Cargo business looks good, express segment set to take off

The airlines may have other loses to manage and plans to formulate, but for Jacques Creeten, vice-president, India, FedEx, his daily schedule has become more hectic. After 10-years of operations in the Indian market, he feels that this is the time to capitalise on the ground work that they’ve done for a decade. “During this period we have grown almost five times, which speaks volumes about our commitment to the Indian market,” he says.

There is a similar story in the boardroom of Craig Grossgart, country manager, DHL Express India. The company holds a market share of 60% in terms of shipments and handles over 7.2 million shipments in 2007. As per industry estimates, the Indian express industry is valued at Rs 7,000 crore and is growing at approximately 25% annually.

“Asia will witness the highest growth rates and India will account for almost 9% of this annually, as compared to the world growth rate of 4%. And in this whole number maze, India emerges as a priority market for us,” says Grossgart.

Today, the domestic express makes up about 58% of the total market, of which a little less than half is in the organised sector. The unorganised and semi-organised segments, comprising largely of regional and intra-city service providers, and EMS Speedpost, account for the rest.

Blue Dart, one of the pioneers in the industry clocked a profit of Rs 69.93 crore after taxation for the year ended December 31, 2007, up by 39% from the corresponding period of the previous year. “We manage to carry 72.4 million shipments (Jan-Dec, 2007) and yet maintain our reliability levels at 99.96%,” says Anil Khanna, MD, Blue Dart Express.

He says in the organised air express industry in India, the company holds a market share of 41.7%. Though Blue Dart has no plans to partner with a foreign airline, the company feels that all major companies will be looking out for opportunities to acquire small domestic companies and enter into the sector. “This is a phase of consolidation in the logistics industry and I believe there is space for everyone in this space,” says Khanna.

According to a recent CARE report, in India there are nearly 2,500 companies in this segment— the huge potential and demand looks tempting. According to analysts, the opening up of the Indian economy to foreign investments is expected to attract more companies into the country, thereby adding momentum to market growth.

R K Saboo, chairman, Express Industry Council of India (EICI) is hopeful that the current growth trend should continue for at least another five years. “Since express and cargo together have huge potential, it is good for the sector to have dedicated cargo carriers and from the user prospective it is good for express industry to have many carriers offering services. The increase in the FDI cap will also see a boost in the activity of the air cargo space,” he says.

With such projected growth charts, it looks like the weather is sunny and perfect for a smooth flight. But for an exponential growth, the industry needs a solid runway to take-off. But for the express industry, the challenges are no different with speed of distribution, value adds and a better turn-around time being the prominent issues.

 

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Arbitrage commodity exchanges

