But if China doesn’t perform, you’re in trouble.
It was annced yesterday that China’s commodities imports accelerated in 2012 in volume terms in spite of slowing growth in the overall economy, with crude oil, iron ore and copper reporting record high imports for 2012.
Starbucks, the world’s biggest coffee-shop company, will ope nits first store in Vietnam, in Ho Chi Minh City next month.
But this is the more interesting bit: We know coffee is a national pride for many Vietnamese and as such, we look forward to contributing and growing Vietnam’s already vibrant coffee industry. As we continue to source more Vietnamese high-quality, arabica coffee we want to leverage our scale to bring the best of Vietnam’s coffee traditions to the rest of the world … Starbucks already purchases a notable amount of some of the highest-quality arabica coffee from Vietnam and is committed to sourcing more arabica coffee from the Vietnam region over the long-term. Starbucks will continue to promote responsible business practices and production standards within its existing and prospective supply chains and will work closely with local coffee farming communities to elevate the quality of arabica coffee and introduce customers globally to the rich Vietnamese coffee heritage.
The will work closely with local coffee farming communities is a standard Starbucks promise. But given that according to the FT, “Vietnam is the world’s second largest producer of coffee beans after Brazil, any contribution Starbucks might make to improve quality and standards there could have a disproportionate impact.” Most of Vietnam’s production is robusta, a lower grade (and cheaper), arabica which is the coffee of choice round the world.
Again, no Asean round-up this week.
Opps looks like Olam tried to be too clever by half. By calling a rights type issue but not answering two of Muddy Point’s questions (that it is spending lots of $ on lousy investments and the restatements), investors have decided to sell given that there will a lot more debt, at expensive prices, a possible dilution, and that Muddy Waters might just be right.
Then there is the cred of management: saying it had lots of cash but then calling yet another bond issue. And having to retract a statement on the approach to Temasek.
In such a confused situation, investors might as well sell esp with the year end in sight.
And on a technical issue: leaving the warrants to be priced tomorrow was asking for trouble.
All in all, management and its investment banks have not covered themselves in competency.
Olam proposed an underwritten rights issue of US$750m in principal amount of 6.75% bonds due in 2018, along with 387.4 million free detachable warrants. The issue price of the bonds will be 95% of the principal amount and the gross proceeds from the issue of the bonds are US$712.5 million. Terms of bond are generous.
Olam said the transaction was fully backed by Temasek which owns a 16% stake in the company. Temasek’s commitment “is a very strong, decisive action (for investors) not to have any worries about any of the allegations,” Olam’s CEO said.
The issue is underwritten by four major bank creditors: Credit Suisse, DBS, HSBC and JP Morgan. Again another sign of confidence.
So Temasek and the banks are onside. Goes without saying that the Indian conglomerate controlling Olam will subscribe for its share: It would, wouldn’t it?
And the shortists will have to cover their positions as investors recall their shares to make sure they get their rights.
Yr move, mongoose.
PS (at 8.50am): Gd counter by snake (must be King Cobra) to offer to pay for credit rating. Ang Moh Kaws must never underestimate Indians.
Update (1.15pm)
Muddy Waters offers to pay for Olam to get debt rating. It is a cheeky response to Olam’s “shock and awe” response (constructive, nation-buildingST’s description) to its allegations.
Wonder what excuse Olam will give when refusing to accept offer? After all Temasek, its investee, has a debt rating. And it is a SWF
Wonder what Olam’s banks’ will think if it rejects offer?
It’s been over a week since Muddy Waters made allegations about the accounts of Olam. Since then Olam has come out swinging, refuting the allegations and suing.
Yesterday evening, the report was made available. Most of the issues have been flagged by analysts earlier. But there are issues about the restatements of accounts that don’t affect profits and capex that need addressing by Olam.
Remember Temasek owns 16% of Olam. So it too will be studying the report.
