Mechel Discount Widens on Slower Sales Growth: Russia Ove

OAO Mechel (MTL), Russia’s biggest producer of coal for steelmakers, traded at the biggest discount in New York versus Moscow shares in a week, on prospects the company will report slower growth in first-quarter sales.

Mechel (MTLR)’s American depositary receipts slumped 2.9 percent to $6.29 yesterday, to trade at a 0.5 percent discount to the Russian shares. The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies was little changed at 87.78 yesterday, while the RTS stock-index futures dropped 0.3 percent to 134,065. Yandex NV (YNDX) climbed to the highest level since March after Facebook Inc. (FB) capped a three-day, 15 percent gain.

Mechel will probably report tomorrow that sales rose 0.1 percent in the first quarter, after surging 58 percent on average during the first three months of 2010 and 2011, according to data compiled by Bloomberg. The Standard & Poor’s GSCI Spot Index rose at half the pace in the first quarter of 2012 compared with the previous year. The Stowe Global Coal Index sank 1.5 percent in the first three months of the year, following a 7.1 percent surge in 2011.

“Their first quarter results will be weaker compared to the previous quarter,” Boris Krasnojenov, an analyst at Renaissance Capital, said by phone from London. “Coal prices have fallen globally. Everyone realizes we’ll see all that in their report.”

The Market Vectors Russia ETF (RSX), a U.S.-traded fund that holds Russian shares, declined 1 percent to $25.91, the lowest since June 14. The RTS Volatility Index, which measures expected swings in the index futures, rose 0.7 percent to 38.60 points in New York.

Mechel Tumbles

Mechel fell the most since May 31 in New York yesterday. The company’s Moscow-listed stock rose 0.2 percent to 205.10 rubles, or $6.33. The company said in a statement it will report first quarter financial results tomorrow, followed by a conference call with the company’s Chief Executive Officer Yevgeny Mikhel at 10 a.m. in New York.

Coal on the New York Mercantile Exchange fell to $56.68 a ton yesterday, the lowest level since June 12. The contract declined to $56.28 a ton on June 11, the lowest since April 6, 2010. It slumped 9.9 percent in the first quarter.

Coal prices are correlated with coking coal prices, Krasnojenov said. Mechel is Russia’s biggest producer of coking coal for steelmakers.

‘Stock Is Undervalued’

Yandex, the owner of Russia’s most-used search engine, rallied after trading at 20.6 times estimated earnings on June 14, the cheapest level compared with Baidu.Inc since at least July 2011. The stock was the biggest gainer on the Bloomberg Russia-US Index yesterday.

Yandex gained 11 percent to $18.56 in two sessions through yesterday, the biggest such advance since January.

“Investors realize the stock is undervalued at these levels as the ruble stabilized and Internet sector looks more attractive as Facebook gains,” Anna Lepetukhina, an analyst at Troika Dialog in Moscow, said by phone. “Yandex had been hit badly as people were selling both Russian risk and Internet companies following Facebook’s unsuccessful IPO.”

The Russian currency added 0.2 percent to 32.4500 per dollar in Moscow yesterday, gaining for a second day. The ruble strengthened 0.6 percent to 40.8005 per euro and 0.4 percent to 36.2077 against the central bank’s target dollar-euro basket.

OAO Lukoil (LUKOY), Russia’s second-biggest oil producer after OAO Rosneft, was unchanged at $53.68 in New York yesterday, widening the discount to its Moscow-listed shares to 0.5 percent, the most since May 22. In Moscow, Lukoil shares rose 0.8 percent on the Micex to 1,749.20 rubles, or $53.97 yesterday.

‘Direct Impact’

Oil, Russia’s major export commodity, dropped for the first time in three days on concerns demand for crude will decline European debt crisis worsens. Spanish borrowing costs rose to a euro-era high yesterday.

Russia, the world’s biggest energy exporter and largest producer of nickel and palladium, got almost 50 percent of budget revenue from oil and gas sales last year.

“A correlation between the Russian markets and oil prices is inevitable,” Andrey Trufanov, analyst at Troika Dialog in Moscow, said by phone yesterday. “There is a direct impact of global markets’s mood on Russian stocks, including utilities.”

Oil for July delivery fell 0.9 percent to $83.27 a barrel on the New York Mercantile Exchange. Prices were down 19 percent in the second quarter and 16 percent this year through yesterday.

Brent oil for August settlement lost 1.6 percent to $96.05 a barrel on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, fell 1.6 percent to $94.35, the lowest since January 27.

United Co. Rusal, the world’s largest aluminum producer, slid 1.3 percent to HK$4.68 in Hong Kong trading as of 11:26 a.m. local time.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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