Severstal
PAO Severstal is a vertically integrated steel and mining company headquartered in Cherepovets, Russia, specializing in the production of flat-rolled and long steel products, large-diameter pipes, and metalware, alongside extraction of iron ore and coking coal.[1][2]
Established on September 24, 1993, as the legal successor to the Cherepovets Metallurgical Plant founded in 1955, the company operates through two primary divisions: Severstal Russian Steel, focused on steelmaking, and Severstal Resources, handling mining operations.[3][4][5]
Majority-owned by Alexey Mordashov, who holds a controlling stake via Severgroup and previously served as CEO until 2015, Severstal maintains core assets in Russia while having divested international holdings amid geopolitical pressures following the 2022 Russia-Ukraine conflict.[6][7]
Notable for its high operational efficiency, including the steel industry's top EBITDA margins, the firm produced approximately 10.38 million tonnes of crude steel in recent years, positioning it among Russia's leading producers despite export restrictions to non-CIS markets reduced to 10-15% of sales.[8][9][10]
Overview
Company Profile
PAO Severstal is a vertically integrated steel and mining company headquartered in Cherepovets, Russia, with primary operations focused on the production of steel products and extraction of raw materials. The company manufactures flat and long-rolled steel products, large-diameter pipes, and metalware, serving industries such as construction, automotive, and machinery.[2] Its core assets include the Cherepovets Iron and Steel Works, which has an annual steel production capacity of approximately 12 million tonnes.[11] Severstal operates through three main divisions: Severstal Resources, which handles mining of iron ore, raw materials, and coking coal; Russian Steel, encompassing domestic steel production facilities; and a smaller international segment that has been curtailed due to geopolitical factors. In 2022, the company produced around 10.7 million tonnes of crude steel, positioning it among the larger global steel producers.[12][13] The firm maintains a focus on cost efficiency and domestic market sales, with plans to allocate 169 billion rubles in investments for 2025, including capacity maintenance and expansion in specialized steel products.[4] Ownership is concentrated with Russian billionaire Alexey Mordashov controlling approximately 76.85% of shares through domestic structures, while the company is publicly listed on the Moscow Exchange under the ticker CHMF. Severstal was formally established as a joint-stock company on September 24, 1993, building on the foundations of the Soviet-era Cherepovets Metallurgical Plant incorporated in 1955.[3][14][15]Ownership and Governance
PAO Severstal operates as a public joint-stock company, with its ordinary shares listed on the Moscow Exchange under the ticker CHMF. The company's share capital consists of shares with a nominal value of RUB 0.01 each. As of the latest disclosure, Alexey Mordashov holds a controlling 77.03% stake through various Russian structures, while the free float accounts for the remaining 22.97%.[3] This ownership structure has remained stable, reflecting Mordashov's foundational role in the company's privatization and development since the 1990s.[6] Severstal's governance framework complies with Russian federal laws, its charter, and aligns with the UK Corporate Governance Code alongside recommendations from Russia's Central Bank-approved Corporate Governance Code.[16] The highest governing body is the General Meeting of Shareholders, convened annually no earlier than two months and no later than six months after the fiscal year-end, with decisions on key matters such as dividend approvals, board elections, and major transactions.[17] The Board of Directors, elected by shareholders for a one-year term, oversees strategic direction, risk management, and executive appointments; it is chaired by majority shareholder Alexey Mordashov and comprises members including independent director Alexander Auzan and economist Vladimir Mau.[18][19] Executive management is led by the Sole Executive Body, the General Director, who handles day-to-day operations under board supervision. Alexander Shevelev has served as CEO and director since 2016, focusing on operational efficiency and capital allocation.[20][21] Key supporting roles include CFO Alexey Kulichenko, appointed in 2009, who manages financial strategy amid challenges like sanctions and market volatility.[20] This structure emphasizes accountability to shareholders while navigating geopolitical constraints, including EU and U.S. sanctions on Mordashov since 2022 that have indirectly affected governance disclosures.[6]History