IN THE ensuing debate after the imposition of commodity transaction tax (CTT) in a newly inserted chapter VII of Finance Bill, 2008 (Para 179 of the Budget speech), the commodity exchanges (commexes) through the ministry of consumer affairs, have represented to the finance ministry asking for removal of CTT as it would lead to the transaction cost going up by over six times. Since bulk of the traded volumes is attributable to arbitrageurs and speculators, these market participants are likely to migrate to international commexes where such taxes do not exist. Also the participation in domestic commexes is not broadbased since 30-40% of the volumes are derived from top 10 customers. Thus, our commexes are primarily arbitrage exchanges dominated by arbitrageurs and speculators who make money on price spreads between domestic and international markets. Government and policymakers need to take urgent measures to address the structural weaknesses for improving market efficiency.
The efficient market hypothesis (EMH), first propounded in 1900 by French mathematician Louis Bachelier in his dissertation, ‘The Theory of speculation’, emerged as a prominent theoretical position after mid-1960s based on doctoral thesis of Eugene Fama. According to EMH, the prices of traded assets reflect all known information and is a collective belief of all investors about future prospects. Thus, it is not possible to have guaranteed profit as a result of pure trading process.
During recent years, the government has been following a reformist approach but some measures such as banning futures trading in wheat, rice, tur and urad; recent imposition of CTT; taxing of commodity options even before their introduction; and making capital gains applicable to commodity markets etc., act as a deterrent to growth of commexes. The debate on CTT has also highlighted an urgent need to address some market deficiencies to enable them to become centres of price discovery independent of the international markets.
First, for convergence of spot and futures prices, there is a need for rationalisation of multiple levies such as excise, customs, VAT, CST, market fees, cess, octroi imposed by the Union, state and local governments.
Second, the state-level APMC legislations should be amended to permit direct selling by farmers to producers, which would encourage contract farming and improve realisation of farmers and also bank financing.
Third, the Essential Commodities Act, 1955, originally enacted to curb hoarding is redundant now and should be scrapped. This would attract increased corporate investment in agricultural sector.
Fourth, the Banking Regulation Act, 1949 should be amended to permit banks to trade in commodity derivatives which would provide a protective cover to banks against default of agricultural loans by linking bank lending with simultaneous selling of futures contracts. This may also limit or obviate the need for subsidy and loan waivers as in the recent Union budget. Also institutional investors such as mutual funds, FIIs etc., should be permitted to participate in the commodity markets to attract enough liquidity for efficient price discovery. The corporates still prefer hedging their price risks at international commexes thus depriving domestic exchanges of the much-needed liquidity.
Fifth, to treat all commodity derivative transactions as business transactions and not speculative transactions by amending section 43(5) of Income Tax Act, 1961.
Sixth, the definition of ‘goods’ in Forward Contract Regulation Act, 1952 (FCRA) should include intangibles such as weather, freight, electricity, rainfall index, index futures, carbon credits etc., since they serve important economic functions of risk management.
Seventh, to permit options trading in commodities by amending section 19 of FCRA.
Eighth, FMC should have a role in regulation of spot markets also.
In addition, minimal government intervention in commodity markets as stipulated in Agreement on Agriculture of WTO, stable macroeconomic and capital control policy would reduce sovereign risk and improve market confidence.
While the primary purpose of commexes is price discovery and risk management to serve needs of actual users and hedgers, the need of arbitrageurs and speculators is to enable transfer of risk among a large number of market participants. The government needs to take suitable measures to attract liquidity in new generation technology-driven commexes. This is necessary if the Indian commexes have to reach international benchmarks of ratio of commodity futures versus physical trade of 10:1 as against 3:1 presently. Only then can Indian commexes become efficient markets useful for performing the function of price risk management on the same lines as established international exchanges.
(The author is a Fellow of the Indian Institute of Foreign Trade, New Delhi. Views are personal.)


• Our commexes are dominated by arbitrageurs and speculators who make money on price spreads between domestic and international markets

• There is a need for rationalisation of multiple levies such as VAT, cess, octroi

• FMC should also have a role in regulation of spot markets

Gold Falls Most Since 2006, Leads Commodity Drop on Fed Outlook

By Pham-Duy Nguyen and Millie Munshi

March 19 (Bloomberg) -- Gold plunged the most since June 2006, leading a decline in commodity prices on speculation that the Federal Reserve will ease the pace of interest-rate cuts, boosting the appeal of stocks and bonds.

The UBS Bloomberg Constant Maturity Commodity Index fell 51.7554, or 3.5 percent, to 1,437.64 at 11:42 a.m. in New York, led by declines in silver, gold, wheat, sugar and crude oil. The index of 26 commodities has dropped in three of the past four sessions and is down 8.6 percent from a record on Feb. 29.

The Fed yesterday cut the overnight-lending rate 75 basis points to 2.25 percent, the sixth reduction since September, in a bid to avert a U.S. recession. Analysts had expected a bigger cut to 2 percent, which helped spur commodities to record highs as investors sought a hedge against inflation by stocking up on raw materials.

``Market sentiment has changed to `maybe the Fed can bail us out,''' said Chip Hanlon, who helps manage $1.5 billion at Delta Global Advisors Inc. in Huntington Beach, California. ``It's a great excuse for anyone who's been a part of this commodity run to take some profits. It doesn't mean that people were wrong about the economy. It just means that they went overboard.''

Goldman Sachs Group Inc. and Morgan Stanley, the two biggest U.S. securities firms, said they were borrowing cash directly from the Fed, signaling the central bank's steps to ease borrowing restraints are working.

Reallocation of Assets

``There seems to be more stability in the credit market and the Fed keeps coming in to alleviate concern,'' said William O'Neill, partner at Logic Advisors in Upper Saddle River, New Jersey. ``There's a reallocation of assets taking place. Investors are taking some money out of commodities and gingerly moving in into equities.''

The Standard & Poor's 500 Index rose 0.4 percent to 1,335.87, after yesterday's 4.2 percent gain, which was the most since October 2002. The Dow Jones Industrial Average gained 0.2 percent.

