Robust passenger traffic and booming freight traffic has led the Indian Railways sustaining its growth momentum in the current fiscal year (2008–09). Total earnings of the railways have increased by a whopping 19.85 per cent during the first two months of 2008-09.
Total earnings of the Indian railways on an originating basis during April–May 2008 have increased to Rs. 133.34 billion, as against Rs. 111.25 billion in the corresponding period last year.
Goods earnings accounted for the largest share of the total earnings, with a growth rate of 23.54 per cent, contributing Rs. 91.21 billion earnings, compared to Rs. 73.83 billion recorded in the same period last year.
Simultaneously, increase in passenger traffic has led to total passenger earnings of the Indian Railways rising by 12.28 per cent to Rs. 37.27 billion. Similarly, earnings from other coaching and total sundry earnings have increased to Rs. 3.57 billion and Rs. 1.27 billion respectively.
Wednesday, June 11, 2008
Rosebys set for India foray
Rosebys, the UK's largest home textile retail chain, which was acquired by Gujarat Heavy Chemicals in 2006, is set to foray into the domestic market this year with a slew of stores. Aimed to fill the gap between luxury and value segments, Rosebys will be positioned as a premium brand in the domestic organised home linen market.
The company plans to roll out the stores across the country. "We plan to open 700 stores over the next three years in metros and tier-2 and tier-3 cities," Nikhil Sen, director, Rosebys interiors India, told Business Standard.
Unlike its multi brand outlets in the UK, which are known as ‘Rosebys Interiors', the stores in India will be single brand stores under the name ‘Rosebys London' sporting a tagline - Inspiring your imagination. Apart from company owned stores, a major part of expansion will come through the franchisee route.
According to Sen, in India out of the Rs 15,000-crore home linen vertical, the organised sector accounts for only Rs 3,000 crore and is growing at an annual rate of 8-10 per cent, providing ample opportunity to a format like Rosebys.
Going by the new on-the-go culture in the country, the company is targeting working segment in the age group of 25-35 year in the country.
"We aim at providing affordable luxury for everyday lifestyle to people along with helping them save time and money and giving them a feel good environment. Our stores will be very approachable and will cultivate experiential buying in the country," Sen added.
Another growth opportunity the company has identified is gifting. "If something is good for you it is also good enough to be gifted and that change in psyche gives us a great opportunity," Sen said.
Like its stores in the UK, Rosebys India will provide complete home furnishings and lifestyle products from bedding, curtains to kitchen and children's room accessories.Rosebys, has over 320 stores across the UK and is one of the biggest home textile retail chain company in the UK.
While the major part of Rosebys products will be manufactured at GHCL's Vapi plant, the company also plans to source them from contract manufacturers in India and abroad.
The company plans to roll out the stores across the country. "We plan to open 700 stores over the next three years in metros and tier-2 and tier-3 cities," Nikhil Sen, director, Rosebys interiors India, told Business Standard.
Unlike its multi brand outlets in the UK, which are known as ‘Rosebys Interiors', the stores in India will be single brand stores under the name ‘Rosebys London' sporting a tagline - Inspiring your imagination. Apart from company owned stores, a major part of expansion will come through the franchisee route.
According to Sen, in India out of the Rs 15,000-crore home linen vertical, the organised sector accounts for only Rs 3,000 crore and is growing at an annual rate of 8-10 per cent, providing ample opportunity to a format like Rosebys.
Going by the new on-the-go culture in the country, the company is targeting working segment in the age group of 25-35 year in the country.
"We aim at providing affordable luxury for everyday lifestyle to people along with helping them save time and money and giving them a feel good environment. Our stores will be very approachable and will cultivate experiential buying in the country," Sen added.
Another growth opportunity the company has identified is gifting. "If something is good for you it is also good enough to be gifted and that change in psyche gives us a great opportunity," Sen said.
Like its stores in the UK, Rosebys India will provide complete home furnishings and lifestyle products from bedding, curtains to kitchen and children's room accessories.Rosebys, has over 320 stores across the UK and is one of the biggest home textile retail chain company in the UK.
While the major part of Rosebys products will be manufactured at GHCL's Vapi plant, the company also plans to source them from contract manufacturers in India and abroad.
India’s GDP growth may dip to 7%: World Bank
The World Bank has projected India’s GDP (gross domestic product) growth to slow further to seven per cent in 2008 on account of the tight monetary policy in place as a measure to rein in inflation leading to a consequent slowdown in demand for industrial goods.
In its report on ‘Global Development Finance’ released on Tuesday, the World Bank said: “GDP growth in India eased to a still strong 8.7 per cent in 2007, from 9.7 per cent in 2006, and is projected to slow further to 7 per cent in 2008.” The Bank attributed the moderation in the country’s economic growth to the “monetary tightening in 2007 [that] led to softening in domestic demand.”
The report pointed out that although the restrictive monetary policy measures prevented a further surge in the inflationary spiral, the resultant strengthening of the rupee proved detrimental to the exporting community. With the country’s industrial production decelerating to three per cent in April this year, the report noted that there were growing signs of the economy cooling down. However, thanks mainly to the large remittance flows and robust growth in wage rates, the industrial slowdown has not led to a fall in the rate of consumption, it said.
Alongside, the report noted that owing to an overall slowdown affecting most economies, the global GDP growth is projected to slide from 3.7 per cent in 2007 to 2.7 per cent in 2008. Surge in food prices
Aggravating the situation was the worldwide surge in food prices in 2008 and there was a “sharp reduction in purchasing power of the poor,” owing to the increasing gap between wages and food prices. However, the report pointed to the export restrictions imposed by countries such as India, China and Vietnam as the major reason for the soaring global prices of food commodities.
“Among other factors, rice producers such as China, India and Vietnam have introduced export restrictions to keep stocks for domestic use and to prevent sharp domestic price increases; these policies have contributed to the increase in international grain prices,” the Bank said, while noting that “India is self-sufficient, but grain stocks are low and crop production has been on the decline”.
The report pointed out that soaring food prices had become a serious concern in South Asia by early 2008, mainly because food insecurity in the region was relatively high and the rural population have to spend over 50 per cent of their total income on food. It noted that the rapidly rising gap between food prices and wages indicated a sharp reduction in the purchasing power of the poor and the situation had become increasingly acute across the region, especially in Bangladesh and Afghanistan.
Referring to the global turmoil in financial markets, the Bank noted that the turbulence had adversely affected the Indian stock market as well.
“The turmoil in international financial markets...has affected the region primarily through fallouts and weakness in equity market. The latter has been most pronounced in India, particularly during the first quarter,” the report said.
In its report on ‘Global Development Finance’ released on Tuesday, the World Bank said: “GDP growth in India eased to a still strong 8.7 per cent in 2007, from 9.7 per cent in 2006, and is projected to slow further to 7 per cent in 2008.” The Bank attributed the moderation in the country’s economic growth to the “monetary tightening in 2007 [that] led to softening in domestic demand.”
The report pointed out that although the restrictive monetary policy measures prevented a further surge in the inflationary spiral, the resultant strengthening of the rupee proved detrimental to the exporting community. With the country’s industrial production decelerating to three per cent in April this year, the report noted that there were growing signs of the economy cooling down. However, thanks mainly to the large remittance flows and robust growth in wage rates, the industrial slowdown has not led to a fall in the rate of consumption, it said.
Alongside, the report noted that owing to an overall slowdown affecting most economies, the global GDP growth is projected to slide from 3.7 per cent in 2007 to 2.7 per cent in 2008. Surge in food prices
Aggravating the situation was the worldwide surge in food prices in 2008 and there was a “sharp reduction in purchasing power of the poor,” owing to the increasing gap between wages and food prices. However, the report pointed to the export restrictions imposed by countries such as India, China and Vietnam as the major reason for the soaring global prices of food commodities.
“Among other factors, rice producers such as China, India and Vietnam have introduced export restrictions to keep stocks for domestic use and to prevent sharp domestic price increases; these policies have contributed to the increase in international grain prices,” the Bank said, while noting that “India is self-sufficient, but grain stocks are low and crop production has been on the decline”.
The report pointed out that soaring food prices had become a serious concern in South Asia by early 2008, mainly because food insecurity in the region was relatively high and the rural population have to spend over 50 per cent of their total income on food. It noted that the rapidly rising gap between food prices and wages indicated a sharp reduction in the purchasing power of the poor and the situation had become increasingly acute across the region, especially in Bangladesh and Afghanistan.
Referring to the global turmoil in financial markets, the Bank noted that the turbulence had adversely affected the Indian stock market as well.
“The turmoil in international financial markets...has affected the region primarily through fallouts and weakness in equity market. The latter has been most pronounced in India, particularly during the first quarter,” the report said.
MARKET PREDICTION
GLOBAL MARKET ARE IN MIXED...
CRUDE CORRECTED SIGNIFICANTLY TO $131(APRX)
$ VS INR 42.94 GOOD FOR IT AND PHARMA STOCKS..
NIFTY IS WITNESSING HEAVY SELLING BECAUSE OF FIIs SELLING PRESSURE SINCE LAST FEW SESSION. EVERY HIGH IS WITNESSING SELLING PRESSURE AND IT PUSHING THE MARKET DOWN.
TODAY'S LEVEL OF NIFTY 4400-4500-4535 GO LONG IF MARKET HOLDS 4400 WITH SL OF 4370
SECTORS:
PHARMA AND IT @ 4500 LEVEL
ABOVE 4500 LEVEL GO LONG IN CONSTRUCTION AND BANKING .
TOTAL MARKET OI IS 74K CR AND PUT CALL RATIO IS 1.48%.
HAVE A NICE TRADING DAY.
-MR SAM
CRUDE CORRECTED SIGNIFICANTLY TO $131(APRX)
$ VS INR 42.94 GOOD FOR IT AND PHARMA STOCKS..
NIFTY IS WITNESSING HEAVY SELLING BECAUSE OF FIIs SELLING PRESSURE SINCE LAST FEW SESSION. EVERY HIGH IS WITNESSING SELLING PRESSURE AND IT PUSHING THE MARKET DOWN.
TODAY'S LEVEL OF NIFTY 4400-4500-4535 GO LONG IF MARKET HOLDS 4400 WITH SL OF 4370
SECTORS:
PHARMA AND IT @ 4500 LEVEL
ABOVE 4500 LEVEL GO LONG IN CONSTRUCTION AND BANKING .
TOTAL MARKET OI IS 74K CR AND PUT CALL RATIO IS 1.48%.
HAVE A NICE TRADING DAY.
-MR SAM
Apple Aims for the Masses With a Cheaper iPhone
Steven P. Jobs, chief executive of Apple, introduced a new cheaper iPhone model on Monday that navigates the Internet more quickly, expanded its distribution overseas and displayed a range of new applications and services in order to establish Apple as a major player in the cellphone industry.
Apple, the maker of consumer electronics and computer equipment, had set a goal of selling 10 million iPhones in 2008, which would establish it as one of the major smartphone makers in the less than two years since it began shipping the original iPhone. Apple has sold six million phones globally since its introduction.
Analysts said that Mr. Jobs, one of the world’s best product marketers, had largely accomplished what he set out to do and they welcomed the moves he outlined in a presentation before software developers on Monday.
“This is the phone that has changed phones forever,” Mr. Jobs said.
Mr. Jobs said the new iPhone 3G, to be available in the United States through AT&T beginning on July 11, will sell for $199 for the 8-gigabyte model and $299 for a 16-gigabyte model. He said the biggest barrier to people buying the phone had been price.
Analysts and industry executives said they believed the lower prices would bring in new consumers who had been put off by its $399 price. “The price is clearly correct,” said Mike McGuire, a research vice president at Gartner, a market research firm based in San Jose, Calif.
As widely anticipated, the phone will run on so-called 3G wireless networks that allow much faster Internet connections than the original iPhone. During a 110-minute presentation, Mr. Jobs went to some lengths to compare the speed of the new iPhone 3G to the current phone and to rival phones like the Nokia N95 and the Palm Treo 750. He called downloads “amazingly zippy.”
The phone, sleeker than the original, will also have built-in Global Positioning System capability to allow location-based services. It will also have a longer battery life in some cases, five hours for talking on the 3G network and 24 hours for playing music on the phone.
The announcements came on the opening day of Apple’s Worldwide Developers Conference, where several developers showed off software that turned the iPhone into a game console and a musical instrument. Others demonstrated programs that used the phone’s ability to locate its users on a map.
