Monday, May 29, 2017

The World Is About to be Flooded With Cotton

The world is about to be inundated with cotton as farmers take advantage of high prices to produce more and China floods the market with excess supply from its strategic inventory.
Global output will climb 6.9 percent in the season that starts Aug. 1, helping push stockpiles outside of China to a record, the U.S. Department of Agriculture estimates. American farmers, the biggest exporters, are forecast to have their biggest harvest in a decade, and crop increases are expected in Australia and top grower India.
Growers planted more acres after cotton futures jumped 12 percent last year, when most other crops were mired in slumps. At the same, there are no signs that China’s sales of its state inventories are slowing down. The ample supply outlook means prices are now heading for the biggest monthly loss since August. Hedge funds are backpedaling on bets on a rally, lowering their wagers for the second time in three weeks.
“The supply side should remain ample, and if we see production ramp up, cotton will see further losses,” said Lara Magnusen, a La Jolla, California-based portfolio manager for Altegris Advisors LLC, which oversees $2.43 billion. On the demand side, a recent downgrade to China’s debt has raised concern that global demand “won’t be enough” to absorb additional production.


Money managers lowered their cotton net-long position, or the difference between bets on a price increase and wagers on a decline, by 8.7 percent to 95,904 futures and options contracts in the week ended May 23, according to U.S. Commodity Futures Trading Commission data released three days later. That’s the lowest in a month.
Cotton futures dropped 7.7 percent in May, settling Friday at 72.79 cents a pound on ICE Futures U.S. in New York. Prices are headed for the first monthly loss since December.
While the USDA projects that the market will post a third straight, albeit smaller, deficit in the 2017-2018 season, researcher Cotlook Ltd. is forecasting a surplus. The Birkenhead, England-based company estimates production will top demand by 44,000 metric tons.
Favorable weather has aided U.S. spring seeding, especially in Texas, the top grower. Through May 21, American farmers had sown 52 percent of intended plantings, up from 45 percent a year earlier.

India, Australia

Output is also looking favorable in India, the biggest global producer. In Australia and Brazil, increased mechanization is aiding production and allowing farmers to compete with the U.S. on quality.
China continues to unload inventories to supply the domestic market, dimming the demand outlook in the No. 1 consumer. At an auction on Friday, the nation sold 13,700 tons out of 29,500 tons offered, according to the website of state-owned China National Cotton Information Center.
“People used to say that because so much of the world inventory was within China, that it was bullish, because it was never going to come out,” said Gillian Rutherford, who helps oversee about $12 billion as a commodities portfolio manager for Pacific Investment Management Co. in Newport Beach, California. “Now, we are in the reverse situation.”
Still, farmers will have to “navigate the summer” growing season in the U.S., and adverse weather can throw off production estimates, Rutherford said. 
Some cotton fields in the U.S. Southeast, including Georgia and Florida, are stressed from lack of rain and will turn dry again in the next two weeks, said Drew Lerner, president of World Weather Inc. In India’s northern growing region, where planting is underway, plants are benefiting from adequate moisture and crop prospects are “very good,’’ whereas China’s non-irrigated crops in northern areas are stressed from dryness and high temperatures, he said.
China can also still surprise the market if it decides to increase its import quotas for mills in need of higher-grade cotton after “good demand” seen during the auctions recently, Jon Devine, chief economist for Cary, North Carolina-based researcher Cotton Inc., said in an interview at Bloomberg headquarters in New York. The majority of the company’s clients include cotton growers and textile importers.

