China hopes battle US fears in commodity markets

5th Dec 2012, by Agrimoney
Hopes for China will give commodities a "positive" close to 2012, Australia & New Zealand Bank said, even as doubts emerged in grain markets over investors' appetite, given concerns over the US fiscal cliff.

At Chicago-based broker RJ O'Brien, Richard Feltes, warned that, even if US politicians agree on a budget package and avoid the severe measures – the so-called "fiscal cliff" - due to come into force at the start of 2013, concerns over the alternative measures will depress investors' appetite.

"Uncommitted discretionary capital will be understandably cautious about investing in any asset class in the first half of 2013 until evidence emerges that the US economy is not materially damaged by White House's perceived mandate to raise tax rates," Mr Feltes, vice-president, research at RJ O'Brien, said.

"The implication for the grain markets is clear," he added, flagging the importance of supply or demand factors to support values.

"The negative ramifications for the US economy will require strong standalone fundamentals to take ag markets measurably higher next year as discretionary investment capital will not be flowing to the commodity sector as readily as in recent years."

'Particularly vulnerable'

ANZ acknowledged the "shadow still persists" of a "less than favourable outcome on US fiscal negotiations".

"Speculative positioning is extremely long in both corn and wheat markets, leaving them particularly vulnerable to bouts of negative financial market sentiment."

However, it forecast that the expectation of stronger Chinese demand in 2013" would offset in commodity markets fears over the US fiscal cliff.

"We expect commodity markets to finish the year [2012] on a positive but choppy note," the bank said expecting "prices to improve as investment funds front-run a better China outlook for 2013".

"The buzz of improving Chinese data should continue," reflecting growth which will, in agricultural commodities, see "strong import demand continue for grains", for which imports in the January-to-October period topped 10m tonnes for the first time for some 15 years.

"The restocking phase for sugar and oilseeds looks more complete," ANZ said.

'Bullish on grains'

The comments came as the bank made a "bullish" call on prospects for grain prices, flagging threats to Argentina's corn crop from the persistent rains which are slowing plantings, and to weather threats to wheat in the former Soviet Union and the US.

"Enough weather concerns exist short-term to keep grain prices risks skewed to the upside," the bank said, flagging reports that up to 25% of Ukraine and Russian winter wheat may be at risk of winterkill, thanks to warm temperatures which have ill-prepared crops for winter dormancy.

ANZ also recommended a trade of buying May soybean futures, hedged against a short position in the November contract, to exploit a movement in spreads between contracts the bank foresees to ration demand for the oilseed follow poor US and South American harvests in 2012.

"Strong US soybean crush and exports in the September-November quarter indicate prices are still not high enough, or spreads tight enough, to limit demand," ANZ ag commodity strategist Victor Thianpiriya said.

"The best chance for a rally in soybean spreads is early in 2013."

Expectations for softs

However, the bank made a "neutral" call on soft commodities, warning that Asian buyers are "particularly well covered by new production at the time of the year".

"Seasonally, prices are unlikely to fall as the market is most susceptible to diminishing seaborne supplies as Brazil's sugar exports fall away.

"However, many markets globally are also contending with new domestic production replenishing supplies and capping prices."

For cotton, prices look set, for now, to remain within the 6-cents-a-pound range they have trod since June.

A combination of uncertainty over China's plans for its huge cotton inventories "and the slowdown in the European economies is keeping participants in the textile pipeline cautious."

Goldman upbeat on corn, despite big sowings ahead

5th Dec 2012, by Agrimoney
Goldman Sachs recommended a commodity bet including a long position in corn despite forecasting a rise in sowings of the grain to a 77-year high in 2013, while putting soybean plantings on for a record.

The investment bank included corn, crude oil and a long position in copper balanced by a short in aluminium, in its so-called "CCB commodity carry basket" of raw materials set to outperform.

The trading recommendation springs from an overall forecast that commodities will return to trading patterns of the 1980s and 1990s, when near-term lots traded more frequently above far-away contracts, rewarding investors for buying and holding raw materials.

"As economic growth improves into the latter half of 2013, we believe that current fundamentals are likely to remain tight, increasing the positive carry in forward curves with near-term prices above long-term prices, which will likely create significant investment returns," the investment bank said.

"This stands in contrast to the 2000s, when forward curves for many commodities had negative carry with near-term prices below long-term prices, which acted as a drag on returns."

'Demand lag'

The bet on corn came despite the prospect of US corn production topping 14.0bn bushels next year for the first time, boosted by a rise in plantings of some 900,000 acres, and a return in yields close to 160 bushels per acre.

This was "sufficient to bring Chicago corn prices sharply lower in the second half of 2013, and potentially near $5.00 a bushel, as the recovery in demand will lag the production rebound", the bank said.

"Livestock herd expansion is a slow process, while rising ethanol imports from Brazil and the slow adoption of E15 will keep US corn ethanol production below its 2011-12 level."

'Corn prices are too low'

However, the bank foresaw the potential for corn prices to remain elevated at least for the first half of next year, given a disappointing US 2012 harvest, which "in the face of resilient demand requires prices to rise further to avoid inventories from falling to critically-low levels.

"While the upside potential for soybeans is greater should weather in South America deteriorate further, we have a stronger conviction that corn prices are too low. "Further, corn prices should follow a rally in soybean prices as corn cannot afford to lose acreage ahead of next spring's US planting season."

And corn prices may persist above $8.00 a bushel "should the US drought extend into the summer of 2013".

'Large supply response'

For soybeans themselves, assuming no weather hiccups, the "large ramp-up" in South American production expected at early-2013 harvests "will likely bring soybean prices to underperform corn prices," Goldman said.

"Average weather conditions in 2013 would bring a large supply response in the US and bring prices sharply lower in the second half of the year."US soybean sowings next year were pegged at 79.0m acres, a rise of 1.8m acres year on year, and enough to take production potentially to a record of a little under 3.4bn bushels.

However, the "key to soybean prices remains the transition from the current strong US export pace to the South American export ramp-up in February-March", Goldman said.

"Disappointing weather conditions during South American planting create risks that harvest and exports are delayed, pushing US stocks lower and prices sharply higher."

'Already-poor start'

Wheat prospects for 2013-14, meanwhile, are already clouded by setbacks to winter wheat seedlings in parts of Europe, with northern France and the UK beset by unusually persistent rains, and dryness hurting crops in the former Soviet Union and the US.

"As we turn to 2013-14, we see risks that the supply response may be limited as winter wheat crops in the northern hemisphere are off to an already-poor start," Goldman said.

Indeed, the bank forecast a small decline in US wheat output next year, as lower yields more than offset a rise in seedings.

"A further decline in global supplies in 2013 creates risks that global wheat inventories decline even further.

"Such an outcome in the face of inelastic food demand would likely push wheat prices sharply higher and well above corn prices to price wheat out of feed demand."

Goldman upbeat on corn, despite big sowings ahead

5th Dec 2012, by Agrimoney
Goldman Sachs recommended a commodity bet including a long position in corn despite forecasting a rise in sowings of the grain to a 77-year high in 2013, while putting soybean plantings on for a record.

The investment bank included corn, crude oil and a long position in copper balanced by a short in aluminium, in its so-called "CCB commodity carry basket" of raw materials set to outperform.

The trading recommendation springs from an overall forecast that commodities will return to trading patterns of the 1980s and 1990s, when near-term lots traded more frequently above far-away contracts, rewarding investors for buying and holding raw materials.

