Reports: MMK eyes other options

Published 12:00 am Monday, October 29, 2007

Russian steel company Magnitogorsk Iron & Steel Works (MMK), which is considering building more than a $1 billion project in Scioto County, may instead opt to purchase West Chester, Ohio-based AK Steel Corp., according to reports.

AK Steel — which operates carbon melting plants in Ashland, Ky., and Middletown, among other operations — has often been the target of takeover efforts from various companies, including most recently Pittsburgh-based U.S. Steel Corp.

According to the trade publication American Metal Market, AK Steel recently reached an agreement to fund a $663-million voluntary employee beneficiary association (VEBA) trust to cover the health care benefits of retired workers from its Middletown plant. The company has also made early contributions to its pension funds in order to settle labor contracts and satisfy longstanding cost issues.

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Analysts see those efforts as indications AK Steel is putting itself in position to be a more attractive takeover target. Analysts have also questioned why MMK would build a new plant in AK Steel’s backyard.

“I’ve been wondering for some time that with AK already in southern Ohio and importing slab, why would you build a mill in that area,” Scott Burns, a senior equity analyst with Chicago-based Morningstar Inc., said to the trade publication.

However, Scioto County Economic Development Director Steve Carter, told The Ironton Tribune it is important to point out that MMK wants to produce an innovative type of steel that is not available on the U.S. market.

“MMK is (interested in) producing a new type of steel that is different than the steel that is being produced in the U.S. right now. (MMK) must have a technological advantage,” Carter said. “You get analysts who analyze companies from a financial standpoint, but may not be technologically knowledgeable about the products. The steel analysts may not be aware of the technological innovations involved in the production of the new steel product.”

Carter also pointed out that MMK has shown a lot of activity around the world and that even if MMK does acquire AK Steel that does not necessarily mean the end of the Scioto County project.

“MMK is becoming a global company. It is buying national resources in Australia, buying other steel enterprises in Russia, raising financing on the international market and like any global company it will look for opportunities,” Carter said. “Since the demand of steel in the world has increased dramatically with the boom in China and India, there have been a number of steel acquisitions by major players. People see opportunities to maximine their profits and they look to buy other companies. With AK Steel, I really have no opinion.”

MMK Chairman and CEO Victor Rashnikov visited the Haverhill location in September and said an announcement on the project could come by the end of the year in environmental permits and other details are finalized.

“If everything goes well then maybe by the end of the year we’ll be able to tell something more concrete,” Rashnikov said during a press conference at Shawnee State University. “It’s an opportunity to build a steel plant that would produce cold-rolled and galvanized steel for the automotive sector. We are going to produce a new kind of product that is well-demanded in the American market, but is not produced here so far.”

Rashnikov said about 500 permanent jobs would be created in the first phase if the project comes to fruition, but had no comment on future phases.

New Steel International, Inc., a consulting group that is a subsidiary of MMK, recently filed an air permit application with the Portsmouth Local Air Agency for the Haverhill location.