Russian Metallurgical Companies Research Articles

Digital maturity of the Russian metallurgical industry: drivers and challenges of growth in new geopolitical conditions. Part II. Key directions of digital transformation

The article continues the research on the prospects of achieving digital maturity in Russian metallurgical industry as one of the digitalization drivers of the Russian economy. The analysis results showed that the metallurgical business has a high innovative potential for the digital maturity growth. The second part examines the application of Industry 4.0 technologies in domestic metallurgy by the example of industry leaders in digitalization. The purpose study is to determine the directions of digital transformation in metallurgy to achieve digital maturity in new geopolitical conditions based on the innovative activity assessment of industry leaders. The study object is Russian metallurgical companies (technological development of the industry) drivers. The study subject is the digital transformation process of metallurgical companies in the conditions of economic sanctions. The research methodology is based on the innovation activity assessment. The research methods include indicative, comparative, and statistical analyses. The impact of the economic sanctions imposed in 2022 on the digital transformation in the industry has been assessed, problems and approaches to their solution have been identified. The study results demonstrated the significant potential of the metallurgical industry to achieve digital maturity due to the high innovative activity of industry leaders, despite the sanctions. The key areas of digital transformation are digital twins, machine vision and artificial intelligence, the creation of metal products and secondary raw materials marketplaces, which corresponds to the global digitalization trend. This paper is a continuation of the article “The digital maturity of the Russian metallurgical industry: drivers and growth challenges in the new geopolitical environment. Part I. Assessment of the innovation potential of digital transformation”.

Development strategy of Russian metallurgical companies in the new world economic order

Subject. The article investigates features of modern strategic development of iron and steel plants in the Russian Federation Objectives. The purpose is to determine the main directions of development strategy of the metallurgical complex in the production of ferrous and non-ferrous metals in Russia to identify further prospects for industry enterprises. Methods. The study employs methods of scientific cognition, like comparative analysis, synthesis, induction, and deduction. These methods helped to build dynamic and structural models. Results. We performed the analysis of technological innovation effectiveness in the production process of metallurgical enterprises, identified the main problems of the industry resulting from the crisis situation in the country and the world, and considered issues related to interaction of innovation activity and the use of R&D in the development of the industry. The study unveiled the specifics of the Russian metallurgical industry in the field of export, allocation of funds for the introduction of innovation. Conclusions. The development strategy of Russian metallurgical industry for the period up to 2030 set benchmarks for the growth of ferrous and non-ferrous metallurgy, however, Russian enterprises need investments in R&D, which, in the future, will entail an increase in the profitability of their products and a more stable position among international competitors in the market.

The Interdependence of Environmental Activities and Investment Attractiveness: Finances of Russian Metallurgy

All countries now share a long-term vision of the importance of implementing technology development and transfer to improve climate resilience and reduce greenhouse gas emissions. Metallurgical enterprises play a significant role in achieving this goal, since they produce a large amount of carbon dioxide emissions into the atmosphere. In connection with the changing operating conditions and changing markets of presence, the issues of ensuring their investment attractiveness are acquiring obvious importance in the framework of the finances of Russian metallurgical companies. The object of the study is an assessment of the investment attractiveness of Russian metallurgical companies. The subject of the study is the relationship between the investment attractiveness of metallurgical companies and the results of their environmental protection activities. The purpose of this study is to identify the interdependence of environmental metrics and the investment attractiveness of steel companies. The methodological basis is a regression analysis of the impact of environmental metrics on the investment attractiveness of metallurgical companies. The authors chose the following indicators of environmental performance: CO2 emissions, energy consumption, water recycling, waste. To assess the investment attractiveness of metallurgical companies, the following indicators were used: revenue, EBITDA, investment in R&D. The authors concluded that the environmental activities of companies have a significant impact on their investment attractiveness. The scientific novelty of the study lies in identifying the interdependence of environmental protection activities and the investment attractiveness of Russian metallurgy companies. The results of the study can be used by both Russian steel companies and institutional investors as part of the development of an investment strategy.