"As economic growth improves into the latter half of 2013, we believe that current fundamentals are likely to remain tight, increasing the positive carry in forward curves with near-term prices above long-term prices, which will likely create significant investment returns," the investment bank said.

"This stands in contrast to the 2000s, when forward curves for many commodities had negative carry with near-term prices below long-term prices, which acted as a drag on returns."

'Demand lag'

The bet on corn came despite the prospect of US corn production topping 14.0bn bushels next year for the first time, boosted by a rise in plantings of some 900,000 acres, and a return in yields close to 160 bushels per acre.

This was "sufficient to bring Chicago corn prices sharply lower in the second half of 2013, and potentially near $5.00 a bushel, as the recovery in demand will lag the production rebound", the bank said.

"Livestock herd expansion is a slow process, while rising ethanol imports from Brazil and the slow adoption of E15 will keep US corn ethanol production below its 2011-12 level."

'Corn prices are too low'

However, the bank foresaw the potential for corn prices to remain elevated at least for the first half of next year, given a disappointing US 2012 harvest, which "in the face of resilient demand requires prices to rise further to avoid inventories from falling to critically-low levels.

"While the upside potential for soybeans is greater should weather in South America deteriorate further, we have a stronger conviction that corn prices are too low. "Further, corn prices should follow a rally in soybean prices as corn cannot afford to lose acreage ahead of next spring's US planting season."

And corn prices may persist above $8.00 a bushel "should the US drought extend into the summer of 2013".

'Large supply response'

For soybeans themselves, assuming no weather hiccups, the "large ramp-up" in South American production expected at early-2013 harvests "will likely bring soybean prices to underperform corn prices," Goldman said.

"Average weather conditions in 2013 would bring a large supply response in the US and bring prices sharply lower in the second half of the year."US soybean sowings next year were pegged at 79.0m acres, a rise of 1.8m acres year on year, and enough to take production potentially to a record of a little under 3.4bn bushels.

However, the "key to soybean prices remains the transition from the current strong US export pace to the South American export ramp-up in February-March", Goldman said.

"Disappointing weather conditions during South American planting create risks that harvest and exports are delayed, pushing US stocks lower and prices sharply higher."

'Already-poor start'

Wheat prospects for 2013-14, meanwhile, are already clouded by setbacks to winter wheat seedlings in parts of Europe, with northern France and the UK beset by unusually persistent rains, and dryness hurting crops in the former Soviet Union and the US.

"As we turn to 2013-14, we see risks that the supply response may be limited as winter wheat crops in the northern hemisphere are off to an already-poor start," Goldman said.

Indeed, the bank forecast a small decline in US wheat output next year, as lower yields more than offset a rise in seedings.

"A further decline in global supplies in 2013 creates risks that global wheat inventories decline even further.

"Such an outcome in the face of inelastic food demand would likely push wheat prices sharply higher and well above corn prices to price wheat out of feed demand."

Crop upgrade lifts hopes for Canada wheat exports

5th Dec 2012, by Agrimoney
Hopes for Canada's wheat exports nudged higher after the country's upgraded ideas for the rebound in its harvest this year, boosted by yields which in Manitoba jumped by 27%.

Canada's wheat harvest reached 27.2m tonnes, some 500,000 tonnes higher than previously thought, Statistics Canada said.

The figure, a 7.6% rise year on year, and at the upper end of market expectations, raised expectations that Canada could be on course to lift its exports even beyond levels currently being factored in – potentially at the expense of US trade.

Canada's farm ministry has pegged domestic wheat shipments in 2012-13 at 18.75m tonnes, with the US Department of Agriculture and International Grains Council putting the figure at 19.0m tonnes.

'Could get aggressive on exports'

However, a figure of 19.0m-20.0m tonnes looks "easily within reach", Benson Quinn Commodities analyst Brian Henry said.

"This morning's figures indicated they could get aggressive on exports," Mr Henry told Agrimoney.com, adding that the "vast majority" of Canada's crop was of high quality too."Depending on how much the trade believes they need to carry forward, exporters in Canada have a lot of work to do," probably largely "at the expense of" US hard red winter wheat.

Improved Canadian supplies would represent a second fillip this week for importers, after Australian officials on Monday came in with an export forecast some 4m tonnes higher than the USDA is factoring in.

Wheat stocks in major exporters have been seen falling to a five-year low in 2012-13.

Brazil potential?

While Canadian wheat is more directly comparable to US hard red spring wheat, opportunities for extra trade in this area appear more limited, with American shipments performing well.

It is in competing against hard red winter wheat that Canada may find more joy, Mr Henry said, adding that "one market that has popped up is Brazil", which last month purchased hard milling wheat from Germany.

Brazil, besides itself believed to have suffered a disappointing harvest, with its Conab crop bureau pegging the domestic 2012-13 crop at 4.4m tonnes compared with the USDA estimate of 5.0m tonnes.

And Brazil's typical source of import supplies, Argentina, is seeing a sharp drop in output too, undermined by a switch to barley and excessive rain.

'Adverse effect on yields'

The StatsCan data also showed that Canada's soybean harvest had been bigger than thought, reaching a record 4.9m tonnes, up 14.7% year on year, and 650,000 tonnes higher than the previous estimate.

However, the figure for Canada's important canola crop was trimmed further, by some 50,000 tonnes to 13.3m tonnes, after "weather conditions during harvest, such as hail, had an adverse effect on yields".

And the estimate for the barley harvest was downgraded by nearly 600,000 tonnes to 8.0m tonnes.

With investors having expected the canola harvest to be pegged at 13.7m-tonnes, futures in the oilseed gained ground in Winnipeg, standing 1.3% higher at Can$597.60 a tonne in afternoon deals.

European wheat rises in step with U.S. markets

Wed Dec 5, 2012
AMSTERDAM, Dec 5 (Reuters) - European wheat futures edged higher on Wednesday as a recovery in U.S. prices countered strength in the euro.

* But movements were modest, with limited newsflow encouraging operators to look ahead to next Tuesday's world supply-and-demand estimates from the U.S. government.

* January milling wheat on the Paris futures market was 1.25 euros or 0.47 percent higher at 268.00 euros a tonne by 1641 GMT, to recover from a one-month low hit on Tuesday.

* But the benchmark contract remained shy of resistance at 270 euros.

* Paris prices drew impetus from Chicago, where wheat futures rose to break a four-session slide.

* "We need to get through this bitty week and then we'll see what the USDA report brings," a futures dealer said, referring to the U.S. Department of Agriculture's monthly crop estimates.

* The euro hit a seven-week high against the dollar above $1.31 on Wednesday, making euro zone grain more expensive in dollar-priced export markets.

* Weather-related supply problems continued to underpin prices, with conditions in South America offering background support.

* "Hot and dry weather conditions have impacted the world's largest wheat-producing and exporting regions in 2012," Goldman Sachs said in a research note.

* "We continue to forecast lower wheat production than the USDA in Australia and Argentina and expect that 2012/13 global wheat inventories ex. China and India will decline to their lowest levels since 2007/08."

* U.S. soybeans hit their highest level in almost a month, helping European rapeseed futures to steady after losses on Tuesday driven by weak palm oil and canola markets.

* February rapeseed was up 6.00 euros or 1.28 percent at 474.00 euros a tonne.

* "The weather conditions in the American continent remain at the centre of attention," consultancy Agritel said in a note.

* "Water stress (dryness) persists in the south of the U.S., a major producing region of winter wheat. On the contrary, excessively wet condition still penalises the sowing in Argentina."

