MONDAY, FEBRUARY 3, 2014
BUSINESS
Tata Motors readies for India auto show Turmoil over chief’s death roils
Commodities weaken on market turmoil Weekly commodities update By Ole Hansen, Saxo Bank A/S
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ommodities moved lower during the course of the week as the diverging outlook between emerging and developed economies continued to raise uncertainty about the demand outlook for commodities. The weakness was primarily driven by losses in both metal sectors with industrial metals being hurt by weak China manufacturing data together with a slowdown in activity ahead of the Lunar New Year shutdown in several Asian markets. Precious metals failed to find support from the emerging-market turmoil and as result went looking for support. The energy sector was mostly driven by the near-term outlook for US weather which created some extreme volatility in natural gas and supported heating oil. The prospect of another cold snap in America blanketing the likes of New York’s Central Park has underpinned heating oil prices. Photo: John Anderson\Thinkstock The agriculture sector was mixed with continued weakness in key crops such as wheat while while rising cocoa and coffee prices ensured a strong week for soft commodities. Coffee had the best weekly performance since December following two consecutive weeks of losses. Arabica coffee found support from above normal temperatures and dry weather in Brazil which has raised the risk of the upcoming crop being lower than current market forecasts. Robusta coffee found spillover support from Arabica but also from reduced supplies from Vietnam and Indonesia. Vietnam is sitting on a very large coffee crop which could indicate the current strength may not continue with exports eventually expected to pick up. The most active Cocoa contract for delivery in March rose the most since 2011 but stabilised after reaching USD 2,900 per ton. Increased demand from the three major regions of Europe, North America and Asia helped support the price while increased supply from the Ivory Coast may help stabilise the price, not least due to its current near overbought condition. Crazy volatility in natural gas After a steady climb for natural gas throughout the first half of January a return of extreme levels of volatility left many traders battered and bruised. A daily trading range of more than 12 percent was seen on three occasions this past week resulting in volatility spiking to almost 100 percent. The price reached $5.5 per therm two days in a row before quickly retracing below $5. The rally was driven by the speedy reduction in inventory levels which was triggered by rising demand at a time of weatherinflicted lower production. A forecast for milder weather into February resulted in a sharp reversal with the NGH4 contract seeing its biggest two day decline in more than four years. Gold rangebound Gold returned to the lower end of
its current range with the near-term outlook very much depending on the direction of the US stock market and the dollar. The positive pull from risk aversion related to the emerging-market turmoil gave support early on but solid US economic data and the ongoing tapering of the US Federal Reserve asset purchase program together with slowing Chinese demand sent the metal looking for support once again. The failure to gain a proper foothold above resistance at $1,272 /oz triggered another bailing out of long positions but with stock markets still not showing any signs of finding the gear that drove them higher last year, gold may find enough support from this weakness to stay above important support at $1,231 /ounce. Despite the current rangebound nature, gold nevertheless had a good January which yielded a positive return for the first time since August and in the process, the yellow metal outperformed both bonds, stocks and the dollar. Compared with the beginning of the year, the investor attitude towards gold has been on the mend, but so far institutional investors continue to stay clear while hedge funds are only engaging on a relatively small scale. Continued stock market weakness and a prolonged emerging-market crisis may alter the outlook for global growth and eventually persuade investors back into gold, but until such time, a bearish approach by many investors will continue to limit the upside. Strong dollar WTI crude oil reached the highest level since early January as declining product inventories and the US winter lend support. Further upside beyond $99/barrel seems limited at this stage considering the impact the current turmoil may have on future demand and also considering the current strength of the dollar and stock market weakness. The discount to Brent crude moved below $10 for the first time since November as rising Libya production ensured increased availability of Opec oil while US demand was supported by the cold weather. As we approach February and March, further contraction of the spread could be hard to achieve as demand for crude oil from US Gulf Coast refineries may ease as the spring maintenance season kicks off.
