Tuesday, September 2, 2014

Investors' eyes pinned on ECB as Europe's health deteriorates

(Reuters) - The European Central Bank meeting on Thursday is the prime event for markets seeking clarity on the bank's response to a stalled recovery, disappearing inflation and the sluggish pace of reform in the euro zone.
Inflation in the 9.6 trillion euro economy dropped to a fresh five year low of 0.3 percent in August and as the months fly by, the bloc's cushion against Japan-style deflation is getting smaller and smaller.
Increased geopolitical risks from the intensifying conflict in Ukraine forced Europe to impose sanctions on its third biggest trade partner Russia, a move which dented the faltering economic rebound even further.
"Pressure for the ECB to do more has returned, not only because of weak output/inflation data, but mostly following (ECB's President Mario) Draghi's speech in Jackson Hole," said Frederik Ducrozet, senior euro zone economist at Credit Agricole.
Draghi struck a new, for some a groundbreaking, tone trying to cajole European governments into agreeing a common approach to reforming their economies - a drive he sees as necessary to allow the stagnant euro zone to grow with verve.
He will have a hard time selling his message. Countries like the euro zone's second and third largest economies France and Italy are not growing and lag behind significantly with reforms.
So the ECB may have to reach deeper into its policy toolbox, with some analysts even betting on an interest rate cut at the bank's meeting on Thursday.
"We expect the ECB to cut all key interest rates by a further 10 basis points, thereby delivering a larger negative deposit rate (-0.20 pct) as well as a refi rate even closer to zero (0.05 pct)," Nomura wrote in its global market research.
Beyond the euro zone, the week is packed with monetary policy meetings, with Sweden’s Riksbank, the Bank of Canada, the Bank of Japan and the Bank of England all taking the stage. The latter will be closely watched as investors seek guidance on the timing of an expected tightening.
Although no policy action from the Bank of England is foreseen on Thursday, it is still expected to be the first major central bank to lift interest rates when it makes a move early next year, just ahead of the U.S. Federal Reserve.
A string of data about the health of manufacturing in the euro zone countries and Britain will shed fresh light on how European businesses feel about their prospects amid the deepening crisis in Ukraine.
In North America, the calendar will be dominated by Friday's U.S. jobs report for August, after the Fed suggested in its last minutes that the recent good economic news makes it more inclined to raise interest rates sooner.
Markets see a U.S. rate hike coming in spring 2015.
In China, the PMI reading for August is likely to print lower as the property slowdown weighs, reinforcing expectations that further policy steps may be needed to keep economic growth on track.
Beijing will seek to implement much needed reforms to unleash fresh growth drivers and put the world's second-largest economy on a more sustainable footing over time.
The government has pledged to keep policy support "targeted" by boosting investment in bottleneck areas. The chances of imminent cuts in interest rates and bank reserve ratios for all banks look slim.
The Bank of Japan was expected to stay put this week despite household spending falling much more than expected and weak factory output in July.
Analysts said the country was, for now, in no mood to expand monetary stimulus. However, such data undermines the BOJ's rosy economic forecasts and will keep it under pressure to act if the economy fails to gather momentum.
The question most ECB watchers are now asking is when, not if, the Frankfurt-based bank will embark on quantitative easing -- the printing of money to buy government bonds which is now the markets' base scenario.
Even though central banks in the United States, Japan and Britain among others embarked on such a course several years ago, the ECB has been reluctant to follow suit. This is partly due to strong resistance from German central bankers and policymakers and the perceived complexity of buying state debt in a multi-national bloc.
However, a number of economists deciphered Draghi's tone at Jackson Hole as signaling that deflationary risks had risen enough to merit further policy easing, following a rate cut in June combined with measures to flood banks with more cheap money.
The euro zone recovery stalled in the second quarter and the outlook looks poor, even with the bloc's powerhouse Germany expected to return to growth in the three months to September.
"We tend to see the first bond purchases next year. We do not expect the ECB Council to act next Thursday, because it wants to wait for the targeted longer-term refinancing operations (TLTROs) to take effect," Commerzbank wrote in its Week in Focus research.