UK

* Feed wheat futures in London rose with May up 1.25 pounds or 0.6 percent at 228.00 pounds a tonne.

* Dealers said they expected UK plantings to be lower than official estimates following the Home-Grown Cereals Authority's "Early Bird Survey" showing a 12 percent fall on the year last week.

* "Plantings are under water ... I think plantings will be lower than HGCA and Strategie Grains predicted," said a UK-based broker.

* Imports into the UK were eyed as there was talk wheat from beyond traditional suppliers may be purchased as Britain becomes a net importer of wheat for the first time in a decade this year.

* "Most of it is coming from traditional markets including Germany. People are talking that there may be something coming from the US in the new year and that would be interesting but we're not seeing any evidence yet," said the broker.

(Reporting by Gus Trompiz in Paris, Sarah McFarlane in London and Ivana Sekularac in Amsterdam; editing by Keiron Henderson)

GRAINS-Soybeans firms on China demand, South American supply fears

Thu Dec 6, 2012
* Soybeans hit near 1-month high

* Soybeans firm on Chinese demand, South American weather concerns

* Corn falls on profit taking
By Colin Packham
SYDNEY, Dec 6 (Reuters) - U.S. soybeans rose on Thursday to their highest in almost a month, lifted by expectations of a jump in Chinese demand and concerns about supplies from Argentina, where unfavourable wet weather is threatening crop yields.

Corn fell, giving back some of the gains from the previous session as traders locked in profits, while wheat was little changed.

Chicago Board of Trade January soybeans rose 0.78 percent to $14.90-3/4 a bushel by 0303 GMT, just shy of the session high of $14.91 a bushel which was its loftiest since November 9. Soybeans rose 1.6 percent on Wednesday, its biggest daily jump in more than a week.

"Soybeans are enjoying some strong fundamentals," said Lynette Tan, investment analyst at Phillip Futures in Singapore.

"There are expectations of increased exports to China and there are weather concerns in South America, which may lower production."

March corn fell 0.13 percent to $7.56-3/4 a bushel, giving back some of Wednesday's gains when it rose 0.8 percent.

March wheat little changed at $8.59-1/2 a bushel after closing 0.4 percent up in the previous session.

CHINESE BUYING SPREE?

Traders said market talk suggested China, the world's largest consumer of the oilseed, had acquired up to six cargoes this week from sellers in the Pacific Northwest, and that it would soon seek more volumes.

Exporters in the world's biggest soybean supplier the United States have been competing with domestic processors for soybeans on the cash market as processors are currently reaping high profit margins from crushing raw soybeans into soymeal, a key source of protein in animal feed, and soyoil, used in foods and soy-based biodiesel fuel.

This increase in demand comes as wet weather in third-largest soybean supplier Argentina continues to delay plantings, which could threaten yields. The Commodity Weather Group on Wednesday forecast more rain for up to the next two weeks.

Soybeans also got additional support after the senate in Paraguay, the world's No. 4 supplier of the oilseed, approved a bill on Tuesday that would impose a 10 percent tax on soybean exports despite objections from farmers.

  Grains prices at  0303 GMT
  Contract        Last    Change  Pct chg  Two-day chg MA 30   RSI
  CBOT wheat     859.50    -0.50  -0.06%    +0.35%     875.64   42
  CBOT corn      756.75    -1.00  -0.13%    +0.63%     746.71   59
  CBOT soy      1490.75    11.50  +0.78%    +2.42%    1467.94   72
  CBOT rice      $15.55   -$0.01  -0.06%    +0.88%     $15.09   75
  WTI crude      $87.81   -$0.07  -0.08%    -0.78%     $86.82   51
  Currencies                                               
  Euro/dlr       $1.306  -$0.001  -0.07%    -0.27%
  USD/AUD         1.047    0.002  +0.14%    -0.01%
  Most active contracts
  Wheat, corn and soy US cents/bushel. Rice: USD per hundredweight
  RSI 14, exponential

(Editing by Miral Fahmy)

Uralkali to slash potash output on slack Asian demand

VISHWANATH KULKARNI, THE HINDU BUSINESS LINE
NEW DELHI, DEC. 5:
Poor offtake in India and China amid excess global supplies has prompted Russian firm Uralkali, the largest miner of potash, to trim its output by half to two million tonnes in the December-March period.

Fertiliser makers in India expect to delay signing their new contracts with global suppliers, such as Uralkali, to next financial year on high stocks.

“Starting from December and during the first quarter, we will work with 50 per cent of capacity because demand will be rather weak,” Urakali’s spokesperson said in a statement. Buyers in India and China had stopped purchases of the crop nutrient in the second half of 2012. Uralkali expects its customers in these countries to contract lower volumes next year, making for a slow start in 2013.

INDIAN CONSUMPTION

In India, the stocks of potash used to produce NP and NPK nutrients are currently estimated at about 8-10 lakh tonnes (lt). “The rabi offtake is down by 50 per cent due to high prices” said P.S. Gehlaut, Managing Director of India Potash Ltd (IPL). Potash prices are at Rs 16,800 a tonne, almost twice that of last year.

At present, the monthly potash consumption is about a lakh tonnes, against two lakh tonnes in corresponding period last year, Gehlaut said. Besides high prices, poor kharif output due to erratic monsoon has hit the purchasing power of farmers, he said.

NO NEW CONTRACTS

The existing stocks in India are expected to last till March and this has forced the buyers to go slow on new contracts. Traditionally, the Indian buyers used to sign new contracts in December for next season.

“There will be no new contracts signed in this financial year,” said Suresh Krishnan, Managing Director, Zuari Agro Chemicals Ltd. However, the earlier contracts are being honoured. Krishnan expects demand for fertilisers to pick up only next season in June.

PRICE OUTLOOK

While Uralkali expects potash prices to remain stable ahead, the Indian fertiliser makers believe prices to come down further from the current level of around $470-490 a tonne.

“We expect potash prices to come down further” said U.S. Awasthi, Managing Director of IFFCO, stating that the stocks position was quite comfortable at present. “Negotiations with global suppliers are expected to commence sometime in next week,” he said.

Coal Workers In Limbo as Thousands Face Layoffs in E. Kalimantan

Tunggadewa Mattangkilang | December 06, 2012
Jakarta Globe
East Kutai. Despite rebounding coal prices and increasing demands predicted for next year, thousands of workers in Indonesia’s biggest coal-producing province, East Kalimantan, continue to be laid off.

Officials estimated that 1,400 people have been laid off in Kutai Kertanegara and Samarinda, two of the biggest coal producing areas in East Kalimantan, in the last two months. The neighboring district of Kutai Timur is also feeling the pressure where mining companies have reduced their operational hours to cut costs since October.

Thamrin, head of Kutai Timur’s industrial relations division said a total of five companies have already begun laying off as many as 200 of their employees each.

“We have received reports directly from the companies,” he said adding that there were about 150 more workers who were at risk of losing their jobs.

“There is one company who has begun to send their workers home,” Thamrin said, identifying the company as Madani, the contractor of Indonesia’s largest coal producer, Kaltim Prima Coal.

Thamrin said Madani has 250 employees, but 150 people had been told not to come to work and were provided only with basic salaries. The status of these workers is still in limbo.

“We hope layoffs would be a last resort. There are still a number of ways the company can go ... like cutting down on the working hours or on temporary holidays,” he said.

Kutai Timur district chief Isran Noor said his office is now preparing for the worst as local coal prices remain sluggish. “We will prepare so that those who got laid off will find work in the agricultural sector,” he said.

