By John Helmer in Moscow
Magnitogorsk Metallurgical Combine (MMK) has just announced that it has abandoned both the Ohio and Oregon steelmill projects in the US, which the company, owned by Victor Rashnikov, has been considering for several years.
A non-decision that is at least two years old is not exactly news, and MMK declines to comment on the reasons or the timing of the press leaks. Instead, the company notes that it leads the major Russian steelmakers in selling the largest proportion of its steel on the domestic market — 64% in the last quarter of 2009 (counting shipments to the CIS as well). In money terms, MMK’s domestic sales amounted to 66% of value in 2009; they rose to 71% as of March 31.
In mid-2007, speculation of a billion-dollar investment in a plant to produce high-quality coated steel for US car builders was aroused, when the Ohio Lieutenant Governor Ted Strickland visited MMK and met Rashnikov. Strickland then told hometown media he was hopeful of drawing MMK into a greenfield plant in the state, and the Ohio development agency claimed MMK might make an announcement of the plan before the year’s end. Instead, MMK covered its retreat by saying the decision “now depends on how the negotiations will go. Based on their results, the decision will be made. One of the variants is Ohio state. The key to our positive decision will be the packet of privileges and preferences which the US can give us.”
In 2007, when Evraz, Severstal, and Novolipetsk began spending heavily to buy US steel and pipemaking assets, Rashnikov was critical, claiming the US plants were operating at excessive cost and at risk of over-production in relation to US demand. They were endangering their Russian profitability, Rashnikov said publicly. He opted instead to invest in sources of supply of coal, iron-ore and scrap which the other groups already owned, and which MMK, whose privatization and freedom from state capital control came later than the others, lacked. Rashnikov also invested in a new mill at Magnitogorsk to produce wide steel strip and plate for Russian pipemaking production, which is controlled by Gazprom, Transneft, and Rosneft, all state entities. As a result, MMK, with $1.88 billion in debt (short-term and long-term, as of March 31, 2010), has escaped the much heavier indebtedness and loss-making from which the rival Russian groups continue to suffer.
For a time, Rashnikov toyed with the idea of making his own offshore investments in steelmaking outside Russia, but on the cheap — without paying the premium prices the North American and European assets were costing his Russian peers. And so over the past five years, MMK has acknowledged preparing an offshore investment in steelmaking in Pakistan, only to have the privatization auction of Pakistan Steel Mills revoked by the Pakistan Supreme Court in June of 2006; the court ruled the asset had been under-valued, and the award influenced by corruption.
A joint venture in Morocco with Maghreb Steel, was also considered by Rashnikov between 2006 and 2007, but did not materialize. Instead, MMK has concentrated on Turkey, where its joint venture with Atakas began in 2007. Two production lines are planned for Iskenderun and Istanbul for a total investment of $1.7 billion; the Iskendrun mill is already in operation.
Because MMK’s decision not to invest in the US dates back to the period before US and global steel prices collapsed in 2008, and is not newsworthy now, the timing of MMK’s latest announcement is related to a new meeting with Russian steelmakers which Prime Minister Vladimir Putin will host in Chelyabinsk, headquarters for the Mechel steel and mining group, on Friday of this week.
Putin is expected to refer to investigations under way at the Federal Antimonopoly Service of price-rigging by the Russian steelmakers, including MMK; and of coking coal pricing, which includes MMK’s mining subsidiary, Belon. As he did before, during a May 25 meeting with the steelmakers, Putin is expected to focus on the Russian steel proprietors’ profit margins up and down their production chains; their pricing of steel for downstream Russian consumers, especially in the ailing auto industry; and the flow of investment abroad. Of MMK’s peers, the only one to have announced major mill investment plans outside Russia recently is Mechel in Romania and Turkey. A proposal for Evraz to build a new steelmill across the border in Kazakhstan is still being studied at Evraz headquarters.
These are the kind of trespasses and temptations Rashnikov wants to make absolutely sure the prime minister forgives him for not falling for:
And lead us not into temptation;
but deliver us from evil.
For thine is the kingdom,
the power, and the glory,
for ever and ever.
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