Tuesday, 31 March 2015

Greece’s Fate Lies in Athens’ Hands, Not Berlin’s

In World Economy News 31/03/2015

greece economy 05.jpg
One of the Greek government’s biggest mistakes since taking office in January has been to assume that its fate lay in German hands. For the first two months, it refused to deal with the “Troika” of international lenders–comprising the European Commission, the European Central Bank and the International Monetary Fund–since renamed “the institutions,” now known as “the Brussels Group.” It was reluctant even to negotiate with the Eurogroup of European finance ministers, which has had political responsibility for overseeing all eurozone bailouts.
Instead, Prime Minister Alexis Tsipras believed that Greece’s fortunes hinged on a “political deal” that pitched Athens against Berlin. Over 10 hours of talks in both Brussels and Berlin, German Chancellor Angela Merkel tried to convince Mr. Tsipras that he was wrong: he had overestimated Germany’s power and underestimated the importance of respecting eurozone rules and processes. Mr. Tsipras may have dug himself into a hole by promising voters that he would end the bailout but Ms. Merkel could do little to pull him out.
That doesn’t mean Ms. Merkel is indifferent to Greece’s fate. Ms. Merkel doesn’t need homilies from anyone on the importance of keeping the eurozone intact. After all, she defied domestic opinion and the advice of senior ministers when she agreed to Greece’s 2012 bailout which prevented a messy euro exit. She said then, and repeated this month, that she believes that “if the euro fails, then Europe fails.” The German government is fully aware that a Greek euro exit could have geopolitical as well as economic consequences.
But Berlin is adamant that it cannot deliver what Athens has been effectively demanding: unconditional loans. For Germany, it is a vital legal principle that the deal struck by the previous Greek government whereby Athens would receive loans–the bulk with 30-year maturities at very low interest rates–in return for fiscal and reform commitments remains a continuing obligation of the Greek state. Greece may have a new government but Athens remains bound by the terms of its bailout in the same way that is bound by its membership of NATO.
Of course, Athens is entitled to seek changes to its bailout program, but it needs the agreement of all the other 18 members of the Eurogroup, not just Germany. True, Germany has considerable power in the Eurogroup, but Berlin has no mandate or authority to negotiate directly with Athens on behalf of the other 17 eurozone states. Nor is it clear it could impose a compromise deal on other eurozone governments, many of which have domestic reasons to be wary of succumbing to Greek pressure.
Besides, finance ministers have delegated the task of designing and evaluating bailouts to the institutions formerly known as the troika. There are two good reasons for this. The first is that finance ministers don’t have the technical expertise to pass judgment on fiscal adjustment packages. Second, it avoids the politically toxic situation where one government sits in judgment on the policies of another, thereby precluding bilateral deals. In this respect, the independence and credibility of the IMF is particularly essential to reassure national parliaments that bailouts have been rigorously designed.
In Berlin–and across the eurozone–there is frustration that Athens spent two months challenging the process, rather than working on the substance of its program. Nobody disputes that symbols are important and that the bailout machinery is widely detested and politically toxic in Greece. But it will be much easier to change symbols and adapt processes once an agreement on substance has been reached.
German officials are still optimistic that Mr. Tsipras can reach a deal with the institutions that satisfies both sides even if they are currently far apart. They note that national governments have always had wide discretion to shape the overall program reflecting their own political priorities; there is always more than one path to the same goal.
For instance, if Mr. Tsipras wants to spend more on humanitarian assistance, he could perhaps fund it by cutting spending on defense. Similarly, if he can raise an extra EUR3 billion ($3.27 billion) from tackling tax evasion and increasing taxes on the wealthy, it may not need to end the special VAT tax breaks enjoyed by Aegean islands or scale back early retirement opportunities for some public sector employees.
But what remains nonnegotiable is that Athens’s proposals must be fully evaluated by the institutions, a program agreed and some reforms implemented before any cash can be disbursed.
Of course, this will take time. But Athens has received little sympathy from Berlin over its warnings that it is running out of cash and might be forced into a messy default. German officials note that the date on which Athens says it will run out of money keeps changing. They also note that a determined government can usually find ways to avoid default, if necessary by building up arrears and drawing cash from other state institutions. The crunch will come in July when Athens must repay EUR3.5 billion to the ECB. Meanwhile, the liquidity squeeze is putting necessary pressure on Athens to negotiate.
In the past week, there are some signs this pressure is working. Eurozone officials say that for the first time there has been constructive engagement between Athens and the institutions. Athens has submitted a list of proposed reforms that provide a basis for discussion, although details remain so far inadequate and technical teams are still hampered by the refusal of Athens to allow them to talk directly to ministers, say officials familiar with the negotiations.
What is clear is that the decisive moves in this saga will be made in Athens, not Berlin. Mr. Tsipras campaigned on a promise to keep Greece in the euro but also to change the eurozone. Now it is clear he cannot do both, his challenge is to reach a deal with the institutions and then sell it to his party and parliament. That makes this crisis a far bigger test of Mr. Tsipras’s political skills than those of Ms. Merkel.

