EU sanctions billionaire shareholders of Russian steelmakers Metalloinvest and Severstal

Russian iron ore miner and steelmaker Metalloinvest - which is also the world's largest producer of hot-briquetted iron (HBI) - said March 1 that sanctions against one of its shareholders will not affect the company's business. Fellow Russian steelmaker and miner Severstal said it is assessing potential effects from sanctions on its majority shareholder.

On Feb. 28, the EU imposed restrictive measures against a number of Russian state and public figures and entrepreneurs as a consequence of Russia's actions in Ukraine. These included Metalloinvest founder Alisher Usmanov, the company said in a statement, adding it considers these sanctions ungrounded and unfair.

The restrictive measures imposed against Usmanov are of a personal character and will not affect Metalloinvest, the company said. Usmanov owns less than 50% of USM Group - which holds 100% of Metalloinvest - and does not control the group's enterprises. USM is a diversified Russian holding company with significant interests across the metals and mining, telecoms, technology and internet sectors.

The EU sanctions listed against Usmanov do not extend to USM companies, including Metalloinvest.

Metalloinvest said in an emailed statement March 1 that it continues to carry out business as usual, fulfilling all obligations to its employees and partners.

In December 2021, Metalloinvest said most of the largest electric arc furnace-based European steel producers, including Arvedi, Ferriere Nord, Riva and Celsa, were buying its HBI, and that it was eager to become a partner for green metallurgy in Germany, where it expected to see a widespread transition to electric arc furnaces over the next 10 years.

Severstal

The EU also imposed sanctions on Alexey Mordashov, a majority shareholder, with a 77% stake, of mining and steel company Severstal.

"We are assessing potential effects and our next steps," a representative of Severstal told S&P Global Commodity Insights.

"I have never been close to politics and have always focused on building economic value at the companies I have worked for... I have absolutely nothing to do with the emergence of the current geopolitical tension and I fail to understand how these sanctions against me will contribute to the settlement of the dreadful conflict in Ukraine," Mordashov said in a statement.

The terms of the sanctions prohibit the EU from having any business with those sanctioned nor with the legal entities under their control, according to an industry analyst. Mordashov has legal control over Severstal through his controlling interest, a Moscow-based analyst said

"This reminds of the case with [aluminum producer] Rusal and Oleg Deripaska," the analyst said. "When both Deripaska and Rusal were sanctioned in 2018 and the company was sanctioned on the grounds of being under legal control of the sanctioned businessman, the US agreed to lift sanctions on Rusal only after Deripaska agreed to give away the control over Rusal by cutting his stake in the company to below 50%."

The fact that Rusal has some alumina and bauxite production outside Russia was seen to have complicated the previous set of sanctions due to blocked accounts and other limitations.

"It is different for Severstal – the company has all its raw material and steelmaking operations domestically and may not rely on foreign banks for that reason. So whether Mordashov will follow suit and sacrifice his controlling stake is rather questionable. He may opt for diversifying sales away from the European market instead," the analyst said.

In 2020-2021, Severstal made investments in or struck accords or partnerships with western tech firms including Ekona Power, a Canadian developer of low-carbon hydrogen production technology; American steel alloy diffusion technology developer Arcanum Alloys; Dutch composites engineering company Airborne; and Hyperloop Transportation Technologies, a Los Angeles-based developer of a high-speed transportation system.

Severstal also supplies steel to wind farm projects developed in Russia with participation of western renewable energy companies and has a stake in Linde Severstal, a joint venture with German industrial gases and engineering company Linde, which produces coil-wound heat exchangers for natural gas liquefaction plants. The steelmaker has joint various joint ESG-driven international initiatives to combat climate change.