Formation and Soviet Era (1930s–1991)
The concept for a major steel plant at Cherepovets originated in the 1930s, driven by the discovery of vast iron ore deposits on the Kola Peninsula and coking coal reserves in the Pechora River basin, which promised a northern raw materials base independent of southern Soviet industrial centers.[22][13] Construction planning began in 1931, but progress stalled amid economic disruptions and was formally authorized by a Soviet government resolution on June 20, 1940, designating Cherepovets as the site for a new metallurgical combine to supply steel to Leningrad and the northwest region.[22][23] World War II further delayed development, with construction resuming only in 1947 through the erection of initial steel fabrication facilities.[13] By 1954, an on-site power station became operational to support expanding infrastructure.[13] The plant's foundational milestone occurred on August 24, 1955, when Blast Furnace No. 1 produced its first molten iron, establishing the Cherepovets Metallurgical Plant (later Severstal) as a key Soviet industrial asset.[23][13][22] Subsequent years saw rapid integration and scaling: a coke plant and Blast Furnace No. 2 launched in 1956, followed by the first steel ingot on May 1, 1958, and the commissioning of a blooming mill in January 1959, enabling full-cycle production from ore to rolled products.[13][22] A hot-rolling mill entered service in 1960, with further additions including a light long products mill and tandem cold-rolling mill in 1963, marking the plant's evolution into a comprehensive steelworks.[13] By the late 1960s, an electric arc furnace in 1969 introduced scrap-based steelmaking, enhancing flexibility amid resource constraints.[13][22] Expansions continued into the 1970s and 1980s, with the Mill 2000 continuous hot-rolling mill operational by 1975 for wide-sheet production, and an oxygen converter shop in November 1980 replacing inefficient open-hearth methods to boost efficiency.[13][22] In April 1986, the massive Severyanka Blast Furnace (5,580 cubic meters volume) began pig iron output, solidifying Cherepovets as one of the USSR's largest steel producers with annual capacities exceeding several million tons.[22] The facility was reorganized as the Cherepovets Iron and Steel Complex in 1983, though operations faced disruptions like the 1989 Vorkuta coal miners' strike, which curtailed coking coal supplies.[22] The Soviet era ended in 1991 with the USSR's dissolution, leaving the plant as a centralized behemoth vulnerable to post-communist economic upheaval.[22]Privatization and Early Post-Soviet Development (1992–2003)
On September 24, 1993, the Cherepovets Metallurgical Kombinat (ChMK), a major Soviet-era steel producer, was registered as Open Joint Stock Company Severstal (OAO Severstal) under Russia's mass privatization program, which aimed to transfer state assets to private hands through voucher distribution, employee shares, and auctions.[24] This process allowed plant insiders, including Alexey Mordashov—who had joined the facility as chief accountant in the early 1990s and advanced to deputy director for finance—to acquire significant equity stakes at nominal prices via participation in privatization auctions and secondary purchases.[24] By 1996, Mordashov controlled over 50% of the shares, enabling him to consolidate ownership and assume the role of general director.[22][13] Mordashov's leadership from 1996 onward focused on restructuring to address the post-Soviet economic collapse, including hyperinflation, disrupted supply chains, and a sharp drop in domestic demand that halved Russian steel output in the early 1990s.[25] Key measures included workforce reductions—spinning off non-core social services like housing and education, and trimming employment from inherited Soviet-era levels exceeding 50,000 to streamline operations—and divestitures of unrelated units such as furniture production.[22][26] These steps enhanced efficiency, with Severstal earning a reputation as one of Russia's more agile steelmakers amid widespread industry bankruptcies and barter economies.[27] To mitigate raw material vulnerabilities and capitalize on global opportunities, Severstal pursued early vertical integration by acquiring upstream assets, such as iron ore facilities, while pivoting to exports—which rose from negligible Soviet shares to comprising up to two-thirds of Russian steel output by the late 1990s, targeting markets in Turkey, the Middle East, and Asia.[28][29] The 1998 financial crisis tested resilience, but cost controls and export orientation enabled recovery; by 2003, the company reported profits over $600 million under Russian accounting standards, positioning it for further expansion.[26]International Expansion and Acquisitions (2004–2012)
