Cemex Plays Chess with the U.S. Housing Market

MELBOURNE AUSTRALIA 6 December 2006 - We notice that perhaps, not surprisingly, Cemex is keeping a very close watch on the US housing market before it makes its next move with Rinker.

Looking at it logically, Cemex is in a difficult position.  A position not too dissimilar from the investor that believes they have the super powers to predict the exact top and bottom of a market.

By waiting for further information to become available it will be forced to react to the market rather than lead it.  If the signs are that the US housing market is softening further it will no doubt strengthen their current bid and could see the Rinker Ltd. (ASX: RIN) share price fall back much closer to the bid level.

It may also deter potential competing bids as rivals may no longer see value in Rinker at this stage.

Conversely, a positive housing market in the US could push the Rinker share price even higher, and perhaps closer to the AUD$21 level that some market analysts have forecast as not unreasonable.  It will then be up to Cemex to decide whether it wants to pay an extra 10%-20% for the company which would then have some additional value already added into the price, or whether it will take its bat and ball and head back to the Rio Grande.

The next point would be whether the Rinker share price would be self-sustainable at those higher levels in the absence of a bid.  It has been that high only a few months ago, and given the scenario of an improving US housing market, it is certainly not out of the question.

However, at the moment, the signs are still falling on the side of a slowing housing market, making at least half of the above comments purely academic.

So, where can we look for indications of the direction of the US housing market?  Well guessed.  The US.  For a start the October new home sales figure released by the US Commerce Department said that sales declined by 3.2%.

Secondly, we could look at the performance of home building companies and their outlook for the market.  The United State's largest luxury home builder, Toll Brothers Inc. (NYSE: TOL), released results after the close on Monday saying that fourth quarter profit had fallen by 44%.

Further, back in November Toll Brothers advised that orders for the fourth quarter of this year had declined by 58%, and that one third of all customer contracts were cancelled.  In addition, revenue for the company had fallen by 10%.

But perhaps the Toll Brothers management are in fact just as positive about future earning potential as the Rinker management.  Chief Executive Officer Robert Toll said that "Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic seem to be dancing on the bottom or above."

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