Author: Ben Debski

The rights to sovereign ownership

Posted on by Ben Debski

As the continual threat of financial collapse burrows itself into the history of the beginning of the twenty-first century, more and more nations are succumbing to their own inability to cope with the huge monetary pressures and strain.

As the financial doom and gloom spreads from one continent to the next, it seems each nation’s initial response is just as unpredictable as the very idea that they’re in billions of dollars of debt to an array of demanding forces. Greece panicked somewhat, Britain shifted nervously in its seat, Germany pointed at Greece, France hid behind Germany and Italy just said no. All of that left the US scratching its head, China laughing on and Australia looking nervously over its shoulder.

What is particularly striking about the way each nation has coped with financial meltdown as the situations have rumbled on, is the fractured nature with which some politicians and many commentators have tried to conceptualise the mounting debt.

At one point, it seemed that each nation was churning through a different economic indicator every week, in desperation to find a starting point from which to rectify the problem. So far and depending on who you speak to, the most important figure to consider is a country’s purchasing parity power, its inflation rate, its unemployment rate, its GDP, or its GNP. Just before he went, one of Silvio Berlusconi’s top brass urged him to consider the current maturation rates of his 2021 bonds and their general performance. Far be it to suggest that the possibility of having to assess the sheer volume of market indicators drove Berlusconi to wilfully step down, but it doesn’t seem that farfetched to consider that it might have helped.

Although think tanks and government agencies logically put many forward, it would seem that these different indicators are selected and suggested by a variety of sources, with a complete wealth of different interests.

As the private sector gets beomes more and more involved in each nation’s debt management and liquidity issues, a variety of different interests get thrown into the mix, leaving war∞weary politicians chasing different barometers on an open market. As the general populace struggles to come to terms with the ever∞rising debt figures and perpetually accumulating indicators, the idea of keeping faith with those in power becomes less and less attractive.

As such, it’s difficult to picture a situation in which constantly moving goal posts won’t come back to haunt someone. Yet few have asked the question, how benefits from using more than one economic indicator to guage national accounts?

During his time in office in the 1970s, British prime minister Harold Wilson was constantly harangued for his inability to keep the balance of payments under control. By sticking to a single, non-negotiable point of departure and relating it to other economic factors, the UK had a fairly good idea of how things were progressing and how much pressure should be placed on the man at the reins. Transparent, honest, but it led to Wilson’s downfall.

Perhaps by muddying the issue those in power are protecting themselves, both from industry backers representing substantial investment, and voters. Inevitably, though, those big figures will fester, whether in the public eye or not.

World changer: World Economic Forum

Posted on by Ben Debski

Every year the founder of the World Economic Forum, Klaus Schwab, draws up a highly articulate agenda to focus the minds of the heads of state, Fortune 500 chief executives, billionaires and heads of charities who attend its annual meeting in Davos, high on the ski slopes of the Swiss mountains.

But generally, according to veterans of these five days of seminars, inspiring speeches, private conversations and back-slapping, most attendees tend to ignore Schwab’s overriding instructions.

Instead they stick to their own agenda, which is to get their money’s worth from the year’s most expensive conference with furious networking, deal-making and profile-building. But for the 2012 version of this long-running event, the stakes have never been higher as the global elite face what Schwab has labelled: “The Great Transformation”. The big issue will be whether the world’s most influential people can actually make the difference that is expected of them. So far their score is probably a pass, at best. So can ‘Davos Man’ rise to the occasion?

A term coined by the late American political scientist, Samuel Huntington, in 1977, just as the modern version of these meetings was starting to take shape, Davos Man is said to be an elite individual dedicated to the advancement of the interests of himself (or herself) and his fellows rather than to the betterment of the world. As Huntington described them, such people “have little need for national loyalty, view national boundaries as obstacles that are thankfully vanishing, and see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations.”

Come January, Davos Man needs to prove Huntington’s description wrong. As the globe’s power brokers, the estimated 2,000 attendees have never been under more pressure to come up with answers to a towering set of global challenges. An old Europe facing a lost decade, the fading influence of America as the world’s economic powerhouse and moral leader, ruinous turmoil in currency markets, upheavals in the financial sector, sky-rocketing young unemployment throughout entire regions, actual and imminent collapse of dictatorships in north Africa and the Middle East: These are some of the cataclysmic issues that, whether they like it or not, have landed in the lap of the World Economic Forum.

Worldwide influence
So are they up to it? The atmosphere should help. This is purpose-designed as neutral ground. One of the genuine advantages of Davos compared with, say, a G20 meeting with its protocol-conscious, head-of-state atmosphere, grand-standing and politicking is that it’s the exact opposite. The only protocol is informality – slacks and jackets for men, jeans and whatever for women are practically de rigueur. Heads of state attend but only as individuals without plane-loads of advisers.

Nor does grandstanding work well in a deliberately informal exchange of ideas and, anyway, any attendee can simply fire through a request for a chat via an in-house computer system, and so can outsiders put a question to presidents and billionaires alike via YouTube. Arguably, the most valuable intellectual property at Davos is the two-inch thick volume of the other attendees that every arrival is given when they register.

And while attendance is not officially required at any of the seminars or around 200 informal sessions, it’s frowned upon to spend the five days closeted in back rooms doing deals, although some do. Some show of public-spiritedness is considered part of the Davos obligation.

But how much can be achieved in five days? For a start there will be plenty of financial and intellectual firepower present. By the count of Forbes’ magazine, no less than 69 billionaires from 20 different countries attended last year’s gathering and their combined value is likely to be much the same in 2012. In purely financial terms, they represent something around the $427bn mark.

For security reasons the names of the VIP guests are not released until the last minute, but many would like to see a more convincing presence than hitherto from the Obama administration. So far the US president has sent only a token representation, quite unlike Bill Clinton, a global thinker and fan of the World Economic Forum who was the first incumbent president to make the trip to the wealthy little mountain resort nestling 1,560m high in the Swiss alps about three hours drive from Zurich. Also notable by their absence are church leaders, who are outnumbered by about 100 to one by those from the business world, and union bosses who are in much the same ratio.

