Monday 17 June 2013

Russia grain buys to start 'soon', eroding exports

14th Jun 2013, by Agrimoney
Russia may imminently begin state buying of grain - limiting export potential - SovEcon warned, even as the intervention programme was attacked by a leading US wheat industry figure.

The Russian government "is likely to step in earlier than usual to support the market" by buying grains for intervention stocks, said Andrey Sizov Jr, the managing director of SovEcon, the influential consultancy.

The mood music from senior agriculture officials, and the frequency with which they are discussing intervention, appears to indicate a willingness to act soon, Mr Sizov said.

Timely purchases would also be line with the character of Nikolai Fedorov, the Russian agriculture minister, who is "more sympathetic to the interest of crop growers than predecessors", many of whom prioritised the livestock industry, which benefits from low grain prices.

"It looks like he wants to support the interests of crop growers, who would benefit from early price support," Mr Sizov said.

Export implications

Imminent intervention would also "indirectly lower [Russia's] grain export potential", by limiting the amount of supplies available to merchants, Mr Sizov said.

In fact, wheat prices remain high enough in Russia's South, the country's main source of export grain, at some 7,400-7,800 roubles per tonne, to make it unlikely that producers there will sell the intervention fund.

However, in the central and eastern regions, where prices or at or below intervention offers of some 6,300-6,500 roubles per tonne, "producers are likely to sell to the fund", Mr Sizov told Agrimoney.com.

Given Russia's reputation as a fierce competitor on international grain markets, its export potential is closely watched by traders.

'Russians just don't seem to understand'

The comments follow a statement from deputy minister Ilya Shestakov, the Russian deputy agriculture minister, that the government was ready to buy up grain to limit Russian exports to 20m tonnes, although Mr Sizov said that this was based on a misinterpretation of intervention rules, which are based on an intervention price rather than volume.

Nonetheless, the thought of a curb on exports prompted an angry response from Alan Tracy, the president of US Wheat Associates, which promotes American wheat exports, and termed limits on Russian exports "not reasonable and prudent".

"The Russians just don't seem to understand how markets work," Mr Tracy said.

'Time for Russia to be responsible'

"The threat of export curbs and their actuality in Russia twice since 2007-08 encourage private exporters to rush to get as much grain out of the export door as they can before the door closes," with the large supplies depressing prices for farmers in Russia and worldwide.

"Later, when the flow stops, prices become artificially higher for all of our customers but are still depressed for Russian farmers because their export potential is gone.

"Russia is likely to be the world's second largest exporter this year. It is past time for them to be responsible to other market players and to their own producers." Mr Tracy said.

"We hope they will learn to let the market determine prices and move grain supplies to where they are needed."

GRAINS-Corn at 3-week low, soy falls for 4th day on US weather

Mon Jun 17, 2013
* Corn down 0.8 pct to lowest in more than 3 weeks

* Soy falls 1 pct to 2-week low on U.S. weather

* Wheat at 2-month low as U.S. harvest gather pace
By Naveen Thukral
SINGAPORE, June 17 (Reuters) - Chicago corn slid to its lowest in more than three weeks on Monday, while soybeans fell for a fourth consecutive session to a two-week low under
pressure from forecasts of crop friendly weather across the U.S. grain belt.

Wheat lost more ground, sliding to its lowest since early April as the U.S. winter wheat harvest progressed in the southern Plains, boosting supplies amid weak demand.

Growing conditions have turned ideal in the U.S. Midwest after record rains early this spring led to the slowest corn and soybean plantings in 17 years.

The extended forecast shows occasional showers and warm temperatures, which should speed crop growth, agricultural meteorologists said.

"The increasing likelihood that the forecast record increase in global grain production will come to fruition remains the main factor driving new-crop prices lower," said Luke Matthews,
commodities strategist at Commonwealth Bank of Australia.

Chicago Board of Trade new-crop December corn was down 0.8 percent to $5.28-3/4 a bushel by 0535 GMT after touching its lowest since May 23 and November soy fell 1 percent to
$12.86 a bushel.

The U.S. Department of Agriculture in its monthly demand-and-supply report on Wednesday estimated the corn crop at 14.005 billion bushels, a billion bushels larger than the record
set in 2009.

Bumper crops would be a dramatic rebound from three years in a row of falling corn and soybean production which tightened stocks and led to sky-high prices. Corn stocks are headed for
their lowest level in 17 years in 2012/13, with supplies set to be razor-thin until harvesting starts in the autumn.

Concerns over the pace of planting in recent weeks have led large speculators to raise their bullish bet on U.S. soybean futures to the biggest in more than seven months, the latest
regulatory data released on Friday showed.

July wheat lost 0.7 percent to $6.75-3/4 a bushel, its lowest since early April.

The harvest of winter wheat in the United States, the world's biggest exporter, is under way and early reports from drought-hit Texas and Oklahoma are not as bad as feared,
agronomists and others said.

The U.S. Department of Agriculture raised its estimate of the 2013 U.S. winter wheat harvest last week to 1.509 billion bushels, from 1.486 billion in May.

  Prices at  0535 GMT
  Contract        Last    Change  Pct chg  MA 30   RSI
  CBOT wheat     675.75    -5.00  -0.73%   866.93   30
  CBOT corn      528.75    -4.25  -0.80%   759.53   47
  CBOT soy      1504.00   -12.50  -0.82%  1580.68   43
  CBOT rice      $16.35   -$0.16  -0.97%   $15.51   69
  WTI crude      $97.42   -$0.43  -0.44%   $89.23   67
  Currencies                                               
  Euro/dlr       $1.332   $0.103 
  USD/AUD         0.961   -0.094 
  Most active contracts
  Wheat, corn and soy US cents/bushel. Rice: USD per hundredweight
  RSI 14, exponential

(Reporting by Naveen Thukral; Editing by Michael Perry and Richard Pullin)

Monsoon Covering India in Record Time to Boost Rice, Sugar Crops

By Swansy Afonso & Prabhudatta Mishra - Jun 17, 2013
Bloomberg
Monsoon, which accounts for 70 percent of India’s annual rainfall, covered the entire country in a record time, accelerating plantings of crops from rice to soybeans and cotton.

