Singh Sweeps India Parliament Retail Votes in Boost for Reforms

By Bibhudatta Pradhan - Dec 7, 2012

India’s government won a vote in parliament’s upper house on foreign investment in supermarkets, securing a clean sweep of both chambers and raising expectations it will move ahead with further economic reforms.
While 123 members in the 244-member upper house supported Prime Minister Manmohan Singh’s move to allow companies such as Wal-Mart Stores Inc. (WMT) and Carrefour SA to own majority stakes in ventures in India, 109 voted against. Two regional parties outside the ruling alliance supported the government, one voting in favor and the other walking out before the ballot.
“It’s a victory for more reforms,” said Parliamentary Affairs Minister Kamal Nath. “We will bring financial bills in following weeks.”
The lower house endorsed the key plank of India’s biggest embrace of foreign investment in a decade on Dec. 5 with a margin of victory of 35 votes. Singh plans to present to parliament proposals to increase the foreign investment cap for the insurance sector, and allow overseas companies to buy stakes in pension firms for the first time.
Deputy Governor of the Reserve Bank of India Subir Gokarn said the foreign investment in multibrand retail could help bring down food prices, a major driver of inflation that’s the highest among the largest emerging economies.
The September move to enable overseas companies to open stores in the country didn’t require parliamentary approval to become law. Singh’s government agreed to a vote to end protests that had stalled legislative business as economic growth has slowed to a three-year low.

‘Have Faith’

As the debate began in upper house yesterday, opposition lawmakers repeated arguments that the policy would throw small shopkeepers out of work, further impoverish farmers and hurt consumers. Ruling coalition members defended the retail plan, which can be rejected by state administrations.
“We should have faith” that no supermarket chains will wipe out small retailers, Commerce Minister Anand Sharma said today. “We have taken the decision in the supreme national interest of the country.”
Opposition parties have used the supermarket policy to attack the government as it seeks to recover its poise after two years during which it was attacked over corruption allegations and weak leadership, and just over a year before the next election.
“You would eventually have stores owned by the Americans, the French and the British selling Chinese products,” said Arun Jaitley, leader of the main opposition Bharatiya Janata Party, yesterday. India “would become a nation of sales boys and sales girls.”

Deal Makers

Mayawati’s Bahujan Samaj Party, voted in favor of the government, while members of her regional opponent, Mulayam Singh Yadav’s Samajwadi Party, left the chamber before voting. Both parties, which opposed the retail opening, have a record of refusing to vote alongside the Hindu-nationalist Bharatiya Janata Party and striking deals with governing parties for their support.
The retail policy will enable Wal-Mart, Carrefour SA (CA) and Tesco Plc (TSCO) to step up their presence in the world’s second-most populous nation to tap a market that Technopak Advisors Pvt. estimates will expand to $725 billion by 2017.
To contact the reporter on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net
To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Fuel Import Plan to Ease Airline Pain: Corporate India By Karthikeyan Sundaram - Dec 6, 2012

Indian airlines including SpiceJet Ltd. (SJET) and IndiGo may be allowed to store imported jet fuel at state-owned refiners’ facilities as the government works to ease rules to help carriers pare their biggest cost.
The petroleum ministry agreed to allow airlines to use refiners’ infrastructure at airports when they import the fuel, Aviation Minister Ajit Singh said in a Dec. 4 interview. Oil Minister Veerappa Moily said the next day that his ministry will discuss the terms of access with the refiners. He didn’t give a timeframe for concluding the talks.
Prime Minister Manmohan Singh’s government allowed airlines to import fuel and sell stakes to overseas carriers as high operating costs and a price war caused industrywide losses and forced Kingfisher Airlines Ltd. (KAIR) to halt flights. Purchasing fuel overseas will help operators save on local taxes that are as high as 30 percent.
“It’s a very positive step,” said Sharan Lillaney, an analyst at Angel Broking Ltd. who recommends buying SpiceJet shares. “The industry is going through a structural change and everybody is working to improve the state of airlines.”
Airlines have been holding back on plans to import jet kerosene even nine months after a ban was lifted because of lack of storage facilities. Prior to the rule change, only state trading agencies were permitted to import the fuel. In September, the government also allowed airlines to sell as much as 49 percent to overseas operators.

