Systemic Collapse in Russia’s Metallurgy Sector
Ukraine’s Foreign Intelligence Service has documented a deep, systemic crisis gripping the Russian metallurgy industry. According to intelligence data, Severstal’s net profit for the first quarter of 2026 collapsed by a factor of 370, falling to just $0.76 million. The primary drivers behind this catastrophic decline are international sanctions and a 15% drop in domestic steel demand. These forces have forced capacity idling and triggered a hidden deindustrialization across the sector.
At the start of 2025, Severstal held reserves of $1.72 billion; that figure has now shrunk to $65.5 million. The company’s free cash flow has turned negative, while its debt is approaching the $1 billion mark. In response, Severstal has frozen hiring and canceled salary indexation. Furthermore, it has halted construction of strategic facilities, and the Magnitogorsk Iron and Steel Works is preparing its management for mass layoffs.
Steel Exports and Investment Slump
Russian steel exports have also taken a severe hit, dropping from 31 million tons in 2021 to 20 million tons in 2024–2025. Capacity utilization at the Magnitogorsk plant stands at just 60%, underscoring the industry’s deep troubles. Capital expenditures at Severstal have fallen by 24%, adding further financial strain.
“Russia’s metallurgy is moving from an optimization phase into a conservation phase. What follows is hidden deindustrialization: capacity exists on paper, but there are no upgrades, no repairs, no personnel,” said Ukraine’s Foreign Intelligence Service.
Meanwhile, Severstal’s owner, Alexey Mordashov, despite his company’s struggles, topped Forbes’ ranking of Russia’s wealthiest businessmen with a net worth of $37 billion. This paradox highlights the stark contradictions within Russia’s metallurgy sector and its broader economy.
The turmoil in Russia’s steel industry illustrates the severe consequences of economic sanctions and collapsing domestic demand, threatening the sector’s long-term stability. Reduced exports and shrinking capital investment risk accelerating deindustrialization, which would further undermine the country’s economic growth. At the same time, the preservation of vast personal fortunes amid such a crisis raises serious questions about social equity and wealth distribution in Russia.
The challenges faced by Severstal are not isolated; other companies in the sector are also grappling with financial setbacks. For instance, Metinvest has reported significant losses while managing to stave off a more severe crisis. This situation illustrates the broader struggles within the Russian metallurgy industry and highlights the impact of ongoing sanctions and market conditions.