Rains covered the whole of India yesterday, the earliest ever and ahead of the normal date of July 15, said D.S. Pai, head of the long-range forecasting division at the India Meteorological Department. Monsoon showers have been 48 percent above a 50-year average since they arrived on June 1, the forecaster said on its website.

The early arrival of rainfall has helped ease a drinking water shortage and relieved crops threatened by the worst drought in four decades in India’s western region. A bumper harvest may help Asia’s third-biggest economy curb food prices and revive economic growth from the lowest level in a decade. Agriculture accounts for about a fifth of the economy, while 55 percent of the farm land does not have access to irrigation.

“Early rainfall augurs well for all rainfed crops including soybean, cotton, sugar cane, rice, corn,” P. Chengal Reddy, secretary general of the Consortium of Indian Farmers Association, said by phone from the southern state of Andhra Pradesh. “Early and more than normal rains will recharge the groundwater and help farmers who are dependent on irrigation.”

Rainfall will be 98 percent of the 50-year average of 89 centimeters (35 inches) in the four months through September, the weather bureau said on June 14. It defines normal precipitation as 96 percent to 104 percent of the average received between 1951 and 2000. Showers in July, the wettest month of the season, will be 101 percent of the average and more than the 87 percent last year, it said.

Early Sowing

The sowing of the soybean crop, the main oilseed sown in the monsoon season, has commenced in the central Indian state of Madhya Pradesh with the earlier-than-normal arrival of rains, Rajesh Agrawal, spokesman of the Soybeans Processors Association of India, said by phone from Indore. The state grows more than 50 percent of the nation’s crop.

“The entire planting will be completed in a week’s time, which has probably never happened in the past,” he said. “Normally, the rains arrive by June end and the sowing extends until middle or late July. This is a good beginning and will have good results if we have good follow up rains. The early rains will boost yields.”

More than 235 million farmers in India, the world’s second-largest producer of cotton, rice and sugar cane, depend on rain for irrigating crops. The monsoon reached the southern state of Kerala on June 1, two days ahead of the onset date forecast by the weather body.

Planting Progress

Rice has been planted in 794,000 hectares (1.96 million acres) as of June 14 while oilseeds have been sown in 157,000 hectares, the farm ministry said. Sugar cane was planted in 4.21 million hectares and cotton in 1.58 million hectares, it said.

Rainfall in August will be 96 percent of the average, compared with 101 percent last year, the bureau said on June 14. Northwest India, the main wheat, rice and sugar cane region may get 94 percent of average rainfall this year, while the central region, the biggest soybean grower, may see precipitation of as much as 98 percent of the average, the bureau said.

Record Soybean Glut Seen Worsening as China’s Appetite Eases

By Bloomberg News - Jun 17, 2013
Soybean imports by China, the biggest buyer, may be lower than official U.S. forecasts, deepening a glut and weighing down prices as global reserves are set to reach a record.

Inbound shipments will be 63 million metric tons in the 12 months starting Oct. 1, less than the U.S. Department of Agriculture’s June 13 projection of 69 million tons, according to the median of 14 estimates of China-based crushers and researchers by Bloomberg. Soybeans, which rose to a record $17.89 a bushel in Chicago during the 2012 drought in the U.S., slumped 15 percent this month and are in a bear market along with corn and wheat.

Demand for soybean meal for animal feed plunged in China April and May as farmers culled poultry following an outbreak of the H7N9 bird flu virus that led consumers to shun chicken, according to Tommy Xiao, analyst at Shanghai JC Intelligence Co., the nation’s biggest agricultural researcher. Growth in cooking oil and meat consumption is slowing as economic expansion cools and the nation’s new leadership frowns on lavish banquets and expensive meals.

“The USDA grossly overestimated China’s demand,” said Xiao, who forecast 60.5 million tons. While demand is stronger than it was at the height of the virus scare, full recovery will take several more months, he said by telephone on June 14.

Imports in the 12 months through Sept. 30 may drop for the first time in almost 10 years to 58 million tons, Bloomberg’s survey showed. The USDA projects 59 million tons.

Goldman Forecast

Goldman Sachs Group Inc. said in a June 13 report it expected soybeans to trade around $11 a bushel over the next three to 12 months. That compares with $12.88 at 2 p.m. Beijing time.

Soybean meal fell 0.7 percent to 3,217 yuan ($525) per ton on Dalian Commodity Exchange, extending this year’s loss to 1.7 percent, while soybean oil lost 12 percent in 2013 to 7,622 yuan.

The two contracts traded are derived from crushing of imported soybeans, while domestic soybeans in China are mainly for food consumption.

Morgan Stanley last week lowered China’s economic growth estimate to 7.6 percent from 8.2 percent, joining banks including UBS AG and Barclays Plc in cutting estimates after weaker expansion in exports, industrial output and new lending last month.

The State Administration of Grain, which oversees the country’s grain marketing and logistics, last month ordered staff to curb conspicuous food consumption, joining other ministries in echoing the top leadership’s drive to be more conservative in spending.

Lavish Receptions

Communist Party boss Xi Jinping in December urged officials to cut lavish receptions and live more frugally.

