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Daily Summary of Baltic Exchange Dry Indices
Baltic Exchange Dry Index TM 3043 (UP 42)
Baltic Exchange Capesize Index TM 4842 (UP 68)
Baltic Exchange Panamax Index TM 3048 (UP 98)
Baltic Exchange Supramax Index TM 1852 (DOWN 10)
Baltic Exchange Handysize Index TM 895 (DOWN 13)
Daily Summary of the Baltic Exchange Time Charter Routes
Rate($/Day) Change
BCI
Average of the T/C routes $50688 (UP 990)
BPI
Average of the T/C routes $24471 (UP 784)
BSI
Average of the T/C routes $19360 (DOWN 107)
BHSI
Average of the T/C routes $12751 (DOWN 169)
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Korea Development Forms $1.8 Billion Fund on Ship-Finance Slump
Korea Development Bank, the state- owned lender, formed a $1.8 billion fund to help pay for vessels at the nation’s shipyards as commercial banks pare ship- financing on tumbling vessel prices. “State companies like us have to step in and fill some of the gap left by the global commercial banks,” Kim Joong Gon, a senior manager in KDB’s ship-finance team, said at the Marine Money Forum in Busan yesterday. “There are still many uncertainties in the shipping industry as global trade hasn’t improved and asset values have fallen.”
Sate-owned Korea Asset Management Corp. has also set up a similar fund as the government assists yards in the world’s biggest shipbuilding nation. Commercial lenders have curbed shipping loans as vessel prices have slumped to a four-year low on plunging trade, leaving banks at risk of being unable to recoup defaults by seizing ships.
“There are conflicts between banks and shipping lines because there’s a big gap on the valuation of assets,” Kim said. “Reaching a compromise is a very long process.”
So far 16 shipping lines have applied to KDB for funding to pay for 44 vessels, said Lee Dong Hae, head of the lender’s shipping financing team.
Daewoo Shipbuilding & Marine Engineering Co., STX Pan Ocean Co. and Dongbu Insurance Co. have all agreed to participate in the fund, he added. KDB is also asking financial companies in Singapore and Hong Kong to take part, he added.
Korea Line
The fund’s first project was to provide loans for a capesize bulk carrier being built at Daewoo Shipbuilding & Marine Engineering Co., the world’s second-largest shipyard, Lee said. Korea Line Corp. ordered the vessel, which is chartered to move coal for Korea South-East Power Co., he added.
The KDB fund is also considering two other capesize ships ordered by Korea Line, Lee said. These are being built by Daewoo Shipbuilding and STX Offshore & Shipbuilding Co.
Korea Asset Management has so far bought 14 vessels through its fund, which will be increased to as much as 4 trillion won ($3.4 billion), Lee said.
The price of ships has dropped as much as 40 percent from their peaks in the third quarter of last year, according to Yang Jong Seo, a researcher at the state-run Export-Import Bank of Korea.
The weekly Clarkson Index, a measure of prices for all types of vessels, dropped to 142 on Oct. 16, the lowest since Oct. 15, 2005, according to Clarkson Plc, the world’s largest the shipbroker.
Source: Bloomberg
Iron ore prices up 11% on hopes of revival
Despite uncertainty in the steel market due to poor demand for long products, iron ore prices have moved up 11 per cent in a month. The prices gained on hopes of revival in construction projects that were hit because of last year’s global economic recession. The benchmark iron ore price, including freight, ex-Chinese ports, firmed up to $91 a tonne this week as against $82 a tonne a month ago. However, lower grade ore with 58 per cent iron content remained flat at $75 a tonne.
Stakeholders of the steel industry, meanwhile, are unhappy, as demand for long products needs to catch up, while flat products are doing reasonably well on rising consumption of white goods and other similar products where steel flat is used abundantly.
“The steel industry is in a complete turmoil, with so much of uncertainties. Iron ore prices are not fixed, neither for the current year nor are there any indications for the next year. China is yet to take any clear stance on iron ore prices, which BHP, Rio and Vale are vying for. Hence, there is no clarity on steel business today,” said R K Sharma, secretary general, Federation of Indian Mineral Industries.
