Posts Tagged ‘financial crisis’

STEEL … “ECONOMIC POINTER TO GLOBAL RECOVERY”

Steel, the backbone of infrastructure, has shown wild swings in its prices globally. Steel long prices in NCDEX have shown volatile movement from  January’10 till April’10 this year as prices which were trading around Rs 29000 per tonnes in January’10 plunged below Rs 24000 per tonnes in mid February’10 but it again jumped above Rs 29000 in the beginning of April and again melted nearly to Rs 25000 per tonnes tracking jittery stock market and European debt crises. Greek financial crisis is likely to impact the global economy and industry in Europe thereby denting the demand in this favorite destination of steel flat products.

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On the domestic front due to recovery in automobile, consumer goods and infrastructure sector finished steel registered a growth of 9.2% in March 2010 as against a negative result of 1.8% in March last year. The rise in input costs (iron ore prices shooting up by over 90% and coking coal prices rising by around 55%) coupled with steady demand is the prime reason for the prices recovery. But the rise in steel products prices, especially flat products is bound to affect the prices of the end user industries like automobiles, air conditioners, refrigerators and so on, leading to further inflation in India.

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The basic raw material of steel, the coking coal, has acute shortage of premium quality and the demand is mostly met through imports in India. Generally, India exports iron ore mainly to China but in recent days it has been seen that India is importing iron ore and the demand for Iron ore is increasing here. The share of total Chinese iron ore imports has decreased, from 22.92% in 2006, 20.73% in 2007, 20.51% in 2008, to 17.71% in 2009. Going forward, the increasing demand for iron ore in India will stimulate the Indian government and enterprises to invest in the steel industry.

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According to Indian Steel Minister Virbhadra Singh “Government is aiming to achieve a 120 to 125 million tonnes of steel production in the country by 2011-2012 with major chunk being provided by the public sector” India is both importer and exporter of steel. During the month of January and February 2010, India imported 510,000 mt of steel products from China, up 351.57 percent year on year basis. In the years 2006 to 2009, China imported 74.78 million mt, 79.53 million mt, 91.04 million mt and 107 million mt from India, marking respective increases of 9.08%, 6.36%, 14.47% and 18.08% respectively..

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Outlook: According to World Steel Association the apparent steel use will increase by 10.7% to 1,241 mmt in 2010 after contracting by -6.7% in 2009. This represents an improved figure over the Autumn 2009 forecast for both 2009 and 2010. With these projections, world steel demand in 2010 will exceed pre-crisis levels of 2007. In 2011, it is forecasted that world steel demand will grow by 5.3% to reach a historical high of 1,306 mmt. The resilience of the emerging economies, especially China, has been the critical factor enabling the earlier than expected recovery of world steel demand.

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The outlook of the global steel industry in 2010 looks positive based on the below written reasons:

First, Chinese steel production and demand are likely to continue their relentless rise. Government stimulus packages from China to increase consumer demand for cars and home appliances have supported the demand. Perhaps, more importantly, the state is funding massive construction in the West of the country and immense infrastructure projects for rail, road and bridges in the East. This could lift steel output to above 600 million tonnes in 2010.

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Second, Indian steel manufacturing will reach an “all time” high this year, after another peak outturn in the previous twelve months period. New record steel production rates are also likely to be set in several other countries, including, Turkey and several Middle Eastern countries.

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Most of the steel boom will come from the developing nations of the World. However, manufacturing activity in many of the industrialized countries is starting to improve. This will add to the rise in steel production this year.

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According to world steel association “Global steel output in 2010 is forecast at 1,350 million tonnes. This represents an 11.1 percent increase on the anticipated 2009 outturn, which in turn, will be 8.4 percent below the figure recorded in the previous twelve months”.

According to industry and government officials at the OECD’s Steel Committee, the global steel industry is recovering faster than expected from the recession but the strength and timing of the upturn varies across regions and further improvements are expected in the short term although it may take years for some parts of the sector to fully recover.

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Finally steel long in NCDEX may remain sideways in near term considering the jittery situation in euro zone and tumbling stock markets. But it is expected to show recovery faster than expected as seen in recent past and the prices can scale higher towards Rs 28000 in third quarter of this year after taking support at Rs 22000- 23000 per tonnes.

PM Adviosry Panel Suggests Drop in Inflation Rate to 7%

PM Adviosry Panel Suggests Drop in Inflation Rate to 7% by March End

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The Prime Minister”s advisory panel said inflation could fall to 7% by fiscal-end, in the midst of projection that inflation could touch the double-digit mark.

