October 3, 2012
September 18, 2012
Iron-ore ships are poised to earn more than operating costs for the first time this year as rates rally on speculation Chinese steel mills will accelerate imports because of a 1 trillion-yuan ($158 billion) building program.
Capesizes, each carrying 160,000 metric tons of ore, will earn $12,500 a day in the fourth quarter, according to the median of eight analyst estimates compiled by Bloomberg, compared with $4,459 on average since the end of June as assessed by the Baltic Exchange. Investors may profit by buying forward freight agreements, traded by brokers and used to bet on future costs, which anticipate $8,385. Ship owners need $7,437 to pay overheads including crew and repairs, a London-based unit of Moore Stephens LLP advising the industry estimates.
China, accounting for 65 percent of seaborne demand, bought the most ore in three months in August and stockpiles at ports fell for the first time since March, government and Shanghai Steelhome Information data show. Ore prices that neared a three- year low on Sept. 5 have since rallied 21 percent as the state announced spending on everything from subways to roads to warehouses. Increasing demand for the commodity, the second- biggest cargo after oil, will help diminish a glut in shipping.
"The 1 trillion-yuan package should provide a lifeline to struggling Capesize owners," said Frode Moerkedal, an analyst at RS Platou Markets AS in Oslo whose recommendations on the shares of shipping companies returned 21 percent in the past two years. "Capesizes should benefit from the investment, as they're the main vessel class to ship iron ore."
Rates tumbled as much as 89 percent to $2,644 this year as fleet expansion outpaced growth in demand, according to the London-based exchange, whose data are used as benchmarks for about 75 percent of commodity cargoes. While Capesizes rallied 43 percent to $3,779 since Aug. 21, this quarter's average would be the lowest for data going back to 1999. Earnings may rise as high as $25,000 in the next several months, said Omar Nokta, an analyst at Dahlman Rose & Co. in New York.
Ore at the Chinese port of Tianjin, a global benchmark, last traded at $105.10 a so-called dry ton, down from as much as $149.40 in April, according to The Steel Index Ltd., a unit of McGraw-Hill Cos. Prices, which retreated as China's economy slowed for six consecutive quarters, rebounded after the government announced building plans on Sept. 5 and 6 that Nomura Holdings Inc. (8604) estimates are worth $158 billion.
Investors can profit from the rally in rates by buying shares of shipping companies with a higher proportion of their fleets operating in the spot market rather than on long-term charters, Nokta said. That includes Eagle Bulk Shipping Inc., Genco Shipping & Trading Ltd. and Baltic Trading Ltd. (BALT), all based in New York, he wrote in a Sept. 10 report.
Seaborne iron-ore exports will expand 14 percent next year, the most since at least 2005 and three times faster than in 2012, Morgan Stanley estimates. The Capesize fleet's 8.6 percent expansion will be the smallest since 2009 and compares with 12 percent this year, according to the bank.
While the projected fourth-quarter Capesize rate would cover owners' operating expenses, it wouldn't be enough to also meet the cost of their debt. Once interest and loan repayments are included, the break-even level rises to $15,000 a day on average, according to Platou. Earnings last exceeded that in the final three months of 2011.
The combined market value of the 14-member Bloomberg Pure Play Dry Bulk Shipping Index has fallen to $5.92 billion from $36.2 billion in May 2008, data compiled by Bloomberg show. D/S Norden A/S, located in Hellerup, Denmark, Seoul-based STX Pan Ocean Co. and Antwerp, Belgium-based Cie. Maritime Belge SA are the largest members of the gauge.
Capacity gluts exist across most of the merchant shipping fleet. Rates for the largest oil tankers slumped 62 percent this year, according to Clarkson Research Services Ltd., a unit of the world's largest shipbroker. An index reflecting charges for six types of containers fell 29 percent in the past year, a gauge from the Hamburg Shipbrokers' Association shows. Moore Stephens estimates operating costs every September and its 2012 review has yet to be published. Daily expenses for Capesizes rose 1.7 percent to $7,437, it said in a report a year ago.
