Behind galvanizing

NLMK will buy a stake in American Winner Steel

Novolipetsk Iron and Steel Works announced yesterday that it is going to buy another asset in the United States. We are talking about the Pennsylvania independent company Winner Steel, whose capacity allows it to produce 1.2 million tons of galvanized sheets per year. However, now they are only half used. NLMK, apparently, will only get a quarter of the company, since it will buy it in a consortium with its American partners: the deal will involve a joint venture between Duferco and Novolipa - Duferco US Investment Corporation, created at the end of last year on a parity basis, and service and trading company Esmark. After completion of the transaction, Esmark and the joint venture will each receive 50% of Winner Steel.

The companies expect to close the deal in the first half of the year; the amount is not disclosed. “The details of the transaction will be made public after negotiations are completed and the final agreement is drawn up,” NLMK told Vremya Novostey. Because Winner Steel is a private company, its market value is difficult to determine. An approximate estimate can be made by calculating the cost of its capacity. According to Dmitry Parfenov, an expert at Prospekt Investment Group, Winner Steel, based on this parameter, could cost “$270-330 million excluding debt.”

Winner Steel's main consumers are builders, manufacturers of household appliances and the auto industry. Winner Steel's production facilities are located next to Farrell, part of the joint venture between NLMK and Duferco, which is the largest supplier of cold-rolled sheet for the production of galvanized steel, including for Winner Steel.

NLMK President Alexey Lapshin said: “The acquisition of Winner Steel will contribute to the expansion of production of high value-added products and will strengthen our position in the large North American market.” “The joint purchase of Winner Steel’s facilities with Esmark will make it possible to optimally supply the latter with rolled products for galvanizing,” says a NLMK representative. -- Winner's capacity is three galvanizing mills with production widths of 42, 60 and 72 inches. Part of the rolled stock for these mills will be supplied by the Farell plant, and part by Esmark, one of the largest steel traders in the United States.”

Analysts positively assessed NLMK's decision to strengthen its presence in the American high-value market. “This is a very mature market, prices are consistently high,” says MDM Bank analyst Andrei Litvin. “This asset allows us to produce products that have almost the highest added value in the industry.” And since NLMK is a specialist in this segment, its desire to participate in this business and in the American market is quite logical and justified. In addition, the analyst notes that Winner Steel “is more profitable than many similar companies in the American market; it has very high profitability.” Mr. Litvin believes that after gaining control of Winner Steel, its new owners will try to increase production, and a partner such as Esmark will be able to most successfully organize supplies of the missing raw materials to load capacity, which Duferco enterprises cannot provide. In his opinion, these supplies will most likely come from the American market.

Mr. Parfenov believes that in the future NLMK itself may become a supplier to Winner Steel, but this will depend, in particular, on customs tariffs. The participation of a local partner in the transaction, he believes, will help avoid difficulties with its approval by the antitrust authorities of the United States. In the future, the expert continues, NLMK or its joint venture with Duferco may gain full control over Winner Steel. Mr. Litvin is also confident that the consortium partners have an option to buy out shares in the company.

Anna LANDER