What happened

Shares of Russian coal miner and steelmaker Mechel (MTL) are soaring in afternoon trading Thursday, up 13.4% as of 1 p.m. EDT, after the company reported Q1 2021 earnings earlier in the day.

Despite the generally glum tone of the earnings release, investors apparently took an "it could have been worse, and maybe it'll get better?" view of the news, giving Mechel a pass this time.  

Steelworker in protective clothing works at a raking furnace.

Image source: Getty Images.

So what

Exactly how bad was Mechel's news? Here's a hint: In the very first paragraph of the release, CEO Oleg Korzhov described:

  • a "lack of cash flow sufficient for financing our operations";
  • "a major slump in coal and steel prices because of the pandemic";
  • and "a major reduction in stripping and negative dynamics in coal mining and sales in 1Q2021 accordingly."

Oh, and "the steel division had a similar situation."

Coking coal sales declined 38% year over year, iron ore sales were down 43%, and various forms of steel sold dropped anywhere from 12% to 46%! The news was so bad, in fact, that Mechel didn't even bother to mention in its release whether it earned any money in Q1. It's probably just figured everyone would assume that it did not.

Now what

But here's the good news: After giving an earnings report reminiscent of the "In Memoriam" segment from the Oscars, Mechel abruptly changed tone when talking about the future. "In April alone," said the CEO, "sales of most of our products demonstrated results nearly equal to half of those of the entire first quarter. For example, last month we sold approximately 500,000 tonnes of coking coal concentrate -- which is 53% of the amount sold in the entire reporting period."

Investors today seem to be taking a cue from the change of tone, and hoping that Q2 will be better than Q1. It could hardly be worse.