Source: Dow Jones

Higher German prices could help spur euro zone inflation

In World Economy News 31/03/2015

German consumer prices rose in March for the first time this year when harmonised to compare with other European Union countries, and could help spur euro zone inflation.
EU-harmonised consumer prices were up 0.1 percent on the year in Europe’s largest economy after dropping 0.1 percent in February, preliminary data from the Federal Statistics Office showed.

Some economists said the pickup in German inflation, along with data on Monday showing Spain’s EU-harmonised inflation rate rose to -0.7 percent in March from -1.2 percent in February, would likely give the euro zone figure due to be published on Tuesday a boost.
The German reading was in line with a Reuters forecast. Germany’s non EU-harmonised national consumer price index rose by 0.3 percent on the year with service prices increasing while food and energy prices dropped less sharply than in the previous month.
Christian Schulz, senior economist at Berenberg Bank, said the Spanish and German figures could even help the euro zone break a run of negative inflation figures: “On the basis of these two countries, there is a chance that euro zone inflation could climb out of negative territory in March.”
Still, even if inflation returned in the euro zone it would remain well below the European Central Bank’s target of close to but just below 2 percent over the medium term.
A Reuters poll conducted before Monday’s data was published showed economists expect euro zone consumer prices to fall by 0.1 percent in the single currency bloc in March after dropping by 0.3 percent in February.
Jennifer McKeown, economist at Capital Economics, said that because German wage growth has been moderate at a time when the economy still has spare capacity, core inflation is not likely to pick up suddenly, especially while oil is cheap.
“We expect energy prices to continue to exert a heavy drag on the headline rate for the next six months or so, which may see headline inflation dip back into negative territory in the near future. But the drag should ease somewhat later this year.”

Source: Reuters (By Michelle Martin, Editing by Noah Barkin and Susan Fenton)

Qatar Companies to Invest $5 Billion in China for LNG Projects

In Oil & Companies News 31/03/2015

Two Qatari companies agreed to pay about $5 billion for a 49 percent stake in Shandong Dongming Petrochemical Group to help the Chinese business build an LNG receiving terminal and expand into retail gasoline sales.

The investment by Hamad bin Suhaim Enterprises and Qatra for Investment and Development will pay for the construction of a receiving terminal for liquefied natural gas, with a capacity of 3 million metric tons a year, and an LNG storage facility, Ibrahim El-Tinay, Qatra’s chief executive officer, told reporters Monday in the Qatari capital Doha. Shandong Dongming will also use the money to built 1,000 gasoline filling stations in six provinces south of Beijing, he said.

“We hired a financial adviser and expect to close the deal before the end of the year,” El-Tinay said, declining to identify the adviser. Shandong Dongming plans to select operators for the gas stations in the fourth quarter, he said.

Qatar, an OPEC member and the world’s biggest exporter of liquefied gas, has been expanding investments in China and Asia, where it already sells most of its oil and LNG. The emirate and its sovereign wealth fund, the Qatar Investment Authority, plan to invest as much as $20 billion in Asia by 2020. China is the world’s largest energy consumer.

Shandong Dongming, which operates an oil refinery processing as much as 450,000 barrels a day, expects to sell about a third of its output through the new gas-station network, the company said in a joint statement with the Qatari investors. It generated an operating income of $7.5 billion in 2013, according to the statement.