According to industry sources, China is gradually increasing mine acquisitions in under-developed African countries, including Zambia and Angola, where an abundance of proved natural resources await exploration and local governments invite overseas participations. China, the world’s largest steel producer, is targeting 600 million tonnes (MT) of output this year as against 500 MT last year.
India contributes about 100 mt of China’s total iron ore consumption of about 700 MT. As local mills are not geared up to use fines, India will continue to meet China’s ore deficit on a spot basis only, said Vimal Kumar Somani, Director, Topworth Group of Companies, a Raipur-based sponge iron producer.
The steel industry has been a victim of uncoordinated central and state government policies, with the Centre having levied market-linked royalty on iron ore early this financial year. Miners are expected to pay at least 10 times the previous static royalty of Rs 27 a tonne.
According to Haresh Melwani, CEO of H L Nathurmal & Co, a Goa-based iron ore miner and exporter, “The state is contemplating a forest cess for iron ore miners, which is likely to add pressure on margins of mining companies or raise prices of steel-making raw materials. Also, the Karnataka government is working on Rs 300 a tonne of transport cess for supply of iron ore.”
“All this will aggravate problems for steel producers and multiply uncertainties in the steel industry. The overseas iron ore buyers want a consistent policy which is lacking here in India,” he added.
Instead of focusing on revenue only, the government must focus on infrastructure, as India, especially Goa, is now capable of handling ships of a maximum of only 30,000 tonnes lifting capacity, as compared to 400,000-500,000 tonnes in Australia and Brazil, where China has been importing raw materials from, Melwani added.
Meanwhile, sponge iron producers have also raised prices by 7-8 per cent or Rs 600-800 a tonne to Rs 13,600 a tonne on rising raw material prices and inventory pick up by steel majors. Coal, a major ingredient for making sponge iron, has also gone up by 15 per cent.
Source: Business Standard
Innovation needed even in recessions
A theme is emerging from the flood of recent corporate earnings reports: Cost cuts are boosting profits. Investors are cheering, but they shouldn't. Even in these tough times, more CEOs should be talking about how they are seeking out investments, developing new technologies and making acquisitions.
That's what will set their companies up for a stronger future.
Intel Corp.'s former CEO Gordon Moore had it right when he said years ago that "you can't save your way out of a recession." He meant that even in the toughest times, companies have to spend money on new ideas.
Recessions always end, Moore often said, and when they do, companies that embraced innovation during the downturn won't be stuck with obsolete products and services. Instead, they'll have new things to offer once demand picks up again.
"Customers don't come out of recessions spending the way they did before," said Chunka Mui, who has studied how companies can capitalize on opportunities during crises at his Chicago-based consulting firm, The Devil's Advocate Group. "They demand something different."
Surprisingly few companies are following Moore's advice of innovating during recessions.
Companies in the Standard & Poor's 500 index cut 25 percent on average from their capital expenditures expenses and 5 percent from research and development costs between the end of the third quarter last year and the second quarter this year, according to S&P.
Many have been crippled by the pullback in consumer and business spending as well as tight credit conditions, which is making it harder for companies to get loans to fund their operations. That's driven some to hoard cash and make drastic cost cuts. They're slashing jobs and wages and closing stores and factories.
The aggressive cuts have allowed companies to exceed Wall Street's expectations for their earnings. In fact, the "good" news has sent the Dow Jones industrial average above 10,000 for the first time in a year.
The problem is that too many companies are making widespread, not focused cuts. They're telling every division to cut 10 percent of their work force or slashing marketing dollars by the same amount companywide.
That is a quick way to rid a company of costs. But it doesn't help it get in a better position going forward, says Cesare Mainardi, managing director at the consulting firm Booz & Co. and co-author of the new book "Cut Costs, Grow Stronger."
"A downturn like this should force people's hand," he said.
At Intel, Moore's philosophy has been used consistently since he led the chipmaker starting in the late 1970s. Over the years, the Santa Clara, Calif., company's top executives continue to openly discuss the company's strategy of investing heavily in downturns.
During the 2001 recession, which hit tech companies particularly hard, Intel cut thousands of jobs and shut down unprofitable ventures. But it also ramped up spending on research and development on its core business of making computer microprocessors, even as its profits faltered. That helped the company diversify its product mix.
