Moscow:Russian steel companies began the New Year with a huge acquisition.

Evraz Group, a leading vertically integrated mining companycomprising three major steel mills and several mining and coal-producingassets, has completed the transaction to purchase US Oregon Steel Mills.

It has increased its stake to more than 90 percent andexpects to take over the remaining 8.5 percent in the next few days.

Despite higher energy prices, 2007 promises to be one of themost successful years for Russian metals companies. The demand for their outputis growing in Russia,while their production costs, expected to remain low in 2007, will allow themto keep prices down.
 

Russiahas been increasing the export of semi-finished steel goods, gradually shiftingits focus towards Europe and Americaand reducing sales in Asia.

According to tentative data for 2006, the reduction of metalsales to Asia may reach 22 percent.

 
The only country unaffected by the decline is China, which doubled the import of semi-finishedsteel goods from Russialast year.
 

In all, Russian steel companies have increased their exportsby three percent. But these achievements have not helped them get round theirmain disadvantage, which is a low volume of goods with a high added value.

Evraz Group comprises mining, ore dressing and smeltingcompanies. It is also Russia'slargest rail producer.

Contrary to the global trend, Russian metals companies stillprefer to export semi-finished goods, but Evraz is now accumulatingdeep-conversion assets. It has bought such companies in the CzechRepublicand Italy.

The acquisition of Oregon Steel fits well in this strategy.Evraz set its eyes on the UScompany, which mainly produces pipes, sheet steel, rails and armour, in 2004.

But the deal misfired, although the two companies'executives were already discussing cooperation.

 
When Evraz announced the intention to buy Oregon Steel Millsin November 2006, it became clear that it would not be an ordinary deal.

On the one hand, no one is surprised any longer that Russianbusinesses are spreading outside Russia. Several Russian companieshave assets in the US.
 

In 2004, oil major LUKoil bought 100 percent of Mobil for$266 million, soon after metals giant Severstal bought Rouge Steel for $286million.

In 2006, Evraz bought 73 percent of shares in StrategicMinerals Corporation for $110 million. On the other hand, Evraz's transactionwill be the largest ever.
 

The steelmaker has spent $2.3 billion on buying OregonSteel, which will make it Russia'sleader in terms of output. Moreover, this transaction is unique in that it hasbeen approved by the authorised USagencies.

Not every Russian merger and acquisition (M&A) projectsucceeded last year.

For example, Severstal failed to complete a merger with theworld's second largest steelmaker Arcelor, whose stake was evaluated at 6.5billion euros. But Mittal Steel wedged in, offering a higher price.

Other failures include the derailed plans of theMagnitogorsk Iron and Steel Works (MMK) to buy a smelter in Pakistan.

And yet it was a good year for the Russian metal companies.

Nearly all of them improved their financial standing, andseveral surged into the front ranks in terms of EBITDA (Earnings BeforeInterest, Taxes, Depreciation, and Amortisation): Novolipetsk Steel (40percent), MMK (30 percent), and Severstal and Evraz Group (25 percent each).

Many analysts expect similar M&A deals in 2007, andpredict that the leaders will be Evraz and Severstal, which will search for anew European partner after its failed merger with Arcelor.