Just about to hit the kip and saw your post. Early start in the morning.
Fundamentally I sit in the stronger for longer camp for commodities, including iron ore. Industrialisation of the high population economies is an immutable force.
As I suggested the other day, I believe that there's a clear divergence in strategy starting to emerge between BHP and Rio, driven in the main by the fact that Rio picked up Alcan at the top of the cycle and can't now offload assets to discharge debt. This, in my view will constrain their ability to MGS with companies such as UMC in the ST to MT until demand cranks up.
BHP I believe is not so constrained and may well continue to invest through the cycle. I understand this is consistent with their public pronouncements (often I tend to prefer to do my own digging rather than take on face value what companies say in public).
So, UMC, come 2011?
Still very possible.
How?
As was revealed at the AGM IMO, though, as I've said numerous times, this is a very fluid state of play ATM. Things changing rapidly, and no doubt negotiations, and parties to negotiations.
Who do I think are candidates to get UMC away?
Not Rio for reasons stated above.
BHP maybe. Kloppers much more astute than Albanese in my view and will look at acquisitions at bottom of cycle as he;s already stated publicly (including smaller companies). UMC appear to fit that bill, and are cheap.
Only other candidate IMO, and unless I'm missing something, are the Asian steel mills.
Why?
Proximity to market. Anyone else. Ie, intermediary, and they then have to find a buyer, and it gets hard. Evolving model ATM, is off-take arrangement with equity at same time. That suggests steel mill, locking away offtake.
Only downside out of all of this is that steel mills will drive a very hard bargain if I'm right and if we do it now.
Not sure if anyone gained a sense as to what the company's sense of urgency to do a deal is right now? Obviously cash going forward is going to become increasingly important.
My view on this downturn is that is has the potential to be far longer than the analysts and producers are forecasting: mainly because of all the ancillary impacts the sub-prime/ financial meltdown is having and that people have not been able to forecast with any certainty to now. It seems to be like a cancer in an octopus.
They cut off one arm, only to find that it is leaking in another: with even more devastating impact. Eventually the fiscal capabilities of Governments has got to reach an endpoint.
The UMC SP is not immune to these daily/ weekly/ monthly swings. However, they are relevant for those looking to buy in now. Load in carefully, and over time IMO: rather than all at once to avoid getting burned. I still see this SP hitting A$0.40.
Tell me if this sounds like rubbish, as it's just my opinion. Patience in picking the time to invest further in this stock IMO will be the key as always, and trading opportunities will continue to present it would appear.
Appreciate your thoughts.
BUSH
UMC Price at posting:
70.0¢ Sentiment: Hold Disclosure: Held
