Thursday, April 26, 2007

India iron ore sales to China drying up...

Place: Mumbai

India's once vibrant iron ore exports to China have slowed to a trickle because of a crippling export duty imposed by New Delhi, and orders may dry up entirely if world prices retreat from recent highs.The policy move may leave Indian ore producers, who have been expanding production in the hope of more overseas sales, struggling with surplus material, as Chinese buyers shift their focus to relatively cheaper cargoes from Australia and Brazil.

"There is buying, but it is quite subdued. They are really quite wary," said Rahul N Baldota, vice-president of the Federation of Indian Mineral Industries.

Orders from China, which buys nearly two-thirds of India's iron ore exports, are vanishing after the government slapped an export duty of 300 rupees, or $7.21, per tonne in this year's federal budget.The Indian government, after intensive lobbying by the country's booming steel industry, is trying to discourage exports of the commodity to protect against over exploitation of the resource.Nearly 80 percent of India's exports of iron ore are fines, which need to be made into pellets or sintered before being used in steel mills blast furnaces.Since few Indian mills have the processing facility for using iron ore fines, piles of the commodity, the powdery raw material that comes out along with high-grade iron ore lumps, have started accumulating near the mines, said Sidharth Rungta, president of Rungta Mines Ltd.

Small shipments were still being sold to China as the country was straining to buy cargoes from Australia because of port congestions, which has pushed up world prices by $8 to $65 a tonne for medium-grade ore.This has so far kept Indian prices competitive, despite the new export tax, but prices are expected to fall back soon, traders and analysts said. India is currently offering iron ore fines at around $60 per tonne, free-on-board.

"The congestion in Australia is only a temporary phenomenon. The signs are that it will be over soon and international prices will fall again. It could take the wind out of whatever is remaining of India's exports," said Baldota.Traders said the landed cost of iron ore imports from Australia was at $85-90 a tonne and prices could ease by $10 once the port congestion ease.


China's iron ore imports in the first three months rose 23.4 percent to 100.19 million tonnes, customs figures showed.In March, China imported a record 9.84 million tonnes of iron ore from India, despite the introduction of the export tax, as most of the cargoes were contracted before the tax was announced. But Chinese imports of Indian iron ore are likely to halve in April, compared with March figures.

A Shanghai trader said he was seeing some Indian ore traded in the Chinese market, but volumes had dropped substantially.An official at the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters said Chinese mills were not signing fresh contracts to buy Indian ore.While international iron ore prices were high now, Rungta said he was not bullish in the longer term as Brazil and Australia were expanding mining capacities.

"These are bound to put pressure on Indian exports," Rungta said.

Senior ore industry officials, who did not want to be identified, said that they were hopeful that the government would soften the blow from the iron ore export duty as a high-level panel was reviewing the move.

SAIL's joint venture for steel plant

State-owned Steel Authority of India Ltd.(SAIL) said on Thursday it is exploring setting up a 4 million tonne integrated steel plant in a joint venture with Rashtriya Ispat Nigam Ltd. and National Mineral Development Corp.

It said a memorandum of understanding for the proposed plant in the eastern state of Chhattisgarh would be signed after receiving necessary approvals.Ahead of the news, shares in SAIL eased 0.04 percent to 134.05 rupees in a slightly firmer Mumbai market.

Sunday, April 15, 2007

Sandip Sabharwal: Bull market may continue...

In the past two months, global markets have fallen substantially on inflation fears and central banks’ responses to the same. The inflation argument in India has been carried forward too far. In reality, inflation has little impact on the direction of stock markets. An analysis of the past 20 years’ history of the Indian market reveals there have been bear markets in periods of very low inflation and bull markets in periods of very high inflation. For example, the Japanese market had been in a bear phase for years, during times of zero interest rates and negative inflation. To understand the impact of inflation on markets, we have to understand why there are inflationary pressures. Inflation picks up where there is growth and declines when growth slows.