Since the start of the year, at least 100,000 workers in East Kalimantan have been laid off as global prices for the commodity continue to fall.

The East Kalimantan chapter of the Indonesian Employers Association, Apindo, said the majority of layoffs involved small-scale companies operating under permits issued by district administrations.

The sector employs a third of the total workforce in East Kalimantan’s coal-mining sector.

Some companies have suspended production as the price of coal dropped by about a third from a year ago.

East Kalimantan’s coal output is now 20,000 metric tons a month, down from 50,000 tons earlier in the year.

Standard & Poor’s Ratings Services recently said coal miners in Indonesia might find an alternative to the risk of lower prices of the commodity by shifting some of their resources to electricity generation.

The rating agency said that the power sector is already attracting coal producers because of the prospects for electricity consumption. It forecasts Indonesia’s economy to grow about 6 percent annually for the next five years, but it expects electricity use to expand at a faster rate of 8 percent to 10 percent.

Some coal miners already have plans to construct power plants. Adaro Energy, the country’s second-largest coal miner, is working with two Japanese firms to build a 2,000 MW coal-fired power plant at a cost of around $4 billion in Central Java. Adaro, however, has seen the project delayed because the government has been slow to issue a permit.

Bukit Asam, a state-controlled coal miner, is also looking at the power business as an opportunity to offload its commodities.

Ovoot review re-enforces project economics - Aspire

By: Esmarie Swanepoel
6th December 2012
PERTH (Mining Weekly) - A review of the prefeasibility study (PFS) into the Ovoot coking coal project has confirmed that the project could be one of the lowest cost potential sources of coal into China, coal developer Aspire Mining said.

The PFS review confirmed the project’s economics, with a net present value of $1.7-billion and a life-of-mine net cash surplus, after taxes and capital, of $8.3-billion, based on a medium-term average coking coal price of $200/t.

The revision was based on a large openpit mine delivering up to 14-million tons a year, and a small underground mine delivering some 0.75-million tons a year, over a 20-year life of mine.

“I am pleased to be able to report that the PFS revision has demonstrated that the Ovoot project is one of the lowest cost potential sources of coal into China, which is the world’s largest consumer of coking coal and coke,” said Aspire MD David Paull.

Life-of-mine costs, excluding gate costs, was currently estimated at A$36/t of coking coal, with free-on-rail cost into China forecasted at A$91/t for the first five years of full production.

The review included a recently announced increase in the probable coal reserves at the Ovoot project, which now stood at 2019-million tons run-of-mine, making Ovoot the second largest coking coal deposit on Mongolia, by reserves.

“The 23% increase in coal reserves announced in November has contributed to the significant increase in the project’s net present value and overall cash surplus,” said Paull.

Aspire has identified an initial capital cost of $723-million to establish a coal handling plant, wash plant, a mobile fleet, waste pre-stripping, a coal haulage road and all of the necessary support infrastructure to produce six-million tons a year of saleable coking coal.

A further $482-million, along with contingencies, would be required to increase the project’s capacity to mine and process up to 14-million tons a year of coal, and to produce up to 12-million tons a year of product.

It was anticipated that the project would be able to fund the expansion from the initial six-million tons a year production rate to the full 12-million tons a year, along with all future capital requirements, from internal cash flow and project debt.

Paull said on Thursday that the company was now well positioned to start commercial negotiations to advance funding and project development.

Edited by: Creamer Media Reporter

JSPL scouts for mines in South Africa, Mozambique

5 DEC, 2012, PTI
NEW DELHI: After scrapping its Bolivia plans, private steel firm Jindal Steel and Power is scouting for coal properties in other geographies including South Africa and Mozambique.

"We are also looking at many other parts in the world. We have acquired mines in South Africa, Mozambique and Botswana. We have also got coal mining licenses in Australia and we are looking at resources in many other countries for both coal and iron ore," Sushil Maroo Director and Group CFO Jindal Steel and Power Ltd told reporters at an Assocham event.

In July, the company terminated its $2.1 billion mining and steel venture in Bolivia over fuel supply issues.

"Bolivia was a very ambitious project, it was the largest investment envisaged in Latin America by any Indian company, $2.1 billion," Maroo said.

He added the project could not come through due to issues such as non-availability of raw material etc.

The company's project, signed in 2007, consisted of 40-years mining rights of El-Mutun mines, which is estimated to hold 20 billion tonnes of iron ore reserves.

JSPL is also building a 6,000 MW hydro power project in Arunachal Pradesh, the first unit of which is likely to be commissioned by 2020.

"We are setting up a 6,000 MW plant in Arunachal Pradesh, we are awaiting clearances and then will approach the electricity boards for PPAs (power purchase agreements) and thereafter the financial closure. The first unit is likely by 2020," he said.

On asked whether JSPL is looking at a joint venture in the hydel power generation space, Maroo said, "We are not looking for any equity participation in our hydro projects."

The company is of the view that the proposed coal block auction should commence after addressing certain issues including quality of mines.

"Price (of mines) will depend on the quality of the mine, clearances which are available, the rehabilitation issues, cost of mining etc.," he added.

He also pressed for enhancing domestic production of coal instead of relying on imported fuel as it would put massive pressure on forex reserves.

"If we are also importing coal in a big way after crude...a lot of foreign currency will go away and if it is not matched by the export in this country then there will be pressure on the rupee.

"...and then the rupee will depreciate over a period of time. So, it is all the more important for us that we reduce the dependence on import for the sector where we have the availability in the country," he further said.

However, he admitted that the immediate need is to resort to import of coal.

Iron ore swaps firm, traders bet on post-new year spike

Thu Dec 6, 2012
* Spot iron ore prices bounce further off 6-week lows

* Iron ore may rise to $130 after Chinese New Year-FIS
By Manolo Serapio Jr
SINGAPORE, Dec 6 (Reuters) - Prices of iron ore swaps steadied near three-week highs on Thursday as traders bet demand for the steelmaking raw material would rise after the Chinese New Year break in February.

Hopes are growing that China's economy will be in better shape in the first half of 2013 after its new leader, who takes over in March, announced his commitment to pro-growth policies, boding well for demand in the world's biggest steel consumer.

Iron ore prices in the physical market turned higher this week after hitting six-week lows as traders began picking up cargoes for delivery over the next two months on expectations demand from top buyer China will recover.

"What we're looking at now in the physical market are cargoes to be delivered mid-January to mid-February. So you've got a few traders taking some position cargoes ahead of the Chinese New Year," said Rory MacDonald, iron ore broker at Freight Investor Services (FIS).

"While sentiment on December delivery was bearish, we're now looking at Jan-Feb delivery so the sentiment's better. There's always an expectation that you'll get a bit of a price spike after the Chinese New Year, so there is the same anticipation this time around."

A fall in Chinese steel prices this month to levels last seen in September prompted iron ore buyers to limit spot purchases. That pushed down the price of benchmark 62-percent grade iron ore .IO62-CNI=SI to $115.30 per tonne on Monday, its lowest since Oct. 19.

The price has since recovered to $117.90 on Wednesday, based on data from information provider Steel Index. Price offers for imported iron ore cargoes in China rose by $1-$2 per tonne on Thursday, according to Chinese consultancy Umetal.

RISING OPTIMISM

Chinese steel mills normally stock up on iron ore ahead of the week-long Lunar New Year break that falls in February next year, and buying extends after the holiday.

MacDonald said he expects the price of iron ore to rise above $130 after the Chinese holiday. "We may even challenge $140," he added.

