Derivatives Success

MANAMA: Global trading in derivatives has increased by about 15 per cent over the past year, in spite of the bad image they may have acquired from the financial meltdown.

This is largely because trading in more sophisticated products has moved away from relatively unregulated over-the-counter markets to more transparent market platforms, according to Bahrain Financial Exchange (BFX) director Arshad Khan.

He was speaking at the first BFX annual exchange conference at the Ritz-Carlton Bahrain, Hotel and Spa yesterday which attracted around 150 of the leading players in the Bahrain financial markets.

BFX expects to be up and running early next year as a unique investment platform covering every aspect of investment, from international equities and bonds to derivatives and commodities.

""BFX will put everything on one single market and as it is licensed by the Central Bank of Bahrain. It will offer both robust regulation and transparency to investors in the market," said Mr Khan.

"Issuers of everything from world stocks and indices to commodities, currencies and debt instruments will be able to trade on this platform when it is up and running.

"We have organised this as the first annual conference ahead of us being up and running as an exchange so we can involve the Bahrain financial community and help inform them about who we are.

"We have also been informing them about our plans for a BFX academy which will offer training in trading on any of the products on our exchange."

He said that while the level of trading that could be achieved on the Bahrain market depended on investors, the open and regulated nature of the market made it very positive.

The financial exchange in India, which represented a fairly closed market, had a turnover of around $6 billion last year, he pointed out.

"We expect to be up and running around the turn of the year and we are pretty positive about an upturn in the investment climate by then," he said.

"People who have money to invest will be looking for the right platform and that is something we can offer and give them confidence.

"This market is something that will help the whole financial market in Bahrain including brokers, clearing banks and it should provide a boost to the whole economic business support services." 

business@gdn.com.bh
Quoted from: Gulf Daily News

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Four N-Power Plants to Be Built Near Kanupp

KARACHI: Four more nuclear power plants will built by the Pakistan Atomic Energy Commission (PAEC) near the existing Karachi Nuclear Power Plant (Kanupp) as part of a plan to build more energy units in the country to meet the target of 8,800 megawatts from nuclear energy by 2030.

The chairman of the PAEC, Dr Ansar Pervez, said this in his address at the Kanupp Institute of Nuclear Power Engineering (KINPOE) convocation 2009 held here on Tuesday.

Dr Ansar saw better prospects for nuclear energy plants because of what he called a ‘renaissance of nuclear power’ in today’s world. The other reasons for the revival of nuclear power plants, he said, were the good performance of more than 400 already operating plants all over the world, uncertain oil prices, and international concerns over carbon dioxide emission.

‘Nuclear power plants do not emit greenhouse gases and they have showed that they are more cost-effective, safe and reliable,’ he claimed.

‘From its early days, the generation of electrical energy through nuclear power has been one of the PAEC’s primary objectives. For this purpose, it established nuclear power plants and a complex network of associated fuel cycle technology. It has also been providing benefits of sophisticated nuclear techniques to the medical and agriculture sectors,’ he said.

He said that the cooperation for a peaceful application of nuclear energy between Pakistan and China was progressing because of good relations between the two countries.

He said that the PAEC had been assigned the task of generating 8,800MW of nuclear electricity by 2030 and some of the new plants would be built near Kanupp.

‘We have already purchased 585 acres near Kanupp to build additional plants. Although the cost of the land amounting to Rs350 million has already been paid, and the lease agreement was signed in August 2008, the mutation and demarcation of the land have not been carried out yet,’ he said.

Dr Ansar said that he had requested the authorities concerned to expedite the case of the land so that PAEC could start development work at the site. He said that based on the experience gained from the reverse osmosis plant, Kanupp was now working as a consultant for 100,000 gallon per day capacity reverse osmosis plant at Gwadar.

The PAEC could also offer its technical assistance in setting up large-sized desalination plants, he said.

Dr Ansar said that Kanupp was setting up a nuclear desalination demonstration plant with the capacity of 400,000 gallons per day, which is indigenously built in PAEC with some assistance from the IAEA. ‘We can also offer technical assistance to the Karachi city government for its planned 50 million gallons per day desalination plant,’ he added.

He also pointed out that among all developing countries; Pakistan took the lead in the generation of electricity from nuclear power plants by setting up the Karachi Nuclear Power Plant.

‘It has been kept operational despite many embargoes imposed on us. It is now operating on extended life through modifications and safety retrofits done entirely by our own experts,’ he added.

He also enumerated the services rendered by the PAEC towards the socioeconomic uplift of the country by running 13 cancer hospitals across the country with five more under construction, agricultural, biotechnology and genetic engineering institutes and a series of human resource development and goal-oriented research centres.

He said that PAEC’s agriculture and biotechnology institutes were contributing at the national level by developing crop varieties that have higher resistance to disease, mature early and give higher yields.

The vice-chancellor of the NED University, Abdul Kalam, who was the chief guest at the convocation, awarded degrees of MSc nuclear engineering to 86 successful graduates of the 13th and 14th batches along with merit certificates and gold medals.

quoted from: DAWN.COM

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Development for Fats and Oils-Based Chemicals Rises

Will fats and oils development for industrial use still rise despite lower petroleum prices?

INDUSTRIAL USE of fats and oils has seen rapid growth and development over the past few years, driven mainly by high petroleum and natural gas prices as well as growing demand for natural or renewable-based products.

US fats and oils used for industrial applications rose last year to an estimated 11.9bn lbs (5.4m tonnes), up by 9% from 2007, and by 24% from the 2006 figure of 9bn lbs, according to the US Department of Agriculture's (USDA) Economic Research Service (ERS). 

Methyl esters, or biodiesel, was the biggest factor in the increase in fats and oils use, while applications in lubricants and similar oils also had significant spikes, the USDA reported in its 2009 Oil Crops Yearbook.

An estimated 700m gallons of US biodiesel was produced last year, according to the National Biodiesel Board (NBB). Around 34% of biodiesel raw material came from refined soybean oil, 31% from crude soybean oil, 11% from inedible tallow and grease, and 24% from other fats and oils.

"The production of US biodiesel, which now accounts for over 75% of soybean oil's industrial use, experienced an annual average growth rate of an astonishing 90% for most of this decade," says Kenneth Doll, research chemist, Food and Industrial Oil Research Unit at the USDA's Agriculture Research Service (ARS).

The use of soybean oil in surfactants, specialty coatings, and bio-based lubricants are also growth areas, says Doll.

"The bio-based lubrication market was 15m gallons in 2007 but is expected to reach 30m gallons by 2017. This is despite a relatively flat market for all of the lubrication industry," he adds.

For the marketing year 2008-2009 (October-September), the global industrial use of vegetable oil is estimated to be around 25m tonnes, up by 7% from 2007, according to senior oilseed economist Keith Menzie of the USDA's World Agriculture Outlook Board. Menzie presented his projections at the annual American Fats and Oils Association (AFOA) meeting held late last year in New York.

"Industrial use now accounts for 20% of the global total vegetable oil consumption compared to 10% in 2001-2002," said Menzie. "Growth was mostly from the European Union, US, Argentina and Malaysia." 

EU industrial use of vegetable oil grew by 25%/year from 2001-2002 through 2006-2007, added Menzie. For 2008-2009, 6% of the global vegetable oil production used by the EU will be for biodiesel, according to the USDA. 

But with fats and oils prices rising amid a lower petroleum price, the question lingers whether development and uses for fats and oils-based chemicals will become stale.

"The volatility of petroleum prices increased the competitiveness of bio-based materials in petroleum-dominated markets. However, this window of opportunity was somewhat short-lived as agricultural commodity prices also increased, and later, petroleum prices lowered," says Doll.

ECONOMIC IMPACT
While being green and sustainable are often mentioned as drivers for bio-based product development, they tend to be tie-breakers, says Andy Shafer, vice president, sales and market development at Illinois, US-based Elevance Renewable Sciences.

"The most significant challenge for renewable-based industrial products is to provide improved performance at competitive economics," says Shafer. "The chemical industry is looking for innovative solutions that provide advantages in performance, economics, security of supply, and stability of pricing."

Shafer adds that while the current recession certainly affected sales of most consumer- driven goods, Elevance's business appears to be less significantly affected than other alternatives based on petroleum products.

"New products are being introduced using our technology in candles and personal care products. Our established products also continue to sell well," he says.

US-based natural oil polyol producer BioBased Technologies notes that there has been reduced consumption of polyols at its existing customer base.

"But new customers and new applications for natural oil-based polyols have buoyed us through the downturn," says director of sales and marketing Larry Armbruster. 

Customers, however, are still not willing to pay a premium for green, adds Armbruster. "Customers push for green as long as it is cost-competitive with existing products on the market."

Among all industrial applications, biodiesel is projected to be the leading contributor to the reduction of US fats and oils use this year, according to the USDA-ERS. Soybean oil use in biodiesel production is forecast to decline from 2.9bn to 2.2bn lbs for the 2008-2009 marketing year. 

"Soybean oil demand from this market was already tightening as diesel fuel prices collapsed faster in 2008 than the feedstock costs for biodiesel," says Mark Ash, USDA-ERS oilseed analyst. "For January 2009, domestic consumption of soybean oil for biodiesel already plunged 53% from the same month last year."

