Steel and mining company, Mechel OAO (MTL) announced that it has signed a Memorandum of Understanding (MoU) with China's leading steel maker Baosteel Resources Corp. that provides for increased coal supply to the latter. Per the memorandum, Mechel will supply up to 1.4 million tons of coking coal to Baosteel Resources. Prices will be ascertained on a monthly basis.
As per the MoU, Mechel might also supply PCI and steam coal to Baosteel. The memorandum also includes the possibility of cooperation in other areas, including the potential for collaboration with the economic development institutes in Russia and China.
The agreement will be operational from April 2015 and will expire in March 2016. However, the tenure of the agreement is subject to further extension.
Mechel fully kept up to its earlier contract and supplied 1.2 million tons of coking coal annually. From Apr 2014 to Dec 2014, Mechel supplied over 1 million tons of coking coal to Baosteel enterprises in China's eastern and southern provinces.
Mechel exports over 70% of its mining division's products as they provide more stable foreign currency revenues to the company. Mechel posted net loss (as reported) of $575 million in the third quarter of 2014, wider than net loss of $127 million recorded in the third quarter of 2013 and a loss of $63 million recorded in the previous quarter. The results were partly affected by a significant plunge in coal and iron ore prices.
Adjusted net loss was $15 million for the reported quarter compared with $85 million reported in the year-ago quarter and $152 million in the previous quarter.
Revenues for the third quarter came in at $1,588 million, down about 24% from $2,089 million in the year-ago period. Sales were also down 9% sequentially.
Mechel registered adjusted operating income of $107 million for the reported quarter compared with an operating income of $39 million in the year-ago quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $219 million in the third quarter of 2014.
Mechel carries a Zacks Rank #2 (Buy).
Other steel companies worth considering include LB Foster Co. (FSTR), RTI International Metals, Inc. (RTI) and Mueller Water Products, Inc. (MWA). All of them carry a Zacks Rank #2 (Buy).
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