Wednesday, July 30, 2014

Indian ecommerce site Flipkart raises $1bn

Flipkart, the Indian ecommerce website started by two former Amazon employees, has raised $1bn in fresh funding, as it confronts fierce competition from its US role model and local rivals for a slice of India’s internet shopping market.
Coming just two months after it raised $210m, Flipkart’s additional $1bn equity injection is the largest single funding round by an Indian internet company, and values the business at about $7bn, according to people familiar with the deal.

While Flipkart’s existing backers led the funding, Singapore’s sovereign wealth fund, GIC, also participated, investing in the online retailer for the first time.
Flipkart, which sells everything from electronics to clothes, plans to use its enhanced war chest to invest in mobile technology, in a bid to keep pace with growing use of smartphones among Indian consumers. Mobile users now account for about half of Flipkart’s transactions, up from less than 5 per cent a year ago.
The retailer also plans to hire more than 1,000 engineers over the next year, and to use data and analytics to improve mobile users’ shopping experience. “The way people shop on mobile is very different,” says Sachin Bansal, Flipkart’s co-founder and chief executive.
“Profitability is not a short-term goal for us,” Mr Bansal said. “We don’t intend to become profitable any time in the near future.”
The $1bn investment comes amid intensifying competition in India’s ecommerce sector, which is growing rapidly as the expansion of bricks-and-mortar retail chains is stifled by the lack of suitable, affordable real estate, and logistical difficulties.
“Flipkart has set a benchmark, which raises the bar for investments in this space,” said Pragya Singh, an analyst at Technopak, a New Delhi-based retail consultancy. “All the players realise the potential this market has, and investors are increasingly backing the leaders, and reaffirming their faith in the sector.”
At present, India’s ecommerce market is worth just $2.3bn in annual sales, or 0.4 per cent of total retail sales, according to the most recent estimate by Technopak, the consultancy. But that market is projected to grow to about $32bn within the next six years, helped by growth of smartphone technology.
At a valuation of $7bn, Flipkart would be worth nearly 13 times Future Retail, one of India’s largest listed brick-and-mortar store chains, highlighting investor concerns over the obstacles facing traditional retailers.
Over the past year, Amazon, the US-based ecommerce pioneer, has increasingly turned its attention to India, launching aggressive advertising campaigns, including television commercials during popular cricket matches.
On Monday, Amazon also announced it was opening five warehouses in India, which will double its storage capacity to 500,000 sq ft and allow it to expand its same-day delivery services in several cities.
No Indian ecommerce group is operating profitably as yet, however, as all have been focused on scaling up their operations, and building their market positions.
Ms Singh said the new Flipkart investment would increase competition in the sector. “All the players are studying each other and eyeing each other’s moves very closely,” she noted. “Flipkart has upped the ante. I’m sure everybody will have to pull up their socks.”

India’s Tata group earmarks $35bn for global expansion plan

India’s Tata group, the country’s largest conglomerate by revenue, has outlined plans to invest $35bn over the next three years for expansion into new areas such as retail and defence while breaking down silos in its sprawling business empire.
Cyrus Mistry, who took over last year as chairman of Tata and whose more than 100 companies have combined revenues of about $100bn, has since kept a low public profile and struggled to articulate a strategy for the group’s future direction.

But in an internal meeting Mr Mistry on Tuesday outlined a plan called Vision 2025 that will see Tata push into new markets as it aims to become one of the world’s top 25 businesses by market capitalisation over the next decade.
Mr Mistry said by 2025 Tata – which manufactures products ranging from salt to wrist watches – would be “among the 25 most admired corporate and employer brands globally, with a market capitalisation comparable with the 25 most valuable companies in the world”.
Tata confirmed that Mr Mistry planned to establish four new business “clusters” – defence and aerospace, retail, infrastructure and finance – to increase growth at the group, whose largest existing divisions by revenue focus on IT outsourcing, steel and cars.
The approach aims to bring together existing operations in areas such as retail, where Tata already operates numerous businesses, but could also involve the “creation of new companies”, the group said.
Tata’s focus on both defence and infrastructure signals an attempt to capitalise on planned changes by newly-elected Prime Minister Narendra Modi, whose government is set to liberalise investment rules for defence industries while also increasing investment in areas such as roads, ports and power.
Under previous chairman Ratan Tata, Tata group undertook a rapid period of international expansion, becoming India’s most global company with a series of eye-catching acquisitions picking up western companies such as British luxury carmaker Jaguar Land Rover and Anglo-Dutch steelmaker Corus.
About two-thirds of the group’s revenues now come from its international operations, but in recent years it has struggled both to improve performance at a number of its flagship divisions, and to launch new high-growth businesses.
In particular, Mr Mistry spent much of his first year in charge attempting to stem losses at Tata Steel’s lossmaking European operations, while also dealing with problems at the group’s ailing Indian carmaking and mobile telecoms businesses.
Although analysts say these efforts have had mixed results, Mr Mistry has been aided by success of both IT division Tata Consultancy Services and carmaker JLR.
Both TCS and JLR posted strong global revenue and profit growth during the past financial year, helping to mask much less impressive figures at many of the group’s other companies.
Although Tata tends to be viewed as an industrial conglomerate, TCS’s market capitalisation of Rs. 5tn ($83bn) now accounts for about 60 per cent of the total value all of listed Tata group entities, as well as making it India’s most valuable company.

