Oil price up on US stock draws, demand outlook

AUG 13, 20155:11 PM

[LONDON] Oil prices rose on Thursday as lower US crude stocks and optimistic global demand projections overrode concerns about a glut of supply.

US stockpiles of crude and gasoline fell last week, data from the Energy Information Administration (EIA) showed on Wednesday, bolstering sentiment in the US market.

Benchmark North Sea Brent crude oil was up 60 cents at US$50.26 a barrel by 0855 GMT. US crude was trading at US$43.50 per barrel, up 20 cents.

Traders said a slide in the value of the dollar against a basket of currencies this week also helped strengthen oil markets. The US currency rallied on Thursday but reached a one-month low on Wednesday.

A weaker dollar makes oil more affordable to holders of other currencies and tends to support commodity prices. "It matches very well with the US dollar curve," Bjarne Schieldrop, chief commodities analyst with SEB in Oslo, said of oil's gains. "That was a clear driver in my view." Despite the rise, plenty of bearish factors loomed.

Iraq, Opec's second largest producer, plans to export near-record volumes of Basra crude in September, adding to an already oversupplied market.

China's shaky economic growth, and recent moves by Beijing to devalue its currency, have cast doubt on its potential oil consumption.

China's implied oil demand fell in July from the previous month amid a continuing drop in its vehicle sales that could mute growth further in the second half of 2015. "All is not well with the Chinese economy," Howie Lee of Phillip Futures told Reuters Global Oil Forum. "There is so much pessimism attached to this move (yuan devaluation). For China to start a fresh currency war... smacks of desperation," he added.

Falling margins at Asian refineries have led Chinese and Korean refiners to cut production, thus lowering their demand for crude oil.

Problems with a major refinery in the US Midwest, along with the coming refinery maintenance season, have also raised fears that the country's Cushing, Oklahoma, oil hub could fill its storage tanks.

REUTERS

    

Iron ore trade to China faces disruption after Tianjin blast

AUG 13, 20153:46 PM

[TIANJIN] Iron ore shipments to China have been disrupted after deadly explosions at Tianjin's port prompted authorities to restrict vessels calling at the facility that funnels commodities into the north and ships out steel.

"There was no damage to the iron ore discharging berths following the explosion," Melbourne-based BHP Billiton Ltd said in a statement on Thursday. "However, shipments and port operations have been disrupted as a result and we are working with our customers to minimize any potential impact." Mills in China are the world's largest buyers of iron ore and the blasts, which rocked the city late on Wednesday night killing at least 17, will prompt shippers, traders and users to tap stockpiles and seek alternative routes. The explosions occurred at a hazardous-goods warehouse, according to a statement from the port. Iron ore prices dropped to the lowest level since at least 2009 last month as miners including BHP boosted output while demand growth stalled in China.

"It is unclear the extent of the disruption likely to be experienced to port activities," Fortescue Metals Group Ltd. said in a statement. The company is Australia's third-largest shipper. "We will be monitoring the situation." Ore with 62 per cent content delivered to Qingdao, another Chinese port, rose 0.2 per cent to US$56.31 a dry metric ton on Wednesday, according to Metal Bulletin Ltd. The data are issued daily, with yesterday's figure coming before the blasts were reported from Tianjin.

"This is a developing story, which could have a potentially positive short-term impact on pricing," Clarksons Platou Securities Inc said in a note. Material damage to the port could result in short-term disruptions to iron ore delivery, as well as lost or damaged stockpiles, it said.

About 15 mills get their ore from Tianjin port and no significant impact is seen in the short term as steelmakers have stockpiles that can cover about one-week's production, industry analyst Mysteel Research said in an e-mail. Stockpiles at the port's Beijiang wharf were estimated at 1.4 million tons, while holdings at the Nanjiang wharf were 5.7 million tons, it said.

The port is located about 160 kilometers (100 miles) southeast of Beijing in Tianjin municipality. Some deliveries will be disrupted, Wang Xiaolei, a press officer at Tianjin Maritime Safety Administration, said by phone on Thursday.

Other ports on China's eastern coastline, especially those in Shandong and Hebei provinces, could accommodate the capacity that Tianjin's not be able to handle, according to Helen Lau, an analyst at Argonaut Securities in Hong Kong.

Tianjin handled 25.08 million tons of iron ore imports in the first half of the year, or 5.5 per cent of the country's total, according to customs data. It also shipped out about 30 per cent of the country's steel exports in the period.

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Standard Chartered's bad loans to soar in Asia: Jefferies

Standard Chartered Plc's losses on bad loans will climb faster than expected in the second half, hurt by falling commodity prices and a devaluation in the Chinese yuan, according to Jefferies International Ltd.

PHOTO: AFP

AUG 13, 20156:29 PM

[LONDON] Standard Chartered Plc's losses on bad loans will climb faster than expected in the second half, hurt by falling commodity prices and a devaluation in the Chinese yuan, according to Jefferies International Ltd.

Loan impairments will increase to US$3.3 billion both this year and in 2016, about a third higher than the analysts previously predicted, following a 70 per cent jump in losses to US$1.7 billion in the first half. Jefferies also cut its 2015 profit estimate by 15 per cent to US$2.6 billion as the bank's revenue falls faster than it can sell assets.

"We expect credit quality to worsen in the second half," Joseph Dickerson, who has an underperform rating on the stock, said in a report on Thursday. Southeast Asian loans "started to deteriorate markedly in the first half and we expect pressures on the commodity side to continue. The recent yuan devaluation will have negative consequences for Malaysia and Indonesia."

