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Russian miner Mechel OAO’s (MTL - Analyst Report) Chelyabinsk Metallurgical Plant has completed the order placed by the Russian Helicopters holding for a new class of steel for helicopter-making. The preliminary technological testing for the high-quality steel produced in Nov 2012 revealed successful results and was thus passed for industrial production.

Chelyabinsk Metallurgical Plant worked along with Urals Stampings Plant for this order. Also, experts from Bardin’s Central Research Institute for Ferrous Metals and the All-Russian Aviation Materials Institute worked together with Chelyabinsk Metallurgical Plant’s technicians for developing the helicopter steel making technology.

The new class of high-strength steel produced by the Chelyabinsk Metallurgical plant will be used to produce important joints for the modern Ka-226(T) helicopter. This light helicopter is used for corporate or private flights and also for special operations and rescue missions. This ecologically-friendly and safe Ka-226(T) helicopter is equipped with engines that ensure high carrying capacity and flight height (up to 7,500 meters) and also a coaxial rotor system.

The high-strength steel is also used in the production of attack scout helicopter Ka-52 Alligator, which represents the most perfect armed machines among its peers. This helicopter is in serial production after crossing all state level tests and it has been adopted into the Russian Air Force's arsenal. The Russian Helicopters holding also has plans to utilize the new steel for Mi-type helicopters.

Mechel posted a loss in the first quarter of 2013, reported on Jun 18, hurt by the sale of its Romanian steelmaking assets. Revenues dropped by double digits with declines across the board. Sustained weakness was seen in the core mining segment. Mechel announced its decision to buy back shares.

Mechel’s high debt and substantial interest burden are matters of concern. Mechel is also faced with weak demand from Europe. However, we are encouraged by the incremental opportunities stemming from the Elga mine, which is expected to reinforce the company’s position as a metallurgical coal producer through capacity expansion

Mechel retains a Zacks Rank #4 (Sell).

Other companies in the steel industry with favorable Zacks Rank are Kobe Steel Ltd. (KBSTY), Shiloh Industries Inc. (SHLO) and Nippon Steel & Sumitomo Metal Corporation (NSSMY). All of them hold Zacks Rank #1 (Strong Buy).

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