Friday, May 26, 2017

Pretty Soon Electric Cars Will Cost Less Than Gasoline

Battery powered cars will soon be cheaper to buy than conventional gasoline ones, offering immediate savings to drivers, new research shows.
Automakers from Renault SA to Tesla Inc. have long touted the cheaper fuel and running costs of electric cars that helps to displace the higher upfront prices that drivers pay when they buy the zero-emission vehicles.
Now research from Bloomberg New Energy Finance indicates that falling battery costs will mean electric vehicles will also be cheaper to buy in the U.S. and Europe as soon as 2025. Batteries currently account for about half the cost of EVs, and their prices will fall by about 77 percent between 2016 and 2030, the London-based researcher said.
“On an upfront basis, these things will start to get cheaper and people will start to adopt them more as price parity gets closer,” said Colin McKerracher, analyst at the London-based researcher. “After that it gets even more compelling.”
Renault, maker of the Zoe electric car, predicts total ownership costs of EVs will by the early 2020s equal conventional internal combustion engine vehicles (known in the trade as ICE), according to Gilles Normand, the French company’s senior vice president for electric vehicles.
“We have two curves,” Normand said in an interview earlier this month in London. “One is EV technology cost reductions because there are more breakthroughs in the cost of technology and more volume, so the cost of EVs will go down. ICE going to go up as a result of more stringent regulations especially regarding to particulate regulations.”

Falling out of love with the car: these cities have seen the biggest drop in vehicle numbers

Experts have been predicting the demise of car ownership for a long time now. They see a future where the majority of city dwellers get from A to B on public transport, bicycles, or by renting a shared car (probably self-driving and electric) via their smartphone.
But in some cities in the developed world, the car is already in decline.

Where are car numbers stalling?

Euromonitor International’s Top City Destinations Ranking includes a section on cities that saw the biggest falls in car numbers between 2010 and 2015.
According to the report, Boston saw the biggest reduction, with around 9% fewer cars during the five-year period. Osaka was next with roughly 7%, and then Rome with around 6%.
Image: Euromonitor International

Why is it happening?

The Euromonitor report says the fall in car use in these cities is partly because people are opting to live in city centres instead of the suburbs, and are choosing to walk or cycle to work.
It also notes the rising popularity of alternatives to ownership such as car-sharing and ride-hailing services such as Uber and Lyft.
At the same time, countries including the USUK and Australia have recorded a drop in the number of people obtaining driving licences.
Change is also being driven by city authorities. Traditional urban transport systems are being modernized with the use of smartphone-integrated solutions, such as apps that tells you when the next bus is due to arrive at your nearest bus stop.

Despite this trend, some developed cities are still blighted by congestion and air pollution, as the chart below shows. Rome, where passenger car numbers fell by 6% between 2010 and 2015, was declared Europe’s fifth most congested city in 2015 in a report by TomTom.

Image: Euromonitor Internatinal from TomTom
The report says authorities are turning to innovative urban planning and alternative forms of transport as a way to tackle congestion and air pollution.
In Miami and Boston, for example, more restaurants, shopping and entertainment venues have been popping up in locations that are accessed most easily by walking and/or on public transport.
Many cities have also grasped the social, health, economic and environmental benefits of cycling and have invested in infrastructure to support it.

Where bikes rule the roads

In 2015, Copenhagen, the world’s most bike-friendly city, reported that, for the first time, the number of bikes entering the city centre daily exceeded the number of cars. Over the year, 252,600 cars and 265,700 bikes made their way into the city every day.

India will sell only electric cars within the next 13 years

Every car sold in India from 2030 will be electric, under new government plans that have delighted environmentalists and dismayed the oil industry.
It’s hoped that by ridding India’s roads of petrol and diesel cars in the years ahead, the country will be able to reduce the harmful levels of air pollution that contribute to a staggering 1.2 million deaths per year.
India’s booming economy has seen it become the world’s third-largest oil importer, shelling out $150 billion annually for the resource – so a switch to electric-powered vehicles would put a sizable dent in demand for oil. It’s been calculated that the revolutionary move would save the country $60 billion in energy costs by 2030, while also reducing running costs for millions of Indian car owners.
Image: Bloomberg
India’s Energy Minister Piyush Goyal says the government will financially support the initiative for the first two or three years, but the production of electric vehicles will be “driven by demand and not subsidy” after that.

