Russia Steelmakers Rebound; Brokers Say Selloff `Not Warranted'

By William Mauldin

July 28 (Bloomberg) -- Russian steel stocks rebounded from their biggest drop in two months after OAO Mechel, the coal and steel producer that Russian Prime Minister Vladimir Putin wants to be investigated, said it will cooperate with the government.

JPMorgan Chase & Co. and Moscow-based UralSib Financial Corp. said Russian shares will likely advance today following declines on July 25, led by steel producers, that plunged the RTS Index of stocks into a bear market, defined as a drop of 20 percent or more from a 12-month peak.

``We believe the most likely outcome will be a financial penalty for Mechel and the establishment of long-term contracts within the domestic steel and coal industry,'' JPMorgan strategist Peter Westin wrote in a note to investors. ``Look for a recovery in steel names today.''

Mechel said after the close of Russian markets July 25 that it ``shares'' the concerns of the government and the metals industry over increases in prices for steel and raw materials, and ``if required, will provide complete information.''

The Micex Metals & Mining Index climbed 1.5 percent as of 11:35 a.m. in Moscow today after sinking 7.7 percent on July 25, its biggest decline since May 22. The dollar-denominated RTS Index added 0.4 percent to 1,959.79 today, still in bear market territory, while the ruble-denominated Micex Index also increased 0.4 percent, to 1,493.65.

``Last Friday's collapse was not warranted across the whole market,'' UralSib wrote in a note to investors.

Severstal Gains

OAO Severstal, Russia's biggest steelmaker, rose 9.5 rubles, or 2.3 percent, to 415.09 rubles on the Micex Stock Exchange. OAO Novolipetsk Steel, the producer controlled by billionaire Vladimir Lisin, added 2.4 rubles, or 2.4 percent, to 101.80 rubles.

Putin on July 24 said authorities would investigate Mechel for selling raw materials at a higher price in Russia than abroad. Mechel's American depositary receipts, in which trading tends to have greater volume than Mechel shares in Moscow, plunged 38 percent that day in New York trading and rebounded 15 percent on July 25.

Some brokers on July 25 compared the Mechel turmoil with the assault on OAO Yukos Oil Co., which was bankrupted in Putin's presidency after the government claimed more than $30 billion in back taxes.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.
Last Updated: July 28, 2008 03:59 EDT