Bloomberg News

Mechel Discount Deepens as Metals Drop on U.S.: Russia Overnight

February 15, 2012

Feb. 15 (Bloomberg) -- Russian stock futures fell and OAO Mechel slipped in New York, widening its discount to Moscow to the most in more than two weeks, as worse-than-expected U.S. retail sales damped the outlook for global commodity demand.

Futures expiring in March on the dollar-denominated RTS index dropped 1.3 percent to 162,225 in U.S. trading yesterday as the Bloomberg Russia-US 14 Index of Russian companies traded in New York lost 0.7 percent to 108.07, a week after reaching a five-month high. OAO Gazprom slid the most in two weeks.

Sales at U.S. retailers rose less than analysts estimated in January, as car purchases unexpectedly dropped. Crude, which along with natural gas contributed almost 50 percent of Russian government revenue last year, slumped along with copper and gold after Moody’s Investors Service downgraded six European nations amid the region’s debt crisis. Mechel, the coal producer that counted Europe as its second-biggest market after Russia last year, was the worst performer on the Russia-U.S. 14 index.

“Markets don’t go up in a straight line forever,” Jose Morales, who oversees $1.6 billion in emerging market equities at Mirae Asset Global Investment in New York, said in a phone interview yesterday. “U.S. growth isn’t the most spectacular, and the markets are slowing down a little bit to account for that.”

The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, slipped for the fourth time in five days, losing 0.9 percent to $31.36, the lowest level since Feb. 10. The RTS Volatility Index, which measures expected swings in the index futures, rose for a second day, adding 6.3 percent to 34.63 points, the highest closing level since Jan. 20.

China Assistance

United Co. Rusal, the world’s largest aluminum producer, rose 3.8 percent to HK$6.84 in Hong Kong trading as of 11:54 a.m. local time. The MSCI Asia Pacific Index gained 1.5 percent today after People’s Bank of China Governor Zhou Xiaochuan said in Beijing today that the nation will participate in resolving Europe’s debt crisis.

Moody’s cut the credit ratings of Italy, Spain, Portugal, Slovakia, Slovenia and Malta yesterday and said it may strip the U.K. and France of their top Aaa rankings, citing the euro-area crisis.

American depositary receipts of Mechel, Russia’s largest coal producer for steelmakers, plunged 2.8 percent to $10.90 in New York, widening the discount to its shares on Moscow’s Micex Index to 2.6 percent, the most since Jan. 26. The decline trimmed the ADRs’ advance in 2012 to 28 percent, still the second-best performance on the Russia-U.S. 14 index this year after lender OAO Sberbank’s 29 percent gain.

Oil Rebounds

Mechel’s shares in Moscow rose 0.4 percent to 336.70 rubles yesterday, or the equivalent of $11.19. One ADR represents one ordinary share.

Crude for March delivery traded on the New York Mercantile Exchange dropped 0.2 percent to settle at $100.74 a barrel yesterday, while Urals crude, Russia’s chief export blend, gained 0.7 percent to $118.64. New York crude futures rebounded 0.7 percent in electronic trading today.

U.S. retail sales rose 0.4 percent in January, a Commerce Department report released yesterday showed. That represented half the 0.8 percent advance that was the median prediction of economists surveyed by Bloomberg. Speculation oil supplies rose last week amid weak demand also suppressed crude, with a Bloomberg survey showing inventories added 1.6 million barrels to 340.8 million last week.

Gazprom, Yandex

ADRs of Gazprom, the world’s biggest natural gas exporter and Russia’s largest company, fell 1.4 percent to $12.67, the biggest one-day decline since Jan. 26. Gazprom shares in Moscow retreated 0.3 percent to 191.38 rubles, or $6.36. One ADR represents two ordinary shares.

Yandex NV, operator of Russia’s most popular Internet search engine, rose 2.7 percent to settle at $21.50, advancing the most since Feb. 2. The stock was the biggest gainer Bloomberg Russia-US 14 Index yesterday.

Tiger Global Management LLC, the company’s biggest shareholder, cut its stake in the company to 37.4 percent from 38.1 percent, according to a filing sent yesterday and dated Dec. 31. The Hague, Netherlands-based Yandex saw its share of the Russian search market drop to 59.2 percent in the week through Feb. 12, below a four-week average of 60 percent, data posted on the website of Liveinternet.ru, an Internet researcher, showed on Feb. 13.

Search ‘Deterioration’

“We expect the company to report strong top-line growth, although we believe its margin outlook could, to some extent, be affected by the need to invest following the deterioration in its share of search,” David Ferguson and Anastasia Demidova, Moscow-based analysts at brokerage Renaissance Capital, wrote in a report e-mailed on Feb. 14.

OAO Mobile TeleSystems, Russia’s largest mobile-phone operator, gained 1.8 percent to $17.26 in New York yesterday. MTS’s shares on the Micex fell 0.4 percent to 217.27 rubles, or $7.23. One MTS ADR represents two ordinary shares.

VimpelCom Ltd., Russia’s second-biggest mobile-phone operator, gained 0.1 percent to $11.26 in U.S. trading.

“VimpelCom is a company exposed to Italy and euro, which while it looked like a good idea before is looking shaky these days,” Jean Kaplan, an equity analyst at HSBC Holding Plc in London, said by e-mail yesterday. “MTS is domestic Russia and it is still decently strong there.”

The Standard & Poor’s GSCI index of 24 raw materials fell 0.2 percent to 678.60 as copper declined to the lowest price in more than a week. Copper futures for May delivery retreated 0.6 percent to settle at $3.823 a pound on the Comex in New York. Gold futures for April delivery fell 0.4 percent to settle at $1,717.70 an ounce on the Comex.

--Editors: Emma O’Brien, Marie-France Han

To contact the reporters on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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