Russia Sanctions Spread Pain From Putin to Halliburton

U.S. and European Union sanctions against Russia’s Vladimir Putin threaten to shut off some of the world’s largest energy companies from one of the biggest untapped energy troves on the planet.
As violence escalates in eastern Ukraine between government and separatist forces, the EU yesterday sought to punish Russia for its involvement by restricting exports of deep-sea drilling and shale-fracturing technologies. The U.S. followed suit, with President Barack Obama announcing a block on specific goods and technologies exported to the Russian energy sector.
“Because we’re closely coordinating our actions with Europe, the sanctions we’re announcing today will have an even bigger bite,” Obama told reporters yesterday at the White House. “Russia’s energy, financial and defense sectors are feeling the pain.”
The new restrictions, which Obama described as the region’s most significant to date, “will make it more difficult for Russia to develop its oil resources over the long term,” he said.
Russia relies on companies including Exxon Mobil Corp.BP PlcHalliburton Co. andSchlumberger Ltd. for the latest technology and expertise it needs to develop an estimated $7.58 trillion in oil and natural gas resources that sprawl across nine time zones. Exploration and production companies like Exxon were expected to spend $51.7 billion in Russia this year, according to estimates from Barclays Capital Inc. -- much of which would go to service and equipment companies such as Schlumberger and Halliburton.

No Fracking

The U.S. and EU are restricting the transfer of certain oilfield technologies into Russia that are needed to develop its oil and gas fields in shale rock formations, deep water offshore and in the Arctic. That will include horizontal drilling and hydraulic fracturing, which has helped boost North American crude production and set the U.S. on a course toward energy independence.
Russia is the second-largest market for fracking services outside North America, after China. Russia’s demand for rock-crushing gear was forecast to double by 2018, according to research by PacWest Consulting Partners.

Russia Revenue

Oilfield service companies Halliburton, Baker Hughes Inc. and Weatherford International Plc each generate 4 percent to 5 percent of their global sales from Russia, while Schlumberger gets 5 percent to 6 percent, according to RBC Capital Markets. The increased sanctions aren’t expected to drive the service companies out of Russia, Kurt Hallead, an analyst at RBC Capital Markets in Austin, said in a phone interview.
“It hurts from an earnings standpoint,” Hallead said. “They basically have to eat a lot of fixed costs if their revenue goes away.”
Halliburton continues to operate in Russia while complying fully with all laws, Susie McMichael, a spokeswoman at Houston-based Halliburton, said yesterday in an e-mailed statement. A spokeswoman for Baker Hughes declined comment, and Weatherford representatives couldn’t be reached. Schlumberger wasn’t able to comment on the future impact of the sanctions, according to Stephen Harris, a spokesman.
“We are assessing the impact of the sanctions,” Alan Jeffers, an Exxon spokesman, said in an e-mailed statement.

Reviving Oilfields

“Production at many of the country’s older oil fields is being maintained only with the help of Western technology, such as horizontal drilling,” Philipp Chladek, an analyst at Bloomberg Intelligence, said in a July 29 note. Sanctions targeting exploration and production technology in Russia “may stymie output,” he said, in a country that produces one of every eight barrels of crude oil worldwide.
Sideways drilling and hydraulic fracturing developed by western energy firms have been a boon to Russian drillers. Oil wells that use those techniques are more than three times as productive as traditional vertical wells that are fracked, Chladek said, citing a presentation by OAO Rosneft, the state-controlled company and Russia’s biggest oil producer.
The latest round of sanctions isn’t expected to disrupt sales or operations for U.S. aerospace and defense manufacturers, although the potential impact “depends on how far the Europeans are really willing to go,” Joel Johnson, executive director, international, of Fairfax, Virginia-based Teal Group, said in an e-mail. “I think the real problems are likely to involve financial sanctions and under what circumstances U.S. companies and banks can do business with Russian banks.”

Boeing’s Worry

Boeing Co., the world’s largest planemaker, might see manufacturing costs rise if the imbroglio disrupts its access to titanium, a light-weight metal favored for jet aircraft such as its 787 Dreamliner. VSMPO-AVISMA, a Russian titanium producer, provided 35 percent of the supply used by Boeing’s commercial airplanes unit as of March, according to Boeing’s website.
“We are watching developments closely to determine what impact, if any, there may be to our ongoing business and partnerships in the region,” John Dern, a spokesman for Chicago-based Boeing, said in an e-mail. “We won’t speculate on the potential impact of sanctions or any other potential government actions.”
Exxon, the world’s largest oil company by market value, is “under pressure” to shun Russia’s biggest crude producer, Rosneft, and may be forced to quit offshore Arctic and Siberian shale projects budgeted to cost as much as $1 billion, Alexander Nekipelov, Rosneft’s chairman, said in an interview in Moscow yesterday. Russia is Exxon’s biggest exploration prospect outside of its home country.

European Sting

BP, the U.K. oil company that has a 20 percent stake in Rosneft and is the single-biggest foreign investor in Russia, warned that additional sanctions against the country could hurt its production, its earnings and its reputation, according to the company’s earnings statement.
Technip SA lowered its outlook for profit margins on some types of projects this week because of uncertainty about how Russia sanctions would affect progress on the giant Yamal LNG installation in Arctic waters. A spokeswoman for Technip couldn’t be reached for comment yesterday.
CGG, a French seismic surveyor, could also be affected by the sanctions because its technology is used to map oil and natural gas reserves. The company has data on the Russian Arctic, according to its website.
(Source: Bloomberg)

Monday, July 28, 2014

Germany: A nation of tenants

Like most young Germans, Katja and Felix rent their flat.
Located on a busy east Berlin street, with trams running past, it is not the peaceful location the 28-year-old couple wanted for their two small children. But it meets their budget and will do, they say, “for a couple of years”.