At one point during his demonstration, Mr. Jobs showed a tracking feature making it possible to watch on a Google map as an iPhone user drove down Lombard Street, the twisty tourist attraction in San Francisco.
Mr. Jobs also indirectly challenged Microsoft with a mobile Web service call MobileMe, intended to permit a user to synchronize a phone, calendar and contact information on the iPhone and multiple devices including PCs and other iPhones. The service, which will costs $99 a year and comes with 20 gigabytes of data storage, is similar to a service offered by Microsoft.
Apple’s obstacle in offering the new service is that its competitors, like Google, offer similar services for less. Google offers 10 gigabytes of e-mail storage for $20 a year.
Apple announced that it would begin selling the iPhone in 70 countries this summer; the current phone is being sold in six countries.
“Given the feature set, ecosystem partners, launch countries and the pricing of the iPhone, they are likely to hit the 10 million mark by September-October,” said Chetan Sharma, an independent consultant on the wireless data communications industry.
The company, based in Cupertino, Calif., announced on Monday in a regulatory filing that it would sell the 3G phones under different business arrangements in the United States. In the past, Apple shared service plan revenue with AT&T and other cellular firms. The second-generation iPhone will be sold without the recurring revenue streams and without the exclusivity arrangements it was previously able to command.
While trying to convince cellular carriers around the world that they should carry the iPhone, Apple realized that it needed to change the financial deal that it had with the carriers in the first six countries.
“We’ve changed our business model, from getting a cut of the future revenues to just a more traditional model,” Mr. Jobs said in an interview on Monday. “That’s enabled us to roll out around the world much faster.”
AT&T said it would subsidize the phones to attract consumers. Under the plan, unlimited iPhone 3G data plans for consumers will be available for $30 a month, in addition to voice plans starting at $40. Business users will be charged $45 a month for data.
By giving back the revenue to the carriers, which they may use for subsidies, Apple is hoping to dramatically increase its volume, as well as sell more Macintosh computers to iPhone users.
“It’s not about the iPhone,” said Charles Wolf, a financial analyst at Needham & Company. “There’s a tradeoff that Apple is making. The iPhone halo effect will be far more powerful than the iPod halo effect was. It’s going to stimulate Mac sales among iPhone users.”
Apple, the maker of consumer electronics and computer equipment, had set a goal of selling 10 million iPhones in 2008, which would establish it as one of the major smartphone makers in the less than two years since it began shipping the original iPhone. Apple has sold six million phones globally since its introduction.
Analysts said that Mr. Jobs, one of the world’s best product marketers, had largely accomplished what he set out to do and they welcomed the moves he outlined in a presentation before software developers on Monday.
“This is the phone that has changed phones forever,” Mr. Jobs said.
Mr. Jobs said the new iPhone 3G, to be available in the United States through AT&T beginning on July 11, will sell for $199 for the 8-gigabyte model and $299 for a 16-gigabyte model. He said the biggest barrier to people buying the phone had been price.
Analysts and industry executives said they believed the lower prices would bring in new consumers who had been put off by its $399 price. “The price is clearly correct,” said Mike McGuire, a research vice president at Gartner, a market research firm based in San Jose, Calif.
As widely anticipated, the phone will run on so-called 3G wireless networks that allow much faster Internet connections than the original iPhone. During a 110-minute presentation, Mr. Jobs went to some lengths to compare the speed of the new iPhone 3G to the current phone and to rival phones like the Nokia N95 and the Palm Treo 750. He called downloads “amazingly zippy.”
The phone, sleeker than the original, will also have built-in Global Positioning System capability to allow location-based services. It will also have a longer battery life in some cases, five hours for talking on the 3G network and 24 hours for playing music on the phone.
The announcements came on the opening day of Apple’s Worldwide Developers Conference, where several developers showed off software that turned the iPhone into a game console and a musical instrument. Others demonstrated programs that used the phone’s ability to locate its users on a map.
At one point during his demonstration, Mr. Jobs showed a tracking feature making it possible to watch on a Google map as an iPhone user drove down Lombard Street, the twisty tourist attraction in San Francisco.
Mr. Jobs also indirectly challenged Microsoft with a mobile Web service call MobileMe, intended to permit a user to synchronize a phone, calendar and contact information on the iPhone and multiple devices including PCs and other iPhones. The service, which will costs $99 a year and comes with 20 gigabytes of data storage, is similar to a service offered by Microsoft.
Apple’s obstacle in offering the new service is that its competitors, like Google, offer similar services for less. Google offers 10 gigabytes of e-mail storage for $20 a year.
Apple announced that it would begin selling the iPhone in 70 countries this summer; the current phone is being sold in six countries.
“Given the feature set, ecosystem partners, launch countries and the pricing of the iPhone, they are likely to hit the 10 million mark by September-October,” said Chetan Sharma, an independent consultant on the wireless data communications industry.
The company, based in Cupertino, Calif., announced on Monday in a regulatory filing that it would sell the 3G phones under different business arrangements in the United States. In the past, Apple shared service plan revenue with AT&T and other cellular firms. The second-generation iPhone will be sold without the recurring revenue streams and without the exclusivity arrangements it was previously able to command.
While trying to convince cellular carriers around the world that they should carry the iPhone, Apple realized that it needed to change the financial deal that it had with the carriers in the first six countries.
“We’ve changed our business model, from getting a cut of the future revenues to just a more traditional model,” Mr. Jobs said in an interview on Monday. “That’s enabled us to roll out around the world much faster.”
AT&T said it would subsidize the phones to attract consumers. Under the plan, unlimited iPhone 3G data plans for consumers will be available for $30 a month, in addition to voice plans starting at $40. Business users will be charged $45 a month for data.
By giving back the revenue to the carriers, which they may use for subsidies, Apple is hoping to dramatically increase its volume, as well as sell more Macintosh computers to iPhone users.
“It’s not about the iPhone,” said Charles Wolf, a financial analyst at Needham & Company. “There’s a tradeoff that Apple is making. The iPhone halo effect will be far more powerful than the iPod halo effect was. It’s going to stimulate Mac sales among iPhone users.”
Airlines Seek Out New Ways to Save on Fuel as Costs Soar
The nation’s airlines are scrutinizing every step of their operations, from the tarmac to the sky, and from the nose to the tail of their planes, searching for new ways to cut their soaring fuel bills.
They are power-washing jet engines more often to get rid of grime, carrying less water for the bathroom faucets and toilets, and replacing passenger seats with lighter models.
The financial pain of higher fuel prices is particularly acute for airlines because it is their single biggest expense. Eight years ago, 15 percent of the price of an airplane ticket went to pay for jet fuel; now, it is 40 percent, according to the Air Transport Association, the industry’s trade group.
If prices stay where they are, the nation’s airlines will collectively spend $61.2 billion this year on jet fuel — more than five times what they spent in 2002, when travel fell sharply after the September 2001 terrorist attacks.
Every increase in the price of fuel, already up 84 percent compared with last year, increases the pressure on the carriers, which pump about 7,000 gallons into a Boeing 737 and as much as 60,000 gallons into bigger 747s.
Airlines are raising fares and adding surcharges and fees as fast as they can, but at a certain point, passengers stay home. That’s why the carriers are looking for any new savings they can find.
“Our fleet is over 500 airplanes,” said Beth Harbin, a Southwest spokeswoman. “If you can make a difference on one airplane on one flight, and multiply that by 500, in this day and age that is significant.”
Although airlines have tried fuel-saving measures for years, they attacked the problem with renewed urgency when oil passed $100 a barrel this year. Now, all airlines are urging employees to suggest ways, large and small, to cut fuel use.
Carriers save the most by parking aging aircraft, of course, and many are already doing so. Northwest is retiring DC-9 jets it has used for decades; American is grounding some of its MD-80s, while United is parking six 747s.
Each generation of aircraft is more efficient. At Northwest, the Airbus A330 long-range jets use 38 percent less fuel than the DC-10s they replaced, while the Airbus A319 medium-range planes are 27 percent more efficient than DC-9s, said Tim McGraw, Northwest’s director of corporate environmental and safety programs.
But even specks of dirt are considered culprits. American and Southwest are washing a handful of jet engines each night, a process that used to happen only during thorough maintenance overhauls. Southwest figures it has already saved $1.6 million in fuel costs since April by reducing the drag caused by dirt and debris.
American, for one, expects to save roughly $330.7 million this year, or about 3.5 percent on a total fuel bill that will approach $9.26 billion.
A number of airlines are flying their planes somewhat slower in order to save fuel — 480 miles an hour, for example, instead of the usual cruising speed of 500 m.p.h.
Five years ago, Delta estimated the flying time from Los Angeles to Atlanta at 4 hours, 12 minutes; now it is 4 hours and 18 minutes at a lower speed. (The airline has not changed its timetable, which sets aside about four and a half hours for the trip, including taxiing time.)
Up in the cockpit, Delta is studying whether it is feasible to divide the heavy pilot manuals required on each flight between the captain and first officer, so pilots are not toting duplicate sets of five or six books that each weigh about a pound and a half.
Eventually, the airline wants to eliminate printed manuals and display the information on computer screens, a step the government would have to approve.
“That’s very much where we want to go,” said Gary Edwards, Delta’s director of flight control. “That’s the wave of the future.”
Passengers may notice other changes. Airlines including Delta are swapping heavier seats for models weighing about 5 pounds less. American is replacing its bulky drink carts with ones that are 17 pounds lighter. The airline said that move will help save 1.9 million gallons of fuel a year, on top of the 96 million gallons it is saving through other means.
Water is another target. Northwest is putting 25 percent less water for bathroom faucets and toilets on its international flights, Mr. McGraw said. Most planes had been returning from long flights with their tanks half full, an unneeded expense given that water weighs 8.3 pounds a gallon and a gallon of jet fuel is 6.8 pounds.
“Every 25 pounds we remove, we save $440,000 a year,” Mr. McGraw said.
Airlines also are trying to cut fuel consumption at the airport. Most now run their planes’ electrical systems at the gate by plugging them into outlets, rather than running the engines.
“We’re really fine-tuning to get to that sweet spot of efficiency,” said Mr. Edwards of Delta.
Northwest has studied everything from providing customers with packing tips to serving soda from two-liter plastic bottles rather than individual cans. But it decided that customers would balk at that idea.
“They like the can,” Mr. McGraw said. “They want the can.”
They are power-washing jet engines more often to get rid of grime, carrying less water for the bathroom faucets and toilets, and replacing passenger seats with lighter models.
The financial pain of higher fuel prices is particularly acute for airlines because it is their single biggest expense. Eight years ago, 15 percent of the price of an airplane ticket went to pay for jet fuel; now, it is 40 percent, according to the Air Transport Association, the industry’s trade group.
If prices stay where they are, the nation’s airlines will collectively spend $61.2 billion this year on jet fuel — more than five times what they spent in 2002, when travel fell sharply after the September 2001 terrorist attacks.
Every increase in the price of fuel, already up 84 percent compared with last year, increases the pressure on the carriers, which pump about 7,000 gallons into a Boeing 737 and as much as 60,000 gallons into bigger 747s.
Airlines are raising fares and adding surcharges and fees as fast as they can, but at a certain point, passengers stay home. That’s why the carriers are looking for any new savings they can find.
“Our fleet is over 500 airplanes,” said Beth Harbin, a Southwest spokeswoman. “If you can make a difference on one airplane on one flight, and multiply that by 500, in this day and age that is significant.”
Although airlines have tried fuel-saving measures for years, they attacked the problem with renewed urgency when oil passed $100 a barrel this year. Now, all airlines are urging employees to suggest ways, large and small, to cut fuel use.
Carriers save the most by parking aging aircraft, of course, and many are already doing so. Northwest is retiring DC-9 jets it has used for decades; American is grounding some of its MD-80s, while United is parking six 747s.
Each generation of aircraft is more efficient. At Northwest, the Airbus A330 long-range jets use 38 percent less fuel than the DC-10s they replaced, while the Airbus A319 medium-range planes are 27 percent more efficient than DC-9s, said Tim McGraw, Northwest’s director of corporate environmental and safety programs.
But even specks of dirt are considered culprits. American and Southwest are washing a handful of jet engines each night, a process that used to happen only during thorough maintenance overhauls. Southwest figures it has already saved $1.6 million in fuel costs since April by reducing the drag caused by dirt and debris.
American, for one, expects to save roughly $330.7 million this year, or about 3.5 percent on a total fuel bill that will approach $9.26 billion.