The rally in Capesizes and iron-ore prices may not last because growth is slowing around the world. The International Monetary Fund cut its 2013 global forecast to 3.9 percent from 4.1 percent in July. The 17-nation euro area contracted in the second quarter and won't expand again for another year, based on the median of 22 economist estimates compiled by Bloomberg. China's economy will expand 7.9 percent in 2012, the least since 1999, according to 34 economist estimates compiled by Bloomberg.
"It's clearly slowing down fast," Jim Chanos, the founder and president of hedge fund Kynikos Associates Ltd., said in an interview on Sept. 11 at Bloomberg's headquarters in New York. "Will there be rallies in iron ore and other industrial commodities, from time to time? Of course. But I think structurally, until China really addresses this credit-driven infrastructure and fixed-asset investment model, the surprises are going to be on the downside."
Shares of Baltic Trading, which operates nine bulk- commodity carriers, fell 29 percent to $3.39 in New York trading this year. The stock will rally to $5.38 in the next 12 months, according to the average of four analyst estimates compiled by Bloomberg. Genco declined 44 percent since the start of January and Eagle Bulk retreated 12 percent.
Producing a ton of crude steel in a blast furnace requires about 1,400 kilograms (3,086 pounds) of iron ore, 770 kilos of coal and 270 kilos of limestone and scrap steel, according to the World Steel Association. Global crude-steel output rose 0.8 percent to 895.4 million tons in the first seven months from a year earlier, the Brussels-based WSA estimates. Production will reach an all-time high of 1.56 billion tons in 2012 and 1.62 billion in 2013, according to MEPS (International) Ltd., a Sheffield, England-based industry consultant.
Increasing iron-ore shipments mean the Capesize fleet will work at about 80 percent of capacity in the next 12 months, from 77 percent, Platou estimates.
China imported 62.45 million tons of ore in August, 7.9 percent more than the previous month, customs data show.
Inventories held at ports retreated 1.2 percent to 98.5 million tons, according to Shanghai Steelhome Information, a research company based in the city. The nation has imported more in the second half of every year relative to the first six months in all but one of the past 20 years, based on data compiled by Bloomberg.
"There should be more iron-ore and coal imports into China to satisfy the increased steel demand resulting from the new infrastructure projects," said Doug Mavrinac, a Houston-based analyst at Jefferies & Co. "The dry-bulk shipping market could finally make the cyclical turn toward sustainable profitability for 2013 and beyond."
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August 22, 2012
Bloomberg News, sent from my Android phone
Commodities entered a bull market, gaining 21 percent from a June low, as grain prices surged following the most-severe U.S. drought in half a century.
The Standard & Poor's GSCI Spot Index of 24 raw materials rose 0.9 percent to settle at 675.55 yesterday in New York. The gauge has jumped from this year's lowest close of 559 on June 21. A gain of more than 20 percent is the common definition of a bull market.
Soybean futures rose to a record yesterday in Chicago, and corn soared 66 percent since mid-June. The U.S. Department of Agriculture has declared almost 1,600 counties in 32 states as natural-disaster areas after the drought seared millions of acres of pasture and cropland.
"There have been weather-related supply disruptions, and as long as you have any type of global growth, you're going to have increased demand for grains," Walter "Bucky" Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. "Given that the U.S. is the bread basket for grains, that's going to have a significant impact."
Soybeans and grains have led advances this year in the GSCI measure. As of yesterday, the oilseed jumped 43 percent in 2012, wheat in Chicago climbed 41 percent, and corn was up 30 percent.
Through yesterday, the commodity gauge gained 4.8 percent in 2012. The MSCI All-Country World Index of equities climbed 9 percent, and the dollar was up 2.1 percent against a basket of major currencies. Treasuries returned 1.3 percent, a Bank of America Corp. index shows.
U.S., China Economies
Commodities have rallied on speculation that the economies in China and the U.S. will rebound.
Chinese Premier Wen Jiabao said there's "growing room for monetary policy operation" amid easing inflation, state television reported on Aug. 15. Confidence among U.S. consumers unexpectedly improved in August, and an index of leading indicators climbed more than forecast in July, separate reports showed on Aug. 17.
China is the world's biggest consumer of everything from copper to pork to soybeans, and the U.S. is the largest user of crude oil and corn.
The jump in grains and oilseeds sent world food prices up 6.2 percent in July, the biggest increase since November 2009, the United Nations Food & Agriculture Organization said on Aug. 9. The gauge, which tracks 55 food items, slid 7 percent in the previous three months on the outlook for bumper world harvests and ample dairy and meat supplies.