Source: Bloomberg

Asian giants want majority stakes in Australian LNG projects

In Oil & Companies News 31/03/2015

Asian companies will seek to take majority stakes in Australian liquefied natural gas projects within five years, KPMG Asia Pacific energy head Mina Sekiguchi says.
Ms Sekiguchi, KPMG’s Tokyo-based head of energy and natural resources in Asia Pacific, said Asian utilities, trading houses and national oil companies, particularly from Japan, were enthusiastic about using their minority positions as platforms for further investment and potential acquisitions.
“Some are looking to be operators or take bigger stakes and they think taking these minority stakes is a good way to learn,” she said. “In probably five years time once construction ends and we start shipping I think it could trigger the next phase where Japan will get more involved in these projects.
“Some of the projects might be sold because they might not be profitable enough around these prices for current shareholders but that means they will be picked up by somebody else, a new entrant maybe from Japan, China, Indonesia, Malaysia or Korea, for example. That has started happening and there will be a lot more transactions.”
Japanese investment has been important in the rapid expansion of Australia’s LNG capacity. Japanese utilities have taken minority positions in the majority of Australian LNG projects in operation or under construction. The $34 billion Ichthys project near Darwin, headed by Japan’s INPEX and scheduled to start production in late-2016, will be the first Japanese-operated LNG project anywhere in the world.
But Singapore-based Tri-Zen International principal consultant Tony Regan said he doesn’t believe greater Asian involvement in Australian projects is likely.
“It’s not the time to be doing something that doesn’t seem to be satisfying any strategic objective,” Mr Regan said. “To increase your stake in a liquefaction plant or the upstream supply into it would be hugely expensive. If anything I think you could make the case of them selling those stakes as they are not getting any benefit from them.”
Mr Regan said taking on operatorship was especially unlikely considering the relative inexperience of many of the companies in question.
“It would be a huge jump for many of these companies to take over the operator ship of an LNG plant because they just don’t have the expertise,” he said.
“And in terms of majority positions, it would be hugely expensive to do this and if the economics of these projects are looking a bit dodgy they are coming into them at exactly the wrong time and could end up having to show a loss on their investment. We are talking billions of dollars to get a significant stake and I really don’t see any appetite to do that.”
But Ms Sekiguchi said the appetite was there as long as there was opportunity for “expertise transfer”.
“One of the things that is a challenge for a lot of Asian countries is they have never been an operator or a majority investor so in order to be active, and not just a minority investor, they have to learn a lot,” she said.
“That makes their relationship with Australia very important.”
The biggest benefit to the region would be energy security, Ms Sekiguchi said, as Australia is widely regarded as one of the most reliable LNG suppliers, underpinned by political stability.
“When I talk to my colleagues across Asia, everyone is having energy security challenges and LNG to some extent will provide an answer to those challenges,” she said. “It is a good solution available to them. They all want to diversify supply and Australia is key for this.”
The Fukushima nuclear disaster had forced the Japanese government to seek alternative energy sources, Ms Sekiguchi said. But if nuclear reactors were restarted, it would be in “better balance” with other energy sources and would be unlikely to impact demand for LNG.
“After Fukishima we have been working very hard as a nation to increase our national security, not just because we lost nuclear but because it is very important to diversify and lower the high dependency on one thing or place.”

Source: Sydney Morning Herald

Investors Are Piling Into Battered Greek Stocks

Photographer: Kostas Tsironis/Bloomberg
by Sofia Horta  E Costa | 3:00 AM GST | March 31, 2015

(Bloomberg) -- Even as Greek stocks completed a fourth quarter of losses and volatility surged, investors are having a hard time turning down bets that things will improve.

An exchange-traded fund tracking Greek shares has drawn cash every week this year, totaling about $167 million, data compiled by Bloomberg show. Short interest slipped to the lowest level since July this month as Greece becomes the only western-European market posting a drop since January.

Greek stock swings almost doubled from last year as Prime Minister Alexis Tsipras sought a compromise with creditors to unlock bailout funds. Investors brave enough to place wagers now could see huge returns because equities stand to rally if the country implements new reforms, according to Andreas Kontogouris at Beta Securities SA.

“These investors want to be ahead of the market,” Kontogouris said by phone from Athens. “There’s a chance that, come June, Greece will not only have a new financing deal, but it will also start adopting major reforms. Suddenly things will look a lot better.”

The ASE Index fell 6.1 percent in the first quarter, with banks reaching a record low on March 19. The benchmark gauge moved an average of 3 percent a day in 2015, compared with 1.6 percent last year. The Stoxx Europe 600 Index had average daily swings of 0.7 percent this year.

Tsipras’s ascent has sown concern that the new government will fail to honor agreements tied to funds keeping the country from going insolvent. Credit-default swaps indicate the chances of a default have risen to almost 75 percent from 67 percent at the start of the month, according to CMA.
Detailed Plan

To win a Feb. 20 agreement extending the nation’s bailout, Tsipras backed away from election pledges to ease budget cuts and restructure debt. Greece has agreed to to produce a detailed economic plan that would bolster finances -- something the International Monetary Fund, European central banks and other creditors have yet to see.

European officials said on Monday the nation’s proposals need more work.

In its latest blueprint, Greece would allow a budget surplus of 1.5 percent of its 2015 economic output, Finance Minister Yanis Varoufakis has said. The proposal would bring in additional revenue and enable the economy to grow 1.4 percent this year, according to a Greek government official.

With the ASE near its lowest level since 2012, traders are speculating a rebound could be strong. The index has climbed more than 5 percent on six days this year. The biggest gain for the Stoxx Europe 600 Index was 2.7 percent in the period.
Short Interest

Short bets on the Global X FTSE Greece 20 ETF fell to 1.6 percent of shares outstanding, down from a high of 20 percent in December, Markit data show. The short interest is lower than for similar funds tracking stocks in Germany, France and Italy.

To Vassilis Patikis, head of global markets at Piraeus Bank SA, it’s still too soon to invest in Greece given the market volatility.

“There’s still too much uncertainty to call it either way,” Patikis said from Athens. “The market is driven almost entirely by politics, making it impossible to have a view based on the usual fundamentals.”