Then Katja, a doctor, and Felix, a musician, hope to move on. “Renting makes life flexible,” says Katja, who declined to give her surname. She and Felix intend to buy – but only in a decade or so, when they have settled and saved for a deposit.
The predominance of renting is the most striking feature of German housing. Only 40 per cent of Germans own their homes, compared with 70 per cent of Britons. This stems largely from post-1945 reconstruction policies, when the authorities tackled housing shortages by encouraging developers to build for rent.
Tough property codes were enacted to keep rents affordable – codes the current government is strengthening to further limit rent increases.
But the prevalence of renting is not the only reason for Germany’s consistent ability to provide affordable housing. More fundamental factors are at work.
First, at 230 people a square kilometre, German population density is similar to the UK’s 280, but much lower than England’s 380, or southeast England’s 450.
While the UK has a dominant capital, Germany has five big centres – Berlin, Hamburg, Munich, Frankfurt and Cologne – with key companies and government institutions spread between them.
The German economy has been fairly stable for decades, largely avoiding boom and bust cycles. Real housing costs declined slowly for decades until the global financial crisis.
Moreover, because widespread homelessness is still a living memory, Germans give priority to housing over other policies, such as the preservation of green space. While scenic spots are protected, there are no blanket greenbelt rules. Planning regulations favour development, including high-density housing.
The one exception is Munich, where local rules ban high-rises to protect historic views. And Munich pays the price, with the highest average monthly rental costs – €16 a square metre versus €10 in Berlin.
Local authorities are encouraged to promote housebuilding by public finance rules under which their central government grants increase quickly in response to population rises. In the UK this is much slower.
While the public sector is an active regulator, its role as a developer-owner is limited. Only about 15 per cent of homes are owned by public bodies or co-operatives, and the figure is falling. The bulk of rental housing – 60 per cent – is privately owned, much of it by individuals with a handful of properties. So the rental sector is not loaded with heavy administration costs.
Finally, when Germans do buy, they face considerable hurdles.
Deposits are 20 per cent and more. Most loans are on long-term fixed-rate terms, with penalties for early repayment. It is therefore more difficult than in the UK to make quick profits that lead to boom and bust cycles.
However, the global financial crisis is bringing change. With ultra-low interest rates, savers are switching out of bank deposits and looking for alternative investments, including property. Meanwhile, young householders are finding it possible to buy sooner because mortgage repayments are more affordable.
Sale prices have been rising – by 31 per cent in 2007-13 – an unprecedented surge by German standards. Rent controls are limiting rent increases but they are still climbing at about 2-3 per cent a year.
In response, housing construction is recovering after a decade-long lull that followed the post-reunification building boom of the 1990s. Construction permits for new dwellings are running at more than 260,000 a year, the highest level since 2006.
But that is far fewer than the 1994 peak of 700,000 – and too few for Jan Linsin, head of German research for CBRE, the property services group: “We need a lot more new housing for middle-income people. It is easier in Germany than in London to find an affordable home. But it still isn’t easy.”

Emerging markets slowdown hurts Unilever

Unilever, the consumer goods group, reported a bigger than expected drop in first-half sales after a continued slowdown in emerging markets, where weakening currencies wiped €413m off operating profits at the Anglo-Dutch company.
The maker of Lipton tea and Dove soap is the first of the large multinational consumer groups to report and Paul Polman, chief executive, set the tone on Thursday, saying: “We have experienced a further slowdown in the emerging countries whilst developed markets are not yet picking up.”

Mr Polman said the economic backdrop in the first half had been “as tough as we’ve faced in the last five years”. He indicated there would be no improvement this year, saying it would take “a few more quarters before we see the first signs of recovery”.
He said the group was achieving its aim of performing better than the market and would continue to tilt its portfolio towards higher-growth personal and home care and away from food.
This week, Dave Lewis, head of personal care, was named as the chief executive of Tesco, replacing Philip Clarke, and will take up his post in October. Leaving Unilever after 27 years, he had been regarded as a potential successor to Mr Polman. Mr Polman congratulated Tesco, describing Mr Lewis as “an outstanding talent”. He added: “He has a big challenge. It’s not an easy job.”
Unilever’s foods business – mainly mayonnaise and spreads – grew 0.7 per cent against a 6.2 per cent rise in home care and 4.5 per cent expansion in personal care.
In the past five years, Unilever has sold off €2.8bn in sales of mainly food businesses and acquired €3bn of sales from personal care acquisitions.