A number of airlines are flying their planes somewhat slower in order to save fuel — 480 miles an hour, for example, instead of the usual cruising speed of 500 m.p.h.
Five years ago, Delta estimated the flying time from Los Angeles to Atlanta at 4 hours, 12 minutes; now it is 4 hours and 18 minutes at a lower speed. (The airline has not changed its timetable, which sets aside about four and a half hours for the trip, including taxiing time.)
Up in the cockpit, Delta is studying whether it is feasible to divide the heavy pilot manuals required on each flight between the captain and first officer, so pilots are not toting duplicate sets of five or six books that each weigh about a pound and a half.
Eventually, the airline wants to eliminate printed manuals and display the information on computer screens, a step the government would have to approve.
“That’s very much where we want to go,” said Gary Edwards, Delta’s director of flight control. “That’s the wave of the future.”
Passengers may notice other changes. Airlines including Delta are swapping heavier seats for models weighing about 5 pounds less. American is replacing its bulky drink carts with ones that are 17 pounds lighter. The airline said that move will help save 1.9 million gallons of fuel a year, on top of the 96 million gallons it is saving through other means.
Water is another target. Northwest is putting 25 percent less water for bathroom faucets and toilets on its international flights, Mr. McGraw said. Most planes had been returning from long flights with their tanks half full, an unneeded expense given that water weighs 8.3 pounds a gallon and a gallon of jet fuel is 6.8 pounds.
“Every 25 pounds we remove, we save $440,000 a year,” Mr. McGraw said.
Airlines also are trying to cut fuel consumption at the airport. Most now run their planes’ electrical systems at the gate by plugging them into outlets, rather than running the engines.
“We’re really fine-tuning to get to that sweet spot of efficiency,” said Mr. Edwards of Delta.
Northwest has studied everything from providing customers with packing tips to serving soda from two-liter plastic bottles rather than individual cans. But it decided that customers would balk at that idea.
“They like the can,” Mr. McGraw said. “They want the can.”
Tuesday, June 10, 2008
MARKET NEWS
- Suzlon's largest client in the US, Edison Mission Energy, has cancelled an order for 150 turbines. After this cancellation, Suzlon's order backlog has been reduced by 315 MW capacity of wind turbines.Suzlon shares today ended 6.5% lower at Rs 261.80 per share.
- Mahindra & Mahindra (M&M's) deal with Kinetic Motors could be sealed in the next eight weeks. M&M may pick up 76% and then may offload 25% later to a technology partner, quoting sources.
- Financial services major Credit Suisse on Monday said the government is likely to support rupee as the rapidly falling local unit is causing visible pressure on the country's oil and fertilisers deficit bill.
- THE Securities and Exchange Board of India(Sebi) has proposed shortening the period for disclosure of information relating to any large purchase or sale of shares by a shareholder or company official from the existing nine days to two days by amending certain provisions of the insider trading rules.
- India's May gold imports slump over 59 percent as high prices .
- surprise increase in pending home sales data to 6.3% fromthe expected levels of -1.0% for the month of April helped the U.S dollar to gain against the majors.
- BSNL reduced rates for all STD calls from landlines to Rs 1.20 per minute from Rs 2.40 per minute. For rural customers, the company has slashed the STD rates to 0.80 paise per minute.
- The mines ministry today awarded the world’s largest steel maker, ArcelorMittal, a mining lease for an iron-ore bearing land spread over 500 hectares at Meghataburu in Jharkhand.
Monday, June 09, 2008
Reason For Global Turmoil
The bulls are faced with tough times, thanks to concerns pertaining to high inflation, rising input costs and earnings deceleration among other factors.
It all started with the US subprime problem and the global credit crunch, which led the BSE Sensex nosediving from its peak of 21,206 on January 10, 2008 to 14,677 on March 18. A part of the fall can also be attributed to the concerns pertaining to the increase in crude oil prices and its impact on India's economic growth.
Some of the early signs were also visible from rising inflation and the slowdown in domestic industrial production numbers. This further led to concerns over high interest rates, slowdown in GDP and thus, corporate earnings as well.
Sensing these developments, foreign institutional investors (FIIs) were the first ones to move out of the market, and they partly became the reason for the markets to fall.
End of the bloodbath?If the global and domestic problems persist, experts predict the Sensex to fall to 12,000-14,500 levels. Though bold and unbelievable, there are few players who are predicting that the Sensex may touch the 9,000 levels.
While we are not predicting the Sensex levels, we jot down and bring certain factors that may determine the future course of the markets and what investors should do during these uncertain times.
Crude realitiesNo investor will be willing to invest in an asset headed for reporting lower profits and no asset can be profitable if costs are higher than realisations.
Crude oil is one such commodity, whether it is the economy (macro) or corporate profitability (micro), which is considered to be the source of most of the problems.
While crude oil prices had corrected to $125 levels, after crossing $135 a barrel mark, it again scaled a new peak of $139.12 a barrel last week. There are reports predicting that it will go to $150 to $200 a barrel.
There are several reasons attributed to the recent spike in the crude oil prices including increased financial investments and a marginal rise in costs of oil production.
Whether the crude oil price rises to such high levels or not, experts suggest that the good old days of cheap oil may be gone for a long time to come.
Bloating deficitAccording to studies, a $10 increase in the crude oil prices may reduce India's GDP growth by about 0.3 percentage points and an increase in the consumer price index by 1.2 percentage points.
India imports about 70 per cent of its oil requirements, suggesting that at current levels, it will have to pay a significantly higher amount to meet demand. It has already led to a large trade deficit (over 7 per cent of the GDP).
Fiscal deficit, which is currently at about 3 per cent of the GDP, could reach to 10 per cent levels if the fertiliser, food, farm and oil subsidies are added.
Hence, further rise in crude oil prices will only make things worse. Not only this, rising oil will have serious consequences on others things as well.
"If crude oil touches $150 levels and sustains there, it will be a crude awakening for the global as well as for India. India's annual import bill will touch to $140 billion against the $78 billion estimated for the FY08," says Devendra Nevgi, CEO and CIO, Quantum Mutual Fund.High inflationHigh crude oil prices would have a sweeping impact on the Indian economy.
To put forth some of them: Higher inflation rate, rupee depreciation, increasing trade account and fiscal deficit, and firm interest rates. The other side of an oil shock would probably the ensuing political instability and social unrest.
The inflation rate, which is already high at over 8 per cent, could emerge as a key concern. Economists share different views with regards to inflation reaching the double digit figure in the short term, and if not, it could range at about 7-8 per cent, especially after the recent hike in the petrol and diesel prices.
"We are yet to see the cascading effect of recent spike in oil prices, and the recent hike in fuel prices will further translate into higher inflation in the weeks to come. We think the inflation rate is heading towards 9 per cent levels, however it will ease out in the later part of the year," says, Anand Krishnamurthy, Co-Head Global Markets, HSBC.
Experts observe that the high oil prices will further increase the cost of goods and not to mention, the logistic costs itself, which is expected to go up by another 10-15 per cent as most of the truck operators have increased rentals.
And to join the league, we have already seen airlines companies increasing the fuel surcharge by 15-20 per cent on the ticket price.
So, either the companies will have to increase the prices of goods sold or services rendered or they will have to take a hit on margins. This will certainly lead to overall cost push on other sectors and may discourage the consumer spending further. In both the cases, either the sales volumes will come down or margins thus, lower earnings for companies. (Click here for tables)
Interest rate worriesOne of the objectives of the monetary policy in India has been achieving price stability, which the RBI may try to achieve even at the cost of giving up growth. If inflation spirals, the RBI may also raise either the CRR (cash reserve ratio) or the repo rate, depending on the prevailing situation.
The RBI's comfort level for inflation rate is 5.50 per cent, whereas the current level is 8.24 per cent. As there are worries over the rising interest rates, the economist also predict higher interest rates, which along with other factors would shave off around 50-75 basis point from the GDP growth rate.
"It seems that the economy will slow down, closer to its long term average of around 6-7% for the next decade. Higher inflation and rising crude oil prices remain a risk to the Indian growth story," says Devendra Nevgi.
Earnings slowdownThe high interest rates along with the factors like inflation and higher commodity prices will hit India Inc negatively. The domestic cost of capital has already increased, with the prime lending rates having gone up by 175 basis points since the second half of 2006 to 12.5 per cent currently.
Also, the housing loans have become more expensive, while in many of the cases the banks are charging about 18-22 per cent for the two wheeler and personal loans. As a result of this, the bank credit growth has come down to about 24 per cent as against the recent high of over 30 per cent in January 2007.
This will not only hit the banks' income growth, but also hit the companies immediately, due to higher interest outgo and slow down in the consumer demand. The early sign of this is seen in the slow down in industrial production to 5.8 per cent during the quarter ended March 2008 compared to over 10 per cent a few months ago.
The lag effect is also felt by the companies. According to estimates, sales growth of a cluster of 1,524 companies, excluding oil and gas and finance companies, was 14 per cent year-on-year (YoY) during the quarter ended March 2008 as against the recent peak of 28.9 per cent YoY growth during the quarter ended September 2006.
Analysts expect this trend to continue going forward if the various issues, as mentioned above, remain.
"We think the Sensex earnings growth will slow down in FY09 mainly on account of margin pressure across the sectors led by input costs of power, coal and other raw materials. Also, higher interest rates and slower credit growth should pressure the banking sector," says Harendra Kumar, head research, Centrum Broking.
"Yes, moderation in earnings is quite visible. With increase in input costs (of materials, human resources and capital) margins are also under pressure. We have seen decline in margins of companies from the IT, automobiles, engineering, capital goods and logistics sectors" Says Bhavesh Shah, VP Research, Asit C Mehta Investment Intermediates.
Though not all sectors will witness a slowdown, certain sectors will be more vulnerable, such as financials and banking services, real estate, industrials, capital goods and auto, among a few others.
Analysts are also predicting a slowdown in the BSE Sensex earnings in the FY09 in the range of about 5-10 per cent.
"We expect Sensex EPS to be Rs 1,001 for FY09. We have revised this slightly lower (by one per cent) over the past couple of months from Rs 1,012, but do believe that the risk for further downward revisions does exist," says Ajay Loganadan, Head Investment Advisory Group, HSBC Private Banking.
Foreign capitalConsidering these issues coupled with the slowdown in the earnings, market participants say that the Indian equity markets are relatively expensive as compared to other emerging markets. Also, this is cited as one of the reasons for the FIIs selling witnessed lately.
The depreciation of the rupee has lowered net returns (in dollar terms) for FIIs.
While sharing his view on the FII investments, Ajay Loganadan say, "FIIs have been net sellers of Indian equities to the tune of about $4.2 billion with about $1.2 billion of this selling coming in May.
Given the high levels of risk aversion and P/E contraction, we could expect flows to remain muted over the near term. Fund flow for the rest of the year will depend on global news flow and the perception of risk amongst foreign investors. Also, rising trade and fiscal deficits are not viewed very favourably by FIIs."
Global marketsBesides the FII flows the direction of the market will be determined by the global developments, which are not considered to be very favourable. "In our view, global markets are going to remain weak over the next 12 months.
US Housing data continues to get worse, record number of small businesses in the US are filing for bankruptcy (5,000 in April 2008 alone), debt of 174 large US companies is trading at distressed levels.
In these circumstances, it is tough to make a case for stability in the US financial space," says Madhusudan Rajagopalan, Director, Aranca India Operations. Besides the instability and slow down in the US, analysts also see more risk due to the sub prime crisis. So far, major banks and other financial institutions across the world have reported losses of approximately $380 billion. In a recent development, Lehman Brothers Holding, a top investment bank in the US is expected to raise approximately $4 billion to shore up its balance sheet after incurring losses due to the subprime crisis (S&Powngraded its ratings).
The rating agency also downgraded credit ratings of Merrill Lynch and Morgan Stanley, saying they may have to book more write-downs on devalued assets.
OutlookFor many, it is a bearish market due to the negative micro and macro factors that are affecting the markets, while for others it is the right time to invest and use the lower levels as an opportunity to invest for the long term. Considering that these issues remain, it also indicates that there are concerns for the market to rise from here in the near term.
A good monsoon, lower inflation rate along with the better global cues could be the positive triggers, which though seem some time away.
It all started with the US subprime problem and the global credit crunch, which led the BSE Sensex nosediving from its peak of 21,206 on January 10, 2008 to 14,677 on March 18. A part of the fall can also be attributed to the concerns pertaining to the increase in crude oil prices and its impact on India's economic growth.
