10:10 GMT +325 June 2017
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    American oil to flow through Russian pipes

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    MOSCOW. (Oleg Mityayev, RIA Novosti economic analyst) - Russian metallurgists now have a big advantage over their American rivals due to steadily growing raw material prices and relatively low production costs in Russia.

    Therefore, Russian producers are buying American companies. Russian steel giant Evraz Group and the Pipe and Metallurgical Company (TMK) announced their acquisition of North American Ipsco for $4 billion on March 14. The Russian companies will use IPSCO's assets to manufacture pipes for global oil giants.

    It is Evraz's third acquisition in North America. In late 2006, the company bought the United States' largest rail producer, Oregon Steel, which also makes pipes, for $2.3 billion. Last year, Evraz, Russia's largest steel group in terms of assets (including foreign ones), acquired Claymont Steel in Delaware, a producer of steel sheets for bridges and train cars, for $565 million.

    Evraz, partly owned by Chelsea Football Club owner and billionaire Roman Abramovich, has been eyeing IPSCO since last year. But the Russian company was neither satisfied with last year's price nor the structure of assets offered.

    The just completed deal is much better for Evraz's interests, since it acquired IPSCO's Canadian plate and pipe business (10 plants) from Swedish SSAB and is planning the sale of IPSCO's U.S. tubular & seamless business to TMK for approximately $1.7 billion. This scheme helped Evraz to get what it wanted and save a lot of money. As for TMK, which had no foreign assets before, the deal allowed it to break into a foreign market thanks to an alliance with a large partner.

    Evraz will use the Canadian facilities to produce large-diameter pipes, while TMK will focus on the production of smaller seamless pipes at the newly-acquired U.S. plants. It is worth mentioning that the two Russian companies have bought very worthwhile assets since IPSCO plants make special-alloy pipes classified as deep-conversion (high-added-value) products.

    In addition, these are very promising assets. Both large and small diameter pipes are used in oil and gas industries for transportation as well as for prospecting and drilling. Evraz and TMK will now supply such pipes to global oil giants including Exxon Mobile, Royal Dutch Shell and BP.

    Evraz and TMK are probably counting on the U.S. infrastructure sector to soon expand rapidly. There was a shortage of investment in that sector in the past decade, but the current record fuel prices, among other things, should certainly spur the process now.

    Evraz is one of the three Russian companies which are the most aggressive acquirers of foreign assets, including Russia's largest nickel producer Norilsk Nickel and United Company Russian Aluminium (UC Rusal), a Russian aluminium giant. Evraz has metallurgical assets in the CIS, Africa and the United States. It was the first Russian company to make a foray into the Chinese steel market, almost closed to non-residents, earlier this year. The Russian group then negotiated a takeover of its Chinese rival, Delong Holdings.

    Admittedly, Evraz does not have unlimited resources. Independent experts said its debts totalled $6.5 billion. The group will have to finance its latest deal by attracting new loans. The shortage of funds was probably one of the reasons behind Evraz's decision to team up with TMK for acquiring the new North American assets.

    The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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