Tech setters 
Of the billionaires, most will come from the US, with the second-biggest contingent from India, usually followed by Russia. Last year president Dmitry Medvedev had nine oligarchs in tow. Of the big names, Stephen Schwarzmann  and Henry Kravis, the founders of private equity giant » KKR, hedge fund manager-turned philanthropist George Soros, Google founders Sergey Brin and Eric Schmidt, and India’s steel baron and the UK’s richest person, Lakshmi Mittal are expected to attend again.

Bill Gates, who will celebrate his seventeenth year at the event, will not be missing it. However, as he has pointed out, today’s gatherings are very different from his first. “When I started going in 1990, the focus was on the wonders of technology, and the hot panels were the ones where engineers like myself would discuss how things would improve using technology,” he recalled in 2010.

Talk of the town 
That idealism has since been replaced by the realisation that technology hasn’t got anything remotely like all the answers and that we have truly arrived at a great transformation that requires far deeper answers than faster internet connections, dazzling software or iPhones. On the bright side, some participants think they can see a deeper appreciation of the world’s problems than that displayed by the boffins of yesteryear. “I witnessed more honesty and straight talk between the private sector, multilateral agencies, governments and NGOs as they look to de-risk the planet”, commented Mark Foster, a senior executive from consultancy Accenture last year.

However, if Davos is to establish itself as a forum of real importance, it will have to do better on these towering richter-scale issues it faces. Despite the presence of senior bankers, heads of state, the world’s biggest investors, global consultancies and the requisite billionaires at the last two forums, none of the looming, post-financial crisis issues are any closer to a solution.

The eurozone is, if anything, in deeper turmoil than it was 18 months ago. The so-called “currency wars” are still beggaring nations. America’s gigantic public deficit, a threat to global trade and the world’s reserve currency, is bigger than it was three years ago. The crisis of youth unemployment, which many see as the biggest threat of all to the fabric of several societies, is increasing. Despite much platitudinous talk, corruption remains rampant in sub-Saharan Africa. And there are new problems. Although Tunisia, Libya and Egypt have cast off the shackles of dictatorships, the rebuilding process is slow, uncertain and fraught with risk.About the only real significant progress made in a systemic global issue is the regulatory reform of the financial sector – despite the many objections of many powerful bankers and Davos regulars.

Still, some Davos regulars remain optimistic. Mark Malloch-Brown, a former deputy secretary-general of the UN and former luminary of the World Economic Forum, cites the delivery at affordable prices of anti-retroviral HIV drugs for Aids-sufferers in poor countries as proof of how times are changing. This came about, he pointed out in the Financial Times, from “hard bargaining between pharmaceutical companies, aids activists and politicians, much of it done at Davos.”

According to Malloch-Brown, who has long had a ringside seat at these sparring sessions, pharmaceutical chief executives had their arms twisted by Kofi Annan, the former UN secretary-general and Bill Clinton. However, some obersevers felt that this concession from Big Pharma came about not from a sense of the kind of common-cause collegiality that is supposedly engendered at Davos but by drug-company bosses bowing to the intense pressure.

And some, it should be said, have come to Davos in cynicism but remained in hope, like singer Bono who once damned Davos Man as “fat cats in the snow”. Bono first turned up in 2006 to promote his numerous charities and found the audience sufficiently receptive that he has returned in most years since.

A better future?
The organisational body of the World Economic Forum bends over backwards to try blunt the “elite” label by embracing new media. All the plenary debates can be viewed on YouTube, pictures are available on Flickr and quotes are on Twitter. YouTube users can even put questions to the billionaires, world leaders and the like through the “Davos question on YouTube” facility launched four years ago, although there’s no guarantee they will answer.

But this year the world is hoping for something more than earnest debates and snappy quotes. In 2011, the official issue for debate conjured up by professor Schwab was something called: “shared norms for the new reality.” The Great Transformation is much closer to the mark, summarising the richter-scale challenges.

To summarise Schwab’s rather impenetrable analysis, these are new, numerous and not easily fixed. “Over the last three years, the world has been engulfed by issues of political, economic and, particularly, financial crisis management”, he warns. They require “new models for global, regional, national and business decision-making which truly reflect that the context for decision-making has been altered in unprecedented ways.”

Nobody would argue against that, but are they capable of solution?  According to the professor’s world view, the old ways of fixing these things have become dated and ineffectual. It used to be “hard power” applied from the top that got things done. In turn, that became “soft power” – the achievement of change by persuasion. And today? Schwab believes our future rests on “collaborative power” – that is, “the integration of empowered newcomers” into the decision-making process. If that’s true, Davos should be where it all happens.

For all his erudition, the professor can sometimes sound like a more articulate version of Miss World pleading for ‘world peace’. What, for instance, will Davos Man make of this in January?

Urging a multi-cultural, multi-ethnic and multi-religious model, Schwab says: “Prevailing values will have to increasingly accommodate diversity with substantial challenges for national and individual identities. We will only make lasting progress by recognising that we are different but interdependent. Thus, we have to cultivate a much greater feeling of regional and global togetherness”.

Furthermore, the professor enjoins the attendees to debate a new definition of economic growth in terms of: fairness, sustainability, effect on the family, community, culture and heritage among other things. The professor believes that “micro-entrepreneurship” is the big answer, but this will require a revolution in schooling, finance and society at large that will basically redefine capitalism as we know it. “The success of any national and business model for competitiveness in the future will be less based on capital and much more based on talent. I define this transition as moving from capitalism to ‘talentism’”, prognosticates the idealistic professor.

He clearly believes the world is on the brink of something terrible as geo-political and other forces clash in a “tipping point where velocity, interconnectivity and complexity become so pervasive that the whole system collapses, regardless of whether certain elements at the surface have been addressed.”

If all this doesn’t pose a test for Davos Man (and Woman), nothing will. Instead of debating (or ignoring) “shared norms for the new reality,” January’s World Economic Forum will be expected to at the very least sow the seeds for this new, world-saving form of capitalism. If Davos Man has a sense of history, he may be inspired by the fact that Albert Einstein was once a star turn in the former tuberculosis resort. Einstein lectured at the venue on the theory of relativity in 1928, a theory that changed the world. The ball is in the court of the Davos Man.