The slowdown in biodiesel leaves available soybean oil for smaller but more value-dense markets, notes Doll. 

"Our production of agricultural oils will certainly be affected by various market conditions, like all industries. Still, we will always have to make our chemicals, materials and fuels out of something. Environmental concerns and finite fossil resources dictate that there is a long-term future in the use of renewable resources," he adds.

Amid the current price drop in petroleum, soy chemistry is still economically competitive in many more markets, according to US-based consulting firm Omni Tech International. In September, Omni Tech issued a report for the US soybean group United Soybean Board (USB) about the potential impact of rising petrochemical prices on soy use for industrial applications.

"Relative increases in natural gas and petroleum pricing will continue to lead to increased use of soy materials in markets where performance issues have been sufficiently addressed," reported Omni Tech. 

"In those markets where performance and/[or] processing costs are still an issue, the competitive motivation for seeking improved performance of soy products while still remaining economically competitive is significantly increased."

NEW PRODUCTS SPROUT
The USB noted a total of 28 soy-based products introduced last year with its soybean checkoff program compared with 26 products launched in 2007. Applications include polyurethanes (PU) and other resins, solvents, adhesives, printing inks and coatings.

"The US soybean checkoff looks for industry partners to grow demand for our product by partnering with them to research and create new soy technologies," said Todd Allen, USB new uses chairman in a statement. He noted last year's success such as soy polyol-based foam now being used in Ford Motor automobiles.

Ford uses soy-based seat cushions and backs on more than 1m vehicles, which is an equivalent to using more than 76,000 bushels of soybean, says Debbie Mielewski, technical leader of Ford's plastic group.

"We are extending our partnership with the USB through investigating soy meal and flour as filler for several automotive plastics. With the soy foam, we are now conserving over 1m lbs of petroleum and reducing over 5m lbs/year of carbon dioxide emissions," adds Mielewski. 

The rigid foam market and flexible foam market have reportedly seen much growth in the use of natural oil polyols, says BioBased Technologies' Armbruster.

In August last year, the company launched its second-generation natural oil polyol Agrol Diamond for the rigid foam market. The company says it has made a significant investment in its research and development capabilities. 

"There has been a lot of activity in formulating natural oil polyols in a variety of new applications," says Armbruster. 

"Some products act as fillers and can be used only at lower levels while others perform more similar to petroleum-based products. There is also a lot of work being done with the additives to improve natural oil polyol performance," he adds.

Elevance's Shafer notes emerging renewable products in sectors such as personal care and cosmetics, candles, corrugated and packaging, lubricants and antimicrobials.

Soy and vegetable wax candles are said to be the fastest-growing sector of the candle industry. Elevance recently introduced a soy-based wax for use in compression candles, which, adds Shafer, was difficult for soy waxes to do without Elevance's novel technology.

"Our collaboration with Tetramer Technologies has resulted in the synthesis of over 100 novel waxes. We are now beginning the commercial screening of a select few of these interesting products," he says.

Elevance's soy wax collaboration with US specialty chemical company Dow Corning also resulted in multiple cosmetic and personal care products on store shelves in Latin and North America, says Shafer.

"We expect that our development efforts will result in additional products being introduced very soon, expanding this product line," he adds.

Also in cosmetics and personal care is the USDA-ARS' recent development of soybean oil-based biodegradable sunscreen called Soyscreen, and soy-based hydrogel for use in hair-care.

"The hydrogel can expand and contract in response to changes in temperature or acidity levels, which makes it suitable for hair care application and drug-delivery - two high-value markets," says Doll.

He also notes the recent increasing use of soy extenders in the manufacture of wood composite materials. "The acceptance of this biobased product is high because of the lower emissions compared to formaldehyde-based resins," he adds.

quoted from: www.ICIS.com

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Asia's Palm Oil Derivatives Market Takes a Hit from Biodiesel and Oleochemicals

Asia's palm-based biodiesel and oleochemicals markets haved been hit by myriad challenges. What does the future hold?

MENTIONING THE humble palm tree to the man on the street more often than not brings to brings to mind visions of summer vacations at idyllic beaches. In Asia, however, the palm tree has evolved to become far more than an anchor for vacationers to hang their hammocks on.

Transesterified palm oil, or palm-based biodiesel, has proven to be a feasible alternative to conventional diesel in various countries that have mandated or subsidized the use of renewable fuels.

However, with lower energy prices, high natural oil prices, weak demand for oleochemicals and the unique challenges for Asia's biodiesel industry, the palm-based derivatives market is getting slapped around.

Palm trees' clusters of fruit are harvested in order to produce palm vegetable oil. Edible palm oil is the world's most widely used vegetable oil for cooking purposes, with soybean oil coming a close second, according to data from the US Department of Agriculture.

Besides food, crude palm oil (CPO) can be fractionated and refined into fatty acids and fatty alcohols, which can be substituted for petrochemical products for manufacturing a myriad of consumer end-use products.

The tropical Southeast Asian archipelagos of Malaysia and Indonesia are the world's largest planters of oil palms, as well as the most active producers and sellers of its derivative products, with millions of workers employed in the CPO and downstream industries. 

CPO has also been commoditized, with the Crude Palm Oil Futures contract traded on the Bursa Malaysia exchange, which is regarded as one of the key price benchmarks in the world vegetable oils market due to its ample liquidity.

Malaysian palm oil and derivative product exports accounted for ringgit (M$) 64.8bn ($17.9bn) or 9.8% of the nation's total exports in 2008, the second-largest export sector, behind electrical and electronic products, according to the Malaysia Statistics Department.

In the past few months, however, almost no export-oriented economy has been spared by the recession.

A combination of various factors has left the oleochemical industry hurt by ailing demand, with downstream production in a spectrum of industries screeching to a halt: Production margins were already severely squeezed by the recent uptrend in CPO levels compounded by poor supply-demand fundamentals due to the trading activities of speculators who are heavily vested in the upstream vegetable oils market. And the rapidity of feedstock price movements has also capped demand, keeping most oleochemical buyers sidelined.

OLEOCHEMICAL DEMAND TEETERING

Traders and producers agree that 2009 will be a tough year for most oleochemical manufacturers.

Demand for southeast Asian palm-based fractionated fatty acids has fallen by up to 30% since the beginning of 2009, sellers report. As a result, operating rates at various Asian oleochemical production plants have been slashed in a bid to curb inventory pressure.

The natural fatty alcohols market has also not been spared by the falloff in demand, with large multinational corporation end-users reported to have been offloading their excess fatty alcohol inventories procured earlier - also due to growing stockpiles of unneeded cargos.

Major producers of detergents and personal care products such as UK and Netherlands-based Unilever, Japan's Kao and US-based Procter & Gamble have made pledges to go green by making use of surfactants made from renewable feedstocks instead of their petrochemical-based synthetic alternatives such as linear alkyl benzene (LAB).

Initially, there was optimism that end-user demand would not be too adversely affected. 

"No matter how bad the recession is, people still have to bathe and wash their clothes," says Rugvedaya Dubhashi, the general marketing manager of India-based fatty alcohol major Godrej Industries.

On the other hand, hikes in vegetable oil prices in recent months resulted in upward movements in natural fatty alcohol offers, amid comparatively less extreme movements in crude oil values.

As a result, several natural fatty alcohol sellers have attributed part of the falling demand to quiet reformulations from detergent and personal care product manufacturers to include more synthetic chemicals because of the cost savings due to more competitive pricing.

"In today's economic climate, everybody is trying to cut costs. Yes, we have lost some market share to synthetics," one seller from Indonesia points out, adding that several natural fatty alcohol producers in Asia are running at around only 50-60% of their nameplate capacities.

PALM BIODIESEL CHALLENGES

It looks good on paper - ample availability of a renewable crop that can be processed into an alternative to the finite supply of traditional fossil fuels. 

With statistics released by the Malaysian Palm Oil Board showing Malaysian excess stockpiles of palm oil at 1.4m tonnes as of the end of March, it seems rather straightforward to process the CPO into biodiesel for either domestic use or for exports to European countries that have mandated the use of biodiesel for transportation.

The 92 licenses issued by the Malaysian government to local companies allowing them to produce 10.2m tonnes/year of biodiesel would also paint a glowing portrait of the growth of the Malaysian biodiesel industry.

On the other hand, the plummeting value of mineral crude, from highs last summer approaching $150/bbl to current prices of around $50/bbl, have quickly dampened the fervor for alternative fuel use.

"There are 16 plants on the ground from 92 licenses issued [in Malaysia], with most unable to operate due to negative margins," said UR Unnithan, executive director of Malaysian biodiesel producer Carotino, adding that only five or six of the plants were running regularly over the past two years, and mostly well below nameplate capacities.

The uncertainties on whether palm biodiesel would count against strict sustainability criteria set by the EU weighed on European demand for Asian palm-based material. The $300/tonne tax credit for US exports to Europe also sidelined most Asian biodiesel producers from off-loading their cargoes.

"There is no way that we can sell our material now with CPO so high and crude oil so low," the trading manager of a Malaysian biodiesel producer said.

Further dampening the Asian biodiesel export market was the advent of new ASTM standards announced late last year for biodiesel use in the US, which requires both domestically produced as well as imported cargos to pass a "cold soak" test, with which most southeast Asian palm-based material is unable to comply to due to its higher cold filter plugging point without substantial capital investment.