Apple Inc. had been struggling in the late 1990s as competition in the computer business intensified. But that didn't stop the Cupertino, Calif.-based company from boosting its spending by 30 percent on research and development from 1999 to 2002, even as revenues fell.
As a result, the iPod was launched during a downturn in October 2001. Apple also made headway on its iTunes music store at that time, enabling it to launch in 2003.
Southwest Airlines has also expanded during past recessions. The carrier, which is based in Dallas, was founded during a period of weak economic growth and soaring energy costs during the early 1970s. It boosted its fleet of aircraft and expanded its routes during the early 1990s and 2001 recessions, allowing it to steal market share from competitors.
To be sure, some companies are in fact heeding Moore's advice.
Intel announced plans to spend $7 billion over this year and next to build new manufacturing facilities so it can produce faster chips.
Walt Disney Co. is planning to give a high-tech makeover to its stores that will make them into mini-theme parks. Proctor & Gamble is overhauling its Gillette shaving operations in Boston.
Toys R Us Inc. has been buying up competitors, including high-end specialty chain FAO Schwarz. Cisco Systems Inc. has made five acquisitions this year, including two in the last month with a combined price tag of nearly $6 billion.
Google Inc. said it is ready to step up its hiring and plunge money into up and coming businesses, in areas like mobile technology.
"We now have the business confidence to invest heavily in the next phase of innovation, helping to invent the future as we see it," Google CEO Eric Schmidt told investors earlier this month.
It's a leap of faith -- and the right time to do it.
Source: Associated Press
ASEAN's growing maritime capability
The Association of Southeast Asian Nations was formed in 1967 to accelerate economic growth, social progress and cultural development in the region. It was also to counter the threat of communism and external powers and promote regional peace and stability. Their progress was so spectacular that the group’s 10 member states were collectively labeled Asia’s “tiger economies.”
The ASEAN region is rich in oil and natural gas, and globalization benefitted it further. The growing demand for energy, raw resources, imports and exports led the member states to develop their maritime capabilities, and shipping companies were permitted to grow at a ferocious pace by local governments eager to corner business opportunities.
But wealth also brought conflict to the region. The maritime boundaries of ASEAN countries were expected to be resolved along principles outlined by the United Nations. However, the rise of China since 1980 has stalled this process.
The Sea of Japan, East China Sea and South China Sea have become potential conflict zones due to major discoveries of oil and gas fields. Squabbling over boundaries, including those that define exclusive economic zones, has been further stoked by major European nations that are expert in building submarines, and anxious to export them.
Large private oil companies have been advising their respective home governments of the need for oil drilling rights in Southeast Asia. It is conservatively estimated that by 2015, East Asian nations will acquire about 50 to 80 diesel-electric submarines. The soft promotion of submarines by the European nations to ASEAN has revived associated industries and shipbuilding yards facing an “export or die” situation.
Each diesel-electric submarine is fitted with modern air-independent propulsion capabilities, sub-launched surface-to-surface missiles, land-attack cruise missiles, torpedoes and mines, and costs around US$400 million. Some of them are also fitted with surface-to-air missiles like the Russian-made IGLA rocket.
As most ASEAN countries are acquiring submarines for the first time for their respective navies, expensive shore-based maintenance and training facilities are also under construction to ensure service for their projected life of 50 years in tropical climates.
Finance is hardly an issue, as leading European banks are more than willing, backed by their respective governments, to provide loans and credit facilities to Asian nations. This has helped countries like Myanmar and Pakistan to acquire submarines from Germany, the United Kingdom and France, where each composite contract is worth over US$1 billion.
However, the proliferation of submarine capabilities in the seas around ASEAN and East Asian nations comes at a price – the transfer of wealth from Asia to Europe, although not by “gunboat” diplomacy or colonization.
The energy needs of developing economies have pushed upstream exploration companies like India’s Reliance Industries and public-sector Oil and Natural Gas Corporation along with Shell, Exxon, BP and Chevron into the deep waters of Asian seas. Oil and gas have been found around the Spratly Islands and Mischief Reef in the South China Sea.
But these areas are under dispute by China, the Philippines, Indonesia and Malaysia, as their maritime boundaries are not resolved. This has spawned a host of new problems, as drilling concessions granted by ASEAN governments have not been accepted by China.
