OMK Seeks U.S. Steel Mills to Expand Beyond Russia’s Nord Stream

OMK Chairman Anatoly Sedykh
We are interested in the U.S. tubular market, the worlds second-largest after China, said Anatoly Sedykh, billionaire chairman of the company known as OMK. Source: United Metallurgical Co. via Bloomberg

United Metallurgical Co., the Russian supplier of pipes for OAO Gazprom’s Nord Stream pipeline, is studying acquisitions in the U.S. even as competitors scale back North American operations.

“We are interested in the U.S. tubular market, the world’s second-largest after China,” said Anatoly Sedykh, billionaire chairman of the company known as OMK. “We won’t perform billion-dollar acquisitions. We’d rather buy some small production assets and develop them.”

Russian metals companies have cut back in North America after demand and prices plunged following the financial crisis. OAO Severstal, Russia’s largest steelmaker, sold three of its five U.S. mills in March, while OAO GMK Norilsk Nickel divested its U.S. Stillwater Mining unit last year. OAO TMK, a pipemaker, bought IPSCO Tubular Inc.’s U.S. units for $1.75 billion in 2008 and now has $3.8 billion of net debt, almost four times its 2010 earnings before interest, tax, depreciation and amortization.

By looking at smaller acquisitions, OMK says it may succeed where others have struggled. OMK is the most profitable Russian pipe producer, reporting a 31 percent Ebitda margin last year, according to its annual report. It posted net income of 26.2 billion rubles ($936 million) and sales of 118 billion rubles.

Markets abroad may account for as much as 40 percent of OMK’s pipe sales in the “near future,” Sedykh said in a June 27 interview in Vyksa, central Russia. That compares with 11 percent export sales last year, or about 30 percent including the Nord Stream contract, according to the company.

Pipeline Projects

OMK plans to increase shipments to Total SA in West Africa and Royal Dutch Shell Plc in Oman, and may seek to supply pipes to the Nabucco pipeline project and to Gazprom’s rival South Stream venture, both of which would carry natural gas to Europe. Gazprom’s Nord Stream pipe will take Russian gas via the Baltic Sea to Germany.

Sedykh said he sees “no contradiction” in potentially supplying all the pipeline ventures, adding that Nabucco would be built “whether we supply pipes or not.”

OMK is investing as much as $4 billion by 2015 on projects, including plans to increase self-sufficiency in raw materials as the cost of coal and iron ore climbs. The company is considering building a new mill to produce semi-finished steel and “direct-reduced” iron, a refined form of iron ore that can be used to produce steel without adding coking coal, Sedykh said, adding that a final decision on the project hasn’t been made.

Cost Savings

The semi-finished steel could help feed a new $1.6 billion steel-plate mill at OMK’s main site in Vyksa, which will start in August or September, he said. The plant will help OMK cut output costs by as much as 15 percent, he said. OMK spends more than $1 billion a year buying steel plate, a raw material for pipe production, from suppliers such as Dillinger Huette and Nippon Steel Corp.

OMK joins international competitors including India’s Welspun Corp. and Brazil’s Confab Industrial SA in setting up plate production to curb costs. Prices for steel plate rose 18 percent in 2010 and have climbed almost 30 percent this year following gains in the price of coal and iron ore, according to OMK.

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