Mechel OAO (ADR) (MTL)

dbillett1 (83.02) Submitted: 9/7/2008 10:50:08 PM : Start Price: $24.16 MTL Score: -8.31

MTL is a Russian coal producer who recently came under attack for its coking coal prices. Coking coal is used in the creation of steal. In July there was a big sell-off of MTL stock that ultimately reduced MTL's market capitiliziation by $8 billion dollars (about 60% of its market value) over fears that the company would be the latest victim of a federal anti-monopoly forced auction of assets similar to what happened to the Russian petroleum giant Yukos.This sell off was caused by a Russian Anti-Monopoly inquiry being launched accusing MTL of abusing its dominant position in the market to increase profits and accused MTL of tax evasion. The inquiry seems to have been spawned by prodding from former Russian President Vladmiir Putin.Of course the real cause of the sharp price in coking coal was shortages world wide of this type of coal. And this fact has caused steel prices to surge around the globe. Russian officials simply needed a scape goat to blame increasing inflation with in the country. And insiders are saying it was also politically motivated, although I couldn't find an article describing to what end.President Dmitry Medvedev has since scrutinized this move by the federal anti-trust agency as harassing and in search of bribes (usually officially written off as fines). In the end, MTL was forced to reduce its price for Coking coal by 15% and pay 5% of coking coal profits for the rest of the year as a fine. MTL has also been asked to sign long term contracts with steel producers to provide coking coal at a similar rate as the government now sets its sights on the steel industry for similar pricing reductions. Coking coal makes up approx. 8% of the companies revenues. So looking forward it seems that the worst is over MTL and it should begin a steady increase back to its former glory. Buying now could lead to gains in the 20 to 30 % range by early next year, but realize this does not come with risk as the Russia-Georgia issue could still cause commodity devaluation from Russian producers. No risk, no glory!