Russian miner Mechel OAO (MTL) has released its operational results for the first quarter of 2013. In the reported quarter, Mechel’s coal production declined sequentially because of unfavorable open pit mining conditions in cold winter months. However, sales of coking coal anthracites and PCI increased both internationally and domestically due to improvement in the metallurgical coal market and Mechele’s efforts to expand its client base.
Coking coal sales in the reported quarter increased 13% sequentially but declined 11% year over year. Anthracite sales increased 19% sequentially and declined 12% annually to 0.54 million tons while PCI sales increased 13% sequentially and 62% annually to 0.82 million tons.
On the other hand, Steam coal sales also went up 9% sequentially and 3% year over year to 1.6 million tons, due to increased supplies to Mechels’ power enterprises, especially Southern Kuzbass Power Plant, which augmented electricity generation due to seasonal factors.
Sales in the steel division declined due to the measures taken by Mechel to optimize production in view of steel product markets' seasonal weakness as well as disposal of Mechel's steelmaking plants in Romania.
Ferrosilicon sales increased 6% sequentially to 22,800 tons based on repairs and launch of a furnace at Bratsk Ferroalloy Plant. This also represents a year-over-year increase of 27%. Chrome sales declined 40% sequentially and 41% annually to 10,100 tons due to a planned production decrease at Tikhvin Ferroalloy Plant caused by a weaker market. Nickel was not produced due to the halting of Southern Urals Nickel Plant in late 2012 because of unfavorable market conditions.
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 jeopardized 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 Angang Steel Company Limited (ANGGY), LB Foster Co. (FSTR) and Ternium S.A. (TX). All of them hold a Zacks Rank #2 (Buy).
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