As Temasek is the second largest shareholder, will be interesting to see what it does. If it doesn’t buy Olam shares, Olam will remain under a lot of pressure. If it does buy, TRE, TOC readers and other cowboys (esp from Facebook) will be mindlessly attacking Temasek, juz because ang moh says Olam shares are a short.
The search for base metals will likely focus on major producing regions such as South America … It is also one of the few merchants still doing business in Venezuela, where the aluminum industry is in crisis.
Noble already has an array of iron ore and coal offtake deals and strength in alumina and aluminum through tolling deals. Last December, it signed a pact to supply a smelter in Azerbijan with alumina in return for aluminum output.
http://www.reuters.com/article/2012/08/26/noble-basemetals-expansion-idUSL2E8JHMDE20120826
Stock could fly again but its up against shume big mean boys. And is the founder still active in mgt? And if so gd or bad for co?
(Or “Why analysts are talking rubbish” or “Bond issue coming up”)
Analysts are telling Wilmar to do deals to get its share price up. Remember they have been fans of Wilmar and need the share price to recover to look gd.
http://www.sfgate.com/business/bloomberg/article/Wilmar-Deals-Loom-With-Stock-at-65-Discount-to-3817390.php
This Kuok wants to do deals. Its in his blood.
But the analysts forget one thing. How is Wilmar going to finance its deals. Not thru a share issue: because as they are pointing out the shares are “super cheap”. Borrowing more money ain’t that easy because co has net debt of US$12.5bn on a market captalisation of US$19bn. True got gd cash flow and interest cover. But it would need brave bankers. Not many around nowadays as the irrational French frogs are nursing losses.
Err what a bond issue aimed at the retail investor? Why not call DBS? Reason: http://atans1.wordpress.com/2012/08/27/dbs-screws-its-customers-again-and-again/
(Or “What stocks, ETFs to buy”)
A China slowdown need not be bad for everyone. Mr Frederic Neumann, Regional Economist at HSBC, distinguishes between hard and soft commodities. A Chinese rebalancing could actually be good for soft commodities*, such as wheat and soybeans*, if household spending were to rise.
Brazil’s loss, in other words, could be Argentina’s gain. Other commodities, such as palm oil**, used in processed foods, may also do better.
That could benefit countries such as Malaysia, which has ramped up palm oil*** production in recent years, and Indonesia**** – although the latter also produces hard commodities including coal.
On the other side of the ledger, some big oil importers***** could benefit from the weaker prices that a Chinese slowdown might produce.
*Think Olam, Wilmar, Golden Agri, Bumitama Agri, Kencana Agri and First Resources
**Think Wilmar and the other SGX plantation stocks.
***Think Felda, Sime Darby, United Plantations, IOI, Genting Plt, KL Kepong, TSH, Oriental.
****Think Astra Agro and London Sumatra Indonesia. Any other Indon listed plantations cos to think about? Do remember that the SGX-listed planters are mainly Indonesian planters and many of them are relatively new, giving them an advantage over the older Malaysian plantation players. Malaysian planters have also bought land in Indonesia partly because land in Malaysia is getting too expensive even in East Malaysia.
*****Think ETFs on Singapore, Thailand and Vietnam.
The FT reports that Chinese importers are requesting trading houses to defer shipments of commodities. Sometimes they have broken agreements by refusing to accept deliveries.
Commodities specifically mentioned are iron ore and thermal coal (Noble’s specialities), cotton (Olam speciality) and soyabeans (Wilmar is world’s boiggest crusher). No wonder the price of these stocks keep weakening.
BTW, until I read below, I didn’t realise Noble is a big player in coffee and cocoa (but revenue is “peanuts” compared to iron ore and energy).
Stock has collapsed today because analysts warned of cuts to full-year estimates after the commodity trader reported disappointing earnings (Q3 net profit falls 22.5% to S$98.7 million) and warned of a weak outlook.
