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Mechel Successfully Tests New Coal Export Terminal

Zacks Equity Research

Russian mining company Mechel OAO (MTL) said that it has successfully tested a new coal export terminal at Primorye Region's Port Posiet. The company’s exports to Asia-Pacific countries will increase once the port's facilities are modernized.

The cargo turnover growth is expected to be up to 7 million tons a year in the first stage of Port Posiet's technical revamping. The coal export terminal is expected to be launched into testing and industrial operation in the second quarter of 2014, which will reflect completion of the first stage of Port Posiet's technical revamping investment project.

The second stage, comprising construction of a deep-water berth and bottom dredging of the approach channel for Panamax-type vessels of up to 60,000-ton cargo capacity, has been planned to be implemented in the next few years.

The modernization of Port Posiet will have a positive impact on Posiet village's environment. The complex will include efficient aspiration and dust-control systems which will create an atomized water veil, providing additional protection for the environment.

The main feature of the complex is its use of car tipping machines, which makes unloading more intensive while minimizing damage of the wagons. The terminal will also have storage equipment and its production line will be equipped with magnet collectors. These magnet collectors remove foreign impurities that could contaminate the coal during transportation.

The terminal employs a defreezing facility with infrared electric heaters. The coal export terminal is operated remotely from a single monitoring center.

Recently, Mechel also released its fourth-quarter and full-year 2013 operational results. In fourth quarter, Mechel's coal production was 7,086,000 tons, up 1% sequentially.

However, both pig iron and steel productions decreased 9% sequentially to 835,000 tons and 1,002,000 tons, respectively. The decline in steelmaking in the fourth quarter was due to maintenance works at Chelyabinsk Metallurgical Plant's converter #3, which were completed in late Nov 2013.

Coking coal sales in the reported quarter increased 3% sequentially to 2,702,000 tons. PCI sales decreased 34% sequentially to 741,000 tons in the fourth quarter due to the seasonal slump in supplies of Mechel’s Asian customers through Far Eastern ports in wintertime. However, anthracite sales increased 27% sequentially to 599,000 tons in the fourth quarter.

Steam coal sales fell 7% sequentially to 1,399,000 tons as residential and communal services completed the major part of their purchases as part of winter preparation.

Sales of the iron ore concentrate also edged down 1% sequentially to 1,083,000 tons in the fourth quarter.

Sales of flat rolls decreased 26% sequentially to 118,000 tons in the fourth quarter. Long rolls sales fell 15% sequentially in the fourth quarter to 793,000 tons due to seasonal weak demand for construction products.
Billet sales went down 56% sequentially to 40,000 tons in the fourth quarter.

For 2013, Mechel’s mining segment's key enterprises – Southern Kuzbass Coal Company OAO and Yakutugol Holding Company OAO – increased coal production y 7% and 1.4% year over year, respectively. This helped them to partly compensate for lower prices across domestic and international markets.

For 2013, coal production edged down 1% year over year to 27,516,000 tons and coking coal sales decreased 4% to 11,051,000 tons due to optimization of production facilities at Mechel North America. Steel production dropped 29% year over year to 4,650,000 tons while pig iron output fell 10% to 3,743,000 tons.

Mechel continues to implement its strategy of disposing off several non-core assets in the steel and ferroalloys segments and focus on mining and full-cycle steelmaking, manufacturing of long rolls and high value-added products. The company disposed off its non-profitable steelmaking facilities such as Romanian, Ukrainian and British plants and made optimum utilization of its existing enterprises which helped it to avoid additional losses.

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

Other players in the steel industry worth considering include Companhia Siderurgica Nacional (SID), Ternium S.A. (TX) and AK Steel holding Corporation (AKS). While Companhia Siderurgica Nacional and Ternium carry a Zacks Rank #1 (Strong Buy), AK Steel retains a Zacks Rank #2 (Buy).

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