Thursday 27 November 2014

Essar Steel commissions 6 mtpa pellet plant in Odisha




OUR BUREAU, THE HINDU BUSINESS LINE
MUMBAI, NOV 27:
Essar Steel has commissioned a six million tonne per annum (mtpa) pellet plant at Paradeep along with iron ore beneficiation facility at Dabuna (both in Odisha). A slurry pipeline of 253 km has also been put in place to transfer beneficiated iron ore to the pellet plant, said the company in a statement on Thursday.

Essar Steel had invested Rs. 6,000 crore in setting up this integrated complex which was executed by its group company Essar Projects.

The company plans to increase the pellet capacity at Paradeep by another six mtpa soon with corresponding rise in beneficiation plant, taking the annual pellet production capacity in Odisha complex to 12 mtpa.

Pellets are a critical raw material and finds use in all iron making processes including blast furnace, Corex and DRI (direct reduced iron).

With the commissioning of the integrated plant, Essar Steel has become the largest pellet producer in India with an annual production capacity of 14 mtpa which includes eight mtpa at Vizag and rest in Paradeep.

Captive infrastructure

The Odisha pellet complex is backed by infrastructure that includes a 120 MW power plant and a captive berth at Paradeep port. This apart, the pellet plant is connected by a 9.5 km conveyor belt to the fully mechanised berth at Paradeep port operated by Essar Ports.

A major portion of iron ore produced in Odisha is in the form of fines which can be used in iron making only after converting into pellets.

'India lagging behind in exploiting bauxite reserves'



OUR BUREAU, THE HINDU BUSINESS LINE
VISAKAHAPATNAM, NOV 27:
India is lagging behind in exploiting its bauxite reserves and in aluminium production due to certain "misplaced concerns" over ecological issues and due to other factors, according to several experts in the field.

They were speaking here at the inaugural of the three-day international seminar on bauxite mining and aluminium production organised by the International Bauxite, Alumina and Aluminium Society (IBAAS) in association with several other organisations. Over 200 delegates, several from abroad, attended the seminar.

Vedanta Resources CEO Tom Albanese in his key-note address said India was lagging behind in exploiting its bauxite reserves, though the country had quality bauxite ore in Andhra Pradesh and Odisha in the eastern ghats. He blamed it on certain negative propaganda and misplaced concerns over ecological issues. Even though technologies were available for sustained exploitation of the reserves and development of the industry in an eco-friendly fashion, these notions were persisting to the detriment of the growth of the industry. The industry should make sustained efforts to dispel these notions.

He said raw material security was the key factor worrying those seeking to invest in the aluminium sector and steps should be taken to address the concerns.

H. Mahadevan, the president (projects) of Anrak, said that red tapism and "misplaced commotion over red mud and other so-called ecological issues" were impeding the aluminium refinery projects and bauxite mining in the eastern ghats.

He said there would always be "a certain degree of ecological disturbance engendered by any sort of mining, but as long as there is no long-term ecological degradation, the activity should not stopped on that count and it should be carried out withl long-term and sustainable safeguards and precautions."

Describing aluminium as a green metal, he said it had definitively been proven that there would not be any long-term eco degradation in the area under bauxite mining and "in fact usually in the area where bauxite reserves are found there is not much greenery and the groundwater level is also negligible. After mining the greenery improves in the area and groundwater level also increases."

He also said aluminium can be recycled infinitely, and with low energy consumption, and "therefore it will not be lost to the posterity." He said of the ten projects sanctioned in the Eastern Ghats, "only one is fully operational and two are partly operational and the rest are languishing due to various reasons. It is regrettable."

He said it was also the responsibility of the industry to dispel these concerns about ecological issues and enlist the co-operation of the local communities to undertake bauxite minining on a long-term basis and in a sustained manner. He emphasised the need for value-addition and setting up the most modern refineries.

**

Iron-Ore Giant Vale Sees Rebound as Glut Squeezes Mines

By Juan Pablo Spinetto and Peter Millard  Nov 27, 2014
Bloomberg
Iron-ore prices are poised to rebound from five-year lows as Asian infrastructure demand improves and high-cost mines close, according to the top producer Vale SA. (VALE)

The steelmaking raw material, which has slumped 49 percent this year to $68.49 a dry metric ton, will return to an average range of $85 to $90 next year, Vale Chief Executive Officer Murilo Ferreira said in an interview yesterday.

The company isn’t considering slowing its expansions because of slumping prices and is pressing ahead with the $19.7 billion Serra Sul S11D mine and logistics project, the industry’s biggest, he said.

“There was a lot of volatility in prices this year and the market is undershooting at the moment and this will bring about a correction,” Ferreira, 61, said at the company’s headquarters in Rio de Janeiro. “This correction will come through the closure of many inefficient miners of high cost and poor quality iron ore.”

Vale, Rio Tinto Group (RIO) and BHP Billiton Ltd. are maintaining their expansions betting that higher-cost producers will be squeezed out of the market. The price plunge, including a 22 percent drop in the past three months, is prompting speculation China will close inefficient mines, while Cliffs Natural Resources Inc. is considering shutting a mine in Canada.

The raw material slid below $70 on Nov. 25 for the first time since June 2009 amid concern slower Chinese growth will curb demand from the biggest iron-ore consumer. The market needs to absorb a surplus of about 110 million tons next year, almost double the 60 million tons in 2014, Goldman Sachs Group Inc. estimates.

Price Struggle

“China mines produced about one-third of the country’s iron ore needs and any significant decline in output would be welcomed by the global industry, which has struggled with much lower pricing,” Bloomberg Intelligence analysts Kenneth Hoffman and Yi Zhu wrote in a Nov. 21 report.

About 140 million tons of export supply growth is forecast for next year, including 30 million tons from Vale, Citigroup Inc. said Nov. 11. The bank sees prices collapsing to less than $60 next year as output climbs and demand remains weak.

Shares of Vale dropped 4 percent to 19.75 reais in Sao Paulo yesterday after slumping to an eight-year low on Nov. 18. The stock lost 40 percent during 2014, the worst performer among the world’s top mining companies.

Pressing Ahead

While iron-ore prices may “eventually” surpass $100 next year, they won’t trade at that level on a sustainable basis, Ferreira said. The company had said as late as July that prices of $110 were sustainable in the longer term.

“Supply came in faster than we expected and the world’s demand was less exuberant than what we expected,” said Ferreira, who in May will cap four years at the helm of the world’s largest iron-ore producer.

“Several” iron-ore producers can’t sustain operations for a prolonged period of time with iron ore below $90 a ton, Ferreira also said in the interview. The company is concluding most of its ventures with the exception of Serra Sul S11D in Brazil, which will have the industry’s lowest cost, he said.

“We are not considering delaying any project,” he said. “We finished some in 2013, some others in 2014 and a few more in 2015. We have only S11D remaining and that one is untouchable.”

A lighter project load, currency depreciation and better negotiating conditions with suppliers will allow the company to present next week a lower budget plan for 2015 compared with this year, Ferreira said, declining to discuss specific targets. The miner is working to announce “a good deal” before the end of the year, the executive said, declining to give details when asked about possible assets divestment.

Vale is scheduled to discuss its strategy, including next year’s budget and output targets as well as project updates, at meetings with investors in New York and London on Dec. 2 and Dec. 5, respectively.

**

Shortage of 81 mn tonnes of domestic coal for power sector

For the ongoing fiscal the country's coal demand has been assessed to be 787.03 mn tonnes
Press Trust of India  |  New Delhi  November 27, 2014
There is an overall shortfall of about 81 million tonnes of domestic coal that is needed for the power sector, the government said on Thursday.

"There is an overall shortage of approximately 81 million tonnes of indigenous coal for power sector," Coal Piyush Goyal said in a written reply to the Lok Sabha.

The coal requirement of plants designed on indigenous coal is 554 MT, while the total availability is only 473 MT, he said.

Goyal added that in order to ensure adequate availability of fuel to power utilities, Coal India Ltd has been asked to enhance production of domestic coal and the power utilities have also been advised to augment import of coal to meet the shortfall in domestic availability of coal.

He said that in the ongoing fiscal the country's coal demand has been assessed to be 787.03 MT, while the supplies from indigenous sources has been planned at 643.75 MT, leaving a gap of 143.28 MT to be met through imports.

With a view to monitoring coal supplies to the power sector, an inter-ministerial sub-group consisting of representatives from the ministries like power and coal has been formed.

"The sub-group takes various operational decisions for meeting any contingent situations relating to power sector, including critical coal stock position," Goyal said.

Monday 24 November 2014

CME Group to Start New Iron-Ore Futures Contract From December

By James Poole  Nov 24, 2014
Bloomberg
CME Group Inc., the world’s largest futures market operator, will start trading iron ore with 58 percent content from next month, it said in a statement.

The cash-settled contract will have January 2015 as the first listed month with a size of 500 dry metric tons and pricing based on ore delivered to China, it said.

Iron ore derivatives with 62 percent content already trade on the Singapore Exchange, the Dalian Commodity Exchange and the CME. The steel-making raw material capped the fifth straight weekly drop on Nov. 21 with prices trading near the lowest since 2009 on concern that slowing growth in China will hurt demand as rising low-cost supply deepens a global surplus.

“It’s obvious the bourse wants to fill in a blank in exchange-traded ore derivatives, since Dalian and Singapore only offer products related to 62% ore,” Wu Yichao, general manager at investment firm Beijing Liaosu Development Trading Ltd., said from Beijing. “Its success won’t be a given since most investors looking to hedge or speculate perhaps still prefer the benchmark 62% in line with most physical supply.”

The Singapore Exchange plans to start two cash-settled contracts for 58 percent ore delivered to China in early 2015, the bourse said on Oct. 24.

“The commodities boom in Asia has created an increased need for risk management,” said William Knottenbelt, Senior Managing Director, International at the CME.

Ore with 62 percent content delivered to Qingdao lost 6.8 percent last week, dropping to $70.20 on Nov. 19, the lowest level since June 2009, data from Metal Bulletin Ltd. showed. The price retreated 0.9 percent to $70.31 a dry ton on Nov. 21.