DOMESTIC USE HINDERED

Domestic demand in Indonesia and Malaysia was also soft, with previous attempts to mandate biofuel demand coming stymied by logistics and financial difficulties, as the hikes in vegetable oil prices rendered biodiesel use economically unfeasible.

Malaysian Minister of Plantation Industries and Commodities Peter Chin lays some of the blame for delays in the implementation of earlier announced plans for a 5% biodiesel blend on technical complications from oil companies in blending the biodiesel for commercial use.

"Petronas is not ready [to blend]. While they are working with us, they are not 100% ready - neither is Shell, nor is Exxon. We have to give them time to adjust to this new environment," Chin says.

Managing director of Malaysia's integrated oleochemicals firm Future Prelude, Jake Sow, whose biodiesel project in Pulau Indah, Malaysia, is under construction and tentatively scheduled to be completed by late 2009, also points out the general lethargy in the industry.

"It seems like a good thing that our plant is delayed. Everybody I've met tells me that the market is really bad now," Sow says.

quoted from: www.ICIS.com

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Swine Flu Outbreak Could Deepen Mexico's Recession

Amid serious concerns that the swine flu outbreak could worsen an already-deep recession in Mexico, the World Bank yesterday moved to provide that nation with millions in emergency aid and set up a special fund for longer-term assistance. 

Stung by the credit crunch and weaker demand for its products in the United States and beyond, Mexico is set to suffer a worse downturn than the one in the United States this year, with the International Monetary Fund predicting this week that its economy would contract by 3.7 percent. 

Adding to those troubles, Russia, the world's second-largest pork importer, yesterday suspended all pork shipments from Mexico, as well as from three U.S. states, despite assurances from international health officials that the flu could not be transmitted through exposure to pork. Other countries have intensified screening of pork imports. And several nations have issued travel advisories to Mexico just as resorts there are gearing up for summer bookings. 

Speaking at the close of the World Bank and International Monetary Fund biannual meetings in Washington yesterday, Mexican Finance Minister Agustin Carstens warned that the outbreak could have an "important" economic impact. 

 

"This issue can have an important impact on the economy, although the most important impact is the one on human life and human well-being," Carstens told reporters. He added that the outbreak was a "very serious matter" with "a high potential for [economic] disruption." 

Earlier this decade, the outbreak of severe acute respiratory syndrome (SARS) and bird flu strains in Asia dealt economic blows to more than a dozen nations, forcing airlines to cancel flights, hotels to slash rates and depressing consumer demand. In the case of bird flu, Asian farmers additionally had to cull tens of millions of poultry from their flocks. 

Mexico -- and perhaps even the United States if a full-blown outbreak were to spread north of the border -- could face similar problems just as it is struggling with the global financial crisis. Earlier this month, Mexico established a new $47 billion credit line with the IMF, funds that may provide an important cushion if its financial situation sharply deteriorates. 

The World Bank yesterday said it would roll out $25 million to Mexico in emergency funds for medicine and equipment, including for devices to detect the new strain of swine flu that has killed up to 86 people there. In addition, it said it was prepared to draw on an additional $180 million to help finance other needs related to the outbreak. 

The Mexican assistance came just as the World Bank warned yesterday that health programs in poor and middle-income nations were being severely hit by the financial crisis that started in the United States. A new report from the bank, for instance, indicated that in March eight countries were reporting shortages of HIV- and AIDS-related drugs and treatments, and an additional 14 said they expected to see disruptions in the coming weeks and months. 

Robert B. Zoellick, the World Bank's president, yesterday said the institution was offering Mexico advice about how other nations have dealt with similar health crises. He noted that there would be a time to account for the economic toll, "but for now, the focus is on people's lives."

quoted from: The Washington Post

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GM's New Road Map: Partial Nationalization

Once a symbol of capitalist might and U.S. industrial prowess, General Motors would be half owned by the Treasury under a new sweeping plan that would also shut down GM's Pontiac operations, lay off 21,000 workers and impose harsh terms on the company's bondholders. 

The partial nationalization proposal -- a last-ditch effort developed by GM and the Obama administration's auto task force to keep the leading U.S. carmaker out of bankruptcy -- raised hackles in Congress and ratcheted up the game of brinksmanship with the company's bondholders, who have until May 8 to accept or to try to negotiate better terms. 

If the bondholders reject the terms, GM would probably declare bankruptcy, chief executive Fritz Henderson said, potentially raising uncertainties for suppliers, workers and customers. That possibility loomed large yesterday after bondholders called the offer "neither reasonable nor adequate." 

If the plan goes forward, it would mean a leaner and less indebted GM, formally controlled by the federal government. As it is, the government has been playing a large role at the company, asking for the resignation of the previous chief executive, G. Richard Wagoner Jr., and ordering that the company's board be reconstituted. The move would represent one of the largest ownership stakes the U.S. government has ever taken in an American manufacturer. 

But the Obama administration said yesterday that it would not seek any seats on the company's board and vowed to take a hands-off approach to GM management. "This administration and this government have no desire to run an auto company on a day-to-day basis," said White House press secretary Robert Gibbs. 

"Government ownership is an unfortunate outcome of this, not a goal," said one person familiar with Obama administration deliberations and who spoke on condition of anonymity in order to preserve his relationships with officials. He said the government "could have gotten nothing for something, or something for something" and that it insisted on a 50 percent stake to leave open the potential to recover some of the $18 billion the Treasury Department has already lent GM and the additional $9 billion that it would inject under the new plan. 

 

Some members of Congress and economists expressed concern that the government was effectively nationalizing GM and might exert influence over company decisions, despite its denials. Luigi Zingales, a finance professor of finance at the University of Chicago, said it would be "irresistible for the political system not to exercise some pressure. Do you not think they will push GM to make green cars? Maybe that's the right thing to do and maybe not. But it shouldn't be decided by Congress." 

Meanwhile, however, bondholders pose a major stumbling block to the restructuring. Under the proposed offering which GM filed with the Securities and Exchange Commission, investors holding $27.2 billion of GM bonds would swap those bonds for 10 percent of the equity shares of the restructured company. The United Auto Workers would get up to 39 percent of the company in return for half of the $20 billion GM owes to a health fund for retired workers. Current shareholders would get 1 percent of the new shares. 

The Treasury said that to meet restructuring goals and to fulfill bond covenants, the restructuring proposal must win the support of 90 percent of the bondholders, an uphill battle because bondholders and analysts said the union had received more favorable terms even though its legal claim in bankruptcy court would be equal to the bondholders'. Investors who bought GM bonds in 2003 are particularly upset at being portrayed as obstacles because those bonds were used to provide funds for GM workers' pension plan. 

"We are deeply concerned with today's decision by GM and the auto task force to offer only a small, inequitable percentage of stock to its bondholders in exchange for their bonds," advisers to an ad hoc group of bondholders said in a statement last night. "We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another." 

Some advisers said that GM bondholders, if they are patient, might get more money from a bankruptcy proceeding than they are being offered under the new restructuring plan. 

"In our view, the offer is unlikely to be accepted by bondholders, who are in effect being asked to sacrifice most of their claims in order to help GM satisfy commitments to the UAW. We therefore believe that unless the offer is revised before May 8, GM could potentially file for Chap. 11 protection by the end of next month," said Brian A. Johnson, an auto analyst for Barclays Capital. Johnson estimated that bondholders who took shares of common stock would get zero to 5 percent of the face value of their bonds. Recently, most GM bonds were selling at 8 to 13 cents for every dollar. 

But a letter to bondholders that was part of the GM prospectus issued yesterday warned that "if we seek bankruptcy relief, you may receive consideration that is less than what is being offered in the exchange offers and it is possible that you may receive no consideration at all for your GM notes." 

Asked about the fairness of the deal, Henderson said that the Treasury dictated the terms for the bondholders, requiring that their future stake be limited to no more than 10 percent of the company. "We went to the maximum and offered the 10 percent," Henderson said in an interview. 

Administration officials argued that the UAW was making other sacrifices in wages and benefits, and that the company could not function without workers. 

The decision to shed more workers drew immediate criticism from some in Congress, who said the government aid was supposed to save jobs, not cut them. "Our state has been hit hard enough already," Rep. Gary Peters, (D-Mich.) said in a statement. "The purpose of providing General Motors taxpayer funded loans was not just to keep GM in business, but to preserve American jobs. . . . We all know that GM must make cutbacks, but preserving as many American jobs as possible must be the primary goal of all restructuring efforts." 

The plan unveiled yesterday also would accelerate and expand the closing of GM dealerships. The company also said it would cut its U.S. dealer network to 3,605 by the end of 2010 from about 6,200 in 2008. Its earlier plan aimed to trim that network to 4,200 by 2014. The new GM would focus on only four brands. 

The closure of GM's Pontiac line was symbolic of the company's change of fortune. Introduced in 1926 and named, like the town in Michigan, after an 18th-century Ottawa Indian chief who united tribes to fight the British, Pontiac was popular for more than half a century. The Pontiac Web site yesterday was still advertising cars with a "total confidence" package of warranties and payment protections. 

Pontiac will be phased out by 2010, and Henderson said the company does not expect to build Hummers, Saabs and Saturns after this year. Henderson said the company had received several bids for Hummer. 