Air pollution a big problem in India
More than a million people die in India every year as a result of breathing in toxic fumes, with an investigation by Greenpeace finding that the number of deaths caused by air pollution is only a fraction less than the number of smoking-related deaths.
The investigation also found that 3% of the country's gross domestic product was lost due to the levels of toxic smog.
In 2014, the World Health Organization determined that out of the 20 global cities with the most air pollution, 13 are in India.
Efforts have been made by the country’s leaders to to improve air quality, with one example coming in January 2016 when New Delhi’s government mandatedthat men could only drive their cars on alternate days depending on whether their registration plate ended with an odd or even number (single women were permitted to drive every day).
While such interventions have enjoyed modest success, switching to a fleet of purely electric cars would have a much greater environmental impact.
Indeed, it’s been calculated that the gradual switch to electric vehicles across India would decrease carbon emissions by 37% by 2030.
Oil firms facing uncertain future
As India’s ambitious electric vehicle plans begin to take shape, oil exporters will be frantically revising their calculations for oil demand in the region.
In its report into the impact of electric cars on oil demand, oil and gas giant BP forecast that the global fleet of petrol and diesel cars would almost double from about 900 million in 2015 to 1.7 billion by 2035.
Image: BP
Almost 90% of that growth was estimated to come from countries that are not members of the OECD (Organisation for Economic Co-operation and Development), such as India and China.
China is also gearing up for a move away from gas-guzzling cars.
Last month, the Chinese confirmed they intend to push ahead with plans that will see alternative fuel vehicles account for at least one-fifth of the 35 million annual vehicle sales projected, by 2025.
Oil bosses claim it’s too early to tell what the implications of a move away from petrol and diesel cars will be. However, Asia has long been the main driver of future oil demand and so developments in India and China will be watched extremely closely.

Monday, May 22, 2017

Battery component maker to boost production sixfold

Belgian battery component maker Umicore will invest €300m to increase its production for lithium-ion batteries sixfold by 2020, due to growth in demand for electric vehicles. The extra capacity will be to meet demand from Chinese electric cars and buses, and European carmakers, which are expanding electric car fleets, the company’s chief executive said. Umicore said demand for the company’s battery materials is “outpacing the market by a significant margin and the increased capacity will enable Umicore to cater for a surge in customer orders”. The money will be invested in Umicore’s plant in South Korea and in Jiangmen in China, it said, with first production lines expected to be commissioned in late 2018. Along with a $160m investment plan announced last year, the additional $300m will result in a more than sixfold increase in total capacity by 2020 compared with 2015. The company, which can trace its roots to the Congolese mining company Union Minière, which was founded in 1906, has for 15 years helped supply material for mobile phone batteries. It now aims to double earnings by 2020 and capture the growing market for electric vehicles. The company’s shares have risen 26 per cent over the past year and rose 3 per cent on Monday to €56.61. Marc Grynberg, Umicore’s chief executive, said it had benefited from “ethical” sourcing of cobalt, a key battery material, amid growing scrutiny over cobalt supply from the Democratic Republic of Congo. Last year, Amnesty International issued a report saying very few companies “are taking steps to meet even the most basic due diligence requirements” when it came to sourcing of cobalt from the DRC for batteries. “We have a definite competitive advantage from having this widespread effort in sourcing cobalt in an ethical manner more than 12 years ago,” Mr Grynberg said. “Even though other people are now trying to clean up their own supply chain it will take time to get there.” Analysts at Liberum estimate that the market for cathodes in electric vehicle batteries will grow by five times in the next five years to $4bn and Umicore will capture about 20 per cent of the market. The cathode is key to how much power a battery can store. While battery makers are aiming to reduce costs of the materials by reducing metals such as cobalt, the company will benefit from growing average size of batteries in electric cars that gives them greater range, Adam Collins, an analyst at Liberum said. Umicore makes cathode materials for nickel-manganese-cobalt (NMC) batteries, which are widely used in electric cars. The company supplies major battery companies such as LG Chem, Samsung SDI and China’s BYD, according to Liberum.