Prices collapsed 48 percent this year as surging low-cost output from Rio Tinto Group in Australia and Vale SA in Brazil spurred the glut. Data from Asia’s largest economy last week showed a drop in new-home prices and rising bad loans. The slump bears out a September forecast from Tom Albanese, former head of Rio Tinto, who said prices would remain weak for a sustained period.

BHP Targets Further Spending Cuts as Iron Prices Tumble

By David Stringer and James Paton  Nov 24, 2014
Bloomberg
BHP Billiton Ltd. (BHP) reassured investors that billions of dollars of planned capital spending and cost cuts will help allow the world’s biggest miner to maintain dividends as iron ore and crude oil prices plunge.

Capital outlays will drop to $13 billion in fiscal 2016, down more than 40 percent from 2012, the company said today. BHP also increased its annual target for productivity gains by 2017 by $500 million.

“We are able to drive productivity both in capital and in our operations at a pace that we can more than counteract the impact of price and ensure that our dividend is covered,” Chief Executive Officer Andrew Mackenzie said today in an interview in Sydney. The dividend, its credit rating and select investments had priority over buybacks, he said.

The tumbling commodity markets meant investors were seeking assurances over dividend payments and the prospect for additional returns, Sydney-based UBS AG analyst Glyn Lawcock said before the briefing.

“They are having to really ramp up their productivity drive a lot faster than I believe they were willing to do,” Evan Lucas, markets strategist at IG Ltd. in Melbourne, said by phone. “They were already looking for a good amount of cost savings, so it shows how much pressure that price is having.”

Spending on projects and exploration will be trimmed to $14.2 billion in the 12 months to June, from a previous company estimate of $14.8 billion. The producer allocated $22.7 billion in fiscal 2012, according its 2012 annual report.

Efforts to lower costs in its iron ore unit have “barely scratched the surface,” Mackenzie told investors and analysts earlier today at a presentation in Sydney.

Biggest Miners

The biggest miners are trimming spending after a decade-long $623 billion investment spree was followed by asset writedowns and management clear-outs. Rio Tinto Group, the second biggest miner, is targeting a further $1 billion in savings by the end of next year, after stripping out $3.2 billion of expenses since 2012, it said in August.

BHP rose 3.8 percent to close at A$32.90 in Sydney, the most in almost three years, as Asian miners surged following China’s decision to cut interest rates for the first time since 2012.

“We always felt that certain interventions would come forward to maintain a decent level of growth in China, so this is pretty much along the lines that we predicted,” Mackenzie said in the interview. He wouldn’t be drawn on whether further rate cuts may be implemented.

The producer raised its full-year dividend for the 12 months through June by 4 percent to $1.21 a share, it said in an August filing. Over the past decade, BHP had returned a total of $64 billion to shareholders through dividends and buybacks, the company said in August.

Investment Assurances

“We will strike the right balance between investment in high-return opportunities and returning cash to shareholders,” Mackenzie said today in a statement.

Oil has dropped about 30 percent from a June peak as the U.S. pumps at the fastest rate in more than three decades, while iron ore is trading around five-year lows as BHP.

Each $1 dollar fall in the price of iron ore cuts net profit after tax by $135 million, while a similar fall in the oil price has a $50 million impact, according to filings.

“In almost any circumstances we can see, we are very comfortable and very confident in our ability to continue to meet that basic commitment we have to our shareholders,” Chief Financial Officer Peter Beaven told investors.

BHP will seek to continue to “run a strong balance sheet, to make sure that we selectively invest for good and importantly keep that progressive dividend intact,” he said.

Trimming Spending

Rio CEO Sam Walsh said in August that the world’s second-largest mining company is on its way to becoming a “cash machine” for investors as an 18-month cost-cutting drive starts to bear fruit.

Iron ore fell on Nov. 19 to the lowest level since June 2009 and has declined 48 percent this year as the biggest exporters, including BHP and Vale SA, have raised output just as demand from China has waned.

BHP said today it’s seeking to raise output at its copper unit, including at Escondida, the world’s biggest copper mine. Constraints on power and water supplies in several countries will probably lead to a significant supply deficit by 2018, the producer said.

Output at the Olympic Dam copper mine in South Australia will increase by about 50,000 metric tons a year in the 12 months through June 2018, it said in the statement.

Dean Dalle Valle, currently president of the coal division will switch roles with Mike Henry, HSE, Marketing and Technology President, next year, the company said.

**

Friday 21 November 2014

Richest Woman in Asia-Pacific Buys Iron as BHP Says Era Ends

By Jasmine Ng and David Stringer  Nov 21, 2014
Bloomberg

Gina Rinehart, the Asia-Pacific’s richest woman, is set to start exports in September from her new A$10 billion ($8.6 billion) iron ore mine undeterred by prices trading near five-year lows and forecast to extend losses.

“We don’t like the ore price going down, but we’re in the lower quartile” of production costs, Rinehart, chairman of Hancock Prospecting Pty, said yesterday in an interview at the Roy Hill mine in Australia’s iron-rich Pilbara region.

She was talking just hours after Andrew Mackenzie, chief executive officer of BHP Billiton Ltd. (BHP), called an end to the era of “massive expansions of iron ore.” BHP and rivals Rio Tinto Group (RIO) and Vale SA (VALE5) are flooding the global market, spurring a surplus after a $120 billion spending spree to boost the capacity of their mines from Australia to Brazil.

“I don’t think next year would be ideal to be adding new supply,” Daniel Morgan, a Sydney-based analyst at UBS AG, said in a Nov. 17. phone interview. “The market is pretty well supplied for the next few years.”

BHP stock lost 4.7 percent in Sydney this week for the biggest weekly loss since March, while Rio shares fell 6.1 percent. Fortescue Metals Group (FMG) Ltd., the country’s third-biggest shipper, retreated 54 percent this year.

The largest producers are targeting record shipments, betting the increase will offset the plunging prices and force less competitive mines to close, including production in China, the largest buyer of seaborne supplies.

‘Last People Standing’

“Our view is that there’s a sustainable long-term iron ore demand,” Barry Fitzgerald, CEO of Roy Hill Holdings Pty, told reporters. “The market economics will always demonstrate ultimately the high-cost producers will need to exit the market and therefore leave us among the other low-cost producers as one of the last people standing.”

Rinehart, who also owns stakes in iron ore mines operated by Rio Tinto, sold 30 percent of Roy Hill to a group including South Korea’s Posco, Japan’s Marubeni Corp. and Taiwan’s China Steel Corp. The overseas partners will take a share of production from Roy Hill, according to the company website.

“It’s probably been a long-held goal to get something she controls into the market,” UBS’s Morgan said. “She’s obviously got a high exposure to the iron ore market through her other business interests. This is the first time she gets to control an asset.”

Roy Hill

More than 2 million metric tons of iron ore has already been stockpiled at Roy Hill, Rinehart earlier told reporters. Project construction is 67 percent complete, Roy Hill Holdings said in a statement.

“Given we’re already an aggressively scheduled, fast-scheduled project, major project, really complicated project, and to be ahead of schedule has been fantastic,” said Rinehart, whose net worth is valued at $14.6 billion, according to the Bloomberg Billionaires Index.

While sticking with iron ore, Rinehart’s Hancock Prospecting is also diversifying. Unit Hope Dairies Ltd. last week announced a A$500 million expansion into infant formula, with plans for a farm and dairy herd in Queensland, with shipments to be sent to China.

BHP Billiton, which last approved spending on an iron ore expansion in 2011, is shifting investment into copper and petroleum, CEO Mackenzie told reporters yesterday after a shareholder meeting in Adelaide, South Australia.

Bear Market

Ore with 62 percent content delivered to Qingdao in China rose 1.1 percent to $70.97 a dry ton yesterday, data by Metal Bulletin Ltd. showed. The steel-making ingredient retreated 47 percent this year after entering a bear market in March.

Prices will average $65 a ton next year, dropping into the $50s in the third quarter, as global supply increases and demand remains weak, Citigroup Inc. said in a Nov. 11 report.

Roy Hill’s break-even cost is at $56 in terms of ore landed in China with 62 percent content, UBS said in a Sept. 12 report, with figures confirmed by Morgan on Nov. 17. Rio’s break-even cost is $45, BHP’s is $49 and Vale is at $67, according to UBS.

Marubeni isn’t concerned about a writedown on Roy Hill as the mine has a cash cost that’s “well below $50 a ton” in Australia, Chief Financial Officer Yukihiko Matsumura said on Nov. 6. China Steel, which holds a 2.5 percent stake, doesn’t have any plan to change that as of now, Executive Vice President Lin Horng-nan said on Nov. 18. Posco had no immediate comment.

The slowdown hasn’t discouraged Vale, the biggest exporter, which is investing $37 billion on iron ore mining and logistics projects, seeking to boost its output capacity to about 450 million tons by 2018.

Vale’s View

In the long term, the market won’t be oversupplied all the time, Claudio Alves, global director of ferrous marketing and sales at Vale, said Nov. 7.

The global seaborne market needs to absorb a surplus of about 110 million tons next year, almost double the 60 million tons in 2014, according to Goldman Sachs Group Inc. The bank declared the “end of the Iron Age” in a September report as a Chinese-led demand surge over the past decade that had brought record profits for producers came to an end.

“The decline next year will be driven mainly by new supply, largely coming from the majors in Western Australia,” Gerard Burg, senior Asia economist at National Australia Bank Ltd. in Melbourne, said by phone on Nov. 17. “Given the lower cost base of those production, we expect that trend to continue.”

RBA’s Heath Says Mining Investment Decline a ‘Significant’ Drag


By Benjamin Purvis  Nov 21, 2014
Bloomberg

The decline in mining investment will be a “significant drag” on Australia’s economic growth, even as exports of coal and iron ore provide a boost, according to the central bank’s head of economic analysis.

It’s uncertain how far and fast investment will fall or how much the mines’ operations will add to growth, the Reserve Bank of Australia’s Alexandra Heath said today in the text of a speech in Sydney. While China will probably find it more difficult to maintain its current pace of economic growth, the world’s second-largest economy should remain a large market for Australian resource exports for some time, she said.

