In a market of booming coal, coke, iron-ore and scrap prices, and still insatiable Chinese and Indian demand for steel, it stands to reason that the great vertically integrated Russian steelmaking groups, largely self-sufficient in raw materials, should be booming, too.

How then to explain why Alexei Mordashov, owner of third-ranked Severstal steel and mining group, has seen almost $2 billion wiped off the market capitalization of his company in the past week? On May 16, the commodity boom logic lifted Severstal to its historic high -- $28.50, ticker CHMF:RU. On May 21, it had fallen below $26, and it is currently at $26.85.

In the interval, Mordashov bought one failing US steelmaker on Friday for $370 million; and on Monday announced a $1.1 billion offer for another.

Sinking ships usually induce exits, but Mordashov has been steadily climbing aboard, while shareholders have taken the jump. If his Monday bid goes through, Mordashov will have almost as much steelmaking capacity in the US as he has in Russia; and he can lay claim to be the fourth largest steelmaker in the US.

After failing to take Arcelor from Lakshmi Mittal in 2006, losing thereby the title to largest steelmaker in Europe, has Mordashov settled for an American consolation prize? Some prize -- according to Severstal's IFRS accounts for 2007, the Severstal North America (SNA) division contributed 11% of the group's total revenues. But SNA suffered a 9% decline in revenues, compared to 2006, to $1.7 billion; an 85% drop in Ebitda to $21 million; and a 23% fall in production tonnage to 1,980,000 tonnes. Unit costs rose 26% for the year to $844/tonne.

Industry analysts have been sceptical towards the performance of Severstal's North American assets, since the acquisition of the Rouge steel works four years ago, in 2004. SeverCorr followed as a greenfields project in 2005, and Sparrows Point, the Arcelor-owned mill in Baltimore, Maryland, was recently acquired.

Last month, Severstal announced it was buying out the remaining shareholding in SeverCorr held by the US originators of the mill, headed by John Correnti. No transaction sum was identified for the buyout for a project, which has cost Mordashov and Correnti $800 million to develop.

The Sparrows Point acquisition, which is closing in the second quarter, will cost Mordashov $810 million in cash.

Associated companies in the SNA group include Double Eagle Steel Coating Co. (50% Severstal stake as of 2006); Spartan steel Coating (48%); Delaco Processing (49%); and Mountain State Carbon (50%), a coking coal source.

Last Friday, Severstal announced that it had agreed to acquire all shares of Ohio steelmaker WCI Steel for cash of $139.83 million, plus assumption of about $230 million in debt and other liabilities. The transaction implies an enterprise valuation (net of debt) of the formerly bankrupt WCI of $327 million.

Located in Warren, Ohio, WCI is a flat steel producer with 1.2 million tonnes of rolled steel capacity, with an emphasis on carbon, alloy and high-strength steel products. The company's production facilities are relatively modern, enabling the production of high-quality steel products for the construction, aerospace and automotive industries. WCI declared bankruptcy in 2006, when pro forma operating income was $30.4 million. In the first half of 2007, operating losses amounted to $22.5 million.

A statement by Severstal described the deal as focusing on high-quality, custom flat-rolled steel for use in demanding applications. Together with Severstal's current US operations in Dearborn, Michigan [Rouge], Columbus, Mississippi [SeverCorr], and the recently acquired Sparrows Point in Baltimore, Maryland, WCI will grow the Company's North American leadership in the high-quality flat-rolled steel segment for the automotive, appliance, furniture, construction and energy markets.

The Severstal bid for Esmark -- matching an offer from India's Essar Steel -- is significantly higher at $465 per tonne of steel output capacity than its acquisition price for Sparrows Point ($350/tonne) and WCI Steel ($270/tonne). The SNA management claims it will derive significant synergies and cost savings from consolidating operations around the five US mills now included in the Severstal North America portfolio.

Esmark, formed five years ago, took control of West Virginia mill Wheeling-Pittsburgh in 2006. Esmark then proposed layoffs and cost cuts, as the mill reported a loss of $9 million last year, compared with a profit of $3.5 million in 2006. Esmark says it agreed to the Indian takeover, because it faces spiralling raw material and transportation costs and financing trouble.

Shashi Ruia, Chairman of Essar Global, has defended his bid for Esmark, also for $1.1 billion, in similar terms to Severstal's pitch: This is one more step in realizing our global steel vision of having world class low cost assets, with a global footprint. Having acquired Algoma [Canada] and Minnesota Steel last year, this acquisition provides us with an excellent platform for the Canadian and North American markets. With the above acquisitions of Esmark and projects under implementation in Trinidad and Tobago, Essar Steel Holdings will have a 10 million tonnes of flat steel production in the Americas.

Essar is reported in the home press as considering an increase in its cash offer to outbid Severstal. Its prior May 1 agreement with Esmark also provides Essar with a break-fee of $22.5 million, plus return of a $110 million loan from Essar, if the Severstal counter-offer goes through.

Mordashov's new contest with Indian steelmakers is an interesting one, since the local steelworkers appear to believe that Mordashov is a safer bet for their jobs and wages than Ruias. According to the Indian press, steelworkers in Esmark have been wary of Essar as they anticipate layoffs and salary cuts. After the May 1 offer was accepted by Esmark management, the United Steelworkers Union (USW) reportedly approached SNA, and persuaded it to make the counter offer. USW's contract with Esmark gives the union 52 days to find an alternative bidder.

Russian analysts are sceptical of Mordashov's game plan, especially if he is obliged to pay more to beat Essar, and promise higher-cost arrangements with the USW. According to Michael Kavanagh of UralSib Bank, Severstal has a poor operating record, questionable corporate governance and a contrarian strategy with its investment in unprofitable US assets.

Market observers suspect that Mordashov may be building a steel base in the US as a hedge against losing his Russian assets as the pressure builds for a state-led consolidation of steelmaking. If the bid for Esmark goes through, it will raise Severstal's current US steel-making capacity to 11.3 million tonnes, close to Severstal's Russian production of 11.9 million tonnes in 2007.

In a conference call with analysts late Wednesday, Severstal  offered positive guidance,  with strong steel prices forecast to continue for the remainder of 2008. EBITDA margin for the year is expected to be no worse than 2007. The company claimed that Mordashov is considering even more acquisitions