Aug
04
Mechel took another 9.63% haircut today – a worrisome sign for anyone looking for that quick bounce right? Yes, and No. The decline today was on very low volume - 3.87 million shares traded as compared with 22.8 million on July 24th and 34.7 million on July 28th- which means that the today’s rundown can be seen as less legitimate. Moreover, there was a universal price decline in the steel/commodities industries today with US Steel(X) losing 7.63% and POSCO (PKX) losing 6.62%. In addition to that Russia as a whole was down on lower commodity prices and fears surrounding the FOMC meeting tomorrow(I don’t think we are going to see a raise).
In short, I am not worried, not yet at least. Mechel will definitely languish, maybe even hemorrhage equity value, until the Russian Anti Monopoly Committee releases its decision ( The deadline is August 26th – but I think we will hear a ruling in the next 2 weeks as the Russian officials move to calm the increasingly volatile markets.) Moreover, I don’t think Putin is going to dare any sort of attempt to chop up Mechel for his buddies – not with oil’s decline in the last few weeks and Russia’s declining oil output. I just can’t see it happening – Medvedev knows what needs to be done to ensure a sane investment environment and I dare say he might try and assert himself this time.
At least that is what the president is trying to do. On July 30th Medvedev called for there to be no more “nightmares” for Russian businesses and, as for Putin’s vituperative tongue Medvedev responded by saying “Let it be understood that we must stop acting this way.” That a boy Medvedev – don’t be afraid of Putin – you can pee standing up in the Kremlin now that you are the President.
So in the meantime we must all wait and see what happens with the Russian Anti-Monopoly Committee and Putin. I am going to take these next two weeks as an opportunity to stock up on MTL call options on the cheap – those 20-40 delta ones for Sept or later- and I suggest you do the same.
Disclosure- Long MTL
