Russia's Metalloinvest Expected IPO Would Give Investors "Green" Metallurgy Play

By Sergey Suverov
Summary

• Environmental pressure will drive demand for "green" steel
• GHG reductions rely on the industry shift to electric arc furnaces, which need specific raw materials as feedstock to produce steel
• More than 50% of the HBI market, the most sustainable material for steelmaking, is taken by one player
• Metalloinvest сonsiders an IPO in 2022; valued by industry analysts at $20+ billion

The market for “green” steel

Ferrous metals production is a significant source of greenhouse gas emissions. The industry accounts for about 7-9% of all greenhouse gas emissions, according to Worldsteel, the global association of steel producers.

The development of “green” technologies in steel production over the coming years will undergo a vast expansion due to investor interest. Infrastructural investments and active construction are underway globally as ESG issues gain larger attention. The investment isn’t all altruistic, EU officials also plan regulatory measures. EU lawmakers announced a carbon tax to push the transition to ecologically efficient production technologies.

  Demand for “green” steel will continue to rise, and steel production technologies with low or zero CO2 emissions will emerge at an accelerated pace as a result of higher investor standards and stricter regulation. One obvious route to reduction will be the gradual replacement of blast furnaces with electric (EAF) ones, which operate at a lower intensity of CO2 emissions. The biggest player in metals and mining, China has already announced a gradual transition to EAF steel production.

*MIDREX Technologies

EAF-based mills produce 28% of world steel, though they account for only 8% of the CO2 generated by the steel industry. On the other hand, blast furnace / basic oxygen furnace route produces 72% of world steel with a higher CO2 generation rate (92%):  

Investment opportunity

Currently, global iron-ore raw material producers, such as Vale, Rio Tinto, BHP, Fortescue Metals produce mainly iron ore, a product for blast furnaces, and are only starting to develop projects for HBI and DRI production to provide raw materials for electric furnaces.       

   Russia’s Metalloinvest currently accounts for about 50% of global HBI supplies, and the company plans to double HBI production capacity to 9m tons. It clearly seeks to press its market advantage by positioning itself as an “environmental partner” to the downstream steel producers, providing stockfeed with less CO2 emissions. In conjunction with that, Metalloinvest may hold an IPO in the beginning of 2022, with the company’s value estimated at about $20b by industry analysts.

Key risk factor

The offering would give investors a ticket to play the “green” metallurgy story on a market leader. However, there are certain risks as many Russian and international companies have also seek to enter this space and build up HBI production capacity. They are actively raising “green” finance to support such investment programs.

Yet Metalloinvest clearly has the first-mover advantage and will likely be able to maintain its leading position.