“Meat and cooking oil use is slowing with the lackluster economy, and government officials aren’t dropping as much money on banquets and fancy restaurants,” Xiao said.

Soybean output in the U.S., the world’s second-biggest grower and exporter, will be a record 3.39 billion bushels in the season that starts Sept. 1, 12 percent more than a year earlier, the USDA said on June 12.

Worldwide soybean inventories will rise 19 percent to 74.04 million tons in the 12 months ending in September 2014, the biggest pre-harvest reserve ever, according to the average of 16 analyst estimates from an earlier survey compiled by Bloomberg.

Li Peng, managing director for investment at Beijing Ruigu Investment Co. and former head of research at the China unit of Louis Dreyfus, said imports would be about 65 million tons next year.

“In general we are bearish on the price outlook of soybeans,” he said.

Consumption of cooking oil will probably stall this year after falling last year, said Gao Yanbin, Shanghai-based director of research at Jinshi Futures Co. Soybean oil and palm oil are mostly used in restaurants and catering, so a slowdown in the food-service industry will hurt demand, he said.

Top five Bunge executives resign after internal audit into possible financial irregularities

By Sagar Malviya & Chaitali Chakravarty, ET Bureau | 17 Jun, 2013,
MUMBAI/NEW DELHI: Five top executives at the Indian unit of American company Bunge have resigned amid an internal audit into possible financial irregularities at the world's largest oilseeds processor and owner of domestic edible oils brands Dalda and Amrit.

The company's director Ashish Saxena and chief financial officer Anand Vora have quit over what two senior executives with direct knowledge of the development described as "management differences" arising out of the outcome of the audit. Two other directors of the company - Sudhakar Rao Desai and Sanjay Jain - along with human resources head Sangram Chavan have quit for better prospects, the senior executives said.

"The company recently completed a compliance audit and found some irregularities in the setting up of the new oil processing plant at Kandla, Gujarat," said one of the persons quoted above.

The person said the parent company had objected to the manner in which its Indian subsidiary paid for the factory land in Kandla. Bunge was of the view that the transaction may not be compliant with the US Foreign Corrupt Practices Act (FCPA), an anti-corruption law.

Recent Instances of FCPA Non-compliance

Saxena, the director, and Vora, the company's chief financial officer, did not agree with this analysis of the transaction, the person said.

Asked if some of the exits were an outcome of the investigation under the FCPA, Bunge's global spokesperson said the company does not comment publicly on the reasons for employee departures or other personnel matters. "All of Bunge's operations are held to the highest ethical and financial reporting standards... Bunge maintains transparent and accessible corporate governance processes. The company considers any allegation of impropriety as serious, and responds accordingly, taking necessary and responsible steps to investigate and address issues. This is true in India, where we are investing to build a business for the long term," said the spokesperson.

The problem arose because of a difference in opinion on whether processes had been followed and not because of any allegation of wrongdoing, both executives quoted earlier said.

The FCPA prohibits US companies, their subsidiaries and employees from bribing officials in the US and other countries to enhance business. It also requires companies to keep books and records reflecting all transactions.

There have been several instances of Indian units of US-headquartered companies coming under scrutiny because of suspicion of lack of compliance with the FCPA. In March this year, the world's largest brewery Anheuser-Busch InBev said it is investigating its joint venture in India for possible FCPA violations. Last year, Bourbon-maker Beam Inc too said it was reviewing whether its business in India was in compliance with the FCPA.

Famously, the world's largest retailer Walmart too disclosed last November that it is investigating possible violations of the anti-bribery law in India, Mexico and other countries. In India, the probe resulted in the suspension of its chief financial officer and the entire legal team as well as a freeze on expansion plans.

In a survey by Ernst & Young in 2012, nearly three-fifths of respondents had said their companies had been subjected to fraud during the course of the previous year. "With more than 75% of the respondents working in MNCs, less than half of them were aware of global anti-graft legislations, such as the FCPA and the UK Bribery Act," said the report, titled 'Fraud & Corporate Governance: Changing Paradigm in India'.

"Kickbacks are given to win or retain business, to obtain approvals from government agencies, and to influence people to make favourable decisions," said Arpinder Singh, partner & national director (fraud investigation & dispute service) at E&Y, who authored the report.

A senior executive of a large American MNC, on the condition of anonymity, said in India, MNCs especially American companies cannot buy themselves out of trouble. They can only avoid trouble by spending more on high-integrity employees and high-quality plants and processes. "Patience is another thing we have to factor in our costs, because we just can't afford to pay speed money to expedite permissions."

Giving an example of how rigorously American companies follow rules, the executive says, "If the Indian law says vanaspati has to melt at 41 degrees Centigrade, an American company has to adhere to it. There are no two ways about it."

India is one of the largest markets for vegetable oil, and its consumers are shifting increasingly to branded products for quality and food safety reasons. More than a decade old in India, Bunge entered the market by acquiring Dalda Vanaspati from Hindustan Unilever (then Hindustan Lever) in 2003.

Bunge, among the top sugar and ethanol producers, also bought the edible oils business of Amrit Banaspati Company for Rs320 crore two years ago, which gave it brands such as Gagan and Ginni. The Amrit acquisition also added over 200,000 distribution points in the north and northeast regions.

Bunge has edible oil manufacturing and refining plants at Bundi in Rajasthan and Trichy in Tamil Nadu.

While Bunge has been importing crude soya oil from its crushing operations in the US and South America for the Indian market, this year it completed setting up a new plant with 1,200 tonnes per day capacity at Kandla in Gujarat.

White Plains, New York-based Bunge clocked Rs 26,342 crore in sales of edible oils, bakery fats and vanaspati, or hydrogenated vegetable cooking oils, during the fiscal ended March 2012, growing 77% with a net profit of Rs 80 crore.

