Rabu, 1 Januari 2014

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The Star Online: Business

Stung by curbs, Indian iron ore companies throw in towel

Posted: 01 Jan 2014 06:45 PM PST

INDIA/SINGAPORE: Top Indian trader MMTC's US$80mil iron ore export terminal, ready since 2010, has never handled a cargo. Now the company wants to spend US$16mil to convert the terminal to ship coal.

Bans on iron ore mining and exports in India's top producing states of Karnataka and Goa have choked the industry so hard that MMTC is one of many firms exiting. Even if efforts to fully lift the bans make it past the many bureaucratic and legal hurdles, iron ore miners do not expect complete resumption of production until late 2014.

The bans, put in place as the government tried to clamp down on illegal mining, have cut India's iron ore exports by around 85%, or 100 million tonnes, over the past two years.

They have also reduced foreign exchange earnings by more than US$17bil in the same period, according to the Federation of Indian Mineral Industries (FIMI).

The structural shift in India's iron ore industry could be a blessing for other suppliers, as demand growth from top market China slows and Australian miners Rio Tinto and BHP Billiton ramp up output. It will also make it harder for India to regain its spot as the world's No 3 exporter of the steel-making raw material.

"It's pretty evident that there's lasting damage to the industry," said R. K. Bansal, a secretary general at FIMI. "But if the government of the day at the state and central level, as well as other authorities, stick their neck out and take decisions then this paralysis can go."

Mining in Goa was banned in September 2012, freezing shipments that reached about 50 million tonnes in the 2010-11 fiscal year. In neighbouring Karnataka, where the ban started in 2011, exports remain frozen even though it was lifted in April. In both states, the bulk of mining was done by private companies, which were accused of mining outside lease areas and in excess of set limits.

MMTC was banking on business from Karnataka when it invested along with Indian partners Sical Logistics Ltd and L&T Infrastructure Development Projects in an iron ore terminal in Ennore Port in the southern Tamil Nadu state.

"We think that at least in the next five to six years there will be no exports of iron ore," said SM Babu, general manager at MMTC's Chennai office. Instead the joint venture company hopes to tap growing demand for coal-fired power plants in Tamil Nadu.

Only 16 out of 115 mines have resumed mining in Karnataka. For those keen on returning, the bureaucratic hurdles can be overwhelming.

"There are about 30 or 40 companies whose quantities are so low that they will never restart," said Basant Poddar, owner of Mineral Enterprises Ltd, which has four mining leases in Karnataka but none operating currently.

"For those willing, the issue is with forest clearances. The whole process goes through about 50 levels or officers for stage one clearance, and for stage two it's cut down to about 20."

On Monday, Vedanta Resources Plc, a London-based mining conglomerate controlled by Indian tycoon Anil Agarwal, said its Sesa Sterlite unit had resumed operations in Karnataka after clearance from a court-appointed panel.


Jiro Iokibe, analyst at Daiwa Securities in Tokyo, sees Indian iron ore exports of 15 million tonnes next year, rising to 20 million tonnes in 2015. This is well below the record of more than 117 million tonnes in 2009-2010.

Lower Indian supply has eased pressure on a market seen moving to surplus given expansion by low-cost producers such as Rio Tinto, BHP Billiton and Brazil's Vale while growth in Chinese demand eases.

India's exports to China reached just over 10 million tonnes in January-November, down 68% from a year earlier.

"Definitely people are not depending now on Indian material," said a trader in Shanghai who is among a few left selling only Indian iron ore to Chinese mills. "Most traders have switched to mainstream cargoes from Australia and Brazil and cargoes from India are going at a discount of maybe up to US$4 a tonne."

India's central and state governments, which put in place the various bans under direction from a Supreme Court determined to clamp down on illegal mining, appear keen on getting the iron ore sector back on its feet.

"We have placed all the regulatory measures we have undertaken in front of the Supreme Court so that we can resume mining operations," Prasanna Acharya, mines director in Goa, said in November.

