Navtej Kohli Business Blog

Asian commodity stocks rose after Japanese steelmakers agreed to a lower-than-estimated increase in iron-ore prices and crude oil held above $95 a barrel.Nippon Steel, Japan’s biggest steelmaker, climbed the most in three weeks after steelmakers agreed to a 65 percent increase in iron-ore prices, lower than some analysts estimated. Australia & New Zealand Banking Group Ltd. led a decline among banks after its chief executive said a “bloodbath” in debt markets will wipe out profit growth.

“Some had anticipated the price for iron ore would double,” said Mitsushige Akino, who oversees about $560 million in assets as chief investment officer at Ichiyoshi Investment Management Co. “Demand in emerging markets will likely help steelmakers increase sales and fend off the cost increase.”

The MSCI Asia Pacific Index was little changed at 144.69 as of 1:04 p.m. in Tokyo. Commodity and energy-related stocks were the two biggest percentage gainers among the gauge’s 10 industry groups.

The Nikkei 225 Stock Average added 0.3 percent to 13,665.52. Sony Corp. climbed after Kyodo news said rival Toshiba Corp. may exit high-definition DVD production. Tokyo Electron Ltd. led computer chip-related stocks higher after Credit Suisse Group raised its rating on the industry.

Nippon Steel gained 4.3 percent to 581 yen, set to close at its highest since Jan. 24. JFE Holdings Inc., Japan’s second- biggest steelmaker, added 6.5 percent to 4,420 yen. Posco, South Korea’s largest steelmaker, climbed 1 percent to 521,000 won.

Steelmakers

Steelmakers in Japan agreed to a 65 percent increase in the annual price of iron ore, the raw material used to make steel, a Japanese company official said. Prices may rise as much as 70 percent because of a global supply deficit, Credit Suisse said last month.

Woodside Petroleum gained 2.3 percent to A$51. Santos Ltd., Australia’s No. 3 oil and gas producer, advanced 4.3 percent to A$14.23. Cnooc Ltd., China’s largest offshore oil explorer, added 1.6 percent to HK$12.52.

Crude oil in New York rose as much as 1.3 percent to $96.67 on Feb. 15. Prices were recently at $95.60 a barrel.

Tokyo Electron, the world’s second-largest maker of chip- production equipment, gained 1.5 percent to 6,870 yen. Advantest Corp., the biggest maker of memory-chip testers, climbed 8.4 percent to 2,520 yen.

Credit Suisse raised its recommendation on Japan’s chip- equipment makers to “overweight” from “market weight” because it expects orders to pick up this year.

Sony, Toshiba

Sony, which helped develop the Blu-ray high-definition DVD standard, gained 2.1 percent to 4,950 yen. Toshiba is reviewing whether to completely end a rival HD DVD production standard, depending on factors such as demand from the U.S., Kyodo news reported on Feb. 16, citing unidentified industry officials.

Toshiba climbed 5.6 percent to 828 yen, the highest since Dec. 28 on speculation the company will abandon unprofitable business.

Australia & New Zealand Banking, Australia’s third-largest bank, dropped 5.7 percent to A$22.54, the lowest since Sept. 6, 2005. Chief Executive Officer Michael Smith said today the upheaval in global debt markets “is a financial services bloodbath” and that “credit costs are going up, well above underlying earnings growth.”

Commonwealth Bank of Australia, the country’s biggest mortgage lender, lost 4.4 percent to A$44.33, the biggest drag on the MSCI gauge. National Australia Bank Ltd., the nation’s largest by assets, lost 2.1 percent to A$30.

The high growing Indian IT sector, which has been reeling under pressure due to rupee appreciation, may again hit a roadblock if the government does not extend the Software Technology Parks of India (STPI) scheme beyond 2009. “About 1,500 small and mid-size firms would have to shut their shops if the government does not extend STPI scheme beyond 2009,” Electronics and Computer Software Export Promotion Council Executive Director D K Sareen told reporters.The industry is already battling with incremental rise in the value of rupee against dollar, which has impacted their bottomlines by up to 15 per cent, he said. Besides, there are fears of a recession in the world’s largest economy which could adversely impact the the industry in India.

