Demand for steel slowed the decline. Why isn't this a reversal yet

Severstal has improved its forecast for steel consumption in Russia for 2026 - the company expects its decline to the level of last year by about 0.5% against 7%, previously predicted. According to Alexander Shevelev, General Director of Severstal Management JSC (referred to in the company’s press release), for nine months the demand for steel grew by 1% year-on-year. But analysts do not yet see any reason to talk about a sustained recovery in the market.

In 2025, steel consumption in Russia decreased by about 14%, to 38 million tons. The revision of Severstal’s forecast for this year is due to a partial recovery in delayed demand in the third quarter, but the company expects a seasonal cooling of the market at the end of the year. According to Shevelev, consumption remains below pre-recession levels.

How metallurgy ended up in crisis

Ferrous metallurgy is experiencing a systemic crisis. For 2025, steel smelting in Russia decreased by 4.5% to the level of 67 million tons, which was the lowest result in the last 15 years.

The cooling of the real economy led to a drop in demand in all key consumer industries, including construction, where steel consumption decreased by 10%, automotive (-36.5%), mechanical engineering (-30%) and energy (-19%). The National Credit Ratings Agency (NKR) predicted that it would take five to seven years for the Russian steel industry to recover.

How Severstal reported

In the third quarter, Severstal increased iron production by 2% year-on-year, to 2.74 million tons, steel smelting remained at the level of last year and amounted to 2.72 million tons. Sales of metal products decreased by 9%, to 2.61 million tons. The company explained this by redirecting semi-finished products to the production of finished products and the associated increase in stocks of finished products and unfinished production.

Sales of cast iron fell by 36%, to 87 thousand tons, slabs by 85%, to 26 thousand tons. At the same time, sales of commercial steel increased by 3%, to 1.14 million tons. Sales of high value-added products (HVA) decreased by 6%, to 1.35 million tons, including due to weak demand for large diameter pipes. The share of GVA in total sales increased by 2 percentage points, to 52%, amid a decrease in sales of semi-finished products.

Among the main limitations for the industry, FG Finam analyst Egor Vershinin singles out the high cost of debt financing, weak demand from construction and industry, a reduction in export opportunities and an increase in the cost of raw materials, primarily coking coal. Against the background of weak conditions, metallurgists will continue to optimize capital costs and increase the share of products with high added value. However, an increase in the share of GVA in Severstal’s sales to 52% in the third quarter does not mean an increase in demand – its sales for this period decreased by 6% year-on-year.

The company's revenue in the third quarter decreased by 3% in annual terms, to 173.5 billion rubles. EBITDA increased by 13%, to 40 billion rubles., EBITDA margin increased to 23% against 20% a year earlier due to an increase in average sales prices and cost optimization. Net profit in the reporting period increased by 17% and amounted to 15.17 billion rubles. Free cash flow (FCF) for the quarter amounted to 42.6 billion rubles. against 7.27 billion rubles. for the same period last year.

For the first nine months of 2026, Severstal's revenue decreased by 10%, to 488.4 billion rubles, EBITDA - by 28%, to 82.3 billion rubles. FCF remained negative and increased to 27.6 billion rubles. (minus 21.8 billion rubles. in January-September last year). Taking into account the ongoing implementation of the investment program and the seasonal factor, free cash flow at the end of the year will remain negative.

Shevelev said that taking into account the negative FCF for three quarters, it was decided not to distribute dividends for the reporting period.

This is the eighth consecutive quarter in which Severstal does not recommend payments to shareholders. The last time about the accrual of dividends against the background of “strong financial results and low debt”, the company spoke when publishing statements for the 3rd quarter of 2024. Then the recommended payments by the board of directors amounted to 49.06 rubles per share - "about 100% of free cash flow for the period" - with a decrease in the quarterly FCF by 9% in annual terms, to 41.46 billion rubles.

What analysts say

The growth in demand for steel in Russia, which has been noted in the last few months, is not yet a structural reversal, said Nikanor Halin, senior analyst for the metals and mining sectors of Eyler. Macroeconomic conditions remain too tight for a full recovery in construction activity, which in 2025 accounted for about 80% of the country’s steel consumption. Additional pressure on producers is exerted by the crisis in the global steel market and restrictions on shipping in the Black Sea. In August, net steel exports from Russia fell by 57% year-on-year, Khalin said, but did not give an absolute value of the indicator.

Vershinin attributes the improvement in the forecast to the replenishment of reserves by processors and traders, and expects a cooling of demand in the fourth quarter. According to him, sales of Severstal can grow by 2-3% as the key rate decreases (most economists in the consensus forecast suggested that on October 23 at the next meeting they would keep the rate at 14%). - RBC. The analyst expects a return to pre-crisis consumption volumes no earlier than 2028.

The dynamics of the construction market does not yet indicate a sustainable recovery. According to the calculations of CIAN on the basis of Rosstat data, in January-September 2026, the total commissioning of housing decreased by 13%, to 66.3 million square meters. m, despite an increase in the commissioning of apartment buildings by 3%, to 24.9 million square meters. m. At the same time, the commissioning of individual housing in Russia decreased by 21% year-on-year, to 41.4 million square meters.

The main condition for the recovery of demand, the interlocutors of RBC call the easing of monetary policy. According to Dmitry Scriabin, portfolio manager of Alfa Capital, it is premature to expect a sustainable large-scale restoration of construction before reducing the key rate to about 10%. BCS World of Investments analyst Nikolai Maslikov also expects that the recovery of steel consumption in 2027 will be gradual. A more substantive assessment of the market prospects will be possible in the spring, at the beginning of the new construction season, says Khalin.

RBC sent requests to large metallurgical companies and the Russian Steel Association.