Indian economy lost Rs 50,000 crore on iron ore mining ban

By Anindya Upadhyay, ET Bureau | 28 Oct, 2014
NEW DELHI: The Indian economy lost $8 billion (around Rs 50,000 crore) in the last two years due to ban on mining iron ore, while mineral-rich Goa alone lost Rs 3,000 crore — the state's estimate in its new mining lease policy.
The ban was lifted in April, but miners are pessimistic as they do not see a quick upturn as the international market conditions are not favourable. Also, Indian customers in the global market have turned to other suppliers, who would not easily let their customers go, industry officials said. Goa's Grant of Mining Leases Policy, 2014, says stoppage of mining also had a cascading impact on other sectors. It said the exposure of financial institutions was more than Rs 850 crore as loan/advance on mining sector to trucks, barges, machinery and small time operators.
"This has also affected...more particularly small co-operative banks, which had advanced loans... In fact, non-payment of the installments has adversely affected the financial state of the smaller co-operative banks and societies," the policy adds.
It said the impact of the ban was "vicious". "Indeed, it is a matter of record that the country on account of stoppage of mining operations, has suffered a loss of nearly $8 billion. Stoppage of the mining operations has a cascading effect of a vicious nature. Not only those who are directly involved in mining such as the mining companies, truck operators, barge transporters, mining machinery owners, but small time business / industry such as tea stalls, automobile workshop, petrol pump, consumer goods vendor, road side tyre service provider etc. have all suffered," says the new policy.
Almost a fourth of Goa's revenues come from mining, with about 1,50,000 people — 10% of the state's population — depending on the sector. The policy estimates loss of Rs 3,000 crore due to the 2012 ban on iron ore mining in the state, making the state lose out on exports of low grade iron ore, a space now occupied by Australian and Brazilian suppliers. Meanwhile, industry associations don't see any immediate pick up in mining operations even though the ban was revoked in April this year.
S Sridhar of Goa Mineral Ore Exporters Association says although mining leases are being renewed, operations will not be able to pick up immediately. "It is difficult to say when operations can finally be restarted. It can't happen before next year," Sridhar told ET over phone.
Members of an expert team associated with the government of Goa, said even though the state was quickly renewing mining leases, the glory days of 2007-08 are not going to be back soon as the current export market will not be as lucrative as it once was. "The Chinese market for iron ore has shrunk in the last couple of years and Indian supplies will no longer fetch the prices they once fetched. Further, the market has been vacated to some extent to players from other countries. Also, the market in India is not receptive to Goan ore. The party would have ended anyway. It just ended a couple of years earlier for Goa," said one of the members requesting anonymity.
According to economists, lower GDP growth in the last two years has a lot to do with mining slowdown and the activity may not pick up immediately "Manufacturing and industrial growth have been weakest in 2013-14 in the last two decades, with mining having a visible impact. Now there seems to be a flurry of activity in the sector but the effects will take time to reflect on the overall economy," said CRISIL chief economist DK Joshi.
Mining of iron ore was banned in Goa in September 2012 after findings of the justice MB Shah commission report estimated loss of Rs 35,000 crore to the exchequer due to alleged illegal mining over 12 years.
The new policy also states that the 'critical situation' arising out of the stoppage of mining operations needs to be remedied at the earliest "in order to avoid any chaos, disorder and the situation going out of control".

Jindal Steel to double capacity at Oman plant

OUR BUREAU,
THE HINDU BUSINESS LINE
NEW DELHI, OCT 28: 
Jindal Steel and Power Ltd plans to double steel-making capacity at its wholly-owned subsidiary Shahdeed Iron and Steel in Oman at an estimated investment of around $2 billion.
“We are currently doing a feasibility study for adding a 2.5-million-tonne-per-annum blast furnace, which would double our capacity in Shahdeed. We will also build a coke oven plant at the plant. The estimated investment for the expansion project should be around $2 billion,” said Ravi Uppal, Managing Director and Group Chief Executive Officer, JSPL.
Uppal said the timeline for the expansion is not yet set as the company is still doing the feasibility study of the project.

“The Oman Government is very co-operative in terms of giving the approvals. Once we are ready at our end, it should not take much time to go ahead with the project,” he said.
$725-mn term loan
Meanwhile, the group has also signed a term loan facility of $725 million (around ₹4,440 crore) with Bank Muscat for Shahdeed Iron and Steel.

“The facility was oversubscribed with commitments in excess of $855 million as against the requirement of $725 million,” said Naveen Jindal, Chairman of JSPL.
Bank Muscat along with a consortium of 11 banks arranged the facility for Shahdeed. The consortium of banks includes Bank Muscat, Qatar National Bank S.A.Q, Qatar National Bank, National Bank of Oman, Al Khalij Commercial Bank, Bank Dhofar, Bank Sohar, Ahli United Bank, Bahrain, Ahli Bank Oman, State Bank of India-Dubai and State Bank of India-Oman.
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Wheat Gains for Second Day on Australian, Russia Crops

By Chanyaporn Chanjaroen  Oct 28, 2014
Bloomberg
Wheat advanced for a second day on concern that harvests in Australia and Russia may drop because of extreme weather. Soybeans fell from a seven-week high.
Wheat for December gained 0.5 percent to $5.2525 a bushel on the Chicago Board of Trade at 1:26 p.m. in Singapore. That took this month’s gains to 10 percent, the most for a most-active contract since March.
The grain rebounded from a four-year low in September as excessive rain in Australia and dryness in Russia spurred concern that output from both major producing countries may drop. Global wheat production is set to reach a record 721.12 million metric tons, the U.S. Department of Agriculture said Oct. 10. The global oversupply will limit any rally, according to Wayne Gordon, an analyst at UBS AG.
“Russia is clearly signaling its winter-wheat crop is not in prime condition,” and weather conditions in Australia may curb the crop there, Gordon said from Singapore. “Still, I cannot be bullish on wheat. There’s plenty of grain around.”
Australia’s harvest may drop to 22.7 million tons in 2014-2015, the lowest level in five years, Paris-based adviser Agritel said yesterday. Dry conditions across European Russia will probably cut that country’s harvest to less than 50 million tons in 2015, according to researcher SovEcon.
Russia will be the world’s biggest exporter of the grain after the European Union and the U.S. this season, according to the USDA. Australia is the world’s fifth-largest shipper.
Soybeans for January delivery dropped as much as 0.6 percent to $10.065 a bushel and traded at $10.095. The oilseed rallied as much as 3.2 percent to $10.15 yesterday, the highest price since Sept. 8, after U.S. government data showed exports for inspection climbed for a record eighth straight week.
Corn for December delivery advanced 0.4 percent to $3.645 a bushel in Chicago after climbing 2.8 percent yesterday, the biggest gain since Oct. 14.
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Rice Exports From India Seen Plunging 30% as Harvest Contracts

By Supunnabul Suwannakij  Oct 28, 2014
Bloomberg
Rice shipments from India, the top supplier in 2014, will probably drop as much as 30 percent as drought and a cyclone this month curb output.
Exports will decline to about 7 million metric tons to 8 million tons from 10 million tons this year, said Samarendu Mohanty, head of the social sciences division at the International Rice Research Institute. Production will drop to a range of 95 million tons to 100 million tons in 2014-2015 from 106 million tons a year earlier, Mohanty said.

India will concede its position as the largest supplier to Thailand in 2015 after weak rains during the first half of the monsoon reduced output, according to the Food & Agriculture Organization. India’s production of food grain sown in the rainy season may drop to the lowest in five years, Agriculture Minister Radha Mohan Singh said last month.

“Plantings were delayed, then floods came in many parts of the country and after the floods, the cyclone came,” Mohanty said in an interview in Bangkok today. “All these events will reduce production.” Seeding of crops from rice to soybeans and lentils were delayed as about 90 percent of the country had below normal rainfall in June, the India Meteorological Department says.
Half a million hectares were affected by Cyclone Hudhud, which hit the east coast this month, Mohanty said.

Weak rains in the first part of the monsoon will cut milled output to 104 million tons from 106.5 million tons, the FAO said in a report Oct. 2. Exports from the South Asian nation will drop 20 percent to 8 million tons, while Thailand will ship 10.6 million tons, the Rome-based agency said.
The spread of Ebola may disrupt Indian shipments to Africa, Mohanty said. India is the top supplier to some countries such as Liberia, Guinea and Sierra Leone, he said.
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Glencore Unit Slows $900 Million African Iron Ore Project

By David Stringer  Oct 27, 2014
Bloomberg
Sphere (SPH) Minerals Ltd., controlled by Glencore Plc (GLEN), slowed plans to develop a $900 million iron ore mine in Africa after prices of the steelmaking material plunged.
The board is reviewing the Askaf project in Mauritania, Sphere said today in a statement, after approving development in April. Askaf North had been expected to begin output in early 2017 and is forecast to yield about 7.5 million tons a year once developed.
“Taking into account the time involved in this review it is currently expected that the start of production will be delayed,” Matthew Conroy, company secretary of Sphere, said today in a statement. Sphere is 88 percent owned by Glencore’s Sidero Pty, according to data compiled by Bloomberg.
Iron ore has declined 40 percent this year as the largest producers, including Vale SA and Rio Tinto Group (RIO), increase low-cost output from Australia and Brazil, adding to a global glut. Global seaborne output will exceed demand by 26 million tons this year and 41 million tons in 2015, according to UBS AG.
The Mauritanian government reached a preliminary agreement with Glencore to share a port and railway to serve the Askaf project, according to an April filing.
Baar, Switzerland-based Glencore, which has two other undeveloped iron ore projects in West Africa, holds 79 percent of Askaf, it said in its annual report.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore.
 

