Updated September 3, 2008

   Russia's metallurgical companies are taking much interest in the metal service business, thus, their ambitions are not restricted to Russia only. As it came out on September, 2, the Russian steel company, Mechel, is going to purchase the German trading and metal service company – HBL Holding. In the experts' opinion, this purchase will enlarge favorably Mechel's business that already owns sever al m

etallurgical enterprises in Romania.

   Russia' Mechel has already applied to Germany' antimonopoly body to purchase the controlling stake in

the German steel trading and processing company, HBL Holding GmbH.

The application was submitted on August, 28.

HBL Holding GmbH is a private company that owns six metal service facilities and acts as a chain of the warehouse, service and trading areas, as HBL Holding GmbH's owner and the chairman of

the board Laurenz Herting explained. However, he refused to comment the deal with Mechel and to give the financial information about his company.

In Russia's Mechel refused to comment the purchase of HBL as well.

   In the experts' opinion, this deal is a logic continuation of Mechel's expansion to the European market. "Via the metal service you find a target consumer and continue your vertical integration", as the member of Roland Berger Strategy Consultants' board Nadezhda Larina says. "You c an export your products and sell them via a chain. It is easier to reach a target consumer in such a way". Obviously, Russia's Mechel will realize the products of its Romanian divisions – Mechel Targoviste and Mechel Campia Turzii – through the German chain, since after Romania has joined the European Union, the Russian company doesn't have any administrative barriers concerning these enterprises

anymore.

   It is better to mark that Mechel is already developing its own sales chain in Russia and Romania within the framework of its subsidiary Mechel-Service.

The company has about 30 branches in Russia.

However, it is relatively hard to develop the own metal service direction.

"It is quite hard to establish the chain independently in Europe, since the European market has already developed.

If you purchase a good chain abroad, you will gain both experience and technologies that can be used in Russia later", Mrs. Larina says.

   The entry to the regional market through a purchase or establishment of a service and sales chain is a widespread method.

"Such companies, as ThyssenKrupp and ArcelorMittal enter Russia's market through the metal service sector", as the analyst of Veles Capital IC Stanislav Fomenko says. In particular, it came out in summer that ArcelorMittal was holding talks with Inprom, the large Russian metal service chain, however, the deal wasn't finalized. As the Russian company's representative Sergey Korzhov said, the talks with ArcelorMittal continue.

   Mechel is not the first among the Russian companies that tries to reach the target mass consumer at the European market. Last year, Novolipetsk Steel MMC established the joint venture with Duferco that comprises the large service chain and the steel-making capacities. Magnitogorsk Iron and Steel Works OJSC (MMK) decided to enter the market of Asia Minor and Near East by means of establishment of large trading and service centers. The joint venture of Russia's MMK and Turkey's Atakas will be launched with the opening of its own metal and service chain.