This month it sold Slim-Fast, having also disposed of its North American pasta sauce brands, RagĂș and Bertolli, for $2.2bn in cash to Japan’s Mizkan group in May.
Analysts had expected sales growth of 4.3 per cent in the second quarter, from 3.6 per cent in the first three months of the year, but the pick-up was modest at 3.8 per cent.
Pre-tax profits were up 15 per cent at current exchange rates to €4.2bn in the six months to the end of June, boosted by disposals, while sales fell 5.5 per cent to €24.1bn. Operating profits rose 13 per cent at current rates to €4.4bn over the same period.
Andrew Wood, analyst at Bernstein Research, called the results “mixed”. While sales were lower than expected in all regions and across all its main businesses, operating profit margins and earnings per share had surprised on the upside.
“Given that one of the biggest issues investors have had with Unilever has been its inability to convert good operating momentum into good EPS growth, the 5 per cent beat to consensus on EPS could be well received,” he said in a note.
Sales in emerging markets – which account for 57 per cent of the total – grew 6.6 per cent in the first half, trailing the 10 per cent expansion in the same period last year. In Europe sales were down 0.4 per cent and grew 4.3 per cent in the Americas.

BHP mines record level of iron ore

BHP Billiton mined a record amount of iron ore in the 12 months to July, beating its own forecasts, and said production would expand further in 2015 as the company squeezes extra capacity out of its existing infrastructure.
The Anglo-Australian group said on Wednesday it would continue its focus on productivity improvements and disposals of non-core assets, almost two years after the mining industry began slashing costs following a decade-long investment boom.

We will remain focused on value over volume,” said Andrew Mackenzie, BHP chief executive.
Analysts said the strong production figures should enable BHP to implement plans to return cash to shareholders at its upcoming 2014 results.
BHP, which is the world’s largest mining company by market capitalisation, said it mined 225m tonnes of iron ore – a key ingredient in steel – in the fiscal year that ended on June 30, some 4 per cent ahead of guidance.
It forecast annual production would rise to 245m tonnes in the subsequent fiscal year as it ramped up production in the Pilbara region of Western Australia.
The increase in BHP production volumes in the Pilbara mirrors record expansions by fellow Australian miners Rio Tinto and Fortescue Metals Group. All three miners have invested tens of billions of dollars over the past decade to cash in on China’s appetite for steel to feed its growing economy.
But Chinese growth has since decelerated and overcapacity has dogged the country’s steel mills. Analysts warn the sharp increase in volumes from Australian producers in the Pilbara and Brazilian producer Vale is causing iron ore supply to outstrip demand, causing a drop in prices.
Since the start of the year iron ore prices have fallen by almost 30 per cent to below US$100, prompting a restructuring in the industry as higher cost producers exit the market.
UBS estimates that BHP has a break-even price of US$53 per dry metric tonne of iron ore produced, meaning it can make a profit at current prices. But some Chinese mines and smaller Australian iron ore producers are operating a loss at current price levels and are exiting the industry.
BHP said the early commissioning of its Jimblebar mine and a focus on productivity was the key reason the company exceeded guidance. It said a low-cost option to expand Jimblebar is expected to further increase BHP’s annual production to 270m tonnes, although it gave no date for this expansion.
The Iron ore division is critical to BHP’s financial performance as it contributes more than half of the company’s earnings. Overall the group reported a 9 per cent increase in production across all its commodity divisions, which include coal, copper, petroleum, nickel and aluminium.
The company said it would take a US$400m-US$800m charge on its earnings before interest, tax, depreciation and amortisation in the six months to end June 2014 to pay for redundancy, mine closures and other costs.
“While net debt will likely be impacted, we still expect a capital management plan to be unveiled at the full-year 2014 results,” said UBS in a note to clients.
BHP is continuing to study ways to simplify its business, including disposals and a proposal to spin off its nickel, manganese and aluminium businesses into a separate unit.

China debt tops 250% of national income

China’s total debt load has climbed to more than two and a half times the size of its economy, underscoring the difficult challenge facing Beijing as it seeks to spur growth without sowing the seeds of a financial crisis.
The total debt-to-gross domestic product ratio in the world’s second-largest economy reached 251 per cent at the end of June, up from just 147 per cent at the end of 2008, according to a new estimate from Standard Chartered bank.
Such a rapid build-up is far more of a concern than the absolute level of debt, since increases of that magnitude in such a short period have almost always been followed by financial turmoil in other economies.
While calculations of the ratio vary depending on exactly what types of credit are included, several other economists agreed with the new figure. Even those with slightly different calculations said the general trend was clear.
“China’s current level of debt is already very high by emerging markets standards and the few economies with higher debt ratios are all high-income ones,” said Chen Long, China economist at Gavekal Dragonomics, a research advisory. “In other words China has become indebted before it has become rich.”
By comparison, the US had a total debt-to-GDP ratio of about 260 per cent by the end of last year, while the UK’s ratio was at 277 per cent. Japan topped the world table at 415 per cent, according to Standard Chartered calculations.
Chinese policy makers have warned for years that the combination of slowing headline growth rates and ever-increasing debt dependency is unsustainable and has led to serious misallocation of capital.
The results can be seen across China in the forests of empty apartment buildings and massive overcapacity in everything from solar panels to steel and cement production.
Having successfully revived collapsing growth in the wake of the 2008 global financial crisis, Beijing is finding it much harder to wean the economy off its dependence on ever larger amounts of credit.
This growing dependency shows no sign of being reversed, with the debt-to-GDP ratio increasing by 17 percentage points in just the last six months (from 234 per cent at the end of last year) compared to an increase of about 20 percentage points for all of last year.
Rather than reining in credit, the government has allowed it to accelerate because of fears that slowing growth, exacerbated by a decline in regional real estate markets, could bring the economy to a “hard landing”.
Rather than reining in credit, the government has allowed it to accelerate because of fears that slowing growth, exacerbated by a decline in regional real estate markets, could bring the economy to a ‘hard landing’
New credit in China totalled Rmb1.96tn ($316bn) in June, the highest monthly total since March and nearly double the amount from the same period last year.
After several months of government-mandated shrinkage, credit issued from China’s so-called shadow banking sector also rebounded in June.
“Overall credit growth continues to outstrip growth in value added, which is not sustainable,” said Stephen Green, chief China economist at Standard Chartered.
Working in China’s favour is the fact that its economy is still mostly funded domestically.
In recent years, foreign borrowing has increased significantly and is quite large in absolute terms but, at less than 10 per cent of GDP, it remains small relative to the wider economy.
The fact that the state still owns the vast majority of the formal Chinese financial system, as well as most of the biggest corporate borrowers, also limits the possibility of a financial crisis, since Beijing can just order loans to be rolled over.
But in an environment when an increasing amount of new credit is being used to pay back old debts, maintaining high growth rates has become much harder.
Despite the credit boom of the past few years, China’s growth slipped from 14.2 per cent in 2007 to 7.5 per cent expansion in the second half of this year.