“We have now seen the peak in mining investment and over the near term we expect that the fall in mining investment will be a significant drag” on gross domestic product growth, she said. “Iron ore and, to a lesser extent, coal exports are expected to continue to make a positive contribution to GDP growth in the next couple of years as productive capacity continues to ramp up.”

The RBA is keeping the benchmark cash rate at a record-low 2.5 percent to encourage non-mining companies to take a risk and invest as resources spending declines. While the property market has surged, businesses in other areas of the economy have been reluctant to spend even as the central bank sought to provide the right conditions.

The decline in commodities prices from iron ore to coal has helped lower the Australian dollar, although it remains above its historical average and the central bank has voiced concern about its strength. It bought 86.21 U.S. cents as of 11:00 a.m. in Sydney compared with an average of about 76 cents over the past three decades.

“Our assessment is that, despite the depreciation since early 2013, the Australian dollar remains above most estimates of its fundamental value,” Heath said.

Iron Ore Heads for Fifth Weekly Loss as ‘Worst Is Yet to Come’

By Bloomberg News  Nov 21, 2014
Iron ore is headed for a fifth straight weekly drop with prices trading near the lowest since 2009 on concern that slowing growth in China will hurt demand just as rising low-cost supplies spur a global surplus.

Ore with 62 percent content delivered to Qingdao lost 6 percent this week, dropping to $70.20 on Nov. 19, the lowest level since June 2009, data from Metal Bulletin Ltd. showed. The price gained 1.1 percent to $70.97 a dry ton yesterday, rising for the first time since Nov. 12.

Iron ore collapsed this year as surging low-cost output from Rio Tinto Group (RIO) in Australia and Vale SA in Brazil spurred the glut. Data from Asia’s largest economy this week showed a drop in new-home prices and rising bad loans. The slump bears out a September forecast from Tom Albanese, former head of Rio Tinto, who said prices would remain weak for a sustained period as supply exceeded demand and China’s economy was slowing.

“The worst is yet to come,” Liang Ruian, a fund manager at Shanghai-based Jianfeng Asset Management Co., said in an interview today. “Not only will we see increased supply from Brazil and Australia, also there’s an element of collapsing demand which hasn’t been reflected in the price yet.”

Rio shares traded at 2,891 pence at 8:53 a.m. in London, 4.9 percent lower this week, while BHP Billiton Ltd. stock lost 3.7 percent this week. Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest shipper, retreated 54 percent this year in Sydney.

‘Not a Bottom’

New-home prices dropped in all but one city tracked by the government in October from the month before, according to the National Bureau of Statistics. Construction accounts for about 50 percent of China’s steel demand, Commonwealth Bank of Australia estimates, and the country is the largest ore buyer.

Iron ore at “$70 is not a bottom and I’m not even sure it can stand above $50 next year,” Liang said in Nanjing, China, where he’s attending an iron ore conference. “What people haven’t realized is the vanishing demand for commercial real estate here,” he said.

The market has hit bottom and prices may rebound, Standard Chartered Plc said in a Nov. 3 report. Prices will rise again over time, Rio Tinto Chief Executive Officer Sam Walsh told Sky News Television on Nov. 13. In the long term, the market won’t be oversupplied all the time, Vale SA said Nov. 7.

High-cost iron ore producers faced a “pain point” at about $80 a ton, Albanese, chief executive officer of London-based Vedanta Resources Plc (VED), told Bloomberg on Sept. 29. While low-cost producers would still make good money, higher-cost mines faced closure over time, he said.

Cliffs’ Mine

Cliffs Natural Resources Inc., the top U.S. producer, said this week it is considering closing a mine in Canada as an expansion isn’t viable. Kumba Iron Ore Ltd., which owns Africa’s biggest mine, said yesterday it’s reviewing its product portfolio and spending as prices are lower than expected.

“At these prices, we still have a very decent business, BHP Chief Executive Officer Andrew Mackenzie told reporters yesterday, adding that the time for massive expansions of iron ore are over. ‘‘We’ve been fairly clear that prices at about these levels were what we were expecting for the longer term.’’

WTO members question India's sugar subsidy


Countries have expressed concern that minimum support price and public stock holding programmes could impact them through exports
Press Trust of India  November 21, 2014

Some members of the World Trade Organization (WTO), including Australia, the European Union (EU) and Pakistan, have raised questions over India’s export subsidy on sugar.

Thailand, New Zealand and Colombia have also expressed concerns at the WTO’s Committee on Agriculture.

“India was asked about its export subsidy programme for sugar, with Australia, Thailand, the EU, Pakistan, New Zealand and Colombia, saying they were concerned at a time when members had agreed (at Bali) to reduce and eventually eliminate these types of subsidies,” the WTO said.
“It (India) said no incentives have been paid to producers so far,” the WTO added.
Earlier in July, too, a few members had raised similar questions.
In February, India had announced a subsidy for export of raw sugar up to four million tonnes to help the cash-starved industry clear sugar cane arrears to farmers. The subsidy scheme ended in September 2014.
It was originally fixed at Rs 3,300 a tonne for February-March and the Centre had decided to review the quantum of subsidy every two months.
Under the export incentive scheme, India had exported 700,000 tonnes of raw sugar in 2013-14 marketing year (October- September).
Sugar production of India, the world’s largest producer after Brazil, has increased by 22 per cent to 560,000 tonnes till November 15 of the current financial year as compared with 462,000 tonnes in the year-ago period, according to the Indian Sugar Mills Association (Isma).
The government has pegged overall sugar output at 250.5 million tonnes for the season, while Isma had estimated the production at 25-25.5 million tonnes.
The production estimates for the current marketing year are higher than 24.4 million tonnes produced in 2013-14.
“Its spending on price support programmes, for instance, falls under the limit of 10 per cent of the value of production — a limit on trade-distorting domestic support allowed generally to developing countries when they don’t have their own separate commitments,” it said.

Some of the questions being raised by members include “why India notified its support in US dollars instead of rupees”. Some members expressed concern that minimum support price and public stockholding programmes could impact other countries through exports.

**

India’s steel output growth fastest in October


PTI
NEW DELHI, NOV 21:
India’s steel production grew at the fastest pace among the top producing nations in October at 8.5 per cent even as world’s average growth remained stagnant.
India produced 7.080 million tonnes steel last month compared to 6.523 mt in the year ago period, data prepared by World Steel Association said today.

On the other hand, production of steel declined during the month in major producing nations such as China, Japan and the US, barring Russia which posted a 1.6 per cent growth in October output compared to the same month last year.

China, the world’s largest producer of steel, reported a 0.3 per cent fall in production. Output fell by 1.7 per cent in Japan and by 0.7 per cent in the US.
China, Japan, the US and India are world’s top four steel producing nations. The order has remained unchanged for quite some years now.
These four countries contributed over 91 million tonnes to the world’s total production of 136.7 mt steel during October, which remained flat during the month.
China produced 67.5 mt steel, Japan 9.4 mt and South Korea 6.2 mt, up by 4.5 per cent. The US produced 7.3 mt of crude steel in October.
Among the European Union nations, Germany produced 3.5 mt of crude steel in October, a decline of 5.9 per cent compared to the same month last year. Italy produced 2.1 mt, France 1.5 mt and Spain 1.3 mt.
Turkey’s crude steel production for October 2014 was 2.7 mt, down by 11 per cent over the same month last year. Brazil produced 3.1 mt, up by 2.7 per cent.
“The crude steel capacity utilisation ratio in October, 2014 was 74.7 per cent,” WSA said.
During the first 10 months of the current year, world’s steel production was up by two per cent to 1,367.50 mt. China remained the largest producer during the period at 685.34 MT, Japan 92.49 mt, the US 73.66 mt and India at 69.49 mt.

**

Thursday 20 November 2014

Iron’s Tumble Begets Future Takeover Treasure: Real M&A

By Angus Whitley  Nov 20, 2014
Bloomberg
Today’s plunge in iron ore is creating tomorrow’s acquisition targets.

With prices at a five-year low, only a handful of companies worldwide can make money selling iron ore, according to UBS AG. Some Chinese mines have closed, while Western Desert Resources Ltd. (WDR) and London Mining Plc have already failed. Pessimistic analysts expect the commodity to slide at least a further 14 percent before the end of 2015 as a supply glut continues.

Among the most vulnerable are Western Australia’s Atlas Iron Ltd. (AGO), BC Iron Ltd. and Gindalbie Metals Ltd. (GBG), according to Fat Prophets Pty. All three -- valued yesterday at less than $200 million after dropping 75 percent or more this year -- are struggling with production costs that are too high for the current market. Private funds such as X2 Resources, which has raised as much as $3.75 billion from investors, may be able to pick up bargains before an iron-ore rebound makes the assets viable, said Ernst & Young.

“The smaller miners in both China and Australia could be the collateral damage,” said Freya Beamish, a Hong Kong-based economist at Lombard Street Research Ltd. “Iron ore prices are on a structural downturn that could play out over several years.”

In Play

The price slide has put even the biggest producers in play. Glencore Plc in July approached Rio Tinto Group with a deal that would have created the world’s largest mining company. Rio rejected the proposal the following month.

Iron ore has fallen 48 percent this year, partly on concern China’s economic slowdown will weaken demand for the steelmaking material. At the same time, BHP Billiton Ltd., Rio and Vale SA have increased production to bolster their market shares, creating a glut and preventing a price rebound any time soon.

The commodity, approaching $70 a ton yesterday, will fall to less than $60 in the third quarter of 2015, Citigroup Inc. said in a Nov. 11 report. Only BHP and Rio, the world’s two largest mining companies, and Pretoria-based Kumba Iron Ore Ltd. (KIO), controlled by Anglo American Plc, produce profitably at that price, UBS analysts said in a Sept. 12 report.

“For those in the high-cost area, it’s a case of survival,” Mike Elliott, Sydney-based global leader for metals and mining at Ernst & Young, said by phone. “If you’re only ever going to make money at the peak of a commodity price cycle, then you may call it quits.”

Distressed Assets

Atlas Iron jumped 4.9 percent to 21.5 Australian cents at the close in Sydney. BC Iron shares lost 4.4 percent to 55 cents. Gindalbie fell 4 percent to 2.4 cents.