Chinese broadband monopolised

Posted on by Ben Debski

China Unicom and China Telecom, the two biggest telecommunications
operators in the country, are facing an anti-monopoly investigation by
the National Development and Reform Commission (NDRC). The case is related to their actions in the broadband market.

Regulators
in China believe the two companies are using their dominant position,
together they account for more than two thirds of the entire broadband
market, to offer lower prices to non-competitors while charging
competitors higher rates.

The deputy director of the Price
Supervision and Antimonopoly Department of the NDRC, Li Qing, said in an
interview with the government-run China Central Television, “According
to the Anti-Monopoly Law (AML), we call such behaviour price
discrimination. If we can bring about effective competition to the
market, the prices to access the internet could be lowered by 27 percent
to 38 percent in five years.”

It is believed that price
discrimination has been responsible for low quality connection between
the networks of the two companies and also low internet speeds.
According to Li the two companies collectively own bandwidth of 1,078
gigabytes, but they have restricted the amount of bandwidth for
connections between the two networks to 261.5 gigabytes.

In
addition to this causing low capacity, it also resulted in inefficient
inter-connection, says Li. According to official statistics for the
first nine months of 2011, the packet loss and inter-connect delay are
still way above official requirements. This has had a negative impact on
China’s broadband speed, which is only about one tenth of competing
countries, such as Japan, the UK and the USA.

If they are found
guilty, both China Unicom and China Telecom could face fines amounting
to between one and 10 percent of their annual business turnover. Taking
into account that both of these companies have a yearly turnover of more
than RMB30 billion, they could face a substantial fine that might
amount to several billions of RMB, such is the Chinese government’s
current view of monopoly behaviour.

The current Anti-Monopoly Law
(AML) in China is only three years old and there have not been many
groundbreaking cases under the new legislation, apart from interventions
in a small number of merger cases. However, over recent months the
authorities have started to adopt a more hard line approach towards
companies that have been found guilty of monopolistic behaviour. The Municipality of Guangdong, for example, quite recently received a hefty fine under AML legislation.

It
is clear that China fully recognises the disadvantages of having a
monopoly in its telecommunications industry. Indeed, the current
investigation into China Telecom and China Unicom is not the first
attempt to bring about a more competitive marketplace. As long ago as
the 1990s, the creation of China Unicom, itself, was seen as an attempt
by the government to establish more competition in the industry.

In
a statement released on November 9, China Unicom denied the
allegations. The company stated that it had “always provided broadband
services strictly in accordance with the relevant laws and regulations.”

Palestine’s reliance on US stretched

Posted on by Ben Debski

For several months, measures to reduce aid to the Palestinian Authority
have been on the minds of many lawmakers in the United States. In
August, the measures were actually implemented, effectively cutting off
roughly $200m in aid to the PA. In addition, measures were also put in
place to freeze the distribution of a further $200m. While the attempt
had been dismissed as political posturing on the part of a number of
lawmakers under the guise of balancing the US budget, there was a
general feeling that enough opposition to any cuts existed in Congress
and the measure would be defeated; unfortunately, that was not the case.

Prior to the freeze, Palestinian Monetary Authority Governor
Jihad al-Wazir commented on what the action would mean for the financial
stability of the PA. “It would have a major impact on the economic
situation in the West Bank, if the you lose $500m [in US aid] from
financial support for development in the West Bank… really, the risk of a
PA collapse is very real under the financial strain, without US
assistance, without donor assistance in general.”

There has been
speculation that the underlying reason for the measure was the intention
of PA president Mahmoud Abbas to ask the United Nations to recognise
Palestine as a state, sometime in September. The cut off of the funds
came before the end of the governmental fiscal year, which was on 30th
September and would also affect the potential for any funds to be
disbursed during the upcoming fiscal year.

The response to the
measure was swift, with a statement issued by the PA’s spokesperson,
Ghassan Khatib. “It is another kind of collective punishment which is
going to harm the needs of the public without making any positive
contribution,” stated Khatib. “It is ironic to be punished for going to
the United Nations”.

While the measure did not have the backing
of many members of Congress, the process to overcome the freeze took
time. Attempts by President Obama to work with Congress to lift the
freeze were partially successful on November 7, when a decision was made
to release $200m that had been set-aside as security funds for the
Palestinian Authority. Still to be settled is the additional support,
which is earmarked as economic funds and is still considered frozen at
the present time.

Whether the remaining funds will be released is
still a matter for debate. Regardless of the outcome, there is no doubt
that the freezing of the aid has done nothing to enhance the image of
the United States among other world powers. Approval of unilateral
recognition of the PA by the UN also triggered a reduction in financial
support by the US to UNESCO, owing to a 1994 law that prohibits the
country from providing funds to any United Nations organisation that
supports a unilateral recognition of statehood in Palestine. Depending
on how lawmakers in the US move to deal with the new circumstances, the
potential for economic collapse remains a real possibility in the PA,
along with further damage to the international reputation of the United
States.

Steve Jobs dies

Posted on by Ben Debski

Steve Jobs, co-founder and former CEO of Apple, has passed away at the age of 56.

The visionary announced he was suffering from pancreatic cancer in 2004, and battled the disease while continuing to take the technology giant to new heights. Among the many paying tribute to Jobs was Barack Obama. “Steve was among the greatest of American innovators – brave enough to think differently, bold enough to believe he could change the world, and talented enough to do it.”

Apple introduces iPhone 4S and its cleverest software yet- Siri

Posted on by Ben Debski

A new Apple innovation set to revolutionise the tech world was announced at yesterday’s “Let’s Talk iPhone” event. While the iPhone 5 remains something of an urban myth, the company introduced the iPhone 4S instead.

The undisputed star-feature of the contraption is Siri, a brainy software program designed to function as personal assistant taking orders and sharing information – such as weather reports and even restaurant bookings – via voice command. Voice prompted software as such is nothing new, but Siri is allegedly a cut above the rest in terms of delivering information efficiently and at speed.

