LME Will Delay Start to Position Reports Until August

The London Metal Exchange, the world’s largest metals bourse, delayed starting commitment of traders reports until August to allow more time for members to classify positions.

The reports will be published weekly starting Aug. 5, it said in a notice to members today. The first report was initially scheduled for July 1 after ending a one-month market consultation on May 23. The extension will enable members enough time to submit information on positions.

“The LME acknowledges member feedback in respect of the timeline proposed by the LME for classification of predominant business activity,” the bourse said in the notice. The LME designed the reports to be consistent with other markets and will continue to keep its format under “active review.”

The 137-year-old bourse is joining NYSE Liffe and ICE Futures Europe in reporting trader positions similar to those issued by the U.S. Commodity Futures Trading Commission. Consumers and producers of metals asked the bourse to increase information about the market. The exchange started this month publishing reports disclosing metal wait times and inventories held by individual warehouse companies.

Category one to four members are required to classify their positions and those of their clients into types of activity. The reports will break down market open interest by category of participant, similar to the CFTC, including producer, merchant, processor or user; broker dealer or index trader; money manager; other reportables and those not defined.

More Transparency

“While a COT report will be helpful in terms of increasing apparent transparency (albeit backwards looking owing to the weekly nature of the report), the misclassification of a few major market players will have a significant impact in terms of how the report can be interpreted,” Leon Westgate, an analyst at Standard Bank Plc in London, said in a report today.

The CFTC releases weekly reports on positions by type and NYSE Liffe, the derivatives arm of NYSE Euronext, began giving similar information for agricultural products in 2011. ICE Futures Europe started publishing Commitments of Traders Reports in Europe for Brent and gasoil in 2011.

Marine product exports zoom to record $5 billion

Exports of marine products touched a record $5.007 billion during 2013-14.

At a news conferenceLeena Nair, chairperson of the Marine Products Export Development Authority (MPEDA), said the total export earnings were $5.007 billion (₹30,213 crore.) In rupee terms, the growth was a whopping 60 per cent over the previous year, though in dollar terms this was 42.60 per cent. In the previous year, the earnings were $3,512 million.

In quantity terms, 9,83,756 tonnes were exported, an increase of around 6 per cent. Fish items were the largest chunk in terms of quantity, though when it came to value, frozen shrimp was the biggest money earner. More than three lakh tonnes of shrimp were exported, of which 73 per cent was cultured. There was also a 35 per cent increase in unit value – black tiger shrimp secured the highest value.

Among regions, South-East Asia continued to be the largest buyer of Indian marine products with a share of 26.38 per cent, followed by the US with a share of 25.68 per cent. The European Union is the third largest buyer with 20.24 per cent share, followed by Japan at 8.21 per cent, other countries 8.20 per cent, China 5.85 per cent and West Asia 5.45 per cent.

One reason for the higher exports is increased production of L. Vannamei shrimp, whose exports to the US market jumped to 59.63 per cent. Export of frozen shrimp rose by 7.38 per cent in quantity terms and 28.23 per cent in dollar terms.

Nair said lower exports from Thailand and other prawn-producing countries because of a disease that had afflicted their aquaculture. On the other hand, depreciation of the rupee against the dollar and increased production of vannamei in Andhra Pradesh and other States helped in higher earnings from prawns. The quality of Indian prawns and other marine products had improved remarkably – contributing significantl to the rise in unit price. Participation in major global seafood fairs also had helped.

It's Morning in India: Narendra Modi's Pro-Business Policies Point to Strong Sectors Growth

As some of you might recall, Ronald Reagan's now-famous 1984 presidential campaign, "Morning in America," renewed many Americans' confidence in this country's financial future. Likewise, the May 16 election of Narendra Modi--whose campaign slogan, "Good times ahead," taps into the same sense of optimism--couldn't come at a better time for India and the surrounding region.

Sworn in on Tuesday, Modi's pro-business, small-government policies have already prompted many citizens of the world to liken him to such transformative leaders as Reagan and Margaret Thatcher. Because he has vowed to widen India's doors to foreign investment, rehabilitate its crumbling--or, in many regions, nonexistent--infrastructure, deregulate the retail industry and loosen the red tape that has halted domestic coal production, investor confidence in the South Asian country has surged like never before.

For the past six months, foreign investors have bought up more than $16 billion in Indian stocks and bonds in anticipation of Modi's win and hold approximately 22 percent of Mumbai-listed equities, valued at nearly $280 billion. Since the election, the Indian markets have been bullish, with the rupee crossing 59 levels against the dollar. These activities have made the world's largest democracy the top performer this year among the four BRIC economies.

"We want more strength for the wellbeing of the country," Modi said after declaring victory. "I see a glorious and prosperous India."

Modi has a proven track record of turning economies around.

As head of the state of Gujarat, a position he held prior to being elected prime minister, he oversaw annual economic growth of 10 percent. He is also credited for bringing electricity to all 60.4 million Gujarat residents--a first for India.

