Bloomberg News

Mechel First-Half Net Doubles on Steel, Coal Prices

October 03, 2007

OAO Mechel (MTL:US), the New-York listed Russian steel and coal producer, said profit more than doubled in the first half on higher prices for its products.

Net income jumped to $489 million from $182 million in the same period last year, the Moscow-based company said on its Web site today. Sales climbed 55 percent to $2.99 billion.

``Results surprised on the upside, with the top line and margins higher than expected,'' said Yury Vlasov, an analyst with Renaissance Capital. ``Mechel (MTLR)'s aim to squeeze out more profit by moving into value-added products is producing results.''

Mechel plans to triple profit on each ton of steel in the next four years as it shuns metals acquisitions in favor of improving margins. The producer will spend $1.5 billion on its steel business and $1.2 billion on coal and nickel through 2011 to upgrade equipment and focus operations toward processing more expensive goods.

Rising prices for so-called long products, such as rails, helped more than triple operating income at Mechel's steel unit in the period.

The company, Russia's third-largest miner of coal, also wants to acquire new deposits of the fuel that has doubled in price this year.

`Next Driver'

The miner plans to bid for the world's biggest untapped source of coal on Oct. 5, battling against ArcelorMittal and Russian diamond monopoly ZAO Alrosa for the right to develop the Elga field. The auction's starting price is $1.8 billion.

``That will be the next driver for the stock,'' Vlasov said.

Controlled by Russian billionaire Igor Zyuzin, Mechel improved its earnings before interest, tax, depreciation and amortization as a percentage of revenue to 36.3 percent in the half from 19.2 percent a year earlier. This was partly due to a 10 percent boost in coal output, the company said.

The company slipped outside the ranks of Russia's top five steelmakers after output rose 1 percent to 5.95 million tons last year. That was the slowest growth rate among Russia's top seven steel companies.

To contact the reporter on this story: Yuriy Humber in Moscow at

To contact the editor responsible for this story: James Ludden at

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