Mechel Signs Deal with Baosteel

Zacks

Mechel Carbon (Singapore) Pte. Ltd, a unit of mining company Mechel OAO (MTL), announced that it has signed a deal with Baosteel Group Corporation's wholly-owned subsidiary, Baosteel Resources Int. Co. Ltd. to supply coking coal. Per the agreement, Mechel will supply Baosteel with 960,000 tons of coking coal for one year.

Mechel stated that the one-year contract may be extended and the price will be adjusted on a monthly basis. Both Mechel and Baosteel have agreed on exchanging regular semi-annual visits (including senior executives), and they will discuss mutual interests and market trends.

With this deal in place, both Mechel and Baosteel plan to extend their relationship in areas of raw materials and other related areas, based on principles of joint coordination, close alliance and common development. The deal also signifies a strategic way of increasing their long-term relationship.

Mechel is a leading domestic steel and coal producer with a strong position in key businesses, including production of specialty steel and alloys. The company has the largest coal reserve base in Russia and is mainly focusing on growth and cost-cutting measures.

Mechel owns and controls essential infrastructure, including ports, rolling stock and power plants, which provide access to the export markets. However, Mechel could be handicapped because of its high debt and interest burden, and might not be able to keep up with its huge capital spending program.

Mechel currently retains a short-term Zacks Rank #3 (Hold).

Other companies in the steel industry with favorable Zacks Ranks are Gibraltar Industries Inc. (ROCK), Shiloh Industries Inc. (SHLO) and Companhia Siderurgica Nacional (SID). While Gibraltar and Shiloh hold a Zacks Rank #1 (Strong Buy) Companhia Siderurgica carries a Zacks Rank #2 (Buy).
 

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