Is China backtracking on attempts to control iron ore?: Clyde Russell

Mon Jun 17, 2013
--Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell
LAUNCESTON, Australia, June 17 (Reuters) - It may be too early to start beating the drums of victory for free-market capitalism, but there are signs that China is stepping back from attempts to control the iron ore market.

Just three months after accusing major iron ore producers of manipulating prices, China plans to scrap it's decade-old import licensing system, a move that may eliminate middlemen in the market, lower costs for steel mills and improve transparency.

It also looks like a strategic retreat for the world's biggest buyer of iron ore in its battle to win pricing control from the big three producers, Brazil's Vale and the Anglo-Australian pair of Rio Tinto and BHP Billiton .

The planned end of the licensing system will happen in the second half of the year, according to a Reuters report on June 13 that cited a source with knowledge of the matter. .

The current system requires import qualification licences to be granted by government-backed industry bodies like the China Iron & Steel Association.

It was designed to eliminate speculative traders from driving up prices and force the steelmaking industry to present a united front against the producers.

However, it allowed middlemen to rent out licences and thereby drive up costs for steel mills, who couldn't import directly.

Under the proposed changes, iron ore importers will only need the same type of licence required by other commodity buyers, meaning steel mills should be able to buy directly from miners and traders alike.

While this may not have much impact on iron ore prices in the short term, it could have important ramifications over time by lowering the cost of imported ore versus domestic supplies, which may boost the volume of foreign ore.

It's also not clear how plans to scrap the licensing requirements will fit with another recent proposed change, namely to force importers to use a domestic trading platform.

New licences were to be conditional on importers using the China Beijing International Mining Exchange (CBMX) platform, according to a Reuters report in April.

The big three miners are members of the CBMX, but they also back the Singapore-based globalORE system, which currently handles more of the physical trade than its Beijing rival.

The Chinese move to support the CBMX was most likely aimed at trying to wrest pricing power away from the miners, especially given the allegations by authorities that the big producers manipulate prices.

China's top economic planner said in March that the miners were behind the 83 percent rally in the benchmark Asian spot price between September's three-year low and a peak of $158.90 a tonne in February.

This was an extraordinary accusation by the National Development & Reform Commission (NDRC), especially since it came without any substance, other than an unsubstantiated claim that shipments were held back in order to control supplies and send a fake market signal.

The NDRC appeared to conveniently ignore the fact that the rally in prices coincided with record imports by Chinese steel mills, with December being the strongest on record.

It's also no surprise that the recent price slump has resulted in a surge of imports again, with April and May being the third- and second-strongest months, respectively.

Spot iron ore fell more than 30 percent from its February high to a low of $110.40 a tonne on May 31, the lowest in almost eight months. It has since recovered slightly to $113.60 a tonne on June 14.

As I wrote in March, there was probably a stronger case to say that iron ore was manipulated weaker when the spot price plunged 42 percent between April and September last year, even as China's imports held up remarkably well considering the weaker economic outlook prevailing at that time.

Nonetheless, the concern remains that iron ore prices are subject to manipulation given the situation of one major buyer that accounts for more than 70 percent of the global seaborne market and three big producers that supply roughly that quantum.

Currently iron ore is priced on benchmarks produced by Platts and Metal Bulletin, who in turn base their assessments on collecting information on deals from market participants.

While the methodology used by these agencies is solid and robust, the system still relies on everybody being absolutely honest, and in the absence of a deliverable futures market, there will always be the temptation for involved parties to try and manipulate prices in their favour.

But I would argue that it's difficult to do this on a sustained basis, although a liquid futures market where participants have the obligation to deliver on contracts would certainly boost transparency.

But for now, it appears the Chinese may just be resigning themselves to the reality that they are unlikely to be able to control the iron ore market, so they may as well do what's possible to cut unnecessary costs from the system.

Disclosure: At the time of publication Clyde Russell owned shares in BHP Billiton and Rio Tinto as an investor in a fund.

Investing in Fortescue could be risky: expert

2013-06-17
(Xinhua)
SYDNEY - Fortescue Metals Group's (FMG) low performance-price ratio and $12 billion debt has sounded alarm bells for some Chinese investors recently.

China's Mysteel.com Consulting Director Xu Xiangchun told Xinhua on Monday that FMG's fast-growing business pattern had led it to rack up exorbitant debt in attempt to capitalize on demand, but the pure-play iron ore company is vulnerable to shift in the market.

"Last year, the price of iron ore was $160 per ton, which made FMG the fastest growing company in this field, but this year, the price dropped to $120 per ton, which weakens FMG' s profitability and also increases its risks of debt repayment," Xu told Xinhua.

Mysteel.com is a professional English steel website in China covering news of China steel market.

While FMG continues to develop new mines, Xu said, "FMG just wants to increase its market share to get stronger as soon as possible and the strategy may have huge potential risks."

The company is on track to expand its operations as planned to 155 million tons per annum (MTpa) by the end of 2013, a Fortescue spokesperson told Xinhua on Friday.

"We continue to see strong demand for our products and we are selling every ton of iron ore we produce," FMG told Xinhua in an email, adding that the company was currently "in a strong financial position," and that taking on a further $5 billion of debt last year had provided FMG with "additional liquidity and funding flexibility."

"The loan book however is volatile and if the iron ore price continues to slide the credit-worthiness may come into question," Xu said.

The Chinese press has recently been abuzz with reports that FMG intends to sell part of its infrastructure assets to overseas investors in order to ease its debt burden with Chinese investors supposedly a particular target.

Xu advised Chinese companies to use caution when evaluating FMG' s assets and carefully consider the potential risks of investment.

