Friday, January 12, 2018

Coffee output in Honduras poised to shake up market

A surprise bumper crop in Honduras is set to shake up the arabica coffee market as prospects of a new record high for output in the Central American country is damping enthusiasm for prices of the commodity. Coffee production in Honduras overtook Ethiopia as the third-largest arabica producer last year behind Brazil and Colombia. Export volumes in the new 2017-18 crop year, which started in October, have wrongfooted analysts and traders, who had been expecting a decline in its production following record output in the previous 12 months. “Sales from Honduras have been strong and above last year’s level,” said Carlos Mera, coffee analyst at Rabobank, the Dutch bank that lends to a wide range of agricultural businesses. Prospects of higher Honduran output this year, alongside that of other Central American producers Nicaragua and Costa Rica, as well as Vietnam, are weighing on coffee prices, which were expected to see an uplift from this week’s reweighting of commodities indices. Rabobank was originally forecasting the country’s 2017-18 output to total 6.5m 60kg bags, down from an all-time high of 7.2m, but has revised its estimate to a new record of 7.3m. Share this graphic Coffee trees tend to have an “on-year” where they produce a higher crop, followed by an “off-year” where the trees undergo a recovery process and produce less. Many analysts had expected 2017-18 to be an “off-year” but official sales and export figures since October have indicated that this year’s output could overtake the previous record. The US Department of Agriculture last month revised its Honduran output forecast from 6.5m bags to 7.4m. Together with higher-than-expected production from Uganda, 2016-17 exports from Honduras helped boost world supplies, leading to record bets against coffee. Arabica coffee closed down 8 per cent in 2017 with the commodity the third-worst performer in the asset class in terms of total returns with a loss of 16 per cent. Share this graphic The two main commodity benchmarks, the S&P GSCI and the BCom, are carrying out their annual reweighting this week. Sugar, coffee and soyabeans were expected to be among the leading beneficiaries, with coffee likely to see inflows of $350m as those invested in the indices buy the commodity to adjust their holdings to the target weight, said analysts at Citigroup. However, the arabica coffee price, which started 2018 at $1.2855 a pound, is trading at $1.2595 after rising to $1.335 last week. The current Honduran coffee production is a result of the new trees that were planted after Central American producers were hit by the devastating spread of coffee rust disease, according to Rodrigo Costa at coffee merchants Comexim. Before the outbreak of coffee leaf rust, production in Honduras grew at about 6.8 per cent a year, reaching 5.9m bags in 2011-12. Share this graphic After falling sharply over the next two crop years, a tree replanting programme and technical training for farmers have helped output, with production rising by more than 12 per cent a year since 2014-15.

Wednesday, January 10, 2018

Most ‘Wealth’ Isn’t the Result of Hard Work. It Has Been Accumulated by Being Idle and Unproductive.