Mini flying carpet takes flight

Posted on by Ben Debski

Joining the ranks of drones and other unmanned vehicles, but with less sinister inclinations, a flying carpet has hit the skies. Made of plastic and driven by “ripple power”, the little sheet is the brainchild of Princeton University graduate Noah Jafferis. The carpet only measures 10cm, so it’s not safe to board. Here’s hoping that the prototype will help cultivate a large enough version to allow for the odd Arabian Nights flight.

A safer future

Posted on by Ben Debski

SSG Entre continues to grow and is now well on its way to becoming an industry standard. At the current time, Sweden’s pulp and paper mills require their contractors to have completed the SSG Entre basic training course and to be equipped with an ‘Entre’ passport. In addition, the concept has spread to a large number of other industrial sites in the steel, mining, chemicals, energy, engineering and sawmill industries.

“Over 70,000 contractors have been approved since the start in late 2006. Many more industries are also in the pipeline. Large swathes of Swedish industry now take part in the collaboration. At the same time, discussions are underway about new partnerships with Norwegian, Finnish and European process industries,” states Jonas Berggren, CEO of the SSG Standard Solutions Group.

Fewer near misses
The background to this massive focus on an industry-specific interactive safety training course is that contractors have previously been over-represented in accident statistics. Traditional safety training has proven time-consuming, costly and ineffective. Contractors have been forced to go through similar briefings at several different mills before every large-scale maintenance session, which has unfortunately created low motivation and a poor focus.

At the same time, the industry usually pays for the contractors to attend these safety briefings. A lot of time has also been spent on keeping the information up to date, and on checking that the information has really reached everyone concerned.

Making sustainability a standard
SSG is owned by the seven biggest forestry industries in Sweden, but the company’s services are also used by other process industries. SSG is working to develop common standards within the industry as a means of achieving greater availability, operational reliability, personal safety and also, increased sustainability. SSG has so far drawn up more than 450 technical standards.

“Whatever the area in which we produce a standard, the key is to achieve energy efficiencies and use as few resources as possible in production,” explains Berggren. “Our owners and customers have amassed enormous experience in making investments. Our task at SSG is to refine that knowledge and transfer it into standards that can be used to support procurement, planning and design.”

Saving the environment and money
SSG has also built up a web-based product database that holds around 600,000 articles with unique article numbers, descriptions and classifications. The SSG product database is a strategic resource for uniform product data within the company, the group and the industry as a whole.

Maintaining order in the article structure is crucial, helping companies signed up to the SSG product database to reduce tied-up capital, lower purchasing costs, increase plant availability and cut administration. The article description is the same for all linked units and allows cooperation with other units, both within and outside your own company. Today, the concept is used in much of the Swedish forest industry, in an increasing part of the Swedish steel industry and in the energy sector.

Lifecycle economy
SSG’s standards have made it easier for the industry to put pressure on suppliers. Those who want a chance in the procurement process need to meet the requirements set: “And here it is important to stress how significant the concepts of sustainability and lifecycle economy are. Whatever the area in which we produce a standard, the emphasis is on meeting a need, but naturally with an eye on creating energy efficiencies and using as few resources as possible in the production process. In addition, the number of stock items can be reduced,” says Berggren.

Environment passport for employees
The SSG Environment Passport is an interactive, web-based environmental training course aimed at all industrial personnel. The purpose of the course is, at a low cost, to give all employees a basic level of environmental knowledge as well as an insight into the environmental effects of the plant’s activities.

The Environment Passport comprises three different modules – the landscape, the forest and, if required, the mill, which is an industry-specific module. Having all the modules activated increases the scope to raise employees’ awareness of and expertise in the impact of their operations on the wider environment.

Chaos management

Posted on by Ben Debski

In the years leading up to the financial crisis, commodity markets were seen as the poor cousin of the stock market. Since markets were fragmented, prices were more or less stable and profits were considered to be little for commodity traders as compared to the windfalls that stock markets promised.

Speculators flooded the commodity markets after the 2008 financial crisis, for profit taking, leading to explosion in transaction volume and price volatility. Crude Palm Oil prices reached a high of $1,350 (RM 4,312) per metric ton in March 2008 before plummeting to as low as $437 (RM 1,390) in October that same year. With the increasing imbalance between growing demand and limited supply, commodity markets have become highly unpredictable, where fortunes can be made or lost in a single day. Commodity traders need solutions to give them visibility on their exposures, be able to simulate worse case scenarios and take corrective actions.

Trading companies in Asia have also witnessed the huge losses due to lack of trading controls, wrong decisions and ignoring operational risks. The industry has seen China Aviation Oil lose $555m due to lax controls and Mitsui Oil lost more than $50m as a result of a risk manager falsifying trading accounts to hide trading losses. Operational risk management, if not managed properly, has the potential of inflicting huge losses and creating non-compliance problems for the management. The need of the industry is automation of the trade life cycle with pre-defined limits and controls.

In the aftermath of the 2008 financial crisis which saw oil prices crashing, many buyers opted to default on their contractual obligations. This left many sellers high and dry with huge floating inventories for which there were no buyers and piling demurrage charges. This can be managed with good counterparty risk and exposure management.

Where companies once managed their trades either manually (through mountains of paperwork) or through in-house developed solutions addressing bits and pieces of their requirements, top management is beginning to realise the value in adopting trading and risk management solutions providing integrated platforms for trade lifecycle, supply chain and risk management. In its recent Global CTRM ‘Market Sizing Study’, CommodityPoint estimated over $290m was spent on CTRM software in 2010 and that is forecast to increase to $321m in 2011, representing a healthy growth rate of approximately 11 percent.

Moreover, taking into account associated services and peripheral software sales; the broader CTRM software market is in excess of $2bn globally annually.

Risky business
There are many types of risks faced by companies dealing with commodities – counterparty risks, market risks, material risks and operational risks. CTRM software, such as JustCommodity’s award winning ContraXcentral, helps in minimising risks by automating business processes and enforcing controls. The system incorporates several functions such as trade lifecycle management, supply chain management, and risk management, all of which work towards improving operational efficiency, mitigating risk and administering better cash flows.

CTRM systems enables controls like trading limits, credit limits, price limits and others to pro-actively alert management of any potential pitfalls. Trading strategies can be defined and enforced to maximize profit with minimum risks.

