Russians are coming. And they bring steel beams. Namely, Russian steel producers are in the midst of an assault on the American market. The latest in a series of incursions – Magnitogorsk Iron and Steel Works (MMK) is negotiating to build a new steel mill in southern Ohio worth one billion dollars.
On the seventeenth of last month, MMK’s CEO Viktor Rashnikov met with Ohio Governor Ted Strickland to discuss a potential factory with a capacity of 1.5 million tons of steel per year. Strickland described the meeting as ‘a reason for optimism,’ adding: ‘We will do everything in our power to attract this great company to us.’ Altogether, major Russian producers have invested more than three billion dollars in American operations over the past three years. Last November, Evraz Holding, the largest steel producer in Russia, purchased American Oregon Steel, a manufacturer of rails and plates, for 2.3 billion dollars.
In 2004, SeverStal, the number two player in Russia, poured 285 million dollars into Rouge Industries, a bankrupt manufacturer from Dearborn, Michigan. Additionally, they own an 80 percent stake in SeverCorr, an 800 million dollar factory set to start operations this fall. Once fully operational, SeverStal’s American production will nearly double to 5.8 million tons per year, placing the company among the top five integrated steel producers in the U.S. ‘We are confident that we can still grow in the U.S., and we are proving this with investments,’ says Gregory Mason, COO of SeverStal North America, who plans an additional billion dollars in investments over the next three years. Where does such interest come from? Russian companies have piles of cash for business. They are supported by a rapidly growing domestic market and low labor costs combined with high metal prices in global markets. Their profit margins are nearly double the average of American producers, claims Deutsche Bank analyst in Moscow, Alexander Puheyev.
The Russian steel sector is called ‘the strongest in the world, financially speaking.’ On the other hand, the American market is attractive. After years of austerity, American steel mills cannot keep up with demand. The American industry imports about 30 million tons of steel per year, or a quarter of the country’s total needs, estimates say. While part of that demand comes from Russia, it costs about 100 dollars per ton to transport metal that sells for 600-800 dollars per ton in the U.S. ‘All the outdated mills are bankrupt,’ says Rob Edwards, an analyst for Renaissance Capital in Moscow. ‘This results in a market whose demand is unmet, which then creates an opportunity for the Russians.’ A large part of their efforts is directed towards the automotive industry, which is a strategy similar to other global producers. Arcelor-Mittal, based in Luxembourg, has become a top player in the North American automotive market. In June, German Thyssen-Krupp announced plans to build a steel mill in Alabama worth 3.7 billion dollars.
