Global metal and mining sectors have tumbled over 15% since June, largely due to increased risks of economic slowdown amid escalating trade wars.
We believe that the market is overestimating the risks, and forecast demand to recover ahead of new U.S. — China trade agreements expected at the end of the third quarter.
The market will try to price in this factor in advance, which will clearly support the most undervalued stocks, first and foremost in the Russian metal sector — it shows strong financial performance despite negative effects from high volatility.
We believe Severstal and MMK have the highest growth potential among steelmakers due to the continued strong demand for steel products in the Russian market, which accounts for the bulk of both companies’ sales (about 75% of Severstal's revenue and over 80% of MMK's revenue).
Severstal: Upside potential — 16%
The most reliable business model due to availability of own raw materials, the highest share of high value-added (HVA) products among Russian metal makers and low production costs