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business
Global steel industry awaits
China, US auto turnaround
PARIS: Steel is on edge and the global in-
dustry is cutting back hard, hanging on for
either a budget blast from China, new credit
for vast Middle Eastern building schemes
or resurrection of the US auto industry.
Demand has dwindled and steelmak-
ers, notably the giant of them all, Arcelor-
Mittal, are damping down surplus furnace
capacity while waiting for credit to flow,
construction cranes to turn and factories
to roll.
A decision by ArcelorMittal last week
to pursue temporary production cutbacks,
slashing European output by more than
half from the end of April according to a
union source, dramatises the extraordinary
ride and role of steel in the last few years.
In just months the global industry has
gone from a boom driven largely by China,
emerging markets and a property extrava-
ganza in the Middle East to a narrow line
between excess capacity and the costs of
waiting for recovery.
“Over the past six months, demand for
steel has dropped dramatically and, as a
result, producers have been cutting pro-
duction,” analysts at Barclays Capital said
in a study last week.
In another report, Morgan Stanley pre-
dicted “the current demand shock to lead
to excess steel capacity.”
Consequently, the bank said, steel
plants should operate at rates below 75%
of capacity until 2012.
“The steel market is not very different
from base metals as a whole, but steel
has reacted more rapidly and dramati-
cally since September,” said commodities
analyst Perrine Faye of London-based
FastMarkets.
She said the future of the steel industry
depended on three factors – the impact of
Chinese economic stimulus efforts, a pick-
up in the Middle East construction sector
and a revival of the once mighty US auto
industry.
“Chinese imports and exports are at
a standstill. Everyone is waiting for the
Chinese stimulus package to see if it will
revive demand.”
The Chinese government last month
announced a four-trillion-yuan (RM2.09
Bank of Japan
to bolster
capital: Report
TOKYO: The Bank of Japan plans
to reinforce its capital to secure the
credibility of the yen and enhance its
ability to implement additional economic
measures, The Nikkei business daily
said yesterday.
The bank aims to boost its legal
reserves – part of its capital – by some
¥60 billion (RM2.152 billion) a year by
reducing the amount it pays to the state
coffers, the newspaper reported.
The central bank has established a
framework for buying up to ¥5 trillion
in risk assets, such as corporate bonds,
commercial paper and bank-held stocks,
to help improve corporate financial
conditions.
The central bank wants to bolster
its capital because a sharp decline in
its capital adequacy ratio could hamper
its ability to implement such economic
measures as purchasing risky assets, as
well as weaken the yen’s credibility, the
daily reported.
The central bank’s policy board
is expected to agree on the planned
reinforcement by the end of this month
and submit it to Finance Minister Kaoru
Yosano for approval in early May, the
newspaper said.
The finance ministry is largely expected
to approve the plan, it said. – AFP
trillion) package of measures that it said
could contribute 1.5 to 1.9% to the country’s
economic growth.
Industry experts have meanwhile spo-
ken optimistically of China’s prospects.
Thomas Albanese, chief executive at
steel maker Rio Tinto, said earlier this
year that the company foresaw “a short,
sharp slowdown in China, with demand
rebounding over the course of 2009, as the
fundamentals of Chinese economic growth
remain sound”.
Analysts have said steel inventories are
falling in China in anticipation of projects
expected to emerge from the country’s
huge stimulus package.
“It is encouraging that the inventory of
steel products, especially long products,
which are mostly used in construction
projects, have started to fall (since the
end of March), likely suggesting that end-
demand is gathering momentum,” Frank
Gong, a Hongkong-based economist for
JPMorgan, wrote in a research note.
On-the-ground evidence suggested that
the Chinese industry had been re-stocking
in the first two months of the year, followed
by a pause in March before major infra-
structure projects were expected to start in
the second quarter, Gong wrote.
In the Middle East, according to Faye,
the big problem is a shortage of credit,
notably for real estate developers and
builders.
Construction planners had “counted
on a higher price for oil and on credit to
finance their huge projects.”
In addition, demand for such facilities,
especially in the Gulf, has died.
“They were hoping that Americans and
Europeans would buy apartments. But
property prices have collapsed in the Mid-
dle East as well.”
In the United Arab Emirates more than
half the building projects, worth US$582
billion or 45% of the total value of the
construction sector, have been put on hold,
a study by Dubai-based market research
group Proleads found in February.
In Dubai, one of the states of the
UAE, prices in the real estate sector have
slumped by an average of 25% from their
Bids for disgraced
Satyam open today
NEW DELHI: India’s Satyam Computer
Services could have a new owner today when
bids are opened for the disgraced outsourcing
giant, officials said.
Sale of the firm at the heart of India’s
biggest accounting fraud has taken on an
urgency, with dozens of clients reported to
have terminated their contracts or be aiming
to shift their business because of uncertainty
over Satyam’s future.
“The bids will be seen Monday,” Satyam
board chairman Kiran Karnik told reporters
on Saturday.
The Satyam board, advised by investment
bankers Avendus and Goldman Sachs, then
expects to announce the winning bid for the
company, which acts as the back office for
some of the world’s biggest manufacturers,
health care providers and banks.
“We very much expect it to be wrapped up
Monday unless there’s something we didn’t
anticipate, but that’s unlikely,” a person close
to the bidding process, who did not wish to be
named, told AFP.
