The Impact of Self-Sufficiency in Basic Raw Materials of Metallurgical Companies on Required Return and Capitalization: The Case of Russia

Abstract

This article considers the impact of self-sufficiency in basic raw materials on the level of systematic risk, required return and capitalization on the example of Russian ferrous metallurgy companies. The methods applied include classical approaches to determining beta coefficient, required return and capitalization, as well as correlation–regression analysis performed in the Python programming language (version 3.0, libraries: Numpy, Pandas, Matplotlib, Datetime, Statistics, Scipy, Bambi). The study revealed an inverse relationship between the self-sufficiency of ferrous metallurgy companies in iron ore and coking coal and their systematic risk. That was confirmed by the developed regression model. The presence of this dependence directly indicates the need to consider self-sufficiency when assessing a company’s required return and capitalization. The acquisition of the Tikhov coal mine by PJSC Magnitogorsk Iron and Steel Works (MMK) led to an increase in capitalization not only due to additional profit from the new asset, but also due to a decrease in the required return caused by the growth of the company’s self-sufficiency in coking coal. The proposed approach contributes to a more accurate assessment of the company’s capitalization and creates additional incentives for vertical integration transactions.