Management of the development of a metallurgical company on the basis of the algorithm of the pre-investment analysis

The article is devoted to the development of methodological approaches to assessing the effectiveness of investments in innovations and repairs of Russian metallurgical companies based on an analysis of the state of innovation and technological potential in order to maintain competitiveness in the face of tougher sanctions. The analysis of sources and directions of investments and comparison of the current internal rate of return in the leading companies in the metallurgical sector were carried out: Severstal, MMK, NLMK, EVRAZ; their investment activity was studied and the predominant selfinvestment in the development of companies and interest in financial parameters and global trends were confirmed to the detriment of the material component of production. The problem of disunity of owners, managers of the main production, repair facilities and top management in making investment decisions is detailed and methods for its solution are proposed through the use of a company's preinvestment analysis algorithm based on the methodology of predictive analysis of large data arrays. The methodological basis is the theory of strategic management and investment analysis. Methods: classification, comparison, grouping, economic and mathematical modeling, predictive analysis and algorithms. The methodology for evaluating investment projects using the modified internal rate of return (MIRR) has been refined. An algorithm for analyzing the investment environment of metallurgical companies is proposed based on taking into account the service life of equipment and ranking it depending on the need for repair or renewal. The updated analytical tools will be of interest to industry enterprises, corporations and government agencies in substantiating the strategy of innovative development. The developed approaches are of scientific interest in the study of contradictions between production, top management, owners of metallurgical companies and the state.

Tendence for the development of Russian metallurgical companies in the conditions of using a competitive environment

Tendence for the development of Russian metallurgical companies in the conditions of using a competitive environment

EU Cross-border carbon tax: conflicting signals for metallurgy

The subject of the analysis is the EU initiative to introduce the so-called Border Carbon Correction Mechanism (CBAM), developed within the framework of the "European Green Course" adopted in 2019 from the point of view of the interests of the Russian ferrous metallurgy. The author analyzes the CBAM rules and procedures developed by the European Commission, including the commodity nomenclature of carbon-taxable ferrous metallurgy products. An assessment of the positions and interests of the European ferrous metallurgy industry in relation to CBAM and the actions of the industry lobby in the course of promoting this initiative is given. The conclusion is made about the achieved narrowing of the intended scope of the CBAM in terms of the covered industries and types of gases and about the extension of the timing of the mechanism's entry into force. The positions of such major global players as China, India, Brazil, African and South-East Asian countries are analyzed in relation to CBAM and prospects for the transformation of this initiative in the current situation are outlined. In connection with the EU ban on the import of Russian ferrous metallurgy products, recommendations are given to Russian metallurgical companies on possible steps to track the details of the promotion of the CBAM initiative. The article was prepared based on the results of research carried out at the expense of budgetary funds under the state assignment to the Financial University under the Government of the Russian Federation.

Problems of ESG-Reorganization of Russian Metallurgical Corporations

The development of environmental programs in modern conditions is characterized by the ESG transformation of the economy. In the EU, which is the most important importer of Russian steel products, a new carbon tax will be levied from 2025–2026, which will increase the costs of domestic producers by more than 20%. The peculiarity of the new tax is that it applies to the industry value chain, including suppliers and consumers of metal, which jeopardizes other sectors of the national economy.The purpose of the study is to identify the problems and risks generated by the transition of Russian ferrous metallurgy companies to ESG principles of management. The object of research is ESG transformation of the economy. The subject of the study is the problems and risks of the Russian ferrous metallurgy formed by the ESG transformation. General scientific methods were used, such as: analysis, synthesis, abstraction, modeling, generalization. It is established that the ESG transformation of the economy makes the restructuring of Russian metallurgical companies inevitable. At the same time, domestic companies lag behind Western ones in the development of technologies that lead to a zero carbon footprint. Inefficient work to reduce the carbon footprint leads to the payment of carbon tax on foreign markets, fines on the domestic market, prevents the receipt of “green” financing. Starting from 2026, the financial condition of metallurgical companies will rapidly deteriorate. The implementation of the Targeted (intensive) development scenario provided for by the “Strategy of Socio-economic Development of the Russian Federation with low Greenhouse Gas Emissions until 2050” and the active support of the state will help to maintain the position in the markets.

