>Asian sugar prices rise, reduces buying; millers slow sales

Singapore - Sugar prices in Asia rose in the week to Tuesday, reducing buying interest, while millers slowed sales after having contracted as much as 80% of output from a new crop.

Cash premiums for J-spec raw sugar for January-March shipment were around 10 points to the ICE March contract, while those for March-May shipment were around 25 points, both little changed from a week earlier. The benchmark March ICE sugar contract settled at 23.44 cents a pound Monday, up from 22.93 cents a week earlier.

Millers slowed down sales because they have signed contracts for most of the expected output even before crushing of the new crop had begun, and are being cautious amid an uncertain outlook on the harvest due to persistent rains in some key growing areas, traders said. The crop is expected to be harvested in mid-November this year if the weather is favorable.

"There are rains still in some growing areas," said a sugar trader at a commodities trading house. "Crushers hope the rains will stop in mid-November, so that they can start (crushing) before the end of this month."

Officials in Indonesia and China expect production this season to fall compared with a year earlier due to erratic weather and lower acreage, likely adding further pressure on regional supply.

Sugar prices also rose in India. In Mumbai's Vashi market, S-30 grade sugar was quoted at INR32,000-INR33,000/ton, up from INR29,000-INR29,600/ton a week earlier.

"The delay in crushing in Uttar Pradesh is pushing up the price," said Mukesh Kuvadia, secretary of the Bombay Sugar Merchants' Association.

Crushing in Uttar Pradesh, India's second-largest sugar producing state, will likely be delayed to mid-November with farmers demanding higher cane prices.

Lower open market sale quota for November is also supporting prices, he said.

The government has fixed the open market sugar sale quota for November at 1.5 million tons compared with 1.85 million tons in October.

Still, local prices aren't likely to rise much beyond INR35,000/ton as output from a new season is expected to arrive in the market by early next month, Kuvadia said.

Source: COMMODITIESCONTROL

>Gulf states' USD40 bln port plans face econ head minds

Dubai - Plans to invest almost $40 billion to triple port capacity across the oil-rich Persian Gulf region are sailing against stiff global economic head winds, according to industry experts.

Before the global financial crisis weighed heavily on international trade, developers in the Arab states of the Gulf had plans to add 62 million 20-foot equivalent units, or TEUs, of capacity by 2028, at a cost of almost $40 billion, according to Zawya Projects Monitor data.

But a sharp downturn in container traffic has forced a rethink by some of the region's maritime planners.

Global container shipping is expected to fall 7% this year, according to industry experts. Volumes to the Gulf and Middle East are down around 20% or more on main Far East, European and transpacific routes. By August, 580 ships--1.5 million TEUs of capacity--10% of the global fleet, were laid up. In the next four years, half of the 200 container ships of 10,000 TEU-plus on order are likely to be deferred or canceled.

"Our anecdotal experience is that pretty much all port expansion projects, both in the Middle East and elsewhere, are on hold or under review, so severe is the global downturn," said Neil Davidson, head of research at Drewry Shipping Consultants in London.

Data from Drewry shows that 24.4 million TEU of cargo was shipped through the Gulf Cooperation Council, or GCC, in 2008, compared with a total capacity of 30.4 million TEUs. Over half GCC port throughput is transshipment and according to Drewry throughput at Gulf ports will fall 7% this year.

Still, regional port operators are being encouraged to move ahead with expansion plans to keep pace with rapid economic growth in the Gulf.

"Developers need to take things phase-by-phase," said Hans-Ole Madsen, vice president for business development for South Asia, Middle East and Africa at APM Terminals. "It's good to have a masterplan to create a 10 million TEU facility, but maybe try half a million first."

SAUDI MARKET

A drive to increase long-term capacity in the region will see two projects alone bring on at least 20 million TEUs each. Abu Dhabi Ports Co., or ADPC, is building Khalifa Port & Industrial Zone, or KPIZ, at Taweelah in the United Arab Emirates. In Saudi Arabia a new port at King Abdullah Economic City, or KAEC, is a central plank of a total of over $50 billion worth of projects at Saudi Arabia's largest new city at Rabigh.

Other expansion projects include the 6 million TEU New Doha Port at Al Wakrah in Qatar and Kuwait Gulf Link Port International's 3 million TEU Mina Saqr container terminal expansion at Ras Al Khaimah in the U.A.E.. But in each case there are signs that the global downturn could hit development.

Saudi Arabia's economy, the region's largest, has the most to lose from delays. According to the Saudi Ports Authority, some 12,000 ships visit Saudi ports annually, more than one ship an hour.

