Russia's Severstal Plans $6 Billion Investment in Asia

---

Researched by Industrial Info Resources (Sugar Land, Texas)--At a time when the global steel industry is witnessing a slowdown in the face of the current economic recession worldwide, Severstal OAO (MCX:CHMF) (Cherepovets, Russia) has announced plans to invest at least $6 billion to forge its presence in the Asian market. The firm plans to set up a steel production unit in Asia and could possibly choose from India, Vietnam, Thailand or Indonesia for its venture. Severstal's plans for Asia follow a similar investment made by the firm toward acquisitions and plant refurbishments in the U.S. over the last four years.

At the same time, the firm has also announced plans to lower production levels at its steel plants in Europe, North America and Russia for the month of October as worldwide demand for steel products has taken a plunge.

As per revised production estimates, the company plans to reduce crude steel production at its manufacturing unit at Cherepovets by about 25%. Severstal will reduce production levels at its plants in the U.S. and Italy by 30% each this month. The company's aggregate production capacity stands at about 20 million tons per year.

Russia and India have traditionally enjoyed close cooperation and joint efforts in the steel sector with Russian involvement in India's steel plants in Bhilai, Madhya Pradesh; Bokaro, Jharkhand; and Visakhapatnam, Andhra Pradesh. Romelt-SAIL India Limited (New Delhi) was set up in October 1997 as a joint venture entity of the Steel Authority of India Limited (BSE:500113) (SAIL) (New Delhi), National Mineral Development Corporation Limited (BSE:526371) (Hyderabad, Andhra Pradesh), and three Russian firms -- OAO Ashinsky Metallurgical Plant (Chelyabinsk, Russia), Moscow Institute for Steel and Alloys (Moscow, Russia) and Tyazhpromexport (Moscow, Russia). The joint venture was formed after India's government awarded consent to the Moscow Institute for Steel and Alloys to make available the smelting reduction Romelt technology to Indian steel manufacturers. In 2006, McNally Bharat Engineering Company Limited (BSE:532629) (Kolkata, West Bengal) entered into an agreement with Tyazhpromexport to modernize and expand steel plants in India. In February, the two countries pledged to increase bilateral trade from the present $5 billion to $10 billion by 2010 and to $20 billion by 2020. The two nations also agreed to set up an India-Russia CEO Council comprising the top 10 chief executive officers of each country to identify potential areas of trade and investments in sectors including energy, health, mining, oil and gas, pharmaceuticals, steel, transportation and tourism.

Despite the present economic downturn, Severstal is optimistic about the prospective demand for steel in the burgeoning automobile, infrastructure, power and retail industries in Asia. Domestic consumption of steel in India is expected to grow to 65 million tons per year by 2010 and to 200 million tons per year by 2020. The Indian government introduced the new steel policy in 2005 to lure foreign direct investments of about $50 billion into the sector to achieve a target production of 110 million tons per year of steel by 2010. The Ministry of Steel identified high capital costs, prohibitive power tariffs, low productivity and inadequate investments in allied sectors, such as coal mining, as the main bottlenecks in the industry's growth. The cost of capital in India was pegged at an annual rate of 11% compared with the world average of 5%. The steel policy proposed to increase government efforts toward the modernization and consolidation of existing facilities in addition to clearing institutional obstacles that hindered capital investment in the sector. It also proposed to allow for single-window clearance of large-scale projects followed by statutory clearance from the ministry to facilitate faster execution of the approval process for new projects.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.