A statement by Satyam, listed on the New
York Stock Exchange in 2001, was expected
late today.
The government-appointed board took
control of Satyam after its founder B. Rama-
linga Raju stunned India’s corporate world
in January by declaring he had inflated the
theSun | MONDAY APRIL 13 2009
Chinese imports
and exports are at a
standstill. Everyone
is waiting for the Chinese
stimulus package to see if
it will revive demand.”
peak in September after rallying 79% in the
18 months to July last year, according to
Morgan Stanley.
Faye said the fate of the steel sector was
in addition tied to that of the struggling US
auto industry, once a thriving steel market
but one in which two of its giant players,
General Motors and Chrysler, are staring at
bankruptcy.
The two companies are currently limp-
ing along thanks to billions of dollars in
government aid.
“We are waiting to see if the auto sector
in the US will get out of the crisis intact,”
she said. – AFP
balance sheet by over one billion dollars and
overstated profits.
Just a handful of players are believed to be
in the race as a result of lack of clarity about
Satyam’s accounts and worries over liabilities
from US shareholder and other suits.
The accounts are still being restated and
won’t be ready for months. But Satyam has
been battling to pay wages and other expenses
since the fraud was revealed and is desperately
in need of a cash infusion to help it survive.
Indian engineering giant Larsen & Toubro
has already built up a 12% stake in Satyam
and is seen as a front runner for the firm, once
India’s fourth-largest by revenues.
Others expected to be in the race are Indian
telecom software company Tech Mahindra Ltd
and US billionaire investor W.L. Ross – possibly
in tandem with Nasdaq-listed Cognizant Tech-
nology Solutions, according to media reports.
All have refused comment.
Information technology consultancy
Forrester Research has warned there is a
chance any deal might fall through due to
lack of financial data and the risk of litigation,
meaning Satyam would go “back to square
one”.
Satyam operates in close to 70 countries
and has nearly 700 clients, including about
185 Fortune 500 firms – in theory making it an
attractive prospect. – AFP
China to keep ‘loose’
monetary policy,
says central bank
BEIJING: China’s central bank said Sunday that it
would maintain a “moderately loose” monetary policy
amid the worsening global financial crisis.
The decision was made at a recent meeting of the
monetary policy committee, the key decision-making
body at the People’s Bank of China, the bank said in a
statement posted on its website.
“The meeting studied the orientation of the mon-
etary policy in the coming period, and measures that
may be adopted,” the statement said.
“The (participants at) the meeting believed ... that
a moderately loose monetary policy should be im-
plemented to maintain the continuity and stability of
policy-making.”
The statement said the meeting concluded that the
global financial crisis was continuing to “spread and
deepen”, and that “the international financial markets
remained in a state of turbulence”.
Premier Wen Jiabao was quoted by state media
Saturday as saying measures taken by China to combat
the economic crisis were beginning to show results.
Chinese authorities in November unveiled an
unprecedented four trillion yuan (RM2.09 trillion)
stimulus package to combat the crisis.
In the fourth quarter of last year, China’s economy
grew only 6.8%, while economic growth for 2008 was
nine percent, down from 13% in 2007.
Data for the first quarter of 2009 will be released
later this week. – AFP
South Korea offers
tax break on old cars
in stimulus bid
SEOUL: South Korea’s government offered a tax break
yesterday to motorists who replace ageing cars with
newer models, in bid to boost sagging demand in the
auto industry.
The strategy and finance ministry said the measure,
worth up to 2.5 million won (RM6,840), would be avail-
able to drivers who trade in a car that is more than
nine years old.
The incentive, which will run from May to Decem-
ber, was announced as local auto makers feel the bite
of the global economic downturn.
South Korean car manufacturers, including Hyundai
Motor, have reduced their output due to slumping
sales while Ssangyong Motor, the smallest automaker
in the country, is under court receivership to avoid
bankruptcy.
South Korea’s five automakers sold a total 402,563
vehicles in March, down 18.7% from a year earlier,
with Hyundai’s sales falling 9.8% to 233,443 units.
The tax break will come from reducing purchasing
and registration taxes by 70%, officials said.
They estimated it could potentially affect 548,000
vehicles – 32.6% of the total 16.8 million registered in
the country.
The government is also considering providing more
liquidity to auto finance companies as part of efforts to
stimulate demand, they added. – AFP
Toyota looking at second straight loss
TOKYO: Toyota Motor, the world’s biggest automaker,
is expected to suffer a second consecutive annual loss
because of the global economic slump and a stronger yen,
Japan’s Nikkei daily reported yesterday.
Toyota’s group operating loss may top ¥500 billion (RM18
billion) for the current fiscal year which started April 1, the
business daily said.
It would be the second straight operating loss, as the com-
pany has already warned that it expects an operating loss of
¥450 billion, its first ever, for the fiscal year to March 31.
Revenue for the current year is expected to fall to
around ¥20 trillion, down from an estimated ¥1 trillion for
the year before, the Nikkei said.
Toyota group auto sales are now estimated at 6.5 million
vehicles for the fiscal year just started – which, if confirmed,
would be the first time they have fallen below seven million
units, it said.
That forecast is mainly due to a delay in recovery of the
US auto industry, with the Japanese and European auto
markets also expected to remain stagnant, and the impact
of a strong yen against the dollar and the euro. – AFP