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The good, the bad and the ugly

September 25, 2010 Leave a comment

This is written by Niko Kloeten and published in The National Business Review.

THE GOOD — Fonterra’s second biggest payout

How many New Zealand companies can say they’ve just had their second best year ever? New Zealand’s biggest company can. Fonterra has posted its second highest payout, giving farmers NZ$6.10 a kg of milksolids and paying a dividend of 27cents a share.

For a farmer producing 100,000/kg, the 2009/10 payout provides a gross farmgate increase of NZ$117,000 against the 2008/09 year to NZ$637,000. There is also good news for the current season, with Fonterra firming up its forecast of NZ$6.60/kg, plus a dividend of 40-50 cents before retentions.

The rest of New Zealand’s economy is spluttering but the good thing about cows is … they are pretty consistent, even if the prices paid for their product are prone to wild fluctuations. Barring major natural disasters, New Zealand’s farmers will continue to produce roughly the same amount of milk and if the payout is even higher than last year’s, it will be a major boost for the economy.

Even the projected 50 cents increase in the current season’s payout compared to last year’s equates to an extra NZ$600 million or so flowing into farmers’ coffers. This money, then, flows through the rest of the economy, which needs any extra help it can get.

THE BAD — Greenpeace’s stupid stunt

Dairy cows in New Zealand. By Bloomberg/Brendon O’Hagan

If this week’s protest at Fonterra’s Auckland office is anything to go by, Greenpeace needs new leadership and a new focus or it will continue to dwindle into irrelevancy.

During the 1980s and 1990s Greenpeace found support fighting against imperialistic France using its south Pacific islands as a nuclear testing ground (not to mention blowing up a boat and murdering someone in the process).

There are plenty of issues a reputable environmental group could protest about these days. But Greenpeace chooses to ignore them and focus instead on issues that align with the views of the left wingers that make up much of its membership. According to their simplistic worldview, it is capitalists against the environment and anything that doesn’t fit that neat little script is not worth bothering about.

The palm oil issue is one that certainly follows the playbook, at least according to the way Greenpeace have framed it – nasty capitalists are chopping down trees and killing orang-utans!

What they neglect to mention is that palm oil is environmentally friendly compared to other vegetable oils because of its high yield, so it requires a lower acreage of crops to get the same amount of oil.

And as late economist Murray Rothbard would probably say to Greenpeace’s complaints about deforestation, “so what?”

If Greenpeace really cared about the survival of orang-utans they would advocate for them to be farmed and treated as commodities like cows and chickens, which will never be endangered species. Instead they target New Zealand’s biggest and most important company, which imports small amounts of palm kernel as supplementary feed.

While there is nothing wrong with peaceful protest and having the right to voice your opinion is a pre-requisite of a free society, private property must also be protected and respected.

The clowns who invaded Fonterra’s building are seen as a joke by many and need to be treated more harshly for trespassing and wasting police time, even though they may be relatively harmless.

AND THE UGLY — GDP shocker

This week’s horrendous GDP result supports what the average person on the street has known for some time but ivory tower economists have been slow to pick up on – that New Zealand’s economy is still in the toilet.

GDP rose only 0.2% in the June quarter according to Statistics New Zealand, well below the consensus market forecast of a 0.8% rise. The Reserve Bank, the organisation in charge of centrally planning New Zealand’s money supply, was even further from reality with its guess of a 0.9% increase. And although it was the first annual rise in GDP since September 2008, the 0.7% year-on-year increase was less growth than what the boffins thought we’d see in just one quarter.

Traditionally, New Zealand bounces back quickly from recessions. But this time, it appears to be different.

There were a number of ominous signs in this week’s GDP figures, particularly the running down of inventories, which hints at a severe lack of confidence in market conditions. But those who are students of economic history shouldn’t be surprised that New Zealand, and many other countries around the world, are experiencing a slow to non-existent economic recovery.

The current prescription of insanely low interest rates, money printing and “stimulus” spending sponsored by government borrowing echoes the failed policies that turned the stock market crash of 1929 into the Great Depression.