CTRM software takes care of operational risk through its efficient online system processes. These processes reduce and, in many cases, eliminate human error by ensuring that all data has a single entry point and is stored in a central repository. Operational risk is also reduced by automating the recording of loading, receipt and delivery timings for physical goods. In addition to reducing human error, systems also provide the added benefit of simplifying audit compliance, report collation and report generation – both notoriously tedious time consuming activities.

Driving commodity markets
Innovation is an important aspect in every software businesses’ growth especially in a market as volatile as commodities. It is just as important for firms to provide a solution in response to current problems as it is to constantly modify and predict solutions which can solve predicaments in the future.

Keen foresight in technology development is essential for survival and vendors who keep abreast of new and potential market developments will flourish. There is a very strong need for CTRM software, not just to manage volatility in the market, but also in the day to day operations of any trading company.

Asia is set to grow at a rapid pace in the coming years as investment funds move out from fragile Western economies and, while most CTRM providers are located in the West, one vendor stands out as a potential giant in the Asian market. Already in its tenth year of operation, JustCommodity is optimally positioned to service these markets. The company strongly advocates innovation in its software development and already boasts a stellar clientele including several on the Forbes Global 2000 list. In this highly volatile environment, it falls upon vendors, such as JustCommodity, to provide the tools necessary for traders and managers to make sense of the chaos.

Up and running

Posted on by Ben Debski

The global economy is a moving feast with the crisis events of a few years ago testing even the most robust of companies. Cast your mind back to the industrial revolution and consider coal – a fossil fuel. Since that time coal has been one of the foundations of growing economies. In today’s uncertain economic times, Australian energy company Linc Energy has now diversified its approach to delivering achievable energy solutions wherever there is coal, oil and gas around the globe.

Coal, oil and gas are critical sources of energy to harness in order to fuel economies. The task in today’s economy is how to balance these traditional resources with the advent of our now carbon conscious era. In the past 12 months Linc Energy has moved into new territory and has established an oil and gas division to focus on the acquisition of oil assets in the US. Oil projects in North America place the company in a unique position. They allow us a clear path to immediate revenue creation where current oil production exists and provide us with a platform to increase oil production rates from near-depleted oil wells by applying Enhanced Oil Recovery (EOR) technology.

The company is doing all of this on top of a strong foundation of coal resources. If you think about what is at the core of Linc Energy and what drives the business strategy, it is that it is a company focussed on creating value from existing fossil fuels by transforming them for tomorrow’s energy needs, and with today’s environmental consciousness in mind.

The entrance into oil and gas
Linc Energy sees acquiring global oil and gas assets as a vital component of a value-creating business strategy. The company has plans to acquire enough oil producing assets to meet 100,000 barrels of oil production per day. With this oil and gas acquisition strategy and the traditional oil production activities these acquisitions bring, we will also look to apply EOR methods to sweep stranded oil from existing oil reservoirs. This will allow us to increase the amount of recoverable oil from a conventional oil field by 10 to 20 per cent to generate considerably higher cash flows for all of our energy projects.

Over the past few months Linc Energy has been aggressively expanding its presence into North America by purchasing a number of oil and gas assets. We recently announced the acquisition of a controlling interest in over 19,000 acres of oil tenure located in Alaska’s National Petroleum Reserve. Known as the ‘Umiat’ oil field, it is currently projected to have in excess of 50,000 barrels of oil per day at peak production, providing us with the potential to access about one billion barrels of Alaskan (API 37) light sweet crude.

An acquisition of this size is totally unprecedented in Linc Energy’s history and gets the company significantly closer to reaching our long term goal of one billion barrels of oil reserves, meaning an oil production rate of more than 100,000 barrels per day. This acquisition has definitely given us significant exposure in the North American region, and our entrance into the region has even been recognised by the Alaskan Governor Sean Parnell.

The energy potential in this area is simply staggering and virtually impossible to replicate in any other part of the world. The Umiat oil field will now become Linc Energy’s Alaskan operational base from which to increase oil and natural gas exploration and development activities in the foothills of the North Slope region.

Earlier this year Linc Energy also purchased oil fields in the heart of America’s energy hub – the Powder River Basin in the state of Wyoming. Here we acquired three oil fields currently producing about 190 barrels of oil per day. The key upside to this purchase is the application of EOR for even higher oil production rates.

In our home country of Australia, Linc Energy is exploring for traditional oil and gas opportunities in the state of South Australia. In the Arckaringa Basin we are progressing a program of 10 oil exploration wells, as well as a significant 2D seismic program. It is programs such as these that showcase our entrepreneurial spirit and drive to create new energy regions.

How EOR fits with UCG
In terms of coal assets and proven clean coal technology, Linc Energy has already proven it is the leader in Underground Coal Gasification (UCG) for the production of clean power and clean fuel. We have a strong portfolio of traditional and UCG-suitable coal assets in both the United States and Australia, and have established the world’s only UCG and Gas to Liquids (GTL) facility in Queensland, Australia to produce clean gas for cleaner energy solutions. Earlier this year, and to prove our case, we drove across Australia on synthetic diesel produced from our technologies.

As the world’s leading UCG player, Linc Energy has taken a century old technology and advanced it for today’s energy climate. UCG converts low value coal, where it lies in the coal seam, into a clean gas for cleaner power and fuel. It is Linc Energy’s ability to unlock this coal to create valuable energy products that differentiates us from other traditional energy companies. What is more exciting is that we produce energy solutions that, when used, carry lower greenhouse gas emissions compared with traditional power and fuel.

In Australia we have been operating UCG gasifiers at our demonstration facility in Queensland since 1999. Our fifth UCG gasifier is currently under construction and this will then operate in tandem with the gasifier that has been operating for the past 18 months. A few years ago we constructed the GTL Fischer-Tropsch process facility which takes produced UCG synthesis gas and transforms it into synthetic crude to be refined into very valuable diesel and jet fuel. Linc Energy also owns the world’s only commercial UCG operation, Yerostigaz, located in » Uzbekistan, which has now produced commercial UCG synthesis gas for power generation for 50 years.

