Mechel's Hot Testing Successful

Zacks

Russian miner Mechel OAO (MTL) declared that the hot testing that took place in its Universal Rolling Mill at Chelyabinsk Metallurgical Plant was successful.

The first batch of structural shaped steel products (25SH1-type bar) was produced at the universal rolling mill during the hot testing. The total chain of structural shape production process was hot tested consecutively starting from billet heating and hot rolling to correcting, cutting into measured sizes and packaging. As of now, steel is being tested.

At its launch, this will be the first type of steel products to be produced by the universal rolling mill. The ground work for the launch of the universal rolling mill is being completed at rail processing equipment and the plant is getting ready for hot testing of rail production. In addition, work line up also includes mastering production of other rolled profiles. With the launch, the mill is expected to create more than 1,000 employment opportunities.

Mechel’s prime focus lies in the construction of Chelyabinsk Metallurgical Plant's universal rolling mill as it features as the priority investment project for its steel division. The mill is expected to build economies of scale for steel related industries in Russia. The mill is anticipated to supply high-quality steel products for Russian Railways and construction companies. It will also help in reducing dependence on imports.

Mechel expects the mill to annually supply up to 400,000 tons of high resistance to wear and contact endurance rails for high-speed running as well as rails for use in low temperatures at its full capacity. Mechel further expects annual production capacity to be over 1 million tons of products from the mill.

Mechel posted disappointing fourth-quarter 2012 results last month. The company incurred a consolidated net loss (attributable to shareholders) of roughly $1.11 billion for the quarter compared to a profit of $201.2 million a year ago. The results were hurt by weak demand. Adjusted loss (excluding one-time items) was $160.9 million in the reported quarter. Revenues for the fourth quarter came in at roughly $2.52 billion, down 13.9% from $2.9 billion in the year-ago period.

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. Moreover, Mechel is facing weak demand in Europe.

Mechel currently retains a short-term Zacks Rank #2 (Buy).

Other steel producers that are worth considering include Shiloh Industries Inc. (SHLO), LB Foster Co. (FSTR) and Ternium S.A. (TX). While Shiloh Industries retains a Zacks Rank #1 (Strong Buy), both LB Foster and Ternium hold a Zacks Rank #2 (Buy).
 

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