Strategic management of Russian metallurgy in the context of challenges and risks

The subject of the study is Russian metallurgical companies, which in the context of the transformation of the economy, taking into account the difficult geopolitical situation, need to move from a recovery strategy to a strategy of progressive growth. The latter, taking into account the factors that ensure the success of Russian companies in the metal market, should become a tool for effective management, as well as for predicting business risks. The article presents the riskdominating elements and macroeconomic indicators for building an effective strategy for the development of enterprises in the metallurgical industry, which will allow for a comprehensive assessment of the situation and making rational and effective management decisions to increase the competitiveness of companies, their adaptability to modern factors of the external environment, the growth of economic potential and capitalization. The peculiarity of the study is to identify the dominant factors of entrepreneurial risk and improve ways to increase the investment attractiveness of the company.

The informational component of corporate social responsibility assessment: Results of empirical research

Subject. We consider completeness and quality of social information disclosure for systematic presentation of corporate social responsibility of organizations in financial and public non-financial reporting. Objectives. The aim is to present a comprehensive research of information component of social responsibility of Russian large business enterprises, based on the analysis of their financial and non-financial reporting information. Methods. We employed methods of logical, statistical, comparative, and linguistic analysis. We also analyzed financial and public non-financial reports of Russian metallurgical companies. Special attention was paid to the availability and completeness of presented social disclosures. The study investigates annual financial statements and public non-financial statements for 2018–2020. Results. We offer a systems approach to the study and assessment of social responsibility, based on the analysis of the content of selected indicators, formulate recommendations that are necessary to increase the social responsibility of companies through improving the quality of content of reporting information and its orientation to solving global social problems. The findings enabled to reveal the areas of social information disclosure that are most significant for increasing the validity of investment decisions. Conclusions. The identified top social problems are in the focus of attention of economic entities; the dynamics of the quality of disclosures in corporate reports over the past three years has been positive. The trend in the development of non-financial reporting standards in terms of completeness and comprehensive nature of social disclosures enables to count on gradual overcoming of existing problems.

EU cross-border carbon tax: hedging risks

The subject of the analysis is the EU initiative to introduce the so-called Carbon Border Adjustment Mechanism developed within the framework of the “European Green Deal” adopted in 2019 and its possible impact on the Russian iron & steel industry. The author draws a parallel between the Border Carbon Correction Mechanism and the early EU initiatives on carbon taxation of flights of foreign airlines operating in airports of EU countries. Recommendations are given to Russian metallurgical companies on possible measures to hedge risks associated with this EU initiative, including interaction with federal agencies to develop counteraction measures, as well as non-corporate measures of technological modernization using low-carbon solutions and compensation of corporate emissions based on ecosystem emission absorption projects. The possibility of blocking the EU initiative in the international arena, including the positions of the leading world powers on this issue, is analyzed. The tactics of interaction on this issue with such large global exporters of iron & steel products as China, India, Brazil and others are proposed.