While Greek shares fell this year, the rest of the region took off as the ECB started a quantitative-easing program. Stocks in Germany, Italy and Portugal are up more than 20 percent for 2015. The Stoxx 600 has advanced 17 percent, its biggest quarterly gain since 2009.

“Some investors are clearly looking to make a quick buck with Greece,” said Ion-Marc Valahu, co-founder of Clairinvest in Geneva. “They’re playing the knee-jerk reaction if we finally get a political resolution. For me, a rebound will last a few weeks at the most. With QE lifting the rest of Europe, there are easier places to make money.”

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Chris Nagi

Even With Free Money, Merkel Still Reluctant to Spend

Angela Merkel.
Photographer: Sean Gallup/Getty Images
by Simon Kennedy | 10:56 AM GST | March 31, 2015

(Bloomberg) -- In Germany there’s no such thing as guilt-free borrowing.

Even when it’s the lenders who pay the borrower.

“In German, debt is the same word as guilt,” former Italian Prime Minister Mario Monti said in an interview. The word is “Schuld.”

Monti is among the critics who say Chancellor Angela Merkel’s unwillingness to pull out the credit card is holding back the euro-area economy and making it harder to overcome the financial-crisis aftermath. By sitting on the fiscal sidelines even with a budget surplus, Berlin has put virtually the entire response to the threat of deflation on the European Central Bank.

The latest reason to raise eyebrows at the intransigence is that Germany now pays just 0.2 percent to borrow for a decade. It would charge its lenders -- through negative interest rates - - to get cash for as long as five years.

“It’s almost pathological,” said Simon Tilford, deputy director of the Centre for European Reform in London. “You’re talking about an economy where the fiscal situation is robust, inflation is exceptionally low, the capital stock has been eroded for many years and where the government can borrow at close to zero and still it refuses to spend.”

That aversion, stemming, the thinking goes, from the hyperinflation of the 1920s and a desire to run up its current-account surplus, have irritated allies in Washington and Paris who want to do more to speed expansion.

It’s not much help to the German economy.
German Spending

Public investment has fallen as a share of German government expenditure to just above 10 percent from 14 percent at the start of the 1990s. Studies by the World Economic Forum find executives report a steady decline in the quality of infrastructure in the past decade.

The economic payoff could more than cover the cost of borrowing. A December study by Selim Elekdag and Dirk Muir, economists at the International Monetary Fund, calculated that state spending of 0.5 percent of gross domestic product for four years would boost GDP by 0.75 percent.

The spillover effect would also raise output in Greece, Ireland, Italy, Portugal and Spain by 0.33 percent, the study estimates. Faster growth would surely be welcome news for the ECB, whose crisis-fighting aggressivneness has earned German ire from the start. A pair of Germany’s ECB policy makers, Axel Weber and Juergen Stark, quit in protest in 2011.

So why won’t Merkel loosen the purse strings? As she aims to keep a balanced budget through the 2017 election, the argument is that the economy is doing well without stimulus, a debt equivalent to 72 percent of GDP requires paring to meet euro-area rules and an aging population requires savings now.

Yet Michelle Tejada, an economist at Roubini Global Economics LLC in London, says by not spending now, Germany may find its economy overheats at relatively low rates of expansion and that it’s even harder to finance pensions.

The country may even end up surrendering its role as Europe’s engine if its trend rate remains about 1.7 percent.

“You can’t sustain a whole region when growth is so low,” she said.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net Zoe Schneeweiss

Monday, 30 March 2015

Japan aluminium product demand seen rising 1.8 pct in 15/16 -industry body

In Commodity News 30/03/2015

Aluminium photo 08.jpg
Japan’s aluminium product demand, including for exports, is expected to grow 1.8 percent in the financial year starting April 1, backed by rising demand for cans for coffee beverages and a rebound in construction market, an industry body said.
“Japanese economy is improving thanks to ‘Abenomics’ while export is also growing on the back of a weaker yen,” Takashi Ishiyama, chairman of Japan Aluminium Association, told a news conference, referring to Prime Minister Shinzo Abe’s policy to revive the economy.
“Although demand in construction and automobile markets was hit by a sales tax hike last April, we expect it will gradually recover in the next business year,” he said.
Overall demand of aluminium products is forecast to increase to 4.16 million tonnes in the year to March 2016 from 4.09 million tonnes this year, which marks a 2.6 percent climb.
Of that, domestic demand will grow 1.9 percent, buoyed by a switch by a beverage maker to aluminium cans from steel for coffee drinks. Export is seen growing 1.1 percent.
Import of aluminium products, meanwhile, will rise 6.8 percent next year, driven by supply coming from China, the industry body said. Imports jumped 16.6 percent in the current year.
Aluminium ingot stocks held at three major Japanese ports climbed for an eleventh month to a record high at the end of February due to robust imports.
Many aluminium ingots were heading to Japan to look for buyers as demand elsewhere in Asia is faltering and China is expanding exports of cheaper aluminium products to neighbouring countries, according to traders.