Gold for April delivery fell $57, or 5.7 percent, to $946.20 an ounce on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest drop for a most-active contract since June 2006. Gold reached a record $1,033.90 on March 17.

Crude oil for April delivery fell $4.31, or 3.9 percent, to $105.11 a barrel on the New York Mercantile Exchange on forecasts that a government report today will show U.S. inventories increased as the world's biggest economy slowed.

Risk-Reward

``The dynamics aren't there to push commodities higher at this point,'' O'Neill said. ``Some investors have had huge profits in oil, platinum and gold. At this point, the risk- reward gets a bit unattractive.''

While the Fed said yesterday it expects a ``leveling-out'' of commodity prices, some investors are betting inflation will accelerate because of lower borrowing costs.

``Commodities will resume their rally as the Fed continues to print more money,'' said Michael Pento, a senior market strategist at Delta Global. ``Commodities are priced in dollars, as the dollar continues to fall, these prices will regain their upward trend.''

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net; Millie Munshi in New York at mmunshi@bloomberg.net

Gold resumes at an all-time high of Rs 13,495

 

MUMBAI: Gold prices resumed to an all-time high of Rs 13,495 on the bullion market here on Monday on persistent stockists buying in view of current marriage season coupled with higher Hong Kong advices.

Silver also shot up to an all-time peak of Rs 25,770 per kilo in line with gold prices.

Gold prices in Hong Kong resumed sharply higher at $1021.60/1022.30 per ounce as against the last weekend's level of $990.70/991.40 per ounce.

Turning to the local market, standard gold (99.5 purity) shot up by Rs 385 per ten grams to Rs 13,495 from the last weekend's level of Rs 13,110 and pure gold (99.9 purity) also firmed up to Rs 13,555 from Rs 13,170.

Silver ready (.999 fineness) shot up to Rs 25,770 from Rs 25,225 previously, showing a rise of Rs 545 per kilo.

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Gold price crosses Rs 13K mark, may touch Rs 15K

MUMBAI: The bull run in bullion continued with gold price rising to a new high at Rs 13,000 mark here on Friday.

Gold prices could touch Rs 15,000 mark this year, a top bullion industry official said.

The standard gold opened at Rs 13,035 in the Mumbai bullion market and Rs 13,160 in the Kolkata bullion markets. The yellow metal hit an all-time high of USD 1,000 an ounce in the US.

"The gold price has scaled to a new high in both national and international markets. Prices may react in the near future to Rs 12,500, but overall the bullish trend may continue and its price may touch the USD 1,200 per ounce and Rs 15,000 per 10 grams in 2008," Riddhisiddhi Bullion Ltd Director Prithviraj Kothari said here today.

The likely 0.5 per cent rate cut by Fed next week has already been discounted in the current price, Kothari said.

"Gold demand has come down drastically and revival in demand may start only when the price reacts. The price may come down to Rs 12,700 per 10 grams in the near future and may scale up to Rs 13,500 by March-end," Bombay Bullion Association President Suresh Hundia said.

India imported around 10.2 tonnes of gold in February and only five tonnes in January as compared with 52 tonnes and 56 tonnes respectively, a year ago. India imports around 800 tonnes of gold, which account for 20 per cent of the world's gold consumption.

 

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RiddiSiddhi kicks off online bullion trade

MUMBAI: Leading bullion trading company RiddiSiddhi Bullions (RSBL) has launched an electronic over-the-counter trading platform, for the first time in India, called RSBL SPOT.

The e-trading platform developed by RSBL, will provide a trading facility without the involvement of intermediaries. Speaking on the occasion Prithviraj Kothari, MD of RiddiSiddhi Bullions said:

“The RSBL SPOT is not an exchange, but an efficient replacement of the traditional means of doing business in the physical bullion markets.” He further added that the launch of such a spot platform will help increase the trading volume on commodity futures exchanges and also lead to efficient prices in gold exchange traded funds (ETFs).

Currently, contracts of 100 gm (.999) and 1 kg (.995) and 30 kg (.999) silver are traded on the spot platform with delivery centres in Mumbai, Ahmedabad and Hyderabad. Mr Kothari hopes to bring on board over 6000 jewellers. “We will bring about 1,500 jewellers on to the electronic platform in the next year,” he said.

He feels the platform will enable a small jeweller save Rs 5 per gm of gold he invests in. That translates to Rs 50 lakh per tonne annually and considering annual consumption of 600 tonne, the industry will be saving as much as Rs 300 crore.