In contrast to the huge hikes in government spending, massive deficits and make-work projects implemented by US Presidents Herbert Hoover and Franklin Roosevelt during the depression, the response to the 1920-21 recession in the US was a laissez-faire one. President Warren Harding and his government let unprofitable firms fail and concentrated on balancing the budget, while the Federal Reserve kept interest rates high at about 7%. Within three years unemployment had dropped from 11% to 2% and the recession of 1920-21, which was more severe than the one of 1929, was soon largely forgotten about.

If New Zealand is to fully recover, it needs the economy-distorting low interest rates to be hiked and the government to balance the budget and remove the many growth-retarding interventions in the economy.

But, to quote Sir Roger Douglas, the national government has its head in the sand.

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Charges likely over irresponsible protest

September 23, 2010 2 comments

The combined reports below were published today by news agency New Zealand Press Association and newspapers NZ Herald and The National Business Review.

AUCKLAND – Police are likely to lay charges against 20 Greenpeace protesters after Fonterra Cooperative Group Ltd’s employees were forced to evacuate their headquarters in New Zealand over a bomb scare, this morning.   


Greenpeace’s McDiarmid receives a trespass notice

The 8.15am evacuation of more than 100 employees was caused by Greenpeace’s protest against Fonterra’s purchase of palm kernel animal feeds, sourced from oil palm trees, which they claim were grown at the expense of rainforests.

Inspector Lou Alofa of the police northern communications centre said Fonterra’s building on Princes St was evacuated after a suspicious package was left unattended and chained to an elevator handrail inside the building.

“We have dealt with the package and can confirm it was not an improvised explosive device,” Mr Alofa said. “We discovered it was actually two speakers playing a voice recording and the sound of chainsaws.”

Greenpeace New Zealand executive director Bunny McDiarmid said, “We take protests seriously and all our volunteer activists are highly-trained, calm and respectful of police and emergency services. The right to peaceful protest is the foundation of a democratic society.”

Another Greenpeace activist, Simon Boxer, insisted the protest had only barricaded one entrance and staff were able to pass through five other entrances to the building unhindered. “Our members peacefully handed out leaflets explaining what we were doing,” he said, adding the television screens were broadcasting footage from a Greenpeace trip last week to Indonesia, looking at the deforestation of native forests.

Greenpeace claims that Fonterra, the world’s largest dairy exporter, imports one quarter of the world’s palm kernel. As a result, rainforest in Indonesia is being cleared at a rate of 2 per cent per year in order for the oil palm trees to be grown. “We hope the message has gone in there and that Fonterra will take corporate responsibility for the deforestation that is happening in Indonesia at this very minute.”

This protest comes four months after Greenpeace protestors chained themselves together to block the fuel depot at Fonterra’s Clandeboye factory in Canterbury which uses coal.

Police who attended the incident today are concerned. They deemed the protesters’ behaviour irresponsible because it unnecessarily consumed a lot of emergency services resources. Acting Auckland City area manager Inspector Mike McIlraith said charges were likely to be laid and investigations were continuing.

By 9.30am, Fonterra’s staff had returned to the 9-storey building.

Greenpeace called on Fonterra and the Government to end New Zealand’s importation of palm kernel grown on areas of destroyed rainforest which it said was driving climate change and putting at risk of extinction several wildlife species, including primates called orangutan.

“As the palm industry opens up new frontiers across Indonesia, companies like Fonterra, which is expected to spend NZ$230 million this year buying up a quarter of the world’s traded palm kernel, is helping to fuel this destruction,” Greenpeace New Zealand communications manager Suzette Jackson said.

Palm oil prices hit six-week high

September 21, 2010 Leave a comment

Palm oil hit a six-week high of RM2,706 per tonne yesterday on concerns of erratic weather curbing soyaoil supply and lack of skilled Indonesian workers to harvest palm fruits in Malaysia.

This is the third time this year palm oil futures pierced through the RM2,700 per tonne level.

Johor-based Kim Loong Bhd managing director Gooi Seong Heen said: “The run-up in prices is most probably fuelled by fear of erratic weather causing supply shortage in soyaoil.