One of the basic claims of capitalism is that people are rewarded in line with their effort and productivity. Another is that the economy is not a zero sum game. The beauty of a capitalist economy, we are told, is that people who work hard can get rich without making others poorer.
But how does this stack up in modern Britain, the birthplace of capitalism and many of its early theorists? Last week, the Office for National Statistics (ONS) released new data tracking how wealth has evolved over time. On paper, the UK has indeed become much wealthier in recent decades. Net wealth has more than tripled since 1995, increasing by over £7 trillion. This is equivalent to an average increase of nearly £100,000 per person. Impressive stuff. But where has all this wealth come from, and who has it benefitted?
Just over £5 trillion, or three quarters of the total increase, is accounted for by increase in the value of dwellings – another name for the UK housing stock. The Office for National Statistics explains that this is “largely due to increases in house prices rather than a change in the volume of dwellings.” This alone is not particularly surprising. We are forever told about the importance of ‘getting a foot on the property ladder’. The housing market has long been viewed as a perennial source of wealth.
But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. This year the ONS has separated out these two components for the first time, and the results are quite astounding.
In just two decades the market value of land has quadrupled, increasing recorded wealth by over £4 trillion. The driving force behind rising house prices — and the UK’s growing wealth — has been rapidly escalating land prices.
For those who own property, this has provided enormous benefits. According to the Resolution Foundation, homeowners born in the 1940s and 1950s gained an unearned windfall of £80,000 between 1993 and 2014 alone. In the early 2000s, house price growth was so great that 17% of working-age adults earned more from their house than from their job.
Last week The Times reported that during the past three months alone, baby boomers converted £850 million of housing wealth into cash using equity release products – the highest number since records began. A third used the money to buy cars, while more than a quarter used it to fund holidays. Others are choosing to buy more property: the Chartered Institute of Housing has describedhow the buy-to-let market is being fuelled by older households using their housing wealth to buy more property, renting it out to those who are unable to get a foot on the property ladder. And it is here that we find the dark side of the housing boom.
As house prices have continued to increase and the gap between house prices and earnings has grown larger, the cost of homeownership has become increasingly prohibitive. Whereas in the mid-1990s low and middle income households could afford a first time buyer deposit after saving for around 3 years, today it takes the same households 20 years to save for a deposit. Many have increasingly found themselves with little choice but to rent privately. For those stuck in the private rental market, the proportion of income spent on housing costs has risen from around 10% in 1980 to 36% today. Unlike homeowners, there is no asset wealth to draw on to fund new cars or holidays.
In Britain, we have yet to confront the truth about the trillions of pounds of wealth amassed through the housing market in recent decades: this wealth has come straight out of the pockets of those who don’t own property.
When the value of a house goes up, the total productive capacity of the economy is unchanged because nothing new has been produced: it merely constitutes an increase in the value of the land underneath. We have known since the days of Adam Smith and David Ricardo that land is not a source of wealth but of economic rent — a means of extracting wealth from others. Or as Joseph Stiglitz puts it “getting a larger share of the pie rather than increasing the size of the pie”. The truth is that much of the wealth accumulated in recent decades has been gained at the expense of those who will see more of their incomes eaten up by higher rents and larger mortgage payments. This wealth hasn’t been ‘created’ – it has been stolen from future generations.
House prices are now on average nearly eight times that of incomes, more than double the figure of 20 years ago. It’s unlikely that house prices will be able to outpace incomes at the same rate for the next 20 years. The past few decades have spawned a one-off transfer of wealth that is unlikely to be repeated. While the main beneficiaries of this have been the older generations, eventually this will be passed on to the next generation via inheritance or transfer. Already the ‘Bank of Mum and Dad’ has become the ninth biggest mortgage lender. The ultimate result is not just a growing intergenerational divide, but an entrenched class divide between those who own property (or have a claim to it), and those who do not.
Misleading accounting and irresponsible economics have provided cover for this heist. The government’s national accounts record house price growth as new wealth, ignoring the cost it imposes on others in society – particularly young people and those yet to be born. Economists still hail house price inflation as a sign of economic strength.
The result is a world which is rather different to that described in economics textbooks. Most of today’s ‘wealth’ isn’t the result of entrepreneurialism and hard work – it has been accumulated by being idle and unproductive. Far from the positive sum game capitalism is supposed to be, we have a system where most wealth is gained at the expense of others. As John Stuart Mill wrote back in 1848:
“If some of us grow rich in our sleep, where do we think this wealth is coming from?  It doesn’t materialise out of thin air. It doesn’t come without costing someone, another human being. It comes from the fruits of others’ labours, which they don’t receive.”
Britain’s housing crisis is complicated mess. Fixing it requires a long-term plan and a bold new approach to policy. But in the meantime let’s start calling it what it really is: the largest transfer of wealth in living memory.

Monday, January 8, 2018

In AP capital, blockchain technology secures land records

Dealing with land records may have once been the stuff of nightmares, but not any more, according to a Visakhapatnam-based firm.
Often, the common man fears being duped with fake land certificates. This is where blockchain technology could come in handy, says Zebi Data India.
“We will authenticate the credentials of users, allow them to access the records and give them a certificate. No one can tamper with the database. The buyers, too, can access relevant information on registering with their credentials,” said Babu Munagala, Founder and CEO of Zebi Data India.
This data can be verified without any human intervention, giving no scope for manipulation or copying of sensitive information by unscrupulous insiders or external hackers.
The fintech firm, which has just 23 employees, has built a solution that is being used in Amaravati, the Capital region of Andhra Pradesh. About one lakh land records with the CRDA (Capital Regional Development Authority) now have blockchain protection. “We are hosting the data of these records on the CRDA cloud at Amaravati,” Munagala said.
Andhra Pradesh has thus emerged as the country’s first public entity to use blockchain-enabled security for land records.
Munagala said Zebi Data’s maiden blockchain solution has two components. While Zebi Chain offers immutability to critical records, the central hub, Zebi Data Gateway, enables secure and instant data exchange.
Blockchain has wide application beyond the fields of banking and financial services, where it is being extensively used, Munagala said. It has applications in securing employee databases, health and salary records, pension payments and education.
Eyeing the $5-billion market for blockchain-based solutions in the country, the firm is now looking to expand its operations. After bagging the AP government order, the firm is now in talks with six players, in the public and private spaces.
“We have raised ₹10 crore in the angel round. We are looking to raise more funds to support growth plans as we expand our operations to tap the unfolding opportunities in this area,” Munagala said.