NEW DELHI: Tata Motors is launching two models this week for India’s Auto Expo but the sudden death of its operations chief has left the vehicle giant in turmoil as it struggles to rebuild its fortunes. Tata Motors, a unit of giant Indian tea-tosteel conglomerate Tata, has become almost totally dependent on British prestige marques Jaguar and LandRover (JLR) for profit while its domestic woes go from bad to worse. Tata Motors managing director Karl Slym had been seeking to drive a revival of India’s largest vehicle group when police last weekend said he had plunged from a Bangkok hotel upper floor in an apparent suicide. The death of the Britishborn executive, a cricket-mad Indophile, marked a “huge loss for Tata Motors”, said Deepak Rathore, director of Indian consultancy Emerging Markets Automotive Advisors. He “had the right ideas about where Tata should head in product quality, service and new models”, Rathore said. Slym, 51, took over in 2012 as the once red-hot Indian car market was going into a deep descent due to a sharply slowing economy, high fuel prices and surging borrowing costs. India’s passenger car market, the sixth largest globally, fell 10 percent in 2013, the first drop in 11 years and a far cry from the scorching 28.2 percent growth it notched a couple of years earlier. JLR sales offset domestic dive A storming performance by storied JLR, a far-sighted 2008 purchase by former Tata group chief Ratan Tata to spread the Indian motor group’s wings globally, has kept Tata Motors out of the red and now accounts for 95 percent of its profit. In Tata Motors’s most recently reported second-quarter, profit surged by 71 percent to 35.42 billion rupees ($558 million) from a year earlier as JLR’s robust performance offset a domestic dive. On a standalone basis, Tata Motors’ India operations swung to a second-quarter loss of 8.04 billion rupees from a profit of 8.7 billion rupees a year earlier on slumping sales. “As far as profits go, JLR right now is Tata Motors,” Rathore commented. Underlining the company’s poor health, Tata Motors reported Saturday passenger vehicle sales slid 27.85 percent to 10,974 units in January while sales of commercial vehicles plummeted 36.6 percent to 36,657 units. Sales of the hatchback Nano, launched in 2010 and which flopped as aspirational Indians
AHMEDABAD: Former Tata Motors managing director Karl Slym poses during the launch of a motor car in Ahmedabad. Tata Motors is launching two models this week for India’s Auto Expo but the sudden death of its operations chief has left the vehicle giant in turmoil as it struggles to rebuild its fortunes. — AFP
were turned off by its “world’s cheapest car” branding, skidded 72 percent in the first three financial quarters to December 2013 from a year earlier. Underscoring investor nervousness about Slym’s loss, Tata Motors’ shares tumbled what analysts described as a “knee-jerk” six percent last Monday, a day after his death, before retracing some losses to finish down 3.5 percent at 348.85 rupees Friday. But Tata Motors’ quality, customer service and innovation problems go back long before the general vehicle industry began stalling, industry players say. Slym told AFP late last year he was determined to create a “wonderful (customer) experience” to improve impressions of Tata Motors. He said he was determined to “keep reinvigorating our lineup” and steer the Nano upmarket. New models for Delhi Auto Expo Just before Slym’s death, the company brought out a power-steering variant of the Nano to broaden its appeal. Last month, the company also showed off the first variant of a new generation of petrol engines called Revotron. And today, just ahead of the
February 7-11 auto show, it is set to unveil a heavily revamped compact sedan and hatchback. “It was far too early to call him a turnaround king but he (Slym) was putting some necessary changes in motion,” veteran car industry analyst Murad Ali Baig told AFP. He had got the board’s nod for a new product lineup until 2020 and to revamp manufacturing to eliminate customer complaints about post-purchase glitches. “It will take time to find someone who can pick up the baton-someone who knew the Indian market” like Slym, whose career was India-centric, said analyst Rathore. Slym’s “intense focus was on product quality,” said Tata spokeswoman Minari Shah. At the Delhi Auto Expo, 47 carmakers from around the globe from Ford to Volkswagen will launch 69 car and motorbike models-the most in the fair’s 14-year history-and stage 15 global unveilings. At Tata Motors, they are toning down the usual hoopla that goes with industry launches out of respect to Slym, but the group knows it must turn around quickly. “The best thing to do is to go forward with his plans. It’s the best tribute,” Tata’s Shah said.— AFP
Arabtec extends reach with giant construction order Sign of recovering confidence DUBAI: Dubai construction firm Arabtec clinched a $6.1 billion contract yesterday, its biggest ever by value, as its relationship with Abu Dhabi state fund Aabar, a key shareholder, promised to make the firm one of the region’s top builders. Arabtec said it had signed a memorandum of understanding to build 37 mixed-use, residential and hotel towers for Aabar in Abu Dhabi and Dubai. The announcement pushed up stock markets, especially cement shares, in Abu Dhabi and Dubai because it was a fresh sign that their real estate markets are recovering strongly after prices halved during the global financial crisis. The news also suggested that after a few years of caution following the crisis, Abu Dhabi’s state funds, backed by the emirate’s oil wealth, are again ready to spend actively to develop the economy. The fortunes of Arabtec, already a major player in the region with a workforce of about 63,000 people, may be transformed by its relationship with Aabar, which is Arabtec’s largest shareholder with a 22 percent stake. Early last year, in a move supported by the Abu Dhabi fund, Arabtec replaced its founder and chief executive Riad Kamal with Abu Dhabi-based private investor Hasan Abdullah Ismaik and embarked on an ambitious growth strategy.
