Mechel Halts Bluestone Mining Operations - Analyst Blog

Russian miner Mechel OAO MTL announced that it will temporarily suspend mining at Mechel Bluestone in the U.S., which is part of the Group's mining division, due to unfavorable market conditions. The spot prices for coking coal are at their lowest since 2007, which makes coal production at Mechel Bluestone unprofitable.

Post-announcement, work will cease at the West Virginia mines and open pits, although some washing facilities at the site will continue operating due to contractual obligations. Mechel will decide on resuming operations depending on market conditions.

Recently, Mechel's corporate family rating CFR was downgraded by Moody's Investors Service – the rating unit of Moody's Corp. MCO – to Caa1. The rating agency has also lowered its probability of default rating (PDR) to Caa1-PD. Moody's downgraded the company's rating based on weak coal market and  poor liquidity.

Mechel's current financial situation remains weak. The company's maturity profile remains tight with 2015 and 2016 maturities of $2.5 billion and $2.5 billion, respectively, as of Dec 6, 2013. Moody stated that if Mechel fails to repay any of the upcoming loan maturities, it might lead to cross-default provisions on the company's loans with other banks.

Mechel is a leading domestic steel and coal producer with a strong position in key businesses, including production of specialty steel and alloys. The company has the largest coal reserve base in Russia and is mainly focusing on growth and cost-cutting measures.

Mechel currently retains a Zacks Rank #4 (Sell).

Other players in the steel industry worth considering are Companhia Siderurgica Nacional SID and Gerdau S.A. GGB. While Companhia Siderurgica carries a Zacks Rank #1 (Strong Buy), Gerdau holds a Zacks Rank #2 (Buy).