In mid-June, Goldman Sachs Group Inc. moved to a "near- term overweight" recommendation in commodities. On Aug. 10, the bank maintained forecasts for a rally in corn to $9 a bushel in three months, adding that soybeans may climb to $20 a bushel, while wheat may reach $9.80 a bushel.
Yesterday, soybean futures for November delivery rose 2.9 percent to settle at $17.325 on the Chicago Board of Trade, after reaching an all-time high of $17.34.
Corn futures for December delivery jumped 1.8 percent to $8.3875 in Chicago. The price earlier reached $8.40, the highest since rallying to a record $8.49 on Aug. 10.
Wheat futures for December delivery advanced 2.1 percent to $9.22 in Chicago. The price increased for five straight sessions and was up 47 percent since June 15.
"We expect soybean prices to outperform to ration resilient export demand in the face of critically low U.S. supplies, corn prices to rally to secure sufficient ethanol demand destruction, and wheat prices to underperform corn prices on relatively higher supplies," Goldman analyst Damien Courvalin wrote in the Aug. 10 report.
U.S. corn production may drop to 10.78 billion bushels, a six-year low, while the soybean harvest at 2.69 billion bushels would be the smallest since 2007, the USDA said on Aug. 10. Crops are in the worst condition since 1988, a year when the corn harvest tumbled by 31 percent because of drought.
"The grains have been the strongest-performing subsector in commodities the past few months, and that has purely been driven by supply-side considerations and the U.S. drought in particular," said Sudakshina Unnikrishnan, a London-based analyst at Barclays Plc.
In the week ended Aug. 14, hedge funds held wagers on a rally across 18 U.S. futures and options contracts near the highest in 11 months, according to the most-recent U.S. Commodity Futures Trading Commission data. A measure of 11 U.S. farm goods showed speculators' bullish bets in agricultural commodities rose 0.6 percent.
Crude oil has rallied since mid-June as a European Union embargo on purchases of Iranian oil took effect July 1. Yesterday, futures in New York climbed to a three-month high on speculation that euro-area leaders will make progress in resolving the region's debt crisis this week.
Cocoa, gasoline, silver, gold and cattle also have posted gains this year.
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June 21, 2012
June 14, 2012
I read today that:
After the meeting with the government, the three potential Chancellor candidates of the SPD, Sigmar Gabriel, Peer Steinbrueck and Frank-Walter Steinmeier travelled to Paris to meet President Francois Hollande.
But just few weeks ago, the french president refused to meet with alexis tsipras, syriza's greek leader, with the excuse that he will not meet with candidates, but only with persons already in charge...
One man, two faces?
After several months of rumors about a possible Grexit, last days were rich in some comments regarding a possible foreseeable Spaxit, like this here reproduced: “Grexit may or may not increase the chance of Spaxit. But Spaxit almost certainly means Netherlexit, Fraxit, and even Gerxit. (Although hopefully those ‘words’ will never again see print)”. Sorry, I printed them again.
But, yesterday defeat of the Dutch by the Germans seems to indicate that Netherlands will be among the first countries to leave the euro, probably at same time than Greece. Meanwhile Portugal, Spain and Italy may succeed to the next stage. Obviously I’m talking of the euro, the European soccer championship.If you want to read about my view of a possible orderly greek exit from the euro currency, please read it here.
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June 13, 2012
Last weekend we received the news that Spain was ready to receive help from EU to recapitalize their banks.
Interestingly, very few details were unveiled at that time, and until now, no official has been able to present the exact conditions and architecture of these bailout plan. All that have been said is that Spain will receive up to 100 euro billions, that we be used by their bank bailout bund (FROB) to recapitalize banks. The sovereign will be responsible for the repayment of this credit to the EU, which is increasing pressure over the Spanish bonds yields, and increasing the risk that the country may be in its way to apply also for a rescue of the government. This was a bad move, as it was better to have the ESM/EFSF to recapitalize directly the banking sector, leaving the Spanish government without that surcharge. Maybe this alternative will be adopted when the final agreement is signed between Spain and EU.