In 2004, Severstal entered the North American market by acquiring the steelmaking assets of bankrupt Rouge Industries Inc., based in Dearborn, Michigan, for $285.5 million, thereby forming Severstal North America Inc. to operate the facilities.[30] This move provided access to integrated steel production capacity near Detroit, including slab and plate rolling, amid competition from U.S. Steel Corp., which had also bid for the assets.[31] The acquisition, valued at approximately $260 million in cash plus $113 million in assumed liabilities, aligned with Severstal's strategy to secure downstream markets and technology for higher-value products.[13] Severstal expressed interest in further European expansion that year, engaging Citigroup as an advisor for a potential bid on the Czech state-owned Vitkovice steel mill, though the deal did not materialize.[22] In 2005, the company secured a 62% controlling stake in Italy's Lucchini SpA, investing around €450 million while leaving the founding family with 29% ownership, enhancing its European footprint in long steel products and specialty rails.[32] Severstal later increased its holding to 79.8% by acquiring the family's remaining 20.2% stake, though financial impacts from the initial purchase were deemed limited by rating agencies.[33][34] Concurrently, Severstal established Severstal Columbus (later SeverCorr) in Mississippi, USA, with electric arc furnace and compact strip production capabilities, and formed a joint venture with Wheeling-Pittsburgh Steel for a 1 million tonne per year coke plant in West Virginia.[13] By 2006, expansion continued with the acquisition of a 60% stake in Ukraine's Dneprometiz for $33 million, focusing on wire and hardware production, and full ownership of Carrington Wire Limited in the UK for £14.2 million, bolstering downstream capabilities.[13] The most significant U.S. deal came in 2008, when Severstal completed its merger with Esmark Inc. for $19.25 per share in cash, totaling around $1.25 billion in enterprise value, gaining control of Esmark's steel assets including the Sparrows Point mill in Maryland and Wheeling Steel operations.[35][36] This followed a competitive tender process against India's Essar Steel and navigated Esmark's shareholder rights plan, with the United Steelworkers union endorsing the bid for its investment commitments.[37] These acquisitions diversified Severstal's asset base beyond Russia, integrating advanced facilities for flat and long products while exposing it to Western markets, though subsequent global financial pressures tested operational synergies.[28]Recent Developments and Geopolitical Challenges (2013–Present)
Following the divestiture of its North American steel operations in 2014, including the sale of the Dearborn, Michigan plant to AK Steel Holding Corporation and facilities in Ohio and Mississippi to Steel Dynamics for approximately $1.25 billion combined, Severstal refocused on its Russian assets to enhance operational efficiency and reduce exposure to volatile international markets.[38] This strategic pivot aligned with a 2013 company strategy emphasizing cost leadership, customer focus, and domestic modernization, supported by $1.2 billion in capital expenditures that year for upgrades at Cherepovets facilities.[39] Subsequent investments included a $1 billion modernization program in 2015 amid low global steel prices and initial Western sanctions related to Russia's annexation of Crimea, as well as the commissioning of a new rolling mill in 2019 to boost high-value product output.[40] Russia's full-scale invasion of Ukraine on February 24, 2022, triggered escalated Western sanctions targeting Severstal's majority owner, Alexey Mordashov, and the company itself. The European Union sanctioned Mordashov on February 28, 2022, prompting Severstal to halt steel shipments to the EU on March 2 due to frozen assets and payment disruptions, stranding inventory in European warehouses and forcing sales staff to seek alternative buyers.[41] The U.S. Office of Foreign Assets Control (OFAC) designated Severstal as a Specially Designated National (SDN) on June 2, 2022, citing its role in supporting Russia's military actions undermining Ukraine's sovereignty, which further restricted access to global finance and technology.