OREANDA-NEWS. April 15, 2010. We are revising our target prices and earnings forecasts for the steel sector. The sector’s performance YTD has been very strong and many stocks have reached our targets. Yet, strength in commodities markets calls for more upgrades. With coal and iron ore testing the historical highs over the next 12 months, we see equities heading on the same path. We believe Raspadskaya could top its historical highs in the next 12 month as it has pure exposure to coking coal, reported the press-centre of VTB Capital.

Other coal rich stocks have been upgraded massively as well. We are also upgrading the rest of the universe, although with some caution. We see the market taking longer for a real recovery in the construction sector and in transformer steel too, for example.

Furthermore, without high demand most companies, such as Evraz and Mechel for example, have to concentrate on low margin a semi-finished export, which to some extent postpones their steel earnings momentum. Both are still Buys as Mechel is very coal rich and Evraz is our long-term favourite as we believe construction will return at some point, while we firmly believe that solid growth execution is to repeat.

On the other hand, NLMK and MMK, which are less integrated, offer growth at a time when others are stained with debt and are unlikely to deliver on growth and/or investment in the short term. Both stocks have underperformed the rest of its peers YTD and are rated Buys.

We have downgraded Severstal to Hold as the best performer YTD, meaning the factor of recovery of low margin foreign operations has at least partly played out. Meanwhile, those operations are less integrated and are again feeling pressure on their margins.

The industry’s risks concentrate on the correction of the coal and iron ore market. While for steel, the major risk is an inability to fully unload the increase in prices of inputs onto final customers.