Today, when growth is picking up in Japan, the market is doing well and is expected to do well, as long as the economy expands, companies increase profits and consumers are confident. The era of very low inflation seems to be over globally. The faster central banks globally come to terms with this fact, the better it is for the global economy. This is because, contrary to the 1980s and 1990s — when growth in the world economy was not as widespread as it is today, and overall growth was driven by growth in the US, Europe or South-East Asian Tigers — today, there is growth all around. China and India have emerged as strong engines of growth. Other BRIC economies, as well as Middle East economies, are growing at 7%-plus. Growth in Europe has also picked up and Japan is growing after more than 15 years. Even Africa is growing at rapidly, driven by a commodity bull cycle. Such widespread growth will lead to inflation.

The second factor is that currently, there is very high inflation in metals, oil and agri-commodities. Agri-commodity inflation is mainly due to two reasons — firstly, growing prosperity worldwide is leading to increased consumption of food grains; secondly, diversion of products like palm oil, corn etc to bio-fuels production is creating a demand-supply gap in these products. It is unlikely that agri-commodity inflation will come down anytime soon. This is because, increasing production of agri-commodities is a long-term process; it involves increasing acreages and improving productivity, which cannot be done in a year or two. Monetary policy can do little to reduce agri-commodity inflation.

Under these circumstances, the response of central banks becomes critical. Under the current scenario, excessive monetary tightening may not reduce inflation significantly, but it can impact growth negatively, as costs for corporates rise and consumer demand is affected. The US Fed seems to be realising that excessive tightening can take the economy to recession, without bringing down inflation significantly. Over a period of time, as supply of various commodities increases, inflation will reduce to a certain extent. Moreover, the impact of monetary policy on demand is normally felt 18 months after the action.

In the current situation, when interest rates have already risen substantially over the past four years, a policy of status quo is desirable. Given the current interest rate scenario, economic growth in India is likely to slow down to around 8.2% for FY08. However, long-term growth prospects remain bright and the next 10-15 years should see average growth of 8-10%. Overall view on the equity market remains positive for both the medium and long term. The market is trading at valuations of 14.7x ’08E earnings on the large-cap side, while mid caps are trading at a substantial discount at 11.5-12x ’08E earnings. From these levels, the downside to the market looks limited. Over the next few days, the market can potentially move down by 6-7%. But from there, it should be able to give a return of 18-20% p.a. over the next three years.

The bull market may continue over the next few years. But the Indian market is now integrated with global markets. Global market movements, like that of May ’06 and February ’07, will affect the market in the short run, but in the long run, individual markets will perform on their own merits.

Originally By Sandip Sabharwal - CIO,JM Financial Mutual Fund.

India - Pakistan Trade Surges...

ISLAMABAD: Trade between India and Pakistan is surging despite problems in movement of goods and people. Pakistan registered a six-fold hike in its exports to India in the last five years. It is expected to go up further with new trade concessions announced by India last week. Bilateral trade swelled from $235.74 million in 2001-02 to more than $1 billion last fiscal year. The balance of trade remains in India's favour.

In recent times, India and Pakistan have opened banks in each other's territory, resumed shipping services and improved cross-border road and rail transport. According to a trade analyst, the share of Pakistan's exports to India in overall exports increased from a mere 0.5 percent in 2001-02 to 1.8 percent in 2005-06."This is a six-time increase in Pakistan's exports to India in the last five years," an official of the Karachi Chamber of Commerce and Industry said. Pakistan's exports to India have increased from less than $50 million in 2001-02 to about $300 million in 2005-06.

Simultaneously, Indian exports to Pakistan too surged from $186.52 million to $802 million, up from 1.8 percent to 2.8 percent Pakistan's global imports. In these five years the balance of bilateral trade remained in favour of India. In 2005-06, it rose up to more than $500 million.
Pakistan supplied chickpeas, pulses, grains and sugar when these were in short supply in India. India supplied onions, potatoes, pulses and other food items to Pakistan. India's exports of engineering goods now exceed $10 billion. Pakistan meets its 25-30 percent requirements of engineering products from imports. India can be a good source of engineering products with freight advantage and relatively quick delivery and after-sales service.

Airports also take Wings...