"The Saudi market is extremely interesting, reasonably strong and growing," said Iain Rawlinson, APM Terminal's commercial manager in Bahrain. "We don't see ourselves as a competitor to Saudi, so much as helping to improve the network, especially at Jubail, which has lacked investment."

King Abdullah Economic City in Saudi will add 20 million TEUs of capacity over five phases to 2020. Analysts say the Saudi government may have to fund the project, despite a decision to sell the assets.

Other projects in the kingdom that will cater to dry and liquid-bulk cargoes include the industrial terminals at Ras Al Zour, which will handle 70,000 dead-weight-ton vessels, and Jubail, where the Royal Commission for Jubail and Yanbu completed three new petrochemical berths this year.

In Dammam, in the kingdom's eastern province, a joint venture between the Saudi and Singapore ports authorities for a 30-year, 3 million TEU expansion is to go ahead, financed by the Saudi Investment Fund.

"The Jubail export market is very substantial and forecast to grow 60% in next 12 months," said Rawlinson, who sees the terminal as ideally placed for upper Gulf feeder runs.

POLITICAL WILL

Further south in Abu Dhabi the government is investing heavily on developing Khalifa port as part of a $100 billion program of infrastructure works. The terminal will eventually have a capacity of 22 million TEUs, scheduled for completion in 2028. The target for initial port operations was pushed back to 2012 earlier this year, when Abu Dhabi Ports Co. said it would award 17 contracts worth $2.7 billion for the offshore port and onshore free zone.

Jebel Ali, the largest container port in the Middle East, opened Terminal 2 in February to increase total capacity to 14 million TEUs. However, it reported an 8% fall in volume in the first nine months of the year.

On the East coast of the U.A.E., Khor Fakkan's capacity increased by a third to 4 million TEUs this year, and quay wall and gantries both increased 25%.

International consultants are optimistic work will finally go ahead on the Bubiyan Island project in Kuwait, where the schedule calls for creation of 2.5 million TEUs of capacity by 2013.

"All things take time in Kuwait, but there is certainly political will at the moment," said Bryan Willey, general manager of U.K. engineers Atkins in Kuwait. "It's going to happen."

Middle East container growth data 2007-11

2007a 15.7%
2008a 11.7%
2009e -6.9%
2010e 3.1%
2011e 6.7%

GCC ports throughput and capacity (TEU) 2008

Throughput Capacity Utilization

Bahrain 300,000 400,000 75.0%
Kuwait 880,000 1,150,000 76.5%
Oman 3,392,000 5,000,000 67.8%
Qatar 403,930 300,000 134.6%
Saudi Arabia 4,648,409 5,900,000 78.8%
U.A.E. 14,755,292 17,635,000 83.7%
TOTAL 24,379,631 30,385,000 80.2%

Source: COMMODITIESCONTROL

>Gold up on IMF sale to India; Asia Ctrl Bks diversify

Sydney - News of India's central bank buying nearly half of the 403.3 metric tons of gold earmarked by the International Monetary Fund for sale boosted spot gold in Asia, reminding investors that central bank diversification away from the dollar will continue to prompt demand for gold in the open market.

The off-market deal also reinforces the view that little or none of the IMF gold may eventually reach the open market, limiting any bearish impact such a big sale may have had otherwise.

At 0700 GMT, spot gold was trading around $1,062.50 a troy ounce, up $2.90 on the New York close, and moving closer to last month's record high of $1,070.50/oz.

The Reserve Bank of India, or RBI, bought 200 tons of gold over a two-week period between Oct.19 and Oct.30, an IMF statement said Tuesday. Proceeds from the sale - $6.7 billion - indicate an average estimated price of $1,045 a troy ounce, far higher than IMF's projection of $850/oz a few months ago, when its executive board approved the sale.

IMF declined to comment on potential buyers for the remaining amount, but said it is still in "an initial period to sell gold directly to central banks and other official holders that may be interested in such sales."

"It makes sense to buy gold as it will appreciate more than the U.S. dollar," said a senior official at India's finance ministry. The move was to diversify reserves held by the central bank and RBI may buy more gold from the IMF, said the official who declined to be named.

There has been speculation that Chinese and Russian central banks may also be interested in buying gold directly from the Fund.

Open market sales will be conducted only if any gold is left after the "initial period" and "the Fund will inform markets before any on-market sales commence," the statement said.

Sue Trinh, currency strategist at RBC Capital in Sydney said the announcement supported the view that central banks are actively looking for ways to diversify their reserves away from the dollar.