The sick joke is that 0ut of 24 analysts tracking Olam, 18 had a buy or strong buy rating, four rated it a hold and only two had a sell rating, according to Thomson Reuters data as of Tuesday (yesterday).
Commodities group Louis Dreyfus has agreed to take a minority stake in Malaysian palm oil firm Felda, it said on Monday, conditional on a successful June stock market float for Felda. The amount could be US$150m.
http://www.reuters.com/article/2012/05/14/us-dreyfus-felda-idUSBRE84D0XG20120514
Louis Dreyfus Commodities told FT it was planning to take part in the wave of consolidation among agribusinesses, unveiling a US$7bn warchest, underpinned by cashflow and the trader’s first access to capital markets in its 160-year history. It is likely to raise US$500m in bonds soon.
The farm commodities trading giant, which earlier this month agreed to buy US sugar refiner Imperial Sugar for US$203m including debt, said it was to spend US$7bn building assets and buying companies, following investment of $4.9bn in the 2006-11 timespan.
It plans to move from middleman to a vertically integrated trading house: like Wilmar. Seems to be the fashion. Olam is doing this too.
Update on !7 May 2012:
Fidelity and Hong Kong-based Value Partners Group have agreed to become cornerstone investors of Felda Global Ventures Holdings’ US$3.3 billion (S$4.2 billion) initial public offering (IPO) in Malaysia, the Edge daily reported yesterday, citing unnamed financial executives involved in the listing.
Other cornerstone investors include Malaysian tycoons Quek Leng Chan and Chua Ma Yu, pension fund Employees Provident Fund and state-owned asset manager Permodalan Nasional, the report cited the executives as saying.
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
(Apologies for not crediting where I got this from: feeling tired)
Commodities supply chain manager Noble Group (based in HK but listed here) announced on Wednesday the resignation of its chief executive only hours after reporting a surprise US$17.5-million (S$22.5-million) net loss in the third quarter from a net profit a year earlier. It blamed volatile market conditions and mark-to-market losses.
CEO Ricardo Leiman will remain as an adviser to the group after resigning “for personal reasons”, Noble said.
Chairman Richard Elman was appointed acting CEO, “We are taking this opportunity … to realign our goals and strategies to adapt to the many challenges that exist in the prevailing market conditions … It goes without saying that we are very unhappy with this performance even if it does just cover a very short period … things happen’ which are out of our control … remains very healthy and strong”.
A few days ago, I blogged that were three scenarios for the developed world. Growth — buy equities; inflation — buy property and commodities; and recession — buy government bonds.
Thinking about it again, there is a fourth scenario: stagnation. There will be shallow recoveries and recessions in quick succession.
In that scenario, one should be looking at buying equities for their dividend yields, and the corporate bonds of super blue chips.
Depending on where the developed world heads, equities, commodities and property, or government bonds could be the investment.
There are three scenarios for the developed world (remember the BRIC and Indonesia etc still are dependent on the developed world to drive their economies). It can
– grow out of its debt burden,
– inflate the debt away, or
– fall back into recession, marked by the occasional default.
Each of those outcomes leads to a different portfolio.
Renewed growth would favour equities, but at the moment, this looks too hard to achieve. An attempt to inflate would be good for commodities and property but would be disastrous for government bonds. Selected equities might do well: those that can pass on the cost rises to customers. Those bonds would do best if the developed world goes into a recession.
Hope this explains the extreme volatility of markets.
CIMB doesn’t like commodity plays and has made negative comments abt midstream commodity supply chain players Mewah, Noble and Olam.
Not time to buy yet: Noble is trading at its eight-year historical mean, while Olam is trading at 1.5 standard deviations below its mean and Mewah is trading at 2.5 standard deviations below mean. Despite their more modest valuations, we believe it is too early to turn bullish on this sector. Consensus estimates do not appear to have fully reflected their earnings risks, in our view. Our FY12 earnings per share estimates for all three stocks are 4-46 per cent below consensus. Further downgrades by the Street may be de-rating catalysts.