"Big is only good if you use it to your advantage," Henderson said at a televised news conference. 

"The objective is not to survive, the objective is to develop an operating plan that allows us to win," Henderson added. "We need to have a more sustainable business model because, candidly we only want to do this once," he said. "We want to have this as truly a defining moment for our company."

quoted from: The Washington Post

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US calls Chems, Other Sectors to Prepare for Swine Flu

WASHINGTON (ICIS news)--Top US security officials placed calls on Monday to chemical manufacturers and other critical industries to urge precautionary measures against a swine flu epidemic, sector officials said on Monday.

The Department of Homeland Security (DHS) initiated a conference call with hundreds of representatives of chemical producers, electric utility operators, agricultural and transportation officials and trade groups for energy, communications and water system suppliers.

It was the first such conference call to be initiated by the department in response to the developing swine flu outbreak.

The conference call was made under an emergency notification procedure within the National Infrastructure Protection Plan (NIPP).

That multi-industry plan was established by DHS after the 2001 terrorist attacks in the US to ensure a coordinated effort to protect critical infrastructure and restore crucial production and services in the wake of an attack or other national crisis.

Ted Cromwell, senior directory for security and operations at the American Chemistry Council (ACC), was one of hundreds of industry representatives called to the teleconference with DHS officials on Monday concerning the outbreak of swine flu in Mexico, the US and elsewhere.

“They just wanted to alert everyone, asking that we all be thoughtful and smart and take routine precautions that could help avoid the spread of an epidemic if it should get to that level,” Cromwell said.

He said the department did not declare an emergency or indicate that such a declaration was even close.  

“It was just a matter of raising awareness, telling people that if they’re not already taking action that they should be doing so, to instruct employees to take normal precautions, such as washing hands frequently, and that workers who have a fever should stay home or be sent home if necessary,” he said.

The US chemicals industry is one of 18 critical infrastructure or key resources for which the department has developed, with each sector, detailed protection and recovery plans.

The plans include DHS telephone and e-mail alerts to summon designated company and trade group representatives to a conference call as crisis situations develop.

Cromwell said that Monday’s conference call with the department came just as ACC was compiling responses from member companies to a survey the council issued earlier about swine flu preparations.

“Our members indicated that they are restricting travel to Mexico, and for those who must go to Mexico for critical needs, arrangements are being made to monitor those employees on their return and quarantine them if necessary,” Cromwell said.

“At this point of course there are no production consequences,” he said, “but our members are pulling out pandemic plans and work continuity plans, identifying those employees that can effectively work from home, that sort of thing.”

Cromwell said the preparations are similar to the early stages of precautionary planning for hurricanes in which production site operators make sure they have contingencies for medical care, business continuity, essential staff and other needs.

Chemical plant operators also would be expected to identify and notify so-called ride-out crews - teams of essential employees needed to stay on-site to keep a facility at minimum operational level to ride out the storm.

“The difference between a hurricane and something like this, a possible epidemic, is that you can’t be sure who might be available or who might come down ill, so you have to put together different contingency plans to keep a facility running safely and securely,” he said.

He said the DHS at this point does not plan to hold daily conference calls with critical infrastructure representatives. Such daily briefing and coordination calls were held for weeks following the August and September 2005 hurricanes that devastated chemical plants, refineries and other infrastructure along the US coast of the Gulf of Mexico.

Cromwell also said that the department reassured the various industry and service sector officials that there are no plans at present to shut down the border with Mexico.

quoted from: www.ICIS.com

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How to Strike a Balance Between Price and Volume Management

Price competition and the struggle for market share are getting tougher. How can companies most effectively manage their prices and volumes?

Consultants' corner

Andrea Maessen & Fabian Braun/Simon-Kucher & Partners

THE INDUSTRY faces unprecedented challenges and with them a number of questions arise in relation to price management: Should volume be defended with price cuts or should margins be secured and a loss of customers accepted?

When and where should prices be adapted in order to secure selected accounts? What is the right preparation and response to price aggressive competition? Which price adaptations are necessary and how should they be implemented?

A recent survey by global consultancy Simon-Kucher & Partners among 83 senior managers in the chemical and construction industries reveals lessons and advice on actions.

According to the survey results, securing margins is the cornerstone of management activities during the downturn - 63% of the senior managers considered protecting margins as more important than defending market share and 43% stated that maintaining prices is even more important than reducing costs. 

Of course, costs must be adjusted, especially in a downturn, but this crisis is too serious to react to by cutting costs only. All three profit drivers (price, volume and cost) must be used to the fullest extent.

For pricing, this means strictly defending prices and fighting against any price decrease. Keeping gross list prices stable, reinforcing value selling and boosting services are means to defend prices.

Price defense can also mean effectively and proactively managing decreasing prices. Achieving a smaller price decrease than the competition is a success in a downturn. An under-proportionate decrease of prices, when raw material costs drop, is a success in a downturn. 

In order to defend prices, it is important to relieve volume pressure from the market. Still, 39% of the managers interviewed consider protecting volume to be more important than protecting market share.

Volume management becomes vital in a downturn. If a company pushes too much volume into the market, prices and margins will inevitably erode. It is a common misconception that lower prices will prevent volume losses in a downturn.

The result is different. Competitors will follow, prices drop across the board, margins decrease but the overall market share does not change. A downturn means that less volume is sold for the same price.

To effectively manage volume targets and protect market share, a fundamental understanding of the "deserved" market share is required.

By "deserved," we mean a share that is based on a company's capabilities to serve a market, for example, via its capacities and relative distances to markets or customers, through market access via their own sales organization or investments in sales channels or through innovations.

The adjustment of volumes and price defense mechanisms only works if the market understands. Communication is essential.

There are four basic rules to relieve volume pressure in the market: (1) clearly communicate supply reduction and stick to it; (2) state that market share is being defended; (3) make every effort to avoid price aggression; (4) prepare selected counter-actions to show ability of defense. Three out of four interviewed managers see this primarily as the responsibility of the market leaders. 

RAISE PRICES; OFFER ALTERNATIVES
The relative importance of quality against price tilts in favor of price during a downturn. A range of measures exists to defend and stabilize prices in this situation.

About 36% of the managers are considering downgrading their products. They intend to provide a "good-enough" solution that meets their customers' current needs, including remaining affordable.

The customer has the option to choose. A client for example recently changed the composition of a major product. It was less flexible and resulted in more effort during the customer's formulation but was less costly in production. This product was offered at a 4% lower price to customers. 

Some 25% of respondents consider the option of debundling products and services to provide a less expensive no-frills offer. The nice-to-have extras are the first to go.

The introduction of separate billing for services in individual cases helps to differentiate further. Not all services are in fact demanded by all customers. Those who demand and value the specific service should pay for it. 

More than 60% of the managers rate the enhancement of performance as an important measure to stabilize prices and to justify higher prices.

One option is to focus on value propositions that directly impact the customer's business. Some companies do a good job of pointing out how their product reduces total cost of ownership for customers, but most fail to quantify how their product impacts the revenue side of their customers.

Another option is to increase prices for niche and side products that draw less attention from the purchasing department, do not leverage costs at the customer, or show advantages over competitors.

TREAT CUSTOMERS DIFFERENTLY
Around 74% of the managers in the survey consider it more important to focus on key accounts in a downturn than to treat all customers equally.

Penetrating the existing customer base becomes more important than gaining new accounts. Roughly half of the managers concentrate on their existing customer base.

Although price defense is essential, price concessions may be unavoidable for some key accounts. Concessions, if necessary, must be as opaque as possible and of very selective nature.

Hidden discounts, preferably in the form of free deliveries, help to reduce visibility into pricing tactics.

Price concessions may be granted to strategic key accounts only, but should by any means be avoided for small customers. A strict limitation of exceptions and a close exception management is critical to avoid price contamination and price erosion.

PRICE LEADERSHIP AND CONTROL
Three out of four senior managers see a need for stronger central steering and control in pricing. Key performance indicators for pricing must be in place and tracked as regularly as margins and other financial metrics.

Close to 40% of senior managers consider installing a price officer function during the downturn. The price officer is responsible for tracking price guideline compliance, detecting price deviations and providing a centralized price database and reporting system.

Leadership is also required to provide price confidence to the sales force. Too frequently there is a misconception of the balance of power at the customer and an underestimation of the delivered differentiated value to the customer. As a consequence, the sales force is weakening its ability to defend prices.

Tighter price guidelines in combination with sales training, Q&A sessions and documents help to strengthen the front line in pricing. Successful price defense requires dedicated leadership and, in addition to that, the confidence in the sales force to make it happen.

Successful pricing in turbulent times still relies on proven price management instruments, but requires a more dedicated and differentiated application. Faulty decision-making inevitably leads to a collapse of prices. Achieved price levels over the years can easily be gone. Price defense is key.

quoted from: www.ICIS.com

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Oil Prices to Remain Stable till ’09 End

MUSCAT Oil demand will make a partial recovery in the months to come amid expectations that prices will witness relative stability to remain in the range of $50 per barrel, analysts say.

However, an extension of low demand and falling prices in the wake of global financial crisis has also not been ruled out.

Oil industry observers say that the Organisation of Petroleum Exporting Countries’ (Opec) decision to effect a new cut in supply will contribute to the rebound in prices, though this was opposed by some who argue that the cut will not be effective.

