Iron ore contract prices surpass all-time highs

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Contract prices cross USD 100/t to reach all-time highs; yearly contracts give way to quarterly contracts
Yesterday, Vale settled with five Japanese steel mills (Nippon Steel, JFE Steel, Sumitomo Metals, Kobe Steel and Nisshin Steel) with a ~90% increase in contract prices implying prices of USD 100 to 110/t depending upon grade. This is only for the Apr-Jun-10 quarterly and is broadly in line with the recent newsflow.

This surpasses the previous high of USD 90/t agreed in 2008. Indian spot iron ore prices are currently at USD 125/t FOB (63% grade).

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Nifty closes above 5300 – New High

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The S&P CNX Nifty advanced 30.10 points or 0.57% to 5,312.10. The index touched a high and a low of 5,329.55 and 5,242.15, respectively.

The major gainers on the Nifty were Hindalco up 3.61%, Reliance Power up 3.29%, Ambuja Cement up 2.60%, Sterlite Industries up 2.32% and HDFC up 2.10%. The major losers on the index were Infosys down 1.97%, TCS down 1.40%, Tata Motors down 0.97%, ABB down 0.85% and Cipla down 0.81%.

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Infra Capex Cut by 5% but Still Robust

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Planning commission cut India’s XI plan (FY08-12) core Infra capex (ex-Telecom) by 5% led by slippages at Railways, port and roads, while maintaining overall doubling of capex to Rs20.5tr, in a mid-term review. This reinforced our view of a 10 year extended cycle for E&C companies apart from allaying the fear of slowdown in their earnings on a higher base (8th year of this cycle). Govt. reiterated XII plan (FY13-17E) Infra capex of Rs40tr / US$880bn, taking total (FY08-17E) to Rs60tr / US$1.3tr. This creates a macro framework for robust sustainable growth & has potential to drive E&C cos into a higher orbit of size & value.

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Is China Blowing Bubbles?

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We have seen lot of talk on the Chinese Bubble. But it is for real since Citi’s Chief Economists Willem Buiter [UK] and Minggao Shen [HK] just a while ago published a joint Report in the same. The main highlights of the report are,

  • China avoided a prolonged downturn by aggressively expanding credit growth since the end of 2008.
  • Higher reserve requirements and selective quantitative credit controls have not dampened credit growth sufficiently.
  • Higher interest rates and Yuan appreciation are necessary to prevent further overheating in the real economy.
  • Additional macroprudential controls are required to prevent booms and bubbles from developing in the land, property and stock markets.

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Who is Funding Bharti Airtel – Zain Africa Deal ?

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Bharti Airtel has finalized $8.3 billion of funding for its acquisition of the African assets of Kuwait-based telecom major Zain. A consortium of banks led by Standard Chartered and Barclays would lend it $7.5 billion and State Bank of India (SBI) another $1 billion, a so-called rupee loan.

The financing was oversubscribed, with major international banks committing to underwrite the total amount. The company has opted for offshore loans over onshore loans owing to the good response from overseas banks. The dollar loan is expected to reduce risks involved in execution process.

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