Some of the early signs were also visible from rising inflation and the slowdown in domestic industrial production numbers. This further led to concerns over high interest rates, slowdown in GDP and thus, corporate earnings as well.
Sensing these developments, foreign institutional investors (FIIs) were the first ones to move out of the market, and they partly became the reason for the markets to fall.
End of the bloodbath?If the global and domestic problems persist, experts predict the Sensex to fall to 12,000-14,500 levels. Though bold and unbelievable, there are few players who are predicting that the Sensex may touch the 9,000 levels.
While we are not predicting the Sensex levels, we jot down and bring certain factors that may determine the future course of the markets and what investors should do during these uncertain times.
Crude realitiesNo investor will be willing to invest in an asset headed for reporting lower profits and no asset can be profitable if costs are higher than realisations.
Crude oil is one such commodity, whether it is the economy (macro) or corporate profitability (micro), which is considered to be the source of most of the problems.
While crude oil prices had corrected to $125 levels, after crossing $135 a barrel mark, it again scaled a new peak of $139.12 a barrel last week. There are reports predicting that it will go to $150 to $200 a barrel.
There are several reasons attributed to the recent spike in the crude oil prices including increased financial investments and a marginal rise in costs of oil production.
Whether the crude oil price rises to such high levels or not, experts suggest that the good old days of cheap oil may be gone for a long time to come.
Bloating deficitAccording to studies, a $10 increase in the crude oil prices may reduce India's GDP growth by about 0.3 percentage points and an increase in the consumer price index by 1.2 percentage points.
India imports about 70 per cent of its oil requirements, suggesting that at current levels, it will have to pay a significantly higher amount to meet demand. It has already led to a large trade deficit (over 7 per cent of the GDP).
Fiscal deficit, which is currently at about 3 per cent of the GDP, could reach to 10 per cent levels if the fertiliser, food, farm and oil subsidies are added.
Hence, further rise in crude oil prices will only make things worse. Not only this, rising oil will have serious consequences on others things as well.
"If crude oil touches $150 levels and sustains there, it will be a crude awakening for the global as well as for India. India's annual import bill will touch to $140 billion against the $78 billion estimated for the FY08," says Devendra Nevgi, CEO and CIO, Quantum Mutual Fund.High inflationHigh crude oil prices would have a sweeping impact on the Indian economy.
To put forth some of them: Higher inflation rate, rupee depreciation, increasing trade account and fiscal deficit, and firm interest rates. The other side of an oil shock would probably the ensuing political instability and social unrest.
The inflation rate, which is already high at over 8 per cent, could emerge as a key concern. Economists share different views with regards to inflation reaching the double digit figure in the short term, and if not, it could range at about 7-8 per cent, especially after the recent hike in the petrol and diesel prices.
"We are yet to see the cascading effect of recent spike in oil prices, and the recent hike in fuel prices will further translate into higher inflation in the weeks to come. We think the inflation rate is heading towards 9 per cent levels, however it will ease out in the later part of the year," says, Anand Krishnamurthy, Co-Head Global Markets, HSBC.
Experts observe that the high oil prices will further increase the cost of goods and not to mention, the logistic costs itself, which is expected to go up by another 10-15 per cent as most of the truck operators have increased rentals.
And to join the league, we have already seen airlines companies increasing the fuel surcharge by 15-20 per cent on the ticket price.
So, either the companies will have to increase the prices of goods sold or services rendered or they will have to take a hit on margins. This will certainly lead to overall cost push on other sectors and may discourage the consumer spending further. In both the cases, either the sales volumes will come down or margins thus, lower earnings for companies. (Click here for tables)
Interest rate worriesOne of the objectives of the monetary policy in India has been achieving price stability, which the RBI may try to achieve even at the cost of giving up growth. If inflation spirals, the RBI may also raise either the CRR (cash reserve ratio) or the repo rate, depending on the prevailing situation.
The RBI's comfort level for inflation rate is 5.50 per cent, whereas the current level is 8.24 per cent. As there are worries over the rising interest rates, the economist also predict higher interest rates, which along with other factors would shave off around 50-75 basis point from the GDP growth rate.
"It seems that the economy will slow down, closer to its long term average of around 6-7% for the next decade. Higher inflation and rising crude oil prices remain a risk to the Indian growth story," says Devendra Nevgi.
Earnings slowdownThe high interest rates along with the factors like inflation and higher commodity prices will hit India Inc negatively. The domestic cost of capital has already increased, with the prime lending rates having gone up by 175 basis points since the second half of 2006 to 12.5 per cent currently.
Also, the housing loans have become more expensive, while in many of the cases the banks are charging about 18-22 per cent for the two wheeler and personal loans. As a result of this, the bank credit growth has come down to about 24 per cent as against the recent high of over 30 per cent in January 2007.
This will not only hit the banks' income growth, but also hit the companies immediately, due to higher interest outgo and slow down in the consumer demand. The early sign of this is seen in the slow down in industrial production to 5.8 per cent during the quarter ended March 2008 compared to over 10 per cent a few months ago.
The lag effect is also felt by the companies. According to estimates, sales growth of a cluster of 1,524 companies, excluding oil and gas and finance companies, was 14 per cent year-on-year (YoY) during the quarter ended March 2008 as against the recent peak of 28.9 per cent YoY growth during the quarter ended September 2006.
Analysts expect this trend to continue going forward if the various issues, as mentioned above, remain.
"We think the Sensex earnings growth will slow down in FY09 mainly on account of margin pressure across the sectors led by input costs of power, coal and other raw materials. Also, higher interest rates and slower credit growth should pressure the banking sector," says Harendra Kumar, head research, Centrum Broking.
"Yes, moderation in earnings is quite visible. With increase in input costs (of materials, human resources and capital) margins are also under pressure. We have seen decline in margins of companies from the IT, automobiles, engineering, capital goods and logistics sectors" Says Bhavesh Shah, VP Research, Asit C Mehta Investment Intermediates.
Though not all sectors will witness a slowdown, certain sectors will be more vulnerable, such as financials and banking services, real estate, industrials, capital goods and auto, among a few others.
Analysts are also predicting a slowdown in the BSE Sensex earnings in the FY09 in the range of about 5-10 per cent.
"We expect Sensex EPS to be Rs 1,001 for FY09. We have revised this slightly lower (by one per cent) over the past couple of months from Rs 1,012, but do believe that the risk for further downward revisions does exist," says Ajay Loganadan, Head Investment Advisory Group, HSBC Private Banking.
Foreign capitalConsidering these issues coupled with the slowdown in the earnings, market participants say that the Indian equity markets are relatively expensive as compared to other emerging markets. Also, this is cited as one of the reasons for the FIIs selling witnessed lately.
The depreciation of the rupee has lowered net returns (in dollar terms) for FIIs.
While sharing his view on the FII investments, Ajay Loganadan say, "FIIs have been net sellers of Indian equities to the tune of about $4.2 billion with about $1.2 billion of this selling coming in May.
Given the high levels of risk aversion and P/E contraction, we could expect flows to remain muted over the near term. Fund flow for the rest of the year will depend on global news flow and the perception of risk amongst foreign investors. Also, rising trade and fiscal deficits are not viewed very favourably by FIIs."
Global marketsBesides the FII flows the direction of the market will be determined by the global developments, which are not considered to be very favourable. "In our view, global markets are going to remain weak over the next 12 months.
US Housing data continues to get worse, record number of small businesses in the US are filing for bankruptcy (5,000 in April 2008 alone), debt of 174 large US companies is trading at distressed levels.
In these circumstances, it is tough to make a case for stability in the US financial space," says Madhusudan Rajagopalan, Director, Aranca India Operations. Besides the instability and slow down in the US, analysts also see more risk due to the sub prime crisis. So far, major banks and other financial institutions across the world have reported losses of approximately $380 billion. In a recent development, Lehman Brothers Holding, a top investment bank in the US is expected to raise approximately $4 billion to shore up its balance sheet after incurring losses due to the subprime crisis (S&Powngraded its ratings).
The rating agency also downgraded credit ratings of Merrill Lynch and Morgan Stanley, saying they may have to book more write-downs on devalued assets.
OutlookFor many, it is a bearish market due to the negative micro and macro factors that are affecting the markets, while for others it is the right time to invest and use the lower levels as an opportunity to invest for the long term. Considering that these issues remain, it also indicates that there are concerns for the market to rise from here in the near term.
A good monsoon, lower inflation rate along with the better global cues could be the positive triggers, which though seem some time away.
Oil Prices Raise Cost of Making Range of Goods
Surging oil prices are beginning to cut into the profits of a wide range of American businesses, pushing many to raise prices and maneuver aggressively to offset the rising cost of merchandise made from petroleum.
Airlines, package shippers and car owners are no longer the only ones being squeezed by the ever-mounting price of oil, which shot up almost $11 a barrel on Friday alone, to $138.54, a record.
Companies that make hard goods using raw materials derived from oil, like tires, toiletries, plastic packaging and computer screens, are watching their costs skyrocket, and they find themselves forced into unpleasant choices: Should they raise prices, shift to less costly procedures, cut workers, or all three?
The Goodyear Tire and Rubber Company is trying to adapt. Its raw material of choice now is natural rubber rather than synthetic rubber, made from oil. To sustain profits, it is making more high-end tires for consumers willing to pay upwards of $100 to replace each tire on their cars.
These steps have not been enough, however, particularly now that the cost of natural rubber is also rising sharply, along with that of many other commodities. So Goodyear has raised the prices of its tires by 15 percent in just four months.
“Our strategy is to raise prices and improve the mix to offset the cost of raw materials,” said Keith Price, a Goodyear spokesman. “No one has predicted how long we can continue to do that.”
The sense that many companies may be hitting a wall is palpable. Corporate profits peaked last spring and have shrunk since then, Moody’s Economy.com reports, drawing on Commerce Department data.
The housing crisis and the weakening economy are big reasons, but oil prices are adding greatly to the pressure on profits as retailers fail to pass along higher prices to consumers. That helps to explain why expensive oil has not yet pushed up the inflation rate.
So far this year, the nation’s employers have been cutting jobs at an accelerating pace, particularly last month, when the unemployment rate jumped to 5.5 percent from 5 percent. But with the vise on corporate profits tightening and the price of oil continuing to climb, more dire action, including job cuts and higher prices, may be in store, economists say, although there is still room to avoid such steps.
“Companies came into this period with extraordinarily high profit margins,” said Edward McKelvey, chief domestic economist at Goldman Sachs, “and some of the surge in raw material costs will be absorbed by lowering those profits.”
Still, the prevailing attitude that the economy could just keep absorbing higher oil prices is being tested — for the first time in nearly 30 years. Adjusted for inflation, a barrel of crude is now more expensive than it was in 1980, the previous peak.
“The conventional wisdom a couple of years ago was that oil did not have that much leverage over the economy,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. “But now it plainly does. People are suddenly paying much more attention to their energy costs and trying to figure out how to manage them.”
Goodyear has kept its head above water in part by passing along some of the higher prices to dealers. The dealers, however, have not been able to pass along all of those increases to consumers and are absorbing the difference in lower profits.
Since last spring, the average profits of the nation’s corporations — from behemoths like Goodyear to small neighborhood retailers — have declined at an annual rate of nearly 6 percent, government data show.
Even companies that have been performing well in the economic downturn are sounding notes of caution. Take Costco, the discount retail chain, which offers a wide array of consumer goods, food, wine, furniture, appliances, beauty aids and much more.
Costco’s profit was up in the first quarter, but James D. Sinegal, the chief executive, says he is “starting to be confronted with unprecedented price increases” for the merchandise that Costco buys to stock its stores. His first response has been to buy in extra large quantities so that he has stock on hand to carry him through subsequent price increases.
“We just made a big purchase of Tumi luggage,” Mr. Sinegal said
Procter & Gamble finds itself in a similar predicament. For its fiscal year beginning next month, it expects to spend an additional $2 billion on oil-based raw materials and commodities. That is double last year’s increase, and it is carved from total revenue of just under $80 billion.
Price increases have helped to offset this cost. They have averaged nearly 5 percent for paper towels, bath tissues and diapers, all made with chemicals derived from oil, said Paul Fox, a company spokesman.
Natural oils have been substituted for ingredients made from petroleum; for example, palm oil now goes into a variety of laundry soaps. But like rubber, the cost of palm oil and other natural commodities is rising.
