IPSCO's North American assets from Sweden's SSAB.

"How the world has changed!" said Jack Dzierwa, global strategist at Texas-based US Global Investors Inc.

"In the 1990s, Russia was a laughing stock, but its muscles have grown and the country has gone on an acquisition spree," said Dzierwa, who co-manages the $19.2 million Global MegaTrends fund and holds stock in Evraz and Mechel.

Agencies

(China Daily 04/09/2008 page16)