Halliburton to settle U.S. Gulf spill claims for $1.1 billion

(Reuters) - Halliburton Co (HAL.N) said it reached a $1.1 billion settlement for a majority of claims against the company for its role in the BP (BP.L) oil spill in the Gulf of Mexico in 2010.
The settlement, which includes legal fees, is subject to approval by the U.S. District Court for the Eastern District of Louisiana.
The amount, to be paid in three installments over the next two years, will be put into a trust until all appeals are resolved, the company said.
Halliburton, North America's top oilfield services provider, had set aside $1.3 billion for costs related to the incident.
The Macondo accident spilled 4.9 million barrels of oil into the sea, according to the U.S. government, and killed 11 workers.
Rig contractor Transocean Ltd (RIG.N), which employed nine of the workers killed, agreed to pay $1.4 billion in settlement last year, while BP has paid about $28 billion so far.
Halliburton provided cementing services for BP at the Macondo drilling operation, including the placement of "centralizers" that help stabilize the well bore during cementing.
Halliburton had earlier blamed BP's decision to use only six centralizers - to save "time and money" - for the blowout.
Halliburton's shares were up slightly at $67.92 in morning trade on the New York Stock Exchange.

Sunday, August 31, 2014

Indonesian Miners Urge President-Elect to Relax Ore Export Ban

Jakarta. Indonesia’s chamber of commerce mining committee is lobbying president-elect Joko Widodo to relax a seven-month-old ban on unprocessed ore exports and look for better ways to use the natural resources of Southeast Asia’s largest economy.

In January, the government imposed the ban and an escalating export tax regime on metal concentrates to force miners to process raw materials in Indonesia instead of exporting them.

Analysts have warned the ban on ore shipments could cost Indonesia up to $400 million a month in lost exports. The regulations have been heavily criticized, but the government says that while it can change the tax scheme, the ore ban is written in a law it cannot change.

The government last month eased the export taxes to allow Freeport-McMoRan and other miners building smelters to resume shipments. Now bauxite and nickel miners are hoping Joko will do the same for them and lift the ban on mineral ore after he takes office on Oct. 20.

“This policy has made a situation where our natural resources wealth doesn’t make a contribution [to the economy],” mining committee chairman Poltak Sitanggang told reporters.
“The 2009 [mining] law never banned mineral exports. It just says there should be ‘controls’,” he said.

Sitanggang, who is also chairman of the Indonesian Mineral Entrepreneurs Association, is also challenging the ore export ban policy at Indonesia’s Constitutional Court, the country’s highest legal authority.

Indonesia’s director general of coal and minerals, Sukhyar, who will remain in his current post under Joko’s leadership, defended the ban on unprocessed mineral exports on Friday, and said that allowing exports would be against the law, and that no further evaluation of the policy was necessary.

President-elect Joko has indicated that he agrees with the ban in principle, although he has also said he would be willing to sit down with miners to “find a good solution”.


U.S. coal stocks could gain on Russia tension

(Reuters) - Beaten-down U.S. coal company stocks may receive a lift in coming weeks if deteriorating relations between Russia and the West push President Vladimir Putin to shut off Europe’s natural gas supply.
The crisis in eastern Ukraine has emboldened Europe and the United States to impose broad sanctions on Russia. But Europe finds itself in a precarious position, with almost a third of the natural gas the continent consumed in 2013 flowing from Russia, according to the U.S. Energy Information Administration.
Europe’s heightened concerns about energy security could provide an opportunity for U.S.coal companies, which have been hurt by declining domestic consumption, to step in and fill the gap as winter approaches. More than half of U.S. coal exports already reach Europe.
"Export demand will certainly increase, with the situation in Russia and Ukraine having a big impact on Europe with respect to natural gas," said Ernie Cecilia, chief investment officer at Bryn Mawr Trust in Bryn Mawr, Pennsylvania.
"In the short term, there's no question that a rise in export demand will be helpful to coal stocks."
Yet significant headwinds at home would likely make any comeback in coal companies’ stocks short-lived and hard-fought.
Even as the broader stock market has rebounded from the lows seen during the financial crisis, coal stocks have languished.
Shares of Peabody Energy Corp (BTU.N), the biggest U.S. producer of coal, have declined more than 27 percent since March 9, 2009, when the S&P 500 hit its financial crisis nadir, closing at 676.53 points.
While the S&P has nearly tripled from that day, the Dow Jones U.S. Coal Index .DJUSCL has lost 7.7 percent in that time. The last three-plus years have been particularly bad for the coal index, which has lost nearly three-quarters of its value since April 2011.
The index includes just three stocks - Peabody, CONSOL Energy (CNX.N) and Alpha Natural Resources (ANR.N). CONSOL, which is more diversified and derives around a third of its revenue from natural gas, is the only one up on the year so far. It has gained 5.3 percent, but still lags the wider S&P 500 .SPX, which is up more than 8 percent.
Peabody is down around 20 percent this year, and Alpha Natural has swooned 45 percent.
CONSOL is the only one of the three expected to show a profit in the next two years, according to Thomson Reuters StarMine, which tracks corporate profit estimates.
Competition with natural gas, the emergence of renewable energy technologies and new environmental regulations contributed to a fall in U.S. coal production in 2013 to the lowest levels since 1993, according to the Energy Information Administration.
Domestic coal consumption is slated to decline by 2.7 percent in 2015, as federal standards requiring power plants to reduce air pollution expedites a shuttering of coal power plants. U.S. coal consumption peaked in 2007 and has declined nearly 37 percent since then, EIA data shows.
That may temper any gains in coal stocks, both in scale and duration.
"I just don’t know if any of this – the situation in Russia and Ukraine – would be sufficient enough to overcome significant pressure in the domestic market," Cecilia said.
Energy stocks have overall remained favorable for investors, but not necessarily those with money in coal. The S&P 500 energy sector .SPNY is outperforming the wider index with a 9.3 percent gain so far in 2014.
"We look at the domestic energy landscape, and the abundant supply of natural gas has impacted coal dramatically," said Timothy Rooney, vice president of product management and research for Nationwide Funds.