China’s Electric Car Market Has Grown Up

Those skeptical of China’s booming electric-vehicle sales say they’ve been built on hefty subsidies and other policy support—and that the market will tank once Beijing taps the brakes. But the naysayers have been proven wrong so far. Even though Beijing cut subsidies for electric-vehicle makers by as much as 40% during last year and imposed tougher technological standards, Chinese electric-car sales rose more than 80% from a year earlier in November. Both production and sales of electric cars were up about 50% in the first 11 months of last year.
The strong demand looks here to stay. About one in three Chinese people now say they are considering buying an electric car, according to a recent survey by UBS , a steady increase from 2016. Many say they would be happy to pay as much or even more for an electric car than a regular vehicle.
In turn, China has become the industry’s clear global leader: 40% of global investment in electric vehicles happens there. One company—BAIC , a unit of Beijing Automotive—sold nearly 16,000 battery-electric cars in November, or 16% of all battery electric vehicles sold that month world-wide. Consumers in other countries are following China’s lead. The UBS survey found buyers in Europe and Japan are also more likely to buy an electric car. The U.S. is now the only outlier.  
Skeptics can still rightly point out that state support in China remains high. Beijing’s latest so-called “new energy vehicle” policy, unveiled late last month, contained no further tightening of subsidies. A three-year-old incentive that waives purchase taxes on electric cars was extended for another three years last week. Government offices are still being asked to buy electric vehicles en masse.
But while it’s true that supportive policies have brought forward some demand for electric vehicles, any eventual withdrawal now seems unlikely to spark a market collapse, given the solid bedrock of demand. China’s carrot-and-stick approach has also ensured that every auto maker there will produce an electric car by 2019.
That backdrop should give confidence to investors who have seen shares in companies like Warren Buffett backed- BYD fluctuate over the past year on talk of policy changes. Investors looking for other Chinese companies exposed to electric vehicles could consider Shenzhen-listed Guoxuan , a maker of batteries for electric cars that trades at 13.1 times expected earnings, or Hong Kong-listed Minth Group , a car-parts maker that is venturing into electric cars and trades at 13.9 times—both are broadly in line with peers. Like it or not, China is leading the way in the rush to go green.

Asia powers demand for thermal coal

Thermal coal, the least loved major commodity, has jumped to its highest level since late 2016 as strong manufacturing activity in Asia and appetite from China drives demand. Thermal coal is burnt to generate electricity, and is a big source of income for miners such as Glencore, Whitehaven and Yancoal, which produce material for the seaborne market. While the fossil fuel is being phased out in Europe on environmental grounds, it still accounts for about 40 per cent of energy consumption in emerging markets. Its fortunes are therefore closely tied to manufacturing activity and the global economy, which most forecasters believe is enjoying the strongest period of expansion since the financial crisis. Indeed, coal-fired power generation rose in most of Asia’s major economies last year, boosting demand, according to BMO Capital Markets. “Thermal coal — once again it is powering Asian growth and urbanisation,” said Glencore’s chief executive Ivan Glasenberg. “It’s another commodity where there’s been under-investment over the years.” Australian coal with an energy content of 6,000 kcal/kg — benchmark for the vast Asia market — is trading at $103 a tonne, according to a price assessment from Argus Media. Six months ago it was just above $80 a tonne. On the supply side, big new thermal coal mines are not in the works and projects are becoming more difficult to finance as banks and investors fret about their environmental credentials. This has helped tighten the market and drive up prices. Of the new tonnes that are entering the market, traders say much of this is lower quality material from Indonesia that does not have a high calorific value and is not favoured by big utility companies in Asia. As well as the strength of the Asia industrial cycle, other factors have helped boost thermal coal prices across the region, analysts say. China is allowing more coal-fired power generation this winter because of gas shortages and has loosened import restrictions. Domestic production in India has yet to pick up meaningfully, forcing it to buy from overseas and there is heavy congestion at ports in Australia, one of the world’s biggest suppliers. “Supply is still very tight, probably not going to catch up with demand easily in January and February,” said Shirley Zhang, principal analyst at Wood Mackenzie. Traders reckon thermal coal could remain about $100 a tonne ahead of the annual contract negotiations between Japanese utility companies and Australian producers, which are usually led by Tohoku Electric Power and Glencore respectively. The April-March contracts historically accounted for up to half of Japan’s annual thermal coal imports. While that figure has fallen they are still used as a benchmark across the region by other consumers. Japanese power utilities typically pay a premium to secure supplies from Australia on long-term contracts because the coal works well in their boilers and meets environmental controls. Last year the contracts were settled at $85 when the prevailing price was roughly $77. A price of $90 this year would deliver a big windfall for Glencore, which produces coal at $48 a tonne. Over the long-term, analysts say coal faces significant headwinds, not least in China where the government wants to replace coal-fired boilers and more widely the huge falls in the cost of renewable energy.

