OAO Mechel (MTL) posted the biggest decline among Russian stocks in the U.S. last week as analysts cut target prices for the Moscow-based coal producer on concern over debt and falling commodities.
American depositary receipts of Mechel, Russia’s biggest maker of steelmaking coal, slumped 3.7 percent in the week to $6.82, the steepest decline on the Bloomberg Russia-US Equity Index. (RUS14BN) The gauge of the most-traded Russian companies in the U.S. added 1.4 percent last week, led by CTC Media Inc. and Polyus Gold International Ltd. (PGIL) Futures expiring in March on the RTS Index were unchanged at 161,890 in U.S. hours Jan. 25.
Mechel’s price target was reduced the most by analysts last week of the 50 companies on Russia’s Micex Index, except for preferred shares of OAO Transneft, data compiled by Bloomberg show. Alfa Bank, Russia’s top private lender, cut its target for Mechel ADRs by 30 percent Jan. 16, while Goldman Sachs Group Inc. reiterated its sell rating, citing the “challenging” coal market and the company’s debt position.
“Mechel is more vulnerable than almost any other Russian mining company to declining commodities prices,” Alexei Morozov, an analyst at UBS AG who rates Mechel hold, said by phone from Moscow Jan. 25 “It’s Mechel’s debt that makes it so vulnerable to commodities prices.”
The Market Vectors Russia ETF (RSX), the largest dedicated Russian exchange-traded fund, jumped 1.9 percent last week to $30.95, the highest close since Sept. 14. The RTS Volatility Index, which measures expected swings in the stock futures, fell 0.3 percent to 19.84 in the New York day Jan. 25.
With net debt of $9.3 billion as of Dec. 1, according to its website, Mechel is the most indebted Russian mining company after the world’s biggest aluminum producer United Co. Rusal.
The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials futures prices has lost 5.4 percent in the past year, making it more difficult for Mechel to repay its creditors. The company’s revenue fell 15 percent in the third quarter from a year earlier to $2.7 billion, the lowest level in two years, data compiled by Bloomberg show.
Mechel slipped 4.2 percent in Moscow last week to 207.2 rubles, or the equivalent of $6.9. It was the second-biggest decliner on the Micex (INDEXCF) gauge after OAO VSMPO-Avisma Corp., the world’s largest titanium maker.
The average price of coking coal, a commodity used to make steel, will decline 19 percent to $170 a ton in 2013, from $209 in 2012, UBS’ Morozov said. The median price for hot rolled coil, a benchmark steel price, is expected to decline 1.8 percent to $560 a ton in 2013 from $570 in 2012, according to UBS.
Mechel has identified assets it plans to sell, including steel plants in Lithuania, Ukraine and the U.K., ferro-alloy and energy-generating assets and the international arm of its steel trader, to help reduce debt. As much as 25 percent of its coal mining unit may also be sold to a strategic investor, the company said Sept. 25. Mechel (MTLR) almost breached loan agreements last year before agreeing with banks to revise covenants.
The company probably won’t be able to sell all of its assets for sale “because of poor demand,” UBS’ Morozov said.
Global depositary receipts of Polyus Gold, Russia’s biggest producer of the metal, surged 12 percent last week in New York to $3.44, the highest close since Oct. 22. Polyus rallied 13 percent in London, a record weekly jump. Trading volumes were more than twice the daily average over the past three months, data compiled by Bloomberg showed.
The mining company may increase dividends should billionaire Mikhail Prokhorov’s Onexim Holdings Ltd. sell his 37.8 percent stake in Polyus, Bank of America Merrill Lynch said in a Jan. 25 report, reiterating its buy recommendation on the stock.
CTC Media Inc. (CTCM), a Nasdaq-listed Russian television company, jumped 8.9 percent last week to $10.11, the highest level since May. Volumes were more than 2.5 times the three-month daily average.
CTC’s television channel, the Moscow-based company’s biggest source of revenue, saw its share of viewers 4 years and older rise to the fourth biggest in the nation for the first time since March 2012, data researcher TNS Global said in a Jan. 24 report.
OAO Mobile TeleSystems (MBT), Russia’s biggest mobile-phone company, fell 2 percent to $19.21 in New York Jan. 25, trimming its gain last week to 0.8 percent.
Ronnie Moas, president of Standpoint Research Inc. in New York, cut his recommendation on MTS’ ADRs to hold from buy, according to a Jan. 25 report.
Oil, Russia’s biggest export earner, rose for a seventh consecutive week, the longest stretch of weekly gains since 2009, data compiled by Bloomberg showed.
Crude oil for March delivery fell 0.1 percent to $95.88 a barrel on the New York Mercantile Exchange Jan. 25, ending the week up 0.3 percent. Brent oil for March delivery settled unchanged at $113.28 a barrel on the London-based ICE Futures Europe exchange Jan. 25. Urals crude, Russia’s main export blend, fell 0.2 percent to $112.4, cutting its advance last week to 1.4 percent.
The ruble weakened for the first time in five days versus the central bank’s dollar-euro basket, losing 0.3 percent to 34.7193 Jan. 25. Ruble futures due in March showed the currency little changed at 30.270 per dollar in U.S. hours Jan. 25, after the ruble strengthened 0.1 percent to 30.0325 per dollar.
United Co. Rusal (486), the world’s largest aluminum producer, dropped 2.9 percent to HK$4.73 in Hong Kong trading as of 11:11 a.m. local time. The MSCI Asia Pacific Index was little changed.
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