Source: Reuters (Reporting by Yuka Obayashi; Editing by Gopakumar Warrier)

Iron ore slump set to shrink China’s mining capacity

In Commodity News 30/03/2015

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A slide in iron ore prices is turning the screw on China’s fragmented mining sector, paving the way for closures and consolidation with three-quarters of the country’s mining capacity operating at a loss, industry officials said.
More mine closures in China, the biggest consumer of the steelmaking commodity, would increase its appetite for imported iron ore and help ease a global glut that has slashed prices by more than half in the past 12 months.
“I would like to thank the big four miners for driving prices down because it has given bigger domestic mines an opportunity and forced small miners to cut production,” Gao Yan, deputy general manager at the mining unit of Chinese steelmaker Angang Group, told an industry conference.
Top global producers Vale, Rio Tinto and BHP Billiton have boosted output despite falling prices, prompting No. 4 iron ore miner Fortescue Metals Group to propose limiting production.
The commodity fell to $54.20 a tonne .IO62-CNI=SI this week, the lowest since records began in 2008, and Citigroup predicted prices will drop below $50.
Three-quarters of China’s domestic iron ore capacity is incurring losses and capacity utilisation rates at small iron ore mines dropped to as low as 20 percent at the end of last year, said Yang Jiasheng, chairman of the Metallurgical Mines Association of China (MMAC).
“If there are some small loss-making iron ore producers that are forced to close then this will be a good thing for the market,” he said, adding that bigger producers would also have to restructure and cut costs.
Only about 3 percent of China’s 4,037 iron ore mines are large scale, with the rest mostly small, said Yang.
Rio Tinto expects some 85 million tonnes of iron ore capacity to exit the global market in 2015 on top of an estimated 125 million tonnes last year due to tumbling prices, with Chinese mines absorbing most of the losses.
“The elimination of high-cost miners is an inevitable trend,” said Feng Guoqing, general manager at Shougang Mining.
“The oversupplied market will make the decision to close them.”
In Hebei, China’s top steel producing province, 80 percent of local mining companies have stopped producing and output is likely to fall 40 percent this year, said Li Fenghai, vice director of Hebei Metallurgical Mining Industry Association.
But MMAC’s Yang said the state needed to recognise the strategic importance of iron ore and ensure there was enough support to maintain a certain level of self-sufficiency.
China’s industry ministry has agreed in principle to reduce the tax burden on domestic miners, currently at about 25 percent, said Yang. That compares to an 8 percent tax for Australian iron ore miners.
China is the world’s biggest iron ore producer in terms of raw ore, but buys about two-thirds of global output because of the low quality of its own ore.
The country’s iron ore imports climbed 14 percent to a record 932.7 million tonnes last year as a price slump boosted appetite for high-quality ore overseas.
In contrast, apparent consumption of China’s domestic iron ore fell to 205.86 million tonnes last year from 313.8 million tonnes in 2013, despite an increase in overall production volumes, data from consultancy Custeel showed.

Source: Reuters (Writing by Manolo Serapio Jr.; Editing by Ed Davies)

China Rushes to Strike Balance Between Steel Production and Demand by 2017

In Commodity News 30/03/2015

China will accelerate reforms in its overly invested iron and steel sector to bring it back to a balanced level by 2017, said the Ministry of Industry and Information Technology. Overcapacity has plagued China since the global financial crisis in 2008.
Rapid expansion in the iron and steel sector with little regard for real market demand caused many small steel companies to go bankrupt and had some large producers struggling to keep afloat.
The China Iron and Steel Association (CISA) pointed out that economic slowdown and structural adjustments dampened the need for steel.
As demand continued to shrink and signs of overcapacity became more apparent, the government in 2013 vowed that it would slash production by 80 million tons by 2017.
Estimates for steel’s global overcapacity vary from 300 to 600 million tonnes, with almost half coming from China. Steel exports from China reached record highs in 2014, with a good percentage reaching the U.S. and causing a negative impact on American steel firms.
In 2014, China eliminated 31.1 million tons of steel smelting, although it still produced 823 million tons of crude steel in 2014, accounting for over 50 percent of the world’s total output.
China also seeks to speed up the merger and acquisition process to create three to five major steel producers by 2025. The plan was also meant to have the 10 largest steel companies account for no less than 60 percent of total output.
The plan also aims for a production capacity utilization of more than 80 percent.
Analysts estimate that a ratio below 80 percent hurts the steel play’s profitability.
The ministry also seeks to perfect market access and create exit rules to eliminate excessive production.

