Kotak to buy 15% stake in MCX for Rs 459 cr

MCX surged as much as 9.3 per cent in trade on Monday to hit its fresh 52-week high of Rs 860, after the private sector lender Kotak Mahindra Bank BSE 1.90 % agreed to buy a 15 per cent stake in the company for Rs 459 crore. 

At 09:40 am; MCX was trading 6 per cent higher at Rs 831.85. It hit a low of Rs 735 and a 52-week high of Rs 860 in trade today. 

Financial Technologies BSE 5.46 % was trading 4.7 per cent higher at Rs 280.30 and Kotak Mahindra Bank was up 2.8 per cent to Rs 961.80. 

The statement said the bank had entered into a share purchase agreement for the deal that is subject to certain conditions and regulatory approvals. 

"We have agreed to take a significant minority stake in MCX. We are excited by the potential presented by the financial infrastructure space in the country and believe that an investment in MCX, with its significant franchise, will create long-term value," executive vice-chairman and managing director Uday Kotak said in a statement. 

Market sources said Kotak had to pay a slightly higher price than it originally wanted after Rakesh Jhunjhunwala recently bought MCX shares, setting a benchmark. Kotak, whose own commex failed to take off, is betting on the passage of Forward Contract (Regulation) Act, or FCRA, which will allow options and index futures products that could raise volumes higher than than stock exchanges. 

Shares of software solutions provider FTIL had risen in recent days on expectations the Kotak Group would buy the promoter's stake but had fallen 3.6 per cent to Rs 267.35 on Friday at the BSE. 

The Kotak Group has linkages with the commodities sector through its various ventures Kotak Bank through lending activity to the agriculture sector or through its having promoted commodity futures bourse ACE, in which it has 40 per cent.

Copper prices to slide on weak demand from Chinese property market, says Goldman Sachs

The latest analyst report by the US-based investment bank Gold man Sachs notes forecasts copper prices to slide further on weak demand from Chinese property market. The poor demand from the country’s construction sector will lead to fall in copper prices over the next 6 months to 1 year, the report noted.

According to Goldman Sachs, nearly 61% of Chinese copper demand comes from housing and property sector. Out of which 49% accounts for housing needs including local power infrastructure, telecommunications and lighting. The balance 12% copper demand comes from installation of home appliances after property sales. It also noted that the power grid infrastructure projects accounts for only 13% of the country’s total copper demand.

 

The property inventories in China are already at its peak. New starts are expected to slow down during H2 2014, as property prices continue to remain weak. The copper demand becomes high when the project reached its completion stage when internal and external copper wiring are installed. The construction completion cycle is expected to remain subdued in the medium term.

 

GS forecasts the global copper market to end the year at a 385,000 mt surplus, with prices averaging $6,778/mt in London and 307 cents/lb ($6,768/mt) in New York.

Money Printing Is Not Bringing Prosperity To Main Street In 3 Charts

Furious money printing by the world’s major central banks is not generating real growth and prosperity—–but professional economists never seem to get the word. As shown below, the 2014 outlook for global real growth has been marked down sharply since early 2013. Back then, of course, Abenomics and massive QE by the BOJ was supposed to cause the Japanese economy to soar; Draghi’s “anything it takes” bromide was going to jolt Europe out of its slump; and the elixir of QE3 was certain to finally cause the US economy to attain “escape velocity”.

Its not working out that way. In Japan, import inflation is soaring, real wages are still falling and the economy is entering a new slump in Q2 owing to a tax increase that was unavoidably necessary to pay for its runaway fiscal largesse. In Europe, the Bank Of Italy, Draghi’s home base, has now marked its forecast of 2014 real GDP growth to essentially zero. And in the US after the disastrous first quarter, along with what is shaping up to be a tepid second quarter, real growth will not achieve any kind of velocity, “escape” or otherwise; in fact, consensus real GDP has already been marked down to 1.7%—the lowest rate of expansion since the financial crisis. Accordingly, it is only a matter of time before the global forecast for 2014 shown below below is marked down even further.

It is no mystery as to where all the central bank “stimulus” is going. Since early 2013 fully fourth-fifths of the 40% rise in the S&P 500 is due to multiple expansion, not earnings growth from a tepid economy. This is clearly the effect of massive central bank injections of cash into Wall Street and other financial markets, yet it is especially perverse under current circumstances. Given the massive instabilities and headwinds afflicting the global economy—from the house of cards in China, to the failing retirement colony in Japan, the welfare state fiscal crunch in Europe and the faltering growth of breadwinner jobs and real investment in productive assets in the US—-the capitalization rate of future earnings should be down-rated. That is, future corporate earnings are now worth far less than the historical PE norm, not more. Accordingly, the massive expansion of PEs shown below is yet another expression of the vast financial deformations being caused by monetary central planning.