A representative for BC Iron had no comment on the company’s break-even price for iron ore or the prospects of a takeover. A representative for Atlas Iron and Gindalbie didn’t return a call seeking comment. All three companies are based in Perth.

London Mining, valued at more than $800 million in 2011, went into administration in October. Just hours before the company’s Marampa Mine in Sierra Leone was set to close, it was bought by Timis Corp., the administrators said on Nov. 3. Credit also dried up in September for Western Desert, which operates the Roper Bar project in Australia’s Northern Territory. Receivers have started to look for potential buyers.

It’s not only tumbling prices that are threatening smaller producers. Companies unable to recover their production costs also find it harder to obtain financing, while project writedowns become more likely, Greg Smith, head of research at Sydney-based Fat Prophets, said by phone.

“There are going to be plenty of assets around or moth-balled operations, if it gets to that,” said Smith.

M&A, Activism

Some miners that are close to breaking even at the current iron ore price might be able withstand the commodity’s slump by halting production until the market picks up, said Ernst & Young’s Elliott. Those that can’t may also be targets, he said.

Funds such as London-based X2 Resources, co-founded by former Xstrata Plc Chief Executive Officer Mick Davis, are logical buyers, according to Elliott. Some funds can wait years before profiting from an investment and may be able to buy the assets “relatively cheaply,” he said.

Resources companies sitting on millions of tons of reserves, mining licenses and other assets may also appeal to activist investors who could push for changes to boost returns. For instance, a breakup of Arrium Ltd., the iron ore producer that’s fallen 83 percent this year, might unlock value in the company’s unit that makes rail wheels and metal balls, Morningstar Inc. said last month.

Waiting Game

Shares of Atlas Iron, which digs for iron ore in Australia’s Pilbara region, have tumbled 82 percent this year. That’s even after the company cut capital expenditure and raised cost-saving targets. BC Iron (BCI) has dropped 89 percent and Gindalbie has plunged 75 percent.

According to UBS estimates, Gindalbie started losing money when iron ore fell below $98 a ton, while Atlas and BC Iron became unprofitable when the price dropped through about $80.

The stock collapses reflect doubts the companies will ride out iron ore’s price slump, said Shannon Rivkin, a director at Rivkin Securities Pty in Sydney.

“It’s guaranteed that we’ll see a lot more companies go out of business,” Rivkin said by phone. “There will be buyers but they’re going to have deeper pockets and longer timeframes. Iron ore prices are not going to be this low forever.”

Iron Ore’s Massive Expansion Era Is Finished, Mining Giant Says



By David Stringer  Nov 20, 2014
Bloomberg
Iron ore’s golden spending era is history. That’s the verdict of BHP Billiton Ltd. (BHP), the world’s biggest mining company.

BHP and rivals Rio Tinto Group and Vale SA (VALE) are flooding the global iron ore market after a $120 billion spending spree to boost the capacity of their mines from Australia to Brazil.

Now prices have slumped to the lowest in more than five years as surging supply coincides with a slowdown in China, the world’s biggest consumer.

“Our company has been very clear that the time for massive expansions of iron ore are over,” BHP Chief Executive Officer Andrew Mackenzie told reporters today after a shareholder meeting in Adelaide, South Australia.

While BHP is still increasing production, the company last approved spending on an iron ore expansion in 2011. It’s shifting investment into copper and petroleum, he said

Global seaborne output will exceed demand by 100 million metric tons this year from 16 million tons in 2013, HSBC Holdings Plc said last month. Prices, which are trading around $70 a ton in China, may drop to below $60 a ton next year, according to Citigroup Inc. forecasts.

“At these prices, we still have a very decent business,” Mackenzie said. “We’ve been fairly clear that prices at about these levels were what we were expecting for the longer term.”

Olympic Dam

Investments in copper may help BHP seize on rising demand for energy in emerging economies. Demand from China, the biggest metals consumer, will be supported by electricity grid expansion and greater adoption of renewable energy sources, all of which require more copper wiring, according to Citigroup.

The prospects for an expansion of BHP’s Olympic Dam copper, gold and uranium mine in Australia are looking more promising after testing of new processing technology shows early signs of success, Mackenzie said.

Olympic Dam in South Australia is the world’s largest uranium deposit and fourth-biggest copper deposit. BHP is pilot testing a heap leaching extraction process used in its copper mines in Chile.

If the tests “are successful, and they are showing considerable promise, we will use this technology and phased expansions of the underground mine to further increase Olympic Dam’s output,” Mackeznie told the meeting.

In 2012, BHP halted a proposed expansion of Olympic Dam, estimated by Deutsche Bank AG to cost $33 billion. Mackenzie was addressing the first annual meeting held in the state since the decision.

PM Abbott

Australia’s Prime Minister Tony Abbott has offered to assist BHP in advancing the Olympic Dam expansion, seeking to bolster the region’s economy with manufacturing scheduled to end at General Motors Co.’s Holden unit. The carmaker will cease production in 2017 after 69 years, cutting about 2,900 jobs at sites in the state and in neighboring Victoria.

Trials of a heap leaching processing are planned to begin at the site in late 2016 for three years, the company said in July. Experiments so far are being conducted at a laboratory in Adelaide’s Wingfield district.

“We are looking at the medium term for the deposit, it’s one of the best deposits in the world, it’s absolutely critical to our copper strategy,” Mackenzie told reporters. “What we also need is to have cheaper ways of processing.”

Chile Mine

Heap leaching applies acid to a pile of ore to extract copper rather than using a traditional milling plant, and is used at BHP’s Spence asset in Chile. The producer is already seeking to reduce costs at Olympic Dam to make it the world’s cheapest copper mine, Mackenzie said.

Copper demand may rise to 40 million tons a year from 27 million tons by 2030, BHP’s Marketing President Mike Henry said last month. “Supply, on the other hand, is expected to remain structurally challenged,” he told investors in London.

Shareholders will vote in May on plans to spinoff a collection of smaller assets into a new Perth-based company, Nasser told the meeting. The demerger would be the biggest in the mining industry, separating aluminum, coal and silver assets to create a company valued at about $15 billion after it begins trading next year.

Full details of the demerger plan will be released to shareholders in March ahead of the vote, Nasser said.

**

India to allow foreign firms mine and sell coal - coal secretary



BY KRISHNA N. DAS
NEW DELHI Thu Nov 20, 2014
(Reuters) - India will allow locally registered foreign firms to mine and sell coal when commercial mining is permitted as part of the opening up of the nationalised industry after four decades, Coal Secretary Anil Swarup told Reuters.

To end a chronic coal shortage that cripples power plants and curb the country's imports of the fuel, the Narendra Modi government will also spend about $1 billion by 2019 to buy railway wagons and transport coal from remote mines, Swarup said in an interview on Thursday.

The government last month made provisions for private firms to commercially mine coal but did not set any timeline for when actual digging will start.

The decision will open the door to global giants like Rio Tinto (RIO.L) and BHP Billiton (BHP.AX) and help ramp up output from India's huge reserves - the world's fifth biggest.

"Any company registered in India can bid (when a commercial coalfield auction takes place)," Swarup said.

"So a foreign company registered in India can also bid, provided they fulfil other conditions."

Opening up the industry will increase private coal production to about 400 million tonnes by 2019 from less than 50 million tonnes last year, Swarup said.

As of now, only power, steel and cement companies can mine coal for their own consumption. Commercial mining in India is dominated by state-owned Coal India Ltd (COAL.NS).

IMPORT FREE

Coal India is the world's largest miner of the fuel but its unionised workforce resists mechanisation fearing job losses. The resulting inefficiencies are partly responsible for years of missed output targets and India's coal imports.

But Swarup said the firm will beat its production target of 507 million tonnes in the fiscal year through March due to new mine output and environmental clearances. Output has lagged targets over the last six years for which data is available.

He sought to allay concerns over labour unions, which plan a one-day strike on Monday against sector reforms and the planned sale of a 10 percent Coal India stake.

"Our attempt is to convey our feelings to them that under no circumstances will the interest of Coal India be adversely affected by the decisions of the government," Swarup said.

He was also enthused by the likely selection of Sutirtha Bhattacharya, chairman of India's No.2 coal producer, as the next head of Coal India. Though much smaller, Bhattacharya's Singareni Collieries has been able to surpass its output target every year.

Swarup said the government will finalise a roadmap by Dec. 15 to more than double Coal India's output to 1 billion tonnes by 2019. The company will buy 260 more trains on top of the 200 under operation to move coal from new mines.

Higher production from Coal India and private firms will mean that India, the third largest coal importer, will almost end inbound shipments in four years, Swarup said.

(Editing by Douglas Busvine and Himani Sarkar)

**

Private coal output to rise to about 400 million tonnes by 2019

By Reuters | 20 Nov, 2014
NEW DELHI: The government will allow locally registered foreign firms to mine and sell coal when commercial mining is permitted as part of the opening up of the nationalised industry after four decades, Coal Secretary Anil Swarup told Reuters.

To end a chronic coal shortage that cripples power plants and curb the country's imports of the fuel, the Narendra Modi government will also spend about $1 billion by 2019 to buy railway wagons and transport coal from remote mines, Swarup said in an interview on Thursday.

The government last month made provisions for private firms to commercially mine coal but did not set any timeline for when actual digging will start.

The decision will open the door to global giants like Rio Tinto and BHP Billiton and help ramp up output from India's huge reserves - the world's fifth biggest.

"Any company registered in India can bid (when a commercial coalfield auction takes place)," Swarup said.

"So a foreign company registered in India can also bid, provided they fulfil other conditions."

Opening up the industry will increase private coal production to about 400 million tonnes by 2019 from less than 50 million tonnes last year, Swarup said.

As of now, only power, steel and cement companies can mine coal for their own consumption. Commercial mining in India is dominated by state-owned Coal India Ltd.

IMPORT FREE

Coal India is the world's largest miner of the fuel but its unionised workforce resists mechanisation fearing job losses. The resulting inefficiencies are partly responsible for years of missed output targets and India's coal imports.

But Swarup said the firm will beat its production target of 507 million tonnes in the fiscal year through March due to new mine output and environmental clearances. Output has lagged targets over the last six years for which data is available.

He sought to allay concerns over labour unions, which plan a one-day strike on Monday against sector reforms and the planned sale of a 10 per cent Coal India stake.