So, why all the details of the program are still unknown? The main reason is that the final value of the program is still open, while the audit firms do their jobs evaluating the capital needs of the Spanish banking sector. But, my main guess is that EU doesn’t want to reveal the final conditions before the Greek elections that are due this weekend, on 17th of June.
I believe that Spain will be able to receive some softer conditions than the other members of the PIGS (Portugal, Ireland, Greece and Spain, the acronym is finally complete… or will we have the PIIGS version?!) euro zone sub area. These conditions will quickly become demands from the others PIGS to renegotiate their own terms. As new Greek government will also seek better conditions after reelected, EU could not give up some negotiation margin away. In other words, if UE announced that Spain will pay a interest rate of 3%, Greece (and others) will instantly demand the same treatment. After elections, with the 3% already granted, new demands would emerge. Hiding Spain’s special conditions will give EU scope to have still those cards in the pocket to give them again to Greek as if they are really new Greek conquests.
So, I believe that all those news referring to very favorable conditions to the Spanish deal will be officially announced for all PIGS, after the final deal (if any) with Greeks is also known, hopefully at the European summit, on 28th and 29th of June. As a final remark, I saw in some news that spain will pay an interest rate of 3% while charging their banks a 8.5% interest rate. This will give some boost to Spain’s Fiscal Budget. This effect is even greater if Spain can have 3 years without interest payments as announced in the same media. With a cash accounting methodology, this will contribute to a reduction of the budget deficit in 80 bps. Similar benefits will be very welcome to Portugal, Ireland and Greece.
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June 12, 2012
Next weekend we will see if eurozone will turn to be the largest poker table of the world. If Syriza wins the greek elections and gets enough support to form a govern, the poker game will start. As Alexis Tsipras Syriza’s leader said recently, both Greek and Germans have the nuclear button, but none of them shall push the button. Much has been said about the terrific consequences for both parts is a Grexit in fact materializes.
Here I will present a different approach. One may wonder way a currency union cannot breakup orderly? In fact, one of the main motivations from one country to leave is to be able to devaluate strongly its currency and be able to adjust its external balances, turning its economy more competitive. The disorderly way is, as usual, make things happen by surprise, overnight (or more frequently, over weekend). In this way, all the economic agents don’t have the chance to prevent themselves to the devaluation of the local currency. But in the case of the Eurozone this may not be the most appropriate solution, because economic agents from other fragile economies will sooner than latter start to prepare themselves for a similar scenario in their domestic economies and will create a chain of the events that will stop only with the complete breakup of the Eurozone.
So, this time ,the approach need to be different. How? Eurozone need to negotiate with Greece an orderly Grexit, in such a way that economic agents don’t get rewarded by start bank runs and opening bank accounts abroad. One orderly process must be created that allow any country to leave the Eurozone, step by step, along several years, allowing economy and agents to adapt smoothly to the new conditions. One kind of the process a country may follow in order to join the Eurozone shall be put in place for any country that wants or needs to exit from Eurozone.
The features of such a roadmap to a Grexit are not easy to design, but I think that one of the most important issues should be to peg the new currency to the euro. This peg should be agreed by Greek authorities but guaranteed by the ECB, because it is the only entity able to secure the value of the new drachma against the euro. Off course, this would come as a additional cost to the ECB, but a little cost in order to save the Eurozone. Off course, a peg doesn’t imply that the currency will not devaluate. It’s necessary that the devaluation occurs, but not overnight but along a multi-year period, let say 8% each year during 3 years. The capital flight could be stopped if the new national currency offers an interest rate of 8%, so local depositors will get paid for the devaluations. If this can be done, with wages moderation in the economy, it will become more competitive each year, and local agents will not face huge purchasing power losses overnight. Although, inflation would also next to the level of 8%, and wages shall be maintained frozen. That is the adjustment that is necessary to the economy. Some people may want to emigrate, but that is healthy for the domestic economy. And most importantly, there is not a major will to take capitals out of the country, and this environment of programmed currency devaluations are not a problem for economic agents, as the uncertainty is removed from the picture.
Most importantly, economic agents from other fragile economies would be less nervous because they would know that if the country where they do business will have one day to leave the Eurozone, the process will be conducted in an orderly way and they will not feel need to take capitals out of their countries sooner than latter anymore.
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