In international markets gold price fluctuates between $20-30 per ounce in a day. In silver, it’s about $1 per ounce that translates to 2-4% in actual value terms.

Indian prices may not move correspondingly. Such high volatility and their real impact on Indian prices make it necessary for jewellers to be in regular touch with market prices. The electronic platform will aid this, Mr Kothari added.

In spite of India’s high volume in bullion trading of close to 800 tonne, and consumption, a standard mechanism to get benchmark spot prices was missing.

Banana brings peel-good factor for state

 MAHARASHTRA is gearing up to take a share in the international banana market, a produce regarded as the fourthmost important food crop in the world after rice, wheat and corn. Two export facilitation centres are being set up in the districts of Jalgaon, north Maharashtra, and Hingoli, near Nagpur, which are expected to be ready in two months. Meanwhile, the state government hopes to promote banana exports by encouraging contract farming and the use of modern technologies.
    Though India ranks No. 1 in the world in banana production and Maharashtra tops the tables locally, banana exports from India are negligible. In 2005, the global production of bananas was 73 million tonne (mt) while India’s share was 16.8 mt. According to an October 2007 statement by Jairam Ramesh, minister of state for commerce, India accounted for 23% of global output, which is three times the share of the next country, Brazil. Maharashtra accounts for 25% of India’s banana production, followed by Tamil Nadu (20%), Gujarat (15%), Karnataka (10%) and Andhra Pradesh (10%).
    According to Mahendra Devare, manager, Mahabanana, an association of banana growers of Maharashtra, the state has 72,000 hectare of land under banana plantation, of which about 66%, that is, 48,000 hectare is in Jalgaon district alone. But only five container loads have been exported in the last few years, that too on a trial basis.
    The Agricultural and Processed Food Products Export Development Authority (Apeda) believes that India has tremendous export potential for bananas even though there is hardly any such export now. This is attributed in part to the absence of globally acceptable post harvest practices and transport logistics, lack of storage facilities and the like. Apeda has declared eight traditional banana growing districts in Maharashtra as agricultural export zones (AEZs), covering the districts of Jalgaon, Dhule, Nandurbar, Buldhana, Hingoli, Parbhani, Jalna, Nanded and Wardha.
The water-intensive crop is expanding its area, outside its traditional pockets in the state. “The area under banana in parts of Pune and Solapur districts has been growing. From almost zero a few years ago, it is about 20,000 hectare today,” said Santosh Patil, deputy general manager, Maharashtra State Agricultural Marketing Board (MSAMB). “The handling and transport of banana is crude in India. It produces black spots on the fruit, which are not acceptable in the international market,” Mr Patil added.
The export facility centres coming up at Raver in Jalgaon and Basamat in Hingoli district will have automatic cabling systems, like a conveyor, for the mechanised transport of bananas from the tree to the vehicle near the farm, pre-cooling, cold storage and ripening chamber. Bagging the fruit during its growing phases will also be promoted, to protect it from mosquito bites, which produce stains.

 

 

 

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$110 a barrel, well almost

Fed Move To Inject Liquidity Into Strained Markets Sees Oil React To The Dollar Reversal

OIL surged to a record near $110 a barrel on Tuesday before a liquidity injection by the US Federal Reserve and other central banks erased gains. “Oil is definitely reacting to the reversal of the dollar, on co-ordinated central bank liquidity action,” said Tom Bentz, analyst at BNP Paribas Commodity Futures.
    US crude for April delivery rose 2 cents to $107.92 a barrel at the time of going to press after hitting $109.72 a barrel earlier, marking the fifth straight day of new highs. London Brent crude rose 23 cents at $104.39, off its record high of $105.82.
    The US Federal Reserve joined other central banks to add up to $200 billion to loosen up financial markets still constrained by effects of the credit crisis. The Fed action boosted stocks and helped the dollar rally. The dollar rebounded against the euro after hitting an all-time low against the European currency earlier in the session.
    Dollar weakness has reflected expectations of more interest rate cuts by the Fed to boost the flagging economy in the US, the world’s top energy consumer.
    Oil prices had dipped slightly after the International Energy Agency said world oil demand would be less than expected this year because of slower economic growth in industrialised countries and record prices. But the agency also said only a severe recession would push oil back below $60 a barrel.
    “We are in an era of higher oil prices and so if we look at $100 oil we have to do so with an understanding that prices are unlikely to return to levels seen in the early part of the decade,” said the IEA, which advises 27 industrialised countries.
    Oil has set a string of record highs as a bullish long-term supply outlook for oil and other commodities has continued to suck in investment flows looking for alternatives to equities and bonds that are overshadowed by the credit market crises and fears of a US slowdown.
“Looking at the big picture, we believe that the recent price surges in the commodity sector have been for the most part triggered by large capital inflows from institutional investors, hedge funds above all,” said fund manager Tiberius Asset Management in a research note. Goldman Sachs warned oil was at risk from substantial fund liquidation due to cyclical fundamental weaknesses in the next few months, but the investment bank remains constructive on energy for the long-term.
The latest update on fuel supplies in the US, due Wednesday, is forecast to show a 1.9 million barrel rise in crude oil inventories last week, according to a preliminary Reuters poll.