Source: Yibada

King Coal faces the end of its reign

In Commodity News 30/03/2015

The coal industry is in crisis. It has failed to recognize the structural shift in power generation driven by regulation rather than price and has missed the window of opportunity to invest in clean coal technologies. Now it faces a slow King Canute style demise, as elaborated by Ross McCracken, managing editor of Platts Energy Economist.
Back in May 2014, the Queensland Resources Council reported that more than 50% of Australian thermal coal was being produced at a loss. Consultants Wood Mackenzie estimated this March that nearly 17% of US coal production is uneconomic at current pricing levels, representing 162 million short tons of production capacity. In China, China Shenhua Energy Co., the country’s largest coal producer, in what is the world’s largest coal market, expects a 10% drop in domestic coal sales this year, equivalent to 47 million tons.
This is an industry in crisis. Not because there is too much coal available, which there is, but because in its key markets the prospects for demand growth are being slowly killed. The reason isn’t price – coal is dirt cheap – it’s the ‘dirt’ bit that is the problem.
China is hauling back what was the world’s largest ever expansion in coal-fired generating capacity in the interests of both local air quality and climate change. In the US and Europe, emissions regulations are forcing the closure of old coal plants and making new plants increasingly difficult to build. If construction of coal-fired generation plant stalls, then so too, eventually, does demand for thermal coal.
The change is perhaps most dramatic in China. Shenhua published its 2014 results in March, which showed a drop in commercial coal production from 318.1 million tons in 2013 to 306.6 million tons in 2014. Coal sales, which include third-party sales, fell even faster, dropping 514.8 million tons to 451.1 million tons year-on-year.
Its guidance for 2015 foresees commercial coal production falling further to 273.60 million tons, while coal sales are expected to drop 46.85 million tons to 404.25 million tons.
Shenhua believes the coal industry in China is entering a new paradigm, which is describes thus: “In 2015, the new normal state of the coal industry will become further defined. The development mode purely relying on the expansion of output and capacity is gradually dying out along with the conventional market competition model.” To address this structural change, Shenhua hopes to build itself into a “world first-class supplier of clean energy.”
But is the rest of the global coal industry adapting to this new normal? Instead of investing in clean coal technologies when the going was good and coal prices high, the coal industry simply invested in greater production capacity. Politically, instead of swimming with the regulatory tide, it tried to fight it. Now it faces a slow King Canute style defeat.
Most worryingly for the industry is that the window of opportunity for clean coal has been missed. All clean coal technologies are dependent on carbon capture and storage and nowhere in the world has anyone, not least the coal industry itself, been prepared to spend enough money to make CCS viable.
In the meantime, other options, which don’t produce the CO2 in the first place, have fallen in cost, making CCS look like an increasingly unnecessary gamble. The oil, and even the natural gas industry, should perhaps ask themselves whether they are swimming with or against the tide.

Source: Platts

Forecaster sees favorable weather for U.S. grains this season

In Commodity News 30/03/2015

A cool April in the U.S. southern Plains and Delta region will slow some planting of corn, soybeans and other crops but below-normal rainfall across the main crop belt should prevent any major planting delays this spring, an agricultural meteorologist said.
“We’ll see delays continue across some southern areas but when you get into the major production areas I don’t think we’re going to have any major delays,” Kyle Tapley with MDA Weather Services told a spring outlook conference.
Tapley also said mild temperatures and timely rains across the Corn Belt this summer, other than some dryness in the western belt, will be favorable for crops and likely produce strong yields.
If realized, this would be the third straight year of generally mild summer weather and bumper crops for the United States, the world’s largest top food exporter. This would follow the worst drought in half a century seen in 2012.
In years similar to this spring, corn yields averaged 1.9 percent above the trend and soybean yields were 3.6 percent higher, Tapley said.
MDA forecast the national corn yield at 167.5 bushels per acre and soybeans at 45.9 bpa. In 2014, the average corn yield was 171.0 and soybeans was 47.8 – both record highs.
During March, wet fields in the southern states of Mississippi, Louisiana, Texas and Arkansas have slowed corn planting, which is now running a couple weeks behind normal.
High-tech planters, seeding more than 30 rows on one sweep, allow farmers to catch up quickly. But if corn planting gets too far behind, more acres could be seeded to soybeans, a crop with a shorter growing season that is planted after corn.
Analysts are already forecasting U.S. farmers could plant 3 million or more acres to soybeans than in 2014 given the higher costs to plant corn compared to beans, which need less costly nitrogen fertilizers key to corn yields.
The U.S. Department of Agriculture will release its first 2015 planting estimates based on farmer surveys on March 31.
El Nino, a warming of the southern Pacific Ocean, which is currently in a neutral to weak state, indicates mostly favorable growing conditions for the central United States.
But Tapley said there are concerns about drier than normal conditions in the central and northern Plains, which could stress hard red winter wheat as it breaks dormancy and affect corn and spring wheat plantings.

