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Few New Concerns About Mechel

|Includes: Mechel OAO (MTL)

Since my article about Mechel ('MTL') few things have changed:

1. Russian Rubble appreciated from 65 to 52.5 per $

2. Coking Coal prices fell drastically

3. Steel prices also decreased

I still believe that Mechel is a good investment case and the company will restructure debt. But risk metrics are less favorable today. Just a short illustration:

1. Coal Cash Cost - c.1'100 = 17$ at 65 RUR/$ = 21 at 52.5 RUR/$. Therefore the company shall earn 4$ less per tonne.

2. Sales Prices for Australian Coking Coal dropped from 120 in Q3'14 to 90$ per tonne now or less 25%(www.barchart.com/chart.php?sym=ILWJ15&am...;template=). I don't know how it will influence Mechel as I don't know how it's contracts are structured. But in case sales price will also drop 25% than the company will earn c. 13$ less (based on average sales prices FCA from Company presentation Q3'14 of 53$ * 25% = 13$).

The Company even at these depressed prices can earn up to $1.5 bn EBITDA in 2015 but it's not enough to solve the debt issue if the banks will show inability to negotiate.

Disclosure: The author is long MTL.