Benchmarking systems for greenhouse gases specific emissions in steel industry

The incipient low-carbon transformation of the world economy requires elaboration of market mechanisms, based on determination and comparison of carbon intensity of products (benchmarking), separate facilities, enterprises, countries, regions and the world as a whole. Description of foreign benchmarking systems for specific energy consumption and specific greenhouse gases (GHG) in steel industry given. Results of benchmarking of energy efficiency of steel production in the countries of G20 presented, which was accomplished by International Energy Agency (IEA) in 2021. Russian experience of selective benchmarking by ecological parameters (in information and technical reference books on best available technologies) considered as well as experience of Russian metallurgical companies on evaluation specific emissions of GHG. Comparison of IEA data and those of Russian companies showed that result of benchmarking substantially depends on chosen calculation system and reliability of the initial information, as well as highlighted necessity of harmonization of benchmarking systems and provision of possibility to obtain results in various benchmarking systems based on the same initial information. Actuality and necessity substantiated to create a Russian benchmarking system for specific emissions of GHG first of all to keep ability of exporting Russian products of steel industry into EC, where from 2023 a system of boundary carbon control will come into force, as well as to keep and expand market niches at other markets, including the internal Russian one. The list of products of steel industry and limits of technological processes of their production in the Russian benchmarking system being created, must provide a possibility of comparison with foreign systems and comparison with benchmarking for products which can be covered by CBAM (Carbon Border Adjustment Mechanism) system. Basic items of CBAM concept being discussed by European parliament presented. It was noted that in view of plans to introduce CBAM, the provision of correspondence of Russian system to the system of trade by EC quotas or to other scheme, due to which the CBAM mechanism will be launched becomes a matter of particular actuality. The list of products of steel industry, covered by benchmarking within European system of trade by quotas for GHG emissions, limits of a product production system and significance of benchmarkers presented. It was noted that for Russian exporters of steel industry products, the benchmarking for specific GHG emissions should become a routine procedure. It was proposed to elaborate a calculator “Benchmarking of carbon intensity of products of steel industry of Russia”, which could provide comparison of the results obtained with benchmarkers of other international systems.

Analysis of factors influencing the level of environmental risks of ferrous metallurgy companies

Environmental safety is one of the Russian metallurgical companies’ leadership key requirements in the world market, in which the environmental friendliness of goods and services production is one of the important competitive advantages. The study aimed to develop methodological approaches to assessing the environmental risks of the largest Russian ferrous metallurgy companies based on public data. The approach proposed by the authors includes the substantiation of an algorithm for assessing environmental risks from identifying factors that have a significant impact on the level of environmental risks of ferrous metallurgy companies, the choice of indicators - indicators and a scale for their assessment to the formation of a consolidated rating of companies and its interpretation. The methodological basis of the study was the regulatory documents on environmental safety; sustainable development standards in the field of ecology; rating agencies’ data and information; metallurgical companies’ information from the Internet resources, their financial, environmental and annual reports; analytical reviews, works of foreign and Russian scientists on environmental issues; security, monitoring data conducted by the Russian Union of Industrialists and Entrepreneurs. In assessing environmental risks, data from 9 ferrous metallurgy companies included in the Forbs rating of the largest private companies in Russia were used: PJSC “NLMK”, PJSC “Severstal”, PJSC “MMK”, “EVRAZ” Group, PJSC “Mechel”, “Metalloinvest” Group, “OMK” Group, PJSC “TMK”, PJSC “ChTPZ”. This article includes the results of the first stage of the study, which consists in identifying the characteristics of the compared companies that affect the level of environmental risks, which include: the organizational structure of the business (scale, geography of activities, structure of holdings), financial condition (availability of financial resources, their directions investments, primarily investments in the reconstruction of production facilities), as well as the availability of information to assess the company’s impact on the environment. The article was prepared in the framework of the grant in the priority areas of research FSBEI HE Plekhanov Russian University of Economics on the topic “Monitoring of sectoral financial security risks in the digital environment using the Harvard paradigm of industry analysis”.

Social disclosures in Russian corporate reporting: successes, failures, directions of development

The article examines issues relating to disclosures of social aspects in companies’ reports. The conducted study has analyzed financial and corporate reports (integrated, on social responsibility, on sustainable development) of leading Russian metallurgical companies, which consider social impacts as the most significant. The practical part of the research is based on analysis of 42 financial and 37 non-financial reports (including 23 SDR, 12 IR and 2 CSR) of Russian metallurgical companies over 2017-2019 period. In addition, we analyzed the interim financial statements of these companies for 2020. The study of social disclosures was structured into two types of reporting - financial and non-financial. Based on conducted statistical and qualitative analyses, the study offers recommendations on improving logical alignment and quality of disclosures on the social-related aspects. Suggested recommendations aim on increasing validity of investment decisions and making financial market more transparent.