The optimism is reflected in swaps, with the January contract holding at $117 in early deals in Asia, after settling at $117.19 on Wednesday, its highest since Nov. 13.

The first-quarter price was at $117.25 versus Wednesday's close of $117.06, traders said.

But some Chinese traders say many steelmakers are still not too keen on buying forward cargoes, unsure of the outlook for future demand.

"Many steel mills, which are not stuck in long-term contracts with miners, are not willing to make forward bookings and would rather buy for immediate use from the existing inventories at ports. And also they are trying to keep very low inventories," said a Beijing-based iron ore trader.

Stocks of iron ore at Chinese ports fell below 80 million tonnes last week for the first time since December 2010, Commonwealth Bank of Australia has said.

  Shanghai rebar futures and iron ore indexes at 0704 GMT

  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY3                   3595    -24.00        -0.66
  PLATTS 62 PCT INDEX              119.5     +1.00        +0.84
  THE STEEL INDEX 62 PCT INDEX     117.9     +0.80        +0.68
  METAL BULLETIN INDEX            119.43     +1.56        +1.32

  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day

(Additional reporting by Ruby Lian in Shanghai; Editing by Himani Sarkar and Miral Fahmy)

Chinese steel price likely to fall: observer

2012-12-06
(Xinhua)
BEIJING -- China's steel price will probably fall slightly in December over waning demand, predicted Lgmi.com, a steel industry observing website on Wednesday.

Lgmi.com released its November "Steel PMI", the Purchasing Managers' Index for the steel sector. The reading was 45.2 percent, down 5.1 percentage points month-on-month.

A Steel PMI reading above 50 percent indicates expansion from the previous month, while readings below indicates contraction.

The weak Steel PMI in November means that steel prices are likely to fall in December.

The website said steel demand in December is usually weak, and steelmakers may face a strained money chain towards the end of the year. So they may choose to destock in order to cash in.

Contracted demand and increased supply will probably drag down steel prices, said Lgmi.com.

The website surveyed some 1,000 purchasing managers from enterprises buying or selling steel products from 57 cities to calculate the Steel PMI.

Chinese demand for iron ore up in 2013

2012-12-06
By Zhou Siyu
China Daily
The Baltic and International Maritime Council, the world's largest association of shipowners, forecast Chinese iron ore imports will grow at a rate of 7.5 percent in 2013 up from 6.4 percent in 2012, driven by higher steel demand for housing, infrastructure and machinery as well as the increasing cost of the lower quality domestic ore.

The moce is likely to spur demand for larger dry bulk vessels to transport the commodity, BIMCO said in a report released on Wednesday.

"When we look into 2013, the fundamentals of the dry bulk segment are improving on both supply and demand side variables," said Peter Sand, chief shipping analyst at BIMCO.

"We are still having a tonnage overhang but, as we see global GDP improve, demand for dry bulk tonnage is also set to increase, driven by surging demand for iron ore and coal. This development should ease the pressure on ship owners and operators," he added.

In September China imported the largest amount of iron ore since the record-high imports in January 2011. The 65.01 million tons imported in September strengthens the latest indication of a still growing Chinese demand for imported iron ore.

BIMCO calculations show that the Chinese iron ore content has declined since early 2008. "This is good news for the dry bulk market, as it implies that the real costs of using domestically produced iron ore have increased," BIMCO said.

Vexed Goa mining industry pins hope on SC hearing on Dec 7

5 DEC, 2012, PTI
PANAJI: Mining companies and stakeholders in Goa have pinned their hopes on the impleadment petitions filed by them in the Supreme Court in connection with the current halt in the export and transportation of iron ore from the state, which will come up for hearing on December 7.

The apex court has stopped the transportation and exports of iron ore from Goa pending inquiry report by the Central Empowered Committee (CEC), which has been asked to probe into illegal iron ore mining in the state, as pointed out in the Justice M B Shah inquiry commission.

India's mining major Sesa Goa , Goa Mining Association, Goa Mining Labour Welfare Union, South Goa Truck Owners Association, All Goa Barge Owners Association and a mine owner Harish Melawani have filed individual impleadment petitions in the court.

These parties, directly affected by the current ban, have contended that they were not heard by Justice M B Shah Commission before finalising its report.

The petitions have said that under commission of the inquiry, the ex-parte needs to be heard.

The petitioners have said that they should be given an opportunity to present their facts before the court, prior to a final verdict.

Goa Foundation, an NGO, had moved the court seeking a ban on mining after Shah Commission termed that almost all the 90- odd leases operating in the state were illegal.

The petitioners have pleaded that "the court may pass an appropriate order" in this case.

The iron ore export business in Goa has come to a standstill affecting several people, dependent on it for livelihood.

The state government, in its submission to the CEC (Central Empowered Committee), has said the state might face unrest due to the current crisis.

The fiscal health of the state is also a cause of worry for the government, who, in its letter to the CEC has predicted a shortfall of Rs 4,400 crore to the state's economy for the current fiscal year.

State Chief Secretary B Vijayan in his letter to CEC had said that "as against the estimated contribution of Rs 6,800 crore, the contribution would be only Rs 2,400 crore".

The estimated revenue from the mining sector in the form of royalty for the current fiscal was projected to Rs 902 crore, while the realisation towards the end of September has been Rs 321 crore.

SAIL-led team may finalise deal for Afghan ore deposit soon

OUR BUREAU, THE HINDU BUSINESS LINE
KOLKATA, DEC. 5:
Afghan Iron and Steel Co Ltd (Afisco), the Indian alliance selected for Hajigak iron ore deposit exploration, is likely to finalise the $10.8-billion concession deal in a fortnight.

Wahidullah Shahrani, Minister of Mines of the Islamic Republic of Afghanistan, said the negotiations after the selection were almost over and the deal would be given a final shape by the middle of this month.

“The deal could be formally signed in January,” the Afghan Minister said. He was here to attend the 11th Global Mining Summit, organised by CII and the Union Ministry of Mines.

The Indian alliance of three state-owned and four private steel companies had bagged the three Hajigak blocks in Bamiyan province of Afghanistan (estimated reserves of 1.28 billion tonnes of high-grade magnetite) in November last year.

An MoU was signed in April, after which Afisco has been in negotiations with Afghan Government officials.

The Afghan Minister said that later this month an Afisco team would visit Kabul. The SAIL-led consortium has NMDC, RINL, JSW, JSW Ispat, JSPL and Monnet Ispat as members.

“This is the largest overseas investment in the Afghan mining sector. We took time to sort out the issues for the strategically important agreement,” the Minister said.

The key issues were identifying coking coal, thermal coal and flux assets for feeding the proposed 6.12-mpta steel plant and an 800-MW power unit.

Negotiators also had to handle issues such as security, evacuation strategy, rail and road infrastructure as also apportionment of quantum between exports and domestic use.

The Afghan Minister said the negotiators considered Afisco’s option to use the 700-km rail link being built by a Chinese firm to Uzbekistan border for evacuation. “This would give access to Chinese and Central Asian markets,” the Minister said.

Indian companies hold breath as Kabul set to invite bids for developing 4 new mines

6 DEC, 2012, RAKHI MAZUMDAR, ET BUREAU
KOLKATA: Afghanistan will invite global bids for developing four new iron ore and copper deposits, including a greenfield iron ore mine at Fiyadara estimated to hold half a billion tonnes of reserves in early 2013.

It is also expected to invite companies to pitch for lucrative copper field at North Aynak that hold nearly 8-10 million tonne reserves.

