Mechel Reports 2014 Operational Results

Production and sales for 2014

Production:

Product Name 2014, thousand tonnes 2013, thousand tonnes % 4Q2014, thousand tonnes 3Q2014, thousand tonnes % Run-of-mine coal 22,624 27,516 -18 5,617 5,810 -3 Pig Iron 3,946 3,743 +5 1,036 1,010 +3 Steel 4,269 4,650 -8 1,087 1,055 +3

 Sales:

Product Name 2014, thousand tonnes 2013, thousand tonnes % 4Q2014, thousand tonnes 3Q2014, thousand tonnes % Coking coal concentrate 10,140 11,051 -8 2,360 2,427 -3 PCI 3,063 3,308 -7 620 820 -24 Anthracites 2,107 2,202 -4 581 525 +11 Steam coal 5,958 5,898 +1 1,790 1,640 +9 Iron ore concentrate 3,120 4,166 -25 615 619 -1 Coke 3,233 2,976 +9 913 830 +10 Ferrosilicon 87 94 -7 22 23 -4 Flat products 451 586 -23 119 105 +13 Long products 2,960 3,541 -16 678 695 -2 Billets 117 690 -83 37 19 +95 Hardware 766 852 -10 183 200 -9 Forgings 53 69 -21 13 15 -13 Stampings 84 102 -18 20 20 0 Electric power generation (thousand kWh) 3,682,128 3,972,285 -7 1,084,708 732,043 +48 Heat power generation (Gcal) 5,106,092 6,694,467 -9 1,940,860 790,268 +146

Mechel OAO’s Chief Executive Officer Oleg Korzhov commented on the company’s 2014 results:

“In the past year Mechel Group’s enterprises operated as prices for our key products hit their minimum, with a lack of trade working capital and sweeping cost cuts, as a significant share of our earnings were used to service our debt. We currently continue talks with banks on restructuring our debt, which we hope to complete shortly. Nevertheless, in the mining segment we began restoring our operational results which slumped with the halting of Mechel Bluestone, by increasing production at the Elga deposit. We improved the operation and sales planning system for our steel products and also increased our own output of high value-added products while decreasing sales of third-party products.

“The 18-percent decrease in coal production last year was due largely to the halting of Mechel Bluestone as well as a decrease in mining at Southern Kuzbass Coal Company, which was linked to our program of cutting down stockpiles. Meanwhile we attained a significant increase in coal mining at Elga Coal Complex (over 1.2 million tonnes).

“Despite the volatility at global and domestic markets, sales of coking coal produced by Mechel’s Russian-based enterprises increased by nearly 3% year-on-year due to exports to high-margin markets of Japan and South Korea, and topped 10 million tonnes.

“The 7-percent decrease in PCI coal sales in 2014 was due to a slump in the global market of metallurgical coals. In 2014, we shifted the focus of our sales from Europe and South America to Asia Pacific — PCI exports to Asia Pacific went up by 0.5 million to reach 1.9 million tonnes. The 4-percent decrease in anthracite sales in 2014 is due to a minor decrease in demand from Asian countries. Meanwhile, in order to cut down operational costs in this reporting period, we increased anthracite supplies to Chelyabinsk Metallurgical Plant’s sintering operations.

“The decrease in steam coal sales from Mechel Bluestone in 2014 was fully compensated for by an increase in shipments of Elga steam coal. As a result, the overall sales went up by 1%. Export sales went up by 1 million tonnes to reach 1.9 million tonnes, primarily thanks to China.

“The growth of iron ore concentrate sales in the 4Q2014 as compared to the previous quarter was due to high demand from Chinese enterprises.

“The Group’s steel segment as a result of 2014 mostly maintained its production volumes — pig iron production went up by 5%, steel production went down by 8% mostly due to a decrease in electric furnace steel production at Chelyabinsk Metallurgical Plant and Izhstal. Thus, in 2014 we decreased sales of low-profit products to third parties, taking necessary steps toward increasing billet supplies to the segment’s enterprises. As a whole, we managed to greatly increase the segment’s profitability, partly due to record low prices for coking coal and iron ore, which are the main raw materials for steelmaking.

“The decrease in overall sales of flat and long rolls produced by third parties in 2014 was due to the closure of several Mechel Service Global subsidiaries in Europe. At the same time, sales of our own products increased — flat rolls by 7% and long rolls by 3%.

“In 2014, we sold domestically over 120,000 tonnes of products manufactured by the universal rolling mill, including rails. As of now, the mill has mastered production of 18 shapes, and in 2015 we plan to significantly increase the universal rolling mill’s range of high value-added products. I would like to note that our R65-type rails currently continue to undergo the trials at Russian Railways OAO’s experimental rail ring, and we expect this stage to be completed in May.

“In 2014, the demand for stampings and forgings went down which had a negative impact on our sales of these products (-17% and -21% accordingly).

“Sales of Bratsk Ferroalloy Plant’s products to the Group’s enterprises and third parties went down by 7% due to scheduled major repairs at the plant’s facilities. Domestic ferrosilicon prices have meanwhile demonstrated a positive trend in 2014.

“In our power segment, the chief reason for a 7-percent decrease in electricity production year-on-year was due to scheduled repairs at Southern Kuzbass Power Plant. The 9-percent decrease in heat production was due to our disposal of power facilities in the Chelyabinsk Region in late 2013.”