"Compared with Rio Tinto and BHP Billiton, FMG's cost of investment is higher but the quality of its ore and its profits lower, and the company's aggressive business pattern had resulted in a low performance-price ratio," said Xu.

Iron ore import licensing to be scrapped

2013-06-15
By Du Juan
(China Daily)
China is to abandon its old iron ore import licensing system in July in an effort to further open up the market, a move that will bring more business opportunities to foreign producers and traders, according to a leading industry insider on Friday.

In line with Premier Li Keqiang's recent statement that China will work on reducing governmental interference in the market and simplify approval procedures in many sectors, the Ministry of Commerce announced on June 7 that starting from July 1, companies can apply for iron ore and alumina oxide importing licenses online, in an effort to promote free trade and provide a more convenient procedure.

The industrial insider, who declined to be identified, said the move will provide fairer access to foreign iron ore resources by middle and small-scale steel companies, which currently have to pay commission fees to middlemen who have importing rights for the raw material.

He said the ministry's announcement to change its license approval system is just the first step and the need for importing rights, as well as the license, will be removed.

Data shows that there are currently 118 steel companies and traders in China that have the right to import iron ore.

Large metal and steel producers such as Baosteel Group, Ansteel Group, Shougang Group and China Minmetals Co are included in the list.

The insider added that a small number of traders with importing rights charge a commission fee of between 0.3 yuan ($0.05) and 0.5 yuan per ton to help other companies import iron ore, which can result in more than 10 million yuan in profits annually.

"Their businesses will be affected by the new rule," he said. "However, it will be really beneficial for medium and small-scale steel companies and traders. And foreign iron ore giants such as Rio Tinto, BHP and Vale will also have increased business as a result."

Tang Xiaolan, a senior analyst with the industry information consultancy Mysteel, said that as more organizations participate in iron ore trading, the competition will intensify.

He added there are no fears of hot money entering the iron ore trading arena as prices have been falling in recent years.

"In the short term, the new policy will not influence the market much or affect iron ore prices, but longer term it will be good for both the steel and iron ore industries which have been suffering from weak demand and falling prices," said Tang.

Over the past year, China imported 743 million metric tons of iron ore, the highest amount on record and an 8 percent annual increase.

However, China's steel companies recorded total profits of just 1.58 billion yuan, a 98 percent fall year-on-year.

Experts say the reason for the industry's decline has been a combination of overcapacity, a gloomy economy and weak demand, but most notably, soaring iron ore prices.

China is the world's largest iron ore importer and consumer with annual consumption of more than 1 billion tons. Up to 60 percent of iron ore traded comes to China.

Currently, the China Iron and Steel Association and the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters are responsible for regulating iron ore trading on behalf of the Ministry of Commerce, and for the issue of licenses to importers.

But industrial insiders now believe traders will not require their approval for iron ore imports in future.

Coal India in talks to acquire 2 Australian assets for $4 billion

By Debjoy Sengupta, ET Bureau | 17 Jun, 2013,
KOLKATA: State-owned monopoly miner Coal India is seriously considering acquisition of two Australian companies for over $4 billion (about Rs 23,000 crore), a move that will enable it to import 28 million tonnes high quality thermal coal a year.

CIL has sent the proposals to pick majority stakes for $2 billion each in the two companies, with annual output of 12 million tonnes and 16 million tonnes, respectively, to the company's foreign acquisition committee, a senior official of the coal ministry told ET.

"After the committee's clearance, the proposals will be forwarded to the board and CIL will be ready to take them over. The entire process is likely to take at least three months because CIL will conduct a due diligence through its merchant bankers on the assets to make sure the return on investment is in stipulation with the government norms," said the official, who did not wish to be named. Although the official declined to name the target firms, he said these were large companies and had been in operation for a few years.

CIL recently received 32 proposals when it floated an expression of interest for acquiring assets overseas, from countries including Indonesia, Australia, USA, Mozambique, Chile and Columbia. These included a few firms that had offered their properties earlier as well when CIL attempted to acquire assets abroad.

Armed with about Rs 30,000 crore, CIL aims to complete the acquisition as soon as possible. "We need to be fast. If we delay the process the assets offered to us may not be available after some time because these companies also have the compulsion of engaging with other parties for selling them," CIL chairman S Narsing Rao had earlier told ET.

Talks did not mature the last time round because the properties were not likely to offer the government-stipulated 12% return on the investment that was to be made.

A sharp fall in international coal prices triggered a renewed hunt earlier this year for foreign assets by CIL, which is now looking at picking majority stakes.

Thermal coal prices have declined by more than 25% on average over the past few months and this has had its effect on coal producers as well. Prices have declined between 19% and 27% in Indonesia and about 21% in Australia. American coal producers have been forced to reduce output, lay off workers and close mines as a number of power plants have started using gas instead of coal, fuelling the decline in asset valuation.

Monday 10 June 2013

Russia to fade as sugar importer but China to grow

7th Jun 2013, by Agrimoney
This year's collapse in Russian sugar beet production will not set a trend, with growth set to recover to demote the country well down the league of importers of the sweetener, while China rises up it.

Russian beet sowings, which this year plunged 30% according to domestic processor Ros Agro, are poised for long-term growth, thanks to the needs of the country's expanded processing industry, and "considerable market protection" thanks to a system of variable rate tariffs, Rabobank said.

While beet, as an annual crop, competes with grains for land – with elevated wheat prices after 2012's drought-hit harvest fuelling the slump in beet sowings – Russia's import levy, effectively fixed at $140 a tonne, will in normal years provide the root crop an advantage

"There is good reason to believe that sugar and beet prices over the long term are likely to continue to be supportive of beet production," the bank said in a report on long-term sugar market trends.