"Indian companies have good potential and they are competitive. We expect to attract both public and private companies from India to participate in the forthcoming bids in a big way," the country's mines minister Wahidullah Shahrani said on the sidelines of the Global Mining Summit 2012 being organized by CII.

The minister's announcement comes just days before the Afghan government is due to complete the process of evaluating detailed bids for copper and gold assets at Shaida deposit.

A clutch of public and private sector companies, including Steel Authority of India Limited (SAIL), Hindustan Copper, National Aluminium Company (Nalco), MECL, Monnet Ispat & Energy, Jindal Steel and Power Limited, have been shortlisted along with Chinese, British and US firms.

"I am not part of the evaluation committee and hence I cannot comment on it. All I can say is we will announce it soon," he said, when asked about the prospects of Indian companies.

Last year, a consortium of six Indian companies had bagged the rights to mine some 2 billion tonnes of iron ore at Hajigak by committing to build a six million tonne steel plant at an investment of over $10 billion, edging out competition from US, the UK and Canadian firms.

"The Indian consortium will start work on the Hajigak project in January 2013," Sharani said.

"The two countries share strong historical, strategic and civilisational ties to which deep economic ties are now being added. Mining will be the foundation for efficient relations between the two countries which signed bilateral agreements for co-operation in steel, coal, fertilizers cement and oil & gas sectors, last month," the Afghan minister said.

Shahrani said Afghanistan is considered as the last frontier in mineral exploration especially for copper, gold, iron ore, lithium, molybdenum and rare earth minerals.

"India's demand for minerals is being fuelled by its growing construction, infrastructrre and power generation sector. Our country can be a major source of raw materials for this, with the mining sector tipped to contribute nearly 40% to the country's GDP by 2024," he said.

Bunker Prices : 06.12.2012

Source : Bunkerworld.com

	IFO380		IFO180		MDO		MGO
Singapore	599.00		610.00		929.00		939.00
Rotterdam	585.50		609.00		-		927.00
Houston	606.50		681.00		-		996.50
Fujairah	606.00		633.50		-		1,015.00
Los Angeles	613.00		647.50		-		1,058.50
Durban	-		620.00		1,102.00		1,108.50
Tokyo	656.00		668.00		970.00		1,097.50
Piraeus	605.50		638.50		-		952.00
Sydney	735.00		744.50		-		1,103.00
Santos	588.50		610.50		-		1,005.50
Guayaquil	669.00		723.00		-		1,478.00
Mundra	643.00		690.00		-		1,110.00
New York	616.00		653.00		-		-

Baltic Dry Indices 05/12/2012

BDI           1022        -       32
BCI           2000        -       95
BPI             949        -       13
BSI             768        -       03
BHSI          446        -       01

Yara signals appetite for deals, to expand in NPK

4th Dec 2012, by Agrimoney
Yara International signalled an appetite for fertilizer deals, particularly in higher-value products such as NPK, as it flagged the role of China, for now, in determining prices of commodity nitrogen nutrient markets.

Juergen Ole Haslestad, the Yara chief executive, said that the nitrogen giant's balance sheet "has never been stronger", reflecting "a deliberate effect to build financial flexibility for growth execution".

The Norwegian group's net debts, as a proportion of equity, had fallen to levels below 0.1, from a figure of 0.75 early in 2009.

Yara will exploit its low borrowing levels "to realise well-timed profitable growth", potentially including acquisitions, besides raising its dividends, which Torgeir Kvidal, the Yara finance director, acknowledged had fallen behind a policy of 40-45% payouts.

'More deal activity'

While making strides in commodity products towards increasing group sales of 32.5m tonnes in 2016, up from 24.5m tones in 2010, Yara had lagged in boosting volumes of value-added fertilizers, such as NPK, which had proved a key support to group profits, Mr Haslestad said.

Indeed, a 6.2% rise in volumes of nitrate and NPK products outside Europe in 2011-12 had "compensated" for a 6.1% drop in sales within the continent, Yara's core market,

Realising the group's 2016 ambitions was likely to mean "more merger and acquisition activity" with the value-added sector, an area in which Yara had "high potential" for reaping deal benefits, such as cost cuts, from takeovers.

Mr Haslestad cited South America and eastern Europe and the Black Sea as regions where "medium-sized" takeover deals "likely have the highest probability of success in the current environment", with partnerships favoured in Africa and development of existing sites in western Europe.

Yara's deal activity over the last couple of years includes expanding its stake in the Australian Burrup nitrogen plant, and entering a co-operation agreement with Moroccan phosphate giant OCP, while failing in the auction for US-based Terra Industries.

Urea vs NPK

Yara, which has developed a more soluble type of NPK being trialled in Brazil, flagged the advantages of the compound fertilizer - a mixture of nitrogen, phosphate and potash – in avoiding energy competition, in which the US is gaining an advantage through tapping into shale gas.

It was "important" to distinguish between urea, a basic nitrogen fertilizer, and "other products because urea requires vertical integration on ammonia, while nitrate and NPK plants do not require ammonia production to take place on site," Mr Kvidal told investors.

"This means that a urea plant is fully exposed to local energy costs, while nitrate and NPK plants are exposed to the upgrading margins from ammonia, and not necessarily to local energy costs."

Furthermore, premiums for nitrate and NPK fertilizers "are less volatile than those for urea", a function of the added value of these markets, besides their relative scarcity, given the highest upfront costs of building capacity.

Earnings forecast

The comments, which follow a day after UK potash miner Sirius flagged the potential for NPK, came as Yara flagged the importance of China's performance on urea exports in setting world prices, and determining the group's own importance.

Yara forecast its earnings per share in 2013 would come in between NOK20-57, depending on the margins allowed by Chinese exports.

The group a year forecast 2012 earnings of NOK28-55 per share, with analysts currently believing Yara is on track for a NOK37.89-a-share result.

Yara shares stood 0.5% lower at NOK277.00 in lunchtime deals in Oslo.

Aussie officials upbeat on wheat export prospects

4th Dec 2012, by Agrimoney
Australia retained an upbeat view of its wheat export prospects, saying that crops had not been as badly affected by dry conditions as many observers had thought, and forecasting a harvest above market expectations.

Australia's Abares commodities bureau, in a quarterly report, estimated its wheat exports at 20.9m tonnes, down some 600,000 tonnes from its last forecast, but will above figures from other forecasters.

Indeed, it is 4.4m tonnes above the estimate from the US Department of Agriculture, and would retain Australia its second place among world wheat exporters, behind the US, but ahead of Canada and the European Union.

The estimate follows observations of the relative competitiveness of Australian wheat which has made it particularly attractive to Asian buyers at a time of elevated prices of corn, an alternative in feed.

However, Abares' estimate also reflected a relatively upbeat view of the Australian harvest, with the bureau saying that winter crop yields "have held up reasonably well in many regions, despite the dry seasonal conditions experienced in the past few months".

"While total winter crop production is forecast to be lower than the record harvest of last season, yields in many regions were aided by favourable levels of lower layer soil moisture," Abares executive director Paul Morris said.

'Weak downgrade'

The bureau acknowledged lower prospects for the harvest in Western Australia, typically the top grain-growing state, where "rainfall was generally below average throughout the growing season and a dry October adversely affected yields in southern parts of the state".

The Western Australia wheat crop was downgraded by 255,000 tonnes to a below-average 6.86m tonnes.

But estimates for harvests in second-ranked New South Wales and in Victoria were held at levels made in September, with the national crop pegged at 22.0m tonnes, a downgrade of 507,000 tonnes.