Much to the delight of air-travellers, most of the 35 non-metro airports in the country will be modernised by 2010. Expressing optimism, the civil aviation minister Praful Patel says "Work is satisfactorily progressing at these airports and we are sure that most of them would be ready within next three years." According to estimates, close to Rs: 4,662 crore would be spend for developiong the airside and terminals of these airports. Whereas city side development will require about Rs: 1,500 crore. The development of airports in northeastern states will be done according to priority, because sometimes its the only means of travel in those regions.
Three new greenfield airports are being planned for northeast. The first - for ATR 72 operation- will be constructed at Pekyoung in Sikkim at approximate costs of Rs: 340 crore.Other proposals are for airports at Cheithu in Nagaland and in Itanagar.Guwahati airport in assam is also undergoing modification at a cost of Rs:32.4 crore.The 35 airports to be modernised are: Ahmedabad, Amritsar, Guwahati, Jaipur, Udaypur, Thiruvananthapuram, Lucknow, Goa, Madurai, Mangalore, Agatti, Aurangabad, Khajuraho, Rajkot, Vadodara, Bhopal, Indore, Nagpur, Vishakhapatnam, Trichi, Bhubneshwar, Coimbatore, Patna, Port Blair, Varanasi, Agartala, Dehradun, Imphal, Ranchi, Raipur, Agra, Chandighar, Dimapur, Jammu and finally PUNE!Currently the airports in Delhi and Mumbai are in process of modrnisation and first phase will be over till 2010.
The Planning Commision says that the next five-year plan will emphasise the provision of infrastructure at airports"at a much faster pace" to cope with massive growth of aviation sector. Transportation infrastructure plays a vitol role in shaping business locationand urban development. Airports today are more than avation infrastructure.

Saturday, April 14, 2007

Aviation sector growth helps push GE profits.

Place: Fairfield, USA
General Electric Co boosted its first-quarter earnings by 8 per cent over last year, mainly through a double-digit growth in its infrastructure segment, including GE Aviation.
The Fairfield, Connecticut-based company posted first-quarter earnings of $4.5 billion, or 44 cents per share, matching analysts' expectations. In first-quarter 2006, GE had earnings of $4.4 billion, or 42 cents per share. Also, revenues of $40.2 billion beat first-quarter 2006 revenues of $38 billion by 6 per cent, and topped analysts' estimates of $39.8 billion. "Demand for global infrastructure in our energy, aviation and oil and gas businesses helped infrastructure deliver 28 per cent segment growth," chairman and CEO, Jeff Immelt, said in a news release.

GE Aviation showed profits of $755 million, up 17 per cent from $645 million in the year-ago quarter. GE Aviation, based in Evendale, develops and manufactures jet engines for commercial and military aircraft.

Ruia's Essar acquires Canadian Algoma Steel.

Ruias owned Essar Steel on Monday announced that they have agreed to acquire Canadian Algoma Steel for an aggregate value of 1.8 billion Canadian dollars to be paid in cash. Commenting on the deal Shashi Ruia, chairman Essar Global Ltd, an arm for Essar Groups' international operations, said "we believe Algoma is an excellent addition to our existing steel business and also offers growth potential. This acquisition fits in with our global steel vision of having world class low cost assets with a global footprint."

Benjamin Duster, Chairman of Algoma's Board of Directors said, "The Board of Directors unanimously supports the Essar proposal as it reflects a significant premium to the historical share price of Algoma." Algoma Steel is an integrated steel producer based in Sault Ste. Marie, Ontario with steel shipments of 2.4 million tonnes in 2006. It has a revenue of 1.9 billion Canadian dollars which are primarily derived from the manufacture and sale of rolled steel products, including hot and cold rolled steel and plate. The offer price of 56 Canadian dollar per share represents a premium of 48 per cent to Algoma's stock price for the 20-day period ending on February 14, 2007 when Algoma confirmed that it was in discussions regarding a potential transaction, a joint statement by the two companies said. The arrangement must be approved by Algoma's shareholders by the affirmative vote of at least 66 per cent (2/3rd) of the votes cast, in person or by proxy, at a shareholders meeting, and is subject to customary closing conditions including necessary regulatory approvals. The support agreement provides for payments to Essar in the event that the acquisition is not completed under certain circumstances.