Bangkok, Dubai

Carriers pay at least 60 percent more for fuel in the country than in Bangkok, Dubai, Kuala Lumpur or Singapore because of state taxes ranging from 4 percent to 30 percent, according to a civil aviation ministry document in June. Jet Airways (India) Ltd. (JETIN), the nation’s biggest listed carrier, and discount airline SpiceJet both posted second-quarter losses as fuel costs eroded gains from carrying more passengers.
SpiceJet rose as much as 1.4 percent to 49.7 rupees in Mumbai intraday trading, while Jet Airways gained 0.9 percent to 545.95 rupees. Kingfisher jumped 4.8 percent. The BSE India Sensitive Index gained 0.4 percent.
Sales tax charged by the state government, excise duty and freight-related costs account for 32 percent of the retail price of aviation fuel in Mumbai, according to the oil ministry. Airlines need to pay a 5 percent customs duty when they import the fuel, according to the aviation ministry. Fuel imported directly by users is exempted from local sales tax.
Aviation fuel price in India sometimes move contrary to the international market rate, according to the aviation ministry. Jet fuel prices in major airports also suggest that the rates are almost uniform for all the three state-owned oil marketing companies, the ministry said in its note on industry viability.

Indian Oil

On June 1, price of jet kerosene sold by Indian Oil Corp., the nation’s largest refiner, dropped 0.6 percent to 66,588 rupees per kiloliter in Mumbai from 66,990 rupees on March 16. In comparison, the fuel slumped about 17 percent in Singapore trading during the same period.
Indian Oil Chairman R.S. Butola declined to comment on the plan to share airport infrastructure. Hindustan Petroleum Corp. Chairman S. Roy Choudhury and Bharat Petroleum Corp. Chairman R.K. Singh didn’t answer two calls each to their mobile phones.
The federal government allows state-run refiners including Indian Oil to sell jet fuel to carriers at market-linked prices, which are revised every 15 days. Jet fuel accounted for 3.4 percent of Indian refineries’ total fuel sales at home in the seven months to October, according to oil ministry data. Diesel, kerosene and cooking gas are sold at prices set by the Indian government to curb inflation.

Import Permission

The Directorate General of Foreign Trade in April gave permission to budget carrier IndiGo to import 715,000 kiloliters of the fuel within 18 months. SpiceJet was allowed to import 50,000 kiloliters of the fuel.
Air India Ltd. won approvals to import 100,000 kiloliters and Go Airlines Ltd. 200,000 kiloliters, Aviation Minister Singh told parliament Aug. 17. Kingfisher won permission to import 500,000 kiloliters. The carrier’s didn’t immediately respond to e-mails seeking comments on their fuel purchase.
Carriers may not benefit much by importing the fuel because of the charges for storage and transportation, said Harsh Vardhan, chairman of New Delhi-based Starair Consulting, which advises airlines. “The costs involved in importing, storing and moving the fuel defeat the purpose.”

Combined Debt

CAPA Centre for Aviation, an industry consultant, predicted in May that rising fuel and airport costs will increase the combined debt of local carriers by 18 percent to $20 billion within 12-18 months. Half of the debt are aircraft related and the rest are working capital loans and dues to airport operators and fuel companies, according to the aviation ministry.
The government is also working to introduce a uniform rate of sales tax on jet fuel across Indian states, aviation minister Singh said. Talks are under way with the finance ministry on this proposal, he said without specifying a timeframe for a decision.
“The government has kept trying to arrive at one solution or another,” to help airlines, said New Delhi-based Kapil Kaul, who heads the Indian unit of CAPA. “Facilitating imports will eventually lead to a uniform tax on the fuel.”
To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

Gold Holds Near One-Month Low Amid Record Holdings, Dollar Gains By Glenys Sim - Dec 5, 2012

Gold traded little changed after declining to a one-month low as investors’ boosted holdings in exchange-traded products to the highest ever, countering the impact of a stronger dollar.
Spot gold was at $1,692.70 at 9:25 a.m. in Singapore after falling to $1,684.93 yesterday, the least expensive since Nov. 6, as the dollar rallied on speculation that U.S. lawmakers will reach a budget agreement. Holdings in ETPs climbed to 2,627.59 metric tons yesterday, data compiled by Bloomberg show.
A few dozen Republicans joined a bipartisan call to break an impasse between President Barack Obama and House Speaker John Boehner to avoid spending cuts and tax increases in January, known as the fiscal cliff. The Dollar Index, which tracks the greenback against six major partners, halted its longest slump in more than a year yesterday and gained 0.2 percent today.
“Markets are being held hostage by progress on the fiscal cliff in the U.S.,” said Feng Liang, an analyst at GF Futures Co., a unit of the nation’s third-biggest listed brokerage. “There are still bargain hunters for gold below $1,700.”
Gold will probably peak in 2013 and keep declining the following year as U.S. growth accelerates, Goldman Sachs Group Inc. said yesterday. Bullion will be at $1,825 in three months, $1,805 in six months and $1,800 in a year, it said, lowering its three-month forecast from $1,840 and its six- and 12-month outlooks from $1,940, Goldman said in a report.
Gold for December delivery gained as much as 0.2 percent to $1,697.80 an ounce on the Comex in New York, before trading at $1,696.30. The contract slipped to $1,686 yesterday, also the lowest level since Nov. 6.
Cash silver fell for a third day, losing 0.2 percent to $32.8038 an ounce. Spot platinum dropped 0.3 percent to $1,578 an ounce after touching a two-week low of $1,571.15 yesterday. Palladium was little changed at $685.50 an ounce.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Asian Stocks Swing From Loss to Gain on U.S. Budget Talks