"Generally, energy in the U.S. is a good long term investment, but that’s really being driven by oil and natural gas."

Saturday, August 30, 2014

Exclusive: India's Reliance plans $13 billion projects including new refinery

(Reuters) - India's Reliance Industries Ltd (RELI.NS) plans to invest about $13 billion in energy projects, including a 400,000 barrels per day (bpd) crude refinery at its Jamnagar complex, documents seen by Reuters show.
The refinery would process cheap, heavy crudes that are increasingly available to Asia as the shale boom has cut U.S. demand for the grades.
Reliance, controlled by billionaire Mukesh Ambani, operates the world's biggest refining complex in India's western state of Gujarat, where its two adjacent plants can process about 1.4 million bpd of oil.
The company last year sought the approval of the environment ministry to invest 773 billion rupees ($12.8 billion) to build a new refinery and some polymer units, and to switch the fuel for a 450 megawatt power plant from gas to coal, according to a copy of the proposal obtained by Reuters.
The federal environment ministry wrote back in May this year asking Reliance to meet certain conditions in order to secure a green light for the projects, the documents show.
It was not immediately clear if there had been further communications between Reliance and the environment ministry. The documents did not reference a potential start up date.
Reliance did not respond to an email seeking comments.
"It makes perfect sense to go aggressive in their core business of refining," said Jagannadham Thunuguntla, head of research and chief strategist at SMC Global Securities Ltd.
"The company's balance sheet has enough firepower to finance refining and other businesses like telecom and retail."
The company had cash and equivalents of $13.6 billion as of end-June.
Expanding Jamnagar would strengthen the role of Gujarat - led by Prime Minister Narendra Modi before his landslide general election victory in May - as a global supplier of fuels in addition to meeting rising local demand.
India's diesel and petrol output may lag demand by about 50 million tonnes by 2025, according to a government panel report, as the world's fourth largest oil consumer aims to powers its economic expansion through a renewed focus on manufacturing. Imports were around 320,000 tonnes in the last fiscal year.
Reliance also wants to improve the ability of the Jamnagar complex to produce more value-added 'light' products by processing heavier grades than competitors in China and the Middle East.
"Recently the competitiveness of Jamnagar refining hub is gradually declining due to fast changing global scenario of product demand and stringent fuel quality," said the proposal, obtained under India's Right to Information Act.
While Reliance has not said by when the proposed projects will be in place, analysts and industry sources said the new refinery is expected to be built by the end of this decade.
Through the new facility, Reliance wants to soak up discounted surplus heavy grades to produce fuels like diesel and improve its refining margins that eased to $8.1/barrel in 2013/14, the lowest level in four years.
"The new refinery will increase Reliance's appetite for cheap opportunity grades and offer more dollars per barrel of oil processed," said Praveen Kumar at Singapore-based consultancy FACTS Global Energy.
In its proposal, Reliance said the new refinery will be supported by its five single point moorings - two for product shipments and three for crude intake.
"Reliance has an established infrastructure both locally and overseas to capitalize on opportunities and maximise refining margins. They have a strong trading desk and storage in several parts of the world," said Ehsaan Ul Haq, senior consultant at UK-based consultancy KBC Process.