In Modi’s India, waterways are a geopolitical issue

Narendra Modi is not noted for building bridges. The Indian prime minister, already viewed warily by non-Hindus, reportedly plans to speak Hindi when meeting international leaders, despite being fluent in English. He has also upset Delhi bureaucrats by ordering them to clean their offices and drop golfing lunch breaks.
Mr Modi would, however, like to be remembered for building canals. He dreams of reviving an ambitious, decades-old national plan to connect India’s rivers, including the sacred Ganges and the snow-fed Indus, with 15,000km of canals and reservoirs to enrich farming prospects and provide an escape route for flood water. It is a pipe dream almost without precedent: a $168bn project lasting at least 25 years that will leave virtually no state untouched.
Supporters claim the grand South Asian water grid, more prosaically known as the National River Linking Project, is the aquatic answer to this fast-growing economy’s multiple needs. According to a report in the journal, Science, the latticework of conduits, mainly channelling water from the north and east of the country into the parched south and west, will expand the available agricultural land by a third; add 34 gigawatts to the hydroelectric output (roughly equivalent to the electricity generated by 20 nuclear power stations); and end the misery of flood damage by diverting water to arid areas. It could also create a carbon-friendly transport network.

Critics, however, contend that it is unbridled hydrological hubris on a par with China’s superdams, and that drastic re-engineering of the country’s natural water courses could exact a heavy toll on the environment, interfering with fish migration and spreading waterborne diseases. As well as environmental objections, there are worries about how it will work in a divided country: India is carved into 
29 states, plus other territories, that boast their own governments, languages and ethnic histories. And Bangladesh and Pakistan may not feel that upbeat about being downstream neighbours. A Chatham House report last month described international discussions about dwindling water supplies in south Asia as “vociferous, antagonistic and increasingly associated with national security”. Where there is no shared love, there is unlikely to be shared water.

As the Financial Times spells out in its series, A World Without Water, scarcity is a pressing and relatively ignored global issue. With India supporting 17 per cent of the world’s population with only 4 per cent of the water, Mr Modi has at least recognised that the present water management plan is in danger of stagnating. And, perhaps pricked by a World Economic Forum survey ranking the country’s infrastructure below Guatemala’s, his maiden budget this month included pledges to build railways, airports and roads. Championing a national water grid, an idea first proposed in the 1970s, adds buoyancy to his claim to be a progressive leader.
The great challenge for this vast country is that, when it comes to dispensing water, nature is neither measured nor equitable. According to the World Meteorological Organisation, three-quarters of India’s annual precipitation (rainfall, snow or any other form of water falling from the sky) is crammed into just a third of the year, during monsoon season. As a result the country, measuring 2,000 miles north to south, is beset by both flood and drought, sometimes at the same time, with deluges made worse by haphazard building on flood plains.
A master plan for the national redistribution of water has long been touted as a long-term solution, both in terms of smoothing supply and mitigating the floods that cause so much personal anguish and economic damage. The seductive logic of redistribution, though, is regarded by many as unscientific. “The equation that flooding means surplus water and drought means deficit is misleading and wrong,” Himanshu Thakkar from the campaigning group South Asia Network on Dams, Rivers and People, told Science. Monsoon-hit areas, he explained, can be drought-ridden at other times of the year and therefore need ways of conserving, not offloading, water.
Manmohan Singh, Mr Modi’s predecessor, showed little enthusiasm for the scheme. It was deemed “against the forces of nature” by one advising committee, which called for intense scientific scrutiny. Of itself, nature should not be a barrier to progress, but a thorough scientific analysis is desperately needed. Ambition alone will not make the torrents flow in the correct direction nor dispel fears about ravaged ecosystems or displaced villagers.
Any analysis must also take climate change into account: by the time the final waterway is opened, it is possible the Himalayan glaciers feeding some of the rivers will have retreated, rendering the original calculations less relevant. If Mr Modi really plans to buy into this mega-project, he will either sail into history as a visionary or as the fool who floated his country up a certain creek.

Zinc lifted by falling stocks and supply concerns

Zinc has reached its highest level in almost three years, lifted by ongoing concerns about mine supply and falling warehouse stocks.
On the London Metal Exchange, zinc for three month delivery reached $2,325 a tonne on Monday – the highest price since August 2011 – as investors, who are becoming increasingly positive on industrial metals, added to positions.