"Our attempt is to convey our feelings to them that under no circumstances will the interest of Coal India be adversely affected by the decisions of the government," Swarup said.

He was also enthused by the likely selection of Sutirtha Bhattacharya, chairman of India's No. 2 coal producer, as the next head of Coal India. Though much smaller, Bhattacharya's Singareni Collieries has been able to surpass its output target every year.

Swarup said the government will finalise a roadmap by Dec. 15 to more than double Coal India's output to 1 billion tonnes by 2019. The company will buy 260 more trains on top of the 200 under operation to move coal from new mines.

Higher production from Coal India and private firms will mean that India, the third largest coal importer, will almost end inbound shipments in four years, Swarup said.

**

Wednesday 19 November 2014

Mining’s $120 Billion Iron Bet Sours on Peak Steel in China

By Thomas Biesheuvel and Jesse Riseborough  Nov 19, 2014
Bloomberg
Chinese President Xi Jinping obviously wasn’t speaking for the world’s iron-ore producers when he pronounced this month that the risks from his country’s slowing growth “aren’t that scary.”

The world’s mining giants have wagered $120 billion that steel production in China won’t peak until as late as 2030. Increasingly, it looks like they got that wrong, a miscalculation that could have huge consequences for companies led by BHP Billiton Ltd. (BHP) and Rio Tinto Group.

“I’ve always taken the view that the miners had the best intelligence on this as large investment decisions are based on it,” Richard Knights, a mining analyst at Liberum Capital Ltd. said by phone. “But if they get it wrong by a just a small margin, that has major implications for profitability and the share price for years to come.”

Iron ore is the worst-performing commodity this year, reaching a five-year low yesterday, and the slowing economy has persuaded some analysts and steelmakers that peak steel is nearing in China, the world’s largest producer.

Output in China will reach its high-water mark in as little as three years, prompting plant closures rather than expansions, according to Wolfgang Eder, chairman of the World Steel Association and chief executive officer of Voestalpine AG, Austria’s biggest steelmaker.

“There has to be a restructuring of the Chinese steel industry,” Eder said. “The iron-ore producers are getting more and more aware that their growth expectations have to be redefined. There are enormous over-capacities and more is coming on stream. This will increase the pressure.”

Big Change

It’s a big change. Every year for the past decade, China has added new mills with the capacity to exceed the annual production of Germany, the largest steelmaker in Europe. The surge in new blast furnaces created a consumption vortex, swallowing half the world’s iron ore and creating unprecedented wealth from Australia’s Pilbara region to Brazil’s Amazon basin. That gravy train, generating annual iron-ore sales of about $160 billion last year, is slowing.

The major flaw of producers of iron ore, the most traded commodity after oil, is they tend to be “over-bullish,” said Kirill Chuyko, head of equity research at BCS Financial Group in Moscow.

“Humans make mistakes,” said Chuyko, who thinks peak steel has been reached. “Chinese demand is going south.”

Economy Slowing

As China, the world’s second-biggest economy, heads for the weakest expansion in more than two decades, Communist Party leaders have discussed paring the growth target for 2015, according to a person with knowledge of their talks. The prospect growth will keep slowing has hurt commodities prices from coal to crude oil.

Iron ore has dropped 47 percent to $71.80 a ton this year, the lowest since 2009, according to Metal Bulletin Ltd. Citigroup Inc. forecast the commodity could fall below $60 a ton next year. It peaked at $191.70 in February 2011.

Spokesmen for BHP and Rio declined to comment.

The iron-ore market shifted to a “structural” surplus in mid-2014, Goldman Sachs Group Inc. analysts Fawzi Hanano and Eugene King said in a Nov. 6 report. That excess will widen to almost 300 million metric tons by 2017, they said. Miners led by BHP and Rio have embarked on $120 billion of spending on new mines since 2011.

A total of 24 iron-ore projects have either started or been approved since 2011, according to Goldman Sachs. The mines have a combined annual capacity of 726 million tons and include operations in Australia, Brazil, Sierra Leone, Canada, Russia, Ukraine and Liberia.

Steel Growth

BHP lowered its expectations for Chinese steel growth last month, though it still expects the country to increase production 25 percent by 2020-2025 to 1 billion tons to 1.1 billion tons. Rio expects China’s output to reach 1 billion tons by about 2030.

BHP and Rio operate in the iron-rich Pilbara region of Western Australia, the world’s largest production hub. Rio plans to boost output 11 percent this year to 295 million tons, rising to at least 330 million tons from 2015. BHP is increasing production from the region to about 245 million tons in the 12 months through June.

BHP fell 1.6 percent to 1,633 pence by 9:07 a.m. in London, while Rio declined 1.8 percent to 2,949 pence. Fortescue Metals Group Ltd. (FMG), Australia’s third-largest shipper, lost 7.7 percent in Sydney for the lowest close since June 2009.

Seaborne Trade

Global seaborne iron ore surged almost fourfold in the past decade to 1.2 billion tons last year, according to Bloomberg Intelligence, which predicts a further increase to 1.65 billion tons by 2018. For each ton of steel production, 1.6 tons of iron ore is needed.

“The seaborne iron-ore market has already transitioned to a structural surplus, which we expect to grow as slower growth in Chinese steel production is met by continued record growth in seaborne iron-ore supply, mainly from incumbent low-cost producers,” the Goldman analysts wrote.

While construction of the world’s biggest bridge, longest high-speed rail line and the growth of over 140 cities with more than 1 million inhabitants saw Chinese steel output more than triple to 786 million tons in the 10 years to 2013, industry pundits wonder whether the unprecedented scale of China’s industrialization can be maintained.

Property Slump

China’s bad loans climbed in the third quarter by the most since 2005, while new-home prices declined, according to data this week, spurring speculation the cooling economy will weaken further. China’s new-home prices dropped in all but one city tracked by the government in October from a month earlier, the National Bureau of Statistics said yesterday.

Chinese steelmakers, including the 11th-largest, Hunan Valin Iron & Steel Group, are cautious with the economy on course for its lowest growth rate since 1990 as property slumps and investment slows.

“Steel demand will maintain a small pace of growth for possibly three to five years,” said Li Jianguo, general manager of Hunan Valin. “I wouldn’t say the growth will last over the next decade.”

In the absence of demand growth, mills need to address a domestic supply “glut,” according to the China Iron and Steel Association, which sees the nation’s capacity at 1.1 billion tons to 1.4 billion tons. China, which produces half of the world’s steel, is on course to export a record 80 million tons this year.

“We have global over-capacity in steel production,” said Eder of Linz, Austria-based Voestalpine. “We cannot expect further growth in steel capacity.”

Iron Ore Extends Bear Market as Miner Says ‘We Are Price Takers’

By Jasmine Ng and Phoebe Sedgman  Nov 19, 2014
Bloomberg
Iron ore tumbled to the lowest in more than five years as declining home prices in China added to concern a slowdown in the top buyer will deepen, exacerbating a glut. Producers’ shares fell in London, and Australia’s BC Iron Ltd. (BCI) said that miners had to take the prices on offer.

Ore with 62 percent content delivered to Qingdao lost 4.4 percent to $71.80 a dry ton, the lowest since June 2009, according to Metal Bulletin Ltd. yesterday. It’s 47 percent lower this year, heading for the biggest annual drop in data going back to 2009. Futures in Dalian and Singapore fell today, potentially signaling further losses to Metal Bulletin rates.

The raw material fell into a bear market this year as BHP Billiton Ltd. (BHP), Rio Tinto Group and Vale SA (VALE5) boosted output, spurring a global glut just as economic growth slowed in China. Prices may drop to less than $60 a ton next year as output rises further and demand remains weak, Citigroup Inc. said. China’s bad loans climbed in the third quarter by the most since 2005, while new-home prices declined, according to data this week, spurring speculation the cooling economy will weaken further.

“The decline in China’s home prices gives rise to new fears about a significant cooling of the property sector,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said before the price data was released. “Any slowdown in the construction sector would probably be reflected in weaker demand. The global iron ore market is also clearly oversupplied.”

Rio shares dropped 2.5 percent to 2,928 pence, while BHP fell 1.5 percent to 1,636 pence at 8:08 a.m. in London. Fortescue Metals Group Ltd. (FMG), Australia’s third-largest shipper, lost 7.7 percent in Sydney for the lowest close since June 2009.

Home Prices

New-home prices dropped in all but one city tracked by the government in October from a month earlier, the National Bureau of Statistics said yesterday. As the world’s second-biggest economy heads for the weakest expansion in more than two decades, Communist Party leaders have discussed paring the growth target for 2015, according to a person with knowledge of their talks.

“Construction accounts for about 50 percent of China’s steel demand, reflecting the importance of China’s property market to iron ore prices,” Commonwealth Bank of Australia said in a report today. “The fall in prices is consistent with expectations amongst Chinese steel mills, who are anticipating iron ore to fall under $70 a ton in the first half of 2015.”

Prices are expected to improve as China and other markets develop infrastructure and grow their economies, BC Iron Chairman Anthony Kiernan told shareholders at the Perth-based company’s annual general meeting today, according to a copy of his remarks. The producer’s shares dropped 89 percent this year, including a decline today of 12 percent.

‘Find a Market’

“BC Iron’s fundamental view is that Pilbara ore will find a market, given its quality and freight advantage to Asia,” said Kiernan, referring to the ore-rich region in Western Australia where mines are concentrated. “As miners we are price takers and effectively there is little we can do to substantially influence the price we are paid.”

Futures for May delivery declined 2.9 percent to 473 yuan ($77.28) a ton on the Dalian Commodity Exchange. The contract for December settlement fell 1.4 percent to $70.01 a ton on the Singapore Exchange, after most-active prices dropped below $70 for the first time trading started in April 2013.

Global seaborne output will exceed demand by 100 million tons this year from 16 million tons in 2013, HSBC Holdings Plc said in an Oct. 22 report. The commodity will average $99 a ton this year and $85 a ton in 2015, the bank predicts.

Prices of $75 a ton would render at least 60 million to 80 million tons of seaborne supplies unprofitable, Standard Bank Group Ltd. said in a note yesterday. More than 200 million tons will be loss-making should the raw material drop toward $70 a ton, according to the Johannesburg-based bank.