JPMorgan upgrades Wilmar from Neutral to Overweight. It raises target price to S$6.50 from S$5.40.
“We think Wilmar will be able to raise prices in the near term, improving both oilseeds and consumer products margin in 2H11/2012,” citing recent media reports of China removing price controls on cooking oil.
Meanwhile , OCBC retains its Hold call on Wilmar.
Billionaire traders offer clashing opinions over future of falling commodities market .
Soros is bearish, Paulson is bullish. Guardian story.
Err world economy could be weakening.
Housing prices should come off unless M’sian Chinese decide to migrate here.
As trading and mining house Glencore is listing, making some mgrs billionaires, commodity prices have fallen for a second day in early trading in Europe, led by another drop in crude oil.
This comes after markets were hit by one of the biggest sell-offs in two years on Thursday. Brent crude fell 4.3% to below $106 a barrel, adding to a 8.6% drop on Thursday, and bringing its cumulative fall over the past week to over 16%.
Industrial metals such as copper also saw further falls, as did some foodstuffs.
If this goes on, the view blogged here earlier that the Glencore IPO is a sign that commodities mkts have peaked for the time being, was a gd call.
You might not have heard of Glencore. There is little news of its upcoming IPO in our MSM because the US$10bn IPO will be listed in London and HK. This would value the company at US$145bn
Co is a trader in commodities.
With oil at USD120 and demand for most commodities strong, why should this float mark the end of an uptrend in commodities? Well the US Fed is likely to stop printing money and the European Central Bank is likely to join emerging market central banks in raising interest rates. China has juz raised interest rates for the second time in four months.
Remember Blackstone? In 2007, Blackstone, a private equity firm went public at US$36. A year later, the stock was at US$5. The private equity boom had ended. It is now only recovering.
Shrewd money knows when to cash out and Glencore has some of shrewdest minds in the commodities market.
Like other brokers, OCBC is bullish for next yr. But there are some picks that are unique to OCBC.
Our picks for 2011 are Ascott Residence Trust, Biosensors International Group, CapitaLand, DBS Group Holdings, Ezra Holdings, Genting Singapore, Hyflux, Pacific Andes Resources Development, Keppel Corporation, Mapletree Logistics Trust, Noble Group, Olam International, Sembcorp Marine, StarHub, United Overseas Bank, United Overseas Land and Venture Corp.
A strong oil price and a strengthening US$.
Nomura says Indonesia’s fundamentals are solid. Growth is strong, inflation is muted, and the central bank aims to keep the rupiah stable. And the government aims to kick-start infrastructure projects by making land acquisition easier.
So GDP growth is expected to grow from an estimated 5.9% this year to 7% next year. Nomura sees a 15 times PE for the equity market next year, with a possible re-rating to as much as 16.5 times PE.
The firm’s top stock picks in Indonesia are infrastructure providers. Commodity companies are also expected to do well. Coal prices are rising even as production volumes improve. A return to normal weather conditions will also boost Read the rest of this entry »
Still lower than 1980 levels as this chart shows
But big macs are getting more expensive in China. The US policy of QE2 is forcing up the real value of the yuan (via the price of gds, services and food). The more the Chinese defend the exchange rate to prevent the Yuan from appreciating in norminal terms, the more the real value of yuan rises.
The US is still the hegemon.
Missed the bull run and planning to use the recent weakness to jump in because China will be roaring ahead soon aftwer tackling inflation, and US monetary policy will mean that commodity prices will have to strengthen just to reflect the weakening US$.
Well sumething to think abt. The Baltic Dry index of shipping costs, which has been used as leveraged play on commodities, has been weakening for some months, even after commodity prices revived on the Fed’s policy of printing more $.
Update on 20th November 2010: On Friday commodities fell, with some industrial metals and oil declining amid concerns that China’s appetite as a commodities importer may wane. It had just raised banks’ reserves. On Thurs commodities had recovered because investors had tot China had finished its tightening.