With Russian sugar output growing to 5.8m tonnes in 2021, and consumption growth constrained by a falling population, the country "inevitably" faces a "significant decline in import requirement" over the period.

"Russia's trend import requirement will have dwindled to less than 500,000 tonnes" by 2021, well below the levels of 4m-5m tonnes of the 1990s which promoted the country to top of the world sugar import league.

'Deficit to widen'

The trend in Russian sugar contrasts with that expected for China, whose production deficit will grow despite a government target of 85% self-sufficiency, and growth in cane sugar production seen rising 44% to 16.3m tonnes in the decade to 2010-21, with beef sugar output soaring 95% to 2.1m tonnes.

"Even at this level of output, China's self-sufficiency ratio is expected to reach no more than 80%," Rabobank said.

"Although production is projected to grow significantly, robust growth in consumption is expected to more than offset rising output," boosted by rocketing demand from the food and drinks industry.

The sugar production deficit in China, which will import 3.0m tonnes of sugar in 2012-13 according to International Sugar Organization estimates, will "gradually widen" to some 4m tonnes, a factor that processors are preparing for by expanding capacity in areas handy for cane or raw sugar imports.

"The local sugar refining industry is positioning for the anticipated growth in import demand, with new refinery developments underway along the Chinese coast," Rabobank said.

World prospects

The comments contrast with those from the OECD and UN Food and Agriculture Organization on Thursday in a benchmark report which forecast China's import needs rarely rising above 3m tonnes over the next decade.

"China's recent import growth should slow down significantly compared to the last decade, and remain below the peak reached in 2011," the report said, flagging the potential for sugar output to grow by 2.7% a year to 2022.

Cane area was expected to rise by 13% by then, with beet area to rise by 55% to some 0.4m hectares.

However, Rabobank and the OECD-FAO were in close agreement on the overall world trends.

Rabobank placed world output at 204m tonnes in 2020-21, and consumption at 203m tonnes.

The OECD-FAO pegged world output in the season at 203.7m tones, and consumption at 196.8m tonnes, compared with production of 180.5m tonnes and use of 173.1m tonnes in 2013-14.

GRAINS-US corn eases after rally, market eyes planting report

Mon Jun 10, 2013
* Corn falls 0.8 pct after two days of strong gains

* Soy dips from 4-month top, eyes planting report

* U.S. wheat at lowest since May 30 on weak demand
By Naveen Thukral
SINGAPORE, June 10 (Reuters) - Chicago new-crop corn slid 0.8 percent on Monday, giving up some of its strong gains from the past two sessions, while soy dipped from a four-month high
on positioning ahead of the U.S. government's weekly planting progress report.

Wheat fell to its lowest since May 30, dropping for a fourth session as buyers continued to shun U.S. supplies after an unauthorized strain of genetically engineered wheat was found in
the state of Oregon.

Corn and soybean may be supported by slow planting across the U.S. Midwest due to soggy conditions and projections for more disruptions this week.

Soybeans were 57 percent planted as of June 1, behind the five-year average of 74 percent, while corn was 91 percent planted, behind the five-year average of 95 percent. At the
time, planting progress was the slowest for both crops since 1996.

"Corn is in a much better situation than soybeans as farmers had a window of opportunity early last week," said Joyce Liu, an investment analyst at Phillip Futures in Singapore. "Wet weather is ultimately good for emergence."

The U.S. Department of Agriculture will issue its update on planting progress later on Monday.

The market is expecting the USDA to show between 92 and 95 percent of U.S. corn was planted at the end of last week. Soybean seeding is estimated around 70 to 73 percent.

Chicago Board of Trade new-crop December corn fell 0.8 percent to $5.54 a bushel by 0327 GMT, after climbing around 3 percent in the last two sessions.

November soy gave up 1-1/4 cents to $13.29 a bushel after climbing to its highest since Feb. 7 on Friday. July wheat lost as much as 0.6 percent to $6.92 a bushel.

MORE RAIN FORECAST FOR U.S. MIDWEST

The U.S. Midwest is forecast to witness more showers this week, bringing moderate to light amounts of rain over the next 10 days. Rains are forecast over the eastern grain belt on
Monday, the second wave of showers between Wednesday and Thursday and the third one over the weekend.

Investors are also awaiting USDA's monthly supply and demand report due on June 12. The government is expected to trim its outlook for corn supplies at the end of the next crop's
marketing year on Aug. 31, 2104.

Demand from overseas buyers remained quiet in the U.S. white wheat market in the Pacific Northwest last week, after the discovery of the genetically modified wheat strain in Oregon.

Japan, the United States' top white wheat customer, declined for a second straight week to bid at its weekly tender. South Korea has formally suspended U.S. wheat purchases, while the
European Union said it would step up testing.

Large speculators cut their net long position in CBOT corn in the week to June. 4, while noncommercial traders trimmed their net short position in CBOT wheat and raised their net long
position in soybeans, regulatory data showed.

  Prices at  0327 GMT
  Contract        Last    Change  Pct chg  MA 30   RSI
  CBOT wheat     692.75    -3.50  -0.50%   867.50   39
  CBOT corn      554.00    -4.50  -0.81%   760.38   52
  CBOT soy      1521.75    -6.50  -0.43%  1581.27   57
  CBOT rice      $15.85   -$0.01  -0.06%   $15.50   70
  WTI crude      $96.18    $0.15  +0.16%   $89.19   65
  Currencies                                               
  Euro/dlr       $1.320   $0.091 
  USD/AUD         0.943   -0.113
  Most active contracts
  Wheat, corn and soy US cents/bushel. Rice: USD per hundredweight
  RSI 14, exponential

(Editing by Himani Sarkar)

Marubeni to Pay $1 Billion Less for Gavilon Minus Energy

By Yuriy Humber & Ichiro Suzuki - Jun 10, 2013
Bloomberg
Marubeni Corp. (8002), the Japanese trader seeking to buy Gavilon Holdings LLC, will pay $1 billion less for the U.S. grain supplier after excluding its energy business.