Metallurgical companies’ environmental liabilities: a study of disclosure in reporting

The article seeks to examine and diagnose the current practices of forming financial and non-financial reporting followed by Russian metallurgical companies with regards to their environmental liabilities. The authors applied quantitative and qualitative methods of information analysis, as well as a morphological approach to generalizing the research results. The research has shown varying degrees of openness of metallurgical companies, which allowed the authors to formulate prospects for further research in this area.

Financial reporting and climate-related disclosures

The article examines disclosures on climate-related risks in financial statements. The conducted study has analyzed corporate reports (financial, integrated, environmental, on sustainable development) of leading Russian metallurgical companies that consider climate change influence or environmental impacts as the most significant. The following conclusion is derived from conducted research. Majority of climate-related disclosures are currently made in broader corporate reports, primarily in ecological, social responsibility and sustainable development reports. There is almost no information about climate-related risks in financial statements, and there are no corresponding cross-references on environmental issues between financial and non-financial reports. Climate-related risks impact most important indicators of financial statements, corporate strategy and business model. Materiality of information on climate change impact on companies` financial position, performance and cash flows need to be considered in the context of financial statements. The aim of the study is to confirm the materiality of climate-related risk disclosure for interested users, existing insufficiency of such disclosures in financial statements and make proposals on filling the identified information vacuum. The article offers recommendations on feasibility of developing a new standard "Climate risks: Disclosures", which should provide users with essential information on the judgments and assumptions related to assessment of climate-related risks` impact on financial statements.

Ensuring sustainable innovative development of the metallurgical complex enterprises

It is shown that the most important factors determining the sustainable innovative development of the metallurgical complex are the availability of competitive metal production capacities with the systematic demand for Russian metal products both in the domestic and foreign markets. It was determined that as a result of the implementation of major investment programs by leading metallurgical companies implemented in the iron and steel industry of Russia, production capacities have been created competitive types product of in the world market. However the realization of this potential is sharply limited due to the insufficient development of the engineering complex As a result, there was a significant gap between the large production and economic potential of Russian metallurgical companies created over the years of favorable economic conditions and the limited opportunities to use this potential. Various measures for the development of metal-consuming industries have been substantiated, including the maximum possible expansion of sources of financing, both through state support and by attracting private investment, largely through public-private partnerships.

THE REVIEW OF THE EVOLUTION OF INFORMATION IN THE PUBLIC NON-FINANCIAL REPORTS OF RUSSIAN METALLURGICAL COMPANIES

The evolution of information maintenance of the business practice constructed on the principles of social responsibility and sustainable development of 5 large Russian companies of ferrous metallurgy became the subject of this publication. Due to the growing attention and concern of the civil society to the issues of "green economy" and climate change, occupational safety and production, risk management, energy efficiency, implementation of anti-corruption practices, contribution to the development of the territories of the presence - an a specific plateau of the analysis of public non-financial reporting (hereinafter - PNR) of the companies: PJSC Magnitogorsk Iron and Steel Works (hereinafter - referred to as JSC MMK), PJSC Novolipetsk Steel (hereinafter - PJSC NLMK), PJSC Severstal, JSC Holding The new company "METALLOINVEST" (JSC "HK METALLOINVEST"), United Metallurgical Company JSC (JSC "OMK"). The purpose of the research was to identify the features and patterns of development and implementation of socially responsible business, clarify and systematize the main problem areas in the practice of providing information to stakeholders of Russian metallurgical companies. Results and practical importance: The obtained results allow drawing conclusions about significant aspects of corporate responsibility from the point of view of Russian companies, about the contribution of business to solving socially significant problems, and the trends in the development of social reporting among Russian flagships of ferrous metallurgy. At the same time, the results of the research are interesting in terms of forming modern ideas about responsible corporate practice and business ethics of Russian business.