Therefore, foreign oil majors have sought naval protection from their host governments for rigs deployed in the region. In the recent past, a spat between Vietnam and China erupted when Vietnam agreed to an Indian deep-water rig in its exclusive economic zone.
The increasing availability of diesel-electric missile capable submarines in this region could trip China’s plans for hegemony and control in the seas around ASEAN. The latest type of submarines supplied by Russia, France and Germany – like Agosta, Collins, and Scorpene – are more than a match for China’s homegrown submarines and ships. They are virtual black holes under water, silent and difficult to find, as the U.S. Navy realized in a recent war game with a Swedish diesel electric submarine.
China’s PLA Navy’s poor focus on antisubmarine warfare will haunt it for many years. But it is trying to acquire modern antisubmarine warfare capabilities by importing KA–28 ASW helicopters from Russia. Similarly, dipping sonars from international defense manufacturer Thales have been fitted on Chinese helicopters.
ASEAN nations have rapidly attained “sea denial” capabilities in their littoral waters, assisted by European powers. They are unlikely to give up their oil and gas fields, as woven into their payment contracts for acquiring submarine capability, to private oil majors of EU and U.S. subsidiaries. Any reneging on their part would reduce their expensive submarines to junk status, like what Indonesia suffered in the late 1960s when it parted with the former Soviet Union. Its navy, built by former President Sukarno, was rendered unserviceable due to lack of spares and maintenance.
The stalled Thai Canal project, if completed, would have boosted the economy in the region, improved transport and competed directly with ports in the Strait of Malacca area, including Port Klang and Singapore. It would have generated fees from shipping companies, though less than the Suez Canal, which is the gateway to Asia. The project remains inoperative due to environmental concerns.
ASEAN must cooperate to build regional infrastructure. Just as common doctrines, communication procedures and interoperability are hallmarks of regional joint training exercises by the armed forces of ASEAN member states, cooperation in building maritime capabilities for the benefit of the region should also be ASEAN’s prime goals.
ASEAN has realized India’s growing sea and air prowess. Not only are ASEAN member states involved in joint exercises with India, but military officers are also undergoing training in various Indian military academies.
India’s navy has assisted in disaster relief as well as antipiracy patrols in the Malacca Strait and beyond. Its survey ships are also being pressed into service for charting the waters of ASEAN nations and the Indian Ocean region on government-to-government contracts.
European military establishments seem to be back in business thanks to ASEAN’s maritime developmental requirements. In comparison, the United States has been rather passive in engaging with ASEAN on these issues. Reportedly, the U.S. government has buried the production of diesel-electric submarines to Taiwan.
Countries like India are now changing their policies for foreign direct investment in the defense sector. The annual Economic Survey of the Indian government, presented on July 2 to the Indian Parliament, suggested increasing the legal limit of FDI for the defense sector from the current level of 26 percent to 49 percent.
The stage is now set for Asian economies to work under tighter timelines, low inventories, well-planned logistics, six sigma industry production norms and employing skilled labor. Disruption in any one area could cause crippling losses to the country and affect gross domestic product growth. For example, disruption in China’s shipping channels from the Gulf could disrupt its oil imports and cause industrial stoppages, job losses and social unrest.
India too needs to guard against such disruptions, as the maritime sphere has assumed a central role not previously seen. New business opportunities as well as threats have risen and a nation aspiring for strong growth in the 21st century must be a robust maritime nation both militarily and in the merchant marine.