“A decline in worldwide crude demand was expected in the wake of the global financial crisis that engulfed the whole world especially the United States of America, the largest oil importer and consumer,” oil expert Dr Juma Al Gayalani says.

“Events in the US economy will have a significant impact on world economy including oil prices in the short term. But prices are expected to witness some improvement and will remain in the range of $50,” he says and adds: “The ball is still in the Opec’s court because its decision to further reduce production will have a positive impact on the market”.

According to Lui Bataniah, deputy director-general of investment and development in Oman Arab Bank (OAB), the decision of Opec and other oil producing countries to cut output, accompanied by other actions such as putting a stop to investment in establishment of oil refineries and exploration, shows that production is at stable levels.

“Volatility of oil prices is linked to several factors like economic conditions, psychological factors, global demand and the strategic stock of oil-importing countries such as America and China”, he said.

“Many countries have started stockpiling large quantities of oil in a move to build stocks to deal with a price rise or interruption in supply due to political or economic disturbances. All this will help the survival and the stability of prices at current levels”, he said. 

Dr Badruddin Abdul Rahman, Dean of the Modern College of Commerce and Science said: “The continuous decline in global demand will affect prices.”

quoted from: Oman Tribune

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INEOS Sees Profits Rise in March on Asia Demand

LONDON (ICIS news)--INEOS saw some market improvement towards the end of the first quarter and produced a replacement cost operating profit, excluding depreciation and amortisation (RC EBITDA), in March of €73m ($96m), the company said on Friday.

The uptick against the backdrop of what the company called a “challenging” start to the year was partly led by increasing demand from Asia, it added in a trading update.

RC EBITDA for the first quarter, which is EBITDA adjusted to exclude inventory holding gains or losses, was in the region of €170m. Historical cost EBITDA was €200m.

INEOS in November forecast a full-year 2008 EBITDA in the range of €1.7bn-1.8bn before inventory holding losses of €400m and exceptional events of €180m. Its sales in 2008 are estimated by ICIS news at $40.5bn.

INEOS, which negotiated a waiver of certain debt covenants towards the end of last year and agreed to present a new business plan to its lenders this April, said that the group was in line to achieve fixed cost reductions of €200m in 2009. It had cut physical inventories by 20% at the end of the quarter compared to historical levels.

The group had €560m in cash at the end of the quarter, having made a repayment under its securitisation facility of about €210m and paid bank interest of €210m in March. Its net debt at the end of March was €7.5bn.

“INEOS has successfully implemented the short term action plan as set out in the lender presentations made in November 2008,” it said. 

The company plans to close two polypropylene (PP) lines at Battleground in Texas and per/trichlorethylene facilities in Runcorn, England. A cumene plant in Port Arthur, Texas, has been mothballed. INEOS said it would cut capital spending this year to €250m.

INEOS said its olefins and polyolefins (O&P) business had experienced weak market conditions in the first quarter but that there had been some improvement for O&P in North America.

Both its refineries were run at maximum rates for most of the quarter, it said, led by firm middle distillate demand.

The intermediates businesses, including phenols, oxides nitriles and chlorvinyls had lifted from December/January lows helped by sales to Asia. Demand into durables, automotive and construction markets remained weak, INEOS said, although sales into consumables remains relatively firm.

quoted from: www.ICIS.com

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Finance Crisis 'far from over'

The head of the International Monetary Fund has said that the global economic crisis "is far from over" and had some "long months" to go before it ended.

Dominique Strauss-Kahn the IMF's managing director, also said on Thursday that recovery "has to come ... and will come" from the US.

"Despite some red lights and green lights ... our belief is the crisis is far from over," he told a news conference in Washington ahead of the annual spring meeting of the organisation.

His comments follow the release of an IMF report on Wednesday which forecast the global economy would contract 1.3 per cent this year, before recovering to a still poor 1.9 per cent in 2010.

They also come as the World Bank, which is also scheduled to meet over the weekend, said on Thursday it would provide $45bn over the next three years to support road building and other infrastructure projects in poor nations.

Robert Zoellick, president of the World Bank, said the money would support job creation and "help jump start a recovery from the crisis."

He also said the US and Europe should "reconsider old prerogatives" and allow developing countries a greater voice in management of the World Bank.

Recovery 'in 2010'

Strauss-Kahn said he was confident that some form of recovery would take place in the first half of 2010.

Any recovery however, he said, relied on banks ridding their balance sheets of bad loans, accumulated during the US subprime housing crisis that undermined confidence and froze credit across the globe.

"You never recover before you complete the cleaning up of the balance sheet of the financial sector," he said.

"The recovery in 2010 relies a lot upon the effort that still has to be made in this domain. So, I'm again asking on the eve of these meetings for more effort to be made in this direction."

The IMF estimates that the US, European and Japanese banks will have acknowledged only a third of their losses on such bad assets between mid-2007 and 2010.

Response defended

Strauss-Kahn defended the IMF's response to the global crisis, pointing to its increased lending to emerging market countries hit hard by both the credit crisis and the subsequent collapse in trade and saying "we did what we had to do".

However, he acknowledged that the IMF needed to become more effective in monitoring economies and warning of potential crises.

In a separate speech, also on Thursday, he said the organisation must change its governance structure to give more influence to emerging market nations or risk losing legitimacy.

quoted from: Al Jazeera.Net

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Poor Face Economic 'calamity'

The global economic crisis is becoming a "human and development calamity" and is threatening to derail international efforts to reduce poverty, the International Monetary Fund (IMF) and World Bank have said.

The two financial institutions urged rich countries to step up aid to developing nations, as they completed their spring meetings in Washington on Sunday.

"The global economy has deteriorated dramatically ... Developing countries face especially serious consequences as the financial and economic crisis turns into a human and development calamity," they said in a statement.

The statement said that IMF and World Bank member states needed to meet pledges, including commitments to increase resources available for lending made at the London G20 summit, in order the tackle the problem.

But anti-poverty campaigners have criticised the IMF-World Bank meeting as "a wasted opportunity for poor countries", saying not enough was done.

"The poorest countries are still waiting for the bailout they've been promised to survive this crisis," Marita Hutjes, a senior adviser at Oxfam International, said.

"They moved heaven and earth for banks; the question is when will they put the money on the table for poor countries?" Hutjes said.

Delegates at the meeting, which opened on Saturday, endorsed stimulus measures to combat the economic crisis and clean up banks' bad assets.

Battling poverty

New estimates from the World Bank for 2009 suggest that the economic downturn will cause 46 million more people to live under $1.25 a day.

An extra 53 million will stay trapped on less than $2 a day on top of the 130-155 million people pushed into poverty in 2008 because of rising food and fuel prices.

The new forecasts suggest the UN's Millennium Development Goals (MDGs), which set specific targets to reduce poverty by 2015, may not be achieved.

The new research shows that markedly lowered economic growth rates will significantly arrest progress in reducing infant mortality.

If the crisis persists, 1.4 to 2.8 million more children may die during 2009 to 2015.

"The global economic crisis threatens to become a human crisis in many developing countries unless they can take targeted measures to protect vulnerable people in their communities," Robert Zoellick, the World Bank group president, said.

"This is a global crisis requiring a global solution. The needs of poor people in developing countries must be on the table," he said.

Zoellick recently called for the establishment of a "Vulnerability Fund" in which each developed country devoted 0.7 per cent of its stimulus package to the fund.

'Uncertain promise'

Delegates at the meeting signalled that the IMF would also sell bonds to developing countries to help raise a portion of an expected $500bn IMF loan fund to help recession hit economies.

Many people are arguing that IMF contributions are being directed to reinforce the structural status quo, benefiting already rich nations.

More decision making power within the IMF is also being demanded by emerging markets such as China, Brazil, India and Russia before they commit to the extra finances they are being asked to provide the fund.

China, for instance, holds 3.78 per cent of voting rights in the IMF, but leading economies are asking them for $40bn - 8 per cent - of the new fund.

Talking to the New York Times, Eswar Prasad, an economics professor at Cornell University in the US and a former senior economist for the IMF, said that the demand for extra decision making for emerging markets signified that they were "drawing a line in the sand".

"From the perspective of the key emerging countries, they are being asked to contribute a very substantial amount of resources in exchange for a very uncertain promise of reform," Prasad said.

Earlier this week, the IMF predicted the global economy would shrink by 1.3 per cent this year.

The IMF forecast marked a dramatic downgrade of previous estimates and set the tone for the meetings of the top steering committees of the 185-member IMF and World Bank.

quoted from: Al Jazeera.Net

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US Biofuel Makers Rail Against New California Fuel Standards

HOUSTON (ICIS news)--US biofuels producers criticised on Friday new low-carbon fuel standards (LCFS) in California, saying the state effectively shut the door on renewable fuels made from corn or soy. 

The standards, the first in the nation to target greenhouse gas emissions from transportation fuels, aim to cut 16m tonnes/year of greenhouse gas emissions in the state by 2020. As approved by the California Air Resource Board (CARB) on Thursday, they are also expected to be a template for federal policy makers as they seek to implement national renewable fuel standards. 

But in a blow to biofuels producers, the state will measure not only a fuel’s direct greenhouse gas emissions, but also life cycle and indirect land use emissions related to its production. 

