Russian Steel Sector Fuses Under Kremlin's Eye

After the announcement of a merger between Europe's Arcelor and Russia's Severstal, Russia's leadership is keeping a watchful eye over goings-on and, according to media reports, has its own plans for the future of the industry.

President Vladimir Putin, who hailed the merger as an example of "positive outward expansion" by a Russian firm, was said to have given the deal his personal blessing at a meeting with Severstal chief Alexei Mordashov last month. To balance out the Severstal-Arcelor link-up, analysts say, the Kremlin is now planning to set up a state-controlled steel industry giant that would further strengthen Russia's competitiveness on international markets.

"With privatization, Russia's steel sector has restructured itself and is already fairly concentrated. But it is not efficient enough," said Andrei Deineko, an official from Russia's industry and energy ministry. Seven companies currently produce 90% of the 66.2 million tons that Russia produces every year -- some 10 million tons of this production comes from Severstal.

According to Russia's Kommersant daily, Russian billionaire Roman Abramovich is the pointman in the Kremlin's plans to create a metals giant. The oligarch has been in talks to purchase a stake in Russian steel group Evraz and is also reported interested in buying into Corus, the British-Dutch group, Kommersant said. Abramovich could be preparing a merger between Evraz and Corus, combining Western technology with Russian coal and mineral resources, Kommersant said.

The Vedomosti business daily said another Russian metals magnate, Alisher Usmanov, who heads Metalloinvest group, could bring his own assets into the new industry giant.

"There is an urge to merge. The more you concentrate, the better your price and cost power," said Peter Marcus, an analyst from the U.S-.based World Steel Dynamics research centre. Marcus said Russian firms Severstal, Novolipetsk and Magnitogorsk would be key players in a global shake-up of the industry that would create fewer, larger companies. "In the next half decade, there may be up to five 70-150 million ton steelmakers" in the world.

Copyright Agence France-Presse, 2006

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