ESC has about 5,000 IT and ITeS companies as its members. About 60 per cent of the total exports comes from just 100 firms. The STPI scheme, which provides tax holiday for export- oriented IT/ITeS firms, would expire by the end of 2008-09.Under the scheme, 100 per cent tax deduction on profits under Section 10(A) and Section 10(B) of the Income Tax Act is available only up to March 31, 2009. The companies will, thereafter, have to pay tax at an estimated rate of 33.99 per cent in the absence of these deductions.

About 84 per cent of the total exports comes from two markets — the US and the UK, Sareen said. The companies need to identify other markets such as Latin America, Africa and Asean countries, to reduce their dependence on the US market. Japan, which is the third largest IT & ITeS market in the world, only accounts for 4 per cent of the total exports from India. (PTI)

French defence and electronics major Thales is eyeing more joint ventures (JV) with Indian companies as it seeks to deepen its engagement with this country where it first established a footprint half a century ago. “We want to create permanent joint ventures with Indian companies in the private and public sectors,” Thales chairman and CEO Denis Ranque said. “We will bring in the technology and our Indian partners will bring them in the markets,” Ranque, who rarely interacts with the media, told. “We already have a joint venture with Rolta and are looking at one with Samtel, which is in advanced satge of negotiationl,” he said, declining to give further details. Samtel is one of India’s largest manufacturers of a range of electronic components like colour TV picture tubes, monochrome display and industrial tubes, glass parts, electron guns, heaters, cathodes and deflection yokes. Explaining need of the expected JV, Ranque said, “Through this tie-up, we will be able to leverage the broad spectrum of cutting-edge technologies, systems and solutions from Thales and Rolta’s leadership in the Indian market.” The JV will develop command, control, communications, computers, intelligence, surveillance, target acquisition and reconnaissance (C4ISTAR) systems for the Indian armed forces and for international markets. Thales, which expects orders of 250-300 million euro from India during 2008, has a broad footprint in the country’s defence and civil aviation sectors. Earlier this month, it signed a deal believed to be worth $50 million to convert four to six Indian Navy minesweepers into state-of-the-art mine hunters. Through DCNS, a company in which it has a 25 percent stake, Thales is also engaged in the construction of six Scorpene submarines at Mumbai’s Mazagon Docks, even as it is “completely open to collaboration” with the Indian Space Research Organisation (ISRO) for the fabrication and launch of satellites. Thales, which employs some 120 people in Delhi and Mumbai, will also ramp up its 150-strong IT operations at Chennai to 1,000 in the next few years. Globally, Thales employs 22,000 R&D engineers out of a total workforce of 68,000 employees in 50 countries with 2007 revenues forecast in excess of 12 billion euros.(IANS)

According to an Assocham-e-valueserve study, the segment has expanded almost 50 times in a span of five years to Rs 33,75,336 crore in 2007 from Rs 66,530 crore in 2002.

In 2003, the size of commodities trade stood at Rs 1,29,364 crore, registering a hike of over 94 per cent, which further increased by 341 per cent to Rs 5,71,759 crore in 2004. The growth in commodities trade grew, by 276 per cent at Rs 21,55,122 crore in 2005.

However, in 2006, though the commodities trade increased to Rs 27,39,340 crore, it registered a growth of only 27 per cent over the last year.

For 2007, the trade in commodity reached Rs 33,753,36 crore and registered a growth of 23 per cent, the study says.

”The growth in commodities derivatives trading, which was at massive level in the last five years, will now register about 30 per cent growth and reached the projected level of Rs 74,15,613 crore,” said Assocham President Venugopal N Dhoot.

