Russian Invasion of U.S. Steel Industry

Case: Russian Invasion of U.S. Steel Industry

Russian steel companies are quickly becoming more interested in the US. market. In the past 3 years, Russia's major steel producers have invested more than $3 billion in U.S. operations. Evraz Holding, the largest steel producer in Russia, acquired Oregon Steel for $2.3 billion. Magnitogorsk Iron & Steelworks (MMK) is currently in negotiations to build a $l-billion mill in Ohio. SeverStal paid $285 million in 2004 to purchase bankrupted Rouge Industries in Dearborn, Michigan. SeverS tal is also building an $800-million mill in Columbus, Mississippi, and plans to spend an additional $1 billion in investments in the near future. Overall, this trend indicates tremendous growth in the steel industry brought on by Russian companies.

Why the interest in acquiring assets in the United States? There are a couple of reasons. First, the Russian companies that are investing have lots of money to throw into this market. The domestic market in Russia is growing very quickly and has very low labor costs, while the international price of metals is rising. Because of this disparity, Russian profit margins are nearly double that of their American counterparts.

The second reason that Russian companies are investing in the United States is the auto industry. The United States is forced to import more than 30 million tons of steel a year because American steelmakers cannot keep up with the demand. This amount of imports drives costs way up, and one of the major importers of this steel is in the auto industry. With the influx of foreign automakers building plants in America, there is a higher demand than ever for cheaper steel. SeverStal's plant in Dearborn is on the same site as Ford's River Rouge truck factory. Also, the new facility being built in Columbus, Mississippi will be in a perfect location to supply Toyota plants in Kentucky and Texas. With expendable capital