Under a revised agreement on a deal first announced in May 2012, the trading company will pay $2.6 billion for all of Gavilon minus its energy unit, Tokyo-based Marubeni said today in a statement. Marubeni said last year that it would pay $3.6 billion and take over $2 billion of Gavilon’s debt as part of its biggest-ever acquisition.

“This is positive news as Gavilon’s energy business is not strategic for Marubeni,” said Jiro Iokibe, an analyst at Daiwa Securities Co. in Tokyo. Marubeni has secured a 28 percent discount by excluding a unit that contributes about 15 percent to 20 percent of Gavilon’s total earnings, he said.

Buying Omaha, Nebraska-based Gavilon allows Japan’s biggest agricultural trader to expand its sourcing of corn and soybean to better compete with Cargill Inc. The U.S., which is the world’s largest producer of grain, is one of the main import sources for Asia.

Marubeni shares were up 20 yen, or 3 percent, at 683 yen as of 10:37 a.m. in Tokyo trading after earlier rising as much as 4.2 percent. The Nikkei 225 Stock Average gained as much as 3.6 percent.

Yen Weakens

The yen has weakened 19 percent against the U.S. dollar since Marubeni announced its agreement to buy Gavilon on May 30, 2012. Marubeni planned at the time of the announcement to fund half the purchase with loans, Barclays Plc and JPMorgan Chase & Co. said in May reports after a call with the trading company’s executives.

The acquisition of the third-largest grain storage network in the U.S. from a group of funds led by Ospraie Management LLC was subject to a purchase price adjustment at the time of closing, Marubeni said at the time of the deal’s announcement.

The yen’s drop is unlikely to be a major reason behind Marubeni’s decision to drop the energy business, which it probably wasn’t interested in from the start, Daiwa’s Iokibe said. The exclusion helps reduce the size of the debt Marubeni takes over.

“Without the energy business, automatically the size of the debt is less,” which is very positive for Marubeni’s debt profile and general financial health, Iokibe said.

Grain Volumes

A Marubeni spokeswoman declined to comment on why the trading company dropped the energy unit or how the revised agreement affects debt levels the Japanese company will assume.

Taking over Gavilon will more than double Marubeni’s grain handling volumes to more than 55 million metric tons a year, the Japanese company said in May last year. As well as gaining 140 grain loading sites, the deal helps Marubeni to access more grain production sources in Brazil, Australia, Ukraine and the U.S.

Energy is the smallest of Gavilon’s businesses, which also include fertilizer trading and storage. The energy unit trades crude oil, natural gas and fuels. The business operates storage capacity for 8 million barrels of crude, 10 billion cubic feet of gas and 500,000 barrels of refined oil products, according to Marubeni’s website.

Food accounted for 17.1 billion yen of Marubeni’s 205.7 billion of net income in the fiscal year ended March 31, while energy contributed 27.9 billion yen. Food profits are expected to jump to 30 billion yen this year, while energy will rise to 39 billion yen, the company said last month.

Marubeni, which in April received Chinese antitrust approval for the purchase, is in the process of fulfilling conditions that came with the approval to close the deal, the trading company said.

The approval, coming almost a year after Marubeni said that it agreed on the purchase, was given on the basis that the Japanese company and Gavilon continue to operate separate units for soybean trading in China so as not to limit competition.

Sugar production may fall by 8% to 23.2 million tonnes in 2013-14

By PTI | 9 Jun, 2013
NEW DELHI: The country's sugar production is projected to fall by eight per cent to 23.2 million tonnes in 2013-14 marketing year starting October mainly due to lower output of sugarcane, according to USDA report.

Sugar production of India, the world's second largest producer and biggest consumer, is pegged at 25.2 million tonnes in the 2012-13 marketing year (October-September), the US Department of Agriculture (USDA) said in a report.

"India is set to become a net sugar importer in MY (marketing year) 2013/14 on relatively strong domestic prices," it added.

The annual domestic consumption is about 22 million tonnes.

The Department attributed the expected decline in sugar production to lower cane production and higher diversion for alternative sweetener.

The gur prices are expected to remain relatively strong compared to sugar prices in the next marketing year, it added.

On state-wise, the report forecast that sugar production of Maharashtra could decline by 26 per cent to 5.87 million tonnes in the 2013-14 marketing year from 7.91 million tonnes in the current year.

Karnataka's output might fall to 2.69 million tonnes in the next year from 3.12 million tonnes in the current year.

However, sugar output of Uttar Pradesh is expected to rise to 8.4 million tonnes from 7.72 million tonnes during the period under review.

On sugar decontrol, the department said the government's reform of marketing controls on the sugar industry would give millers greater flexibility in managing sales and cash flows, which will ensure timely payment to cane farmers.

STX Bankruptcy Filing Reflects Global Slump in Shipping

June 9, 2013,
By KYONG-AE CHOI and KANGA KONG
Wall Street Journal
SEOUL—The bankruptcy filing by what once was a major profit driver of one of South Korea's conglomerates is a reminder of the prolonged slump in the marine-transport business.

STX Pan Ocean Co., the bulk-transportation unit of STX Group, the country's 13th-biggest company by assets, filed for court receivership Friday after failing to find a buyer.

STX Group had put up for sale its almost 36% interest in STX Pan Ocean, but no buyers came forward. The company, which is listed in Seoul and Singapore, was valued at $231 million in early April but that fell to $170 million by the end of last week.