Renewable fuel makers said such measurements, which take into account changes in land use stemming from increased crop production, were based on flawed data and would preclude fuels made from grains.  

“This standard is based on flawed analysis and selectively enforced penalties against biofuels only. In unfairly penalising ethanol, CARB is relegating California to more petroleum use as biofuels are the only viable alternative liquid fuel,” said Bob Dinneen, president and CEO of the Renewable Fuels Association (RFA). 

Dinneen said he was “cautiously optimistic” on the board’s decision to review the standard’s measurement methods. 

When factoring in greenhouse gases emitted in growing fuel crops, changing cropland to accommodate more grain growth, biofuels refining and fuel consumption, corn-based ethanol emits 97g/megajoule, according to CARB's Wes Ingram. 

After measuring emissions from extracting petroleum, refining and vehicle fuel consumption, gasoline emits 96g/megajoule, Ingram said.  

“Emissions from land use changes are real, large and positive,” Ingram said.  

Advanced biofuel manufacturers also railed against the standards, saying they were not applied to all fuel makers. 

“We have some concerns about what goes into that model,” Greg Luli, vice-president of Massachusetts-based cellulosic ethanol company Verenium Biofuels, told the board. “We know there are some errors in assumptions. And if indirect land use is so important, why isn’t it applied to all fuels?”

Stephan Lemieux, a government researcher for CARB, said most fuel producers have a much smaller land footprint than those who depend on farmland to make biofuels.

“The story for indirect impact for other fields is that there isn’t a story,” he said.  

quoted from: www.ICIS.com

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US Jobs Data Reflects Global Woes

NEW YORK: Higher than expected US unemployment claims and mixed news on global banks yesterday suggested the global recession was far from over despite a survey that found euro zone businesses cautiously optimistic about next year.

In the US, initial claims for state unemployment insurance benefits increased to a seasonally adjusted 640,000 in the week ended on April 18 from a revised 613,000 the prior week, the Labour Department said. Analysts had forecast 635,000 new claims.

The number of people who remained on unemployment benefits posted a new record high.

Another dose of negative news came as the pace of sales of existing homes in the US fell three per cent last month to a much lower-than-expected annual rate of 4.57 million units, the National Association of Realtors said.

Economists had forecast home resales to slip to a 4.70m unit pace from a revised 4.71m for February, which was initially reported as 4.72m.

Despite the negative data, chairman of the Federal Deposit Insurance Corporation Sheila Bair said that banks and the US housing market are past the crisis stage and are now on a path to recovery.

Credit Suisse smashed first quarter profit forecasts and Britain's Barclays said it intends to resume dividend payments as pockets of recovery emerge in the banking sector.

Credit Suisse's profit, which doubled expectations, follows forecast-beating results from US banks Goldman Sachs and JPMorgan Chase this week.

Barclays said its first quarter was well ahead of last year, it made good profits and plans to resume dividends in the second half.

Morgan Stanley posted its second straight quarterly loss and Switzerland's biggest bank UBS is expected to report a net loss of two billion Swiss francs for its first quarter.

Britain's Lloyds Banking Group said it will slash 985 full-time and part-time jobs over the next two years, with compulsory redundancies available as a last resort.

Euro zone manufacturing and service sector companies gave significantly less downbeat reports than economists had expected. Markit's Purchasing Managers' Index showed business in the region contracted at its slowest pace in six months and there was overall optimism about conditions in 12 months' time.

quoted  from: Gulf Daily News

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ADCO to Award More Oil Projects by Year-end

ABU DHABI - The Abu Dhabi Company for Onshore Oil Operations, or ADCO, plans to award three more oil projects by the end of the year, thanks to a halving of related production costs, such as construction expenses, due to the financial crisis. 


ADCO, a unit of the Abu Dhabi National Oil Company responsible for onshore oil and gas operations, has finalised plans to award three new oil projects at the Bab 1.8, Beda Al Qamzan and Kuzwaira oil fields.

Once these fields are producing, they will together add 400,000 barrels of crude per day to ADCO’s daily output, enabling the company to pump at a sustained level of 1.8 million barrels per day by 2016, ADCO’s General Manager Abdul Munim Saif Al Kindy said on Thursday. 

This increased production would raise the UAE’s total petroleum output to 3.5 million barrels per day, Al Kindy told reporters.

Also on Thursday, ADCO signed an agreement for a gas compression project with South Korean company SKE&C. The deal, worth $818 million, calls for the installation of three gas compression stations at an area known as Tamama C within the Bab gas field complex. This project was initially estimated to cost $1.5 billion before the onset of the financial crisis. 

Al Kindy described the Bab project as an important component of ADCO’s overall gas production network. 

Tamama C currently holds 1.5 trillion cubic feet, or TCF, of recoverable gas. The Bab gas compression project would increase the amount of recoverable gas there by 2.5 TCF and extend the life of the Tamama C gas reservoir to 2030, ADCO said. 

ADCO’s goal is to maximise gas production in the Bab reservoirs from the year 2011. This gas would supply a plant operated by ADCO’s affiliate GASCO at Habshan. ADCO currently produces 5.3 billion cubic feet of gas per day. 

ADCO said it has saved $1 billion in costs on a project initially valued at $4.5 billion to develop the emirate’s Asab, Sahil and Shah oil fields. The work was awarded in February to a London-based engineering and construction company called Petrofac for $3.5 billion.

quoted from: Khaleej Times

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Sumitomo Chem, Saudi Aramco to study next phase of Petro Rabigh

TOKYO (ICIS news)--Japan’s Sumitomo Chemical has signed a memorandum of understanding (MoU) with Saudi Aramco to begin a feasibility study on the second phase of their Rabigh Refining and Petrochemical Co (Petro Rabigh) joint venture, the chemical producers said on Monday.

The study, which was scheduled to be completed by the third quarter of 2010, was an initiative by Sumitomo Chemical and Saudi Aramco, with Petro Rabigh providing support and assistance, the companies said in separate statements.

The study would evaluate the viability of the Rabigh II project, including investment amounts, to achieve a range of expansions.

The expansions included an additional 30m standard cubic feet/day of feedstock ethane for Petro Rabigh’s ethane cracker; building a new aromatics complex using around 3m tonnes/year of naphtha; and constructing various petrochemical production units, the companies said.

Those units would produce such products as ethylene propylene rubber (EPR), thermo plastic olefin (TPO), methyl methacrylate (MMA) monomer, polymethyl methacrylate (PMMA), low-density polyethylene (LDPE), ethylene vinyl acetate (EVA), caprolactam, polyols, cumene, phenol/acetone, acrylic acid, super absorbent polymers and nylon 6, according to the two companies.

Once the project is deemed financially viable, Petro Rabigh would be invited to decide on its implementation, with a target start-up in the third quarter of 2014, Sumitomo Chemical and Saudi Aramco said.

The two companies recently commissioned the first phase of Petro Rabigh in March, but production at the 1.25m tonne/year cracker has been unstable, which could push back the start-up of its derivative plants.

quoted from: www.ICIS.com

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AkzoNobel Posts Q1 Loss of €7m; Volumes Drop Across Segments

SINGAPORE (ICIS news)--AkzoNobel has reported a first-quarter loss of €7m ($9.1m) as a result of “tough trading conditions” due to the severity of the global economic downturn, the Netherlands-based paint and chemicals major said on Thursday.

The loss for the three months reverses a net profit of €105m in the first quarter of 2008.

“Our first-quarter results across all areas of our business reflect the depth of the global economic slowdown,” said AkzoNobel CEO Hans Wijers.

“We still have limited forward visibility, but there were some early indications in March that conditions in a number of our markets may be stabilising,” he said.

Revenue for the period dropped 13% to €3.27bn, down from €3.77bn in the previous corresponding period.

On a segment basis, volumes tumbled 16% in the company’s decorative paints division as the global economic downturn continued to negatively impact the business, AkzoNobel said.

However, the company said that savings from the ICI acquisition continued ahead of plans.

Revenue decreased 14% in the performance coatings segment, while sales dropped 11% in the specialty chemicals arm.

“Forward visibility remains limited, which makes it difficult to predict with any certainty,” the company said.

The company said it remains focused on achieving its medium-term target of an earning before interest, tax, depreciation and amortisation (EBITDA) margin of 14% by the end of 2011 and to deliver the €340m in ICI synergies through continued cost management efforts.

The company’s management focus for 2009 would be to “continue to service customers, manage the cost base, generate cash and capture the synergies and benefits of the ICI acquisition”, said chief financial officer (CFO) Keith Nichols.

Nichols said there would be further production cuts and closures to come in addition to those already announced, but would not specify what areas.

He said cost-cutting measures would be "broad, affecting all businesses", and would "not be confined to particular geographies".

AkzoNobel announced several cost cutting measures towards the end of 2008, which Nichol said would save the company €200m. The company expects to cut about 3,500 jobs by 2011.

AkzoNobel posted a massive €1.5bn loss for the fourth quarter of 2008, which was largely due to a one-off €1.2bn impairment relating to the decorative paints and national starch businesses.

quoted from: www.ICIS.com

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S Korea Thinly Avoids Recession in Q1; Mar Chems Exports Up

SINGAPORE (ICIS news)--The South Korean economy managed to avoid a technical recession so far but the outlook remains gloomy with the continued deterioration in the global economic picture, analysts said on Friday.