Anglo American Ships First Iron Ore From Minas-Rio in Brazil

By Andre Janse van Vuuren  Oct 27, 2014
Bloomberg
Anglo American Plc (AAL) said it delivered the first iron ore on ship from its Minas-Rio project in Brazil.
The first cargo of more than 80,000 metric tons of the steel-making mineral was loaded at the port of Acu in Rio de Janeiro state and the vessel is en route to customers in China, London-based Anglo American said today in a statement. The project will ramp up to its capacity of 26.5 million tons per year over the next 18 to 20 months, Paulo Castellari, chief executive officer of Anglo American’s iron ore-unit in Brazil, said in the statement.
“We believe that the outlook for our particular premium product remains attractive, despite the current weakness in the iron-ore price,” Anglo American Chief Executive Officer Mark Cutifani said in the statement.
Prices for the steelmaking ingredient have more than halved since peaking in 2011, entering a bear market as producers including BHP Billiton Ltd. are expanding supplies, pushing the market into a glut. Anglo American raised capital expenditure for Minas-Rio to $8.8 billion after an original estimate of $2.6 billion and wrote down $4 billion of the asset’s value in 2013.
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ICVL to invest $ 500 million in its Mozambique coal mines

By PTI | 27 Oct, 2014
HYDERABAD: State-owned International Coal Ventures (ICVL) will invest $ 500 million to create logistic and other infrastructure support in the next 2-3 years at its recently acquired coal mines in Mozambique, a senior official of the PSU said.
ICVL is also looking to appoint a full-time official with rich experience in coal mining to head the operation of the Mozambique mines to turn them into a profitable venture, he said.
ICVL signed the pact on July 28 to buy Rio Tinto's 65 per cent stake in Benga and 100 per cent each in Zambeze and Tete East coal assets in the African nation for $ 50 million.
Currently Benga, the only operational mine, produces about 5 million tonnes per annum and is making cash losses. The mines need creation of about 500 km railway line and port, he said.
"There are logistic issues. At this point of time it (mining operations) is making cash losses. There are about one billion tonnes of coal reserves available. It needs another $ 500 millions in the next two to three years. It is a very good strategic investment," the official told PTI, adding that the immediate goal is to ramp up the production to 12 million tonnes per annum.
As of now, five million tons of coal is yielding two million tonnes of washed coal which is being taken by Tatas, a partner in Benga with 35 per cent stake, he said.
As of now there is no plan to rope in a third partner for creation of necessary infrastructure for ramping up of production, he said.

"It needs about Rs 3,000 crore ($ 500 million). All the PSUs can put together and invest over a period of time. I don't see any necessity for an outsider to join us," the official explained.
ICVL, a joint venture of Steel Authority of India, Coal India, Rashtriya Ispat Nigam, NTPC and NMDC, was created to ensure long-term security of supply of the critical raw material for the steel industry. NTPC has expressed its intention to opt out of the JV.
Replying to query, he said the PSU is mulling to appoint senior and experienced person to head Mozambique operations.

"We are trying to put a core team headed by an expert (in coal mining for Mozambique). The person may not necessarily be from the four PSUs. He could be an outsider also. Except Coal India, none of the partners have much of coal mining experience," the official added.
Rio Tinto had bought these assets through acquisition of Riversdale Mining Limited in 2011 for $ 4 billion. However, in 2013, it wrote off $ 3.5 billion of the purchase price.
All three assets put together are estimated to hold about 2.6 billion tonnes of coal reserves.
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Goa announces e-auctioning of 19 lakh metric tonne of iron ore

The state has announced two phase e-auctioning on November 6 and 7
Press Trust of India  |  Panaji  October 26, 2014
Goa Mines and Geology Department has put 19 lakh metric tonne of iron ore on the block through e-auctioning, to be held on November 6 and 7.
In its notification uploaded on its website today, the department has announced two phase e-auctioning on November 6 and 7, through which 10 lakh and 9 lakh metric tonne of iron ore would be auctioned respectively.
The department has announced a detailed schedule of the iron ore e-auctioning which would be monitored by a Supreme Court appointed committee.
While lifting its two-year long ban on export of iron ore from Goa, the Supreme Court had allowed e-auctioning of iron ore which was extracted during the 2007-2012 period.
The state has a total of 15 million metric tonne of iron ore lying at various jetties, stacking yards, mining leases and the Mormugao Port Trust.
During the Goa government's earlier four e-auctioning events, five million metric tonne of iron ore were already sold to various buyers.
The Supreme Court appointed committee which is closely monitoring the e-auctioning had said that it was satisfied with the action of the Goa government.
"We are quite satisfied with the process adopted by the Goa government to electronically auction the ore," the committee member U V Singh had told to PTI.
The committee which recently visited Goa had conceded that the e-auctioning process is moving at a slow pace due to inappropriate prices of iron ore in the international market.
"There are several factors responsible for the slow pace of e-auctioning. The state witnessed rainy seasons since April till date. Also iron ore prices in the international market are low," the committee member U V Singh had told PTI.
He had said that the Goa government is the owner of the iron ore and hence it must rationalise the sale in such a way that it gets a better price.
The slowdown in China's economy, along with a reduction in steel production in that country had proved detrimental to iron ore export, Singh added.
He stated that the percentage of Goa iron ore which is consumed domestically is very marginal.
"Very little iron ore is consumed in the domestic market. I know that there is only one buyer in Karnataka which takes the ore, but for that too, there are constraints in transporting the ore. Because of this, the buyer purchases the ore from Karnataka itself," he had said.
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Iron Ore Risks Extending Collpapse on Supplies: Moody’s

By Phoebe Sedgman  Oct 20, 2014
Bloomberg
The collapse in iron ore prices may have further to run as global supply increases and steel-demand growth slows, according to Moody’s Investors Service, which said it may reduce ratings on producers.

About 300 million metric tons of new and expanded supply will come on stream over the next few years, analysts including Carol Cowan said in an e-mailed report received today. Global steel-production growth in 2014 remains muted with China, the key driver of consumption, continuing to slow, Moody’s said.

Iron ore tumbled 40 percent this year after companies including Rio Tinto Group (RIO), BHP Billiton Ltd. and Vale SA raised low-cost output in Australia and Brazil, spurring a global glut. The market is in the midst of a transition without precedent in recent commodity history as supply surges and some higher-cost mines are displaced, according to Macquarie Group Ltd.

“Iron ore prices have collapsed,” Moody’s said in the report, which was dated Oct. 17. “With slowing global steel-production growth rates, iron ore prices remain vulnerable to the downside and we expect continued volatility.”

Ore with 62 percent content delivered to Qingdao, China, posted a third straight quarterly loss in the three months to September, and dropped to $77.97 a ton on Sept. 29, the lowest level since September 2009. The price was at $80.82 a ton on Oct. 17, according to data from Metal Bulletin Ltd.

“Downward rating actions for iron ore producers could result as Moody’s reassesses the impact of a protracted pricing weakness,” it said. The so-called price sensitivity for iron ore was revised to a range of $75 to $85 a ton through 2016, according to the report.

Lower Prices

While low-cost producers such as BHP, Rio and Vale have more tolerance to absorb lower prices in the near term than Cliffs Natural Resources Inc. (CLF), Fortescue Metals Group Ltd. and Atlas Iron Ltd., the compression of earnings and cash flow is nonetheless value destructive, it said.

Stockpiles in China are contracting, which shows demand is outstripping supply and high-cost production is leaving the market, Fortescue Chief Executive Officer Nev Power told reporters on Oct 16. The world’s fourth-biggest exporter said shipments rose 66 percent in the three months to Sept. 30 as it expanded output from Western Australia mines.

“We shouldn’t panic when there’s a blip in iron ore prices,” Rio Chief Executive Officer Sam Walsh told reporters in Sydney on Oct. 15, dismissing suggestions that the company wouldn’t boost returns. In August, Rio raised its dividend and flagged further returns, saying it’s on its way to becoming a “cash machine” as it cuts costs and raises production.

Cliffs Natural

Cliffs Natural, the largest U.S. producer, expects to take a writedown of about $6 billion on its seaborne iron ore and coal assets after prices fell, the Cleveland-based company said Oct. 17. The shares lost 67 percent this year.

Australia and Brazil, the two largest suppliers, will raise their combined share of global seaborne supply from 73 percent last year to an estimated 90 percent by 2020 as high-cost mines are forced to close, Macquarie Group said in an Oct. 14 report.

The suggestion that high-cost producers, particularly in China, will leave the market and reduce supply may take longer than expected to actually happen, according to Moody’s. Many mines and steel companies in the country are state-owned, and this so-called captive iron ore supply could result in sustained operations despite losses, it said in the report.

Global seaborne output will exceed demand by 26 million tons this year and 41 million tons in 2015, UBS AG said in an Oct. 15 report that cut price forecasts for 2015 and 2016 while sticking with a call for an end-of-year rally this quarter.

Shares in Rio lost 9.1 percent in London this year, while BHP fell 10 percent. In Sydney, Fortescue (FMG) retreated 41 percent in 2014 and Atlas Iron dropped 67 percent. Stock in Rio de Janeiro-based Vale sank 30 percent.
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Welspun Corp likely to invest $100 million in Canada to set up pipe plant

By PTI | 17 Oct, 2014
MUMBAI: Welspun Corp is likely to set up an industrial pipes plant in Canada's largest and richest province British Columbia at an estimated investment of over $ 100 million.

According to a source, the British Columbia premier Christy Clark today visited the headquarters of the Rs 18,000-crore Welspun Group in central Mumbai.

A company spokesperson, however, refused to confirm the visit and investment plan.

The source said Clark is leading a trade mission, and is visiting the country to expand international trade and investment, accompanied by advanced education minister Amrik Virk along with other delegates.