Source: UPI
Indonesia's new government targets 7.0 pct growth
Indonesian President Susilo Bambang Yudhoyono said Friday his new economic team was aiming to achieve seven percent growth by the end of his final term in office. On the first full day at the helm of his new cabinet, which was sworn in Thursday after July presidential polls, Yudhoyono promised to return Southeast Asia's biggest economy to pre-crisis growth levels by 2014. He also promised "growth that is inclusive and fair" and reduces poverty in the mainly Muslim archipelago of 234 million people. The government has predicted growth of 4.0-4.5 percent this year, third only to China and India in the G20 club of rich and major developing countries. The economy grew 6.1 percent in 2008. The local stock market has soared almost 80 percent in 2009, but about half the population continues to live on less than two dollars a day, according to the Asian Development Bank. Addressing the inaugural session of the new cabinet, Yudhoyono said seven percent growth could have been reached this year but for the impact of the global downturn on the domestic economy. Yudhoyono's new coordinating minister for the economy, Hatta Rajasa, earlier said that while the government was aiming for seven percent growth by 2014, a longer-term eight percent target was "achievable". His comments reflect the view among many investors that Indonesia's economy is poised to emerge from years of underperformance. The liberal former general Yudhoyono, who was inaugurated Tuesday having won a landslide election victory in July, has compiled a rainbow coalition of six parties controlling 423 out of 560 seats in parliament. He has come under fire for handing most seats to party-political figures rather than competent experts more likely to improve governance and fight corruption in the world's third biggest democracy. The choice of former transport minister Rajasa as economy minister raised some eyebrows, but the all-important posts of finance and trade stayed with incumbents seen as reliable technocrats. Former International Monetary Fund senior executive Sri Mulyani Indrawati keeps the finance portfolio, while Mari Pangestu stays in charge of the trade ministry, where she has been a steady advocate of open markets.
Source: Dow Jones
Key China box index drops for first time since June
Alarm bells are ringing for liner firms as one of the most accurate gauges of the container index fell for the first time in more than four months Friday. The China Containerised Freight Index, operated by the Shanghai Shipping Index, dropped for the first time since early June today. Despite lines reporting increased volumes and some being successful with rate increases this news will be a hammer blow for the industry. The CCFI takes data from the leading 20 lines operating out of China. Its numbers have been consistently in line with the fortunes of the container sector over the years, especially since China accounts for one in two boxes moved. With container shipping often a precursor of the world economy, the drop in the CCFI has some analysts suggesting the global economy could be in for a nasty double dip recession.
Source: SeatradeAsia Online
China May Pare Stimulus to Control Inflation as Growth Picks Up
Chinese officials may be preparing to reduce monetary stimulus that propelled growth to 8.9 percent in the third quarter and led the world out of recession. The economic expansion the government reported yesterday exceeded the 7.9 percent gain in the previous three months and pushed stocks lower around the world on concern the central bank may tighten monetary policy. On the eve of the release, the cabinet signaled that inflation concern will play a greater role in setting policy.
China’s government may set a lower loan target for 2010 after new lending reached a record $1.27 trillion in the first nine months of 2009, UBS AG said. Policy makers may raise interest rates in the first quarter of next year, before the U.S., Japan and euro area, according to ING Groep NV.
“Monetary stimulus is becoming unnecessary,” said Kevin Lai, a Daiwa Institute of Research economist in Hong Kong. “The risk is that this aggressive monetary expansion will spill into stocks and property, creating a bubble and making a hard landing for the economy more likely.”
China may raise banks’ reserve requirements, or the proportion of deposits that lenders are required to set aside as reserves, as early as the end of December, according to Lai and analysts at UBS and Credit Suisse Group AG. Currently, the ratio for the nation’s biggest banks is 15.5 percent, down from last year’s high of 17.5 percent.
The People’s Bank of China may begin boosting rates in the first quarter of 2010, Lai said. The benchmark one-year lending rate is at a five-year low of 5.31 percent.
Stocks Drop
The MSCI Asia Pacific stock index fell 1 percent yesterday to 119.31, and China’s Shanghai Composite gauge slid 0.6 percent. In Europe, the Dow Jones Stoxx 600 benchmark was down 1.5 percent as of 4:15 p.m. in Frankfurt yesterday.
China’s State Council said Oct. 21 that policy focus in coming months will need to “balance” the need to aid growth with “the need to better manage inflationary expectations.” That was a shift from a statement in June that didn’t mention price pressures.
Central bank Governor Zhou Xiaochuan said this month that China’s “moderately loose” monetary policy, adopted to combat the impact of the global recession, was exceptional and probably unprecedented for the nation.
“Even after the Asia financial crisis, when we adopted proactive fiscal policies, we maintained a prudent monetary policy stance,” Zhou said at a lecture in Beijing, referring to the 1997-1998 turmoil. “As a transitional economy with rapid growth, China’s monetary policy should always lean towards relatively tight.”
Currency Outlook
Besides pressing banks to lend, China has countered an 11- month slide in exports by rolling out a two-year $586 billion stimulus package and preventing the yuan from appreciating against the dollar, to aid exporters.