Trying to hold down raw material costs, Procter & Gamble has resorted to “compacting” a few laundry products, Mr. Fox said, so that the same amount of detergent fits into smaller and less costly containers made of plastic, which is derived from oil.
Still, the company’s operating profit edged down to 20.1 percent of revenue in the first quarter, from 21.9 percent in each of the two previous quarters. “That 20.1 percent was down, but it was an improvement on the advance guidance we had given for that quarter,” Mr. Fox said.
No business in America produces more of the oil-based ingredients that go into the nation’s products than the Dow Chemical Company, based in Midland, Mich. From Dow’s petrochemical operations come the basic ingredients of a wide variety of plastic bottles and packaging, including numerous containers once made of glass or tin.
Indeed, paint, computer and television screens, mobile phones, light bulbs, cushions, paper, mattresses, car seats, carpets, steering wheels and polyesters are all made with ingredients that Dow and other chemical companies refine from oil and natural gas.
Dow normally raises prices piecemeal. Last month, though, the surge in the cost of oil and natural gas, the company’s principal raw materials, produced a rare across-the-board price increase of as much as 20 percent.
“We have taken out head count, automated, been very diligent on cost control,” said Andrew Liveris, Dow’s chairman and chief executive, “but these surges in energy prices are just one surge too many.”
Dow’s sweeping price increases will probably have a domino effect, resulting in higher prices or, more likely, shrinking profits, analysts say. Constrained by the weak economy and fewer wage earners among their customers, the nation’s retailers have so far not been able to pass on to consumers much of the rising cost of products that depend on oil. The Consumer Price Index, minus food and energy, is barely rising.
“One of the surprises,” said Patrick Jackman, a senior economist in the consumer price division of the Bureau of Labor Statistics, “is that the oil price surges of the 1970s passed through fairly quickly into consumer prices, and this time that is not happening.”
Airlines, package shippers and car owners are no longer the only ones being squeezed by the ever-mounting price of oil, which shot up almost $11 a barrel on Friday alone, to $138.54, a record.
Companies that make hard goods using raw materials derived from oil, like tires, toiletries, plastic packaging and computer screens, are watching their costs skyrocket, and they find themselves forced into unpleasant choices: Should they raise prices, shift to less costly procedures, cut workers, or all three?
The Goodyear Tire and Rubber Company is trying to adapt. Its raw material of choice now is natural rubber rather than synthetic rubber, made from oil. To sustain profits, it is making more high-end tires for consumers willing to pay upwards of $100 to replace each tire on their cars.
These steps have not been enough, however, particularly now that the cost of natural rubber is also rising sharply, along with that of many other commodities. So Goodyear has raised the prices of its tires by 15 percent in just four months.
“Our strategy is to raise prices and improve the mix to offset the cost of raw materials,” said Keith Price, a Goodyear spokesman. “No one has predicted how long we can continue to do that.”
The sense that many companies may be hitting a wall is palpable. Corporate profits peaked last spring and have shrunk since then, Moody’s Economy.com reports, drawing on Commerce Department data.
The housing crisis and the weakening economy are big reasons, but oil prices are adding greatly to the pressure on profits as retailers fail to pass along higher prices to consumers. That helps to explain why expensive oil has not yet pushed up the inflation rate.
So far this year, the nation’s employers have been cutting jobs at an accelerating pace, particularly last month, when the unemployment rate jumped to 5.5 percent from 5 percent. But with the vise on corporate profits tightening and the price of oil continuing to climb, more dire action, including job cuts and higher prices, may be in store, economists say, although there is still room to avoid such steps.
“Companies came into this period with extraordinarily high profit margins,” said Edward McKelvey, chief domestic economist at Goldman Sachs, “and some of the surge in raw material costs will be absorbed by lowering those profits.”
Still, the prevailing attitude that the economy could just keep absorbing higher oil prices is being tested — for the first time in nearly 30 years. Adjusted for inflation, a barrel of crude is now more expensive than it was in 1980, the previous peak.
“The conventional wisdom a couple of years ago was that oil did not have that much leverage over the economy,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. “But now it plainly does. People are suddenly paying much more attention to their energy costs and trying to figure out how to manage them.”
Goodyear has kept its head above water in part by passing along some of the higher prices to dealers. The dealers, however, have not been able to pass along all of those increases to consumers and are absorbing the difference in lower profits.
Since last spring, the average profits of the nation’s corporations — from behemoths like Goodyear to small neighborhood retailers — have declined at an annual rate of nearly 6 percent, government data show.
Even companies that have been performing well in the economic downturn are sounding notes of caution. Take Costco, the discount retail chain, which offers a wide array of consumer goods, food, wine, furniture, appliances, beauty aids and much more.
Costco’s profit was up in the first quarter, but James D. Sinegal, the chief executive, says he is “starting to be confronted with unprecedented price increases” for the merchandise that Costco buys to stock its stores. His first response has been to buy in extra large quantities so that he has stock on hand to carry him through subsequent price increases.
“We just made a big purchase of Tumi luggage,” Mr. Sinegal said
Procter & Gamble finds itself in a similar predicament. For its fiscal year beginning next month, it expects to spend an additional $2 billion on oil-based raw materials and commodities. That is double last year’s increase, and it is carved from total revenue of just under $80 billion.
Price increases have helped to offset this cost. They have averaged nearly 5 percent for paper towels, bath tissues and diapers, all made with chemicals derived from oil, said Paul Fox, a company spokesman.
Natural oils have been substituted for ingredients made from petroleum; for example, palm oil now goes into a variety of laundry soaps. But like rubber, the cost of palm oil and other natural commodities is rising.
Trying to hold down raw material costs, Procter & Gamble has resorted to “compacting” a few laundry products, Mr. Fox said, so that the same amount of detergent fits into smaller and less costly containers made of plastic, which is derived from oil.
Still, the company’s operating profit edged down to 20.1 percent of revenue in the first quarter, from 21.9 percent in each of the two previous quarters. “That 20.1 percent was down, but it was an improvement on the advance guidance we had given for that quarter,” Mr. Fox said.
No business in America produces more of the oil-based ingredients that go into the nation’s products than the Dow Chemical Company, based in Midland, Mich. From Dow’s petrochemical operations come the basic ingredients of a wide variety of plastic bottles and packaging, including numerous containers once made of glass or tin.
Indeed, paint, computer and television screens, mobile phones, light bulbs, cushions, paper, mattresses, car seats, carpets, steering wheels and polyesters are all made with ingredients that Dow and other chemical companies refine from oil and natural gas.
Dow normally raises prices piecemeal. Last month, though, the surge in the cost of oil and natural gas, the company’s principal raw materials, produced a rare across-the-board price increase of as much as 20 percent.
“We have taken out head count, automated, been very diligent on cost control,” said Andrew Liveris, Dow’s chairman and chief executive, “but these surges in energy prices are just one surge too many.”
Dow’s sweeping price increases will probably have a domino effect, resulting in higher prices or, more likely, shrinking profits, analysts say. Constrained by the weak economy and fewer wage earners among their customers, the nation’s retailers have so far not been able to pass on to consumers much of the rising cost of products that depend on oil. The Consumer Price Index, minus food and energy, is barely rising.
“One of the surprises,” said Patrick Jackman, a senior economist in the consumer price division of the Bureau of Labor Statistics, “is that the oil price surges of the 1970s passed through fairly quickly into consumer prices, and this time that is not happening.”
Industrial Nations Vow to Cut Oil Use
The world’s leading economies and oil consumers are pledging greater investment in energy efficiency and green technologies to curtail petroleum use.
In a joint statement on Sunday, energy ministers from the Group of 8 countries, the United States, Japan, Russia, Germany, France, Britain, Italy and Canada, joined by China, India and South Korea, also urged oil producers to increase output, which has stalled at about 85 million barrels a day since 2005. They also called for cooperation between buyers and producers.
But with little prospect for a surge in production anytime soon, the focus of Sunday’s meeting was on what wealthy nations should do to rein in consumption, while reducing carbon emissions blamed for global warming.
While the nations did not pledge specific amounts of money, they said they would set goals in line with International Energy Agency recommendations for a vast expansion of investment in renewable energies and energy efficiency.
The G-8 countries said they would begin 20 demonstration projects by 2010.
In a joint statement on Sunday, energy ministers from the Group of 8 countries, the United States, Japan, Russia, Germany, France, Britain, Italy and Canada, joined by China, India and South Korea, also urged oil producers to increase output, which has stalled at about 85 million barrels a day since 2005. They also called for cooperation between buyers and producers.
But with little prospect for a surge in production anytime soon, the focus of Sunday’s meeting was on what wealthy nations should do to rein in consumption, while reducing carbon emissions blamed for global warming.
While the nations did not pledge specific amounts of money, they said they would set goals in line with International Energy Agency recommendations for a vast expansion of investment in renewable energies and energy efficiency.
The G-8 countries said they would begin 20 demonstration projects by 2010.
India Unable to Use Rupee Gains to Curb Inflation, Fitch Says
India's widening current-account deficit and slowing capital inflows from overseas have denied policy makers the option of letting the rupee gain to curb inflation, according to Fitch Ratings.
The local currency this year has pared more than half of its advance in 2007, when it rallied 12.3 percent, the most in more than three decades. Sales of local stocks by overseas funds and rising oil prices sparked the slump. India's annual inflation rate more than doubled to 8.24 percent in the week ended May 24 from a five-year low of 3.07 percent mid-October.
``Our sense is that when the inflation numbers had started to go up, the central bank had the option to allow the currency rise at their discretion,'' James McCormack, Fitch's head of Asia-Pacific sovereign ratings, said in Mumbai on June 6. ``That has now been taken away because the current-account position isn't strong and capital inflows aren't rising either.''
India's trade deficit widened to a record $9.9 billion in April while the shortfall in the current account, a broad measure of trade and investment flows, widened to $5.4 billion in the quarter through December from $4.7 billion in the previous quarter, according to the central bank.
Overseas money managers sold $4.8 billion more local shares than they bought this year, more than a fourth of their record net purchases in 2007, according to data provided by the Securities and Exchange Board of India.
The rupee closed last week at 42.66 per U.S. dollar.
Inflation may jump to a 13-year high of 9.5 percent after the government raised the retail prices of diesel, gasoline and cooking gas last week, according to analysts at Lehman Brothers Holdings Inc., Standard Chartered Plc and ICICI Securities Ltd. Crude oil prices have more than doubled in the past 12 months to a record $139.12 a barrel on the New York Mercantile Exchange.
``Exchange rate appreciation pressures persisted last year because of the flows,'' McCormack said. ``They don't have the option now. Over time there will now be pressure on the exchange rate to weaken. The rupee is going to remain on the same course for the rest of the year.''
The local currency this year has pared more than half of its advance in 2007, when it rallied 12.3 percent, the most in more than three decades. Sales of local stocks by overseas funds and rising oil prices sparked the slump. India's annual inflation rate more than doubled to 8.24 percent in the week ended May 24 from a five-year low of 3.07 percent mid-October.
``Our sense is that when the inflation numbers had started to go up, the central bank had the option to allow the currency rise at their discretion,'' James McCormack, Fitch's head of Asia-Pacific sovereign ratings, said in Mumbai on June 6. ``That has now been taken away because the current-account position isn't strong and capital inflows aren't rising either.''
India's trade deficit widened to a record $9.9 billion in April while the shortfall in the current account, a broad measure of trade and investment flows, widened to $5.4 billion in the quarter through December from $4.7 billion in the previous quarter, according to the central bank.
Overseas money managers sold $4.8 billion more local shares than they bought this year, more than a fourth of their record net purchases in 2007, according to data provided by the Securities and Exchange Board of India.
The rupee closed last week at 42.66 per U.S. dollar.
Inflation may jump to a 13-year high of 9.5 percent after the government raised the retail prices of diesel, gasoline and cooking gas last week, according to analysts at Lehman Brothers Holdings Inc., Standard Chartered Plc and ICICI Securities Ltd. Crude oil prices have more than doubled in the past 12 months to a record $139.12 a barrel on the New York Mercantile Exchange.
``Exchange rate appreciation pressures persisted last year because of the flows,'' McCormack said. ``They don't have the option now. Over time there will now be pressure on the exchange rate to weaken. The rupee is going to remain on the same course for the rest of the year.''
MARKET UPDATES
Asian stocks dropped, led by automakers and technology companies, on concern surging oil prices and slowing U.S. growth will derail earnings.
