Oil report

Russia's Mechel partners with Zlatoust steel plant

MOSCOW, Aug 3 (Reuters) - Russian coking coal and steel producer Mechel's MTL.N Chelyabinsk plant has formed a strategic partnership with rival Estar's troubled Zlatoust Metallurgical Works (ZMZ), the regional government said.

“There were several different possibilities, but we have chosen the Chelyabinsk Metallurgical Plant,” Chelyabinsk governor Pyotr Sumin said on Monday in a statement.

“At the present time this is the best way out for ZMZ and the regional economy.”

The statement did not provide any financial details, and both Mechel and Estar declined to comment.

The regional administration took control of the plant after 16 workers in March staged a five-day hunger strike to protest over unpaid wages. [ID:nLI548280]

Steel makers in Russia, the world’s fourth-largest producer, have suffered from a decline in orders from key sectors such as construction and automobile production due to the weak domestic economy.

The Zlatoust plant in April shuttered production until mid-June because of low demand for its output. [ID:nLS826481]

Alfa Bank analysts viewed the possibility that Mechel would purchase the Zlatoust plant negatively, but noted that the company may have agreed to become involved with ZMZ in exchange for government support of its own projects.

“The acquisition could be a way of compensating the government in exchange for financial support for Mechel’s long-term projects,” the bank’s analysts wrote.

Mechel, controlled by billionaire Igor Zyuzin, last month refinanced $2.6 billion of short-term debt and it may issue up to 75 billion roubles of bonds to raise additional funds. [ID:nLD528863] (Reporting by Natalya Shurmina, writing by Alfred Kueppers; Editing by Rupert Winchester)