After nickel, zinc has been the best performing base metal on the LME this year, with the price advancing 11 per cent this year. Zinc is used a protective coating for iron and steel in construction, and electrical appliances.
Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, said that while demand for zinc was healthy, with forecast growth of 5 per cent in 2014 and 2015, the price rise was a “supply-led story”.
“This series of key mine closures is causing a structural change in the market. The most acute deficit will not arrive until 2016, but the market is already factoring it in.”
High warehouse stocks that piled up after the financial crisis helped keep zinc depressed and in a narrow trading range since late 2011. Inventories have been falling over the past 18 months, and on Monday hit a three-and-a-half year low of about 660,000 tonnes. But this is still higher than levels seen between 2005 to 2010, when LME stocks sank to as low as 58,000 tonnes.
At the same time, a number of large mines are due to shut next year, including MMG’s 500,000-tonne-a-year Century operation in Australia and Vedanta’s Lisheen mine in Ireland. Several new projects and expansions face delay.
According to the International Lead and Zinc Study Group, the market swung to a deficit last year, for the first time since 2006. The shortfall is expected to grow this year to 117,000 tonnes in a 13m tonne-a-year market.
But some analysts believe zinc has gone too far, too fast.
Giles Lloyd, analyst at CRU, a commodity consultancy, said treatment charges for zinc concentrate had been increasing of late, which was not consistent with a tightening of the wider zinc market.
“Fundamental tightness in the zinc market is still a long way off, so the rally appears premature.”
David Wilson, analyst at Citi, said the focus on supply issues ignored a mixed demand picture, particularly in China, which accounts for more than half of global zinc consumption.
“With effectively over one-third of China end-use sectors undergoing a year-on-year slowdown, we struggle to see what a strong demand growth story is driven by,” Mr Wilson said in a report, forecasting a zinc price of $2,000 and $2,200 over the next three to six months.
“With new supply coming into the market, the underlying zinc concentrate market still in significant surplus, still high levels of exchange and non-exchange inventories, and a demand picture from key-end users that is mixed at best, we expect a short-term price correction.”

Lead jumps to highest in eight months

Lead ballooned to an eight-month high on Friday as the recent rally in base metals prices showed no sign of ending.
The price of the soft metal, used mainly in the manufacture of automobile and motorcycle batteries, has lagged behind some of its peers recently, and before this week was down for the year. But it broke into positive territory on Thursday, and a further 1.3 per cent gain took the price to $2,266 a tonne, for three-month delivery on the London Metal Exchange.

Industrial metals have benefited from improved investor sentiment towards commodities in recent months. The sector received a further boost from data published on Thursday in China that showed factory activity expanding at the fastest rate in 18 months.
China consumes more than 40 per cent of the world’s base metals output.
Copper had another strong week, rising for the fifth week out of six, to $7,133 a tonne on the LME. The red metal has now gained 11 per cent since mid-March, when concerns about the Chinese economy sent prices tumbling. The price did, however, dip by 0.5 per cent on Friday, on news that Freeport-McMoRan, the top copper producer in Indonesia, had reached an agreement with the government there that should allow the resumption of copper concentrate exports.
Nickel, the star performer among metals in 2014, rose 3 per cent this week to $19,180 a tonne. Used to manufacture stainless steel, nickel has soared 38 per cent this year, after ore exports were banned in Indonesia, a major global supplier.
Continued concerns about mine supply stocks and falling warehouse inventories saw zinc make further gains last week. The metal, which is used as a protective coating for iron and steel, rose 4 per cent over the week to trade at $2,387 a tonne on Friday. It has risen 16 per cent so far in 2014.
Two big Canadian mines closed last year, eliminating a combined 335,000 tonnes of the rust-inhibiting metal from the market, while several ageing mines in Australia and Europe are expected to stop production in 2015, adding to worries about supplies.
At the same time, zinc inventories have fallen sharply. LME warehouse stocks have dropped 30 per cent to 653,900 tonnes, the lowest level since December 2010.
Elsewhere, aluminium paused for breath, easing 1.26 per cent to $2,000 a tonne. The lightweight metal, used in everything from aeroplane bodies to beverage cans, has rallied 15 per cent since the end of May. Like zinc, it has benefited from falling warehouses stocks but also smelter closures.
Norsk Hydro, a major aluminium producer, said this week that low prices had encouraged companies to shut up to 5m tonnes of aluminium capacity over the past few years. According to its chief executive Svein Richard Brandtzaeg, the global aluminium market is in its best shape since the financial crisis.
Despite the recent rally, analysts say the outlook for base metals is mixed. In a note this week, Goldman Sachs said that, taking a 12-month view, it was most bullish on nickel, zinc and aluminium. But it was bearish on copper, saying the market was likely to be in surplus this year and also in 2015, when it expected average prices of $6,400 a tonne.

Turbine makers adapt to winds of change

The World Cup has been a stressful event for Ghana’s electricity industry. When the national team was playing, the country had to import 50 megawatts of electricity from neighbouring Ivory Coast and cut consumption at Valco, the state-owned aluminium company, in an effort to prevent blackouts.
Throughout the tournament, Ghana’s utilities have been told by regulators to run all available generators in order to power the country’s televisions and consumers have been urged to switch off power-hungry appliances such as freezers and air conditioners.

