UPDATE 2-Russia's Mechel sees coking coal prices up

Tue Oct 5, 2010 1:16pm EDT

Related Topics

* Company sees coking coal prices up Q4, 2011

* Shares up 2.5 pct in New York, outperforming market

* Mechel H1 net profit $121 mln, analysts' forecast $238 mln

(Adds comments on prices, analyst comment)

MOSCOW, Oct 5 (Reuters) - Russian steel and coking coal producer Mechel (MTL.N) is predicting higher coking coal prices next year after reporting a rise in domestic contract prices for the fourth quarter of 2010, lifting its share price.

"Our forecast for 2011 as far as coking coal prices are concerned is that prices should grow by 20-25 percent," Boris Nikishichev, head of Mechel's mining division, said during a conference call.

He also said fourth-quarter domestic contract prices were up 10 percent on the previous quarter.

At 1621 GMT the shares were up 2.5 percent in New York, outperforming the Dow Jones Industrial Average .DJI, which was up 1.5 percent.

Uralsib analyst Dmitry Smolin said the company's comments on fourth-quarter domestic coking coal contract prices also cheered the market.

"Despite the 7 percent decline in international coking coal prices, in Russia domestic coking coal is up by 10 percent," he said.

"That's the catalyst for the stock."

Steel makers in Russia, the world's third-largest producer, are benefitting from their position as leading low cost producers after suffering a difficult 2009 as global steel demand declined.

This quarter all major Russian producers reported net profits, with the exception of Evraz HK1q.L, part-owned by billionaire Roman Abramovich, which reported a first half loss on depreciation costs. [ID:nLDE6810BH]

New York-listed Mechel operates on two fronts since it smelts its own steel and supplies rivals with coking coal.

HALF-YEAR RESULTS

The company, controlled by billionaire Igor Zyuzin, also reported first-half results on Tueday, making a net profit of $121 million in the six months to June 30, missing expectations as a range of depreciation, currency effects and interest expenses weighed.

Analysts polled by Reuters had on average expected the company to post a first half net profit of $238 million, which compared with a year-earlier loss of $471 million.

Despite the miss, Mechel's first-half earnings before interest, taxation, depreciation and amortisation (EBITDA) soared to $781 million from $164 million a year ago, just below the $784 million forecast by analysts.

First-half revenue jumped to $4.33 billion from $2.46 billion a year ago, just short of the market forecast of $4.36 billion.

The company's bottom line was hit by $241 million in depreciation costs, $73 million in currency effects and $290 million in interest expenses.

At the end of the first half, Mechel's total debt was $6.6 billion. (Reporting by Alfred Kueppers; Editing by Greg Mahlich)

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