Friday, May 19, 2017

China Is the Future of the Sharing Economy

It's been an excellent few months for startups in China's sharing economy. Perhaps too good. The bike-sharing industry landed its first unicorn, and companies that allow phone users to share battery packs have raised at least $150 million in recent weeks. But at the same time, one startup recently announced that it expects to share at least 500,000 umbrellas in Guangzhou this year while a Jiaxing-based basketball-sharing company is getting positive coverage in the state media. No doubt, given the hype, they won't have trouble securing funding. 
It's easy to mock such businesses. (Just ask Kobe Bryant if anyone wants to share a basketball.) But even as money is wasted and companies merge or go bust, the sharing model looks to have a brighter future in China than almost anywhere else.
Homegrown ride-sharing and home-sharing companies emerged in China early this decade, shortly after Uber Inc. and Airbnb Inc. launched in the U.S. The industry has boomed ever since. According to the Chinese government's sharing-economy research office (there really is such a thing), 600 million Chinese conducted business worth $500 billion in the sector in 2016, up 103 percent over 2015.
Numbers like that attract investors: Chinese sharing companies raised almost $25 billion last year. The sector has grown well beyond cars and apartments: Bike sharing has been one of the country's most visible -- and bubbly -- destinations for venture capital over the last few months. Even as much of the Chinese economy is slowing or stalling, the government expects China's sharing economy to account for 10 percent of GDP by 2020.
Three factors justify that optimism. The first is China's demographic profile. At one end of the spectrum, China's millennials are the engine for the country's world-beating e-commerce industry and the sharing economy that's grown out of it. Rather than splurge on a car -- or even a phone battery pack -- many Chinese youth would prefer to save money for lifestyle experiences such as travel, or to seed their own startups. At the same time, Chinese seniors lack a strong social safety net and are thus dependent upon the support of children and grandchildren. They can also personally remember an earlier, harsher China. Unsurprisingly, they're by nature more frugal, which makes sharing assets more appealing.
The second factor is the rapidly changing nature of Chinese consumption. Skeptical about product safety, faced with rising home prices and burdened by the responsibility of caring for those aging parents, middle-class Chinese report they're becoming more discriminating in how they spend their money. That's propelling a well-documented shift away from mass-market products toward premium products and services. This has a twofold effect. First, money that might have been spent on, say, a car, is instead saved by ride-sharing and applied to other, premium purchases. Second, sharing enables access to premium experiences -- say, via a very good home share during a vacation. Interestingly, this trend parallels the growth of a rich, e-commerce based trade in secondhand goods (in effect, long-term sharing businesses), including luxury items like Gucci handbags.
The third and most important factor is the Chinese consumer's embrace of mobile payment systems such Alibaba Group Holding Ltd.'s AliPay and Apple Inc.'s ApplePay. Chinese mobile-based payments were 50 times greater than those in the U.S. in 2016. These days, it's commonplace to see Chinese consumers waving their phones in front of a payment terminal, or scanning a QR code to complete a transaction which, in many cases, might be for a very small sum. (A typical Chinese bike-share requires payments that range from $0.07 to $0.14 per 30-minute ride.) Little wonder that some investors might think that an umbrella-sharing service could be viable. 
This welcoming climate means many of the world's innovations in sharing businesses may start coming out of China, rather than Silicon Valley. Already Chinese bike-sharing companies are expanding into and being copied in Southeast Asia, spreading a business model built for China's peculiar transportation challenges. And soon China's vast manufacturing base may give rise to an app-based sharing economy of its own, providing small manufacturers access to 3D printers and other equipment. Sure, there will be boondoggles and busts along the way. But one day, China may be the one teaching the world how to share.