You might wonder then what using deep, low value coal has to do with oil assets and EOR technology to produce greater rates of oil production? In basic terms, the primary waste product from UCG is carbon dioxide, which is ideal when used in the EOR process to sweep stranded, remaining oil from near depleted oil wells. With the company’s accelerated presence in the United States and leading capabilities in UCG, it makes perfect sense for us to use waste carbon dioxide from UCG for EOR.

In a commercial sense, using carbon dioxide from the UCG process ensures that nothing is wasted. Just as UCG unlocks the energy trapped in deep coal, too deep to mine, carbon dioxide can be inserted into depleting oil reservoirs to harvest the remaining oil. The EOR process can draw an additional 10 to 20 percent of the original amount of oil already taken from a well.

From an environmental point of view EOR is a form of carbon capture and storage. By their very nature, oil fields trap fluids, like oil, in the subsurface. The oil migrates from the source to a place where it can no longer move. This is known as a geologic trap. It is this same ‘trapping’ tendency that makes old oil wells the perfect place to inject carbon dioxide – quite simply, when it is put there, it stays there.

As a diversified energy company, Linc Energy is certainly doing its part to be as productive and environmentally conscious as possible. Any carbon dioxide that we can sequester to generate more energy to help supply traditional global needs is a positive step.

Showcasing UCG to GTL made diesel
For countries with little oil and a lot of coal, UCG offers a world of ‘energy’ opportunity. Earlier this year I personally drove across Australia, from our UCG to GTL  demonstration facility in Chinchilla in Queensland, all the way to Perth in Western Australia – a distance of over 6,000 kilometres. This world-first achievement grabbed the attention of local, state and federal politicians in Australia, not to mention global print, broadcast and electronic media outlets and the wider public. It not only gave Linc Energy great exposure as a company extending its thinking and processes for new energy solutions, it provided a greater awareness of the benefits of combined UCG and GTL technologies and the opportunities they present.

Governments around the world need to recognise that combined UCG and GTL technologies can and will make a difference to economies and communities by providing cheaper, cleaner alternative energy solutions, while also creating energy security within domestic borders. Our approach to diesel fuel production unlocks stranded coal resources, transforming them into valuable and much-needed products that can make countries energy self-sufficient.

A lot of blood, sweat and tears have gone into making Linc Energy the entrepreneurial and highly driven company that it is today. We have clawed our way through a global financial crisis, and today we extend across four continents. We now have new business divisions and skills in oil and gas, yet continue to harness energy from deep underground coal for new forms of energy. The Linc Energy journey is only just beginning, and I for one can’t wait to see where it takes us in the next 10 years.

Peter Bond is chief executive officer at Linc Energy
www.lincenergy.com
Invest using the codes ASX:LNC or OTCQX: LNCGY.

All that glitters

Posted on by Ben Debski

In a rundown patch of Detroit, enclosed by a cyclone fence and barbed wire, stands an unremarkable warehouse that investment bank Goldman Sachs has transformed into a money-making machine. The derelict neighbourhood off Michigan Avenue is a sharp contrast to Goldman’s bustling skyscraper headquarters near Wall Street, but the two operations share one important element: management by the bank’s savvy financial professionals.

A string of warehouses in Detroit, most of them operated by Goldman, has stockpiled more than a million tonnes of the industrial metal aluminium, about a quarter of global reported inventories. Simply storing all that metal generates tens of millions of dollars in rental revenues for Goldman every year. There’s just one problem: much less aluminium is leaving the depots than arriving, creating a supply pinch for manufacturers of everything from soft drink cans to aircraft. The resulting spike in prices has sparked a clash between companies forced to pay more for their aluminium and wait months for it to be delivered, Goldman, which is keen to keep its cash machines humming.

Furthermore, the London Metal Exchange (LME), the world’s benchmark industrial metals market, has been accused by critics of lax oversight. Analysts question why London’s metals market allows big financial players like Goldman to own the warehouses which store huge quantities of metal even as they trade the commodity. Robin Bhar, a veteran metals analyst at Credit Agricole in London says the conflict of interest is so acute he wants US and European anti-trust regulators to weigh in.

“I think it makes a mockery of the market. It’s a shame,” Bhar said. “This is an anti-competitive situation. It puts (some) companies at an advantage, and clearly the rest of the market at a disadvantage. It’s a real, genuine concern. And I think the regulators have to look at it.” Goldman Sachs said its warehouse subsidiary Metro International Trade Services has done nothing illegal, and abides by the LME’s warehousing rules. “Producers have chosen to store metal in Detroit with Metro,” a Goldman spokeswoman said. “We follow the LME requirements in terms of storing and releasing metals from our warehouses.”

The London Metal Exchange defends its rules. “There is a perception that consumers have not been able to get to their metal when the reality is that it is big banks, financing companies and warehouses that are not able to get to their huge tonnages of metal fast enough,” said LME business development manager Chris Evans.    

Business model
Goldman’s warehouse business relies on a lucrative opportunity enabled by the LME regulations. Those rules allow warehouses to release only a fraction of their inventories per day, much less than the metal that is regularly taken in for storage. In the year to June 30 Metro warehouses in Detroit took in 364,175 tonnes of aluminium and delivered out 171,350 tonnes. That represented 42 percent of inventory arrivals globally and 26 percent of the metal delivered out, according to the LME.

The metal that sits in the warehouse generates lucrative rental income. Little wonder that so many want in. Metro was acquired by Goldman in February 2010, while commodities trading firm Trafigura nabbed UK-based NEMS in March 2010, and Swiss-based group Glencore International acquired the metals warehousing unit of Italy’s Pacorini last September. Henry Bath, a warehousing firm and founding member of the London Metal Exchange in 1877, has been owned for about 40 years by traders or banks including Metallgesellschaft in the 1980s and failed US energy trader Enron at the turn of the century. It now comes under the umbrella of JP Morgan, which bought the metals trading business of RBS Sempra Commodities in July last year.

Despite its rental income, Goldman’s warehouse strategy apparently hasn’t been enough to snap a slumping performance in commodity trading, with the company reporting a “significant” drop in revenues from a year ago in its latest quarter, the sixth time in the past 10 quarters that it has failed to expand.
The long delays in metal delivery have buyers fuming. Some consumers are waiting up to a year to receive the aluminium they need for production and that has resulted in the perverse situation of higher prices at a time when the world is awash in the metal.

