MMK Net Profit Rises on High Prices

Itar-TassMMK workers in Magnitogorsk. Higher prices for raw materials will pose problems for the company, analysts said.
Net profit at Magnitogorsk Iron & Steel Works, the country's third-largest steelmaker, increased 24.3 percent to $1.77 billion last year after it sold more steel at higher prices, the company said Monday.

But MMK, as the company is also known, fell 4.9 percent on the MICEX, in line with its peers. Analysts said higher raw material prices would make it difficult for the company, which buys most of its iron ore from Kazakhstan, to contain costs this year.

"Steel prices won't grow as significantly as iron ore prices in 2008," said Vladimir Zhukov, senior mining analyst at Lehman Brothers in Moscow. "The question is: how will the increase in raw material prices affect MMK?"

MMK, unlike Russian peers Evraz Group, Severstal and NLMK, must import most of its iron ore because it does not possess its own mines. World iron-ore prices are set to jump 65 to 70 percent this year.

MMK, which operates the country's largest standalone steel plant, said the average price of its steel products rose 18.6 percent to $589 per ton last year.

Steel product sales volumes rose 6.8 percent, the company said.

MMK said in a statement that its revenue last year rose 27.6 percent to $8.20 billion. Earnings before interest, taxation, depreciation and amortization rose 16.8 percent to $2.34 billion.

MMK produced 13.26 million tons of crude steel in 2007, up 6.5 percent on the previous year, and ranking it the 20th-biggest producer in the world.

The company said its average sales price in the Russian domestic market last year was $154 per ton higher than its average export price. MMK has previously said about 60 percent of its 2007 sales were to domestic customers.