The investment is likely to be upwards of $ 100 million for setting up a pipe plant supported by coating and double jointing facility primarily targeting oil & gas transportation in the Canadian region, the source said, adding that a pact will soon be inked with the Columbia administration.

The group's flagship Welspun Corp, which is the largest pipes maker in the country, had reported sales turnover of Rs 1,146.67 crore in the June quarter while its net profit dropped marginally to Rs 105 crore from Rs 109.5 crore a year ago.

Canada is looking at building a large pipeline network from their oil & gas basins to the Eastern and Western ports to service Asian and European energy needs.

Welspun, already one of the largest suppliers of large diameter pipes to the Canadian market, is likely to be benefited the most through this upcoming pipeline network.

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Brazil’s China Fever Sticking Soybean Farmers With Losses

By Gerson Freitas Jr.  Oct 17, 2014
Bloomberg
When Claudio Scariote agreed in May to add 200 hectares (494 acres) to his soybean farm in Brazil, leasing more land made sense. Now that planting has begun, prices have plunged and the crop is looking like a money loser.

“I wouldn’t have done this deal today,” he said by telephone from Sapezal in Mato Grosso state, the biggest growing region. “We have no alternative” to increasing output as planned, said Scariote, who spent 4 million reais ($1.6 million) on four new tractors and three combine harvesters since 2013 to upgrade his 3,400 hectares, along with more seed and fertilizer.

With the harvest accelerating across the U.S., the world’s top producer, the season is just beginning in the Southern Hemisphere. Farmers in Brazil, the largest exporter, are set to boost output to a record for a third straight year, compounding the biggest global surplus ever. Soybean prices have tumbled into a bear market in the past five months, touching a four-year low, leaving some growers unable to find buyers.

It now costs about 46 reais to produce a 60-kilogram (132-pound) bag of soybeans, or $8.55 a bushel, in Mato Grosso, which accounts for 30 percent of Brazilian output, according to data from the Mato Grosso Institute of Agricultural Economics. Buyers are offering 39 reais a bag for delivery in March, after the harvest. Because most farmers bought seed and fertilizer when prices were higher, planting in the state probably will still rise by 4.3 percent to a record, the institute said.

Surging Output

Brazil’s production may jump 7.3 percent to 92.4 million metric tons in the current season, topping the 86.1 million harvested a year earlier, government forecaster Conab said on Oct. 9. Output has almost quadrupled in the past two decades. Farmers converted rain forests and tropical savannas into soybean fields as surging demand in China, the largest importer, helped send global prices to records as recently as 2012.

While prices remain almost twice what they were a decade ago, output is overwhelming demand. U.S. production will surge 17 percent to 106.87 million tons, leaving global inventories before next year’s harvest at 90.67 million tons, up 36 percent from a year earlier, the U.S. Department of Agriculture said Oct. 10. The surplus will equal 31.9 percent of global demand, up from 24.5 percent a year earlier and the most ever, the USDA said. Harvests are up 30 percent in the past three years, while demand rose 10 percent.

“The Brazilian farmer has yet to wake up to the new reality of big global supplies,” Pedro Dejneka, managing partner in Chicago for Agr Brasil, a unit of AgResource Co. “They are still suffering from a China-demand fever. It’s not in the cards that global demand will be strong enough to offset the increase in world production.”

Bear Markets

Soybean futures have plummeted 22 percent on the Chicago Board of Trade since the USDA said June 30 that domestic planting would jump 11 percent to a record. The oilseed traded at $9.63a bushel today, leading a slump since June 27 in the Bloomberg Commodity Index of 22 raw materials, which slid more than 13 percent during that period.

High prices over the past decade have paid off in Mato Grosso, a state in Brazil’s western interior that is more than twice the size of Germany and relies on more than 1,000 miles of precarious roadways to deliver truckloads of soybeans to southeast export terminals on the Atlantic coast. Transportation adds 13 reais to 14 reais to the cost of each bag, the Mato Grosso Institute of Agricultural Economics said.

The state has doubled the area under cultivation since 2002 to about 9 million hectares, and Conab estimates output this season will be 27.5 million to 28.3 million tons. That’s twice what farmers will grow in China, where imports will jump for an 11th straight year to 74 million tons, the USDA said.

Crop Risks

With the U.S. crop only 40 percent harvested, and most of Brazil’s not completely planted until next month, it’s possible that output may not reach government forecasts. A drought in Brazil’s coffee-growing regions this year sent arabica-bean prices up 96 percent. In 2012, a lack of rain caused damage to crop in the U.S. Midwest, sending soybeans to a record $17.89.

This year’s price slump also may discourage production next year. Growers in Mato Grosso plan to cut back on planting in 2015, which would be the first decline since 2006, said Anderson Galvao, head of crop researcher Celeres in Uberlandia. “It’s like braking a locomotive,” Galvao said. “It takes some time until it stops completely.”

Farm spending already is dropping, said Marcos Rubin, an analyst at Agroconsult in Florianopolis. Expenditures on new machinery and land that averaged 8.4 billion reais over the past three years will fall to 3.8 billion reais this season and 1.5 billion a year later, he said. “We see a big downturn of investment,” Rubin said. “We’ll be probably start seeing a reduction in the planted area in 2015.”

Supply Crunch

While some growers in Mato Grosso would lose money at current prices, areas closer to export terminals with lower shipping costs have an incentive to keep producing. The crop is “still profitable in most of the country,” Agriculture Policy Secretary Seneri Paludo told reporters in Brasilia on Oct. 9.

MetLife Inc. (MET), the largest U.S. life insurer, with an investment portfolio of $505 billion, is expanding in Brazilian agriculture. On Oct. 15, the New York-based company announced a $150 million mortgage loan to soybean producer Amaggi Group, boosting MetLife’s portfolio in the country to $700 million.

Bearish Outlook

For now, speculators are betting prices will keep falling. Money managers have held bearish position in soybean futures and options for 13 straight weeks, since mid-July, U.S. Commodity Futures Trading Commission data show. As of Oct. 7, holdings were net-short 24,457 contracts, the most in three weeks.

Farmers in Mato Grosso who normally arrange sales before the harvest have reached deals on 11 percent of their expected crop, down from 50 percent a year ago, said Ricardo Tomczyk, who heads the state’s soybean-farmers lobby, Aprosoja. “Farmers have taken all the risk this year,” he said by telephone from Rondonopolis.

Prices could drop even lower if growers try to sell all their crops before the harvest, Conab, the government forecaster, said in last week’s report. “Buyers are not in the slightest hurry to buy,” Celeres’ Galvao said. “They can pay even less in three or four months.”

Soybean farmer Sergio Stefanelo said he hasn’t sold a single bag of the crop he will harvest in early 2015, compared with about half his output at this time last year.

“At current prices, you make no profit,” Stefanelo said by telephone from Campo Novo do Parecis, adding that he’ll wait for prices to recover before he tries to sell.

“We’re moving from a scenario where everybody needed to rapidly move the soybeans from Brazil to one in which you have ample stocks everywhere,” Paulo Sousa, director of grain and soy crushing in Brazil for Minneapolis-based Cargill Inc., said during an interview in Sao Paulo in August. “The Brazilian market has changed.”

Odisha: Miners to get respite as panel unlikely to recommend complete ban on mining activities

By MEERA MOHANTY, ET Bureau | 17 Oct, 2014
BHUBANESWAR: Odisha's miners may be spared the fate of their counterparts in Goa and Karnataka who had been asked to shut operations by the Supreme Court over illegal mining.

A panel appointed by the top court to study mining activities in the state is giving final touches to its report to be submitted Friday, and an absolute ban is unlikely to be part of its recommendations to set things right. That will bring relief to the state and steelmakers who have been forced to import iron ore.

The Central Empowered Committee (CEC) is also unlikely to defend the state's claim of Rs 60,000 crore from miners for excess mining, said a person in the know. Instead, a one-time levy, on account of environmental damage caused by excess mining, could be charged that industry insiders estimate could add up to Rs 5000-7000 crore for all of the state's miners. A substantial amount would also be levied on them for mining in forest areas where the activity isn't permitted. A final decision will lay.

Odisha and the state's industry hope the report to reiterate their vociferous claim that there has been no rampant "illegality" in Odisha, though there may have been widespread "violations" of rules.

"The CEC could demand a compensation towards environmental damage from excess mining, but not the entire value as has been claimed by the Shah Commission," said a businessman whose mines have been lying idle for want of clearances.

Naveen Patnaik's government in November 2012 had sought thousands of crores back from iron and mangnese ore lessees, including Adity Birla Group's Essel Mining and JSPL's Sarda mines and well as steelmakers like Tata Steel and Steel Authority of India, for every tonne produced above their environmental and forest permits, cap set by the pollution control board or what was approved under their mining plan. The near Rs 60,000 crore plus claim, which came to define the "mining scam" in Odisha, was reiterated by a fact finding commission headed MB Shah, a former judge, which was appointed by the previous Congress-led Central government. It equated violation of environmental and forest laws at par with violations of the Mines and Minerals Development and Regulation Act, and invoking section 21(5) of the act, it asked for state governments, both in Goa and Odisha, to seek the entire value of "illegally" produced ore back from miners.

The CEC is likely to disagree that this section can apply to violations of Environment Protection Act, 1986 and the Forest Conservation Act 1980. As it has hinted in the past, including during discussion with Odisha's miners in June, it could instead levy a per tonne charge of 20-30% on the average price that the Indian Bureau of Mines have for equivalent grade ore.

A substantial claim could be due on Tata Steel, SAIL and the state's own Orissa Mining Corporation and other who argue that the MoEF delayed clearances. SAIL did not respond to emails seeking comment, while Tata Steel could not be reached for comment.

