Mechel repeat performance not likely

RUSSIAN steel and mining major Mechel enjoyed 24% growth in 2008 coal production of 26.39 million tonnes, but this year is not looking as rosy.

Blair Price

In the breakdown, some 15.14 million tonnes of coking coal production for last year represented a 45% jump from 2007 while thermal coal output was up 4% to 11.24Mt in the same period.

On another note reflective of the declining steel industry, Mechel’s coke production sank 14% for the year to 3.33Mt, while steel output dropped 3% to 5.91Mt.

“We are constantly monitoring the markets, revising our operations program and performing all necessary activities for equipment maintenance to be able to increase output most efficiently as soon as the markets recover,” Mechel said in an accompanying statement to the 2008 operational results.

Russia has been hit hard by the ongoing financial crisis which has pushed the rouble to record lows against the US dollar.

In a commodities update less than a fortnight ago, Macquarie Research noted Russian domestic demand for coking coal had collapsed in the last three months of 2008.

“As a result, Russian miner Belon is reportedly offering coking coal at $US65 per tonne to domestic customers and $US100 per tonne into Asia, compared with prevailing benchmark contract prices of $US240-300 per tonne and recent spot deals at around $US140 per tonne,” Macquarie said.

A recent Reuters report confirmed Russian coking coal producers have been put under pressure by clients from the steel sector delaying payments.