Toyota Motor Corp., Japan's largest automaker, and Samsung Electronics Co., Asia's biggest maker of chips, mobile phones and flat panels, fell after U.S. unemployment rose the most in 22 years. Korean Air Lines Co. plunged the most in three months after Goldman, Sachs & Co. cut its share-price forecast and crude jumped more than $10 a barrel on June 6. India's Sensitive Index tumbled 4.3 percent, the most since March.
``We're being attacked from all fronts,'' said Jason Lee, who helps oversee the equivalent of $2.1 billion as general manager of equities at Amanah Raya-JMF Asset Management in Kuala Lumpur. ``We're heading for tough times; expect to see more earnings revisions.''
The MSCI Asia Pacific Index lost 1.5 percent to 148.05 as of 2:40 p.m. in Tokyo, with about nine stocks retreating for each that climbed. All 10 industry groups and every Asian market dropped, apart from Hong Kong, China, Australia and the Philippines, which are closed today for holidays.
Japan's Nikkei 225 Stock Average declined 2 percent to 14,204.97, after ending last week at the highest since Jan. 9.
U.S. stocks tumbled on June 6, sparking the Dow Jones Industrial Average's worst sell-off in 15 months, after the Labor Department said the jobless rate grew to 5.5 percent in May from 5 percent in April, the biggest increase since 1986. Standard & Poor's 500 Index futures expiring in June climbed 0.2 percent.
Toyota, Sony
Toyota, which gets about half of its profit from North America, dropped 2.7 percent to 5,440 yen. Sony Corp., the world's second-largest maker of consumer electronics, fell 3.3 percent to 5,300 yen. Samsung lost 3 percent to 688,000 won.
A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. The group, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.
MSCI's Asian index has dropped 6.1 percent this year amid signs of slowing expansion in the U.S. and $389 billion of writedowns and credit losses.
``If the U.S. goes, Asia and the rest of the world will also go,'' said Leslie Phang, who helps oversee about $260 billion as Singapore-based head of investment at Schroders Plc's private- clients unit. ``We've now shifted from the scenario of slowdown driven by the credit crunch to that of stagflation because of high oil prices.''
Hon Hai Precision Industry Co., which makes iPods for Apple Inc. and computers for Dell Inc., slumped 3.3 percent to NT$175. Nintendo Co., maker of the Wii game console, slipped 1.7 percent to 57,300 yen.
Oil's Rally
The unemployment report sent the dollar lower, triggering demand among investors for commodities. Crude oil for July delivery rose 8.4 percent on June 6 to $138.54 a barrel in New York, the biggest-ever gain in dollar terms and the largest percentage increase since mid-June 1996. Futures reached a record high of $139.12 during the session.
Record oil prices sent South Korea's consumer confidence lower to 92.2 in May from 100.4 in April, according to the National Statistical Office. That's the weakest in more than three years. Oil prices topping $130 a barrel may slow global economic growth, Japan's Trade Minister Akira Amari said yesterday.
Korean Air, South Korea's largest airline, dropped 5 percent to 51,300 won, set for its biggest drop since April 14. Goldman Sachs cut its share-price estimate by 22 percent to 45,800 won in a report on June 6, saying airline stocks will lag behind other equities because of soaring fuel costs and a decline in traffic.
Flights Cancelled
China Airlines, Taiwan's largest carrier, dropped 5.4 percent to NT$14.90 after spokesman Bruce Chen said the company will cancel 100 passenger flights and 50 cargo services a month, or about 10 percent of its capacity, as jet-fuel prices surge.
EVA Airways Corp. will cancel about 5 percent of its passenger services from Sept. 1 to Dec. 1, spokeswoman Katherine Ko said. The stock fell 4.7 percent to NT$16.30 in Taipei.
Bharat Petroleum Corp., India's second-biggest state refiner, slumped 10 percent to 269.85 rupees on concern that increased fuel prices won't be able to offset losses. The government raised fuel prices on June 4 and reduced taxes to narrow more than $50 billion of revenue losses at refiners.
Indian Oil Corp., the largest, lost 7.7 percent to 349 rupees.
Via Technologies Inc., Taiwan's largest designer of computer processors, gained 6.8 percent to NT$21.95, the biggest advance on MSCI's Asian index. Via said it will cooperate with Nvidia Corp., the world's second-largest maker of graphics-processors, to develop chips for small-sized desktop computers and mini- notebooks.
Toyota Motor Corp., Japan's largest automaker, and Samsung Electronics Co., Asia's biggest maker of chips, mobile phones and flat panels, fell after U.S. unemployment rose the most in 22 years. Korean Air Lines Co. plunged the most in three months after Goldman, Sachs & Co. cut its share-price forecast and crude jumped more than $10 a barrel on June 6. India's Sensitive Index tumbled 4.3 percent, the most since March.
``We're being attacked from all fronts,'' said Jason Lee, who helps oversee the equivalent of $2.1 billion as general manager of equities at Amanah Raya-JMF Asset Management in Kuala Lumpur. ``We're heading for tough times; expect to see more earnings revisions.''
The MSCI Asia Pacific Index lost 1.5 percent to 148.05 as of 2:40 p.m. in Tokyo, with about nine stocks retreating for each that climbed. All 10 industry groups and every Asian market dropped, apart from Hong Kong, China, Australia and the Philippines, which are closed today for holidays.
Japan's Nikkei 225 Stock Average declined 2 percent to 14,204.97, after ending last week at the highest since Jan. 9.
U.S. stocks tumbled on June 6, sparking the Dow Jones Industrial Average's worst sell-off in 15 months, after the Labor Department said the jobless rate grew to 5.5 percent in May from 5 percent in April, the biggest increase since 1986. Standard & Poor's 500 Index futures expiring in June climbed 0.2 percent.
Toyota, Sony
Toyota, which gets about half of its profit from North America, dropped 2.7 percent to 5,440 yen. Sony Corp., the world's second-largest maker of consumer electronics, fell 3.3 percent to 5,300 yen. Samsung lost 3 percent to 688,000 won.
A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. The group, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.
MSCI's Asian index has dropped 6.1 percent this year amid signs of slowing expansion in the U.S. and $389 billion of writedowns and credit losses.
``If the U.S. goes, Asia and the rest of the world will also go,'' said Leslie Phang, who helps oversee about $260 billion as Singapore-based head of investment at Schroders Plc's private- clients unit. ``We've now shifted from the scenario of slowdown driven by the credit crunch to that of stagflation because of high oil prices.''
Hon Hai Precision Industry Co., which makes iPods for Apple Inc. and computers for Dell Inc., slumped 3.3 percent to NT$175. Nintendo Co., maker of the Wii game console, slipped 1.7 percent to 57,300 yen.
Oil's Rally
The unemployment report sent the dollar lower, triggering demand among investors for commodities. Crude oil for July delivery rose 8.4 percent on June 6 to $138.54 a barrel in New York, the biggest-ever gain in dollar terms and the largest percentage increase since mid-June 1996. Futures reached a record high of $139.12 during the session.
Record oil prices sent South Korea's consumer confidence lower to 92.2 in May from 100.4 in April, according to the National Statistical Office. That's the weakest in more than three years. Oil prices topping $130 a barrel may slow global economic growth, Japan's Trade Minister Akira Amari said yesterday.
Korean Air, South Korea's largest airline, dropped 5 percent to 51,300 won, set for its biggest drop since April 14. Goldman Sachs cut its share-price estimate by 22 percent to 45,800 won in a report on June 6, saying airline stocks will lag behind other equities because of soaring fuel costs and a decline in traffic.
Flights Cancelled
China Airlines, Taiwan's largest carrier, dropped 5.4 percent to NT$14.90 after spokesman Bruce Chen said the company will cancel 100 passenger flights and 50 cargo services a month, or about 10 percent of its capacity, as jet-fuel prices surge.
EVA Airways Corp. will cancel about 5 percent of its passenger services from Sept. 1 to Dec. 1, spokeswoman Katherine Ko said. The stock fell 4.7 percent to NT$16.30 in Taipei.
Bharat Petroleum Corp., India's second-biggest state refiner, slumped 10 percent to 269.85 rupees on concern that increased fuel prices won't be able to offset losses. The government raised fuel prices on June 4 and reduced taxes to narrow more than $50 billion of revenue losses at refiners.
Indian Oil Corp., the largest, lost 7.7 percent to 349 rupees.
Via Technologies Inc., Taiwan's largest designer of computer processors, gained 6.8 percent to NT$21.95, the biggest advance on MSCI's Asian index. Via said it will cooperate with Nvidia Corp., the world's second-largest maker of graphics-processors, to develop chips for small-sized desktop computers and mini- notebooks.
Saturday, June 07, 2008
Oil Prices Take a Nerve-Rattling Jump Past $138
The rise in oil prices turned into a stampede on Friday with futures jumping a staggering $11 a barrel to set a record above $138 a barrel. The unprecedented surge came as the dollar fell sharply against the euro and a senior Israeli politician once again raised the possibility of an attack against Iran.
Friday’s jump capped a second day of strong gains on energy markets, and fed suspicions that commodities might be caught in an investment bubble.
Oil prices have doubled in the last 12 months, and are up 42 percent since the beginning of the year. Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange, their biggest jump since contracts began trading in 1983. The record rise brought a two-day jump of more than $16 a barrel, after Thursday’s 5.5 percent gain.
“This market is going to shoot itself in the foot,” said Adam Robinson, an energy analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. This takes time. But the market has gotten extremely impatient and is not willing to wait.”
The latest jump came as the dollar lost more than 1 percent against the euro amid bleak economic news that fanned recession fears. The unemployment rate surged to 5.5 percent in May, the government said, the biggest increase in more than two decades.
Friday’s negative news pricked a budding sentiment on Wall Street that the financial system was on the mend, and stocks fell sharply. The Dow Jones industrials lost 394.64 points, or 3 percent, to 12,209.81, with financial stocks showing the biggest declines. The broader Standard and Poor’s 500-stock index fell 3 percent, its biggest drop since February.
The pronounced volatility in energy markets in recent weeks continued to puzzle traders. Prices kept rising despite a lack of shortages in the market and strong evidence of lower consumption in industrialized countries. But investors are caught in a bullish mood, focusing on the perceived risks to future oil supplies and the growth in oil demand from emerging economies, where fuel prices are subsidized.
Even as uncertainties abound about the fundamentals of the energy market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister and a deputy prime minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable” if Iran did not abandon its nuclear program.
Iran is the second-largest oil producer within the OPEC cartel and exports nearly two million barrels a day. Because the world has few supplies to spare, any interruptions in Iran’s exports could push prices to higher levels. The world currently has about three million barrels a day of spare capacity, and consumes 86 million barrels a day of oil.
“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker. The “comments bring home the point that the dispute over Iran’s nuclear program remains unresolved and that the risks of military confrontation are indeed increasing.”
Investors also reacted to the latest forecast by a large Wall Street bank that oil prices would keep rising. Morgan Stanley predicted that prices would spike to $150 a barrel in the next month because of strong demand in Asia.
The threat of a strike by Chevron’s workers in Nigeria also raised concerns that some production could be shut down. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.
A strike may delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is to begin June 15.
One view gaining ground is that the commodity market is caught in a speculative bubble akin to the recent housing bubble or the technology bubble of the late 1990s. That theory was raised by politicians in Washington and by OPEC producers, who blame speculators for the staggering oil rally. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.
“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”
But many analysts say that fundamentals, not speculation, are driving prices.
“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”
Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before a Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed to a confluence of trends that has contributed to the oil price rally, including a weak dollar, strong energy demand from emerging economies, and political tensions in oil-producing countries.
“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”
Friday’s jump capped a second day of strong gains on energy markets, and fed suspicions that commodities might be caught in an investment bubble.
Oil prices have doubled in the last 12 months, and are up 42 percent since the beginning of the year. Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange, their biggest jump since contracts began trading in 1983. The record rise brought a two-day jump of more than $16 a barrel, after Thursday’s 5.5 percent gain.
“This market is going to shoot itself in the foot,” said Adam Robinson, an energy analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. This takes time. But the market has gotten extremely impatient and is not willing to wait.”
The latest jump came as the dollar lost more than 1 percent against the euro amid bleak economic news that fanned recession fears. The unemployment rate surged to 5.5 percent in May, the government said, the biggest increase in more than two decades.