By Jonathan Burgos and Adam Haigh - Dec 4, 2012

Asian stocks swung between gains and losses as President Barack Obama held his ground on raising tax rates for the highest-income Americans, bringing the U.S. budget talks into a stalemate. Ping An Insurance (Group) Co. advanced as HSBC Holdings Plc agreed to sell its stake.
Honda Motor Co. (7267), a Japanese carmaker that gets about 44 percent of sales from North America, declined 1 percent. Western Areas NL sank 4.9 percent in Sydney after the nickel sulphide producer raised A$50 million ($52.4 million) selling shares at a discount. Ping An rose 3.8 percent in Hong Kong after HSBC agreed to sell its entire 15.6 percent stake in China’s second- largest insurer to Thailand’s Charoen Pokphand Group Co. for $9.4 billion.
The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 125.03 as of 11:32 a.m. in Tokyo, erasing losses of as much as 0.3 percent. Almost two shares rose for each that fell on the gauge. The measure advanced last month amid signs China’s economic slowdown may be ending and optimism U.S. lawmakers would agree on a budget deal to avert the so-called fiscal cliff, which would result in more than $600 billion in tax increases and spending cuts taking effect next month.
“The fiscal cliff has the potential to frighten the market until the end of the year, but I don’t think it’ll be substantially surprising,” said Peter Esho, chief market strategist at City Index Ltd., a provider of equities, bonds and currency trading in Sydney. “The market’s consolidating after a good run.”
To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Adam Haigh in Sydney at ahaigh1@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Record Brazil Coffee Crop Cuts Costs for Starbucks: Commodities By Marvin G. Perez and Patricia Laya - Dec 3, 2012

Record coffee harvests in Brazil, the biggest grower, are compounding a global glut of arabica used by Starbucks Corp. (SBUX) and Dunkin’ Donuts Inc.
Brazilian farmers will reap 50.8 million bags in 2013, a record for a so-called low-crop season, according to the median of nine analyst estimates compiled by Bloomberg. The harvest reached 55.9 million 60-kilogram (132-pound) bags in 2012, an all-time high for a peak year. Output usually drops in alternate years because of growing cycles. Prices may fall 13 percent to $1.311 a pound by June 30, the average of 14 predictions shows.
Futures slumped about 50 percent since May 2011, as the highest prices in 14 years spurred Brazilian farmers to boost supply. Their exports jumped 54 percent to $8.7 billion in 2011. The flood of beans has continued and stockpiles tracked by the ICE Futures U.S. exchange are headed for the biggest annual gain in more than a decade. Rising costs and concern that economies are slowing encouraged roasters and consumers to favor cheaper robusta beans.
“There’s a significant crop coming from Brazil if the weather continues to be favorable,” said Claudio Oliveira, the head of trading at Castlestone Management LLC in New York, which manages about $500 million of assets. “Abundant supply is the driving force in the market.”

Worst Performer

Futures fell 34 percent to $1.507 this year, the biggest retreat of the 24 commodities tracked by Standard & Poor’s GSCI Spot Index, which gained 0.9 percent. Most agricultural products advanced this year, with records in corn and soybeans as drought parched crops from Australia to Russia to the U.S. The MSCI All- Country World Index of equities rose 11 percent. Treasuries returned 2.7 percent as of Nov. 30, a Bank of America Corp. index shows.
Brazil had record harvests in two of the past three seasons, almost doubling output in about a decade and now accounting for 38 percent of global supply, U.S. Department of Agriculture data show. About 72 percent of the country’s crop was arabica this year and the rest robusta, typically used in espressos.
Minas Gerais, Brazil’s top arabica-growing state, harvested 25.87 bags per hectare this year, up from 18.75 bags in 2004, according to Conab, the government’s crop forecasting agency. That’s adding to a global crop the USDA estimates will expand 7.5 percent to a record 147.9 million bags this season.