The CEC had set a 20% encroachment outside of boundary as a cut off to justify cancellation of leases in Karnataka, where mines tend to be smaller though. "GPRS surveys indicate encroachments have been minor in the state (Odisha), the worst being about 9% of total area," said a senior official of the department of steel and mines.

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Rio Says Don’t Panic on Ore; Won’t Halt Investor Returns

By David Stringer and Michael Sin  Oct 15, 2014
Bloomberg
Rio Tinto Group (RIO) insists tumbling iron ore prices won’t halt the lowest-cost producer’s plans to give money back to shareholders.

“We shouldn’t panic when there’s a blip in iron ore prices,” Rio Chief Executive Officer Sam Walsh told reporters today in Sydney. He dismissed suggestions the company wouldn’t boost returns to investors when reporting profit in February, saying “we are committed to making a material increase.”

In August, Rio raised its dividend and flagged further returns, saying it’s on its way to becoming a “cash machine” as its cost-cutting drive starts to bear fruit.

His view is backed by JPMorgan Chase & Co., which said last month that iron ore’s slump to five-year lows wasn’t expected to prevent Rio and BHP Billiton Ltd. from returning cash to investors.

The industry’s focus on cost-cutting and share buyback programs suggests the sector may have reached the bottom of the cycle, BlackRock Inc. (BLK)’s Evy Hambro, who manages the $7 billion World Mining Fund (BGFWMFJ), said today on Bloomberg TV’s “On the Move.’

‘‘The fact that management are now going down this path and looking to reward investors with increased returns -- and we’ve seen the first buybacks in the industry -- gives us grounds for a significant amount of optimism,” Hambro said.

BlackRock is among major mining investors that have campaigned for shareholders to get priority after a decade-long, $618 billion investment spree that prompted asset writedowns and flooded metals markets.

Glencore Approach

Rio, which said last week it had rejected a merger approach from Glencore Plc, rose 0.4 percent to A$60.99 in Sydney trading, trimming its decline this year to 11 percent. The wider market gained 0.7 percent.

London-based Rio rebuffed an approach in July from Glencore Chief Executive Officer Ivan Glasenberg that would have created a producer with leading positions in coal, iron ore and copper worth $160 billion, usurping BHP (BHP) as the industry’s leader.

“I can well understand why there’s interest because we’re a pretty good business,” Walsh said today.

Glencore is no longer actively studying an offer for Rio, the Baar, Switzerland-based company said last week. Under U.K. takeover rules, the producer and trader is barred from a renewed attempt for six months unless it obtains the Rio board’s recommendation, a third party makes an offer for the company, or there are other material changes.

Price Plunge

Iron ore prices have plunged to five-year lows on the back of expansions by Rio, Vale SA (VALE3) and BHP, adding to a global glut. Production increases by the big three may push the global surplus to 163 million tons in 2015 from 52 million tons this year, according to Goldman Sachs Group Inc.

Rio, the second-biggest iron ore producer, forecasts shipments of 300 million tons this year, including output attributable to its project partners, it said today in a statement. Rio de Janeiro-based Vale, the biggest exporter, forecasts output in 2014 of 312 million tons, it said last month.

“The fundamentals are still very strong in the industry,” Walsh said. Industrialization across South East Asia, the Middle East, South America and Africa will underpin demand for commodities as growth cools in China, he said.

A cost-cutting drive by Rio has stripped out $3.2 billion of expenses since 2012 and is targeting a further $1 billion in savings by the end of next year, Walsh said in August.

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Australia, Brazil Seen Taking 90% of Worldwide Iron Ore Trade

By Jake Lloyd-Smith  Oct 15, 2014
Bloomberg
Australia and Brazil, the largest iron ore suppliers, will raise their combined share of global seaborne supply to 90 percent as they boost output and spur the closure of higher-cost mines, according to Macquarie Group Ltd.

The two countries are forecast to increase their joint share to 79 percent in 2015 from 73 percent last year, Macquarie said in a commodities report received today. The combined 90 percent share may be reached by 2020, the bank forecast.

Iron ore tumbled 38 percent this year after Rio Tinto Group (RIO) and Vale SA raised low-cost output in Australia and Brazil, spurring a global glut. Prices are seen staying weak for a sustained period as production increases and China’s economy slows, according to Tom Albanese, former head of Rio Tinto.

“Iron ore has proved itself to be an extremely efficient market -- as low-cost supply has become increasingly available, higher-cost marginal supply has made a hasty exit,” the bank said. “The dominance in supply growth from these two countries means they are making significant gains in market share,” it said, referring to Australia and Brazil.

Ore with 62 percent content delivered to Qingdao, China dropped 0.4 percent to $83.82 a ton yesterday, according to data from Metal Bulletin Ltd. The price fell to $77.97 on Sept. 29, the lowest level since September 2009.

The global surplus will more than triple to 163 million tons next year from 52 million this year, according to Goldman Sachs Group Inc. It projects an expansion to 245 million tons in 2016, 295 million tons in 2017 and 334 million tons in 2018.

Faltering Prices

Iron ore demand will be supported by further expansion in China as well as growth in India and the Middle East, Andrew Harding, chief executive officer of Rio Tinto’s iron ore unit, told reporters on an Oct. 9 conference call. Any move to cut output amid faltering prices would simply encourage competitors to expand production, said Harding.

Iron ore was listed by Morgan Stanley as its least-preferred metal after gold, according to a quarterly report on Oct. 8 that highlighted global oversupply. The raw material may average $100 a ton this year and $87 in 2015, the bank said.

The commodity is heading for “pitiless pricing with relentless supply expansions,” Credit Suisse Group AG said in a report received Sept. 24, paring price forecasts for next year and 2016. There’s too much supply, the bank said.

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Essar group raises $450 million to expand Minnesota mine project

By ET Bureau | 15 Oct, 2014
MUMBAI: The Essar Group owned by the billionaire Ruia brothers have achieved financial closure for the $1.8 billion Minnesota Mining project making some headway six years after the asset was acquired. The group has raised $450 million from a clutch of New York based funds to fund the expansion of the mine.

Essar Steel Minnesota had raised $450 million from banks, but returned the funds after securing what it called was a better deal from funds based in New York, Madhu Vuppuluri, president and CEO of Essar Minnesota in an interaction with ETsaid.

The Essar Group, the promoters of the $1.8 billion project have committed $750 million as equity. About $700 million debt has been raised from Indian banks. The American hedge funds are investing $450 million in high yield bonds for six years which can be repaid before maturity.

The group had been in talks with Russian and Chinese banks for funds. "We looked at several options," he admitted. But we finally chose what suited us, he added. According to Vuppuluri, the banks prefer to have some comfort in ascertaining cash flows before lending. For a green-field project this was difficult. The agreement with banks, therefore necessitated a non-call feature that ensured for the lenders a high-yield bond for atleast six years. This would have been expensive for the company as ..

Vuppuluri reasons this as the sole reason for the company to prefer (hedge) funds as they are willing to be repaid once the mine starts commercial production and cash flows come in.

Vuppuluri said the company will be one of the "lowest cost producer" of pellets in the world. Essar Minnesota will only have two customers. It will supply about 4 million tonne taconite pellets to Arcelor Mittal and about 3 mt to Algoma, an Essar group company based in Canada.

The operating cost for the Minnesota based pellet maker would be about $40 dollars. Any upside in iron ore prices can be captured in subsequent terms, he added.

Vuppuluri is credited to playing a pivotal role in acquiring assets in North America for the Essar group. The acquisitions include Algoma, a steel maker in Canada and Minnesota Mining, a promising iron ore mining asset and Aegis, the BPO company which the group eventually exited profitably when it sold AGC Holdings Limited to Teleperformance for $610 million in July, this year.

Vuppuluri however rejects the poser that the asset was not cheap. The asset was identified carefully and we acquired it at an appropriate price, he argues.

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Indian Steel Demand Said to Expand at Slowest Pace in Decade

By Abhishek Shanker  Oct 14, 2014
Bloomberg
Indian steel demand may have grown at the slowest pace in at least a decade as a new government under Prime Minister Narendra Modi struggles to revive industrial output, people familiar with the development said.

The nation’s alloy consumption expanded by about 0.5 percent in the six months ended Sept. 30, according to two people familiar with the data, who asked not to be identified before an official announcement. That is the lowest in the same period since at least 2005.

Factory output at Asia’s third-largest economy fell short of estimates for a third consecutive month, data showed last week, four months after Modi became India’s 15th prime minister and vowed to clear investment hurdles. Industrial production grew 0.4 percent in July and August from a year earlier, slowing from an average 4.4 percent in the quarter through June, the government said.

Poor demand and higher alloy imports from neighboring China led steelmakers including Steel Authority of India Ltd., JSW Steel Ltd. (JSTL) and Rashtriya Ispat Nigam Ltd. to cut prices in October. The drop followed an increase in rates in the previous three months on expectations new government led by Modi would push consumption.

Steel Authority gained as much as 1.9 percent to 77.40 rupees and traded at 77.05 rupees as of 12:31 p.m. in Mumbai. JSW fell as much as 2.2 percent to 1,115.55 rupees.

Steel Ministry spokesman Naginder S. Kishor declined to comment on the alloy consumption data. The ministry collates demand and production data and usually announces the figures in the second week of every month.

Automotive Demand

The pace may rebound in the second half ending March 31 to about 3 percent on demand from carmakers and infrastructure sector, according to an average of seven steelmakers, analysts and government officials in a Bloomberg survey.

The annual pace of growth may average about 2 percent, according to the survey.

“There may not be a galloping growth in consumption but we do expect some demand especially for infrastructure projects starting next month,” Ponnapalli Madhusudan, chairman at Rashtriya Ispat, the nation’s second-largest state-owned producer of the alloy, said in a phone interview. “The new government is taking steps to boost manufacturing and clear stalled projects and that may start showing some results soon.”

