OAO Mechel (MTLR), Russia’s largest maker of coal for steelmakers, fell for a second day in New York as concern that prices for the fuel are dropping outweighed a pact that will allow the company to avoid defaulting on its debt.
American depositary receipts of Mechel slid 3.5 percent to $2.21 yesterday after touching the lowest level since the company listed in the U.S. in 2004. The ADR lost 68 percent this year. The Bloomberg Russia-US Equity Index of the most-traded Russian equities in the U.S. fell 1 percent to 98.57. RTS stock-index futures increased less than 0.1 percent to 143,270.
Spot prices for coking coal used in the $1.3 trillion market for steel have tumbled 11 percent this year, compared with a 3.1 percent decline for the S&P GSCI gauge of 24 commodities. Prime Minister Dmitry Medvedev met metals and mining industry executives in Moscow yesterday to discuss support for an industry suffering a drop in global demand. A group of lenders agreed to free Mechel (MTL) of covenant tests on a $1 billion loan until the end on 2014, the Moscow-based company said yesterday.
“Falling coal price leaves no hope for Mechel,” Vladimir Sergievskiy, an analyst at Barclays Plc in London who has a sell recommendation on the stock, said by phone yesterday. “Coking coal doesn’t offer any signs of recovery, any reason for optimism at all, as prices fall and the decline will probably continue next year.”
Barclays predicts coking coal prices will drop to an average $155 per metric ton in 2014, from $159 in 2013 and $209 in 2012, Sergievskiy said. Prices are expected to recover to $170 per ton in 2015, he said, citing the bank’s estimate.
The Russian government may compensate for interest-rate costs incurred in funding development projects in the metals and mining industry, according to the agenda of Medvedev’s meeting yesterday. It’s also granting loan guarantees and ease rules on the central bank accepting company bonds as collateral.
Mechel, controlled by billionaire Igor Zyuzin, is the country’s second-most indebted company after United Co. Rusal, the world’s largest aluminum producer. ING Bank NV, Societe Generale SA, UniCredit SpA (UCG), Commerzbank AG, Raiffeissen Bank International AG, VTB, Caterpillar Financial Services Corporation and ICBC Plc are among banks to sign the agreement.
Certain loan covenants require Mechel to achieve net debt of no more than 7.5 times earnings before interest, taxes, depreciation and amortization by the end of 2013, while the first-quarter ratio was 10.9 times, ING said in a report this month. The Moscow-based company is seeking new covenants for 2014 and 2015, Vedomosti reported this month.
The Moscow-traded stock retreated 3.2 percent to 67 rubles, or $2.03, yesterday.
The Market Vectors Russia ETF (RSX), the biggest U.S.-traded exchange-traded fund that holds Russian shares, fell 1.6 percent to $28.28, the biggest decline since Nov. 5. The RTS Volatility Index, which measures expected swings in the stock futures, decreased 0.8 percent to 21.55.
Polyus Gold International Ltd. (PLZLY), Russia’s biggest gold producer, gained for the first time in six days, increasing 3.1 percent to $3.11.
United Co. Rusal, a Moscow-based aluminum producer, tumbled 5.4 percent to HK$2.28 in Hong Kong trading as of 10:32 a.m. local time, poised for the biggest loss since June 20. The MSCI Asia Pacific Index was little changed.
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