Friday’s negative news pricked a budding sentiment on Wall Street that the financial system was on the mend, and stocks fell sharply. The Dow Jones industrials lost 394.64 points, or 3 percent, to 12,209.81, with financial stocks showing the biggest declines. The broader Standard and Poor’s 500-stock index fell 3 percent, its biggest drop since February.
The pronounced volatility in energy markets in recent weeks continued to puzzle traders. Prices kept rising despite a lack of shortages in the market and strong evidence of lower consumption in industrialized countries. But investors are caught in a bullish mood, focusing on the perceived risks to future oil supplies and the growth in oil demand from emerging economies, where fuel prices are subsidized.
Even as uncertainties abound about the fundamentals of the energy market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister and a deputy prime minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable” if Iran did not abandon its nuclear program.
Iran is the second-largest oil producer within the OPEC cartel and exports nearly two million barrels a day. Because the world has few supplies to spare, any interruptions in Iran’s exports could push prices to higher levels. The world currently has about three million barrels a day of spare capacity, and consumes 86 million barrels a day of oil.
“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker. The “comments bring home the point that the dispute over Iran’s nuclear program remains unresolved and that the risks of military confrontation are indeed increasing.”
Investors also reacted to the latest forecast by a large Wall Street bank that oil prices would keep rising. Morgan Stanley predicted that prices would spike to $150 a barrel in the next month because of strong demand in Asia.
The threat of a strike by Chevron’s workers in Nigeria also raised concerns that some production could be shut down. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.
A strike may delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is to begin June 15.
One view gaining ground is that the commodity market is caught in a speculative bubble akin to the recent housing bubble or the technology bubble of the late 1990s. That theory was raised by politicians in Washington and by OPEC producers, who blame speculators for the staggering oil rally. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.
“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”
But many analysts say that fundamentals, not speculation, are driving prices.
“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”
Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before a Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed to a confluence of trends that has contributed to the oil price rally, including a weak dollar, strong energy demand from emerging economies, and political tensions in oil-producing countries.
“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”
Friday, June 06, 2008
MARKET PREDICTION
GLOBAL MARKET IS IN POSITIVE NOTE TODAY.
NIFTY WILL BE HOVERING BETWEEN 4500-4800.
TOTAL MARKET OI IS 68 K CR AND PUT CALL RATIO AGAIN INCHED UP TO 1.65% FROM 1.59%.
TODAYS LEVEL
IF NIFTY HOLD 4700 CLOSE YOUR SHORT POSITION OTHERWISE GO SHORT WITH SL OF 4730.
FOR FRESH SHORT IT WILL PRUDENT TO WATCH @4800 LEVEL.
IF NIFTY CROSSES 4800 THEN WE CAN ASSUME FESH LONG OTHER WISE WE CAN ASSUME SHORT WITH SL OF 4800.
HAVE A NICE TRADING DAY ..
-MR SAM
NIFTY WILL BE HOVERING BETWEEN 4500-4800.
TOTAL MARKET OI IS 68 K CR AND PUT CALL RATIO AGAIN INCHED UP TO 1.65% FROM 1.59%.
TODAYS LEVEL
IF NIFTY HOLD 4700 CLOSE YOUR SHORT POSITION OTHERWISE GO SHORT WITH SL OF 4730.
FOR FRESH SHORT IT WILL PRUDENT TO WATCH @4800 LEVEL.
IF NIFTY CROSSES 4800 THEN WE CAN ASSUME FESH LONG OTHER WISE WE CAN ASSUME SHORT WITH SL OF 4800.
HAVE A NICE TRADING DAY ..
-MR SAM
PM asks colleagues to cut down on wasteful expenditure
In a bid to dispel any misgivings in the common man’s mind about the government maintaining high expenditure levels while the ‘aam aadmi’ faces increasing pressure on their cash flows due to the fuel price hike, Prime Minister Manmohan Singh has asked his council of ministers and officers to voluntarily cut down on any ‘wasteful expenditure’ and refrain from foreign travel unless absolutely necessary, as economic measures in the face of rising oil prices.
While the PM has asked the Cabinet Secretary KM Chandrashekhar to rigorously scrutinise all foreign as well as local travel proposals to trim down on government expenses on quarterly basis, the finance ministry has come out with elaborate guidelines to ‘ensure fiscal discipline’ amongst ministries and departments. Departments have been asked to refrain from holding conferences in five star hotels, while babus have to switch to low-cost airlines for official travel.
This is the first time when such guidelines have been issued within two months of the Budget being passed. Such measures are usually taken in the third quarter of the year when expenditures of government ministries are reviewed and revised estimates drawn up.
Even though it is an election year when government is at its generous best, no new schemes would be announced apart from what has been promised in the Budget. The guidelines also said there will be no additional expenditure over and above the prescribed budgets for existing schemes and no changes in any schemes will be permitted.
Urging his colleagues to observe austerity and expecting full support from them, the PM in his letter said that spiraling oil prices have imposed a huge burden on the financial resources of the country and as some of this load is borne by the public, it is the “moral duty” of the government to cut down on all unwanted expenditure in its establishments.
“We need to explain to the people the constraints and reasons that have compelled the government to introduce these measures. Simultaneously, however, it is equally necessary for us to introduce the utmost Economy in our own administrations and establishments. It cannot be denied that there is substantial scope to reduce expenditure on travel and administration,” Singh wrote.
“I am, therefore, writing to ask you to severely curtail expenditure on air travel, particularly foreign travel, except in cases where it is deemed to be absolutely necessary. This Economy may be made applicable immediately for your own self and also for all senior functionaries in your Ministry,” Singh wrote. This is not the first time the PM has written such a letter. He had written a similar letter couple of years back.
Reiterating the PM’s concerns, Expenditure Secretary Sushma Nath said, “There is tremendous pressure on government’s resources due to food and fertiliser subsidies, NREGA, rising oil prices, leading to the need for Economy and rationalisation of expenditure.”
While the PM has asked the Cabinet Secretary KM Chandrashekhar to rigorously scrutinise all foreign as well as local travel proposals to trim down on government expenses on quarterly basis, the finance ministry has come out with elaborate guidelines to ‘ensure fiscal discipline’ amongst ministries and departments. Departments have been asked to refrain from holding conferences in five star hotels, while babus have to switch to low-cost airlines for official travel.
This is the first time when such guidelines have been issued within two months of the Budget being passed. Such measures are usually taken in the third quarter of the year when expenditures of government ministries are reviewed and revised estimates drawn up.
Even though it is an election year when government is at its generous best, no new schemes would be announced apart from what has been promised in the Budget. The guidelines also said there will be no additional expenditure over and above the prescribed budgets for existing schemes and no changes in any schemes will be permitted.
Urging his colleagues to observe austerity and expecting full support from them, the PM in his letter said that spiraling oil prices have imposed a huge burden on the financial resources of the country and as some of this load is borne by the public, it is the “moral duty” of the government to cut down on all unwanted expenditure in its establishments.
“We need to explain to the people the constraints and reasons that have compelled the government to introduce these measures. Simultaneously, however, it is equally necessary for us to introduce the utmost Economy in our own administrations and establishments. It cannot be denied that there is substantial scope to reduce expenditure on travel and administration,” Singh wrote.
“I am, therefore, writing to ask you to severely curtail expenditure on air travel, particularly foreign travel, except in cases where it is deemed to be absolutely necessary. This Economy may be made applicable immediately for your own self and also for all senior functionaries in your Ministry,” Singh wrote. This is not the first time the PM has written such a letter. He had written a similar letter couple of years back.
Reiterating the PM’s concerns, Expenditure Secretary Sushma Nath said, “There is tremendous pressure on government’s resources due to food and fertiliser subsidies, NREGA, rising oil prices, leading to the need for Economy and rationalisation of expenditure.”
Food Is Gold, So Billions Invested in Farming
Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans.
But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.
One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.
Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.
And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.
“It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.”
These new bets by big investors could bolster food production at a time when the world needs more of it.
The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.
But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.
“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”
By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” Mr. Hainline said.
Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. “It is important to ask whether these financial investors want to actually operate the means of production — or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,” he said.
Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities.
When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.
“It’s a huge disadvantage to not be able to trade the physical commodity,” said Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm in Minneapolis.
Mr. Redleaf bought several large grain elevator complexes from ConAgra and Cargill last year for a long-term stake in what he sees as a high-growth business. The elevators can store 36 million bushels of grain.
“We discovered that our lease customers, major food company types, are really happy to see us, because they are apt to see Cargill and ConAgra as competitors,” he said.
The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers.
“The world is asking for more food, more energy. You see a huge demand,” said Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis Dreyfus Commodities, which is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments.
“What this new investment will buy is more technology,” Mr. Hinsch said. “We will be helping to accelerate the development of infrastructure, and the consumer will benefit because there will be more supply.”
Financial investors also can provide grain elevator operators the money they need to weather today’s more volatile commodity markets. When wild swings in prices become common, as they are now, elevator operators have to put up more cash to lock in future prices. John Duryea, co-portfolio manager of the Ospraie Special Opportunity Fund, is buying 66 grain elevators with a total capacity of 110 million bushels from ConAgra for $2.1 billion. The deal, expected to close by the end of June, also will give Ospraie a stake in 57 fertilizer distribution centers and the barges and ships necessary to keep them supplied with low-cost imports.
Maintaining these essential services “helps bring costs down to the farmers,” Mr. Duryea said. “That has to help mitigate the price increases for crops.”
Mr. Duryea of the Ospraie fund dismissed the idea that financial investors, with obligations to suppliers and customers of their elevators and fertilizer services, would put their thumb on the supply-demand scale by holding back inventory to move prices artificially.
“It is not in our best interests for anyone to be negatively affected by what we do,” he said.
Perhaps the most ambitious plans are those of Susan Payne, founder and chief executive of Emergent Asset Management, based near London.
Emergent is raising $450 million to $750 million to invest in farmland in sub-Saharan Africa, where it plans to consolidate small plots into more productive holdings and introduce better equipment. Emergent also plans to provide clinics and schools for local labor.
One crop and a source of fuel for farming operations will be jatropha, an oil-seed plant useful for biofuels that is grown in sandy soil unsuitable for food production, Ms. Payne said.
“We are getting strong response from institutional investors — pensions, insurance companies, endowments, some sovereign wealth funds,” she said.
The fund chose Africa because “land values are very, very inexpensive, compared to other agriculture-based economies,” she said. “Its microclimates are enticing, allowing a range of different crops. There’s accessible labor. And there’s good logistics — wide open roads, good truck transport, sea transport.”
The Emergent fund is one of a growing roster of farmland investment funds based in Britain.
Last October, the London branch of BlackRock introduced the BlackRock Agriculture Fund, aiming to raise $200 million to invest in fertilizer production, timberland and biofuels. The fund currently stands at more than $450 million.
Braemar Group, near Manchester, is investing exclusively in Britain. “Britain is a nice, stable northwestern European economy with the same climate and quality of soil as northwestern Europe,” said Marc Duschenes, Braemar’s chief executive. “But our land is at a 50 percent discount to Ireland and Denmark. We just haven’t caught up yet.“
Europe, like the United States, is facing mandated increases in biofuel production, he said, and cropland near new ethanol facilities in the northeast of England will be the first source of supply.
“No one is going to put a ton of grain on a boat in Latin America and ship it to the northeast of England to turn it into bioethanol,” he said.
For Gary R. Blumenthal, chief executive of World Perspectives, an agriculture consulting firm in Washington, the new investments by big financial players, if sustained, could be just what global agriculture needs — “where you can bring small, fragmented pieces together to boost the production side of agriculture.”
He added: “Investment funds are seeing that this consolidation brings value to them. But I’m saying this brings value to everyone.”
But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.
One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.
Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.
And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.
“It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.”
These new bets by big investors could bolster food production at a time when the world needs more of it.
The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.
But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.
“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”
By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” Mr. Hainline said.
Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. “It is important to ask whether these financial investors want to actually operate the means of production — or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,” he said.
Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities.
When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.
“It’s a huge disadvantage to not be able to trade the physical commodity,” said Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm in Minneapolis.
Mr. Redleaf bought several large grain elevator complexes from ConAgra and Cargill last year for a long-term stake in what he sees as a high-growth business. The elevators can store 36 million bushels of grain.
“We discovered that our lease customers, major food company types, are really happy to see us, because they are apt to see Cargill and ConAgra as competitors,” he said.
The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers.
“The world is asking for more food, more energy. You see a huge demand,” said Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis Dreyfus Commodities, which is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments.
“What this new investment will buy is more technology,” Mr. Hinsch said. “We will be helping to accelerate the development of infrastructure, and the consumer will benefit because there will be more supply.”