Madhusudan forecasts demand to climb 4 percent in the Oct.- April period.

Modi on Sept. 25 unveiled a “Make in India” campaign to entice foreign companies to build factories, boost economic growth and improve living standards that are the lowest among major emerging markets.

The government had referred 463 stalled major investment projects worth 22 trillion rupees ($360 billion) to India’s Project Monitoring Group since its inception in June 2013, its chairman Anil Swarup said last month. The group cleared 176 projects worth 6.38 trillion rupees, of which, 63 have begun construction, he had said.

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Sesa Sterlite slumps on Supreme Court order

MEERA SIVA
BUSINESS LINE RESEARCH BUREAU
October 14, 2014:
Shares of mining major Sesa Sterlite were down over 5 per cent in the morning, after the Supreme Court ruled that iron-ore mined before 2007 belongs to the state of Goa.

15 million tonnes of iron ore has been confiscated from all the iron-ore miners in Goa. Of this 3 mt of iron ore stock belongs to Sesa. The company may stand to lose nearly $50 million, assuming a gain of $15-20 per tonne on sale price of $55-60 per tonne.

Iron ore mining in Goa has been facing multiple issues in the last two years. The Supreme Court imposed a mining ban in October 2012 and all iron ore auctions were stopped. The ban led to Sesa’s output dropping from nearly 14 mt annually earlier to near zero.

Things however perked up when the ban was partially lifted in April 2014. The court also allowed the e-auction of nearly 15 mt of iron-ore stock held by the State authorities. And recently, the Goa government indicated that it planned to renew the leases of miners who were found to have no or minimal violations.

With these positive developments, Sesa hopes to resume mining operations in early 2015. But there may be other issues that Sesa has to contend with. Iron ore attracts a 15 per cent royalty and 10 per cent contribution to be made towards an iron ore export fund on realisation. The Goan ore is low grade and not suitable for local steel industry, export is the only option. Export duty is high, at 30 per cent. Global iron ore prices have dropped over 42 per cent since the start of the year on China growth concerns. While Chinese import is looking up, the low price coupled with high mining costs would hurt Sesa’s profitability.

The company is also facing iron ore mining issues in Liberia. Start of mining operations, originally planned for December 2013, has slipped due to delays faced in obtaining clearances for constructing railroad for ore transport.

Additionally, Sesa is saddled with a huge debt burden of ₹806 billion as of March 2014. Of this, about two-third are U.S. dollar loans. While the debt is high, the company’s net debt to equity ratios is comfortable at 0.8 times. The company’s recent move to lend $1.25 billion from the cash pile of its oil and gas arm Cairn India to a subsidiary of Sesa was mired in controversy. ​

(This article was published on October 14, 2014)

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Rio Won’t Say ‘Yes’ to Glencore Without 30% Premium: Ex-BHP Exec

By Michael Heath  Oct 12, 2014
Bloomberg
Rio Tinto Group shareholders would demand a premium of as much as 30 percent in any deal with Glencore Plc (GLEN), making a tie-up unlikely due to a lack of synergies, Alberto Calderon, a former BHP Billiton Ltd. executive, said yesterday.

“The issue is mergers of mining companies generally don’t have synergies,” Calderon, a board member of Orica Ltd. (ORI), told channel 9’s Financial Review Sunday. “The only way you have synergies is when you have overlapping operations like BHP and Rio had at the Pilbara. This is not the case here. I don’t think Glencore could afford to pay that premium.”

The Glencore deal with Rio Tinto (RIO) would have been the industry’s largest. It would create the biggest mining company, worth more than $160 billion, and usurp BHP Billiton (BHP), with significant production of coal, iron ore and copper. Glencore abandoned the bid on Oct. 7 after it was rebuffed by Rio Tinto.

“In terms of a merger of equals, is it good for Glencore? It’s pretty fantastic,” Calderon said. “Is it good for Rio Tinto shareholders? It’s unlikely. They have the better assets. So they’re going to demand a premium of about 25 or 30 percent. And that’s synergies of about $25 billion, and so the short answer is that’s very unlikely. This merger would not even come close to creating that value.”

With about $6 billion of his personal wealth tied up in Glencore stock, Chief Executive Officer Ivan Glasenberg tends to be cautious about overpaying for targets. His company paid a premium of 10 percent or less in about two-thirds of the deals it carried out over the past decade, according to data compiled by Bloomberg.

Iron-Ore Slump

A slump in iron ore gave Glencore a chance to go after a cheaper Rio and make it part of a diversified portfolio. With the deal now likely on hold for six months, Glencore could turn to other targets such as Fortescue Metals Group Ltd. (FMG) Or Rio could pursue a defensive deal with a company such as Anglo American Plc, according to Sanford C. Bernstein & Co.

Asked about Glencore’s options, and where Glasenberg might now train his sights, Calderon said: “The only thing that is clear” is that Glasenberg is always ahead of the market.

“I think this is part of a broader strategy,” he said. “We don’t know which one, nobody knows what he’s really thinking. But he’s thinking ahead of the market. He’s thinking about growth. He’s the only one of the large miners that doesn’t talk only about cost-cutting and so it must be something beyond this.”

Iron Price War Deepens Crisis in Ebola-Stricken Sierra Leone

By Thomas Biesheuvel, Jesse Riseborough and Silas Gbandia  Oct 13, 2014
Bloomberg
In Sierra Leone, one of the poorest countries in Africa, the hardships of Ebola hit at victims and non-victims alike.

Sulaiman Kamara, a handcart pusher in Freetown before the outbreak began in May, used to earn 50,000 leones ($11) a day, before a shriveling economy took away his job. The 42-year-old father of three now hawks cigarettes and candy on streets with shuttered shops and restaurants, empty hotels and idling taxis. Some days, he’s lucky to make a quarter of his former earnings.

Things are about to get worse again. Iron ore, the biggest export earner, is in a major tailspin, leaving Sierra Leone’s two miners on the verge of collapse and jeopardizing 16 percent of gross domestic product in a country where output per person was just $809 last year.

Used in steelmaking, iron ore has slumped 39 percent this year as the world’s largest miners spend billions of dollars expanding giant pits in Australia and Brazil. Digging up ore that’s less rich in iron and operating with restrictions imposed to stop the disease’s spread, local producers can’t compete.

“The impact of Ebola in terms of iron-ore revenue is huge,” said Lansana Fofanah, a senior economist in Sierra Leone’s Ministry of Finance and Economic Development. “Iron ore is responsible for the country’s double-digit growth since 2011 until the Ebola outbreak.”

Iron Royalties

Iron ore contributes more in mining royalties than any other mineral to government revenue, which has plunged since the outbreak began, and as the budget deficit worsens, the International Monetary Fund has agreed to step in.

The economy will grow at half last year’s pace, the World Bank forecast, even before the volatility in the global commodity markets threatened more upheaval in a country that’s had to rebuild itself since the end of a 12-year civil war in 2002.

African Minerals Ltd. (AMI) is the biggest single contributor to Sierra Leone’s economy, employing 7,000 people at the Tonkolili mine that cost more than $1.7 billion to build and started in 2011. As ore prices have fallen, the London-based company’s stock has slumped 92 percent this year as the company tries to renegotiate loans and strip out cost to remain profitable.

“African Minerals continues to operate, and myself and the CEO continue to rotate between West Africa and our London office,” Chairman Frank Timis said in an e-mailed statement. The stock fell 1.5 percent to 16.25 pence at 10:38 a.m. in London.

London Mining

The other producer in the country, London Mining Plc (LOND), is down 96 percent this year and said last week that its shares had no value as it looks for a rescue investor. The stock was suspended from trading on Oct. 10 after it said the only investors it was still engaged in talks with were those not seeking to keep the company operating.

London Mining didn’t respond to phone calls or e-mails seeking comment.

“It’s an unfortunate side effect of the markets,” Jimmy Wilson, head of iron ore at the world’s largest miner, Melbourne-based BHP Billiton Ltd. (BHP), said last week as he announced a $2 billion plan to produce more from its mines.

“Any person that actually ends up losing their job because their company closes through no fault of their own we don’t take any joy from that,” he said, admitting the strategy would hurt higher-cost competitors. “At the end of the day, it’s a reality of the world we live in.”

Royalty Payment

African Minerals’ royalty payment to the nation dropped to $1.3 million in July 2014 from an average of $2.5 million monthly before, Fofanah said, citing the Preliminary Assessment of the Impact of the Ebola Outbreak on the Sierra Leone Economy.

Goldman Sachs Group Inc. forecast the global surplus in the commodity will triple next year as output expands and a property slump and tight credit conditions restrict demand growth in China, the biggest consumer.

“The majors want to protect market share and their feeling is that if they don’t build the capacity, someone else will,” Richard Knights, an analyst at Liberum Capital Ltd. in London, said by phone. “This is capitalism. It’s the way the mining industry works. High-cost mines get put under pressure in periods of oversupply.”

Western Australia

While BHP works to increase production, Rio Tinto Group (RIO), the world’s lowest-cost producer, plans to raise capacity to 360 million tons a year by 2017 from mines in Western Australia. Brazil’s Vale SA (VALE), already the biggest producer of the commodity, wants to double shipments to China in five years, it said in August.

“The only difference about me not introducing my tons is that the shareholders for Rio Tinto will lose out on a long-term stream of very profitable investment,” Andrew Harding, head of Rio’s iron-ore unit, said on a Oct. 9 call with reporters. “It’s probably a harsh reality of the international competitive market place.”

London-based spokesmen for BHP and Rio declined to comment further.