In any event, the “financialization” brought on by the central banks has had a truly perverse effect.Stock markets and corporate profits are at all time highs. Yet the true measure of main street economic health—-the share of adults who are employed—is at a modern low. It is said by traditionalist believers in sound money that we can not print our way to prosperity.

These charts of the week provide some pretty stunning evidence of that truth.

zerohedge.com

The 2 Charts That Have BofA Worried About A "Greater Correction" In Stocks

While the S&P500 rebounded sharply on Friday, BofAML's Macneil Curry warns evidence continues to say that this is a very late stage advance from which a greater correction is forthcoming. The recent deterioration in breadth (52wk highs failing to keep track with price), the negative seasonal period and divergences between the broader indexes say that risk/reward is skewing to the downside. Bottom Line: "The S&P 500 is vulnerable."

Via BofAML's Macneil Curry,

The S&P500 is vulnerable

While the trend in the S&P500 is still higher, with potential for a near term push towards 2000; this is a very late stage advance from which we look for a medium term correction. 1944 (the June-26 low) is key. Below here confirms a top and turn...

The 2 charts he is most concerned about...

Breadth...

The bearish divergence for new 52-week highs from last May points to fewer and fewer new 52-week highs as the S&P 500 has continued to rally to new all-time highs. This suggests weaker internals.

The divergence in new 52-week highs from last May is a sign of a maturing rally from late 2012.

and Seasonals... 

With President Obama in his second
term, 2014 is an incumbent mid-term.2014 is following the incumbent midterm year YTD through June. The pattern calls for a June/July peak ahead of a pullback into September. This has the potential to support large and mega caps relative to small caps.

Going back to 1928, July is the strongest month of the year with an average return of 1.52% and is up 57% of the time.

However, June was up 1.9% and July returns tend to fizzle, not sizzle, after an up June. When the month of June is up, July is up only 51% of the time and has an average return of 0.48%. This is well below average for July and a below the average monthly return for all months of 0.59%.

Nickel Posts Longest Slump in Five Months on Supply Gain

Nickel prices fell to cap the longest slump in five months as inventories tracked by the London Metal Exchange rose to a record.

Stockpiles have climbed 19 percent this year to 311,088 metric tons, and open interest has dropped to a four-month low. Prices have jumped 34 percent this year, partly because Indonesia barred shipments of unprocessed ores, spurring concerns that supplies will trail demand.

“The LME stock rise reflects the reality that the global market remained in surplus during the first half of the year,” Macquarie Group Ltd. analysts, including Vivienne Lloyd in London, said in a report. “There’s no doubt to us that much of the rise in prices that took place up to May was speculative and anticipatory” of production deficits, they said.

Nickel for delivery in three months tumbled 2.8 percent to settle at $18,660 a ton at 5:58 p.m. on the LME, the biggest decline since May 15. The metal dropped for the fifth straight session, the longest slump since Jan. 30.

Goldman Forecasts Lower Commodity Prices as Cycle Ends

Commodities from iron ore to copper and Brent crude will drop over the next five years as global supplies climb, according to Goldman Sachs Group Inc., which highlighted oil’s recent losses as a sign of increased output.

There will be substantial declines in some metals, energy and bulk commodities, analysts including Chief Currency Strategist Robin Brooks wrote in a report. The period of continued year-on-year price rises for most commodities is over, they said in the report, which was dated yesterday.

Banks from Citigroup Inc. to Deutsche Bank AG have called an end to the commodities super-cycle, when China’s surging demand combined with supply constraints to more than double prices in the 12 years through 2010. Raw materials rallied this year from three annual losses as a lack of rain in Brazil lifted coffee and a ban of ore exports from Indonesia spurred a rally in nickel. The drop in energy prices since last month showed the impact of higher global output, Goldman said in the report.

“A prolonged period of elevated commodity prices has catalysed a supply response,” the analysts wrote. “We do not expect a collapse in global commodity prices. But we do anticipate substantial declines.”

Copper was forecast to drop to $6,600 a metric ton over five years, while iron ore was seen at $80 a ton and Brent may be $100 a barrel, according to Goldman. The steel-making raw material was at $98 a dry ton in Tianjin, China, today, and copper traded at $7,123 on the London Metal Exchange today. Brent was 33 cents higher at $106.35 on the ICE Futures Europe.

‘Looser Supply’

The Bloomberg Commodity Index of 22 raw materials climbed 3.4 percent this year. That compares with a 0.9 percent drop in the Bloomberg Dollar Spot Index and 5.3 percent advance in the MSCI All-Country World Index of equities.