Those strains are a sign of the enormous unmet potential demand for electricity worldwide, and of the huge opportunity for companies manufacturing power generation equipment.
This year a wave of consolidation has swept through the industry, as the leading companies, including General ElectricSiemens and Mitsubishi Heavy Industries (MHI), take advantage of a cyclical downturn to position themselves for expected long-term growth. GE, in particular, has moved to address its weaknesses and develop new strengths with its deal to buy most of the energy businesses of Alstom of France, for a net $10bn.

Before that, Japan’s MHI and Hitachi formed a 63/35 joint venture in gas-fired and coal-fired generation equipment, which was announced in 2012 and started operating in February. MHI also last year bought the Pratt & Whitney small and medium-sized gas turbine business from United Technologies of the US.While the GE-Alstom deal hit the headlines, there have been several smaller deals in the industry. Siemens, thwarted by GE in its bid to buy Alstom’s gas turbine business, is paying £785m for Rolls-Royce’s operations making smaller gas turbines used in the oil and gas industry and for distributed power.Shanghai Electric announced in May it would pay €400m for a 40 per cent stake in Ansaldo Energia, the Italian power equipment manufacturer, and said the two companies would set up manufacturing joint ventures in China to serve Asian markets (such as Shenzhen, China, pictured).

One factor behind this spate of power equipment deals has been a prolonged period of weak demand that has provoked some weaker competitors to seek partnerships. Utilities’ capital spending peaked in 2007, according to Andreas Willi, an analyst at JPMorgan Cazenove, and it has yet to recover fully. Global power equipment sales in 2013 were a little higher than in 2012, but still 27 per cent below their 2007 peak in terms of megawatts of capacity ordered, Mr Willi says.
That weakness has taken its toll on manufacturers. Siemens, for example, booked €13bn in orders for fossil fuel power generation equipment for the year to September 2008, but only €10.7bn in its most recent financial year to September 2013.
Sluggish economic growth in developed economies has led to weak electricity demand, meaning there is little need to invest in new capacity. Utilities are often subject to regulations compelling them to invest in renewable generation, limiting their appetite for new gas-fired and coal-fired plants. They also face uncertainty over what has been described as the “existential threat” to the traditional utility business model posed by distributed power generation, particularly rooftop solar.
Yet while all those problems are still present, the long-term future looks much brighter.
While developed world demand is weak and likely to grow only slowly, countries in the developing world are desperate for more electricity. Nigeria, for example, with total generation capacity of about 4 gigawatts, will need 55GW in 2030, according to the Center for Global Development, a Washington-based think-tank.
The biggest sources of new demand are likely to be China and India, which have per capita electricity consumption respectively one-third and one 15th that of the US. If per capita consumption in those two countries were to reach US levels, that alone would more than double world electricity use.
The result is that in the long term, demand for turbines will be skewed towards low and middle-income countries. The IEA estimates that in 2014-35, the world will spend about $2.58tn on gas and coal generation capacity, two-thirds of it outside the members of the Organisation for Economic Co-operation and Development, the rich countries’ group.
The companies that prosper will share certain characteristics, analysts and industry executives say. They must be able to offer steam turbines used in coal-fired plants, because countries that have coal will want to exploit it. They need smaller turbines used for off-grid power, because distributed generation is likely to grow faster than centralised supply in countries that do not have well-developed electricity networks.
Companies need to be large, so they take advantage of growth opportunities worldwide, and so they can spread the costs of research and development across the broadest possible revenue base. They also should offer a range of technologies including gas, coal, nuclear and renewables, so they can sustain that research spending through the cycle as different forms of generation move in an out of favour.
On those counts, the GE-Alstom deal scores highly. It strengthens GE in steam turbines, where it was relatively weak, and in countries where Alstom has strong customer relationships, including China and India. It also adds sales to support R&D spending for both products and services, as Alstom has a large base of about 350GW of installed turbine capacity, to add to GE’s base of about 1,000GW.
Steve Bolze, GE’s chief executive of power and water, told analysts on a call when the Alstom deal was announced: “As you grow a service business, the number one thing you need is installed base.”
Brian Langenberg, an industrial sector analyst, says the deal makes GE “significantly bigger and stronger”. He adds that it “will better compete in fossil fuels with Siemens and at higher rates of profitability and increased capability”.
Julian Mitchell, an analyst at Credit Suisse, said in a note the GE-Alstom deal was “likely to particularly weigh on second-tier players such as Ansaldo”. He suggested that some of the Chinese companies such as Harbin and Dongfang, which are among the leading manufacturers of steam turbines for coal plants because the country accounts for much of the world’s investment in coal-fired generation, might also now feel the pressure for further consolidation.
For now, though, GE’s leadership has given the company a significant strategic edge. They now need to show they can capitalise on it.

Need for back-up ‘when wind doesn’t blow and sun doesn’t shine’

One of the strongest pressures on manufacturers of gas turbines is the need for them to fit in with growing capacity on the grid for renewable energy sources such as wind and solar.
The International Energy Agency estimates that almost half of the investment in generation capacity over the next two decades will be in renewable energy, including onshore and offshore wind, and solar.
As Robin West of the Center for Strategic and International Studies in Washington puts it, that creates an opportunity for natural gas, especially where prices are low thanks to the North American shale boom.
“As renewable energy grows, it becomes more and more important to have back-up power for when the wind doesn’t blow or the sun doesn’t shine. You need gas turbines that are as flexible as possible, so they can cycle up and down rapidly to balance out the fluctuations in renewables.”
What manufacturers have to try to do is deliver the most flexible gas turbines possible, which can be ramped up and down while remaining efficient in their use of fuel.
General Electric in March launched its 9HA gas turbine, which it describes as the “world’s largest, most efficient gas turbine”. With a maximum output of 470MW, it is the company’s attempt to capture a slice of the market for the very largest gas turbines, which until now has been dominated by Siemens and Mitsubishi Heavy Industries. Two of the key selling points of the GE machine are that it can be ramped up quickly, reaching full power in 30 minutes, and that it has a low “turndown level”: output can be turned down to 40 per cent of its maximum level while still meeting emissions standards.

