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