Consumers fume
“It’s driving up costs for the consumers in North America and it’s not being driven up because there is a true shortage in the market. It’s because of an issue of accessing metal … in Detroit warehouses,” said Nick Madden, chief procurement officer for Atlanta-based Novelis, which is owned by India’s Hindalco Industries Ltd and is the world’s biggest maker of rolled aluminium products. Novelis buys aluminium directly from producers but is still hit by the higher prices. Madden estimates that the US benchmark physical aluminium price is $20 to $40 a tonne higher because of the backlog at the Detroit warehouses.

The physical price is currently around $2,800 per tonne. That premium is forcing US businesses to fork out millions of dollars more for the six million tonnes of aluminium they use annually. It has also had a knock-on impact on the global market, which is forecast to consume about 45m tonnes of the lightweight, durable metal this year. Also pushing aluminium costs higher are bank financing deals, which are estimated to have locked up about 70 percent of the 4.4m tonnes of the metal sitting in LME-registered warehouses around the world. LME inventories hit an all-time record above 4.7m tonnes back in May.

In a typical deal, a bank buys aluminium from a producer, agrees to sell it at some future point at a profit, and strikes a warehouse deal to store it cheaply for an extended time period. The combination of the financing deals and the metal trapped in Detroit depots, means only a fraction of the inventories are available to the market. Premiums for physical aluminium – the amount paid above the LME’s cash contract currently trading at $2,620 a tonne – in the US Midwest hit a record high of $210 a tonne in May, up about 50 percent from late last year.

In Europe, the premium is at records above $200 a tonne, double the levels seen in January 2010. The ripple effect »  into Asia has seen the premium paid in Japan increase six percent to $120 a tonne in the third quarter from the previous quarter, the first rise in nearly six quarters.

Rent collection
You won’t hear banks like Goldman complaining. Rental income continues to pour in at the 19 Detroit area warehouses run by Metro. From the outside, depots in the Detroit suburb of Mt Clemens appear to be deserted. But neighbours say the place is a whirl of activity in the early hours of the morning when metal is usually delivered for storage.

The LME says the current maximum rent, set by warehouse operators, is 41 US cents per day per tonne. At that rate, Goldman’s warehouse operation in Detroit – said to be holding more than 1.1m tonnes – could be generating as much as $451,000 per day or about $165m a year in revenue.

An exact figure cannot be calculated because many clients negotiate lower rental rates and Goldman declined to detail its income from its warehouse business. But when Swiss-based trading company Glencore listed earlier this year it revealed that its metals warehousing unit generated $31m in profit on $220m in gross revenue in 2010.

A long history
Caught between consumers and warehouse operators is the 134-year old LME, one of the world’s last exchanges with open-outcry trading. Sessions take place in a trading ring with red padded seats while visitors can watch from a gallery. Traders juggle multiple telephones and use archaic hand signals to fill orders from consumers, producers and hedge funds.

The ring is a perhaps more civilised version of the tumultuous trading pits made famous in Chicago. Each of six major industrial metals including copper and nickel are traded for five minute bursts in the morning and afternoon. Only 12 firms have access to the ring, arranged in fixed positions in a circle, with many others involved via the ring dealers and on the LME’s electronic trading system.

Longer sessions in the late morning and afternoon allow trading of all metals simultaneously and are known as “the kerb” from the days when dealers continued to trade on the kerb, or sidewalk, after leaving the exchange.

The LME certifies and regulates the Detroit sheds as part of a global network of more than 640 warehouses. The network is meant to even out swings in volatile metals markets. During recessions, surplus metal can be stored until economies recover and demand picks up, when the metal can be released. But that function is now being undermined by the backlog in Detroit. LME rules stipulate that warehouses must deliver a certain amount of metal each day. However the rules apply not to each warehouse but to each city that a company has warehouses in. At the moment, a warehouse operator needs to deliver just 1,500 tonnes a day per city, whether it owns one warehouse there or dozens.

That means each of Metro’s Detroit warehouses need to release only 79 tonnes of aluminium a day. At that rate, it would take two years to clear the stocks held by Goldman’s Detroit warehouses. The backlog sparked outrage last year, prompting the LME to task London-based consultancy Europe Economics to look into its rules. Europe Economics recommended the exchange raise its minimum delivery rates and this July the exchange announced a new regime for operators with stocks of over 900,000 tonnes in one city. From April 2012 the minimum delivery rate will double to 3,000 tonnes a day.  
 
Critics dismiss the move as too small to have any real effect, especially because of the delay until it comes in. “The move is too little and too late to have a material effect in the near-term on an already very tight physical market, particularly in the US,” said Morgan Stanley analysts.

A senior executive at a metals brokerage told reporters: “the recommendations won’t change anything. The problem will still be there six, nine months down the line. If Detroit has 1.1m tonnes at the moment, what’s to say it won’t have 2m tonnes next year,” he said.

Moving the metal
One obvious solution would be to impose minimum delivery requirements per warehouse or per square metre of warehouse space rather than per city. It’s not as if the warehouses can’t cope with delivering more stock: large operations can shift much more than 3,000 tonnes a day, warehousing sources say. An experienced forklift driver takes about 20 minutes to load one 20-tonne truck with aluminium in the US. That means one warehouse in Detroit with two forklifts and an eight-hour working day could move out as much as 1,920 tonnes of metal every day.

“If you take Detroit in particular, those warehouses historically extracted metal at a faster rate … the infrastructure is there,” a senior analyst in the metals industry told reporters. Madden at Novelis said: “I don’t know the specific details of every warehouse but our view is that they seem to be able to absorb metal coming in at almost an infinite rate and so we feel there’s a lot more they can do on the output side to push up the (load out) rates.” The LME could also crack down in the same way it did in 1998 when it banned Metro from taking any more copper into its Long Beach and Los Angeles warehouses. Then the complaints were said to have come from copper consumers worried that 80 percent of total copper stocks in LME-approved warehouses were held in California. The exchange argues that any change right now might disrupt the market.

