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Why Mechel Stock Popped 10.5% on Christmas Eve

By Rich Smith - Dec 24, 2020 at 11:30AM

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It's a Christmas miracle for investors in Russian steel.

What happened

Shares of Russian steel producer Mechel PAO ( MTL -1.66% ) continued to surge higher in Thursday's abbreviated trading day, rising 10.5% through 11 a.m. EST. It's not hard to figure out why.

So what

Since the beginning of October, the price of hot-rolled coil steel (the industry benchmark) has run up 39%, topping $869 last night. Shares of Mechel are rising right along with the HRC steel price -- even leading it a bit. Since Oct. 1, Mechel shares are up 47%.

At $2.20 per share currently, Mechel stock hasn't been this valuable since early March.

Metlaworker pours molten steel in a foundry.

Mechel steel stock is red hot. Image source: Getty Images.

Now what

Can Mechel stock hold onto these gains? Wall Street analysts are optimistic, forecasting even stronger steel prices in the future. And Mechel itself is taking full advantage of the favorable pricing environment for steel, generating $495 million in positive free cash flow over the past 12 months, according to data from S&P Global Market Intelligence, and deploying cash to pay down its still-sizable debt load (about $4.5 billion, net of cash).

In my view, given its sizable debt and the short-term nature of most of its debt, Mechel remains a risky stock to own. But if it maintains its discipline and keeps steadily paying down its debt, Mechel could also remain a good stock to own into the new year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Mechel PAO Stock Quote
Mechel PAO
$2.97 (-1.66%) $0.05

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