Mechel Sinks as U.S. Output Hits Metals: Russia Overnight

OAO Mechel (MTL) declined to a four-year low in New York, leading a slump in Russian stocks, after data showing U.S. manufacturing expanded less than economists estimated last month sank commodities.

American depositary receipts of Mechel (MTLR), Russia’s largest maker of steelmaking coal, slid 2.4 percent to $4.94, the lowest level since April 7, 2009. Mechel was the biggest decliner on the Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian equities in New York, which slipped 0.1 percent. The Market Vectors Russia ETF (RSX), the largest dedicated Russian exchange- traded fund, dropped 1.2 percent to $27.41.

Commodities, which made up more than 80 percent of Russian export proceeds in 2011, slid 0.3 percent, according to the Standard & Poor’s GSCI Spot Index. The Institute for Supply Management’s U.S. factory index fell to 51.3 last month, from an almost two-year high in February, with 50 the dividing line between growth and contraction. Concern over OAO Rosneft’s plan to borrow from TNK-BP and not pay dividends is also deterring investment in Russia, according to Kazimir Partners Ltd.

“There is no reason for the market to rise and there seems to be every reason for it to fall instead,” Mansur Mammadov, who helps manage $100 million at Kazimir Partners in Moscow, said by phone yesterday. “U.S. manufacturing data raised concerns over demand for commodities, while Rosneft’s approach toward minority investors does a lot of damage to the Russian investment climate.”

Futures expiring in June on Russia’s dollar-denominated RTS Index fell 0.1 percent to 139,610 in U.S. hours, while the RTS Volatility Index, which measures expected swings in the stock futures, gained 1.4 percent to 18.76.

Slowdown Concern

Mechel slipped 0.7 percent to 152.80 rubles, or $4.92, in Moscow yesterday. The ADRs lost 27 percent in the January-March period, the worst quarterly drop since the end of June, data compiled by Bloomberg show.

U.S. manufacturing grew less than forecast in March as orders and production cooled, highlighting the risk of a U.S. economic slowdown this quarter. Manufacturing in China also expanded less than forecast as the country’s Purchasing Managers’ Index was 50.9 in March, government data released yesterday showed, below the 51.2 median estimate of 26 economists surveyed by Bloomberg News.

OAO TNK-BP Holding, TNK-BP’s traded unit, slid the most on record March 26 after state-run Rosneft, which bought the company from BP Plc and a group of billionaires, said it would borrow funds from the oil producer. Rosneft Chief Executive Officer Igor Sechin said March 22 that they won’t buy shares held by minority investors and said in October that TNK-BP’s dividend policy may be terminated.

Oil Outlook

Prosperity Capital Management Ltd., which oversees about $4 billion in Russian assets, may team up with other TNK-BP Holding investors to seek redress after the stock’s slide, CEO Mattias Westman said March 28. TNK-BP Holding shares slid 1.2 percent to 38.01 rubles, or $1.22, in Moscow yesterday. Rosneft is the world’s biggest publicly traded oil producer.

“It’s not about Rosneft, it’s about the market,” Kazimir’s Mammadov said yesterday.

Kazimir Partners owns ADRs of OAO Sberbank, OAO Lukoil, OAO Novatek and OAO MegaFon and is “looking closely” at ADRs of OAO Mobile TeleSystems and OAO VTB Bank, Russia’s second-biggest bank after Sberbank, Mammadov said.

“There is still room for further decline as the market is pessimistic on oil’s outlook and Russian equities suffer from that,” Mammadov said. “Valuations are already low and some stocks, such as Novatek and VTB, look attractive at their current levels.”

Lowest Valuation

Russia’s Micex Index trades at 5.3 times estimated earnings, the lowest valuation among 21 emerging markets tracked by Bloomberg. It compares with a valuation of 11.3 for Brazil’s Bovespa index and 9.5 times for the Shanghai Composite Index of domestic Chinese shares. The Russian gauge slipped 0.7 percent to 1,428.47 yesterday.

OAO Rostelecom (ROSYY) gained 1.3 percent to $24.15 in New York yesterday, settling at a 3.2 percent premium to the company’s Moscow-listed shares, the widest gap since Sept. 21, data compiled by Bloomberg show. Rostelecom dropped 0.6 percent to 121.25 rubles, or $3.90, in Moscow yesterday.

OAO VTB Group is purchasing Tele2 AB (TEL2B)’s Russian unit for $3.55 billion in cash and debt. VTB may later merge the company with the mobile assets of state-run Rostelecom, which would form a fourth nationwide wireless carrier in Russia, Otkritie Capital said last week.

Brent Gains

Ruble futures showed the currency weakening less than 0.1 percent to 31.75 per dollar in U.S. hours. Russia’s ruble fell 0.1 percent to 31.0845 per dollar yesterday and dropped 0.2 percent to 35.0704 against the dollar-euro basket used by the central bank to manage swings that erode exporter competitiveness.

Crude oil for May delivery slipped 0.2 percent to $97.07 a barrel on the New York Mercantile Exchange yesterday, declining for the first time in six days. Brent oil for May settlement increased 1 percent to $111.08 a barrel. Urals crude, Russia’s major export oil blend, increased 0.3 percent to $107.58 per barrel.

To contact the reporter on this story: 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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