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Mechel Posts Q3 Operational Results

Zacks Equity Research

Russian miner Mechel OAO (MTL) has released its operational results for the third quarter and first nine months of 2013. In the third quarter, Mechel's coal production was 7,028,000 tons, roughly flat sequentially.

However, pig iron and steel productions decreased 10.7% and 12% quarter-on-quarter to 913,000 tons and 1,098,000 tons, respectively. The decline in pig iron and steel productions was due to major repairs done in Chelyabinsk Metallurgical Plant's blast furnace #1 and converter #3. The decline was also attributable to lower electrical steelmaking due to unfavorable market conditions.

Coking coal sales in the reported quarter decreased 10% sequentially to 2,615,000 tons on account of weaker domestic demand, partly offset by increased export volumes. Sales were also hurt by shipping delays to Asia as a result of Far Eastern.

PCI sales increased 79.5% sequentially to 1,124,000 tons in the third quarter. In the first nine months of 2013, PCI sales increased 51% year over year to 2,567,000 tons. The year-over-year increase in the first nine months was due to higher PCI supplies to Asia Pacific, Britain and Belgium. However, anthracite sales decreased 20% sequentially to 472,000 tons in the third quarter as the European customers partly replaced the preference of anthracites for PCI.

Sales for the iron ore product also increased 16% sequentially to 1,097,000 tons in the third quarter as a result of increased sales in China and higher domestic demand.

Steel sales volumes declined year on year in the first nine months of 2013 due to disposal of Romanian steelmaking assets and temporary suspension of Donetsk Electrometallurgical Plant due to loss incurred.

Sales of flat rolls increased 28% sequentially to 159,000 tons in the third quarter owing to sales of stores, which were part of pre-sale preparation works at several Mechel Service Global facilities. Long roll sales fell 3% in the third quarter sequentially to 936,000 tons. Demand in the construction steel rolls market remained stable.

Billet sales went down 56% sequentially to 91,000 tons in the third quarter as third-party sales declined, which in turn was a result of the termination of a strategic partnership with Estar Group's enterprises.

Ferrosilicon sales increased 26% from the first nine months of 2012 to 72,000 tons. The increase was driven by the launch of a furnace at Bratsk Ferroalloy Plant. The Uvatsk quartzite deposit began supplying Bratsk Ferroalloy Plant with ore in April.

Electricity and heat production in the reported quarter was in line with Mechel’s power division enterprises planning. Sales of electricity and heat declined sequentially as a result of seasonal downtrend. Electricity and heat sales also declined in first nine months of 2013 compared to the same period last year as a result of several power division asset’s disposal , mainly that of Toplofikatsia Rousse EAD.

Mechel currently retains a Zacks Rank #4 (Sell).

Other companies in the steel industry with a favorable Zacks Rank are Companhia Siderurgica Nacional (SID), Shiloh Industries Inc. (SHLO) and United States Steel Corp. (X). While both Companhia Siderurgica and Shiloh Industries hold a Zacks Rank #1 (Strong Buy), United States Steel retains a Zacks Rank #2 (Buy).

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