Barclays Capital analysts said yesterday that currency appreciation may play a role in policy tightening next year as the government tries to control inflation.
Contracts based on the yuan’s value in a year imply an appreciation of China’s currency of 2.8 percent, compared with 0.5 percent two months ago. Twelve-month non-deliverable forwards touched 6.5440 per dollar on Oct. 20, the highest level since August 2008.
Yesterday’s data showed industrial production climbed in September by the fastest pace in more than a year as tax cuts and subsidies spurred record vehicle sales in the nation for General Motors Co. and Volkswagen AG. Retail sales recorded the biggest year-on-year increase since December, excluding seasonal distortions.
Growth Composition
For the first nine months of 2009, the economy grew 7.7 percent, with domestic demand accounting for all of the advance. Consumption, including household spending, contributed 4 percentage points and investment added 7.3 percentage points. Trade shaved off 3.6 percentage points from the total.
The government may limit new lending to 7 trillion yuan for all of 2010, compared with 8.67 trillion yuan already this year, said Wang Tao, an economist at UBS in Beijing.
The 68 percent gain in the Shanghai Composite Index this year and an 11 percent jump in property prices in the southern city of Shenzhen in September from a year earlier highlight the risk of asset-price bubbles.
Qin Xiao, chairman of China Merchants Bank Co., said this week that it’s “urgent” for the central bank to tighten policy to avert bubbles, in comments published in the Financial Times.
Estimates Raised
Royal Bank of Scotland Group Plc raised yesterday its forecast for China’s economic growth this year to 8.5 percent from 8 percent and UBS, Barclays Capital, Credit Suisse and HSBC Holdings Plc also increased estimates.
The acceleration in China’s growth affirmed it as the world’s fastest growing major economy. The U.S. Commerce Department is projected to report next week that American gross domestic product rose at an annual rate of 3.1 percent in the third quarter from the previous three months.
Policy makers in the U.S. and Europe have given no sign they are yet ready to raise rates. The Federal Reserve said last month it aims to keep the benchmark rate near zero “for an extended period.” European Central Bank Governing Council member Axel Weber said yesterday there is “surely no need to rush for the exit” of monetary stimulus.
China’s acceleration will help pull along the Asian region and benefit the emerging-market currencies, according to Sebastien Barbe, head of emerging markets research and strategy at Calyon, the investment-banking unit of Credit Agricole SA.
“The strong numbers are good news for China and also for the rest of Asia, as China’s demand fuels the rebound of regional trade,” Barbe said in a note to clients yesterday.
Source: Bloomberg
S. Korean shipbuilders overtaken by Chinese rivals in new orders
South Korean shipbuilders were outpaced by their Chinese rivals in terms of new orders received in the first nine months of the year, according to a London-based market researcher Thursday. Korean shipbuilders such as Hyundai Heavy Industries Co. and Samsung Heavy Industries Co. won a combined 1.33 million compensated gross tons (CGT) in new orders in the January-September period, accounting 29.4 per cent of all new global orders, said Clarkson Research Studies, a division of Clarkson PLC, the world's leading shipping services provider.
New orders at Chinese shipyards totaled 2.42 million CGTs during the cited period, accounting for 53.5 per cent of the total, Clarkson said.
In September alone, South Korean shipyards won 39,500 CGTs, while Chinese companies received 135,000 CGTs, according to the researcher.
Market watchers said Chinese shipbuilders have gobbled up new orders at cheap prices, while South Korean shipbuilders have continued to focus on high-priced vessels and offshore facilities.
South Korea, home to seven of the world's top 10 shipyards, has clinched record-high orders in the past few years on strong demand for crude carriers and offshore exploration equipment amid lofty oil prices.
But orders for new vessels have sunk since the third quarter of last year, as the credit crisis and the subsequent global recession have prodded companies to postpone delivery dates or cancel orders.
South Korea has maintained its No. 1 ranking in the global shipbuilding industry in terms of order backlogs, the researcher said, if only slightly.
South Korean shipbuilders' combined order backlogs totaled 55.5 million CGTs as of the end of September, compared with Chinese rivals' 54.7 million CGTs, Clarkson said.
Source: Yonhap