Iron ore will dip into the $50s in the third quarter of next year, Citigroup said in a Nov. 11 report that cut price forecasts. The bear market still has a way to go, according to analyst Ivan Szpakowski.

**

Expecting spur in cement demand, Holcim eyes expansion in India



By PTI | 18 Nov, 2014
NEW DELHI: Swiss major Holcim is evaluating expansion through new projects as well as acquisitions in India in the hope that "favourable development" under the Narendra Modi-led government will spur cement demand.

The building material major, which has majority stake in Ambuja Cements and ACC Ltd with a combined annual production capacity of more than 45 million tonnes, has also identified India as its one of the main growth drivers for the next year along with Indonesia, USA, Mexico and the UK.

"In India, the Group expects recent favourable development under new government to continue, leading to faster growing cement demand in the years 2015 and thereafter," the company said in a statement today.

Expecting 2015 to be a "solid year" for the group, which is merging with French rival Lafarge to create world's largest cement firm, it hopes to clock over Rs 18,600 crore operating profit excluding merger related costs as a Group next year.

Ambuja Cements and ACC Ltd together have 15 integrated plants. They will have 14 grinding units with a cumulative 63.7 mtpa cement grinding capacity by 2016 with the ongoing expansion. They also have 49 ready mix plants.

"Further expansion under evaluation for construction or acquisition of new plants," Holcim said.

The new government proposes various measures that should drive cement demand, it said, adding that the supply-demand balance was gradually improving although about 100 million tonne oversupply remains across India.

Holcim said India's cement demand was expected to touch at 310-320 million tonnes with available supply was estimated at 400-410 million tonnes by 2018.

**

Tuesday 18 November 2014

Holcim Predicts Rising Profits From Savings and India Recovery


By Patrick Winters  Nov 18, 2014
Bloomberg
Holcim Ltd. (HOLN), the cement maker that’s merging with French rival Lafarge SA, said operating profit will rise as much as 21 percent next year on cost-cuts as well as recovering growth in India, Indonesia and the U.S.

Profit, excluding merger costs could grow to as much as 2.9 billion francs ($3 billion) in 2015, Holcim said in a statement. That compares with the 2.4 billion-franc average prediction of analysts for this year. Holcim has exceeded its target from a savings program started in 2012 by about 200 million francs, it said.

“‘Holcim is the best positioned company in its industry to capture both the recovery in mature as well as the opportunities in emerging countries,’’ Chief Financial Officer Thomas Aebischer said in the statement today. ‘‘Our current footprint will allow us to grow for several years without significant expansion needs, creating higher returns for our shareholders.’’

Chief Executive Officer Bernard Fontana is coming to the end of a 2 1/2-year cost-cutting program to add 1.5 billion francs to earnings with measures that included closing European plants where demand for cement was low as well as streamlining procurement and logistics.

India, Holcim’s largest market by sales, was partly to blame for cutting a sales forecast last year. Now, Holcim expects the recent favorable development under the new Indian government to continue, leading to faster-growing cement demand from 2015. Indonesia and the Philippines are expected to be the growth drivers in the South East Asia region, Holcim said.

The $40 billion merger will couple Lafarge’s African cement plants with Holcim’s Asian assets, to increase exposure to faster-growing regions while at the same time selling less dynamic European plants to get the deal past regulators.

Fontana became the first outsider to lead Holcim when he joined the 102-year-old Swiss company in February 2012. Drawing on his past experience of overhauling steelmaker Aperam, he implemented his so-called ‘‘Holcim Leadership Journey.” He will help to integrate the two companies before Lafarge chief Bruno Lafont becomes head of the merged entity next year.

Port Hedland Strike Risk Remains as Engineers Reject Deal

By Phoebe Sedgman  Nov 18, 2014
Bloomberg
Tugboat engineers at Australia’s Port Hedland voted against a proposed agreement on wages and leave, extending the threat of disruptions to iron ore shipments at the world’s largest bulk export terminal.

The Australian Institute of Marine and Power Engineers did not approve an enterprise agreement put forward by Teekay Shipping (Australia) Pty, said Andrew Williamson, senior national organizer at the union. Teekay is contracted by BHP Billiton Ltd. (BHP) to run tugboats at the port, located 1,300 kilometers (808 miles) north of Perth. Eighty-five percent voted against the agreement, with 3 percent in favor and 14 percent not casting a vote, Williamson said in an e-mail today.

The rejection renews the risk of delaying exports by companies including BHP and Fortescue Metals Group Ltd. Iron ore is Australia’s biggest commodity export earner and disruptions could cost suppliers about A$100 million ($87 million) a day, BHP estimated in May. Shipments through Port Hedland represented about 55 percent of the country’s iron ore exports last year and more than 80 percent of cargoes go to China, port and government data show.

Negotiations between the engineers and Teekay resumed today, according to Williamson. Two unions representing tug masters and deckhands approved four-year enterprise agreements on Nov. 10, according to Teekay.

The engineers’ union is able to take industrial action up until midnight Nov. 29 without need for another ballot, according to the Fair Work Commission. The engineers approved unlimited work stoppages ranging from 4 hours to 48 hours in September.

The commission on Nov. 11 made an interim order to stop a four-hour strike planned for the following day. The union called off an intended strike in August after it didn’t serve the notice within the required period and balloted members again to get fresh approval.

Ports see shipping fuel demand jump as much as 25 percent

SINGAPORE Mon Nov 17, 2014
(Reuters) - Demand for shipping fuel at major Indian ports has climbed in the past week by up to 25 percent as the cost of refuelling at Singapore, Asia's bunkering hub, soared following the collapse of the world's leading supplier, traders said.

The announcement of OW Bunker's bankruptcy drove up shipping fuel prices in Singapore - one of the cheapest ports in Asia in which to refuel - to their highest in more than two years as oil supplies tightened due to credit worries.

Marine fuel prices in Mumbai, India's largest bunkering port, were still around $15 a tonne higher than in Singapore on a delivered basis, but a Singapore-based trader said shipowners could be interested in bunkering in India when the price difference between Fujairah, United Arab Emirates, and Singapore narrows.

Fujairah, which is one of the busiest ports in the world, is closer to India and may be taken as a price reference.

The price difference between Fujairah and Singapore has flipped into a discount of more than $10 since late last week.

"I'm seeing about 20-25 percent more demand month on month," said a trader who sells fuel in India. "But (buyers) are also just watching the prices, as the market is still volatile, so they are trying to delay their purchases."

(Reporting By Jane Xie; Editing by Alan Raybould)

Sugar output up 22% to 5.6 LT so far this season: ISMA


India has exported 21.17 lakh tonnes in the 2013-14 season
Press Trust of India  |  New Delhi  November 18, 2014
The country's sugar output has increased by 22% to 5.6 lakh tonnes so far in the 2014-15 season, industry body ISMA said today.

The total sugar production stood at 4.62 lakh tonnes in the same period of the 2013-14 season (October-September).

The government has pegged overall sugar output at 250.5 lakh tonnes for this season, while the ISMA has estimated the production at 250-255 lakh tonnes. The estimates are higher than 244 lakh tonnes of sugar produced in the 2013-14 season.

The domestic requirement is around 247 lakh tonnes.

"Crushing in the new sugar season 2014-15 has just started... Most of the sugar mills which have started crushing are in Maharashtra, Karnataka and Gujarat," the Indian Sugar Mills Association (ISMA) said in a release.

Mills in Uttar Pradesh, the country's second biggest sugar producing state, are expected to begin the crushing operation by this month-end, it said.

UP mills, which had threatened not to start operations this season, are expected to begin their factories as the state government has kept the cane price unchanged at the last year's level and has also announced some tax concessions and financial assistance to sugar mills, it added.

The ISMA said that around 141 sugar mills out of the total 509 were operating till November 15 of this season, as against 108 mills in the same period last season.

Since there would be an estimated surplus sugar of 20 lakh tonnes in the ongoing 2014-15 season, the industry body said that it is awaiting government's nod on continuing export subsidy for raw sugar and also help mills to convert surplus sugar into ethanol with incentive.

The opening stock of sugar was around 75 lakh tonnes as on October 1 of this season. There will be small surplus sugar for next season, which will, however, be within control.

India has exported 21.17 lakh tonnes in the 2013-14 season. Out of this, 12.12 lakh tonnes was raw sugar and 9 lakh tonnes white sugar.

**

Monday 17 November 2014

China Free Trade Agreement Removes Impost on Australian Coal



By James Paton  Nov 17, 2014
Bloomberg
A free trade agreement with China, the world’s biggest coal consumer, will help miners in Australia struggling amid a global glut.

A 6 percent import tariff on power-station coal will be eliminated over two years, while the 3 percent tariff on steelmaking coal will be removed on the first day, according to an e-mailed statement today from the Australian government.

The agreement, due to take affect next year, was announced today after Chinese President Xi Jinping addressed Australia’s parliament in Canberra.

The removal of the tariffs will help bolster margins of producers in Australia. The nation’s A$13 billion ($11.4 billion) dairy industry will also be among the beneficiaries, along with miners of metals including copper, aluminum, nickel, zinc and titanium dioxide.

“The agreement will eliminate tariffs that add nearly A$590 million in costs to the bilateral minerals and energy trade,” Brendan Pearson, the chief executive officer of the Minerals Council of Australia, said today in a statement.

Oversupply and slowing demand growth have depressed coal prices, forcing companies from BHP Billiton Ltd. (BHP) to Glencore Plc to reduce costs and shutter mines.

Two-way trade, which reached A$151 billion in 2013, has been driven by China’s insatiable appetite for resources and energy, while Australia mainly buys Chinese manufactured products.

Earlier Levy

Glencore, the world’s biggest exporter of power-station coal, said last week it will stop production at its Australian mines for three weeks as prices languish at a five-year low. China planned to impose an import levy of as much as 6 percent on coal starting Oct. 15, including 3 percent on coking coal, according to a Finance Ministry statement.

The price of energy coal from Australia’s Newcastle port, a benchmark for Asia, is down 27 percent this year to $61.85 a ton, the lowest since 2009, according to McCloskey.

