Summary
Foreign ownerships continues to be part of the US consolidation as companies seek to expand and create strategic alliances. Some are merely a play to grab market share while others create synergies with existing operations. This one is a little of both.
Analysis
This most recent play by a foreign buyer continues a trend of increased interest from overseas firms. During the past 4 years we saw International Steel Group (ISG) formed by Wilbur Ross, pull together several companies only to sell the new package to Mittal (India) who is still on a global buying spree. Tampa, FL based Ameristeel has been taken over by Brazilian Steel maker Gerdau. Oregon Steel is the latest major target by foreign buyers.
The OS operation in Portland has not produced its own slabs since it shuttered its melt shop several years ago. Since then, they have been a regular buyer of Russian and Brazilian slabs and subject to the volatile international semi finished market. The new ownership should provide better access to long term slab supplies. For Evraz they get access to a solid US plate/large diameter pipe market. OS Rocky Mountain division has recently reopened their OTCG line and remains one of only three rail domestic rail manufacturers.
The Russian steel industry is booming and a large part of this is the oil and gas industry. Domestic consumption of pipe and tube is up over 20% for the first half of 2006. While exports from the US to Russia are unlikely this acquisition provides Evraz with an inroad to that segment of the industry. Knowledge and technology gained from this existing operation might be used for further consolidation/expansion at home. Northern European expansion of oil/gas transmission lines will demand higher quality steel products if Russia is to stay in the large diameter pipe game.
The Oregon Steel board is recommending this deal to its shareholders and the buyer appears to be a good fit, however as we have seen Dofasco and Arcelor, the first bid might not be the last.