Based on September quarterly data from the World Gold Council, the RBI held 357.7 tons of gold and with the current purchase taking the total to at least 557.7 tons, RBI has become the 11th largest gold holder among central banks, placing it after Russia, but before the European Central Bank.

The euro nudged higher against the dollar following the news, to rise through $1.4800 to an intra-day high of $1.4811 in a thinly traded market with Japan closed for a public holiday.

Broadening Demand Base As Central Banks, ETFs Buy Gold

"Central banks have switched from net sellers to net buyers. Over the last few years, gold ETFs (exchange traded funds) have become a major presence in the market. Gold's investor base is broadening, which is positive for gold price," said Janet Kong, managing director at Goldman Sachs' global investment research commodities division in Hong Kong.

Gold holdings in the SPDR Gold Trust, the world's largest gold ETF, have now reached 1,103.52 tons, making SPDR the 7th-largest gold holder, placing it ahead of Switzerland.

Kong said this growing interest in gold had fostered a gradual price rise in a market that is seeing increasing liquidity.

"Diversification has been an ongoing story for Asian central banks, and gold is one of the possible diversifiers. Gold holdings in comparison to dollar holdings are low," said Westpac Senior Commodity Analyst Justin Smirk.

While gold as a diversifier has limited potential since mine supply is capped, gold, unlike industrial metals, "never disappears, so there's potential for enough supply to build up for central banks to hold 1%-5% of their reserves in gold," said Kong.

RBI's gold holdings worth $10.32 billion, was only 3.6% of the country's total forex reserves of $285.52 billion at the end of last week.

"But it's not possible for (central banks) to change rapidly out of the dollar. This story is one of evolution, not revolution," said Smirk.

However, with the general view on the dollar rapidly changing, even European central banks that were net sellers in recent years could change their strategy going forward.

Speaking at the annual London Bullion Market Association Monday, European Central Bank's Deputy General Director for market operations, Paul Mercier said gold would remain an important asset for European central banks as risk diversification becomes a more significant issue.

In 1999, 15 European central banks agreed to limit gold sales to 2,000 tons, spread out over a five-year period. The signatories have twice renewed the Central Bank Gold Agreement, expanding the total quota for the 2004 agreement to 2,500 tons, but reducing it again to 2,000 tons this year after lower-than-expected sales in the previous sale periods.

Source: COMMODITIESCONTROL

>Is the crisis over? (ECONOMIC RESEARCH)

As the economies are improving and the financial markets are rising, this question is often asked: is the crisis over? Our answer is clearly negative, with arguments depending on the horizons:
■ in the near term (2010), we cannot see how OECD countries could avoid a significant slump in consumption - which will no longer be bolstered by any of the factors that have accounted for its resilience in 2009;

■ in the longer term, several serious threats appear:

• the irreversible job losses linked to the crisis can no longer be offset by stimulation of demand via credit, and we cannot see how an equivalent number of jobs can be created;

• "de-globalisation" seems to be emerging, due to the substitution of domestic output for imports in emerging countries, which means that growth in emerging countries will no longer drive growth in OECD countries. De-globalisation is, moreover, likely to lead to increased transfer of capital and production capacity to emerging countries;

• it will not be easy to eliminate the huge fiscal deficits run up during the crisis, and they may monopolise savings in OECD countries, especially as prudential rules make it difficult to use savings to provide companies with long term funding; they may also lead to a sharp rise in interest rates if they are no longer financed by central banks in emerging countries;

• the monetary and foreign exchange policies implemented in emerging and OECD countries are leading to massive growth in global liquidity and circulation of global savings that are paving the way for bubbles. These bubbles are already appearing, heralding future crises, due to the inability to control global money supply.

In a medium term prospect, our analysis would be mistaken if:
• new sectors massively created new jobs in OECD countries;
• global trade stopped contracting;
• governments implemented policies of reduction in government expenditure to have any hope of reducing deficits without a significant cost in terms of growth, thanks to Ricardian neutrality;central banks disciplined themselves and stopped the limitless growth in the size of their balance sheet.

However, over the next few quarters, the consumers will be faced with:
• a stabilisation of fiscal deficits (see charts in report ), which will therefore no longer underpin growth in consumption. We can in particular mention the end of the car purchase incentives;

• a rise in inflation (Chart 3) due to the rise in commodity prices (Chart 4);

• continued job losses (Chart 5A), as productivity has still not returned to its normal level (Chart 5B), especially in Europe, and therefore an ongoing rise in unemployment (Chart 5C);

• a slowdown or even a decline in wages in the United States (Chart 6A), due to the high unemployment and companies’ determination to restore their profitability (Charts 6B and C).

To read the full report: IS THE CRISIS OVER?