The trade agreement would benefit Australia’s agriculture and services industries in particular and lead to an increase in Chinese investment in the country, Paul Bloxham, chief Australia economist at HSBC in Sydney, said before the announcement.

“This is big deal,” Bloxham said. “We think it’s going be a support for growth” in the Australian economy.

Greenhouse Gas

The good news for the industry from the free trade accord is offset by negative implications from the recent agreement between the U.S. and China on new cuts to greenhouse gas emissions to fight climate change.

The coal relief is “a minor win at a time when you’re facing significant headwinds,” Phillip Chippindale, a Sydney-based analyst at Wilson HTM Investment Group Ltd., said by phone.

The U.S. and China deal on emissions will be more significant for the resources industry, said HSBC’s Bloxham.

“That’s not a particularly positive story for coal, but a much more positive story for gas and potentially for uranium,” he said. “That may be a bigger deal than a free trade agreement in terms of impact on the energy export sector.”

Vale Iron-Ore Head Martins Leaves as Price Collapses


By Juan Pablo Spinetto  Nov 15, 2014
Bloomberg
Vale SA (VALE5)’s longest-serving executive director, ferrous business head Jose Carlos Martins, is leaving the world’s top iron-ore producer after prices for the steelmaking material fell to five-year lows.

Martins, 64, left the company to pursue new challenges and is being replaced by base-metals head Peter Poppinga, Rio de Janeiro-based Vale said in a statement yesterday. The changes take effect immediately.

“Vale believes Peter’s track record of productivity increases and achievements in cost reductions in the base metals business will serve him well in making the iron-ore business even more competitive,” the company said of Poppinga’s appointment.

Shares of Vale sank to the lowest since 2006 earlier this week after Citigroup Inc. recommended selling the stock on the deteriorating outlook for iron-ore prices. The commodity lost 44 percent this year and trades close to five-year lows as surging supplies from Vale in Brazil and BHP Billiton Ltd. and Rio Tinto Group in Australia created a glut just as China’s economy slowed.

Jennifer Maki, currently chief financial and administrative officer for base metals, will take over as executive director of the unit, replacing Poppinga, Vale also said in the statement.

Earnings Boost

Poppinga, who started at Vale’s iron-ore commercial business in 1999, held positions in Toronto, Switzerland and Australia, among other locations, before being appointed head of the nickel and copper businesses in 2011, with the arrival of Chief Executive Officer Murilo Ferreira.

During his tenure, Vale’s base metals unit boosted its earnings before interest, taxes, depreciation and amortization to almost $3 billion in 2014 from $600 million in 2012 “due largely to increased productivity and the removal of $1.4 billion in costs,” the company said.

Martins joined Vale in 2004 and was appointed executive director of Ferrous Metals in March of the following year. Well versed in Chinese culture and economy, he used to travel four or five times a year to the Asian country, the destination for half of Vale’s iron-ore shipments, he said in an interview with Bloomberg News last year.

Market Variables

On July 31, Martins said that iron ore was poised for a rebound in the second half on lower supply growth and the closure of higher cost mines, with prices of $110 per ton still being “a good reference” for the steel raw material. Prices dropped an additional 21 percent since then, hitting $75.38 per ton on Nov. 6, the lowest since September 2009.

Martins said Oct. 30 that the market variables “did not behave according to what was expected” and that it would take longer for the price to recover the “balance” of around $100 per ton.

“Things are below that level, so, what is left to do now is to be patient and wait a while,” he told reporters on a conference call then. “My crystal ball is a little cloudy now.”

Vale produced a record 236.2 million metric tons of iron ore in the first nine months of the year, 8.1 percent more than in 2014. The company’s managemenet is scheduled to present Vale’s annual plan for 2015 in New York on Dec. 2.

Global demand scenario for iron ore may mar Sesa Sterlite's return to Goa



By Megha Mandavia, ET Bureau | 17 Nov, 2014
MUMBAI: Sesa Sterlite has waited for more than 27 months to resume iron ore mining in Goa. As it awaits one clearance after another to re-start the once-lucrative mining in the coastal state, the global demand scenario for Goa's low-grade iron ore has changed completely in the meantime.

Iron ore prices have tanked globally to half and are expected to fall even further. On the other hand, Australia has stepped up production. China, which was Sesa Sterlite's biggest customer, doesn't need iron ore as much as it used to; it has cut back on steel production as well as consumption, making things worse for Goa miners.

Most domestic steelmakers lack technology to use Goa's low-quality ore and prefer high-grade ore from either Odisha, Karnataka or even Australia.

Sesa Sterlite, along with other miners in Goa, have pinned their hopes on the finance ministry to abolish 30 per cent export duty on iron ore fines, without which it claims it will not be able to make any money. "Once it is zero, we are in business. If they don't reduce it, then Goa mining will not restart. It will be uneconomical," said Aniruddha Joshi, Sesa Sterlite's vice president, corporate affairs. "It won't make sense to do business at least on the export front. Unfortunately, Goa ore is low grade and inland transportation is so high that it can't be used by domestic mills."

Hitesh Avachat, group head - metals and mining at CARE research, said exporting iron ore out of India is not viable anymore as there's intense competition globally in an oversupplied market. He also blamed Goa's poor port infrastructure, which is causing Goan miners to lose out to aggressive Australian competition.

Sesa Sterlite expects it will be in a position to resume mining in eight leases by the fourth quarter of this financial year. But it will all depend on global iron ore prices and government's decision to abolish export duty.

Sesa Sterlite has mines that have an annual capacity to produce 14.5 million tonne per annum (mtpa). Out of which it will be able restart mining at mines that can produce 10.5 mtpa by fiscal end. However, with the recent mining cap by the Supreme Court on iron ore in Goa, these mines are expected to produce only 5-6 mtpa.

**

Centre mulls issues in sugar brew

Sugar production is expected to be 25.5 million tonnes for 2014-15, about four per cent more than last year's
Sanjeeb Mukherjee  |  New Delhi  November 17, 2014
Business Standard
The prime minister's office (PMO), in consultation with the food ministry, is working on sorting some of the contentious issues which repeatedly plunge the sugar sector into a crisis.

The idea is to resolve the issue of extending the raw sugar export incentive and ethanol blending programme to ensure equitable benefits to all the stakeholders - millers, consumers and farmers.

Officials said ensuring 10 per cent ethanol blending and the export incentive on raw sugar have figured prominently in the discussion between the ministry and PMO in recent days.

"There has to be a clear stand on all things possible, which is being worked out," a senior official said. The previous government had announced an export incentive on raw sugar at Rs 3,371 a tonne, which expired in September (the sugar year ends in September). Since then, the new government has not extended it, saying mills have to clear all their accrued dues to farmers before any package can be announced. However, sugar supply is seen as adequate. Production is expected to be 25.5 million tonnes for 2014-15, about four per cent more than last year's. Adding an opening stock of around seven mt, the supply should cross 32 mt.

This could prompt the government to have a rethink on the raw export subsidy. India shipped 1.2 mt of raw sugar in the year ended September, including 700,000 tonnes with export incentives.

The official said the government might extend the export incentive for October and November only after being fully satisfied that this would not have an impact on prices and that mills had fulfilled all their commitments. Annual domestic consumption is 22-24 mt.

According to officials in the know, ensuring a 10 per cent ethanol blending programme, which has failed to re-start despite repeated attempts by the previous government, is also being discussed. Some days earlier, some oil marketing companies had invited tenders for purchase of ethanol but all bids were later cancelled. Ethanol, a by-product of sugarcane, can help reduce India's annual crude oil import bill when blended with petrol and also provide a fixed source of revenue for mills.

Some officials said much of the major policy initiatives as laid down by a committee under the chairmanship of C Rangarajan, former head of the prime minister's economic advisory council, have already been or are being implemented. The sugarcane pricing issue is within states' purview.

Sugar mills in the country's second largest producing state, Uttar Pradesh, had delayed their crushing for a second year in a row in 2014-15, due to mounting cane payment arrears to farmers.

With the state government deciding against increasing the purchase price beyond Rs 280 a quintal for a second year, there is hope that crushing might start in the next few weeks.

**

Thursday 13 November 2014

Iron Ore Mine Closures May Lead to $70 Floor Price, ANZ Says



By Jasmine Ng  Nov 13, 2014
Bloomberg
Iron ore mines in China will close down should prices drop toward $70 a metric ton, potentially creating a base for prices of the steel-making raw material, according to Australia & New Zealand Banking Group Ltd.

“Substantial domestic iron ore mine closures would occur between $70 to $75 a ton, creating a floor,” the bank said a report dated today, citing findings from a recent visit to the world’s largest steelmaker. “Opportunistic Chinese steel mill restocking is not occurring at low prices and highlights how difficult near-term steel conditions must be on the ground.”

Slowing steel-demand growth in China, which buys about 67 percent of seaborne ore, and surging low-cost supplies from BHP Billiton Ltd. (BHP) and Rio Tinto Group (RIO) spurred a 43 percent drop in prices this year as a glut expanded. The raw material may drop below $60 next year, forcing less competitive mines worldwide to cut production, according to Citigroup Inc. HSBC Holdings Plc predicts a 30 percent slump in Chinese output in 2015.

“The mood in iron ore remains bearish,” ANZ said in the report today, after cutting its forecasts for prices through 2017 in a research note on Nov. 10. “Prices continue to breach support levels previously thought strong.”

Ore with 62 percent content delivered to Qingdao in China rose 0.4 percent to $76.20 a dry ton yesterday, data by Metal Bulletin Ltd. shows. The steel-making ingredient fell to $75.38 on Nov. 6, the lowest since September 2009.

Revised Forecasts

The raw material will average $78 a ton in 2015, down from an earlier forecast of $101, ANZ Head of Commodity Research Mark Pervan wrote in the Nov. 10 report. The 2016 forecast was cut to $85 from $95 and the 2017 outlook was reduced to $89 from $94, Pervan wrote. While prices won’t drop below $70, they are unlikely to recover to more than $100 again, he said.

Iron ore prices will rise again over time, Rio Tinto Chief Executive Officer Sam Walsh told Sky News Television today. In the long term, the market won’t be oversupplied all the time, Claudio Alves, global director of ferrous marketing and sales at Vale SA, said Nov. 7. The companies, the largest producers, are boosting low-cost supplies from Australia and Brazil.