Although the country’s GDP barely expanded in the first three months of 2009 with growth of 0.1% from the fourth quarter, it was a strong improvement from the 5.1% quarter-on-quarter slide registered in the December quarter when external demand ebbed and domestic economic activities stagnated, advanced estimates from the Bank of Korea showed.

A technical recession is defined as two consecutive quarters of decline in economic output.

Three of the five major economic sectors of the country went back into growth modes in the March quarter, most notable of which is the construction sector that registered a 6.1% quarterly growth. Manufacturing declined 3.2% from the fourth quarter due to the slump in exports.

As South Korea’s major industrialized trading partners like the US, Japan and Europe sink deeper into recession, the country’s prospects would remain dim despite some pick up in the domestic economy, analysts said.

“It is a bit early to talk about recovery. So far, the signs are pretty fragile,” said Simon Wong, Hong Kong-based regional economist at Standard Chartered Bank.

Trade flows in the Asian region have started to stabilize towards March but double-digit declines continued to be registered on an annual basis, he said.

“I don’t think global demand has shown clear signs of picking up yet,” Wong said, adding that the second quarter will be challenging for South Korea.

The country’s exports of petrochemical products such as polyvinyl chloride (PVC) and low density polyethylene (LDPE) grew in March from a year earlier but this was partly because producers sought alternative markets for the output that the South Korean economy could not absorb, according to market sources.

PVC shipments jumped 53% year-on-year to 45,009 tonnes while LDPE exports more than doubled to 34,849 tonnes last month, according to data from the Korea International Trade Association.

A South Korean PVC producer said he expected shipments in the next two months to turn 20% lower than March levels given some improvement in domestic construction activities.

For the three-month to March period, construction grew 0.6% year-on-year, reversing the 2.4% annual decline in the fourth quarter.

South Korea has eschewed the recession wagon carting off most of the world economies for now as the fiscal measures the government had undertaken last year started to take effect, analysts said.

Based on data from the Ministry of Strategy and Finance, the South Korean government had spent a total of Korean Won (W)83,700bn ($62.6bn), or 32% of its 2009 budget in the first three months of the year. 

The easing of the credit crunch in South Korea was “a short-term relief” that also made the minimal quarterly economic growth possible in the three months to March, said Standard and Chartered’s Wong.

But the economy is far from out of the rut yet, analysts said.

On an annual basis, it shrank a deeper 4.3% in the January-to-March period from the 3.4% fall recorded in the fourth quarter, according to government data.

It remains certain South Korean economy will contract for the first time in 2009 after more than a decade of consistent expansion. 

“At the end of the day, we are still talking about pretty weak domestic demand. It’s the underlying demand that matters,” said Standard Chartered’s Wong.

Signs of stability in China, which has grown in importance as South Korea’s export market over the years, are a strong positive, said Daniel Soh, Singapore-based economist at consultancy firm Forecast.

The weak South Korean currency – the won has at least helped the country’s goods make further inroads into the mainland, which continues to have healthy import requirements due to the size of its economy, analysts said.

In March, China took in 30% of South Korea’s LDPE exports and absorbed 62% of the country’s 18,517 tonnes butadiene shipments.

South Korea had also sold 41% of its 98,974 tonnes toluene exports to Asia’s biggest developing economy, based on KITA statistics.

Soh said China has about 15% share in South Korea’s overall exports as of March.

“Stabilizing imports from Chinese companies will offset downside risks from industrialized countries like EU and Japan,” he said.

quoted from: www.ICIS.com

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Oleochemicals Withstand Downturn - Oxiteno

Q: Why did Oxiteno decide to move into oleochemicals?

Oxiteno was already the main customer of fatty alcohols in Latin America. We knew there was enough room for only one producer in the region and we decided to take that position. We also took into consideration the fact that the oleochemicals and derivatives we are producing are biodegradable and come from renewable raw materials. So their use has grown in most of the customer's formulations. 

We started up our oleochemical facility at our site in Camacari, in Brazil's northeastern state of Bahia, during the fourth quarter of 2008. It's a new business and a new production technology for us. 

Q: What does the new complex produce?

The worldscale plant will produce 80,000 tonnes/year of fatty alcohols, and we also produce C8-C10 fatty acid and some glycerin as coproducts. 

Q: How do you expect Oxiteno's oleochemicals business to perform this year?

We expect 2009 to be a very challenging year but we have a very good position in Latin America. Our oleochemical facility is fully integrated into a very diversified surfactants and ethylene oxide (EO) derivatives business. We already do business with most of the oleochemical customers and we will enrich our product portfolio sold to these companies.

Demand for oleochemicals is concentrated in home care, personal care and pharmaceuticals markets. These markets don't depend on financing, so they won't be affected by the crisis as deeply as some other markets such as automotive or construction. After some inventory adjustments, demand will pick up again, because these products are essentials for people's daily lives.

Our main export market is Latin America, but we do business in more than 40 countries. 

Q: How do you expect to grow the business? 

We see the oleochemicals business as fully integrated with our EO derivatives business. At our Camacari site, we now produce EO, fatty alcohols, ethoxylates, ethanolamines and glycol ethers. A significant percentage of the fatty alcohols produced in Camacari will be ethoxylated at the site. Then the ethoxylates will be sulfated in our own plants in Tremembe and Suzano, both in São Paulo state. Sao Paulo is a good location for the sulfation because it is close to the main customers in Brazil. We already sell a diversified set of products to the key customers and the oleochemical ones will further enrich our portfolio.

Q: Oxiteno has announced a Reais 175m ($80m) investment plan for 2009. How will this be spent? 

We will finish the first phase of the expansion of our sulfation capacity in Suzano, as part of our oleochemical business strategy. The expansion will help convert most of the C12-C14 ethoxylated fatty alcohols from Camacari into ether sulfates.

We will continue work on our EO expansion project in Camacari, which will start up by the end of 2010. We are also building a new acetates plant in Maua as part of plans to enrich our solvents portfolio. And finally, we are working on some energy-saving projects.

Q: How is Oxiteno responding to the global economic downturn?

First of all, by taking care of the cash generation. We are a conservative company from a financial standpoint, and we have grown very quickly during the last five years. Now is time to consolidate our growth. It will require a strong focus on sales, operations, marketing and R&D. 

Q: What impact has the restructuring of the Brazilian petrochemical sector, to create two large players, had on Oxiteno's business?

The impact is positive because both Braskem and Quattor are key suppliers of Oxiteno. With their new configuration, and links with [state-owned energy group] Petrobras, these two companies have become stronger and more competitive and so has the whole supply chain.

WHAT ARE OLEOCHEMICALS?

They are chemicals derived from biological oils or fats.

BIOGRAPHY

Joao Benjamin Parolin joined Oxiteno in 1986 and was appointed CEO in January 2007. Previously he worked in the commercial area at Dow Quimica, the Brazilian subsidiary of Dow Chemical. He has a chemical engineering degree and an MBA from the University of Sao Paulo (USP), as well as a postgraduate degree in marketing administration from Fundacao Getulio Vargas.

OXITENO BACKGROUND 

Oxiteno is the chemical subsidiary of Brazilian industrial company Ultrapar, which also comprises liquefied petroleum gas (LPG) storage and distribution company Ultragaz, fuel and lubricant distributor Ipiranga and special products logistics company Ultracargo.

Oxiteno produces a range of organic intermediates, solvents, surfactants and chemical specialties, and last year started up its oleochemical plant in Camacari. As part of its oleochemical business strategy, the company is expanding its ethylene oxide (EO) production capacity in Camacari and its sulfation capacity in Suzano. 

Last year, Oxiteno reported a 33% rise in earnings before interest, tax, depreciation and amortization (EBITDA) to reais 210m ($96m), helped by recovery in selling prices and the depreciation of the Brazilian real in the fourth quarter. Net sales grew by 9% to reais 1.93bn despite a 14% drop in sales volumes.

Oxiteno is expected to participate in a major new refinery and petrochemical complex under construction in Itaborai, Rio de Janeiro state. Parent group Ultrapar is a key partner in the $8.4bn Rio de Janeiro Petrochemical Complex (Comperj), which is being implemented by state-owned energy group Petrobras. The project, which will include a 150,000bbl/day refinery, is planned to come on stream in 2012 or 2013. Chemical output will include polyolefins, polyethylene terephthalate (PET), ethylene glycol (EG), ethylene oxide (EO) and styrenics.

quoted from: www.ICIS.com

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GM Considers Shutting Factories for Nine Weeks

General Motors might halt production at some of its U.S. factories for up to nine weeks this summer to combat slumping auto sales, according to people familiar with the plan. 

GM typically closes its facilities for two weeks in July to change production lines for new models. Much like over the winter holidays, the automaker might extend that scheduled shutdown at unproductive plants to help bring down the growing stockpile of unsold cars and trucks, particularly if sales remain at their depressed levels. 

GM has yet to decide what factories it would close and for how long. A shutdown that began around Christmas lasted through much of January. 

"We continue to work with the U.S. Treasury to revise our business plan to go faster and deeper as required by President Obama," said Greg Martin, a GM spokesman. "As part of the plan, we previously acknowledged we will idle several U.S. assembly, stamping and powertrain plants. We are currently finalizing our plans. It is our intent, as always, to tell our employees first." 