“Changes to the delivery out rate have required careful consideration because it will impact the cost structure for those holding metal, and were those costs to rise sharply it could affect the way that metal is stored and traded,” said the LME’s Evans. The exchange could also rule that a warehouse cannot charge rent once aluminium has been purchased, no matter how long it takes to ship it. But a change like that would hit the LME itself as it receives about one percent of the rental income earned by the warehouses it approves.

Legal fears
Nobody at the LME will say whether the Europe Economics study (estimated to be more than 40 companies) advised more radical measures, arguing that such information is “proprietary”. In any case, say metal markets sources, LME officials may be hesitant to make bigger changes because they fear legal action from the likes of Goldman, which could argue that Metro’s business model has been based on existing LME warehouse rules.

The LME declined to comment on possible legal challenges, but its chief executive Martin Abbott said at a recent briefing that the warehouse delays were not causing market and price distortions. “No, I don’t believe it is,” Abbott said, when asked if the situation was causing distortions in the market. Abbott said the exchange had received no official complaints from consumers about bottlenecks at warehouses. The LME also dismisses concerns about banks trading metal and owning the warehouses where it is stored.

While a British parliamentary committee recently raised the issue, Britain’s Office of Fair Trading declined to open a probe. The U.S Commodity Futures Trading Commission, which regulates the futures and options markets, said it would not comment. Britain’s Financial Services Authority, which regulates exchanges where commodity futures are traded but not warehouses that store physical material, declined to comment.

What next?
The lack of real change has some in the industry questioning the very structure of the LME, which, unlike its publicly owned US-based rival commodities exchanges, is owned by many of the financial institutions that trade there. “The belief is that they are focused on serving their shareholders; most of them being the banks …We see our clients and contacts trying to avoid the LME as much as possible now,” said Jorge Vazquez, managing director of the Aluminum Intelligence Unit at HARBOR Commodity Research.

That concern is growing. Critics of the exchange point to a potential problem with zinc supply though New Orleans, where inventories now account for 61 percent of total LME-registered stocks. Most of the warehouses in New Orleans are owned by Goldman and Glencore.

Metal industry sources believe regulators should take a closer look at the possible conflict of interest that arises when trading houses also own the warehouses. “If the whole thrust of regulation and regulatory reform is increased transparency and open and above board operations, letting banks own warehouses seems to run entirely counter to that,” said Frances Hudson, global thematic strategist at Standard Life Investments.

The LME says it enforces a strong separation between warehouses and the trading arms of their owners. Just recently it proposed that companies which own warehouses should engage an independent third-party to verify the robustness of Chinese walls.

“We enforce it through regular audits of warehouses,” said the LME’s Evans. “If people say Chinese walls are leaking then they should bring us evidence and we’ll investigate thoroughly.”

About the LME
Established for over 130 years, the London Metal Exchange is the world’s premier non-ferrous metals market.

The Exchange tries to provide a ‘transparent’ forum for all its trading activity. This allows the industry to ‘discover’ the price of materials months and years ahead of time.

The LME is an infamously liquid market and achieves incredible turnover every year. In 2010 it made a total of $11.6trn and an estimated average business day total of $46bn. Around 95 percent of business came from overseas.

The LME is a principal-to-principal market meaning the only organisations able to trade on it are its member firms. However, the list of criteria to become a member is relatively complex.

Inorganic growth

Posted on by Ben Debski

With land frustratingly hard to get at home, India’s largest rubber producer decided to make its next investment – and its first overseas – a continent away, in Africa.

Harrisons Malayalam , which is also a major tea grower, is joining a surge in outbound investment by corporate India. It plans to spend up to $112m somewhere in Africa to buy around 10,000 acres. The overseas investment push by Indian companies, often seen as the assertiveness of a rising power, is increasingly spurred by difficulty finding attractive opportunities in Asia’s third-largest economy.

At home, rising interest rates and inflation, fierce competition in several industries, and policy gridlock amid a spate of corruption scandals that have put India’s government on the defensive have deterred investment, slowed economic growth and prompted many Indian firms to seek opportunity elsewhere. While pursuing business abroad diversifies risk and opens new markets, the export of capital, even as inflows slow, deprives the Indian economy of needed investment.With an economy steadily growing, 1.2bn people and unmet demand for everything from housing, roads and power to food and consumer goods, India is hungry for capital. Conditions on the ground, however, can make it hard to put money to work. The fast-growing telecoms sector is beset by uncertainty stemming from a massive licensing scandal that has seen several executives held in jail and put the government of Prime Minister Manmohan Singh on the back foot over its handling of corruption. Telecom was already competitive.

Opportunity and frustration
Securing land for big projects is also fraught with problems. Mining and power companies can’t dig the coal and other raw materials they need because of a slowdown in environmental clearances, sending them in search of resources inAustralia, Indonesia and elsewhere. Even state-run Coal India, the world’s biggest coal miner, missed production targets, in part because tighter environmental rules kept it from gaining access to new domestic mines, adding urgency to its hunt for mining assets abroad. In some cases, companies have permits but can’t start mining.

Even with a severe infrastructure deficit at home, Indian builders of roads and power plants are active overseas. Hyderabad-based GVK Power & Infrastructure Ltd signed a memorandum of understanding to invest $3bn to $5bn to build airports on the Indonesian islands of Bali and  India’s infrastructure builders. “The fact that they’re looking for opportunities overseas highlights the policy paralysis that exists here,” said IAP’s Cornell.

Sentiment setback
India’s economy grew at a 7.8 percent annual pace at the start of the year, its slowest in five quarters and well below forecasts. The central bank has raised interest rates 10 times since March 2010, which has taken a toll on sentiment among companies and investors.

Mumbai stocks are among the world’s worst performers this year, with the Sensex down more than eight percent. Foreign portfolio investors have put a net $494m into Indian stocks in 2011, well off the record pace of last year, which ended with $29.3bn in net fund inflows.

Few question India’s attractiveness as a long-term bet. Local auto makers Maruti Suzuki and Hero Honda Motors and global giants like Ford and Hyundai Motor are adding capacity in an Indian car market that grew 30 percent in the fiscal year that ended back in March. Near-term sentiment is weaker. A recent survey found that three-quarters of leading firms have lost faith in the government and believe a governance crisis and policy limbo will hit economic growth and their investment plans.