From Hair Oil to Cement, India Revamps Taxes: Winners and Losers

The wait is over: India has cleared the way for the biggest tax reform since independence in 1947.
The main beneficiaries of the new goods and services tax, due to be rolled out on July 1, include steelmakers and some consumer goods, though personal care items including sanitary ware will be taxed at the top rate, along with appliances such as air conditioners.
Here’s a look at the winners and losers:

Fast-Moving Consumer Goods

The sector is a clear winner. Consumer staples including milk, fruits and vegetables, grain and cereals have been exempted. Sugar, tea, coffee and edible oil will be taxed the lowest rate of 5 percent. Companies that may gain include Hindustan Unilever, Nestle India and Dabur India. 
Personal-care items to be taxed at 28 percent, save for hair oil, soaps and toothpaste, which will attract an 18 percent levy. This would impact Colgate-Palmolive IndiaGodrej Consumer ProductsMarico and Gillette India. 
Smokers be warned: cigarettes will attract a tax of 5 percent on top of the peak GST rate of 28 percent. ITC, Godfrey Phillips and VST may pass on the higher costs.


Here the impact is likely to be marginal. Vehicles already attract different levies, which add up to 28 percent -- the peak GST rate fixed for the sector. Gains derived from a unified tax system may still be passed on to consumers, analysts say. Maruti Suzuki IndiaTata Motors and Mahindra and Mahindra could benefit.

Consumer Durables

Appliances such as air-conditioners, refrigerators and washing machines will attract the peak rate, which is slightly higher than the existing tax slab. Companies may increase prices to preserve margins, Nirmal Bang Equities said in a note. Whirlpool of India, Voltas and Havells India could be impacted.

Metals, Cement

A reduction in tax on coal and metal ore to 5 percent will cut input costs for steelmakers, benefiting companies including JSW SteelVedanta, Tata Steel and Hindalco Industries. 
Cement makers including ACC and UltraTech Cement may increase prices to offset the impact of the peak rate, though a lower tax on coal is expected to cushion the blow.

Renewable Energy

A 5 percent tax rate on equipment like solar panels and wind turbines may help keep a lid on project costs for developers such as Inox Wind and Suzlon Energy.

Wednesday, May 17, 2017

Digital Revolution Clears Hurdles for Asia's Emerging Economies

Asia’s emerging economies are embracing the digital revolution.
From the Philippines to Indonesia, developing nations across the region are jumping on the digital bandwagon faster than expected given their relatively low income levels, according to a new report by Deloitte LLP.
For economic policy makers, the shift matters. Governments, businesses and consumers are using digital technologies to leapfrog development hurdles. In India--which already has more Facebook users than the U.S.--digital transactions jumped 59 percent in March from December last year, the first month after the government announced a demonetization plan last year, Deloitte said.
In Indonesia, there are 1.3 mobile phones per capita in the country and most Internet users prefer mobile access, boding well for greater connectivity between government services and the wider populace; Indonesia also has more Twitter users than the U.K., Deloitte estimates show.
“Asia has become the center of global economic growth and by embracing digital, it will continue to lead global economic growth over the coming decade,” Deloitte said. 
China is now the world’s largest e-commerce market, while Singapore and other Asian countries have been gaining ground in the global competition for attracting and developing business talent amid a drive to build high-tech hubs.
Growth potential is still significant across multiple industries in poorer nations, Deloitte notes. In Indonesia fewer than one in 10 small businesses describe themselves as having advanced online capabilities while 73 percent are offline or have very basic online capabilities.
At the same time, the Philippines, India and Indonesia still have some of the lowest digital banking penetration rates in Asia.

