On par performance in October. Steel stocks globally lost 1% inOctober and performed almost on a par with the MSCI EM Index. Thisfollows eight consecutive months of underperformance.

¡¡¡¡Commodity price dynamics were mixed. The global average steelprice was almost unchanged (USD 617/t), while the iron ore pricecontinued to rebound (up 15%, USD 120/t), as Chinese steel mills areactive importers. Coking coal stayed at USD 150/t as Chinese coking coalimports remain weak (as well as thermal).

¡¡¡¡Sector backdrop. Global macro and sector-related prints for Septemberwere generally in the black, supporting the bottoming out process. Globalsteel capacity utilisation improved 2pp to 77.7%, driven by the seasonalproduction spike in Europe. At the same time, higher steel prices in Chinastarted to attract more output.

¡¡¡¡Earnings and Target Price revisions. Following our commoditiesteam¡¯s revisions of the price deck, we have decreased our earningsestimates across the universe by 15-20% (2013 EBITDA). We aredecreasing our TPs by 10-15%.

¡¡¡¡Stock preference. We still prefer lower beta and less integrated names(MMK, NLMK) in the current environment and keep Raspadskaya(downgraded to Hold) among our least liked names on domestic coalmarket concerns and the deal with Evraz. We see Konstantin Zhevago¡¯selection as an independent parliament member as a positivedevelopment for Ferrexpo, as it decreases long-standing political risks.

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