“This month, we hope to harvest more fresh fruit bunches but then again it depends if we can secure enough harvesters. We appeal to the government to rectify the situation.”

Sabah-based Kwantas Corp Bhd group managing director Steve Kwan Ngen Chung concurred with Gooi. “It is very important for Malaysia to maintain good diplomatic relations with Indonesia. Malaysia’s palm oil industry’s earnings could be hurt if our government is not careful in handling the foreign worker issue. We’re entering the peak fruiting season but there’s lack of skilled harvesters. Many have gone home to Indonesia for Hari Raya. So far, not all have returned to report for work,” Kwan said.

Co-incidentally, palm oil futures on Malaysia’s Derivatives Exchange along with other derivatives migrated to CME Group’s Globex trading system yesterday.

Palm oil futures in Kuala Lumpur move in tandem with other vegetable oils traded in Chicago and Dalian because palm oil and soyaoil are near-perfect substitutes. They are used to make cooking oil, margarine and biodiesel.

In China, the most heavily-traded refined, bleached deodorised palm olein May 2011 contract on the Dalian Commodity Exchange rose 4 per cent to 7,630 yuan (RM3,520) per tonne.

Over in Chicago, CME Group’s December delivery soyaoil futures traded on Chicago Board of Trade’s Globex added 1.91 per cent to a high of 42.71 cents a pound. Delay in harvesting of the soyabean due to unfavourable weather condition is supporting the prices. As for palm oil, Chicago’s December delivery contract, which is pegged to the Malaysian benchmark, added as much as 3 per cent to US$870.25 (RM2,698) a tonne, the highest since the exchange started trading the contract in May.

Palm oil exports may hit RM60 billion

September 20, 2010 Leave a comment

MALAYSIA’S palm oil exports may expand by 20 per cent to touch RM60 billion this year, thanks to higher average palm oil prices and improving global demand.

Palm oil futures prices are now averaging at RM2,500 per tonne, higher than last year’s RM2,250 per tonne.

The latest data from the Malaysia Palm Oil Board shows that palm oil exporters have shipped out almost 11 million tonnes for consumption in the global food industry. This is 6 per cent growth from a year ago.

In an interview with Business Times, Malaysian Palm Oil Council (MPOC) chief executive officer Tan Sri Yusof Basiron said apart from Asia, Russia and the Middle East, more palm oil shipments are going to Western nations. Below is an excerpt of the interview:

QUESTION: Do you think Malaysia’s global palm oil exports could surpass last year’s RM49.59 billion? If so, by how much?

ANSWER: This year, Malaysia’s crude palm oil output is not likely to change much from last year. Dry weather caused by El Nino and tree stress in the early part of the year has slowed down crude palm oil output.

In the first eight months of this year, output only grew by a mere 1.7 per cent to 11.1 million tonnes. This has limited palm oil available for exports. The current limited supply trend is expected to continue for the rest of 2010 as the Indonesian government has imposed higher export duties on its palm oil shipments.

As more rapeseed, soya and corn oil are burnt as renewable energy in Europe, the US and Latin America, more palm oil is being imported to make margarine, mayonnaise, cheese spread and chocolate.

Asia’s strong economic growth, including our Asean neighbours, and recovering economies in the Middle East, will spur our palm oil exports by between 10 and 20 per cent.

Q: Is Russia an emerging market for Malaysia’s palm oil?

A: From January to August 2010, we shipped 104,971 tonnes to Russia, 5 per cent more than in the same period last year. Russia is a major consumer of oils and fats, but it is not able to grow enough oil crops to feed its 145 million population.

     Last year, Russia imported some 446,000 tonnes of palm oil from Malaysia and Indonesia. This is almost 60 per cent of its total oils and fats imports. Palm oil is becoming popular in Russia because it is the most suitable and economical raw material to make soap and detergent.

Q: In the last five years, Malaysia had exported more palm oil to Ukraine. But in the first eight months of this year, volume plunged 62 per cent to 158,678 tonnes. Why?

