Russia's steel sector is buzzing after the announcement of a merger between Europe's Arcelor and Russia's Severstal, with analysts expecting further massive consolidation in an opaque industry dominated by a handful of billionaires.
Russia's leadership, meanwhile, is keeping a watchful eye over goings-on and, according to media reports, has its own plans for the future of the industry.
Russian President Vladimir Putin, who hailed the merger as an example of "positive outward expansion" by a Russian firm, was said to have given the deal his personal blessing at a meeting with Severstal chief Alexei Mordashov last month.
Under the US$15.3-billion agreement, Mordashov, 40, would control a 32 percent stake and become the non-executive chairman of the world's largest steel group.
To balance out the Severstal-Arcelor link-up, analysts say, the Kremlin is now planning to set up a state-controlled steel industry giant that would further strengthen Russia's competitiveness on international markets.
"With privatization, Russia's steel sector has restructured itself and is already fairly concentrated. But it is not efficient enough," said Andrei Deineko, an official from Russia's industry and energy ministry, who talked up the state's role in developing the sector.
Seven companies currently produce 90 percent of the 60 million tonnes that Russia produces every year -- some 9 million tonnes of this production comes from Severstal.
This high level of consolidation comes after chaotic privatizations during the 1990s that were characterized by bitter legal battles and armed conflict between rival business groups.
"In 1996, the Russian government wanted to create a large holding called Rosmetallurgiya -- like the Gazprom of metallurgy -- but that didn't happen," said Evgeniy Shashkov, editor-in-chief of the journal Eurasian Metals.
Now, the state wants to revive the idea to "encourage a process of concentration" and help the country's booming military-industrial complex by retaining a significant stake in the new metals giant, Shashkov said.
According to Russia's Kommersant daily, Russian billionaire Roman Abramovich -- seen as a Putin loyalist -- is the pointman in the Kremlin's plans to create a metals giant.
The oligarch has been in talks to purchase a stake in Russian steel group Evraz and is also reported interested in buying into Corus, the British-Dutch group, Kommersant said.
Abramovich could be preparing a merger between Evraz and Corus, combining Western technology with Russian coal and mineral resources, Kommersant said.
The Vedomosti business daily said another Russian metals magnate, Alisher Usmanov, who heads Metalloinvest group, could bring his own assets into the new industry giant.
"There is an urge to merge. The more you concentrate, the better your price and cost power," said Peter Marcus, an analyst from the US-based World Steel Dynamics research center.
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