>Flash Economics (ECONOMIC RESEARCH)

Are there OECD countries that have an interest in high oil prices?

High oil prices reduce global activity because the propensity to save is higher in oil-exporting countries than in oil-importing countries. However, some OECD countries could, on the contrary, benefit from additional growth (income) when oil prices rise. The characteristics of such countries are as follows:

− they have very large and stable market shares in oil-producing countries, which implies that their exports to these countries increase significantly when oil prices rise (e.g. Germany and Sweden);

− they benefit significantly from the falling interest rates (rising asset prices) resulting from the investment of oil-producing countries' surpluses in the markets (this is true for all countries, especially those in the euro zone).

Germany could therefore be a country that benefits from higher oil prices, but not the United States and Japan which export very little to oil-producing countries, and not France and Spain which export little to these countries.

To see full report: FLASH ECONOMICS

>Indian Cement Sector (ICICI Direct)

Near term macros improve…

With softening interest rates, sharp correction in coal and petcoke prices and firming up of cement prices due to strong demand, we believe the near term macroeconomic conditions for the cement industry have improved significantly. We believe that due to healthier balance sheets, moderate consolidation, use of more cost efficient technology and change in the macro environment over the last two quarters cement players will be better off compared to the earlier
down cycle. We are initiating coverage on the cement sector with a positive view on Shree Cement, Orient Paper, JK Cement and UltraTech Cement, neutral on India Cement and negative view on ACC, Ambuja and Dalmia Cement.

■ Demand growth accelerates
After reporting cement dispatch growth of merely 6.7% in the first seven months of FY09 (April-October ’08), cement growth has accelerated to 10.5% in November ’08-March ’09. We believe the Indian cement industry will continue to grow by 1.2x GDP growth in FY10.

■ Oversupply is inevitable
About 62 million tonnes (MT) of cement capacity is scheduled to come on stream by the end of FY10. We expect the capacity utilisation of the industry to drop from 88% in FY09 and further to
79% in FY10. Thus, cement prices are likely to come under pressure with the beginning of the monsoon season.

■ Subsiding cost pressure to cushion margins in near term
A 4% cut in excise duty, sharp correction in imported coal, petcoke and crude prices by 67.8%, 49% and 66% respectively from their peak levels have reduced cost pressures for the cement industry.Apart from this, softening of interest rates would reduce the interest burden of smaller cement players, who have funded their capex by debt and cushion their PAT margins. However, we believe that in the long run, the demand-supply situation will force cement players
to cut prices and pass on the benefits.

■ Recommendation
Some of the cement stocks are currently trading at valuations lower than the value given to loss making cement companies in the last 10 years. This is despite the fact that replacement cost for cement companies has increased significantly over the last decade. We believe that long-term value has emerged in select cement stocks. We also believe that companies that have completed a majority of their capacity addition, undertaken cost cutting measures or have
low cost structure with lower earning sensitivity to price declines will be better off compared to their peers. Timely capacity addition will reduce the payback period while a low cost structure will enable them to cut prices and push volumes in a down cycle. We prefer UltraTech Cement among large caps, Shree Cement in the mid cap space and JK Cement and Orient Paper in small caps.

To see full report: CEMENT SECTOR

>The Asia Investigator (CITI)

Better Than Expected ≠ Good

■ Asia ex: The bull menu contains bigger EPS revisions, better economic numbers and plenty of liquidity — Earnings revisions have been worse than even during the Asian crisis but the cuts have been small. Economic numbers have come out worse than expected for the last 18 months but not for the past two months. This has given the market hope that the worst may be behind. However, better than expected does not mean out of the woods. There is plenty of excess liquidity due to the collapse of industrial production.

■ Japan: Signs of an environmental bubble—Shades of IT bubble of decade ago — In some ways we think the current environment bears a certain resemblance to that of 1990-2000, when the IT bubble emerged. The global economic upheaval is larger now than it was then, and the monetary easing and fiscal mobilization in response have been much more dramatic. Still, just as the IT bubble emerged after the LTCM crisis in the US and financial crises in Russia and Asia, we think the current economic crisis might be followed by an environment-related bubble.

■ Singapore: Out of Recession by 4Q09; 12-month STI Target 2400 — 1Q GDP contraction of -11.5% is likely to be the worst. We expect a smaller rate of contraction in 2Q (-8.2%) and 3Q (-6.2%), with good chance of positive GDP growth in 4Q09 (+0.3%) and 1Q10 (+6.7%). We believe the recession will be over by the fourth quarter. Aggressive global fiscal and monetary easing, coupled with Singapore government’s fiscal measures, and the opening of the two integrated resorts by early 2010 will support the recovery.

■ Taiwan: Just One More Squeeze — We expect the market to peak soon, but probably not before another upswing. Local liquidity is strong, short positions and QFII underweights are significant, and sales momentum, for now, remains positive.

■ Thailand: Short-Term Relief; Long-Term Settlement — The issuing of an Emergency Decree for Bangkok on 12 April paved the way for the Army to replace the Police in containing protestors under a firm policy stance by PM Abhisit of non-violence with minimum damage and human casualty.

■ Fun With Flows: Focus Shifted Towards Korea and Taiwan

To see full report: THE ASIA INVESTIGATOR

>ESAB INDIA LIMITED

Unaudited Financial Results for the quarter ended 31st March, 2009

To see report: ESAB INDIA