"This downward revision is weaker than traders' expectations," Paris-based consultancy Agritel said, noting a market consensus of an Australian wheat harvest of about 21m tonnes.

The USDA last month downgraded its forecast for the crop to 21.0m tonnes.

'Sorghum a more attractive option'

Abares was relatively upbeat on barley exports too in 2012-13, pegging them at 4.67m tonnes, above a USDA estimate of 3.80m tonnes, and despite a weaker harvest estimate.

And, while cutting its forecast for its cotton crop to 945,000 tonnes (4.34m bales) the figure was higher than the 4.0m-bale estimate from USDA attaches in Canberra last week.

Although predicting a 26% drop in sowings, in response to falling cotton prices which "have made grain sorghum a more attractive option to producers", Abares said that the decline in sowings was skewed to less-productive dryland areas.

GRAINS-Soybeans hit near 1-month top on S.American supply woes

Wed Dec 5, 2012
* Traders concerned as Brazil soy planting behind schedule

* Wheat up for fist time in 5-days, corn firms

* Informa cuts Argentina 2012/13 corn crop forecast

* FCStone shaves 2 percent off expected Brazil soy output
By Colin Packham
SYDNEY, Dec 5 (Reuters) - U.S. soybeans climbed to their highest in nearly a month on Wednesday and wheat snapped out of a four-day slide as traders continued to worry that unfriendly crop weather in key producing regions would whittle down global supplies.

Corn also gained, after dropping in the previous session, as private analytics firm Informa cut its forecast for Argentina's 2012/13 crop.

"At the moment, the market is on edge, with South American weather hanging over the market," said Victor Thianpiriya, agriculture strategist at ANZ in Singapore.

"The soybean market is being driven by weather developments, and it's still very dry in Brazil."

Chicago Board Of Trade January soybeans rose 0.5 percent to $14.62-1/2 a bushel by 0242 GMT, having touched a session high of $14.64-3/4 a bushel, the highest since Nov. 9.

Soybeans had been underpinned by South American production concerns in recent days, with prices up more than 4 percent over the last two weeks.

Analysts at FCStone do Brasil shaved 2 percent off their estimate for Brazil's 2012/13 soybean crop, citing lower yield expectations due to dryness in the southern producing regions.

The country is likely to produce 80.01 million tonnes of soybeans, down from a September estimate of 81.98 million in a year when Brazil's crop is needed to make up for U.S. drought losses.

Corn and wheat were also supported by weather concerns. CBOT March wheat rose 0.1 percent to $8.57-1/2 a bushel, while March corn edged up 0.2 percent to $7.53-1/2 a bushel.

Crop areas in Argentina, the world's No. 2 corn supplier and No. 3 soybean producer, have been plagued by excessive rains and flooding, while Australia trimmed its production estimates due to damage from dry weather.

Informa Economics cut its Argentina 2012/13 corn crop forecast to 27 million tonnes, from 28 million previously. It also lowered its estimate for Argentina's 2012/13 soybean production to 58.4 million tonnes, from 59.5 million a month ago, citing a reduction in expected plantings.

But it raised its projection for Brazil's 2012/13 soybean crop to 81.4 million tonnes, from 81.25 million previously.

AN EYE ON WEATHER

Traders are expected to continue monitoring South American weather forecasts for further trading cues.

Soybean prices had come under some pressure on Wednesday following forecasts for an improvement in crop conditions in Brazil this week, but analysts remain concerned that planting will not be completed in time.

A cold front off Brazil's southeast coast should bring rain to top soy-growing state Mato Grosso this week, with isolated showers in the south helping farmers finish planting, analysts said earlier this week.

Soy planting is complete in central Brazil, although it is still unfolding in parts of the south after an unusually dry November, putting Brazil's overall sowing at 84 percent of the expected total, compared to 93 percent a year earlier, analyst AgRural had said.

In Argentina, rains expected to hit its grains belt this week will sustain the floods that have fanned global supply worries by swamping and blocking access to key soy, corn and wheat areas.

  Grains prices at  0242 GMT
  Contract        Last    Change  Pct chg  Two-day chg MA 30   RSI
  CBOT wheat     857.50     1.00  +0.12%    -0.69%     877.87   36
  CBOT corn      753.50     1.50  +0.20%    +0.10%     746.94   54
  CBOT soy      1462.50     7.00  +0.48%    +1.65%    1473.40   60
  CBOT rice      $15.46    $0.04  +0.29%    +1.21%     $15.08   75
  WTI crude      $88.66    $0.16  +0.18%    -0.28%     $86.71   58
  Currencies                                               
  Euro/dlr       $1.311   $0.005  +0.41%    +0.95%
  USD/AUD         1.048    0.006  +0.55%    +0.47%
  Most active contracts
  Wheat, corn and soy US cents/bushel. Rice: USD per hundredweight
  RSI 14, exponential

(Editing by Himani Sarkar)

European Corn Imports Seen Expanding to Second-Highest on Record

By Whitney McFerron - Dec 4, 2012
European Union corn imports may be the second-highest on record this season after drought parched crops and a surge in wheat exports curbed domestic grain supply.

The EU issued licenses to import 3.6 million metric tons of corn since the marketing year began July 2, more than twice the amount a year ago, data from the 27-nation bloc show. Purchases will rise 59 percent to 10 million tons, the second highest for data to 1999, the International Grains Council says. Shipments may reach 12 million tons, said Dan Basse, president of AgResource Co., a research company in Chicago.

EU buyers are competing in a market roiled by dry weather from Australia to Europe to the U.S. Futures traded in Chicago, a global benchmark, reached a record in August. Prices for wheat, an alternative livestock feed, also surged because of concern that grain from the Black Sea region will run out, boosting demand for EU supply. Licenses to export wheat rose 34 percent in the past four weeks, European Commission data show.

“There were problems in the southern areas, especially Romania, where crops looked very poor, and in Italy and Hungary as well,” said Nathan Kemp, an economist with the London-based IGC. “There’s a shortfall this year, plus with the wheat market price differential, it makes sense to export wheat, so that takes it away from feed channels.”

Corn surged 28 percent this year on NYSE Liffe in Paris, outpacing the 17 percent increase on the Chicago Board of Trade. U.S. futures reached a record $8.49 on Aug. 10 and averaged $6.86 since the start of January, exceeding last year’s all-time high. The Standard & Poor’s GSCI Agriculture gauge of eight commodities rose 11 percent this year.

European Commission

The IGC’s forecast for EU corn imports is 85 percent higher than the U.S. Department of Agriculture’s most recent estimate. Purchases of 12 million tons would make the bloc the world’s second-biggest buyer after Japan. EU corn output fell 19 percent this year, according to the European Commission.

The extra supplies are most likely to come from Ukraine and South America, said Jeff McPike, a grains trading manager at Cefetra BV in Rotterdam. The U.S. probably won’t ship more because of the EU’s restrictions on most genetically modified varieties prevalent in North America, he said, estimating imports at as much as 11 million tons.

Ukraine supplied the EU with almost 600,000 tons of corn in the three months through the end of September, more than 13 times the amount a year earlier, according to the IGC. Argentina has been the second-largest supplier at 74,400 tons, from 42,400 tons in 2011. The EU approved imports of Syngenta AG’s MIR162, a genetically modified corn variety, in October and that may allow more shipments from Brazil, Kemp said.

Corn Exporters

The planting of Brazil’s second corn crop in January and February may be delayed after dry weather postponed soybean sowing this year, Kemp said. The U.S., Argentina, Brazil and Ukraine are the largest corn exporters.

