Mechel: Things Are Looking Up

Yesterday, the Vedomosti newspaper reported that Mechel (MTL) and the Russian Anti-Monopoly Service had agreed that Mechel should cut its domestic coking coal prices by 8% and would take a fine of 7 or 8 % of revenue (coking coal only accounts for 8% of Mechel’s revenue).

So now to the question on everyone’s mind – is this good news for Mechel? My answer – yes! This is a great decision for the longs, as it shows that the investigation will not result in Mechel being carved for Putin’s cronies, but was rather an attempt to calm double digit Russian inflation.

Though it does now appear that Mechel will be pressured to sell some of its specialized steel assets to Rostechnologie, the state-controlled holding company that controls all major producers of supplies for the Russian Army. The last doubts have been wiped clean – Mechel will NOT become another YUKOS.

The cost? According to Goldman Sachs analyst Vasily Niklaev, the nominal cost of this ruling is about 300 million USD. Which, in my opinion, is a great deal for anyone who bought in post Putin’s comments.

Things are looking up for the longs - option expiration today should be interesting.

Disclosure: Author holds a long position in MTL

Comments

[Jay Cobra:]

I agree with the company specific fundamental side of the story, but the invasion, civil killings and propaganda war in Georgia and threats to bomb Poland are both a deterrent to MTL. Any thoughts?

news.yahoo.com/s/ap/20...

2008 Aug 15 10:18 AM

[User 243925:]

Disagree with the article.

The positive news is that the risk with property rights has dissipated. But that had been priced in days ago - anyone who read unfiltered orignal media reports would know that Putin never wanted to take over MTL.

The negative news is that there is a lack of respect for market economy. FAS should look at the reality of the international coking coal market - Asian steel mills suffer far higher price hikes than their Russian counterparts. If FAS cap the price MTL can charge, all russian resource stocks - not just MTL - would trade down and stay down. Say goodbye to their dream of developing a domestic stock market.

2008 Aug 15 11:45 AM

[MarkMedayski:]

The insiders are out of Mechel Steel at the moment,guy holds losing position (down 70%) and tries to bring you into the same boat while it is sinking.Stay away.

2008 Aug 15 11:57 AM

[john redmond:]

With more than 7000 different stocks available on the American stock exchanges I see no moral or good business reason why any American citizen would need or want to invest with this putrid bunch of theives and murderers. If you insist on doing business with a gang of thugs intent on reducing you to slavery you deserve to lose everything you have.

2008 Aug 20 01:39 PM