MOSCOW - Despite an explicit warning from a Chinese official last month, Alexander Abramov, controlling shareholder of Evraz Holding, Russia's largest steelmaker, claims to be planning a a major steel plant acquisition in Shanghai, if Abramov's press claims are to be believed.

The owners of Russia's metal companies, lured by the offshore profit and security of converting their wealth, generally avoid Asia, despite the fact that Asian markets - principally China, Japan, South Korea, and Taiwan - take the lion's share of Russian exports of steel, aluminium, nickel and copper.

Russian steelmakers, for example, have been eyeing ailing steel plants in Taiwan, Philippines, and South Korea for possible purchase. But so far they have been beaten to the punch by local buyers.

In China, a decade ago, Russian metals exporters began by dealing through international traders, with large warehouses, credit lines, and collection schemes to enable them to deal with Chinese payment risk. The Russian themselves are still fearful of being out-foxed by the locals, and have avoided capital transactions for fear of losing their money. The Sino-Russian strategic relationship, renewed rhetorically by President Vladimir Putin in Beijing this month, is viewed by Russian metals exporters as providing no protection from trade retaliation from Chinese steelmakers, and no commercial advantage compared to other international suppliers.

An announcement this week by Evraz, that it has opened a "dialogue" with Baosteel of Shanghai, appears to be a new development. The heads of the two steelmakers, Abramov and Xie Quihua, met on the sidelines of Putin's visit.

Shanghai-based Baosteel is China's largest steel producer, and the third largest in the world. With sales revenues of $14.6 billion last year, and output of 19.5 million tons of flat steel products, Baosteel dwarfs Abramov's holding, which groups together three mills specializing in long steel, such as rails, reinforcement bars, wire, wheels, and rod. Last year, according to Evraz financial statements, revenues were almost $3 billion, and output about 13 million tons.

A leak attributed to an Evraz executive, and appearing in a US newsletter, claims that Evraz and Baosteel had agreed on a deal that "will probably end with a takeover of the Chinese company by EvrazHolding",

But according to a statement issued in Moscow today by Evraz, "the two leaders discussed possible cooperation between the two companies in developing iron ore and coal deposits in Russia as well as joint projects between EvrazHolding and Shanghai Baosteel for metal production."

Evraz and Baosteel are both short of the raw materials required for steelmaking. Evraz produces part of its coking coal and iron-ore needs at Russian mines controlled by other companies in the Evraz group. But compared to his Russian rivals, Abramov is more dependent on supplies from mines he does not own, and whose prices he cannot control.

BaoSteel is already a heavy importer of iron-ore and coking coal from Australia, Brazil, and most recently, from the US. Evraz is looking to import both from either Canada or Australia to supplement domestic supplies. Thus, a joint venture between the two for development of unmined deposits in Russia would be logical. However, as these resources are considered strategic by the Kremlin, and there is intense rivalry from other domestic steelmakers to draw on them, it is highly unlikely that Baosteel would be permitted to buy into an existing Russian deposit. However, if BaoSteel finances a joint greenfields mineral search project, it may be allowed to pay itself back with offtake. Already, however, the Kremlin has signalled that it is reluctant to agree to proposals from China to develop Russian sources of copper, electricity, oil, and gas for export.

In recent months, Abramov has drawn press attention with ambitious claims in pursuit of foreign steel assets. But he has have repeatedly exaggerated Evraz's intentions and capabilities; they include earlier bids he reported for the Ukraine's Krivorozhstal and South Korea's Hanbo. Both plants went to domestic steelmakers, and Evraz was not considered seriously.

A recent industry study forecast that if it does buy a steelmaking plant in Asia, Evraz will focus on acquiring long-product rerolling mills in Southeast Asia to ensure a reliable source of demand for its billet, and reroll it into reinforcement bar for trade in the wider Asian market. When China's Vice Premier Wu Yi was in Moscow in September, Abramov leaked details of his remarks at a meeting, when he reportedly asked for permission to put money into a steel-rolling combine in China. He was told with geographical precision that a project earmarked for northern China could, and should be negotiated with China's Commerce Ministry.