Mechel Signs Deal with Marubeni

Zacks

Mechel OAO (MTL) announced that it has signed five-year contract with Japan’s largest tire dealer Marubeni Corporation wherein the latter will supply extra-size Bridgestone tires to Mechel Group's enterprises. Under the contract, Marubeni will supply over 5,000 off-road tires to Mechel for its heavy duty dump trucks.

The deals were signed by several Mechel group enterprises – Yakutugol Holding Company OAO, Southern Kuzbass Coal Company OAO and Korshunov Mining Plant OAO – on the sidelines of the official visit of the Russian Federation's First Deputy Prime Minister Igor Shuvalov to Japan.

Mechel believes that the new contract will ensure higher production efficiency in Mechel’s mining division, including the effective implementation of key projects and the development of Elga Coal Complex. The collaboration with the industrial producers Japan will also help develop its bilateral ties.

Marubeni Corporation is one of Japan's largest companies and an authorized export dealer of Bridgestone Corporation's products. Mechel is a leading domestic steel and coal producer in Russia with a strong position in key businesses, including production of specialty steel and alloys.

Last month, Mechel released its second quarter 2012 results. The company posted consolidated net loss of $823 million in the second quarter of 2012, compared with a profit of $191.9 million in the year-ago quarter. Revenues for the quarter came in at $3.09 billion, down 11.1% from $3.47 billion in the year-ago period.

The company saw an operating loss of $470.6 million in the quarter compared with an operating income of $476.3 million a year ago, leading to a contraction in operating margin. Adjusted earnings before interest, taxes, depreciation and amortization (:EBITDA) declined 37.1% year over year to $385.4 million in the quarter.

The company has the largest coal reserve base in Russia and competes with ArcelorMittal (MT), among others. The company retains a Zacks #4 Rank that translates to a short-term (1 to 3 months) Sell rating. We currently have a long-term (more than 6 months) Neutral recommendation on the stock.
 

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