Chief Executive Officer Bill Winters, 53, last week cut the bank's dividend by half to save US$1 billion and stave off the immediate need to raise money as he grapples with dwindling profit. Some analysts had forecast a capital gap of as much as US$10 billion. Standard Chartered, which makes most of its earnings in Asia, has been cutting its exposure to commodities and has said it remains "watchful" as bad loans surge in India and China.

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Malaysia and Indonesia are the next Asian markets that could generate losses for Standard Chartered because their largest trading partner is China, where demand is "decelerating," Dickerson said. The Chinese central bank intervened to support the currency in mainland trading on Wednesday, causing panic selling that sparked the biggest rout since 1994. Southeast Asia is the bank's largest market after China, accounting for 26 per cent of the bank's customer loans.

Revenue at Standard Chartered will fall to US$16.8 billion in 2016 from an estimated US$17.1 billion this year, Jefferies said. All four of the lender's divisions reported a drop in revenue in the first half, led by a 19 per cent slump in the commercial clients business, the bank reported Aug 5.

"Loans are shrinking faster than we had expected as the company appears to have stepped up de-risking activity in a move to generate capital and improve returns," Dickerson said. "The earnings power of Standard Chartered is well below what the consensus expects."

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US retail sales up solidly, boosted by automobiles  

AUG 13, 20159:24 PM

[WASHINGTON] U.S. retail sales rebounded in July as households boosted purchases of automobiles and a range of other goods, suggesting solid momentum in the economy early in the third quarter.

The upbeat report from the Commerce Department on Thursday should strengthen expectations of a Federal Reserve interest rate hike as early as next month.

Retail sales increased 0.6 percent last month. June's retail sales were revised up to show them unchanged instead of the previously reported 0.3 percent drop. Economists polled by Reuters had forecast retail sales rising 0.5 percent in July.

Retail sales excluding automobiles, gasoline, building materials and food services rose 0.3 percent after a revised 0.2 percent gain in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Core retail sales were previously reported to have dipped 0.1 percent in June. Economists had forecast core retail sales rising 0.5 percent in July.

The retail sales report added to July's fairly upbeat employment and small business confidence reports in suggesting the economy was growing at a steady clip at the start of the third quarter. GDP expanded at a 2.3 percent annual pace in the April-June quarter.

However, June data on factory inventories and imports as well as upward revisions to May construction spending figures have left economists expecting that the advance second-quarter GDP growth figure could be raised to at least a 3.0 percent pace.

The government will publish its second GDP growth estimate later this month. Given the steadily firming economy, many economists expect the Fed will raise its short-term lending rate in September for the first time in nearly a decade.

Financial markets have, however, shifted their rate hike expectations toward December following China's devaluation of its currency this week.

Sales last month increased almost broadly, with receipts at auto dealerships increasing 1.4 percent after falling 1.5 percent in June. Clothing stores sales rose 0.4 percent.

Receipts at building materials and garden equipment stores advanced 0.7 percent and sales at furniture stores rose 0.8 percent. There were also increases in sales at online stores and at restaurants and bars.

Receipts at sporting goods and hobby stores rose 0.9 percent. Sales at electronics and appliance stores fell 1.2 percent.

REUTERS

      

Political obstruction scuppers Modi's reform agenda

Indian Prime Minister Narendra Modi's reform agenda suffered a major blow on Thursday when lawmakers ended the summer parliament session without approving a tax reform bill aimed at boosting economic growth.

PHOTO: AFP

AUG 13, 20155:07 PM

[NEW DELHI] Indian Prime Minister Narendra Modi's reform agenda suffered a major blow on Thursday when lawmakers ended the summer parliament session without approving a tax reform bill aimed at boosting economic growth.

The Goods and Services Tax (GST) bill was considered low-hanging fruit among free-market reforms as it has rare bipartisan support. But it fell victim to a political impasse over allegations of impropriety against Mr Modi's cabinet and party colleagues.

Mr Modi's failure to secure parliament's backing for the measure could push back politically contentious bills such as labour and land legislation, which businesses and economists say are critical to create jobs for millions entering the workforce.

Political opposition had already forced the Indian leader to backtrack on a pro-business land bill that would have made it easier to acquire farmland and help realise his vision of building modern cities and industrial corridors.

The delay in the passage of the GST bill will make it tougher for the government to meet a self-imposed deadline of next April for its launch.

Shilan Shah, an economist with Capital Economics, said it would now be almost impossible to meet the deadline, and predicted a series of state elections over the next two years would make politically unpopular reforms harder. "The bigger picture is that PM Modi has missed another major opportunity to push ahead with contentious reforms," he wrote in a research note.

Mr Modi has the option of calling a special sitting of parliament to pass the bill before the next scheduled session in the winter. But he would first need to strike a deal with the opposition Congress party that is adamant in its demand for the resignation of three of Mr Modi's colleagues.

Indian businesses have long coveted GST to subsume a thicket of federal and state levies, a chaotic structure that inflates costs. Supporters say GST will add up to two percentage points to economic growth and boost domestic trade.

After years of political wrangling, it was blocked by its original authors.

The Congress party, which lost power to Mr Modi last year, championed the measure while in office. By scuttling the new sales tax, for now, the party has denied Mr Modi a victory ahead of his annual Independence Day speech on Saturday.

Congress party lawmakers prevented the house from functioning each day of the three-week sitting. "India's political class is displaying a lack of maturity,"said MS Unnikrishnan, managing director at capital goods maker Thermax. "This obstructionist politics is harming the country, blocking economic progress."

REUTERS