Mom-and-Pop Joints Are Trouncing America's Big Restaurant Chains

There’s a limit to unlimited breadsticks after all.
Americans are rejecting the consistency of national restaurant chains after decades of dominance in favor of the authenticity of locally owned eateries, with their daily specials and Mom’s watercolors decorating the walls.
It’s a turning point in the history of American restaurants, according to Darren Tristano, chief insights officer at Chicago-based restaurant research firm Technomic.
“This really seems to be the dawning of the era of the independent,” Tristano said. “The independents and small chains are now outperforming. The big chains are now lagging.”
Free-marketing websites, such as Yelp Inc., have boosted the fortunes of independents in the age of McDonald’s, Cracker Barrel, Domino’s, Taco Bell, Olive Garden -- the list goes on. In a shift, annual revenue for independents will grow about 5 percent through 2020, while the growth for chains will be about 3 percent, according to Pentallect Inc., an industry researcher in Chicago. Sales at the top 500 U.S. chains rose 3.6 percent last year. The gains were larger, 3.9 percent, for the whole industry, Technomic data show.

Closing Locations

It’s not that Wendy’s Baconator or the Grand Slam Slugger Breakfast from Denny’s will soon go the way of the dodo. But some national chains are feeling the pain amid dismal sales. Subway Restaurants, the biggest U.S. food chain by number of locations, saw the number of domestic outlets declinefor the first time ever last year. Noodles & Co. and Red Robin Gourmet Burgers Inc. are shutting locations after failing to attract customers. Applebee’s, owned by DineEquity Inc., reported same-store sales tumbled almost 8 percent in its latest quarter, and casual-dining chain Ruby Tuesday Inc. said in March it may sell itself after a prolonged slump.

Large chains seem rooted in the American experience. But times, and tastes, are changing. Customers these days believe locals have better food, service, deals and even decor, the Pentallect report said.
Sales are reflecting that. Last year, revenue was up 20 percent at DineAmic Group in Chicago, which owns nine different restaurants.

Honors System At Chicago’s Brown Bag Seafood Co., where sales jumped 63 percent in 2016, lunch customers can grab a cookie out of the “honors system” mailbox for just $1. There are homey touches, like a watercolor painting of the Clark Street Beach in nearby Evanston, Illinois, that founder Donna Lee’s mother painted. 

Lee started Brown Bag in 2014 after realizing chains didn’t do it for her. “It feels like you’re there only and solely to get your food quickly and get out the door,” she said. “There really is no charm.” Brown Bag’s top seller is its daily-catch powerbox with grilled fish -- barramundi was on the menu on a recent weekday -- served atop quinoa, wild rice and spinach for $9.99. A nearby Panera Bread Co., which has more than 2,000 locations in 46 states and Canada, charges the same price for a strawberry poppyseed salad with chicken.

Maggiano’s has new menu items and meals that cater to customers’ allergies and diets -- think vegetarian, vegan and the occasional gluten-free ravioli. The chain updated its menu to include executive chef photos and short bios, and in February it introduced an emblem of millennial hip: brunch.Some chains are trying to imitate the success of smaller, independent brands. At Maggiano’s Little Italy, which has 52 locations and is owned by Chili’s parent Brinker International Inc., traffic has been on the wane. Same-store sales dropped 1.6 percent in the most recent quarter for the fourth-straight decline.

“The experience of dining out has become much more important than it was before,” said Larry Konecny, chief concept officer.

Bullish on Mom

Restaurant suppliers also have noted the trend. Diners prefer the experience, service and value offered by independent restaurants, Pietro Satriano, chief executive officer of US Foods Holding Corp., said during a conference call this month. “Growth with independents was very solid” in the latest quarter, he said.
While national chains advertise like crazy, mom and pops depend mostly on word of mouth and Yelp reviews.
“It’s not the same barriers to entry that there were, that if you put up this group of restaurants that you have to have this big TV campaign. No, you don’t,” said John Gordon, restaurant and franchisee consultant at Pacific Management Consulting Group in San Diego.
It’s “authentic” and Instagram-able experiences that diners are searching for these days, Gordon said. “It’s not experiential to sit in a rundown McDonald’s.”