Frost Risks

Frost during Brazil’s winter in June and July may limit the drop in prices, said Marco Antonio dos Santos, an agronomist with Sao Paulo-based forecaster Somar Meteorologia. The last severe frost to limit output was in 1994, when a low-season harvest plunged 36 percent the following season, according to data from the International Coffee Organization in London.
“A lot of the optimism about Brazil’s crop has pretty much been factored in, and any weather disturbances could take off 3 to 4 million bags,” said James Cordier, the Tampa, Florida- based founder of Optionsellers.com, a Commodity Trading Advisor.
Economic stimulus by central banks and governments from China to Europe to the U.S. also may revive global growth and boost demand for all commodities, said Kona Haque, an analyst with Macquarie Bank Ltd. in London. Some markets are already expanding, including in Brazil itself, where consumption jumped 12 percent in the three years to 2011, ICO data show.
Arabica cost almost three times more than robusta by September 2011, from a premium of about 39 percent in 2008. That’s since narrowed to about 74 percent as roasters switched blends to use the cheaper beans. Robusta traded on London’s NYSE Liffe exchange rallied 5.4 percent to $1,907 a metric ton (86.5 cents a pound) this year.

Robusta Switch

Robusta will rise to 46 percent of global coffee demand this year, from 40 percent in 2010, according to Volcafe. Consumption of the cheaper bean will rise 6 percent to 66.6 million bags this season as arabica advances 1 percent to 78.6 million, the Winterthur, Switzerland-based company estimates.
The demand is encouraging more robusta supply, which Volcafe predicts will exceed demand by 1.4 million bags in 2012-2013, led by gains from Vietnam and Indonesia. Arabica output will surpass consumption by 6.3 million bags, Volcafe estimates.
Hedge funds and other large speculators had their most bearish bets on arabica since at least 2006 in the week ended Nov. 20, U.S. Commodity Futures Trading Commission data show. They have been wagering on lower prices in all but two weeks since February.

OECD Estimate

The 34-member Organization for Economic Cooperation and Development warned of the risk of a “major” global recession on Nov. 27, and the International Monetary Fund has cuts 2013 global growth forecasts twice since July, to 3.6 percent. Growth in coffee consumption will slow to 2 percent this year, from 4.5 percent in 2011, according to the USDA.
The 17-nation euro area tumbled back into recession last quarter, and economists surveyed by Bloomberg expect Japan to do the same this quarter. U.S. leaders have yet to resolve the so- called fiscal cliff of automatic taxes rises and spending cuts, which the Congressional Budget Office has warned risks shrinking the world’s biggest economy.
While that may be slowing growth in coffee consumption, it’s also lowering prices. Starbucks, the world’s largest coffee-shop owner, will have “significantly lower” costs at the end of its fiscal year in September than at the start, Chief Financial Officer Troy Alstead told analysts on a conference call Nov. 1. The Seattle-based company expects to save $100 million this year from “favorable commodity costs,” he said. Shares of the company advanced 13 percent this year.

Folgers Brand

J.M. Smucker Co. (SJM), the maker of the Folgers brand, expects lower costs for commodities including coffee to be “favorable” for earnings, CFO Mark R. Belgya told investors Nov. 16. The Orrville, Ohio-based company will report an 18 percent gain in net income to $541.8 million in its fiscal year ending in April, the mean of eight analyst estimates compiled by Bloomberg show. Shares of the company rose 14 percent this year.
More sales and lower commodity prices are helping franchisees to be “more profitable than ever,” Nigel Travis, Chief Executive Officer of Canton, Massachusetts-based Dunkin’ Brands Group Inc. (DNKN) told investors Oct. 25. The fast-food chain, with more than 10,000 stores, sells about 1.5 billion cups of coffee a year and buys only arabica.
“When you go back a few years, except for a few spikes in the middle of last year, coffee likes to be between $1 and $1.20,” said Michael Smith, the president of T&K Futures and Options in Port St. Lucie, Florida. “We’re way above the mean of where it’s supposed to be. I think it could come down to a $1 in the first quarter of next year.”
To contact the reporters on this story: Marvin G. Perez in New York at mperez71@bloomberg.net; Patricia Laya in New York at playa2@bloomberg.net
To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net

Hedge Funds Increase Bullish Bets Most Since August: Commodities By Elizabeth Campbell - Dec 2, 2012

