Russian steel ramps up as global rivals retrench

The biggest steel producer in the world is shutting down mills throughout Western Europe but the Russians are expanding to fill the gap.

After slimming its U.S. operations last year, Severstal has spent $1.2 billion to upgrade two mills along the Mississippi and expects to get production online in the next few months.

They are also building a $600 million plant in Russia to serve the European and domestic markets.

Compare that burst of activity to ArcelorMittal (MT, quote), the global leader of the steel industry, which has been busy idling operations in Germany, France, Spain and its home base of Luxembourg.

Neither Severstal nor ArcelorMittal is heavily exposed to the booming Chinese steel market, however, so they — and their other Western rivals — have had to fight China for raw materials without reaping much benefit.

At least the Russians have the advantage of lower costs compared with ArcelorMittal or U.S. companies such as AK Steel (AKS, quote) and Nucor (NUE, quote), much less U.S. Steel (X, quote.)

Still, it is pretty hard to believe that Severstal’s oligarch owner Alexey Mordashov is spending close to $2 billion this year on new production in this environment.

But the Russian billionaire says he isn’t seeing any weakness in his order book — if anything, he says, prices are edging back up.

Good news for Russian steel, bad news for the U.S. companies?

Sadly, Severstal does not trade in New York, but it and its counterparts — Mechel (MTL, quote), Evraz (thinly traded here as EVGPF, quote) and Novolipetsk — account for a full 7% of the Russia ETF RSX (quote).

Compare RSX to the performance of a U.S.-dominated steel fund like SLX (quote):

Both have lost substantial ground over the last few months, but the all-Russia portfolio has avoided the worst of the losses.