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18 Dec, 2008 07:24

Metals giants facing more downside before upside kicks in

Russian steel giant Mechel will announce record profits on Thursday for the first three quarters of 2008. But metals producers are expected to follow in the last quarter with record losses.

Warnings from steel giants NLMK and MMK suggest they'll make their first losses as public firms from October to March next year at least. But the hardest hit in Russia's metal sector will be producers of iron and coal, used to make steel, according to George Buzhenitsa, Metals Analyst at UniCredit aton.

“Yes, they're the bottom of the value chain so they're the last ones to receive money actually. And we heard that in the last presentations coal producers made, they are really suffering from issues of non-payment in the industry.”

Micheal Kavanagh, Metals Analyst at Uralsib says metal stocks will slump 50 per cent from now to the summer, yet still double over the next year.

“If you buy today you must be happy to live with the possibility that stocks could halve from here.  But if you take a 12-month or slightly longer view you should  at least double your money, or even a little more than that, which is a pretty attractive return.”

Kavanagh says the best thing the Kremlin can do now is finance infrastructure projects from roads to housing, which use metal.

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