He added that the commodities market size would not grow at its first phase growth rate as it was beginning but people’s participation in the trade would continue and the growth rate is projected at 30 per cent by 2010.

The daily average volume of trade in commodities exchanges by December 2007 was over Rs 12,000 crore, said Mr Dhoot.

Gold, silver and crude recorded the highest turnover at the MCX, while soya oil, guar seed and soyabean soared in NCDEX.

At the NMCE pepper, rubber and raw jute were the most actively traded commodities on an average and this trend is likely to continue, the report says.

The study points out that futures trading in commodities results in transparent and fair price discovery on account of large-scale participation of entities associated with different value chains.

”This reflects upon the views and expectations of a wide section of investors related to that commodity. It provides an effective platform for price-risk management for all segments of players ranging from producers, traders, processors, exporters/importers and the end-users of a commodity,” the study says.

The delivery and settlement procedure differs for each commodity in terms of quality implications, place of delivery, options, penalties and margins, and are defined comprehensively by the exchanges.

Members of an exchange can perform and clear transactions in only those contracts which are exchange specified and approved by the Forward Market Commission (FMC).

Talking about constraints, the study says even as the commodity futures markets remain the strength of an agricultural surplus country like India, the exchanges are still at a nascent stage of development as there are numerous bottlenecks hampering their growth.

The study says the institutional and policy-level issues associated with commodity exchanges have to be addressed by the government in coordination with the FMC in order to take necessary measures to pave the way for a significant expansion and further development of the commodity futures markets. ”Some of the major problems associated with commodity markets in India include infrastructure, trading system, broking community, controlled market, integration of regional and national exchanges as also integration of spot and futures markets,” the study says.

The lack of efficient and sophisticated infrastructural facilities is the major growth inhibitor of the Indian commodity futures markets.

Though some exchanges occupy large premises, they are deficient in terms of the necessary institutional infrastructure, including warehousing facilities, independent and automated clearing houses, transparent trading platforms.
Though the operations of national exchanges are carried out through the electronic trading system, a majority of the regional exchanges continue to trade via the open outcry system. ”In order to attract a greater number of investors towards sector-specific commodities, regional exchanges must introduce the electronic trading system to assure the investors of transparency and fairly priced commodities,” the study says.

Also, despite a large number of members existent in the exchanges’ records, most of them are not involved in trading as the business is not highly profitable in comparison to equities.

Therefore, it is important to absorb a large number of broking firms that have diversified into stock broking and other related businesses.

”To attract active traders to commodity futures, the regulatory authority needs to introduce a more stringent code of conduct in setting standards for brokers, imposing capital adequacy norms, defining qualification criteria, etc,” the study suggests.

Price variability is an essential pre-condition for futures markets. Any deviation in the market mechanism or where the free play of supply and demand forces for commodities does not determine commodity prices will dilute the variability of prices and potential risk.

For a vibrant futures market, it is imperative that commodity pricing must be left to market forces, without monopolistic government control. However, in India, scores of commodities in which futures trading is permitted are still protected under the ECA, 1955.

From a wider standpoint, it is essential to integrate the regional exchanges with the national exchanges to achieve price discovery for regional exchanges to be driven by broad-level prices prevailing at the national exchanges.

Secondly, this integration will facilitate the creation of more efficient markets as price discovery will become dependent on domestic demand and supply of commodities.

The integration of the spot and futures market is another critical factor for the expansion of the commodity futures market in the country as the spot market in commodities is largely controlled by the state governments.

Commodity exchanges play a pivotal role in ensuring stronger growth, transparency and efficiency of the commodity futures markets, Mr Dhoot added.

I came across this article recently and the BMW lover Navtej Kohli got working!! Here is the complete article.Read and enjoy!!

 The German luxury carmaker BMW, facing rising costs and resurgent competition from rivals like Mercedes, plans to dismiss several thousand workers, its first significant layoffs in at least a decade, the company said Friday.