"After this recent wave of refinery expansion in Asia and the Middle East, probably we will not see the same growth in refining capacity as we see at present, and this will help them in leaving a stamp over the global fuel markets," said Haq.

East Africa move to cleaner fuels to soak up new low-sulphur supplies

SINGAPORE, Aug 29 (Reuters) - Plans for five countries in East Africa to adopt cleaner fuel standards in 2015 are likely to help absorb excess low-sulphur oil products coming out of Middle East and Indian refineries, where new capacity is being added, industry sources said.
Kenya, Tanzania, Uganda, Burundi and Rwanda are due to switch to the cleaner fuels from January 2015, according to documents posted on the websites of the regional intergovernmental organization East African Community (EAC) and the United Nations Environment Programme (UNEP).
The fuel switch would come just as refiners in OPEC countries and India install secondary units and new oil plants to produce ultra-low sulphur fuels that meet tighter European environmental standards, worsening a supply glut of the higher grades of transport and industrial fuels.
The East African plan to burn low-sulphur diesel and gasoline would open a new market for these refiners, who now compete with U.S. and Russia to supply Europe, traders said.
"There is an oversupply of (ultra-low sulphur) diesel ... and the situation will only get worse in terms of oversupply once Ruwais and Yanbu's new capacity is online," said a Singapore-based middle distillates trader.
Abu Dhabi National Oil Co (ADNOC) is expected to double the capacity of its Ruwais refinery from 415,000 barrels-per-day (bpd), with an expansion to be completed late this year. Yanbu Aramco Sinopec Refining Co is likely starting its new 400,000 bpd refinery by the first quarter of next year.
They would join Saudi Aramco Total Refining and Petrochemical Company's (SATORP) new 400,000 bpd Jubail refinery which started operations last year, and Reliance Industries' export-focused 580,000 bpd Jamnagar plant in India, in producing ultra-low sulphur refined products.
Currently, these refineries are competing to supply to Europe as the majority of Asian countries outside of Japan and South Korea are still using higher sulphur fuels.
The EAC countries have been discussing their switch to euro IV standards for diesel and euro III standards for gasoline for the past couple of years, working in conjunction with UNEP with the aim of reducing harmful emissions and improving air quality.
Under the changes in specifications, the five East African countries have to lower sulphur content in diesel from 500 parts-per-million (ppm) to 50 ppm, according to EAC and UNEP documents and conference presentations.
For gasoline, the EAC countries have to lower sulphur content from 1,500 ppm to 150 ppm. They also have to drop lead content and maximum density slightly.
EAC officials did not reply to e-mails seeking information on whether the implementation of the new standards is on track and will go forward on schedule.
But oil importers in Kenya and Tanzania have told suppliers they need to be prepared to supply the low-sulphur fuel from the start of next year.
Kenya and Tanzania import about 600,000 to 670,000 tonnes of diesel and gasoline every month - about 170,000 bpd - for their own needs and to export to their landlocked neighbours, according to traders who regularly participate in monthly tenders issued by companies that handle the imports.
Diesel is mainly supplied from India and the Middle East while the gasoline comes from the Mediterranean and Fujairah, the traders said.

Kenya's diesel and gasoline imports are set to rise by a third over this year and next, driven by a growing auto fleet and rising industrial activity and because the country's sole refinery shut last year.

Indian investigators drop coal scam case against billionaire Birla

(Reuters) - India's Central Bureau of Investigation (CBI) has closed a coal scam case against billionaire Kumar Mangalam Birla and a former top bureaucrat that emerged in 2012 after an auditor's report on revenue loss to the exchequer from allocations of coal blocks.
The CBI filed the case against Birla and former Coal Secretary P.C. Parakh last year in relation to a block allocated in 2005 to Hindalco Industries, part of the $40 billion Aditya Birla Group led by Kumar Mangalam Birla.
"The evidence collected during investigation did not substantiate the allegations leveled against the persons named in the FIR (first information report filed in the case)," the CBI said in a statement late on Friday.
India's federal auditor had alleged that the government's allocation of coal blocks may have cost the exchequer revenues of about $33 billion, although industry watchers and the previous government have cast doubts on the figure. Indian media has dubbed the scandal "coalgate".
Though the CBI has dropped the name of Birla, the Supreme Court of India this week ruled that allocations of coal blocks since 1993 were illegal. That would include blocks awarded to firms including Hindalco and Jindal Steel and Power Ltd.

The court will hold a further hearing on Monday, after which it will decide whether to cancel the allocations or impose some sort of penalty.