The new $6.1 billion contract dwar fs Arabtec’s 2012 revenues of $1.5 billion. In addition, Aabar said yesterday that it would assign all future construction work in its $20 billion real estate portfolio around the world to the Dubai firm. That portfolio includes projects in the United Arab Emirates, the United States, Morocco, Jordan, Serbia and other countries. Coping with this expansion of its business may pose a challenge to the company. “This is uncharted territory for Arabtec, to do such giant projects across the region with a backlog in excess of 60 billion dirhams ($16.3 billion),” said Nishit Lakhotia, head of research at Securities & Investment Co (SICO) in Bahrain. “Obviously, in countries where Arabtec does not have a presence yet, it can be a bit more risky to execute projects. That cannot be ruled out.” But he added, “They have been preparing for this. The recent strategic partnerships, acquisitions, rights issue and management changes are all part of this preparation.” Shares in Arabtec closed 2.8 percent higher on the Dubai bourse, though they came well off their highs, having risen 8.2 percent at one stage. The stock has climbed more than 50 percent so far this year after a 54 percent gain in 2013.
Margins Arabtec said it would start work this year on the new buildings for Aabar and that all the projects would be completed by 2020, when Dubai is due to host the World Expo. It did not say what profit margins it expected. “Margins in the UAE are still very competitive and it’s likely that margins are tight on such a major project,” said Lakhotia. Arabtec has won a series of contracts in Abu Dhabi, including high-profile projects such as development of Abu Dhabi’s main airport and the Louvre museum there, since Aabar began building a major stake in the firm in 2012. The firm also secured a $1.55 billion contract to build a resort in the Aqaba area of southern Jordan last month. The UAE’s real estate market has been recovering since 2012, partly because of a tourism and trade boom in Dubai, which has attracted foreign money. “Our growing backlog has now become a major benchmark of the speedy recovery of the sector. We expect to see good results with efforts to diversify into higher-margin sectors in association with international partners,” Arabtec’s Ismaik said in a statement. Aabar owns stakes in a range of high-profile companies within the UAE and abroad, including commodities trader Glencore and Italian bank UniCredit. — Reuters
Dubai’s Aramex Q4 net profit up 16%
UNB Q4 net profit more than doubles ABU DHABI: Union National Bank, Abu Dhabi’s fourth-largest lender by market value, yesterday said its fourth-quarter net profit more than doubled from a year earlier but it still fell short of analysts’ expectations. The bank said in a bourse filing it made a net profit of 306 million dirhams ($83.3 million) in the three months to Dec. 31, up from 136 million dirhams in the prior-year period. Six analysts forecast on average a net profit of 362.1 million dirhams in a Reuters poll. UNB, which is 50 percent owned by the Abu Dhabi government, made a full-year profit of 1.75 billion dirhams compared to 1.6 billion dirhams in 2012, helped by a 10 percent rise in non-interest income and a modest gain in net interest income. Banks in the United Arab
Emirates have reported strong earnings growth for the fourth quarter as they benefit from the improving economic picture in the Gulf Arab nation, especially in the key real estate sector, which was buffeted following a 2009 crash. The bank recommended a cash dividend of 0.15 dirhams per share and a 5 percent bonus share issue for 2013. This was up from the 0.10 dirhams distributed for the previous year. General provisions totalled 1.1 billion dirhams for the full year compared to 1 billion dirhams in 2012, the statement said, without providing a break-down for the quarter. Deposits at the bank grew 3 percent in 2013 to 65.1 billion dirhams, while net loans and advances increased 5 percent to reach 60 billion dirhams at the end of December. — Reuters
ISLAMABAD: Pakistani workers prepare solar energy light panels on a road divider in Islamabad yesterday. The country faces an electricity shortfall of around 4,000 megawatts in the sweltering summer, leading to lengthy blackouts that can make the lives of the population a misery and have strangled economic growth. — AFP
DUBAI: Dubai-based logistics firm Aramex posted a 16 percent rise in fourth-quarter net profit yesterday, boosted by growing revenues from its international business. The company made a net profit of 76.4 million dirhams ($20.8 million) in the three months to Dec. 31, up from 65.7 million dirhams in the prior-year period, it said in a statement to the Dubai bourse. The earnings edged slightly ahead of the average forecast of four analysts polled by Reuters, who expected a profit figure of 74.4 million dirhams. Revenue in the quarter grew 5 percent year-on-year to 850 million dirhams, with its international express business recording revenues 11 percent higher in the same timeframe. Hussein Hachem, Aramex’s chief executive, said in the statement the firm was “very confident of carrying our strong performance through 2014”, with the firm expected to continue expanding in Africa, Asia and the Middle East.—Reuters