The EU issued licenses to export 1.93 million tons of wheat in the four weeks ended Nov. 27, from 1.45 million tons a year earlier. Egypt, the biggest importer, accelerated purchases from France since September, after favoring Russia and eastern Europe supply earlier in the season.

Combined global inventories of corn and wheat may drop to 292.2 million tons at the end of this season, the lowest in five years, according to the USDA. World feed demand for the two grains, while down 1.9 percent from last year, will still be the second-highest on record at 639.5 million tons.

“For the next six to nine months it’s very difficult to understand how there’ll be enough feed,” Basse said. “There’s really not a lot of other options available to the EU in terms of feed supplies, outside of feed wheat, of which there’s very little in the world.”

Russian Billionaire Unearthed With Soybean Meal Fortune

By Alex Sazonov - Dec 4, 2012
Bloomberg
In 1993, Alexander Lutsenko abandoned a fledgling military career in the Russian army to test an economic adage he learned while studying at the Political College of Arms in Minsk. Even in the most difficult times, the saying went, a well-managed agriculture business is always profitable.

Lutsenko founded a trading company that became Luxembourg- based Sodrugestvo Group SA, Russia’s largest soybean meal producer, and encountered plenty of opportunities to see whether the theory would hold.

When the Russian ruble crashed in 1998, he drew upon the company’s U.S. dollar cash reserves to pay his most important foreign creditors first. A decade later, as competitors scaled back amid the global recession, he expanded, investing in new factories, sea terminals and railroads.

“Our company has always grown in crises,” Lutsenko said in a November interview at his office in the city of Svetliy in Russia’s Kaliningrad region, located on the Baltic Sea. “We have cast-iron discipline.”

That discipline helped the 50-year-old and his wife, Natalia, amass a 10-figure fortune, according to the Bloomberg Billionaires Index. Sodrugestvo generated about $1.7 billion in revenue last year -- double its sales in 2008 -- and controls 33 percent of the Russian market for soybean meal, an additive used in animal feed. Lutsenko has never appeared on an international wealth ranking.

Mitsui’s Investment

In July, the company announced that Tokyo-based Mitsui & Co. (8031), Japan’s second-largest trading house by market value, had acquired a 10 percent stake in Sodrugestvo. The alliance will bring Mitsui’s marketing and distribution resources to Sodrugestvo’s grain operations, while providing Mitsui access to the company’s livestock feed business in Russia and the former Soviet republics.

Mitsui’s investment gave Sodrugestvo an enterprise value -- equity value plus total debt minus cash -- of $2.2 billion, Sodrugestvo said in a news release. An agro-business industry analyst in Russia familiar with Sodrugestvo’s financial performance who asked not to be identified because the company is closely held said it has about $250 million in net debt, giving the company an equity value of $1.95 billion.

According to data compiled by Bloomberg, Sodrugestvo has an equity value of at least $1.3 billion, based on the average enterprise value-to-earnings before interest, taxes, depreciation and amortization and price-to-earnings multiples of two publicly traded peers: Singapore-based Wilmar International Ltd. (WIL), the world’s biggest palm-oil processor, and Warsaw-based Kernel Holding SA (KER), a diversified agro-business company operating in Ukraine.

Poultry, Pork

The value of Lutsenko’s company has surged during the last decade, as government farm subsidies led to increased output by Russian poultry and pork producers, the largest buyers of soybean meal. From 2004 to 2011, Russian poultry output doubled while its pork output increased 53 percent, according to the Moscow-based National Meat Association.

Those increases boosted Russia’s soybean business. According to the U.S. Department of Agriculture, Russia’s soybean meal output is expected to reach 2 million tons in 2012, 69 percent more than in 2009. In 2011, Sodrugestvo produced 825,000 tons of soybean meal and 200,000 tons of soybean oil, making up 70 percent of its revenue.

The company operates 2,225 rail cars, making it Russia’s second-largest operator of grain hoppers, and owns almost 20 miles of train tracks that can hold as many as 580 cars. It also controls a marine deep-water terminal, and a network of storage facilities in Brazil and Russia that can hold as much as 950,000 tons of grain.

Military Discipline

Mitsui “sees potential for growth,” Lutsenko said. “We want to become the first Russian agricultural company to become a global player on the international soft commodities market.”

Lutsenko was born in East Berlin in 1962. In the early 1980s, after studying Soviet army propaganda as an 18-year-old cadet, Lutsenko embarked on a military career. Discouraged after the fall of the Soviet Union, when officers of the new Russian army were forced to take wage cuts, he left the service to become an entrepreneur.

In 1994, he opened his first business, a trading company that sold fish meal and other additives to suppliers of pork and poultry feed. By the end of its third year, Lutsenko’s operation included 42 warehouses throughout the Commonwealth of Independent States that stored the feed additives. By 1998, annual sales reached $150 million.

“We worked with any client, no matter if he bought one kilogram of feed additives or 10 tons,” Lutsenko said. “We were one of the biggest traders in the region.”

Crisis Management

Lutsenko also kept to his military roots. Many Sodrugestvo executives are former army officers, a hiring strategy that he implemented to help bring operational focus to his company -- something he said was lacking in many companies that emerged out of the former Soviet Union.

In 1998, when the ruble lost more than three times its value against the U.S. dollar and Russian customers faltered, Lutsenko made sure his suppliers in western Europe were paid first, a strategy that brought him credibility from additives producers who had grown leery of dealing with Russian businesses.

Sodrugestvo soon became one of the biggest feed additive traders in Russia.

In 2004, he began building a deep-water terminal near Svetliy and two soybean crushing plants to reduce his dependence on local and foreign suppliers. During the next three years, he invested about $400 million in the assets, and is now spending another $450 million on a third crushing plant and a warehouse terminal in the Kaliningrad region.

Soybean Demand

“Sodrugestvo was the first company that saw the potential of the soybean meal market,” said Andrey Sizov Jr., managing director of Moscow-based market research firm SovEcon. “They occupied this niche quickly and have since grown so fast that there is not a lot of space left for another big player.”

A new crisis could loom for Lutsenko if demand for soybean meal falters, or if it fails to match Sodrugestvo’s increased capacity, Sizov said. Russia has agreed to eliminate import duty on soybean meal in 2014 as part of its bid to join the World Trade Organization, which could result in greater soymeal imports into the country.

In June 2012, Fitch Ratings placed a negative outlook on Sodrugestvo, rating it a B in its first report on the company. According to Pablo Mazzini, senior director of EMEA Corporates at Fitch, the company has had an “aggressive” capital expenditure expansion that brings possible “execution risk in the use of the new capacity.”

Brazilian Expansion

Lutsenko is expanding his operation in Brazil which, along with Argentina, provides Russia with most of its soybean imports. The new operations will increase the company’s production, storage and distribution capacity in South America. In 2010, Sodrugestvo established a joint venture with CAROL, one of the country’s biggest farm cooperatives and, a year later, acquired Lider Armazens Gerais SA, Brazil’s largest closely held provider of trans-shipment and storage of grain.

“We decided to develop our presence in Brazil both for the origination and processing of soybeans and other commodities, and to achieve access to one of the most dynamic markets in the world,” said Stephane Frappat, Sodrugestvo’s chief executive officer in a company statement released in December 2010.
Lutsenko said he expects the Brazil businesses will soon be outperforming his domestic business.

“We don’t have the aim to grow impetuously in Russia,” Lutsenko said. “We want to try our hand in other countries.”

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