Andrei Karunos

E

vrazHolding, Russia’s leading steelmaker (14 million tons a year), stated its desire to own a metallurgical mill in China. In the past Alexander Abramov, the Holding’s president, mentioned quite frequently the expediency of entering attractive national and regional markets not just as a trader but as a production owner: “In terms of logistics, products should be manufactured where the good market is”. Abramov revealed his plans with respect to the Chinese market after his company failed to buy South Korea’s company Hanbo Steel.
The statement was made during the recent visit to China by Russia’s President Vladimir Putin, whom Abramov accompanied as a member of the official delegation. His remarks immediately attracted the attention of the steel market’s players.
Alexander Abramov met in Shanghai with Mrs. Xie Qihua, the chairwoman of the board of directors at the Shanghai Baosteel Group (20 million tons of steel a year). At this meeting they discussed options of cooperation between the two sides in developing iron ore and coal fields as well as in implementing joint projects to make steel products. EvrazHolding, the largest Russian exporter of semi-finished steel products to countries of Southeast Asia, is interested in realizing the Holding’s export potential. In its turn, Baosteel as one of the leaders in production of plates and sheets on China’s territory is counting on guaranteed shipments of steel slabs from Russia. "We feel glad because of the established dialogue with Baosteel and we hope that it will continue. The potential of our companies has a complementary nature", said Alexander Abramov assessing these talks.
After that Abramov flew over to Beijing, where he took part in the session of the Russia-China Business Council. Speaking at a press conference he said that EvrazHolding is planning to expand exploring deposits of iron ore and its mining in Siberia and other Russian regions. He also confirmed the intention of EvrazHolding to build a steel mill in China. Implementing the joint project of EvrazHolding and the Shanghai Baosteel Group may start in 2005.
On the eve of the trip there Alexander Abramov met with Vice Premier of China’s State Council Wu Yi. This time around he slightly opened up the contents of his conversation:
"I asked two questions. The first one was about whether China’s position on foreign investments remained unchanged. The matter is that for the last eight months the Chinese government has been limiting rather actively the inflow of investments in the steel sector. Besides, starting January 1, 2005, all profit tax allowances for joint ventures are to be cancelled. If along with the cancellation of allowances for JVs the flow of national investments is limited, does it mean that China’s government is about to drastically restrict the inflow of foreign investments in this sector? The second question was: what are the plans with respect to privatization? As far as we know, the State has controlling stakes in 99% of China’s steel enterprises. In response to my questions it was suggested that I meet and talk with officials from the country’s Ministry of Commerce during the visit of the Russia-China Business Council’s members to China".
Besides, as the president of EvrazHolding said, China is interested, above all, in developing its northern provinces. There are a lot of mills in China’s North that technologically are lagging behind those in the South.
In Alexander Abramov’s words, his Holding is interested in building a mill either jointly with Chinese companies or independently and it would like to implement the project "as soon as possible". As far as EvrazHolding is concerned, there is one indispensable condition: the controlling stake in a new enterprise should belong to the Holding. It is most likely that funds to be invested will be ensured through issuing another set of Eurobonds. As is expected, these investments will be quickly paid off, since the case in point is a highly profitable, transparent project, which will have a short period of recoupment and which will be reliably controlled.
EvrazHolding’s companies are considering various options of establishing a potential cooperation so as to reduce risks, to ensure a long-term production stability and high competitiveness of end products. It seems that Russian and Chinese steelmakers are quite thorough in their business approach to the whole matter: it has been decided to set up a working group to continue consultations.