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Russian steel firms sharpen up for the big league

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Cheap, profitable and geared for growth - that is how Moscow?s investment bankers are selling Russia?s burgeoning steel sector. Years of investment are bearing fruit and high international prices are boosting bottom lines. But the big-four steel companies are getting too big for their boots. As they turn their attention to landing large international contracts, the leading companies are getting ready to step into the big league by getting their corporate governance act together and analysts are expecting a round of mergers.

?Steel is going through the process of consolidation, investment and growth that Russia?s oil companies have just finished,? says Anton Khmelnitsky, the head of equities for Brunswick Asset Management.

Russia has the largest iron ore reserves in the world and is the fourth-largest steel producer, with output growing by 6.4% a year, according to Goskomstat (the state committee for statistics). Almost half its steel production is sold overseas, making it the second-biggest exporter after Japan.

The sector is highly concentrated, with the top four players - Magnitogorsk Metallurgical Plant (MMK), Severstal, Novolipetsk Metallurgical Plant (NLMK), and Evrazholding - producing 70% of Russia?s annual 60 million tonnes of crude steel output.

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