September 18, 2008

Russian Exec Visits Area Holdings

By Joe Napsha

With oil hovering around $95 a barrel and drilling in the United States for oil and natural gas on the rise, the new Russian-based owner of steel tube plants in Koppel and Ambridge in Beaver County sees a bright future for local operations.

"We see a number of pluses in this acquisition and in this market. The market is so dynamic. Everybody worldwide is drilling more, exploring more," said Piotr Galitzine, chairman of TMK IPSCO, the Lisle, Ill.-based North American subsidiary of OAO TMK, which is Russia's largest tubemaker.

Moscow-based OAO TMK purchased IPSCO and its Koppel Tubulars Corp. plants in Koppel, Ambridge and Baytown, Texas, in March for $1.7 billion.

Galitzine, who oversees 2,074 employees, was in Koppel on Tuesday, where he saw steel made in an electric arc furnace, then poured into a continuous caster, formed into billets and cut by a natural gas torch into varying lengths, before it was trucked to Ambrige to be made into seamless pipe.

Natural gas drillers need the seamless pipe and couplings because its strength is needed when drilling horizontally to reach gas reserves in unconventional locations, such as the Marcellus Shale that is prevalent in western and central Pennsylvania. Seamless is stronger than pipe that is formed from steel sheets and welded with a seam that can fail under pressure underground.

The publicly traded company does not release sales or production numbers, but Galitzine said the Koppel plant has the capacity to produce almost 500,000 tons of steel annually. Overall, OAO TMK produces about 3 million tons each year.

"Practically everything produced here is sold domestically," Galitzine said, because the U.S. market has the most wells being drilled annually. But the plants have supplied international accounts and exports remain an "interesting business opportunity," Galitzine said.

Steelworkers at the Koppel and Ambridge plants, where about 710 people are employed, have found themselves to be part of a buying spree by Russian metallurgical companies. Russian-based companies own about 8 percent of U.S. raw steel production capability, according to the American Iron and Steel Institute, a Washington- based trade group.

Although Russian companies such as OAO TMK, Severstal, the Evraz Group and Novolipetsk have made news with purchases of U.S. steel assets, Galitzine said of the 115 major acquisitions by Russian metallurgical companies, only 17 have occurred in the United States.

"We're not here to fix something that is not broken. We're here to improve on that which is here," Galitzine said.

The U.S. operations may well benefit from the perspective taken by Russian owners, who take a long-term view of business opportunities and are less driven by the need to post quarterly earnings, Galitzine said.

The Koppel Tubulars operations might be a prime example of how the domestic steel industry has become globalized, because Koppel Tubulars has changed international ownership three times in the past two years.

Koppel Tubulars was part of NS Group of Newport, Ky., when Canadian steelmaker IPSCO acquired NS Group in 2006. Then, Swedish steelmaker SSAB Svenskt Staal bought IPSCO in May 2007, holding onto it only until March, when it was purchased by Russian steelmaker Evraz Group for $4.03 billion. IPSCO's U.S. assets, including Koppel Tubulars, were in turn sold to OAO TMK because Evraz wanted to keep only IPSCO's Canadian facilities.

Koppel Tubulars has benefited from a $117 million investment that started when it was owned by NS Group and has continued under TMK IPSCO, said Richard Acquaviva, director of seamless operations at Koppel Tubulars.

More than one-half of that investment has gone to the Koppel and Ambridge plants, Acquaviva said. The company is expanding its seamless pipe line at Koppel, which will allow it to make more oil- country tubular products, Acquaviva said. It is investing in heat treatment facilities to be make the pipe stronger.

Rick Galiano, president of United Steelworkers Local 9305, which represents 680 steelworkers at the two local plants, said yesterday that the union committee has yet to meet with the new ownership, despite repeated requests to local management.

"We would like to meet with the company. We've made it quite clear to them. We've asked them a couple of times," Galiano said.

Union officials met among themselves yesterday and could have met with Galitzine, Galiano said.

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