As GM and Chrysler near government deadlines to finalize their efforts to cut costs and reduce debt, the magnitude of the possible reductions is starting to hit home. GM has said a bankruptcy filing is probable given the distance it still must travel to reach its restructuring targets. 

Chrysler has until the end of April to broker stakeholder concessions as well as finalize an alliance with Italy's Fiat. GM must negotiate similar stakeholder sacrifices by June 1. 

The negotiations between the Obama administration and Chrysler's bankers moved forward slightly yesterday as well, with the government making another proposal, sources close to the talks said. 

 

The new government offer would have Chrysler's senior creditors cut the amount they are owed from $6.9 billion to $1.5 billion. In exchange, they would get a 5 percent equity stake in the company. The offer is far from what the creditors have been willing to accept, however, and negotiations are expected to continue. 

Some industry players are growing increasingly concerned about the prospects of bankruptcy. The National Auto Dealers Association plans to meet with President Obama's auto task force today to lobby against bankruptcy. Association Chairman John McEleney warned that consumer confidence, the root of plummeting U.S. auto sales, would fall even lower if there's a bankruptcy filing. 

"We're not naive," he said. "We understand it's a real possibility. But in this environment, in this economy, bankruptcy would accelerate the problem and push the country deeper into recession." 

The association is also concerned about the mass closure of dealerships. As part of the mandated cost cutting, GM aims to accelerate its plans to trim its extensive dealer network to 4,100 by 2014. It had 6,200 dealerships at the end of 2008. Chrysler, which has far fewer dealers than GM, is planning to consolidate dealers by moving all three of its brands -- Chrysler, Dodge and Jeep -- under one roof. 

Dealers are also lobbying their state legislators to enact more laws to protect their franchise investments should an automaker kill a brand. GM, for instance, announced that it intends to either sell or discontinue Saturn. Hummer and Saab, too, are up for sale. 

Yesterday, White House Chief of Staff Rahm Emanuel and National Economic Council Director Lawrence H. Summers met with the 10 Democrats who represent Michigan in Congress to discuss the automakers' ongoing restructuring. 

"The Administration is working diligently to help these companies reach agreement with all of their stakeholders," the delegation said in a statement. "We all recognize, however, that the Administration and the companies must continue to prepare contingency plans to avoid liquidation or a protracted restructuring process should the ongoing negotiations for out-of-court resolution fail."

quoted from: The Washington Post

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Yahoo Posts $118m Net, to Cut 5% Jobs

SAN FRANCISCO Yahoo Inc. said it would cut 5 per cent of its global workforce and reported quarterly results that showed progress toward controlling costs, sending shares higher in an after-hours relief rally.

The Sunnyvale, California-based company reported a net profit in the first quarter of $118 million, or 8 cents a share — down from $537 million, or 37 cents a share, a year earlier. Wall Street analysts, on average, had forecast earnings at 8 cents a share, according to Reuters Estimates.

Excluding traffic acquisition costs (TAC), Yahoo’s revenue was $1.16 billion, compared with the average analyst expectation of $1.2 billion, according to Reuters Estimates.

The Internet company said economic conditions remained challenging, as revenue on Yahoo websites from both display ads and search ads fell during the first quarter.

But the decline in revenue was offset by better cost controls, as new chief executive Carol Bartz seeks to revive Yahoo’s fortunes.

“People were really looking at the profit structure of the business and for things not to be falling apart,” said Kaufman Brothers analyst Jason Avilio.

Yahoo said last October it would cut about one-tenth of its workforce, or about 1,600 jobs. The company finished 2008 with roughly 13,600 employees and said it would take severance charges from the new round of layoffs during the second quarter.

The company also announced in an internal memo to employees on Tuesday that it planned to implement a mandatory shutdown of operations during the holiday week of December 25, 2009 through January 1, 2010.

Yahoo said its operating cash flow, excluding certain items, was $409 million in the first quarter, at the high end of the $365 million to $415 million range it forecast in January.

Yahoo’s financial report comes as speculation has mounted that the firm has restarted discussions with software giant Microsoft Corp. about an Internet search partnership, following last year’s failed merger negotiations.

Bartz, who replaced Yahoo co-founder Jerry Yang in the top job in January, declined to comment on anything related to Microsoft during the conference call on Tuesday.

But she reiterated her belief that search is a very valuable part of Yahoo’s business.

“I’m well-versed enough in the search business at Yahoo to say it’s absolutely critical to Yahoo,” Bartz said in response to a question regarding whether she is now familiar enough with the business to respond to an offer for search.

quoted from: Oman Tribune

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Japan Posts First Trade Deficit

Japan has posted its first annual trade deficit in almost three decades.

The finance ministry said on Wednesday that the deficit for the fiscal year that ended in March was $7.35bn.

It also said that total exports fell by 16.4 per cent, while imports declined by 4.1 per cent.

However, Japan posted a slight trade surplus in March despite a sharp plunge in exports from the same period a year earlier.

The March figures are being seen by some analysts as a sign that the recession might have started to ease.

The country's trade surplus for the month was $111m, down from $1.1bn last year.

The result marked a second straight month of surplus, but was worse than the surplus of $835m last month.

Japan's export-dependent economy has weakened due to declining international demand [EPA]

Foreign market dependence

Japan's heavy dependence on foreign markets has left its economy one of the worst affected by the global economic downturn and, according to analysts, is firmly on course for its worst recession since the second world war.

Shipments to the US and Europe have more than halved as demand for cars and electronics plummeted, while goods sent to China have dropped. 

The world's second-largest economy also recorded its worst performance in nearly 35 years in the last quarter of 2008, contracting at an annualised rate of 12.1 per cent.

quoted from: Al Jazeera.Net

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Japan's Disposable Homes Need Firmer Foundations

Poorly built and often cramped, most Japanese houses barely make it past their fifteenth year, but, as homeowners knock them down and start again, more than £140 billion of household wealth vanishes into thin air every year. Now, according to a leading economist, Japan must kick this 60-year-old habit to ensure its long-term economic survival. 

Richard Koo, chief economist of the Nomura Research Institute, described as “perverse” the fact that Japanese homes lose every last yen of their economic value by the time they hit their fifteenth year. He has delivered this blunt appraisal of Japan's economic future to Taro Aso, the country's Prime Minister, arguing that better regulation and incentives were needed to stop people knocking down their houses so frequently. If not, the long-hoped-for recovery in consumer spending may never arrive, he said, and the housing situation could undermine the country's “make-or-break” stimulus bill. Mr Koo is understood to have played a key role in the crafting of the Government's 57 trillion yen (£382 billion) stimulus package. 

“I said that we have to do something about this atrocious housing market,” Mr Koo said. “We have to stop houses being consumer durables in Japan rather than the capital goods they are elsewhere in the world. Through better regulation, land must be used more efficiently. People have to spend more on the structures and less on the land itself.” Along with the stimulus package, there needed to be an unprecedented effort to improve the nation's housing stock, Mr Koo said. 

His thinking is beginning to underpin planned new legislation. Land prices should be stabilised and buildings constructed to last for many decades, according to new proposals. 

At present, arcane building laws impose fierce restrictions on floor space and the number of storeys that a building can have. That, in turn, squeezes property prices, which means that buyers spend so much on the land itself that they do not have enough money to build a high-quality home. 

The state of the nation's homes had made many people feel progressively poorer since 1990, despite the steady growth of Japanese GDP, the economist said. 

Unlike Britain or the United States, where houses function as a substitute for a savings account, houses actively destroy wealth for Japanese people. Japan's dwindling, ageing population builds almost as many new homes each year as that of the United States, where there are nearly three times as many people. With a situation such as this, Mr Koo said, there could be no happy ending. 

This perception of the housing market had worked its way into the national psyche, Mr Koo said, forcing people to squirrel away enough money to build an entire new house every couple of decades. “People in Japan think that buildings naturally lose their value over time,” Mr Koo wrote in a paper on the subject. “This philosophy entails a huge waste of resources. Japanese families scrimp and save to buy a new home, only to watch it lose one-fifteenth of its value annually. This process has been repeated year after year in postwar Japan.” 

With Japan effectively throwing away 4 per cent of GDP - or about Y20 trillion - on housing, it is no wonder that affluence was out of reach for most, he said. 

Stimulating

Employment (1.9 trillion yen) 

Y700 billion safety net fund for temporary workers 

Y120,000 per month living costs for vocational trainees 

Finance 

Measures to stop shares falling too sharply. Y50 trillion fund to be set up to back government guarantee 

Environment, health, birthrate

Y300,000 subsidies for people part-exchanging old cars 

Y700 billion for care centres; Y15,000 a month rise for carers 

Y48 billion to reduce school fees 

Agriculture and Infrastructure (Y1.3 trillion) 

Rice acreage reduction policy (Y116.8 billion) 

City ring roads (Y208.7 billion) 

Road maintenance (Y357.5 billion) 

Extension of runway at Haneda airport etc. (Y208.7 billion) 

Regional schemes (Y2.4 trillion), safety infrastructure (Y600bn) 

Earthquake and tsunami warning preparations for freak weather. 

Tax cuts

Gifting tax cut and changes to inheritance tax

quoted from: The Times Online

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