UPDATE: Mechel 2Q Steel Production 1.397 Million Tons, Down 6.7%

Russian coal and steel company OAO Mechel (MTL) produced 1.397 million metric tons of steel in the second quarter of 2009, down 6.7% from 1.498 million tons in the same period of 2008, but up 27% from 1.100 million tons produced in the first quarter, it said Thursday.

Second-quarter coal production was 2.991 million tons, down 56% from the same period of 2008, and down 13% from the previous quarter, the company said.

Mechel's nickel production for the quarter stood at 4,200 tons, down 11% from the same period of 2008, but up 44% from the previous quarter.

Mechel lost its largest Russian customers for coking coal after Prime Minister Vladimir Putin a year ago famously ordered the antitrust authorities to investigate selling prices at the company and offered to "send a doctor" to see Mechel's chief executive and main shareholder. The company said it was looking for new customers, particularly in Asia, and signed a number of large-scale long-term contracts with Chinese, Japanese and South Korean companies, which allowed it to increase utilization of coking coal mining capacity.

"Starting from the second quarter we observe certain positive dynamics in the markets of steel products we produce," Vladimir Polin, senior vice-president of Mechel, said in a statement. Tthe company has a positive outlook for the second half of 2009 and intends to "increase production, tapping new market niches and increasing the company's share" in its markets, he said.

All Mechel's production units that were shut in the fourth quarter of 2008 have now been restarted and in the segments of steel and ferroalloys capacity utilization has reached pre-crisis levels and at some plants is even higher, Polin said.

Kirill Chuiko, an analyst at Moscow-based KIT Finance, said that as relative steel production costs at Mechel are high, the company is eager to maximize production in order to reduce costs per unit.

Evraz Group SA (EVR.LN), another Russian steel producer, Wednesday said second-quarter crude steel output was down 28% on the year and only 0.4% higher compared with the first quarter.

At 1540 GMT Mechel American Depositary Receipts were up 7.8% at $8.3 in New York.

-By Alexander Kolyandr, Dow Jones Newswires; [phone]; [e-mail]