It’s not only in Sierra Leone that miners have been affected. Sable Mining Africa Ltd. (SBLM), which is developing an iron-ore mine in Guinea, has tumbled 85 percent this year, while Bellzone Mining Plc (BZM)’s shares have been suspended while it seeks funds needed to keep its operations running.

Victim Numbers

Ebola has killed more than 4,000 people in Africa, mostly in Guinea, Sierra Leone and Liberia. The U.S. Centers for Disease Control and Prevention has projected the outbreak could surge to as many as 1.4 million cases by January without further intervention.

Sierra Leone’s miners have been helping the fight against Ebola, by testing employees, providing equipment and raising public awareness in often remote areas.

“The resources of these operators have been important, particularly as they tend to operate in hinterland districts with a weak government presence,” said Thomas Hansen, a senior African Analyst at Control Risks.

Larger miners have also offered aid. Earlier this month, BHP announced a $400,000 donation to help fight Ebola.

Yet for street hawker Kamara, who’s sent his two elder children to stay with grandparents outside the disease-riddled capital, there’s little prospect of help.

“I pray every day to God to have mercy on us and end this Ebola disease in my country, or else we are getting deeper into suffering,” he said. “Things are really hard for me and nobody cares.”

**

Vedanta hopes to restart mining in Goa by January-February

By PTI | 12 Oct, 2014
NEW DELHI: Metals and mining conglomerate Vedanta Resources expects to resume iron ore mining in Goa early next year.

"For the past few years the Goa mining sector has been shut down... We are hopeful of resuming mining operations in Goa in January-February 2015," Vedanta Resources CEO Tom Albanese told PTI.

Albanese, who is also the CEO of Sesa Sterlite, a Vedanta subsidiary, said the company hopes for some steps to be taken by the Centre to rescue the mining sector which has borne the brunt of high exports duty on ore.

Besides, he added that the company is engaging with the Goa government and the Ministry of Environment and Forests to get approvals for resuming mining operations.

The Supreme Court in April lifted the ban on mining in Goa with certain conditions. The ruling imposed an interim restriction on the maximum annual excavation of 20 million tonnes per annum from the mining leases in the state.

However, mining can't be carried out until the renewal and execution of mining lease deeds by the state government.

Albanese also stressed that India needs to scrap export duty on iron ore in the face of sliding prices globally, especially on low grade that is exported from Goa to make mining a profitable proposition.

He has said that "ores that have been typically mined in Goa including that of Sesa have been of a lower grade than typically desired by the Indian steel sector" and is exported where global prices had already nosedived.

There is 30 per cent export duty on iron ore at present. As per industry experts the duty was imposed when prices of ore were sky-rocketing at $ 180-200 per tonne. They have plummeted to a 5 year low to $ 80 per tonne for best grades '63 Fe'. Iron ore grade produced in Goa is '58 Fe' or below.

Goa Chief Minister Manohar Parrikar has demanded that the Centre withdraw export duty on low grade iron ore.

Miners body FIMI had also requested the Centre to do away with export duty to help the sector. India used to be the third largest global exporter of the ore a few year ago.

Iron ore exports declined by 61.46 per cent to $ 52 million in August.

The exports of iron ore, a key steel making raw material used to be about 100 MT, which declined to 62 MT in 2011-12, 18.37 MT in 2012-13 and 14.42 MT in 2013-14 on account of a number of factors including high duties and freight rates.

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Barge Fees Limit U.S. Exports as Crops Compete for Space

By Jeff Wilson  Oct 10, 2014
Bloomberg
As U.S. farmers begin the biggest corn and soybean harvests ever, the bins at Elburn Cooperative Co. in Illinois remain almost empty. It simply costs too much to send Midwest crops by barge to New Orleans export terminals.

Shipping fees along the Mississippi River, the world’s busiest inland waterway, have more than doubled to a record in the past year as an avalanche of new crops compete with oil, coal and chemicals for limited space, government data show. The cost surge is more than normal for harvest season and may strand more grain during the busiest time of year for handlers in the U.S., the biggest global exporter.

“Our storage facilities are as empty as they have ever been coming into the harvest season,” said Phil Farrell, the grain division manager at Elburn, which tripled its holding capacity over the past eight years to 21 million bushels as domestic output surged. “The high barge costs mean more corn will be put on the ground or into storage.”

An emerging logjam of crops is compounding the financial pinch for some Midwest farmers who already are getting the lowest prices since at least 2010, as buyers demand bigger discounts to cover higher shipping costs. U.S. export-sales of corn for delivery by Aug. 31 are down 4.2 percent from a year earlier and commitments by importers are growing at the slowest pace since 2009, U.S. Department of Agriculture data show.

The cost of sending grain almost 1,000 miles by barge from Morris, Illinois, to the Gulf of Mexico via the Illinois and Mississippi rivers almost doubled from a year earlier to a record $55.91 for 2,000 pounds on Oct. 1, U.S. Department of Agriculture data show.

Fewer Buyers

“Barge operators have indicated there have been limited freight buyers at current spot rates,” especially in the main growing area of the upper Midwest, including Illinois, Iowa and Minnesota, where harvests are just starting, the USDA said Oct. 2. Most of the activity is in the lower Mississippi River, where crop collection is more advanced and barge fees are lower.

The USDA probably will increase its 2014 production forecasts in a report today. Corn output will reach 14.54 billion bushels, 4.4 percent more than last year and the most ever, leaving inventories before the 2015 harvest 74 percent larger than a year earlier, a Bloomberg survey of analysts showed. Soybean output will jump 19 percent to 3.99 billion bushels, leaving inventories next year at 488 million, the most in eight years, the survey showed.

Crop Slump

Corn futures are down 19 percent this year to $3.42 a bushel at 3:56 a.m. on the Chicago Board of Trade, after touching a five-year low of $3.1825 on Oct. 1. Soybeans plunged 28 percent to $9.3425 a bushel, reaching a four-year low of $9.04 on Oct. 1. Slumping crop prices helped send the Bloomberg Commodity Index of 22 raw materials down 6.1 percent this year. The MSCI All-Country World Index of equities slid 1.1 percent, while the Bloomberg Treasury Bond Index rose 4.8 percent.

Higher barge fees are forcing buyers to demand deeper discounts on purchases, said Kent Theisse, vice president at MinnStar Bank N.A. in Lake Crystal, Minnesota.

The Elburn Co-op, based in Elburn, Illinois, paid 58 cents a bushel less than Chicago futures for spot delivery of corn on Oct. 8, compared with a 23 cents a year earlier. The average cash price for corn was $3.0257, down 25 percent this year, while soybeans slid 32 percent to $8.7516, Minneapolis Grain Exchange data show.

Goldman Sachs Group Inc. cut its three-month and six-month outlooks for corn and soybeans on Sept. 30, predicting prices will stay “below marginal production costs” in the face of constrained demand growth.

Advancing Harvest

The barge premiums may not last, and shipments may increase as the harvest progresses.

As of Oct. 7, the cost to ship a ton of grain from Minneapolis to the Gulf fell to $49.02 from $54.66 a week earlier, USDA data show. While that’s a third higher than the four-week average of the past three years, river shipments in the week ending Oct. 4 totaled 510,000 tons, up from 276,000 in the same period a year earlier, the USDA said yesterday.

The harvests are usually complete by the end of November. As of Oct. 3, 17 percent of the corn crop was collected and 20 percent for soybeans, USDA data show.

“Barge rates could collapse as the harvest progresses if farmers find a way to hold off selling,” said Glenn Hollander, a partner at broker Hollander & Feuerhaken in Chicago. “At some point, the laws of supply and demand will take over, and people will find alternative modes to move grain.”

At Elburn Co-op, as much as half the annual corn-barge traffic usually occurs in the fourth quarter, Farrell said. While the company has sent very little down the Illinois River since March, it is moving grain via truck or railroad, mostly to buyers in the Midwest rather than export terminals, he said.

More Competition

Rates have remained high because crops are competing for space on the river with raw materials shipped along Mississippi waterways, and alternatives aren’t always accessible.

A surge in domestic oil production has led to a jump in energy shipments on rail networks at the expense of grain, Roger Krueger, the executive vice president for the South Dakota Wheat Growers Association, the state’s biggest locally owned cooperative. The Association of American Railroads says crude moved by rail almost doubled last year. The bottlenecks may persist because the Energy Department is predicting the most oil output in 45 years in 2015.

Railroad Delays

Railroad congestion has compounded delays for U.S. grain handlers for the past year, Arthur Neal, a deputy administrator for transportation and marketing at the USDA, told a Senate committee at a hearing on Sept. 10. Since October 2013, the USDA has reported delays, missed shipments, backlogs and higher costs for railroad services, Neal testified.

In land-locked South Dakota, bids of $4,500 per rail car by users are well below the offers from rail car owners of $6,000, compared with a $3,500 bid and $5,000 offer in 2013, according to Krueger at the Aberdeen, South Dakota-based co-op. Cars normally cost about $700 each, so the increase this year has added $1.50 a bushel to ship corn and soybeans from South Dakota to export terminals on the West Coast.

Expenses are going up because of slow train speeds rather than a shortage of rail cars, Krueger said. Train speed averaged 23.18 miles (37.3 kilometers) per hour in the week ended Sept. 26, down from 25.27 mph a year earlier, according to the Association of American Railroads. It now takes 18 days for a train to make a round trip to the West Coast, up from 12 days two years ago, Krueger said.

Higher shipping costs are contributing to the erosion of the U.S. share of world exports, after high grain and oilseed prices in the past decade helped fuel expanded production in South America, Eastern Europe and Asia. The U.S. accounted for 38 percent of the global corn trade last year, down from 67 percent in 2006, while U.S. accounted for 36 percent of soybeans, down from 40 percent, USDA data show.