A: The drastic decline in our exports to Ukraine is caused by two factors. Ukraine’s monthly vegetable oil production are at record high levels in the 2009/2010 marketing year. The Eurozone debt crises and Ukrainian currency devaluation may also have an influence on the demand for palm oil.

     Despite the dismal numbers this year, it must be highlighted that palm oil remains the bulk of Ukraine’s vegetable oils imports. According to Oil World, from January to June 2010, palm oil imports from Malaysia and Indonesia accounted for 96 per cent compared with 93 per cent in the same period a year ago. Just like in Russia, people in Ukraine use palm oil to make margarine, mayonnaise and other variants of bakery fats.

Q: Palm oil exports to the Netherlands – the gateway into Europe – fell in 2007, 2008 and 2009. Will 2010 see a further decline?

A: Malaysia’s palm oil exports to the Netherlands went up 15 per cent to 697,503 tonnes in January-August 2010, compared with 608,808 tonnes in the same period last year. Similarly, exports to the European Union (EU) also recorded a 16 per cent increase to 1.32 million tonnes in January-August 2010 compared with 1.14 million tonnes in the same period last year.

   Going forward, we expect EU-27 nations (including the Netherlands) to remain dependent on palm oil imports to make up for the shortage of vegetable oils in the food sector as a result of higher usage of domestic rapeseed oil and sunflower oil in its biodiesel sector.

Q: Last year, Malaysia’s palm oil exports to the US fell 18 per cent to 0.86 million tonnes. What led the decline? Will this year’s exports to the US able to top the one million-tonne mark?

A: Since 2005, Malaysian palm oil shipment to the US soared as a result of the US Food and Drug Administration compulsory ruling on trans fat labeling in 2006. The US baking industry turned to palm oil to rid its products of trans fat, which is common in partially-hydrogenated vegetable oils. Malaysia’s palm oil exports peaked at more than a million tonnes in 2008.

       Last year, however, the local vegetable oil industry in the US, namely the American Soybean Association, came up with other trans fat-free alternatives and raised the competition for palm oil.

    Despite such challenges, we still see good prospects. Until August, more than 700,000 tonnes of palm oil reached the US shores. For the full year, it should touch a million tonnes. Malaysia has, for more than 30 years, been the major supplier of palm oil to America.

CME Globex to boost liquidity in Malaysia’s Futures

September 17, 2010 Leave a comment

This article is written by Lim Shie-Lynn and published in the Wall Street Journal today.

KUALA LUMPUR – (Dow Jones) – Effective Monday, Malaysia’s stock exchange operator Bursa Malaysia Bhd will move its derivatives contracts, comprising commodity, financial and equity futures to CME Group Inc’s (CME) Globex platform, reflecting the country’s changing broking landscape.

With a wider pool of CME brokers able to use Bursa Malaysia’s products, the move promises increased liquidity for Malaysia’s ringgit-denominated crude palm oil futures, the most active of its contracts that acts as a global benchmark for the pricing of palm oil.

The move will also provide Bursa Malaysia’s members access to CME’s global products, although it is unclear, at this stage, how much interest it will generate.

The switch comes a year after the two exchanges announced a partnership with CME, the world’s largest futures market, buying a 25% stake in Bursa Malaysia Derivatives (BMD), a unit of Bursa Malaysia. BMD currently has nine products traded on its existing platform, including futures on the FTSE Bursa Malaysia KL Composite Index, three-month Kuala Lumpur interbank offered rate futures and FCPO.

The crude palm oil futures on BMD will be the primary beneficiary of the switch as the Globex platform will give it a wider reach, similar to that enjoyed by the rival soyoil futures contract in Chicago.

BMD chief executive Chong Kim Seng said the “palm oil contract will have greater visibility and (the switch) gives BMD an opportunity to expand its product base in the future.”

Chong said, in a briefing earlier this week, that Bursa Malaysia expects to double its daily trading volume to 12 million contracts by 2013, from about six million now.