Bezos Alarms Amazon Investors With Spending Pace as Loss Widens

Jeff Bezos is testing the patience of investors after Inc. (AMZN) missed analysts’ estimates for a second straight quarter, sending the shares tumbling almost 10 percent.
The world’s largest online retailer yesterday reported a second-quarterloss of $126 million, more than double what was predicted, even as sales climbed 23 percent to $19.3 billion. Expenses jumped 24 percent to $19.4 billion.
Amazon remains one of the most highly valued companies in the U.S., yet the business is losing some of its sheen as profits are dragged down by investments that Bezos, the co-founder and chief executive officer, is making in cloud computing, warehouses and gadgets such as the new Fire smartphone. Whileshareholders have been patient, they’re increasingly seeking signs that the long-term strategy will work.
“All of us understand making investments, and then there’s a point where investors don’t know what the payoff is,” said Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles, who predicted that Amazon would report a quarterly loss. “What if they get to $200 billion in revenue and still don’t have profit?”
For years, shareholders have backed Bezos’s view that big investments are necessary to gain share because Amazon’s business opportunity is enormous and will pay off in the long run. In the process, the company has upended industries from bookstores and traditional retail outlets, to providers of Web-computing software.


CEO Strategy

Investors have rewarded Amazon with the highest valuation in the Standard & Poor’s 500 Index. After climbing 59 percent in 2013, the shares of Seattle-based Amazon have declined 19 percent this year, underscoring investors’ trepidation about mounting expenses. The stock fell 9.7 percent to $324.01 at the close inNew York, the most since April 25.
As Bezos has funneled more money to expanding distribution, grocery delivery services and smartphones and tablets, there’s little sign sizable profits are coming and Amazon issued a forecast yesterday for a wider loss in the third quarter.
“As long as there is money to pour into the business, they will be pouring money into the business,” said Sucharita Mulpuru, an analyst at Forrester Research in Cambridge, Massachusetts.

Web Services

Weighing on results is a price war in the cloud-computing market, where Amazon rents data storage and computing power to other companies. Amazon, whose cloud competitors include Google Inc. and Microsoft Corp., cut prices for its Amazon Web Services unit this year. 
While Amazon doesn’t disclose specific sales for Web services, it’s part of the “other” category under North American sales in its financial statements, where revenue in the second quarter declined by 3 percent to $1.17 billion from the prior period.
“We had very substantial price reductions,” Chief Financial Officer Tom Szkutak said on a conference call.
Amazon’s lack of profits stands in stark contrast to Alibaba Group Holding Ltd., which has better margins and is planning an initial public offering soon. The Chinese Web retailer disclosed in aprospectus in May that its profit totaled $2.8 billion for the nine months ended Dec. 31 on revenue of $6.5 billion. Amazon earned $274 million for all of 2013 on sales of $74.5 billion.

Investment Cycle

The loss in the latest period was the biggest since the third quarter of 2012, when Amazonposted a $274 million loss. Looking ahead, Amazon projected sales of $19.7 billion to $21.5 billion for the current quarter. Operating losses are projected to be $810 million to $410 million, Amazon said.
Amazon is in an investment cycle, which benefits customers and will eventually end, said Szkutak, without specifying when that will be.
“We have a tremendous amount of opportunity,” he said. While it’s impacting short-term results, “we’ll obviously be looking to get great returns on invested capital.”
Amazon doesn’t disclose certain information that could shed a light on whether its investments are working. Key portions of its business are absent from its financial reports, including Kindle sales, membership figures for the $99-a-year Prime program, and the profit it collects from its main online store.
“You don’t learn anything from Amazon because they don’t answer any questions and they don’t provide any metrics,” Pachter said.

Capital Intensive

Amazon also didn’t give an update on its dispute with Hachette Book Group over digital-book sales. Both are seeking a greater share of e-book income, and Amazon blocked pre-orders for some of Hachette’s books earlier this year, including “The Silkworm,” a new novel by J.K. Rowling, writing under the pseudonym Robert Galbraith.
Bezos is spending to take Amazon further away from its roots as an online seller of books. As it makes that shift, the company is increasingly competing with large technology companies such as Apple Inc. (AAPL), Google, Microsoft and Samsung Electronics Co.
Amazon is shipping this week its Fire smartphone, a $199 handset that lets users take a picture of a product to find and buy it quickly from Amazon. Reviewers have panned the device, citing a weak battery, lack of applications and the gimmicky nature of its 3-D display. Szkutak declined to provide specific figures about orders for the new smartphone.
Strong sales or not, Bezos has proven with devices such as the Kindle Fire tablet that he’ll stick with a product and continue to invest, even if early models don’t prove popular.
“They keep investing in these incredibly capital-intensive businesses,” Mulpuru said.
(Source: Bloomberg)