 

 

 

 

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SBI to expand gold coin sale business

NEW DELHI: An unabated fascination for gold among the domestic consumers and its safe-haven investment character has inspired the State Bank of India to ratchet up its gold business and bring out coins weighing 2-50 grams to be sold through its select branches.

"SBI is expanding its network for sale of gold coins and is desirous of short-listing/empanelling established manufacturers of proven track record for minting and supply of gold coins," the bank said on its website while inviting offers from manufacturers.

The SBI, which launched gold coin business around Diwali last year, will soon be shortlisting manufacturers for minting and supplying the gold coins weighing of 2, 5, 8, 10, 20 and 50 grams. Last year, the largest Public Sector lender opened around 100 branches across the country.

The gold prices have been continuously rising for quite some time because of a host of reasons which include weakening of dollar vis-à-vis rupee and increase in domestic demand.

Gold prices in the domestic market touched Rs 13,000 per 10 gram in Kolkata on March three. The metal is trading at Rs 12,960 today in the national Capital.

The manufacturers of the coins will be required to mint gold coins of 999.9/995 fineness from the bars supplied by the SBI.

As per the terms of offer, manufacturers will also be required to supply the coins in tamper-proof certified cards across the country.

The interested manufacturers can send their offers to the bank by March 24, 2008, SBI said.

 

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Rubber replantation gets a Budget boost

The Rs 19-Cr Special Purpose Fund Will Help Meet Rising Domestic Demand

Ratna Ganguli KOLKATA

    THE finance minister’s announcement of creating a special purpose fund for rubber with an initial kitty of Rs 19.41 crore in 2008-09 is expected to give a further momentum to replantation of old rubber plants.
    The money will be available to rubber growers in addition to a sum of Rs 300 crore, which the government has already approved for replantation and rejuvenation of rubber plantations during the 11th Plan period.
    A Rubber Board official said the special purpose fund for rubber is likely to be modelled on the special purpose tea fund, which is a mix of loan and subsidy.
    As in the case of Tea Board, Rubber Board will be the nodal agency for subsidy disbursement from the special purpose fund. Here too, the provision for special subsidy will be linked to bank finance.
    The 2008-09 budget proposal for offering crop insurance facility to rubber will also encourage the planters to move out of the present monoculture regime and experiment with using new highyielding clonal varieties, such as RRII 414 and 430, he said. However, the crop insurance facility is to be available to them from 2009-10 as per the budget announcement.
    Recognising the need of replantation of age-old rubber trees, which are concentrated in Kerala and Karnataka, the government has already approved Rs 300 crore for rubber replantation during the 11th Plan period.
    A large chunk of the fund has been earmarked for providing 20% subsidy for replantation. The Rubber Board has identified some 34,000 hectares for replantation in traditional rubber growing areas.
    Due to prevalence of ageold trees in large tracts of rubber plantation in Kerala, the average productivity of rubber in the state is confined to the one-tonne mark.
    But there are possibilities of doubling the rate if those old plants are being replaced with the new-age high yielding rubber clonal trees, he said.
    The government is stressing on rubber replantation to meet the growing demand for natural rubber for the domestic tyre industry.
FIELD YIELD
The money allocated will be available to rubber growers over and above the Rs 300 crore approved for replantation and rejuvenation of rubber plants
The special purpose fund for rubber is likely to be modelled on the special purpose tea fund, which is a mix of loan and subsidy
The Rubber Board has identified around 34,000 hectares for replantation in traditional rubber growing areas

 

 

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