An executive at the stock exchange operator said he expects the transfer to double the trading volume in crude palm oil futures in two years. Trading of the contract grew 33% to four million contracts in 2009, data from Bursa Malaysia showed. “With access to Globex, Bursa Malaysia is considering introducing new products such as ringgit -denominated soybean and soyoil contracts,” the executive said.

Brokers and analysts said the changes would enhance market regulation and transparency as well as better price discovery.

“As Bursa already has liquidity in crude palm oil futures, we can probably see 10%-15% growth in trading volume in the next six months,” said Michael Lee, executive director at Kuala Lumpur-based brokerage Philip Futures Sdn. Bhd. “Trading is likely to get rather interesting, albeit hectic with the Globex transfer,” he added.

Hovid sells Carotech shares to repay loan

September 17, 2010 Leave a comment

PHARMACEUTICAL company Hovid Bhd has reduced its shareholding in subsidiary Carotech Bhd to 42.84 per cent, having sold off some 150 million shares in the latter over the past month, to pay off debts.

In its filing to the stock exchange yesterday, Hovid said it had, in the last two weeks, sold off 70 million more shares, or 7.67 per cent stake in its subsidiary Carotech Bhd for RM4.9 million.

Incidentally, Lembaga Tabung Haji (LTH) has emerged as a substantial shareholder in Carotech. Separate filings to the stock exchange showed the pilgrim fund had been accumulating Carotech shares. As of yesterday, LTH holds 8.85 per cent stake.

Earlier, from 17th to 27th August 2010, Hovid sold 80 million Carotech shares of 10 sen each, comprising of 8.77 per cent stake for RM5.6 million.

Money raised from the sale of Carotech shares is being channelled to pay off Hovid’s bank loan. Last year, Hovid borrowed RM20 million from Affin Investment to subscribe for new shares under a rights issue.

Hovid, yesterday, clarified that its’ August and September sale of Carotech shares will help narrow losses for the year ended June 31 2010 to RM4.7 million, and not RM3.7 million reported earlier.

Although the sale of Carotech’s shares were done at a loss, Hovid said it had to reduce its gearing from 0.46 to 0.43 times and mitigate the risk of margin call.

Hovid’s debt problem emanated from Carotech defaulting on loans with several banks totalling US$47.76 million and RM59.11 million, respectively.

Carotech explained that high palm oil prices in the first half of 2008 and the subsequent global economic turmoil had curtailed biodiesel demand and reduced its ability to generate excess cashflow to meet its debt obligations.

Bank Negara’s Corporate Debt Restructuring Committee had, since two months ago, stepped in to help Carotech restructure its debt. Carotech is now labled a Guidance Note 5 company and has until December 31 2010 to settle with its bankers.

Bursa Malaysia: Futures to migrate to CME Globex Sep 20

September 14, 2010 Leave a comment

This article is written by Lim Shie-Lynn and published in the Wall Street Journal today.

KUALA LUMPUR (Dow Jones)–Bursa Malaysia Derivatives (BMD), a unit of Malaysia’s stock exchange operator Bursa Malaysia Bhd, will migrate the trading of its derivatives products to CME Group’s (CME) Globex platform Sept. 20, the stock exchange said Tuesday.

The migration of BMD’s products to Globex follows CME Group’s acquisition of a 25% stake last year in Bursa Malaysia’s derivatives unit.

Through the partnership, CME is licensed to develop a dollar-denominated crude palm oil contract based on the settlement prices of BMD’s ringgit-denominated contracts. The dollar-denominated contract commenced trading May 23 and is traded on the CME Globex.

A Bursa Malaysia executive, who preferred to remain anonymous, said on the sidelines of a company function that the stock exchange operator is considering introducing new products such as ringgit-denominated soybean and soyoil contracts. He didn’t set a timeline for their launch.

Traders and analysts said the listing of a dollar-denominated cash-settled crude palm oil futures contact or CUPO on Globex and the migration of BMD’s products, including the benchmark ringgit-denominated palm oil contract, onto CME’s trading platform may enhance the visibility of the commodity.

The aim is to generate more trading interests in palm oil, which is found in products ranging from ice-cream to shampoo, cosmetic products and biodiesel.