Hedge funds increased bullish bets on commodities by the most since August as evidence that China is accelerating outweighed concern that U.S. lawmakers have yet to resolve an impasse over automatic spending cuts and tax rises.
Speculators and money manager increased net-long positions across 18 U.S. futures and options by 9.8 percent to 929,588 contracts in the week ended Nov. 27, the biggest gain since Aug. 21, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a six-week high, and wagers on a wheat rally jumped the most since June. Cattle bets more than doubled. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 1.9 percent in November, the first monthly gain since August.
The world economy is in its best shape in 18 months because of the acceleration in China, the biggest consumer of everything from cotton to copper to coal, according to the Bloomberg Global Poll of 862 investors last week. The U.S. probably will avoid the so-called fiscal cliff that the Congressional Budget Office has warned risks sending the country back into recession, even as Europe remains mired in a debt crisis, the poll showed.
“I wouldn’t say that it was a green light all ahead for commodities, but the market is turning slowly based primarily on improved real numbers out of China that outweigh slowdowns in Europe and the U.S.,” said Adrian Day, who manages about $170 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland. China is “overwhelmingly the most important factor,” he said.

Price Gains

The S&P GSCI rose less than 0.1 percent last week, led by gains in industrial metals and agriculture. The MSCI All-Country World Index of equities advanced 0.9 percent and the dollar fell 0.1 percent against a basket of six trading partners. Treasuries returned 0.4 percent, a Bank of America Corp. index shows.
The U.S. economy, the world’s biggest, expanded 2.7 percent in the three months ended Sept. 30, more than economists forecast, according to Commerce Department data on Nov. 29. The S&P/Case-Shiller index of property values in 20 U.S. cities showed that home prices in the 12 months ended September advanced by the most since July 2010.
Confidence in China’s economy rose to the highest in more than a year amid optimism that the new leadership headed by Xi Jinping will improve the financial climate, according to the Bloomberg investor poll. Manufacturing in the country rose to the highest level in seven months in November, the National Bureau of Statistics said Dec. 1.

Tax Deadlock

A deadlock between President Barack Obama and Republicans in Congress over $600 billion in spending cuts and tax increases has extended over a year. Missing the deadline at the end of December means the economy goes over the so-called fiscal cliff and probably will tumble into a recession, the Congressional Budget Office reiterated Nov. 8.
“Until investors see the big overall grand bargain, investor sentiment and business decision-making will be somewhat uncertain,” said Chad Morganlander, a Florham Park, New Jersey- based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets. “It just means that there’s going to be a lackluster demand for commodities with very little reacceleration of economic activity.”

Debt Crisis

Germany, Europe’s largest economy, probably will face a recession as the sovereign-debt crisis roiling its neighbors extends into 2013, according to the Bloomberg Global Poll. About 18 percent of global copper demand comes from Europe, and the region consumes 22 percent of the world’s oil, according to estimates from Barclays and BP Plc. The 17-nation euro zone fell back into recession in the third quarter.
Money managers withdrew $42 million from non-precious-metal commodity funds in the week ended Nov. 28, according to Cameron Brandt, the director of research for Cambridge, Massachusetts- based EPFR Global, which tracks money flows. Gold and precious- metal funds had a net inflow of $530 million. Investors raised bets on a gold rally by 13 percent to the highest since Oct. 16, CFTC data show. Silver holdings climbed 12 percent.
Holdings in exchange-traded products backed by gold rose to a record for an 11th day Nov. 30. U.S. Mint sales of American Eagle gold coins more than doubled in November to the highest since July 2010. The metal has advanced 9.3 percent this year, headed for a 12th annual gain.

Farm Goods

A measure of net-longs for 11 U.S. farm goods rose 9.1 percent, the biggest gain since Oct. 23, CFTC data show. The Standard & Poor’s GSCI Agriculture Index of eight farm products jumped 0.8 percent last week, the second consecutive increase.
Bullish bets on cattle more than doubled to the highest since Sept. 18. Futures jumped to a record $1.32925 a pound on Nov. 23 in Chicago trading amid shrinking supplies of beef and rising demand. The U.S. cattle herd was the smallest since at least 1973 as of July 1 as ranchers culled animals during the worst drought since 1956.
Corn holdings rose 2.7 percent to the highest since Oct. 23, and wagers on a wheat rally surged 35 percent, the biggest increase since June 26, CFTC data show. Wheat futures jumped 32 percent this year in Chicago as dry weather cut global production to a five-year low.
“The global economy continues to expand next year,” said Peter Sorrentino, who helps manage about $14.6 billion of assets at Huntington Asset Advisors in Cincinnati. “Commodities will not have a ‘shoot the lights out’ year but it should be a profitable year for commodities.”
To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net
To contact the editor responsible for this story: Patrick McKiernan in New York at pmckiernan@bloomberg.net