One of his loftier goals is to do the same for all 1.2 billion Indians using clean power generation such as wind and solar. Currently, 400 million citizens--more than the combined populations of the U.S. and Canada--are without power. The plan is that by 2019, every home will be able to run at least two light bulbs, a cooker and a television.

Such a colossal undertaking as bringing power to every home will require the import and production of untold amounts of metals such as copper and steel, not to mention the construction and rehabilitation of the nation's poor infrastructure, which is decades behind China's.

According to Ajay Piramal, Chairman of the Piramal Group, one of the roads to India's prosperity is "infrastructure development. Reviving infrastructure projects by streamlining approval and decision-making processes will be critical. By 2019, the structural growth rate of India should be at 8 percent or higher."

Under the new prime minister's watch, the growth of industrials and materials is very promising.

India is already the fourth-largest steelmaker in the world, having produced 7.25 million tonnesin March alone. But with the implementation of new infrastructure and energy projects, steel production has the potential to explode.

The same can be said of coal. Even though India, the world's second-most populous country, is rich in coal, mining has historically been stymied as a result of tortuous bureaucracy and stateism. To facilitate foreign investment in the resource and boost product output, Modi is considering breaking up Coal India Ltd., India's state-controlled mining company.

With more jobs up for grabs, more Indians will be able to afford the sort of lifestyle and consumption habits that many Americans enjoy. As I've previously discussed, gold is a prime gift to give and receive in India during religious holidays and celebrations. A robust working class will ensure that gold continues its trend as a desired and accessible commodity.

It's too early to tell if morning has indeed arrived in India. To be sure, the nation faces many challenges that block its path to prosperity, including debilitating bureaucracy, an inefficient agricultural sector, low literacy rate and widespread poverty. But as I often say, government policy is a precursor to change, and with Modi at the helm, "good times ahead" sounds like more than an empty promise. Provided his administration can make good on his many ambitious plans, investment in the energy, industrials, materials and utilities sectors could conceivably see fair returns.

Aluminum giant Alcoa gets into jet engine parts business

Alcoa hopes to cash in on the boom in commercial aircraft orders by building a new plant that will make engine parts for big jets.

Company officials announced Thursday that they will build a $100 million plant in La Porte, Indiana, to make nickel-based engine parts for commercial airliners. Alcoa already makes the same components - in smaller sizes - for engines that go on business jets and planes flown by regional airlines.

Boeing and Airbus are stepping up production as airlines order new, more fuel-efficient planes. Asian airlines in particular are expected to grow rapidly as a booming middle class yearns to travel.

"This is a massive growth market, more than 8 years of backlog," CEO Klaus Kleinfeld said in an interview. Alcoa expects the aerospace industry to grow by 8 percent to 9 percent this year.

Airlines have long gone through a boom-and-bust cycle, but Kleinfeld said he wasn't worried about that. He said smarter management and Asia's changing demographics will help the airlines.

The Indiana plant will make parts that form the rib cage around a jet engine's vital parts, so its customers are likely to be the big engine manufacturers such as GE and Rolls Royce. Alcoa wouldn't disclose customers, but said it has enough long-term contracts to support the facility, which is due to be completed late next year and eventually employ 329 workers. Alcoa said it could get up to $4 million in state tax credits for job creation and another $7.1 million in city tax incentives over 10 years.

The plant is part of Alcoa Inc.'s strategy to downplay its roots as a mining and aluminum-smelting company, which includes a large smelter near Goose Creek. Aluminum prices haven't recovered from the deep recession in 2008, and Alcoa has been idling smelters to reduce capacity and cut costs.

The company has been increasing its focus on producing finished aluminum products for aerospace, autos and other industries. Those segments account for more than half of the company's revenue and three-quarters of its after-tax operating income.

Nyrstar Decides To Close Its Zinc Plant

The Zinc plant at the Nyrstar smelter will shut down which will costs around 124 jobs by the end of 2016. However, there is great hope for future growth. The plant closure is a business decision as the plant has been making a great loss. There will be no forced redundancies, but the 124 employees now at the zinc plant will not be replaced.

Two week ago, positive news about Nyrstar reported that the company would invest around $514 million for the plant enhancement with the support of the State Government. Amid this, the news relating the plant closure came. The redevelopment is scheduled to finish by 2016 and it is reported that around 400 jobs would be created in the construction phase, but it is not yet clear about the overall job gains and losses.

On Wednesday night, the Chamber of Commerce and Industry networking forum at the golf club discussed about the subject concerning the job loss due to the closure of the zinc plant. Bertus de Villiers, Nyrstar vice-president for metals refining confirmed that the 120 plus workers would affect by the decision of closure and they would be redeployed, but their positions would not be filled.