Source: Reuters (Reporting by Christine Stebbins; Editing by Diane Craft)

EU wheat output to fall, despite bumper French harvest

In Commodity News 30/03/2015

European Union wheat production will fall this year despite a rise in French output to its highest in more than a decade, Coceral said, foreseeing falls in the bloc’s barley, corn and rapeseed harvests too.
The industry group, in its first forecasts for 2015 crop output, pegged the EU’s wheat harvest – the world’s biggest – at 146.2m tonnes, down 9.65m tonnes from last year’s record crop.
The forecast, which reflected expectations for falls in both area and yield, was a little below estimates from other observers such as Strategie Grains, which pegs the harvest including durum at 148.3m tonnes.
The International Grains Council on Thursday pegged the EU crop at 147.2m tonnes, noting that “warm and mostly dry weather in March speeded winter crop development in western areas and brought plants out of dormancy in the east”, but factoring in nonetheless “a return to average yields from the high levels” of 2014.
German, UK declines
Coceral forecast reflected expectations of weaker harvests in three of the EU’s four top wheat producing countries – Germany, the UK and Poland – thanks mainly to lower yield expectations.
The German wheat crop was pegged at 25.4m tonnes, a drop of 2.4m tonnes year on year, and a markedly more downbeat forecast than the 26.7m tonnes pencilled in by the Deutscher Raiffeisenverband group of farm co-operatives.
DRV said two weeks ago that while yields were likely to fall short of the strong 2014 levels, “due to the generally mild weather cereal and oilseed rape crops have survived the winter months without significant damage”.
Coceral pegged the UK wheat harvest at 14.4m tonnes, a drop of 2.1m tonnes from last year’s strong result.
High French sowings
However, the group saw the French harvest, the EU’s biggest, rising by 680,000 tonnes to 39.62m tonnes, a level not seen since 2004, on records kept by the US Department of Agriculture.
According to data France’s official Agreste statistics division, it would beat, narrowly, even the 2004 harvest, and represent the largest since 1998.
Coceral saw French sowings of soft wheat – which accounts for the vast majority of the French and indeed EU wheat crops –rising to 5.13m hectares, the highest since at least 1992, when compared with Agreste data.

The soft wheat yield was seen remaining close to last year’s 7.48 tonnes per hectare.
Data on Friday from France’s official FranceAgriMer bureau showed the 90% of the domestic soft wheat crop rated as being in “good” or “excellent” condition, down 1 point week on week but well above the 76% a year before.
Barley and corn
For barley, Coceral pegged EU production dropping by some 1.8m tonnes to 58.42m tonnes, against with declines seen in the likes of Germany and the UK, but not in France.
FranceAgriMer data show 90% of French barley in “good” or “excellent” condition too, up from 73% a year ago.
Meanwhile, this year’s EU corn crop was seen falling by 7.8m tonnes to 66.0m tonnes, a reflection of lower sowings and yield expectations, including in France, the EU’s top producing country for the grain.
Insect pressure eases
EU rapeseed output was seen falling by some 3.5m tonnes to 21.62m tonnes, undermined by weaker yield expectations for France, Poland, the UK and, especially, Germany, where output will fall by nearly 1m tonnes to 5.31m tonnes.
The Coceral estimates see Germany’s lead over France in rapeseed production falling to 84,000 tonnes this year from 748,000 tonnes in 2014.
Even so, the group is more generous than the DRV, which pegs German rapeseed production this year at 5.2m tonnes.
The International Grains Council on Thursday nudged its forecast for EU rapeseed output this year higher by 100,000 tonnes to 21.3m tonnes, “reflecting a marginally increased figure for Germany, where pest infestation has eased more recently”.
Farmers have warned over losses to insect outbreaks, after an EU ban on a controversial insecticide.

Source: Agrimoney

Thursday, 26 March 2015

U.S. business groups push for Export-Import Bank extension

In World Economy News 26/03/2015

U.S. business groups pushed lawmakers to approve a long-term extension for the U.S. Export-Import Bank, keeping up the pressure to defy conservatives who want the bank to shut.
Closing the bank, which will shut on June 30 if its mandate is not renewed, would hurt exports, said the U.S. Chamber of Commerce, Business Roundtable, National Foreign Trade Council, National Association of Manufacturers and 10 other industry associations including those representing small business, aerospace, financial services, nuclear energy and engineering companies.
“The undersigned organizations urge the U.S. House of Representatives to provide certainty in the market and protect American jobs by passing a long-term Ex-Im reauthorization as expeditiously as possible,” said the letter, seen by Reuters.
“We are reaching a critical juncture in this debate, and business owners across the country cannot afford to continue with this sense of uncertainty any longer.”
Businesses have complained about losing contracts or being unable to bid for work because they did not have financial backing for deals lined up, in contrast to overseas competitors.
The letter shows the wide range of business groups lobbying Congress to extend the export credit agency’s mandate. They are opposed by conservative groups such as the Club for Growth and Heritage Action for America, which argue Ex-Im favors special interests and provides corporate welfare.
Ex-Im provides backing for U.S. exporters as well as to foreign buyers of U.S. goods, such as Boeing Co planes.
Bills supporting Ex-Im introduced in the House of Representatives have backing from more than half that chamber’s lawmakers, but face opposition from Jeb Hensarling, a Republican who chairs the House committee responsible for the bank and is influential in determining which bills come up for a vote.