The court has set up a panel that will determine a limit on Goa's production. The panel is expected to submit an interim report by Feb 15, but Acharya has said he does not expect a resumption in mining before October at the earliest.


When the iron ore miners give up, so do businesses relying on the raw material.

Out of the 53 sponge iron making plants in Karnataka with annual production capacity of about 3 million tonnes, 19 have closed and 27 are operating at half their capacity due to a shortage of iron ore, said Deependra Kashiva, executive director of the Sponge Iron Manufacturers Association.

India is the world's top producer of sponge iron, an alternative steelmaking ingredient that is economically viable where natural gas is abundant and cheap.

At Sesa Sterlite's 7 million-tonnnes-per-year mine in Codli Village, about 50km east of Goa's capital Panaji, machinery operator Lakshdeep Asrekar is among a few who still report to work.

Asrekar is lucky because many have lost their jobs, with industry group FIMI estimating job cuts at 200,000 across Goa and Karnataka.

"We come and start our machinery and dumpers and keep them running for 15-20 minutes so that they are in working condition," said Asrekar – Reuters. 

Scarred US consumer a hard sell for traditional retail

Posted: 01 Jan 2014 06:27 PM PST

NEW YORK: If there was one lesson from this year's holiday shopping season, it is that many traditional retailers have to work a lot harder to persuade Americans to open their pocketbooks.

A lot of stores had to discount heavily to eke out a modest increase in sales, likely squeezing profit margins in the process.

Some improvement in the US economy and declines in the jobless rate, plus gains in stock and home prices, are failing to resonate with many Americans whose incomes are struggling to catch up to where they were before the financial crisis.

But to many retail experts and economists there are other less cyclical factors at play. Consumers are spending more. Government figures show monthly personal consumption has risen for seven straight months, with November's outlay marking the fastest increase in five months.

But they are not spending in the shopping malls like they used to.

And that means that, even if the economy picks up significantly, retailers of many products could still struggle.

"We are in a something of an evolutionary process, said Bill Martin, founder of data firm ShopperTrak, which monitors foot traffic in about 60,000 retail stores. Americans are spending more online and becoming more careful about what they buy, he said.

Some of this has been unfolding over a long period, although the changes might be picking up pace.

For example, department stores have found themselves on the wrong end of trends for some time. According to data compiled by Reuters, they now capture just US$3.37 of every US$100 of US retail spending, the lowest since records began in 1992, when the number was nearly US$9.

Some of that is explained by the rise of Wal-Mart Stores Inc and other big box discount retailers. But the pace of decline has picked up, with department stores losing about 0.28 percentage points of market share at an annualised rate between 2002 and 2011, compared with 0.22 in the prior 10 years.

The problem is two-fold. The middle class consumers, to whom the likes of JC Penney Co Inc and Kohl's Corp cater, have struggled with stagnant wages and a payroll tax rise, prompting them to reduce spending on apparel, said Scott Tuhy, a retail analyst at Moody's Investors Service in New York.

People have also gravitated toward spending on services such as travel – airline ticket prices and hotel room rates are up – as well as movie downloads and other content for their TVs, smartphones and tablets.

Prices to attend live sports events, theme parks, movies and rock concerts have also been rising.

In addition, increasing healthcare costs have been eating up discretionary income, with many employers seeking higher contributions from their staff.

According to the Commerce Department, spending on services hit an annual rate of US$7.1tril in November, by far the biggest slice of overall consumption

"There was a day when you bought your TV, refrigerator, furniture, everything in a department store, whereas today, it's really just apparel and maybe jewellery," said Stuart Hoffman, an economist at PNC Financial Services Group in Pittsburgh.

"But as incomes rise over time, people spend more on services – travel, entertainment."

As data from MasterCard showed last week, it took deep discounts and hefty promotions to spur a 2.3% rise in holiday sales between Nov 1 and Dec 24 compared with a year earlier. The figures include apparel, jewellery, electronics, luxury goods and home furnishings.