He said that the decision to close the plant is basically a business decision as it had been making loss of around $20 million for the last four years. He added that it was a difficult but necessary decision and they were able to do this without taking the process of forced redundancy and were not affecting the employees by this negative decision. He added that the plant would run for another two months and of if they could make this things work, there would be plenty of opportunity for growth. 

Strong demand outlook to lend support to aluminum prices in 2015

The aluminum oversupply will be offset by strong demand growth outlook, lending support to aluminum prices in 2015, says a recent study report by Capital Economics.

The addition of capacities in the Middle East and China has lead to surplus in aluminum market. Aluminum production by China grew 6% in 2013. The production growth is expected to reach 10% in China this year.

According to Capital Economics, the increased supply of aluminum will be offset by the rising aluminum demand from traditional consuming sectors. The recovering automotive and construction sector in the developed world, especially the US looks positive for aluminum. Also, the rise in production of consumer goods from China will keep the aluminum demand high.

Further, the supply surplus will reduce considerably in 2015 as China curtails production at non-performing smelters. Major aluminum producers elsewhere have announced production cuts. The US –based Alcoa plans to cut one-fifth of its capacity by 2015.

The report forecasts that the aluminum price is likely to reach $2,000 per mt by end-2015, which is nearly 12% higher than the current LME price for the metal.

Participation of banks in commodity markets long overdue

They enable even small farmers to reap the benefits of hedging

Banks are not allowed to participate in the Indian commodity derivatives markets. Such non-participation of the most important financial institution of the country – banks – is an important missing link in the evolution of this market in India.

While much has been talked about in various contexts recommending banks’ participation, the latest Report of a Finance Ministry committee suggesting steps to fulfill the objectives of price discovery and risk management in the commodity derivatives market, says: “… One way to reduce the cost of capital for the commodities trader is, to make banks … an integral part of trading in commodity derivatives.”

It is a fact that there are regulatory restrictions on part of banks too that restrict their participations in commodity futures markets. But, the fact remains that their participation in commodity exchanges is a win-win situation for all: it helps the banks, it helps commodity markets,and in the process, it helps the economy as a whole.

Risk management platform

While the above-mentioned report recognises that banks’ participations in the commodity derivatives market will contribute to the depth and width of the market, what this process also contributes to is the availability of an unparalleled risk management platform for the banks themselves, as banks also need to manage risks arising from commodity price volatility.

Thanks to globalisation of the Indian economy and business expansion of Indian banks, their exposure to rising commodity price volatility is significantly high – 19 per cent according to some estimates made in 2011-12. Yet, while banks have been allowed to manage other risks in their portfolios, they do not have any mechanism to hedge commodity price risk in an effective and transparent manner, barred as they are from entering the commodity derivatives market.

Intermediation, aggregation

Further, banks can act as intermediaries and aggregators, facilitating the risk management actions of farmers and other small players who on their own may find considerable barriers to enter this market. World-over, there are examples galore on banks’ participation in exchange-traded commodity derivatives market on behalf of farmers, enabling the latter manage risk exposure better and increase their incomes.

Mention may be made of Rabobank’s intervention in Tanzania and Nicaragua and Banco do Brasil’s intervention in the Brazilian agricultural market through issue of exchange-traded Cedula Producto Rural contracts. Many of these interventions are made through designing and offering customised hedging solutions fulfilling the requirements of farmers.

Besides, by aggregating small participants, banks enable even small farmers to reap the benefits of hedging. On a similar note, the non-farm sector, especially the small and medium enterprises, too can be a significant beneficiary of the commodity futures market, which can be increased manifold by the facilitative role provided by banks.

Releasing scarce resources

At the micro level, with a comprehensive risk management policy that encompasses commodity price risks, banks’ financial and human resources can be freed to cater to more important strategic functions. Under the evolving international regulatory regime where norms on credit and provisioning are increasingly being linked to risk assessment of banks’ portfolios, hedging against commodity price movement will actually contribute to freeing of financial resources – enabling not just achievement of priority sector targets for Indian banks, but also their overall business expansion.

Through focused deployment of appropriate credit products, these developments could, at the macro level, go a long way in smoothening and quickening the credit cycle, thereby enhancing productivity of credit.

Better liquidity, hedging

From the commodity market’s perspective, banks’ participation will help in providing the market with the much-needed long-term traction. This will help the long-term hedgers’ participation on the one hand, by reducing the overall costs of transactions (including the impact costs), and will help enhancing the hedging efficiency. There has often been a complaint from large corporates about lack of long-term traction in the Indian comexes, which inhibit their hedging efficacy. Banks’ participation will help ameliorate that concern.

A “Pareto” Improvement

Here lies the “Pareto” improvement through banks’ participation in Indian comexes. On the one hand, it will be in the interest of banks’ own sustainable growth.

On the other hand, it will help them achieve the goal of inclusive growth through market inclusion of millions of commodity producers. Thus, banks’ participation in the commodity derivatives market does not stand as a policy option; it is a fundamental economic need of the day that is long overdue