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Domestic steel enterprises of the “big five” have already published their respective financial reports of full 2007 and 1Q 2008, aside from Evraz. Evrazholding offers its investors annual and half year’s results only, which will be published in the late of August.

Thanks to the rise in prices at commodity markets, the financial results of sector companies did brought several surprises. First of all – the growth of price for steel-smelting products multiplied at growth of expanded production output boosted incomes of companies – and during 2007 and early 2008 alike. On its part the growth of sales is also related to a rather active position of most of domestic steel producers throughout M&A market, and this is obviously a positive fact.

Secondly, due to the growth of commodity price, companies were gradually dropping the profitability throughout 4Q 2007 and 1Q 2008, which is an evident negative support. However, the growth of real costs of steel smelters is higher than growth of sales price of the reported period. The primary increase of price hit the steel at 2Q 2008. Therefore the positive changes of companies’ effectiveness are likely to become evident within half year’s reports only. Also note that Mechel alone appeared on top of its rivals, in terms of economic effectiveness, which is related to the fact that extracting sector is more important for it than steel-smelting sector.

After reviewing the models sector companies and updating the results of comparable analysis we have acquired new fair prices and renewed the recommendations. Now we recommend “BUY” stocks of Severstal; whilst stocks of Evraz, Mechel and MMK are recommended “ACCUMULATE”. NLMK (NLMC) stock now receives “HOLD” recommendation.

Steel industry: Final 2007 and early 2008 results. - July 14, 2008 (preview PDF)

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