Source: Reuters (By Krista Hughes)

French Unemployment Resumes Rise in February

French Unemployment Resumes Rise in February

The number of unemployed people in France resumed its rise in February, dashing hopes of a sustained improvement in the labor market.
The number of category A jobseekers–defined as registered job seekers who are fully unemployed–rose 0.4% in February from January to reach 3,494,400, data from the labor ministry showed. January had marked a 0.5% month-on-month decline after a long period of rising unemployment.
The ranks of the unemployed have swollen by around half a million since Francois Hollande took office in May 2012, despite the Socialist leader’s efforts to cut labor taxes and lift young people out of unemployment with state-sponsored jobs.
After the jobless number fell in January, labor minister Francois Rebsamen already urged caution and told observers to look at the longer term trend.
Still, lower oil prices and a weaker euro–which helps France’s exporters–have raised optimism recently. Earlier Wednesday, government spokesman Stephane Le Foll said the government’s 1% economic growth forecast for this year is more and more certain and the question now is whether the economy will outperform that target.

Source: Dow Jones

ECB actions working, but structural reforms needed – Liikanen

In World Economy News 26/03/2015

European Central Bank policy actions have had a clear positive impact on the euro zone
economy, but member states still need to adopt structural reforms to support the recovery, ECB Governing Council member Erkki Liikanen said.
Liikanen, who is also the governor of Finland’s central bank, noted that determined action by member states would allow the ECB’s bond-buying programme and low interest rates to exert the best possible benefit.
“Monetary policy decisions and the measures taken have already had a clear, positive impact on the economic outlook,” he said on Wednesday.
The need for structural reforms was particularly clear “in countries where the working-age population is no longer growing or is actually decreasing,” he said, adding that reforms were
needed especially in product and labour markets.
Liikanen, who made his comments in conjunction with Bank of Finland’s forecast update for international economy, added that the accommodative monetary policy could cause imbalances on some markets and areas, and called for readiness in member states to use their macroprudential tools.
The Bank of Finland kept its forecast for GDP growth in the EU-22 — the euro zone states plus Britain, Sweden and Denmark
— unchanged at 1.6 percent for this year and 1.9 percent for 2016.
Its forecast for EU-22 inflation was zero for this year, 1.1 percent for 2016 and 1.7 percent for 2017.

Source: Reuters (Reporting By Jussi Rosendahl; editing by John Stonestreet)

ECB Said to Lift Greek Emergency Cash Above 71 Billion Euros

In World Economy News 26/03/2015

The European Central Bank approved an increase of more than 1 billion euros ($1.1 billion) in the emergency funds available to Greek lenders, two people familiar with the decision said.
The Governing Council raised the cap on Emergency Liquidity Assistance provided by the Bank of Greece to just over 71 billion euros in a telephone conference on Wednesday, the people said, asking not to be named because the call was private. The increase is the biggest this month and means the cap has risen by more than 10 billion euros since lenders lost access to normal ECB funding lines in February.

The Frankfurt-based ECB is reacting to the deterioration of Greece’s finances on two fronts as euro-area governments press Prime Minister Alexis Tsipras to deliver on economic reforms. While policy makers are ensuring lenders have sufficient liquidity to operate, the ECB’s supervisory arm yesterday made it illegal for domestic banks to increase their holdings of short-term government debt.
An ECB spokesman declined to comment.
The ELA increase is larger than the two previous weekly increases, of 400 million euros on March 18 and 600 million euros on March 12. It may be a sign of worsening deposit flight amid uncertainty over whether Greece can meet creditor demands and stay in the currency bloc.
Monday Deadline
Euro-area officials have said Greece needs to show it can deliver detailed reform proposals by Monday if the country is to receive further aid payments.

The currency bloc left the door open for Greece to access 1.2 billion euros that has been allocated to aid the banking system, if the cash-strapped nation can show how it will move ahead with the changes that its creditors are seeking. At the same time, the euro zone’s other 18 members were adamant that Greece needs to deliver specific plans to see any more bailout cash, officials said following a conference call of finance-ministry deputies.
By allowing the Greek central bank to fund the nation’s lenders while striving to prevent them from breaking European Union law by financing the government, the ECB is putting pressure on politicians to reach a deal.

Source: Bloomberg