“In the long run, high transportation costs limit U.S. competitiveness and reduce export market share,” Krueger said.

**

Rio’s Bullish Iron Ore Outlook Bolsters Glencore Case for Bid

By David Stringer  Oct 9, 2014
Bloomberg
Rio Tinto Group (RIO) today looked through a market downturn to present a bullish outlook for global iron ore demand, underscoring the attraction of its biggest earner to spurned suitor Glencore Plc. (GLEN)

The owner of the world’s most profitable iron ore business sees future demand for the steelmaking material in China supported by manufactured goods as its economy transitions from infrastructure-led growth.

“Complementing the Chinese growth, we also expect the markets in India, the Middle East” and Southeast Asia to develop, Andrew Harding, chief executive officer of Rio’s iron ore unit, told reporters today on a conference call.

Rio this week said its board had unanimously rejected a July approach from Glencore to create a $162 billion mining behemoth. A 40 percent decline in iron ore prices this year gave Glencore Chief Executive Officer Ivan Glasenberg the chance to go after a cheaper Rio and make it part of a diversified portfolio.

“We remain very confident on the prospects for our iron ore business, given the healthy demand outlook, our low cost of production and the high quality of our product,” said Harding, who declined to comment on the Glencore bid.

Rio is pressing ahead with expanding its output to a planned 360 million metric tons a year by 2017, while Glasenberg has taken issue with the major producers for oversupplying the market.

Infrastructure expansions to raise output, including port and wharf work, is about three-quarters complete, Rio said today in a presentation.

Cut Costs

The producer intends to continue to cut costs to maintain its status as the cheapest producer of iron ore, Harding said. The company relies on the product for almost 90 percent of its profit.

Any move to cut output amid faltering prices would simply encourage competitors to expand production, said Harding. “Curtailing production would simply create a void that would be filled by other producers and new starters,” he said.

“Our analysis indicates there are 32 competitive projects that could be incentivized if we were to withhold volume.”

China’s crude steel production may reach 1 billion tons a year by 2030, while iron ore demand will be spurred by urbanization in emerging economies that are home to about 80 percent of the world’s population, Rio said in the presentation.

Glencore is now barred, in most circumstances, from making a renewed bid for six months under the U.K. takeover code.

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China Coal Tariffs Add to Pressure on Producers in Australia

By James Paton  Oct 10, 2014
Bloomberg
China, the world’s biggest coal consumer, is piling on the pain for Australian producers by ratcheting up import barriers.

China will reintroduce import tariffs in its latest effort to support money-losing domestic miners, according to a statement published yesterday on the Finance Ministry website. This follows the government’s move last month to ban the import of lower-quality coal and an announcement asking power utilities to reduce coal imports.

Australian producer New Hope Corp. plunged to a six-year low in Sydney trading, while Whitehaven Coal Ltd. (WHC) fell the most in more than two years.

“It makes Australian coal less competitive relative to China’s supply, and that’s at a time it’s already facing significant challenges, primarily due to the impact of lower prices squeezing margins,” Phillip Chippindale, a Sydney-based analyst at Wilson HTM Investment Group Ltd., said by phone.

A global glut and slowing demand growth in China have pushed prices of coal used by steelmakers to a six-year low, forcing producers from BHP Billiton Ltd. (BHP) to Glencore Plc to cut costs. Australia accounted for about 39 percent of China’s coal imports in the first eight months of this year, according to data compiled by Bloomberg.

The import tax highlights the value of the free-trade agreement with China that Australia is trying to complete in the next few months, Australian Prime Minister Tony Abbott said today during a news conference.

Tackling Pollution

“This is the kind of hiccup in our biggest and most important trading relationship that we just don’t want or need,” Abbott said. “We’ll work with the Chinese to get to the bottom of what seems to have happened.”

While the tariffs aren’t expected to affect Indonesia because of existing free-trade agreements, it probably will impact Australia and may worsen oversupply in the region, according to a Morgan Stanley report yesterday.

The Australian coal industry is seeking to reverse the tariffs as the two countries negotiate a trade agreement, the Minerals Council of Australia said in an e-mailed statement. The industry group said it’s urging the Australian government to start talks with China on the tariffs.

From Oct. 15, China will impose a levy of as much as 6 percent on coal, including 3 percent on anthracite and coking coal, according to the statement. Similar tariffs were suspended in 2007, while a tax on brown coal was resumed in August 2013.

Policy Changes

“Recent China policy changes are becoming more bearish for seaborne” coal, Daniel Morgan, a Sydney-based analyst at UBS AG, said yesterday in a report. “China’s coal policies are moving in a bid to boost profitability in the domestic industry and to tackle pollution concerns.”

The 6 percent levy on thermal coal compares with an expectation of 3 percent by UBS.

About 13 steelmaking coal mines in Australia are producing at a loss, putting them at risk of closing, though most producers, including larger ones such as BHP’s venture with Mitsubishi, are profitable, Wood Mackenzie Ltd. estimated.

More than 70 percent of China’s miners are unprofitable, and half are delaying or cutting wage payments after domestic power-station coal prices fell amid overcapacity and sluggish demand, the China Coal Industry Association said in July.

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Cyclone ‘Hud Hud’ is now a severe cyclone

VINSON KURIAN
THE HINDU BUSINESS LINE
THIRUVANANTHAPURAM, OCT 9:
Cyclone Hud Hud may already have intensified a round to become a very severe cyclone, having crossed the 90 km/hr-threshold for wind speeds set by India Met Department.

An indication to this was given by the US Navy’s Joint Typhoon Warning Centre, which assessed the wind speeds at 102 km/hr gusting to 129 km/hr knots at 8 am this morning.

VERY SEVERE CYCLONE

It projected that ‘Hud Hud’ would accelerate further to being a very severe cyclone during the next 12 hours.

But the landfall projected is at least two days away, which allows the system to feed on the moisture and also get fuelled by the warmer seas of the Bay of Bengal.

The given time and space should usually give the system enough elbow room to strengthen further.

The US Centre feared the storm to rachet up to 212 km/hr, or just below super cyclone status ahead of landfall. India Met is projecting only the half in peak wind speeds.

The US Centre also does not see any cause for weakening of the system, since all meteorological factors are seen aiding its continued development.

HIGH ALERT

The landfall is expected to take place by noon on Sunday between Visakhapatnam and Gopalpur, according to the projections by India Met Department.

The Andhra Pradesh and Odisha coasts are on high alert in view of the threat posed by ‘Hud Hud,’ exactly a year after predecessor ‘Phailin’ ravaged the same area.

The cyclonic storm crossed the Andaman the Andaman and Nicobar Islands close to Long Island last evening.

Thereafter, the system has continued to move west-northwestwards and intensify as a severe cyclonic storm.

HEAVY RAIN WARNING

Rainfall ranging from heavy (up to 12.4 cm) to very heavy (up to 24.4 cm) has been forecast at many places over south Odisha coast with isolated extremely heavy falls (greater than 24.5 cm) from Saturday evening.

Heavy to very heavy rainfall may commence over Visakhapatnam, Vijayanagaram, and Srikakulam districts of north coastal Andhra Pradesh and north coastal Odisha.

HIGH WINDS

Squally wind speed reaching 50- to 60 km/hr gusting to 70 km/hr would commence along and off north Andhra Pradesh and south Odisha coasts.

The wind speed would increase to 130- to 140 km/hr gusting to 150 km/hr from Sunday morning, the day of landfall of the very severe cyclone.

Sea condition would be ‘rough to very rough’ from Saturday morning. It would gradually become ‘phenomenal’ (wave heights of up to 46 m) from Sunday morning onwards.

EXPECTED DAMAGE

The Met Department warned that extensive damage is expected to kutcha houses as the very severe cyclone bears down on the coast.

Power and communication lines may get partially disrupted. Minor disruption may happen to rail and road traffic. There is a potential threat from flying debris and flooding of escape routes.

Fishing operations need to be suspended in the area of influence of the system. Judicious regulation of aviation, navigation, rail and road traffic is advised.

People in affected areas may remain at safe places around the period of landfall of the very severe cyclone.

(This article was published on October 9, 2014)

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Pirates Release Vietnam Oil Tanker Amid Rise in Hijacking

By John Boudreau and Mai Ngoc Chau  Oct 9, 2014
Bloomberg
Southeast Asia’s waters are becoming more dangerous, according to the captain of a Vietnamese oil tanker released by pirates after a six-day regional hunt.

The Sunrise 689, which left Singapore on Oct. 3 before vanishing from radar, is sailing to Vietnam’s southern port city of Vung Tau today, Nguyen Quyet Thang, the ship’s captain, said in a phone interview from the vessel. It’s currently about 30 nautical miles from Hon Khoai off Kien Giang province and is scheduled to arrive at the southern port city of Vung Tau tomorrow, he said.

“The Southeast Asia waters have never been secure for ships,” Rear Admiral Ngo Ngoc Thu, Vietnam Coast Guard’s vice commander, said by phone today. “In particular, the waters bordering Vietnam and Malaysia are not safe. Although all countries in the region have tried to keep them safe, hijackings still happen.”

Ship hijackings in the region are on the rise, with at least six cases of coastal seizing of cargoes since April, the International Maritime Bureau’s piracy reporting center in Kuala Lumpur said in July. The region includes the Malacca Strait, one of the world’s “most strategic choke points,” according to the U.S. Energy Information Administration.

Diesel Cargo

The Sunrise 689 was scheduled to arrive Oct. 8 in the central province of Quang Tri, Dao Van Quang, the chairman and chief executive officer of Hai Phong Sea Product Shipbuilding Co., the registered owner, said yesterday. It was transporting 5,200 metric tons of diesel, with an estimated value of $4 million, for a Singapore customer, he said.

