Severstal acquired large metal trader A Group

Severstal acquired large metal trader A Group


Severstal (MOEX: CHMF), which is under sanctions and limited in export opportunities, is seeking to expand its access to end consumers of metal products in the domestic market. The purchase of a large metal trader, A Group, will allow the company to occupy 10% of the Russian market in the segment of metal sales from warehouses. According to analysts, further consolidation of the sector is likely due to purchases from large metallurgists.

Severstal by Alexey Mordashov acquired distribution business of the A Group corporation, which belongs to the structures of Alexey Zaitsev. The parties do not disclose the purchase amount. The transaction did not include the A Group Steel Metal Structures plant, which produces metal structures and sandwich panels. Severstal has no plans to buy out the remaining assets.

Severstal and its owner Alexey Mordashov are on the SDN list. In 2021, 47% of Severstal’s revenue came from export markets, including 30% from Europe. In the new realities, the company was forced to restructure. In November 2023, the company’s CEO Alexander Shevelev said “Interfax”that 90% of manufactured products go to the domestic market.

The deal will allow Severstal to increase its share in the secondary market of rolled metal to 10%, Viktor Romanovsky, director of Severstal Distribution, told reporters.

The share of Severstal Distribution in the Russian market at the end of 2023 was 5.7%, and A Group was 4.3%. According to him, after the transaction there is the potential to increase sales in the regions of presence.

The A Group network of metal centers includes 24 warehouses; last year sales volume amounted to 1.2 million tons. A Group’s revenue according to RAS increased in 2023 by 7.6%, to almost 76 billion rubles, net profit by 43%, to 1.5 billion rubles.

Mr. Romanovsky believes that there is indeed a trend towards mergers in the distribution sector. “We are looking at similar markets in Europe, Asia, America, and, apparently, the trend towards such M&A strategies will continue. Usually, distribution markets are characterized by consolidation at a certain point, and consolidation is not around a few players, but about five to seven super-large players,” he noted.

MMK Viktor Rashnikov also has plans to increase sales through his trading house. In 2023, the company’s trading house sold 1.5 million tons of metal products, and by 2026 it plans to reach a volume of 2 million tons. “It is planned to further develop the branch and warehouse network, in particular to enter regions that are promising in terms of metal consumption, increase the number of its own retail outlets, and expand interaction with existing retail sales networks,” the company reported in February 2024.

In recent years, the trading market has changed a lot, moving away from the “buy for a ruble, sell for one and a half ruble” model, notes Ilya Kolomeets, director of business development and consulting practice at Metals & Mining Intelligence. Now the metal trading company provides services, develops long-term relationships with clients and warehouse infrastructure. Moreover, metal traders began to sell increasingly larger quantities of metal to a wide range of clients. Metal producers have realized that it is difficult to maintain market share without developing their own trading houses and distribution channels, says Ilya Kolomeets. “If you only ship metal to a trader, you cannot know your end consumer. This, in turn, deprives the manufacturer of the opportunity to offer new products, services, manage prices and long-term contracts. Therefore, at the moment there are no metallurgical companies left that do not have their own trading house,” he notes.

According to him, the organic development of its trading house is a long story, associated with working in conditions of low margins, so Severstal decided, through a deal with A Group, to immediately strengthen its distribution, increasing access to end consumers. “I believe that the metal trading market may soon consolidate due to acquisitions by metallurgists,” concludes Ilya Kolomeets.

Evgeniy Zainullin


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