Nomos-Bank: MMK’s Performance Might Be Best in Sector This Year

The performance dynamics of Magnitogorsk Iron & Steel Works (MMK) might prove the best in the metallurgical sector this year, says Nomos-Bank’s analyst Yuri Volov.

‘MMK managed to get a discount on the benchmark price of iron ore on its contract with the main raw stuff supplier, the Kazakhstan-based ENRC. The exact figures are not quoted, it is only reported that the discount is rather ‘impressive’ and that it comes into effect starting from the last quarter of 2011,’ he explains.

‘The terms of ENRC delivering iron ore to MMK were the subject of an animated discussion at the end of last year, when global iron ore prices were rapidly dropping and MMK started buying less from its Kazakh partners and signed contracts with a number of Russian producers. A drop in the benchmark price in the company’s iron ore contract with ENRC is very good news for MMK, as its own iron ore supplies only meet 30% of the company’s needs. In whichever case, even without a discount on the benchmark price, the iron ore prices are expected to go down this year. The usual practice on the global market for the last few years has been signing contracts every quarter, with prices based on the spot market dynamics with one month’s lag. Under this formula, the price of iron ore in the last quarter of 2011 was nearly the same as that in the third quarter of 2011 (with only a 1% decrease), but it was supposed to plunge drastically in 2012, that is, by 11% in the first quarter of the year and by another 10% in the second quarter,’ Volov says.

‘We feel that with dropping ore prices and growing performance figures, the dynamics of MMK’s financial results could prove the best in the sector, and we once again suggest that investing in the company’s stocks is a good idea,’ the expert notes.

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