[42] These measures, compounded by Mordashov's personal asset freezes, led to over $400 million in direct losses from seized European property, account balances, and forfeited Western contracts by late 2022.[43] In response, Severstal prioritized domestic resilience, investing $1.123 billion in Russian steel division projects in 2022 while avoiding a potential Eurobond default through payment restructurings amid SWIFT exclusions.[44] The company redirected exports, reducing overall Russian steel shipments from 31 million metric tons in 2021 to 20 million in 2024, with Severstal planning 80% of its 2025 output for the domestic market despite declining internal demand.[45] Adaptation efforts included costly replacements for Western software like SAP, which held up to 60% of Russia's enterprise market pre-invasion, and a shift toward Asian and non-sanctioning markets, though low export profitability raised risks of plant idling.[46][47] By 2024, Severstal reported a 14% year-on-year increase in sales revenues, driven by 2.92 million metric tons of steel sold in the final quarter, alongside strategy updates emphasizing decarbonization and efficiency to counter sanctions-induced isolation.[48] A 2028 development strategy, unveiled in 2024 and refined in April 2025 for sustainable metallurgy, aims to sustain EBITDA margins through vertical integration and technological upgrades, including expanded new product sales.[49][50] However, ongoing pressures materialized in Q3 2025 with net profit falling 62% year-on-year to 12.99 billion rubles ($132 million) and negative free cash flow, reflecting export constraints and higher domestic competition.[51] Mordashov has advocated for reduced corporate fragmentation to bolster war-era resilience, warning of South Korea-like consolidation needs amid sanctions.[52]Operations
Steel Production Facilities
Severstal's primary steel production facility is the Cherepovets Steel Mill, located in Cherepovets, Vologda Oblast, Russia, which serves as the core asset of its Russian Steel division. This integrated steelworks operates blast furnaces for pig iron production, basic oxygen furnaces for steelmaking, and downstream rolling mills for flat and long products, enabling full-cycle production from raw materials to finished steel. The mill's proximity to iron ore mines, coking coal supplies, and ports contributes to its status as one of the world's lowest-cost steel producers.[53][4] In 2024, the Cherepovets Steel Mill produced 10.4 million tonnes of crude steel, accounting for the entirety of Severstal's steel output amid a company-wide decline of 8 percent year-over-year to 10.38 million tonnes, influenced by reduced domestic demand and high interest rates. Pig iron output at the facility reached approximately 10.03 million tonnes in the same year, reflecting operational efficiencies despite market pressures. The mill supports a workforce of around 23,000 and invests heavily in maintenance and emissions reduction, with 63.6 billion rubles allocated for development in 2020 and ongoing expenditures for environmental compliance.[4][54][53] Supporting infrastructure includes advanced units such as the world's largest air separation plant, operational since collaboration with Air Liquide, supplying 3,000 tonnes of oxygen daily to enhance blast furnace and steelmaking processes. Recent expansions focus on high-value products, including upgrades to thick plate and high-strength steel heat treatment capacities, with investments totaling around $4.48 million in 2024 to boost output for sectors like shipbuilding and construction. While Severstal previously operated a mini-mill in Balakovo for long products using electric arc furnace technology with a capacity of about 1 million tonnes annually, this asset has been divested, concentrating primary steelmaking at Cherepovets.[55][56][13]Mining and Raw Materials
Severstal's mining operations, managed through its Resources division, primarily focus on iron ore extraction and processing to supply raw materials for its steel production facilities, with excess volumes sold externally. The company operates several key iron ore assets in northern Russia, including Karelsky Okatysh in the Republic of Karelia, which produces iron ore pellets, and Olkon (Olenegorsk Mining and Processing Enterprise) in Murmansk Oblast, which specializes in iron ore concentrate. These facilities provide the majority of Severstal's iron ore requirements, reducing reliance on external suppliers and stabilizing costs amid volatile global markets.