Inventories held at ports in China rose 1 percent to 107.4 million tons as of Nov. 7, expanding after five weeks of declines, according to data from Shanghai Steelhome Information Technology Co. That’s 24 percent higher this year.

“Chinese port stockpiles will be the short-term bellwether and although we have seen a slight build in mid to late October, we expect traders to return and draw down levels through November for seasonal restocking,” ANZ said today. “This should create a short-term relief rally for bulks.”

Global output will exceed demand by 100 million tons this year from 16 million tons in 2013, HSBC said in an Oct. 22 report. Chinese production will tumble from 339 million tons this year to 236 million tons in 2015, HSBC said, citing figures in 62 percent ore-equivalent terms.

Government may lower iron ore export duty if prices stay subdued

By PTI | 12 Nov, 2014
NEW DELHI: The Steel Ministry today said it may think of lowering export duty of iron ore from the present rate of 30 per cent if the prices of the key steel-making raw material remain subdued.

"We have not given a thought on this but, if the current situation continues in the coming days, we will have to think on this," Steel and Mines Minister Narendra Singh Tomar told reporters here.

Tomar was answering to a question on if the government was mulling over reducing export duty on outbound iron ore shipments with the nosediving global price of the raw material.

The international price of the raw material, which is now ruling at its five-year low at USD 75 per tonne, has led iron ore exports unviable for the domestic producers.

In a research note, released today, Citi has predicted an average price of USD 74 a tonne for iron ore in the first quarter of the next year, USD 60 by September 2015 and further down to USD 50 per tonne.

Some miners in low-grade iron ore producing state of Goa are not very enthusiastic about resuming their recently renewed mines saying with each tonne of production, they may have to end up shelling out USD one from their own pockets. Low-grade iron ore prices are trading at USD 50-55 a tonne now.

India, once world's third largest exporter of iron ore, is believed to become a net importer in current fiscal. Export of the raw material has come down drastically to 14.42 million tonnes in 2013-14 as compared to 117.37 million tonnes in FY10. Miners often blame the inflated export duty for the dip in shipments.

During the April-June quarter of the current fiscal, India exported 2.25 million tonnes of iron ore compared with 3.01 million tonnes in the same quarter last year.

Miners' body FIMI said the situation can be improved drastically provided the government ensures speedy clearances and fiscal policies are reversed to pre-2010 level.

Private sector miner Sesa Sterlite recently pitched for scrapping 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.

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Wednesday 12 November 2014

Sinking Jakarta Starts Building Giant Wall as Sea Rises


By Yudith Ho and Rieka Rahadiana  Nov 12, 2014
Bloomberg
If you worry that rising sea levels may one day flood your city, spare a thought for Michelle Darmawan. Her house in Jakarta is inundated several times a year -- and it’s 3 kilometers (1.9 miles) from the coast.

Whenever there’s a particularly high tide or heavy rain, the Ciliwung River and its network of canals overflow, swamping thousands of homes in Indonesia’s capital. In January, a muddy deluge washed over Darmawan’s raised porch, contaminating her fresh-water tank and cutting off electricity for three days.

“We were sitting on the second floor, looking down at the floods, calling out to neighbors to make sure they’re OK,” said Darmawan, 27, a marketing executive whose family had to store drinking water in buckets.

Jakarta, a former Dutch trading port, is one of the world’s megacities most at risk from rising sea levels. That’s because parts of the metropolis of almost 30 million people are sinking by as much as 6 inches a year, more than 10 times faster than the sea is rising.

The Indonesian capital ranks eighth among the 30 biggest cities in the 2015 Climate Change Vulnerability Index compiled by Bath, England-based risk-assessment company Maplecroft. The index is led by Dhaka, Lahore in Pakistan, and Delhi.

$40 Billion

The government’s solution: a $40 billion land-reclamation project unveiled last month. It includes a 32-kilometer (20-mile) sea wall, a chain of artificial islands, a lagoon about the size of Manhattan -- and a giant offshore barrier island in the shape of the national symbol, the mythical bird Garuda.

The first pile for the initial stage of the program -- a barrier to strengthen existing sea defenses along 32 kilometers -- was sunk at the Oct. 9 opening ceremony.

“The whole city is sinking like Atlantis,” said Christophe Girot, principal investigator of the Jakarta Study at the Future Cities Laboratory research group in Singapore. “You see the absolute most miserable and poorest population living right by the river, and they know they’re going to get flooded and may be killed three or four more times a year.”

The central and municipal governments will split the 3.2 trillion rupiah ($263 million) cost for the first 8 kilometers of the wall. Developers would put up the remaining 24 kilometers by 2030 in exchange for the right to build on reclaimed land.

Breached Defenses

Drenched by tropical downpours in the October-to-March rainy season, Jakarta is no stranger to flooding from its rivers, which flow into the coastal plain from the mountains of Bogor to the south. A new urgency arose in 2007 when, for the first time, the sea flowed over the embankments and levees in the north.

Records of a settlement at the mouth of the Ciliwung date to the 4th century. The area rose to prominence when the Dutch East India Company developed the city of Batavia in the early 17th century. As the port expanded, a Flemish military engineer, Simon Stevin, designed a walled city modeled on a traditional Dutch town, including canals to drain the Ciliwung delta into the sea. Today, the metropolis is home to almost 30 million people, making it the second-most-populous urban area in the world, after Tokyo-Yokohama, according to urban-policy research company Demographia in Belleville, Illinois.

Now the Dutch are back to help, with the new master plan drawn up by engineering and consultancy companies Witteveen+Bos and Grontmij. (GRONT)

Below Sea Level

“When a third of the city is under sea level and there’s nowhere else to put people, the only option is to go the Netherlands route,” said Paul Rowland, a Jakarta-based political consultant. “It’s just going to get worse.”

The works can’t come too soon. In October 2013, the sea rose to just 10 centimeters below the top of the defenses, threatening 4 million people, according to Deventer-based Witteveen+Bos. Global sea levels may increase by as much as 82 centimeters this century, according to the United Nations Intergovernmental Panel on Climate Change.

Meanwhile, North Jakarta is sinking by between 7.5 and 17 centimeters a year because of decades of pumping out groundwater to supply homes and businesses.

Coastal cities have been building barriers against the waves since Herod the Great sank barges full of concrete to protect the harbor of Caesarea Maritima in modern Israel before the birth of Jesus Christ. With the rise of sea levels accelerating, ocean defenses have become more popular -- from London’s Thames Barrier, opened in 1982, to Venice’s 5.5 billion-euro ($6.9 billion) MOSE project, scheduled for completion in 2016.

New Business

For local companies such as PT Agung Podomoro Land (APLN), Indonesia’s seventh-largest property developer, the Garuda project opens up a whole new area that has traditionally been blighted with run-down colonial structures and shanties, sandwiched between an airport and the nation’s largest port.

Podomoro is marketing a planned 160-hectare (395-acre) man-made island called Pluit City with apartments, a shopping mall, offices, an international school and a “floating” opera house.

“The sea level keeps rising while Jakarta is sinking, so without a wall the flooding will get worse,” said Wibisono, Podomoro’s head of investor relations, who, like some Indonesians, uses one name. “Development is happening across Jakarta, from East, West and South, but in the North it’s constrained by lack of land.”

15 Years

The company is awaiting a license to begin reclaiming the land, he said. The island city would take 10 to 15 years to complete.

The sleek images of the future contrast with the patchwork of slums, docks and walled compounds today. The first piles for the new sea wall are being erected in Muara Baru, near the sprawling Dunia Fantasi amusement park. On the shore, fishermen work on their boats next to a 3-meter sluice gate with pumps that keep the land from submerging.

Nearby, antique cars are parked in the driveway of a mansion in a walled compound and an Azimut motor yacht is tethered to its private dock.

In the narrow streets of Muara Angke to the west, the evening air is filled with the smell of salted fish, laid out to dry in front of crowded concrete houses. These streets have sunk more than 4 meters -- the height of the houses -- since records began in 1975, according to a report for the Jakarta Coastal Defence Strategy study in 2012. They wind down to the sea where Warkin, a fisherman sits in his wooden boat, mending his net before heading out for the night’s catch.

Fishermen’s Worries

He’s worried the project will disrupt fishing grounds and block the boats. “How will small people like us go out to sea if they build a wall?” said Warkin, who made almost a week’s wages in a single day during a flood last year by ferrying fresh fruit and vegetables to the rich neighborhoods. “How will we be able to keep fishing?”

That’s not the only potential problem. Skeptics are concerned about the amount of garbage and silt the city’s rivers would spew into the proposed lagoon, the corruption such a large project would attract and the danger posed by the fact that Indonesia is one of the most earthquake-prone countries in the world.

The city’s acting governor, Basuki “Ahok” Tjahaja Purnama, said the first stage -- strengthening the existing defenses -- will go ahead, while further studies need to be done before proceeding with the plan for the land reclamation and Garuda island. Purnama took over running the city in June from Indonesia’s new President Joko Widodo.

Better Drainage

Darmawan, the marketing executive whose house is near a canal that joins the Ciliwung, is doubtful about the benefit.

“I’m not going to get my hopes up that it will get better, knowing how Jakarta is,” she said. “I’m not that optimistic about the sea wall. I think they should improve the drainage system.”

She said the government brought in dredging equipment after the January floods to remove garbage from the canals, but it hasn’t made much difference.

“The difficulty in widening and improving drainage along the Ciliwung River lies in entrenched practices of pumping ground water and dumping of human and industrial waste,” said Girot, who is also a professor at the Swiss Federal Institute of Technology in Zurich. “Building the wall of course would guard against the rising seas very well, but we should first take care of the river.”

Residents caught between the rising sea and the flooding Ciliwung aren’t holding their breath.

“The giant sea wall is only a project to earn more money for government officials and give more land for real-estate developers,” said Charli Soegono, 38, who lost his red Honda Civic and whose prized Arowana fish swam away when water flooded his house up to the second floor last year. “It was like in that movie Titanic, where the ship is sinking and you have to rush to get all your valuables out of the water.”