The cuts, mostly in Germany, are part of a sweeping campaign to restore profits at BMW, which has hit an uncharacteristic rough patch after years of being Germany’s most successful carmaker.

The company, which is based in Munich, declined to confirm a report on the Web site of Der Spiegel magazine that 8,000 jobs would be eliminated. A spokesman, Bill McAndrews, said BMW would not disclose numbers until early next year.

Layoffs have become common at German carmakers in the last few years, with Mercedes, Volkswagen and the Opel unit of General Motors cutting thousands of workers. BMW has had the opposite problem, trying to churn out more cars without bloating its payroll.

A large number of those affected by the cuts will be employees with temporary contracts, Mr. McAndrews said. BMW will also offer voluntary buyouts and negotiate more flexible working hours with its unions. Layoffs are unlikely in the United States, where BMW is increasing production.

“This will be done with a BMW approach,” Mr. McAndrews said. “It will be socially acceptable.”

Still, laying off workers shows how seriously BMW views the new competitive landscape. Porsche and Audi are linked with Volkswagen through shareholding stakes — Porsche owns 31 percent of VW, the parent of Audi — which analysts say will make them stronger.

BMW’s archrival, Mercedes-Benz, has emerged from the shadow of the failed DaimlerChrysler merger. The company had languished as its managers focused on the problems at Chrysler, but since Daimler  sold Chrysler in May, Mercedes has become more competitive, now boasting a higher return on sales than BMW.

“Over the past 10 years, no one has benefited more from the Chrysler distraction than BMW,” said Adam Jonas, an analyst at Morgan Stanley in London. “No one will be hurt more by the Mercedes revival.”

Like all carmakers, BMW also faces cost pressure from European Union restrictions on passenger car carbon dioxide emissions. Under rules proposed this week in Brussels, BMW would have to reduce its average carbon dioxide emissions by some 25 percent.

One problem the company does not face is selling its cars. Sales of the BMW Group, which includes Mini and Rolls-Royce rose 13.2 percent in November from November of 2006, and are running 8.3 percent ahead for the year-to-date. BMW delivered almost as many cars in the first 11 months of this year — 1.347 million vehicles — as it did in all of 2006.

But profitability has sagged, as the cost of producing each vehicle has risen. At roughly 6 percent, BMW’s return on sales trails that of Mercedes, which is on track to earn more than 8 percent this year.

In September, BMW’s chief executive, Norbert Reithofer, announced a five-year plan to increase profitability, which includes 6 billion euros ($8.6 billion) in cost savings. Though he did not specifically warn of layoffs, BMW’s union, IG Metall, did not express surprise at the news.

Mr. Reithofer set a goal of increasing BMW’s return on sales to 8 percent to 10 percent by 2012. BMW, he said, would sell 1.8 million cars by then.

Among future models is a new sport utility vehicle, the X6. At the Frankfurt Motor Show last September, BMW showed off a model equipped with a hybrid engine that was developed jointly with Daimler and General Motors. The company is also developing utility vehicles in the Mini’s subcompact range.

BMW’s travails have prompted speculation in Germany that it might seek closer ties to its rival Daimler. The two companies already cooperate in the development of hybrid engine technology, and BMW executives have said they are open to other collaboration.

In a much-discussed report last month, Mr. Jonas of Morgan Stanley elaborated on the benefits of BMW’s buying a 20 percent stake in Daimler. Such a tie-up, he said, would fortify both companies against Porsche, Audi, and Toyota’s Lexus, all of which belong to larger automotive groups.

“Larger competitors can spread costs over more models, which means they can offer a better car at a better price,” Mr. Jonas said.

Mr. McAndrews declined to comment on BMW’s possibly buying a stake in Daimler. Other analysts said a deal was unlikely given that Daimler had just wriggled out of an unhappy marriage with Chrysler.

Furthermore, BMW is controlled by the Quandt family, whose members have prized the carmaker’s independence.