The pirates, who said they were Indonesian, were armed with handguns and knives, according to Thang, the captain. Crew members were beaten and one pilot suffered a broken left leg.

More than 10 hijackers came alongside the vessel in two boats and a canoe at 3:40 a.m. local time on Oct. 3 before swarming its decks, he said. They also siphoned 1,500 tons of diesel by pumping the fuel out of two holds into their crafts.

Crew members were stripped of their personal belongings including mobile phones before they were released at 2 a.m. local time today.

“They only allowed us to have a meal once a day, in the afternoon,” Thang said. “They beat all of us.”

Somalia 2011

The Sunrise 689’s captain said he was previously captured and held for eight months by Somalia pirates in 2011. Gangs from the East African nation last year seized the fewest merchant ships since 2004 as armed guards and naval patrols helped deter and repel attacks on a trade lane linking Europe to Asia, International Maritime Bureau data show.

“We do need assistance from the Vietnam Navy,” Thang said. “In such a sensitive area, it would be best if Vietnam joined patrols of the area and offered prompt rescue for ships. Vietnam has offered no assistance to ships in the region.”

The hijackers, who destroyed the Sunrise 689’s GPS and communications systems, left behind an electronic compass for the crew to navigate back to Vietnam, said Pham Van Hoang, the vice captain.

“Their purpose was to steal oil and they threatened to kill us if we didn’t obey their orders,” said Hoang, who passed out after being beaten.

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China Reinstates Coal Import Tariffs to Support Domestic Miners

By Bloomberg News  Oct 9, 2014
China, the world’s biggest coal consumer and producer, will reintroduce import tariffs on the fuel in the government’s latest effort to support money-losing domestic miners.

The Finance Ministry will impose a levy of as much as 6 percent on coal, including 3 percent on anthracite and coking coal, starting Oct. 15, according to a statement published on its website today. Similar tariffs were suspended in 2007, while a tax on brown coal was resumed in August 2013.

More than 70 percent of China’s miners are unprofitable, and half are delaying or cutting wage payments after domestic power-station coal prices fell to a seven-year low amid overcapacity and sluggish demand, the China Coal Industry Association said in July. The government, which has urged the nation’s 14 largest producers to cut production by 10 percent this year, last month banned the import of lower-quality coal.

“This is obviously another move to shore up the local coal industry,” Deng Shun, an analyst at ICIS-C1 Energy in Shanghai, said by phone from Guangzhou. “Australian coal will probably be worst hit, as it was China’s top coal-import source this year.”

China imported 61 million metric tons from Australia in the first eight months of this year, about 39 percent of its total shipments excluding brown coal, customs data show. Over the same period, it purchased 21.4 million tons of anthracite and 40 million of coking coal.

Spot coal with an energy value of 5,500 kilocalories per kilogram at Qinhuangdao port, the nation’s benchmark grade, dropped to 470-480 yuan ($77-$78) a ton in the week ended Aug. 3, according to the China Coal Transport and Distribution Association. That’s the lowest level since September 2007. It was at 475-485 yuan through Sept. 28.

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Indian sugar mill defaults on bank loans, others may follow

REUTERS
MUMBAI, OCT 9:
Plunging sugar prices have forced at least one Indian sugar mill to default on bank loans and could drive others to do the same, the latest sign of the heavy toll a four-year-old supply glut in the country is taking on producers of the sweetener.

One of the country's largest sugar mills, Mawana Sugars Ltd, has defaulted on Rs. 250 crore ($40 million) of outstanding loans from a consortium of lenders, according to an official from the company.

"We are losing 5-6 rupees per kg of sugar we produce. It is not viable to operate mills with the current pricing of sugar and cane," said Rajendra Khanna, a director at the company which posted Rs. 24.52 crore loss in the three months ending in June.

"We have defaulted on term loan due to the disparity in cane and sugar prices," Khanna told Reuters by telephone.

Squeezed margins in sugar mills internationally, caused by depressed prices after years of global over-supply, are hastening closures and consolidation in the sector around the world.

In India, millers face an even steeper challenge as the government in the main cane-growing state of Uttar Pradesh, has told mills to pay Rs. 280 per 100 kg of cane, compared to the Rs. 210 recommended by the central government as its so-called 'fair and remunerative price'.

Uttar Pradesh's government is yet to come out with a cane price for the 2014/15 marketing year that started on Oct. 1, but most mills in the state have decided to suspend cane crushing in the new season unless the state links cane prices to sugar prices.

Sugar prices have fallen nearly 13 per cent in the last 12 months. The state-advised cane price has climbed 65 per cent in five years, while the sugar price has risen by just 1 per cent.

Abinash Verma, director general of national lobby group the Indian Sugar Mills Association (ISMA), said key lenders such as state-run banks had stopped providing fresh working capital to mills and had asked Uttar Pradesh's government to change its cane-pricing formula.

"Unless the state government rationalises its cane pricing formula, we will see more and more sugar mills falling into non-performing accounts," Verma said.

The leading 14 sugar companies' cash-to-short term debt ratio has dropped to the lowest in at least a decade at 6.7 percent, indicating companies don't have sufficient cash to meet debt obligations, according to Thomson Reuters data.

"Some mills don't have money to pay the salaries of employees. They will default in coming months. They don't have an option," said a senior official at a sugar mill in Uttar Pradesh. He declined to be named as he was not authorised to speak with media.

Major sugar producers such as Bajaj Hindusthan, Balrampur Chini Mills, Shree Renuka Sugars and Simbhaoli Sugars posted losses in the June quarter.

All leading Indian sugar companies have low Altman Z-Scores, which measure the likelihood that a firm will enter bankruptcy within the next two years, according to the latest data from Thomson Reuters Starmine.

BROKEN CYCLE?

India is set to produce surplus sugar for a fifth straight year, suggesting the country's notorious cycle of glut and deficit in sugar supplies could have broken, said Ashok Jain, president of the Bombay Sugar Merchants Association.

"Prices will remain under pressure due to ample carry forward stocks and good production prospects," Jain said.

The South Asian country started the new marketing year with 7.5 million tonnes of so-called carry-forward stocks and is expected to produce 25 million to 25.5 million tonnes this year against local consumption of around 23 million tonnes.

(This article was published on October 9, 2014)

Sugar Shortage Seen Looming by Drake Amid Drought in Brazil

By Chanyaporn Chanjaroen  Oct 9, 2014
Bloomberg
The world sugar market is heading for its first deficit in five years as drought cuts supplies in Brazil, the top producer and exporter, RCMA Group Pte said.

The country’s cane harvest may decline about 10 percent in the year starting April 1, said Jonathan Drake, chief operating officer of the Singapore-based trading company. Sugar output may drop as much as 3.5 million tons next year as more cane is used for ethanol, he said in an interview on Oct. 3.

Futures in New York plunged 53 percent from the highest in three decades in 2011 as farmers planted more cane. Dry weather in Brazil and India, the two biggest producers, may cut output and reduce global reserves for the first time since 2010, the U.S. Department of Agriculture estimates. Brazil, which is holding a presidential election, has increased the amount of ethanol used in fuel and may raise gasoline prices, Drake said.

“Overall we have a small deficit looming,” said Drake, whose company will probably trade more than 450,000 tons of refined sweetener this year. “Once the election is over in Brazil, once they work out what the new gasoline-ethanol price will be, I’d imagine in the next 90 days sugar reaches the bottom for the next three years,” said Drake, who traded the commodity for more than two decades at Cargill Inc.

Prices climbed to 17.12 cents a pound on Oct. 7, the highest level in four weeks, after advancing 6.2 percent in September, the most in seven months. Futures added 0.5 percent to 17.01 cents on ICE Futures U.S. today.

Ethanol Boost

A victory for presidential candidate Aecio Neves would help business and may boost the ethanol industry, Drake said. The government raised the ethanol part of the gasoline mix to 25 percent from 20 percent in April last year. The Senate approved an increase to 27.5 percent in September. Most cars have engines that run on ethanol or a mix with gasoline.

The country’s cane harvest will already be lower this year. The crop is set to decline 4.8 percent to 619 million tons mostly because of weather problems in the center-south growing areas, the USDA’s Foreign Agricultural Service estimates. A weak monsoon may trim the harvest in India, Drake said. Production could fall to 342.8 million tons from 350 million tons, the Agriculture Ministry says.

Global sugar inventories are set to drop 2.4 percent to 44.4 million tons by the end of 2014-2015, the first decline in five years, USDA data show.

While Drake predicts a shortage is looming, the International Sugar Organization forecasts the world will have a surplus of 1.3 million tons in 12 months started Oct. 1, the fifth straight annual glut, while the impact of any production shock would probably be reduced by large stockpiles.

Stored Sugar

Output is set to expand 0.6 percent to 183.75 million tons in the coming year, while consumption increases 2.1 percent to 182.45 million tons, the London-based group estimates. While there will be a surplus, it will be less than the oversupply of 3.99 million tons in the previous 12 months, it said Aug. 26.

In Thailand, the world’s second-largest exporter, the government is encouraging farmers to plant sugar instead of rice to reduce a glut of the grain. While it’s too early to tell, that may help add one million tons to domestic output, Drake said. Shippers could prefer to keep the sweetener in store and wait for a price rally as futures indicate a premium for deliveries in later months over nearby dates, he said.

Rabobank International is keeping a “constructive” view of prices for 2015, the bank said in a report dated today. Demand will exceed supply by 3.2 million tons in the year started October compared with an almost balanced market in the previous 12 months, the bank said.

A decline in the Brazilian real against the dollar has been “the big bearish thing” for sugar, which is denominated in the U.S. currency, Drake said. The real slumped 11 percent in the third quarter. President Dilma Rousseff faces a runoff against second-placed Neves in the final round on Oct. 26.

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