ТРАНСГРАНИЧНЫЕ ЦЕПОЧКИ СОЗДАНИЯ СТОИМОСТИ В ЧЕРНОЙ МЕТАЛЛУРГИИ: РОССИЙСКОЕ УЧАСТИЕ

The article is devoted to the analysis of Russian participation in global value chains (GVCs). The author gives a qualitative and quantitative description of the Russian positions in the GVCs, pointing out their imbalance and primitiveness. Special attention is paid to the Russian TNCs’ positions in the global value chains. The article highlights the distinguishing features of their involvement in global value chains, in particular its “regionality”. It is concluded that the Russian companies are guided by the global value chains. In a sectoral context, metallurgy is one of Russian sectors most involved in the global value chains. An increased share of foreign value added in the total exports of Russian metallurgy is singled out as a distinctive feature. Further on, the author analyzes differences of the models of particular Russian ferrous metallurgy TNCs’ policies concerning participation in the global value chains. The examples of such companies as Novolipetskii metallurgicheskii kombinat (NLMC) and Magnitogorskii metallurgicheskii kombinat (MMK) are given. The author makes an attempt to describe the scale and nature of the existing intra-corporate flows of the Russian ferrous metallurgy companies within the global value chains. The description is given of the geographical breakdown of foreign activities of the largest Russian metallurgical companies within the framework of GVCs. The author comes to a conclusion that nowadays the Russian participation in the global value chains in general and in ferrous metallurgy in particular doesn’t correspond to the strategic interests of the nation. It is noted that despite the attempts of Russian ferrous metallurgy TNCs, which largely determined Russian participation in global value chains of this sector, there is a necessity to improve the quality of this participation.&nbsp

Energy Efficiency Assessment of Copper Producers: Theory and Practice

The paper focuses on the study of energy efficiency as a factor in the development of modern so? cioeconomic systems. Energy efficiency is considered to be a basis for the green economy model widely implemented in the developed countries. The purpose of the research is to compare current state of large Russian metallurgical companies with their leading world rivals, and reveal problems and opportuni? ties in this sphere. The object of the research is the Ural Mining Metallurgical Company specialising predominantly in production of copper and copper products. The authors apply a method of time series analysis that involves the comparison of energy efficiency of copper producers according to the selected and justified list of energy efficiency indicators of a production complex. The findings of the research suggest that the Ural Mining Metallurgical Company significantly lags behind the leading copper pro? ducers in a number of key indicators of energy efficiency. The research proves that the utilized methodol? ogy is applicable and useful in attaining strategic development goals and improving energy efficiency of the Russian production complexes

Debt Restructuring of the Russian Metallurgical Companies Caused by the Crisis of 2008

In this case-study, we analyse debt restructuring conducted by Russian metallurgical companies Evraz, TMK, Mechel and Rusal, which necessity was caused by the rapid deterioration of their financial standing during the crisis of 2008. We summarize the terms of the primary debt restructuting and calculate gains and losses from the restructuring for the companies and their creditors. Under the gain of a debtor we understand reduction of the NPV of the future debt payments after the restructuring, and the increase of payments we treat as a loss. The opposite is true for the banks. We show that Rusal and Mechel gained from the restructuring, while Evraz and TMK had to pay for it. With the help of hindsight analysis, we came to the conclusion that the choice of creditors must be explained by the financial status of the debtors. Those companies that could pay for the restructuring paid for it, and those that could not service the debt on the initial terms got significant debt reliefs. Both companies that had extracted debt reductions from their creditors went through the debt restructuring again a few years later, and Mechel would probably need a third one. Thus, we showed that in the course of the debt restructuring the creditors acted rationally. In the course of our analysis, we also came to an additional conclusion that the creditors had not used Altman's Z-score, presumably, due to possessing more precise instruments of estimating the probability of the debtors’ bankruptcy. We also propose a methodological innovation for evaluating effectiveness of corporate restructuring, that is, we show how such a simple and widely known financial indicator as NPV can be used for this purpose.