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In line with the general trend on the steel market, Mechel has reduced domestic prices for hot-rolled steel. Given the large share of coal plays in the company’s revenue and the inconsiderable share of HRS products in its total production volume, we view the news as moderately negative for the company. This decision confirms negative trends on the steel markets, which have led steelmakers to reduce prices for metal products.
Mechel has lowered domestic prices for hot-rolled steel to be produced in October, the Metal Courier news agency reports. Depending on the product type, HRS products have become 3-7% cheaper. The company’s actions are in line with the logic of domestic market trends, where prices face a long-term downswing, with a slight lag behind global indicators. Therefore, although international markets have overcome recession, the Russian market may undergo correction up until October, due to the slow reaction of market participants.
A decline in HRS prices should not have any major negative effect on the company’s revenue; however, this action reflects a process of price correction in the steel industry which has been ongoing for more than a month. For Mechel, it is just the latest in a series of negative adjustment to prices for all types of products. We view the news as moderately negative for the company, since, amid slackening global demand for steel, such decisions by market participants have recently been anticipated. The trend may last until the end of the current year, while in early 2009 we expect steel prices to start growing again due to seasonal demand.
Our target price for Mechel is USD 49 per share. Sulinov Aleksey
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Mechel
Capitalization: $2 039 726 650,50
Common shares:
Price: $4,90
Delta week: 19,5%
Delta month: -42,4%
Delta year: -80,0%
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0.569
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