[4] In 2024, Severstal's iron ore sales volumes, including intercompany transfers, reached 16.8 million tonnes, reflecting stable output from its mining complex. Karelsky Okatysh maintains a production capacity for pellets exceeding 10 million tonnes annually, while Olkon's operations center on concentrate production from magnetite deposits. The company has pursued expansions, such as the development of the Pechegubsky field at Olkon and the ramp-up of the Yakovlevsky mine, to boost reserves and output; these projects aim to increase total iron ore production by integrating advanced extraction technologies like cyclic-flow processing at Karelsky Okatysh.[4][4] Historically, Severstal also extracted coking coal through Vorkutaugol in the Komi Republic, contributing to its vertical integration for steelmaking inputs. However, in December 2021, the company divested these coal assets to Russkaya Energiya for $203 million as part of an emissions reduction strategy, securing a five-year off-take agreement for continued supply. This shift has narrowed Severstal's raw materials portfolio to predominantly iron ore, aligning with environmental goals while maintaining self-sufficiency in ferrous inputs. Ongoing investments, totaling 169 billion rubles planned for 2025 (including 70 billion for development projects), support further enhancements in ore quality and capacity. In September 2024, Severstal initiated construction of a 10 million tonnes per year iron ore pellet plant under a special investment contract signed in June 2024, enhancing processing capabilities at existing sites.[4][57][58]Product Portfolio and Markets
Severstal's product portfolio centers on steel and related metal products, with a focus on both semi-finished and finished goods derived from its vertically integrated operations. The company produces flat-rolled products such as hot-rolled coils, cold-rolled coils, and galvanized steel, alongside long-rolled items including beams, channels, angles, rails, and wire rod. Additional offerings encompass large-diameter pipes, metalware like wires, nails, ropes, netting, and fasteners, totaling over 100,000 product variants.[59][2][60] High-value-added (HVA) products, which include advanced steel grades and customized solutions for enhanced durability and efficiency, comprised 52% of output in 2024, reflecting Severstal's strategic shift toward premium segments like coated and processed steels.[61] These HVA items support applications requiring specialized properties, such as corrosion resistance in energy equipment or high-strength alloys in mechanical components. In 2024, sales of finished steel products reached approximately 4.76 million metric tons, with HVA volumes showing growth amid efforts to innovate for customer-specific needs.[48] The company's markets are dominated by domestic Russian demand, accounting for around 80% of sales, driven by sectors including construction (rebar, sections, and beams for infrastructure), mechanical engineering (coils and sheets for automotive and railway applications), and energy (pipes and alloys for petrochemical and power generation).[11] Exports, comprising the remainder, target non-Western regions such as Asia, North Africa, and Southeast Asia, with Russian steel exports overall at 32% of production in 2024, projected to rise to 34-35% in 2025 amid subdued global demand in traditional markets.[62] This reorientation follows geopolitical restrictions, prioritizing resilient supply chains in emerging economies while maintaining focus on long-term domestic partnerships.[59]Financial Performance
Key Metrics and Revenue Sources
Severstal's consolidated revenue for 2024 reached 829.8 billion Russian rubles, marking a 14% year-over-year increase attributable to higher average selling prices and expanded sales volumes amid domestic demand recovery.[63] EBITDA for the year totaled 237.9 billion rubles, reflecting a 9% decline from 2023 due to elevated operational costs and raw material expenses despite revenue growth.[48] Net profit under International Financial Reporting Standards (IFRS) amounted to 149.6 billion rubles, a 22% decrease year-over-year, influenced by higher depreciation and one-off expenses.[64] Key operational metrics underscore production efficiency: crude steel output stood at 10.4 million metric tons, down approximately 8% from 2023 levels owing to maintenance schedules and market adjustments, while pig iron production reached 10.0 million metric tons.[4] Iron ore sales volumes, including intercompany transfers, totaled 16.8 million metric tons.[4]| Metric | 2024 Value (RUB billion) | Year-over-Year Change |
|---|---|---|
| Revenue | 829.8 | +14% |
| EBITDA | 237.9 | -9% |
| Net Profit (IFRS) | 149.6 | -22% |