Another Retail Bankruptcy Wave Is on the Way, Credit Suisse Says

A wave of store closings and retailer bankruptcies is coming in early 2018, as the industry deteriorates faster than analysts had expected a year ago, according to Credit Suisse Group AG.
The retail business’s “large and undeniable transformation” will crimp rents and vacancy rates this year, strategists Roger Lehman and Benjamin Rozyn wrote in a note Thursday. Bonds backed by these loans will likely weaken, they added.
Even if the just-ended Christmas shopping season was the best for retailers in a decade, according to early estimates, mall staples like Macy’s Inc. and J.C. Penney Co. haven’t wowed investors with their results. Although those companies are far from bankruptcy, Macy’s said on Thursday it was closing 11 stores in early 2018.
Meanwhile, a few major retailers, including Inc., Wal-Mart Stores Inc. and Home Depot Inc., are expected to reap an oversized share of the industry’s gains.
Portions of CMBX 6 and CMBX 7, two commercial mortgage bond indexes that investors often use to bet against retailers, may fall further this year, the analysts wrote. The junk-rated portion of CMBX 6 dropped about 12 percent in 2017. January is usually the peak month for retailers’ bankruptcy filing, according to data compiled by Bloomberg Intelligence going back to 1981.
While most commercial mortgages for retail space will continue to perform in the coming years, the reduction in financing options available to mall and store owners “could spell trouble” when the loans mature, the analysts wrote. As fewer commercial mortgages to retailers get bundled into securities, pricing has become more opaque for mid- and low-tier malls. That’s a risk to CMBS investors because servicers will have to figure out what to do with assets that have “little to no comparable valuations.”
CMBS investors should also watch non-mall retail loans, even though they tend to be smaller, the analysts wrote. Tenants are becoming “property-type agnostic” as the retail world evolves, leaving traditional malls, outdoor shopping complexes and retail strips to compete for the same sets of store owners. Shopping centers anchored by grocery stores look like a healthier portion of retail because shoppers have been slow to embrace buying food online and chains like Aldi and Lidl are planning expansions.
“In the end this will be a story of the ‘haves and have nots’ and a detailed understanding of the seismic shifts that are taking place across the industry and what is causing them is mandatory for CMBS market participants,” the analysts wrote.

Chinese steel production to slow sharply in 2018

China’s steel production growth is expected to slow sharply in 2018 as state-mandated factory closures and policies to protect the environment begin to bite. The world’s largest producer of the metal will experience just a small rise in output of 0.6 per cent this year, a poll of 15 analysts found in a Financial Times survey. Steel is often viewed as a barometer of economic activity because it is used in carmaking, construction and manufacturing, which means a significant price move could have repercussions for the broader economy. For the steelmakers, the Chinese slowdown could have positive effects. A modest increase in production from China, which accounts for about half the 1.7bn tonnes churned out worldwide, could restore balance to a global market that was ravaged by a collapse in prices two years ago due to oversupply. The anticipated slowdown comes despite a robust outlook for the Chinese economy and contrasts with a 5.7 per cent jump in its crude steel output during the first 11 months of 2017, according to World Steel Association figures. Even so, global annual production in 2018 is slated to increase 2.1 per cent, according to an average of the analysts’ forecasts. World output increased 5.4 per cent between January and November 2017, compared with the same period a year before. Rod Beddows of HCF International Advisors said: “The total market appears to be reverting to a more stable ‘normal’ with Chinese exports under control.” Donald Trump’s pledge to renew US infrastructure, coupled with the impact of import restrictions against steel deemed unfairly traded, were cited as factors behind the average forecast of a 3.4 per cent jump in the country’s steel production in 2018. Alistair Ramsay of the publication Metal Bulletin said that US producers had been winning customers back from external suppliers, partly due to a weak dollar. “We suspect this pattern will continue in 2018 enabling local mills to benefit further from the recent revival in local steel usage following a two-year depression,” he said. Steelmakers in the EU are expected to produce 2.4 per cent more as the economic recovery in many countries across the bloc gains strength. Brussels has similarly slapped tariffs on material deemed to be unfairly traded. Recommended What to watch in metals market in 2018 ArcelorMittal’s Italian deal runs into political storm Electric car push drives premiums for greener metals China, in particular, has faced accusations of dumping excess steel illegally on international markets, although its outbound shipments have retreated over the past two years. Under reforms of its bloated steel and coal sectors, Beijing has ordered the shutdown of the most inefficient and dirty mills. It has also imposed seasonal restrictions on a range of industries and large construction projects in a bid to reduce air pollution during winter. Peter Archbold, senior director in the metals and mining team at Fitch, the rating agency, said: “We expect the capacity closures which have already taken place in China to continue to have a positive impact on steel markets globally in 2018. Share this graphic “[These closures] have also lowered the volumes being exported which has improved the market balance and domestic prices in other regional steel markets.” Seth Rosenfeld, analyst at Jefferies, said Chinese steel demand was the “biggest uncertainty” for the wider industry in 2018.