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However, noting that food prices which have pushed inflation to 7.31% for December are expected to ease in the coming months stated PMEAC Chairman C Rangarajan.

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Whereas, the Reserve Bank of India (RBI) should take some money control measures to tame the rising prices.

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Meanwhile, his optimism is in contrast to alarming projections given by market analysts.

Citi said that if the uptrend seen in fuel and metals continues, inflation could enter the double-digit range in the coming months.

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HDFC Bank Economists stated that inflation is expected to touch 8.5% by March-end.

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Moreover, Rangarajan said the rise in inflation is mainly because of the increase in prices of food articles, which is largely due to supply shortfalls.

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Rangarajan expected the RBI to take back some special refinance facilities from the system while the RBI has projected inflation to be around 6.5% by this fiscal-end.

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The RBI had offered refinance facility to various sectors of the economy, faced with credit squeeze in the economy due to financial crisis that broke out in September 2008.

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RBI Emphasizes on Managing the Economic Recovery, For Now :)

RBI emphasizes more on Managing economic Recovery

 

The Reserve Bank of India, country”s Central bank, has said that managing economic recovery is now its focus area and the first phase of monetary tightening will arrest inflation without hurting growth.

RBI Executive Director Deepak Mohanty was found quoting  that at present, the focus around the world and also in India has shifted from managing the crisis to managing the recovery.

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He said that withdrawing soft monetary policy, which was initiated to weather the financial crisis is the key challenge.

“The key challenge relates to the exit strategy that needs to be designed, considering that the recovery is as yet fragile but there is an uptick in inflation, though largely from the supply side, which could engender inflationary expectations,” he said.

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Besides this, Mohanty said that the first phase of exit has been initiated by RBI in its monetary policy review in October 2009.

That was done mainly by withdrawal of unconventional measures taken during the crisis.

RBI, in its monetary review in October has raised the requirement for banks to hold portion of the deposits in cash, gold and government securities to 25 per cent.

Moreover, it had also done away with special liquidity provision for banks to provide money to mutual funds and others.

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RBI to Assess Affairs of Foreign Banks Operating in India

RBI to Assess Affairs of Foreign Banks Operating in India

RBI to Assess Affairs of Foreign Banks Operating in India

The Reserve Bank of India (RBI) decided to run a detailed assessment of the risk-management capabilities and evaluate the transparency in financial affairs of all foreign banks operating in India with an aim to ensure that they do not pose any systemic risk to the banking sector.

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However, until this process is finished, foreign banks are doubtful to be permitted to open more branches in India while India has committed to allowing 12 new branches to foreign banks in a year, but has been more liberal.


Moreover, this has resulted in a high presence of foreign banks in India as their WTO commitment allows them to deny licenses to foreign banks once their share in the total assets of the banking system exceeds 15%.


Additionally, as it comes in the aftermath of the financial crisis, the audit reflects concerns over an unduly large presence of foreign banks creating risks for Indian financial markets.


Meanwhile, the finance ministry and the central bank had always supported allowing foreign banks to operate in India as they thought that increased presence of foreign banks boosts the efficiency of the domestic banking sector.

Corporate Bonds to be Routed through Clearing Houses: SEBI

Trade in corporate bonds would have to be routed through clearing houses from very soon

Trade in corporate bonds would have to be routed through clearing houses from very soon

Market regulator SEBI has said that trade in corporate bonds would have to be routed through clearing corporations from December 1, a move that experts say would check factors that aggravated financial crisis.

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Directives of the Sebi will be applicable to corporate bond trading that are not currently settled through clearing corporations or clearing houses of stock exchanges.

“It has now been decided that, all trades in corporate bonds between specified entities shall necessarily be cleared and settled through the National Securities Clearing Corp (NSCCL) or Indian Clearing Corp (ICCL),” it said.

The specified entities are mutual funds, foreign institutional investors/ sub-accounts, venture capital funds, foreign venture capital investors, portfolio managers, and RBI regulated entities, the Sebi said.

“The provisions of this circular shall be applicable to all corporate bonds traded Over The Counter (OTC) or on debt segment of stock exchanges on or after Dec 01, 2009,” it said.

SMC Capitals Equity Head Jagannadham Thunuguntla said, “It is a learning from the global financial crisis.  One of the major reasons for the crisis to be so severe was that many fancy financial instruments were traded OTC with no records.”

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