“Against a looser supply backdrop, commodity prices should be much less sensitive to fluctuations in global growth than they were,” Goldman said in the report, entitled “Emerging Market Forex and the End of the Commodity Market Super-Cycle.”

Goldman said in a January report the cycle that spurred higher commodities prices is reversing as increased U.S. shale oil output keeps energy prices low, and that would eventually drive raw materials into a bear market. The new cycle would be the opposite of the super-cycle, it said then.

U.S. production of crude, along with liquids separated from natural gas, surpassed all other countries this year with daily output exceeding 11 million barrels in the first quarter, Bank of America Corp. said in a report July 4. Output climbed as hydraulic fracturing and horizontal drilling help producers to pull record volumes of crude out of shale formations.

Oil Supplies

Brent rallied to as much as $115.71 a barrel last month as military gains in Iraq by an al-Qaeda breakaway group stoked concern that oil supplies from the region may be disrupted. Prices posted a third weekly loss in the period to July 11, with Iraqi shipments unaffected and Libya moving to boost exports.

“Less than a month has passed since geopolitical risks in Iraq pushed up oil prices on concerns over a potential oil supply shock, and the market seems to have absorbed the related risks reasonably well,” Goldman’s analysts wrote. “The expansion in oil supply over the past few years -- primarily from the expansion of U.S. shale production -- has minimized the consequences from past disruptions in Libya and Iraq.”

Iron ore entered a bear market in March on prospects for a glut as supplies surged. Rio Tinto Group (RIO), the world’s second-largest mining company, said today iron ore production in the three months to June gained 11 percent, while Fortescue Metals Group Ltd. said its shipments were 57 percent higher on year.

Surplus Market

“We remain bearish on iron ore, and expect a surplus market to drive the longer-term price down,” the Goldman analysts wrote in yesterday’s report. “We see limited upside for agricultural commodities over the longer run.”

Deutsche Bank said last month commodity prices will remain subdued for years as many of the factors and fears that drove the super-cycle have dissipated. Citigroup said in April 2013 that death bells would ring for the commodity super-cycle.

“Our long-term commodity forecasts suggest that fundamentals for commodity currencies will deteriorate,” the Goldman analysts wrote. “Relative shifts in terms of trade between commodity importers and exporters will be a key input to currency determination over the coming years.”

bloomberg.com

Congo copper output growth to slow in 2014 - Congo's mining chamber

Growth in copper production in Democratic Republic of Congo will slow in 2014 from its rapid pace the previous year due to insufficient energy supply and uncertainty over new mining laws, Congo's mining chamber said.

Copper production leapt to a record 914,631 tonnes last year from 620,000 tonnes in 2012 as new mining projects and expansion plans came online.

In a report on the first quarter of this year, the mining chamber predicted that copper output in 2014 would inch up to 922,000 tonnes, annual growth of just 0.82 percent compared with the 47 percent leap the year before.

"(Congo) still has the potential to produce over a million tonnes in 2014 and even more in following years, if it controls the parameters that influence investment, notably electricity supply and the revision of the mining code," the report said.

The mining sector helped drive economic growth of 8.5 percent in Congo in 2013, which is forecast to rise further to 8.7 percent this year.

Congo possesses enormous reserves of gold , diamonds, copper, cobalt and tin , but the majority of its 65 million people live in poverty due to corruption, mismanagement and war.

International mining operations are drawn to Congo's copper-rich Katanga province, but they have been hamstrung by a lack of reliable energy from dilapidated power sources and energy grids. Congo's national energy company (SNEL) lacks the finances to overhaul its equipment.

"Demand (for electricity) has exceeded what can be delivered by SNEL since 2009, and with the exception of 2011, the gap has only grown, which is more than worrying," the report said.

In a January letter, Prime Minister Augustin Matata Ponyo asked mining companies in Katanga to suspend expansion plans and respect energy rationing imposed by the government, in an effort to cope with the power deficit.

Companies have united, meanwhile, to oppose proposed changes to the mining code. Mining representatives are negotiating with the government over the proposed changes.

The government is seeking to increase royalties on mined material and to reduce stability clauses, a plan that the mining chamber has said will reduce foreign investment in the sector in the long term.

The report also highlighted an expected surge in industrial gold production from 6,149 kg in 2013 to 18,872 kg in 2014.

"The spectacular increase in industrial gold production is due to several projects coming online, which were in the construction phase," the report said.

"It would have been difficult to launch these projects ... under a mining code with a heavy fiscal burden and a stability clause reduced to three years."