Vertical Integration Leaves Mechel a Well-Positioned Steel Manufacturer

6/6 - "Lately, the world's leading steel companies have dealt with the sharp rise in costs for raw materials, which has squeezed margins despite the robust global demand for steel. Meanwhile, shares of Russia's Mechel (NYSE: MTL) have more than quintupled during the past year. The secret to Mechel's success is in the legacy of U.S. Steel (NYSE: X), whose pioneers recognized the importance of sourcing their own iron ore to ensure competitive steel pricing."

"Mechel takes this idea to the next level, with its massive diversified mining segment generating huge profits, in addition to producing everything needed for production, including coal, iron ore, nickel, and limestone...After completing the acquisition of Russia's largest coking coal producer, Yakutugol, Mechel's mining segment is able to supply most of the coking coal needed for its own production, while selling the surplus to a very eager global market. Furthermore, the company's own ports and rail lines help with the trip to market."

"On the strength of this integration, Mechel managed to increase both net operating margin and its EBITDA margin in fiscal 2007 while increasing revenue 52% to $6.68 billion over fiscal 2006."