"Given how promotional the season turned out to be, profits are likely to be flat because retailers had to provide quite a lot of discounts to get those sales," said Moody's Tuhy.

And it's not as if people aren't doing some serious shopping.

US sales of big-ticket items such as autos and home-related goods such as washing machines, as well as purchases in home-improvement stores, surged in 2013, boosting overall retail sales. Homes sales also increased pretty steadily from mid-2012, although a summer spike in mortgage rates cooled things off a bit this fall.

Some of the gains reflected a long-anticipated release of pent-up demand as the economic recovery has gained momentum, but it might also be partly a reflection of changing attitudes, with the focus on more practical purchases.

According to the National Association of Realtors, more than half of home buyers between July 2012 and June 2013 made some sacrifices, such as reducing spending on luxury items, entertainment and clothing.

"Pent-up demand has helped on housing and autos, but consumers are still cautious. Things are getting better, yes, but even if you have a job, things are still tight," said Sam Bullard, an economist at Wells Fargo in Charlotte.

In its 2014 retail industry outlook, Moody's said it expects the auto and home improvement sectors to outperform again in 2014, good news for Home Depot Inc and General Motors Co , whose stocks are up 32% and 41%, respectively, this year.

It's been a different story with more ordinary purchases.

An Ipsos/Reuters poll released just ahead of the Christmas holiday found consumers plan to spend about a third less this year than last year on items such as jewellery, toys and electronics.

Sluggish sales of toys and packaged foods pushed down sales at Wal-Mart's US stores in the third quarter and prompted the company to forecast disappointing holiday sales results, while Target Corp blamed "constrained" consumer spending for a tepid rise in quarterly sales.

One factor is that the giant TV is much cheaper than it was, and tablets and many of today's laptop and desktop PCs are cheaper than their predecessors of a few years ago, again not helping store sales. Shoppers are also increasingly likely to buy such items online from the likes of Amazon.com Inc and Apple Inc.

Participants in Deloitte's 2013 holiday shopping survey for the first time named the Internet as their number one shopping venue, with 68% of smartphone users and 63% of tablet users planning to use their devices to help them.

As people check out goods online before heading to the store impulse buying can take a hit, said Martin. ShopperTrak data shows mall shoppers visited an average of 3 to 3½ stores this year, down from 4½ to 5 in 2007.

The improvement in the economy and gains in asset prices have also clearly not trickled down to large segments of the broader population.

Hiring has picked up, helping to push the jobless rate to a five-year low of 7% in November, but some 11 million Americans are still unemployed, and many are earning less than before the recession. When adjusted for inflation, average weekly wages have barely budged since late 2008.

That has made Americans, particularly those in middle- and lower-income brackets, far more discerning when it comes to their spending.

"There's been psychological scarring for people from this recession, much like how some people who lived through the Depression said they were scarred," said Hoffman.

"There are still a lot of people who can't afford to do much, and those who can are holding back" – Reuters. 

Cypark slips on weaker earnings

Posted: 01 Jan 2014 06:19 PM PST

KUALA LUMPUR: Shares of Cypark Resources fell to a low of RM2.46 on Thursday after it reported lower-than-expected earnings.

At 10.04am, it was down seven sen to RM2.48. There were 131,300 shares done.

The FBM KLCI slipped 0.64 point to 1,866.32. Turnover was 272.71 million shares valued at RM212.92mil. There were 233 gainers, 177 losers and 220 counters unchanged.

CIMB Equities Research is maintaining its target price of RM2.78 for Cypark after its earnings fell due to start-up costs for its new renewable energy (RE) capacity.

The research house said on Thursday Cypark's FY10/13 net profit was below its and consensus expectations, accounting for only 81% and 85% of full-year estimates, respectively.

"Despite the disappointing results,  Cypark remains an Add as we remain  positive on its longer term outlook, underpinned by more RE capacity coming up," said CIMB Research.
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