Financial investors also can provide grain elevator operators the money they need to weather today’s more volatile commodity markets. When wild swings in prices become common, as they are now, elevator operators have to put up more cash to lock in future prices. John Duryea, co-portfolio manager of the Ospraie Special Opportunity Fund, is buying 66 grain elevators with a total capacity of 110 million bushels from ConAgra for $2.1 billion. The deal, expected to close by the end of June, also will give Ospraie a stake in 57 fertilizer distribution centers and the barges and ships necessary to keep them supplied with low-cost imports.
Maintaining these essential services “helps bring costs down to the farmers,” Mr. Duryea said. “That has to help mitigate the price increases for crops.”
Mr. Duryea of the Ospraie fund dismissed the idea that financial investors, with obligations to suppliers and customers of their elevators and fertilizer services, would put their thumb on the supply-demand scale by holding back inventory to move prices artificially.
“It is not in our best interests for anyone to be negatively affected by what we do,” he said.
Perhaps the most ambitious plans are those of Susan Payne, founder and chief executive of Emergent Asset Management, based near London.
Emergent is raising $450 million to $750 million to invest in farmland in sub-Saharan Africa, where it plans to consolidate small plots into more productive holdings and introduce better equipment. Emergent also plans to provide clinics and schools for local labor.
One crop and a source of fuel for farming operations will be jatropha, an oil-seed plant useful for biofuels that is grown in sandy soil unsuitable for food production, Ms. Payne said.
“We are getting strong response from institutional investors — pensions, insurance companies, endowments, some sovereign wealth funds,” she said.
The fund chose Africa because “land values are very, very inexpensive, compared to other agriculture-based economies,” she said. “Its microclimates are enticing, allowing a range of different crops. There’s accessible labor. And there’s good logistics — wide open roads, good truck transport, sea transport.”
The Emergent fund is one of a growing roster of farmland investment funds based in Britain.
Last October, the London branch of BlackRock introduced the BlackRock Agriculture Fund, aiming to raise $200 million to invest in fertilizer production, timberland and biofuels. The fund currently stands at more than $450 million.
Braemar Group, near Manchester, is investing exclusively in Britain. “Britain is a nice, stable northwestern European economy with the same climate and quality of soil as northwestern Europe,” said Marc Duschenes, Braemar’s chief executive. “But our land is at a 50 percent discount to Ireland and Denmark. We just haven’t caught up yet.“
Europe, like the United States, is facing mandated increases in biofuel production, he said, and cropland near new ethanol facilities in the northeast of England will be the first source of supply.
“No one is going to put a ton of grain on a boat in Latin America and ship it to the northeast of England to turn it into bioethanol,” he said.
For Gary R. Blumenthal, chief executive of World Perspectives, an agriculture consulting firm in Washington, the new investments by big financial players, if sustained, could be just what global agriculture needs — “where you can bring small, fragmented pieces together to boost the production side of agriculture.”
He added: “Investment funds are seeing that this consolidation brings value to them. But I’m saying this brings value to everyone.”
Oil Rises Above $128 After Record Surge on Weak Dollar
Oil rose above $128 on Friday, extending gains after its biggest ever one-day rise in the previous session, as the U.S. dollar weakened on signals the European Central Bank may raise interest rates this year.
U.S. light crude for July delivery rose 31 cents a barrel to $128.10 a barrel by 10:11 p.m. EDT, having settled up $5.49 at $127.79, erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand.
The contract was up $6.08 to $128.38 in after-hours trading, its largest outright gain on record and up by nearly 5 percent from Wednesday's settlement.
London Brent crude rose 5 cents to $127.59 on Friday.
"A $6 jump is quite a major move. Financial flows came back. If oil continues to rise, it could test $135 or $140. The market is in a state of uncertainty after such a move," Marc Lansonneur, Societe Generale's head of commodities derivatives in Asia, said.
"Today will be a key day because we'll see whether the rebound was purely technical or not. It could set the trend for next week," he added. The dollar was steady against the euro on Friday, having fallen by more than 1 percent on Thursday after European Central Bank President Jean-Claude Trichet said a number of policymakers wanted higher interest rates and a hike was possible as soon as next month.
DEMAND
The sharp reversal in the dollar put longer-term worries about weakening oil demand on the backburner, after they were rekindled earlier this week when India and Malaysia decided to raise domestic fuel prices to cope with bulging subsidy bills.
The International Energy Agency, adviser to 27 industrialized countries, issues its latest forecasts next week and has said it may lower its 2008 demand growth projection further, after having already more than halved it to 1.03 million barrels per day (bpd), from an early estimate of 2.2 million bpd in July 2007.
But some analysts say subsidy cuts in Asia will not be enough to slow oil use.
"World oil demand growth is still accounted mostly by China, the Middle East and Latin America - and through the summer, there is no reason to expect a material slowdown in demand growth in these areas," said Harry Tchilinguirian, oil analyst at BNP Paribas in London in the bank's June global outlook.
U.S. light crude for July delivery rose 31 cents a barrel to $128.10 a barrel by 10:11 p.m. EDT, having settled up $5.49 at $127.79, erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand.
The contract was up $6.08 to $128.38 in after-hours trading, its largest outright gain on record and up by nearly 5 percent from Wednesday's settlement.
London Brent crude rose 5 cents to $127.59 on Friday.
"A $6 jump is quite a major move. Financial flows came back. If oil continues to rise, it could test $135 or $140. The market is in a state of uncertainty after such a move," Marc Lansonneur, Societe Generale's head of commodities derivatives in Asia, said.
"Today will be a key day because we'll see whether the rebound was purely technical or not. It could set the trend for next week," he added. The dollar was steady against the euro on Friday, having fallen by more than 1 percent on Thursday after European Central Bank President Jean-Claude Trichet said a number of policymakers wanted higher interest rates and a hike was possible as soon as next month.
DEMAND
The sharp reversal in the dollar put longer-term worries about weakening oil demand on the backburner, after they were rekindled earlier this week when India and Malaysia decided to raise domestic fuel prices to cope with bulging subsidy bills.
The International Energy Agency, adviser to 27 industrialized countries, issues its latest forecasts next week and has said it may lower its 2008 demand growth projection further, after having already more than halved it to 1.03 million barrels per day (bpd), from an early estimate of 2.2 million bpd in July 2007.
But some analysts say subsidy cuts in Asia will not be enough to slow oil use.
"World oil demand growth is still accounted mostly by China, the Middle East and Latin America - and through the summer, there is no reason to expect a material slowdown in demand growth in these areas," said Harry Tchilinguirian, oil analyst at BNP Paribas in London in the bank's June global outlook.
Thursday, June 05, 2008
India aims to be Green manufacturing hub
This is the brand that will give India Inc a pole position in the global manufacturing sweepstakes. The government plans to market Indian manufacturing as Green to make it stand apart from Chinese or even say US products, which are typically energy-intensive. There is sound economics behind the tag.
Top government officials say Indian manufacturers in most sectors are far more energy efficient than their counterparts abroad. This means in addition to labour intensive character, products manufactured here are more environmentally compatible. For instance, in cement industry, against the global lowest energy intensity of 65 kilowatt per tonne, the domestic manufacturers are at a comfortably close 69. The same picture is evolving in other manufacturing sectors like steel.
According to Ajay Shankar, secretary, department of industrial policy and promotion, India is ideally suited to develop Green as the USP of its manufacturing profile. “Our best is already there, the strategy is to make the followers catch up with them”, he said.
Measurements of overall energy intensity of GDP in India also point to the same trend. According to the government’s own estimates, energy intensity here is the same as in OECD countries, when GDP is calculated in terms of the purchasing power parity (PPP). Industry chambers, like Ficci and CII also aver that the move has started vigorously.
“Our manufacturing is at par with the best in the world and far better than the developing world,” said Arun Kumar, associate director, KPMG.
Top government officials say Indian manufacturers in most sectors are far more energy efficient than their counterparts abroad. This means in addition to labour intensive character, products manufactured here are more environmentally compatible. For instance, in cement industry, against the global lowest energy intensity of 65 kilowatt per tonne, the domestic manufacturers are at a comfortably close 69. The same picture is evolving in other manufacturing sectors like steel.
According to Ajay Shankar, secretary, department of industrial policy and promotion, India is ideally suited to develop Green as the USP of its manufacturing profile. “Our best is already there, the strategy is to make the followers catch up with them”, he said.
Measurements of overall energy intensity of GDP in India also point to the same trend. According to the government’s own estimates, energy intensity here is the same as in OECD countries, when GDP is calculated in terms of the purchasing power parity (PPP). Industry chambers, like Ficci and CII also aver that the move has started vigorously.
“Our manufacturing is at par with the best in the world and far better than the developing world,” said Arun Kumar, associate director, KPMG.
Govt approves 23 SEZ proposals
The government on Wednesday approved 23 more proposals for setting up Special Economic Zones, including an airport-based one by Bangalore International Airport Ltd and an IT zone by Larsen and Toubro.
The Board of Approval (BoA) for SEZ, chaired by Commerce Secretary Gopal Pillai, took up 27 proposals of which 21 were granted formal approvals while the in-principle nod to two projects were converted into formal approvals, an official statement said here. BIAL's airport-based 113 hectare SEZ at Devanahali in Bangalore was given formal approval as was the 15 hectare IT zone in Gujarat by Larsen and Toubro. Among those which were granted formal approvals include 13 proposals by Deccan Infrastructure and Land Holdings Ltd for IT, ITeS, sector specific and gems & jewellery zones in Andhra Pradesh. Diamond IT Infracon's IT zone in Uttar Pradesh was also given the go-ahead. The in-principle nod to the metal SEZ by Germach Infrastructure Equipments and Projects Ltd and engineering SEZ by Maharashtra Industrial Development Corporation in Maharashtra was converted to formal approvals. The government has so far given formal approval to 467 SEZs of which 225 have been notified and are directly employing 97,993 people. Physical exports from the SEZs have increased to Rs 66,638 crore in the last fiscal registering a growth of 92 per cent from Rs 34,615 crore in 2006-07.
The Board of Approval (BoA) for SEZ, chaired by Commerce Secretary Gopal Pillai, took up 27 proposals of which 21 were granted formal approvals while the in-principle nod to two projects were converted into formal approvals, an official statement said here. BIAL's airport-based 113 hectare SEZ at Devanahali in Bangalore was given formal approval as was the 15 hectare IT zone in Gujarat by Larsen and Toubro. Among those which were granted formal approvals include 13 proposals by Deccan Infrastructure and Land Holdings Ltd for IT, ITeS, sector specific and gems & jewellery zones in Andhra Pradesh. Diamond IT Infracon's IT zone in Uttar Pradesh was also given the go-ahead. The in-principle nod to the metal SEZ by Germach Infrastructure Equipments and Projects Ltd and engineering SEZ by Maharashtra Industrial Development Corporation in Maharashtra was converted to formal approvals. The government has so far given formal approval to 467 SEZs of which 225 have been notified and are directly employing 97,993 people. Physical exports from the SEZs have increased to Rs 66,638 crore in the last fiscal registering a growth of 92 per cent from Rs 34,615 crore in 2006-07.
MARKET PREDICTION
GLOBAL CUES ARE NEGATIVE ..BUT GOLD AND CRUDE ARE MOVING DOWN WHICH IS HEALTY FOR ECONOMY.
RS VS DOLLAR IS 42.7.
THERE IS ONE THREAT IN MARKET i.e. INFLATION.
TOTAL MARKET WIDE O I IS 66 K CR PUT CALL RATIO IS 1.57% EASING FROM HIGH OF 2.08%.
NIFTY LEVEL TO BE WATCHED OUT 4500-4580-4630-4690.
IT WILL BE PRUDENT TO SELL AT EVERY HIGH CLOSE ALL LONG.
HAVE A NICE TRADING DAY
-MR SAM
RS VS DOLLAR IS 42.7.
THERE IS ONE THREAT IN MARKET i.e. INFLATION.
TOTAL MARKET WIDE O I IS 66 K CR PUT CALL RATIO IS 1.57% EASING FROM HIGH OF 2.08%.
NIFTY LEVEL TO BE WATCHED OUT 4500-4580-4630-4690.
IT WILL BE PRUDENT TO SELL AT EVERY HIGH CLOSE ALL LONG.
HAVE A NICE TRADING DAY
-MR SAM
Subscribe to:
Posts (Atom)