"A combination of a sharp decline in freight rates, a delayed industry recovery, oversupply of ships due to an increased production at Chinese shipyards and higher fuel costs drove up debt and squeezed margins," STX Pan Ocean said Friday.

The decline in the shipping and shipbuilding industries since the 2008 financial crisis has hit STX Group particularly hard. About 90% of the group's sales come from those businesses. Its other main business, construction, also has been hit by the global economic downturn.

"Even if a company ran one of the three businesses—shipping, shipbuilding and construction—it would be hard to survive today. STX has all of them," said an executive who left STX late last year.

STX Group, with more than 10 trillion won, or $9 billion, in total debt, has sold 1.13 trillion won in assets as part of a 2.5 trillion won asset sale plan announced in May of last year. STX has said it would continue to cut its workforce, wages and benefits. It has already cut the number of executives and annual salaries by around a fifth.

Under a creditor-led bailout plan, the group is aiming to re-emerge with a focus on shipbuilding. Creditors are drawing up a restructuring plan for its core business unit, STX Offshore & Shipbuilding Co., and could overhaul other affiliates.

State-owned Korea Development Bank, the group's main creditor, said STX Pan Ocean's filing for court protection won't have a negative impact on the restructuring of other STX affiliates. Court receivership is similar to a U.S. Chapter 11 bankruptcy, in which the court takes a leading role in restructuring the company.

The decline of STX Group also marks a precipitous fall for company Chairman Kang Duk-soo, a self-made South Korean tycoon who pursued years of expansion after betting all his wealth on a 2001 takeover of SsangYong Heavy Industries, the precursor of STX Group. Through 2007, STX Group spent more than two trillion won to buy four companies, including cruise-ship maker Aker Yards ASA from Norway.

Then the financial crisis caused international trade to collapse, first slamming the shipping industry and then shipbuilding. But Mr. Kang continued to push for expansion, including expressing interests in Daewoo Engineering & Construction Co. in 2010 and Hynix Semiconductor Inc.  in 2011 before dropping out of both bids.

"As chief executive, I'm fully responsible for the group's current dire situation," the 63-year old Mr. Kang said by email to employees last month. "I will do whatever it takes and sacrifice all my personal interest to minimize the impact on jobs," he wrote.

Current and former STX executives said a cause of STX Group's problems was that the group spent much of its advance payments from clients in takeovers without leaving funds for operating capital.

"Mr. Kang should have put aside some money to continue to build ships during the down cycle," an STX executive said.

Mr. Kang declined to be interviewed.

STX Group is likely to get support from its creditors since its failure would deal a heavy blow to the Korean economy and creditors' balance sheets. The company has 21 affiliates and 60,000 employees.

But analysts warned that restructuring is unlikely to be a panacea.

"Restructuring efforts may go nowhere unless demands perk up," Shinhan Investment Corp. analyst Byun Jeong-hye said.

STX Pan Ocean, which became one of STX Group's most profitable units after emerging from receivership in 2002, swung to a net loss of 91 billion won in 2009. Its loss deepened to 467 billion won last year.

Rupee hits record low of 57.76, stirs concern about economy



By Reuters | 10 Jun, 2013
MUMBAI: Rupee hit a record low on Monday, escalating worries about the country's current account deficit and complicating the task of the central bank as it tries to loosen monetary conditions to spur an economic recovery.

Foreign investors have been heavy sellers in recent weeks of Indian debt, a key risk for a country that has come to depend on capital inflows to finance its current account deficit and support its markets.

Still, analysts say the rupee's weakness is less worrisome than last year's fall to a record low, when the Indian economy was in a weaker position and political uncertainty high, prompting Standard & Poor's and Fitch Ratings to cut their outlooks on the country's sovereign ratings.

Pressure this time is being driven mainly by broad gains in the dollar that is also hitting other emerging currencies such as the Indonesian rupiah over worries about a potential end to the U.S. stimulus programme.

"Much of the recent rupee depreciation has been led by dollar recovery, though admittedly the negatives in the domestic macro story also feed that bear-run," said Radhika Rao, an economist with DBS Bank in Singapore.

"A weak rupee can revive a number of past woes, upset the easing inflation trajectory, raise CAD financing concerns and up the currency risks for offshore borrowers. This might also raise another hurdle for the central bank for cutting rates."

The rupee fell to a record low of 57.76 on Monday as the dollar gained on data showing China's economy is fast losing momentum and after a report showed a reasonably healthy pace of U.S. job creation in May, renewing expectations the Federal Reserve might curb its asset purchases later this year.

The weaker rupee makes it harder to finance India's current account deficit, which hit a record 6.7 percent of gross domestic product in the October-December quarter.

Those concerns had already been exacerbated after foreign institutional investors sold a net of more than $2.5 billion in domestic debt over the previous 12 sessions, marking a reversal to strong buying earlier this year.

POLICY REVIEW NEXT WEEK

The falls also come ahead of the Reserve Bank of India's policy review on June 17, raising the prospect the central bank may turn cautious about cutting interest rates further after easing monetary policy by three-quarters of a percentage point this year.

Still, India's economy is sturdier than it was last year. The current account deficit is broadly expected to have narrowed this year due to falling prices for gold and oil - the country's two biggest imports.

The government has also passed recent measures to further curb gold imports, including raising an import duty this month.

Meanwhile, economic growth is expected to recover, albeit mildly, from a decade low of 5 percent in the 2012/13 fiscal year. Wholesale inflation also fell below 5 percent in April, although retail inflation remained high.

The government's slew of fiscal and economic reforms are also seen having raised a little more confidence in India's economy, sparking a surge in foreign inflows until the most recent reversal.