russia to Face Hidden Deindustrialization

The first quarter of 2026 proved disastrous for “severstal”, one of russia’s largest steel companies. Net profit plummeted 370-fold – from $281.6 million to $0.76 million. Free cash flow turned negative at $539.5 million. Cash reserves fell to $65.5 million by the end of March, down from $513.2 million at the start of the year and $1.72 billion at the start of 2025. Total debt rose to $892.7 million. The company has not paid dividends for five consecutive quarters.

The reasons remain the same. Domestic demand for steel in the first quarter of 2026 fell by 15% year-on-year. Tight monetary policy stifled investment activity and caused prices to plummet: the average price of hot-rolled sheet in the rf fell by 7%. Sanctions cut off what had previously offset domestic weakness – exports. Until 2022, Europe accounted for up to 17% of “severstal”’s shipments. Overall, russian steel exports fell from 31 million tons in 2021 to 20 million tons in 2024–2025.

In response, the company is cutting costs: the maintenance fund – by 15%, capital expenditures – by 24%. Hiring has been frozen, wage indexation canceled, and construction of an iron ore pellet plant in cherepovets suspended. The situation is similar at the magnitogorsk iron and steel works: capacity utilization has been reduced to 60%, some investments and repairs have been halted, and a 10% reduction in management staff is being planned.

Against this background, the russian Forbes list is particularly cynical. Owner of “severstal” mordashov has topped the list of russia’s richest businessmen with a fortune of $37 billion. Over the past year, his wealth has grown by $8.4 billion. The owner of a company that has seen its profits wiped out and is eating into its reserves has become the richest person in russia.

As a result, the russian steel industry is shifting from a phase of optimization to a phase of conservation. Next comes hidden deindustrialization: production facilities formally exist, but there is no modernization, no repairs, and no workforce.