Seoul, South Korea -- (SBWIRE) -- 06/02/2010 -- Brazil provides us with an example of a rapidly developing, energy-hungry economy in the Western Hemisphere, where biofuel is a fact of life. Biofuel is also an investment imperative for energy investors and companies that want to make money in Brazil. As an important part of the #3 economy in the Americas, ethanol can't be ignored by the United States.
(Sugar) Ethanol as a Global Commodity; Focus on Cosan Ltd. (NYSE: CZZ) Cosan is entering into a joint venture with an oil giant that could be worth $12 billion, and its happy beginning to 2010 signals a renewal of interest in ethanol and entrance of some unlikely participants into biofuels. Cosan, a Brazilian company that processes more sugar than anyone else in the world, is now joining with Royal Dutch Shell (NYSE: RDS), the #2 oil producer in Europe.
Shell is paying Cosan $1.625 billion for half of its core assets. As part of the joint venture that will emerge, Shell is also taking on Cosan's debt and opening up 2,740 Shell service stations to Cosan's sweet, green fuel. Shell will also give Cosan two small Brazilian companies … Codexis and Iogen … where Shell has been investing in ethanol. Cosan is entering into a joint venture with an oil giant that could be worth $12 billion, and... signals a renewal of interest in ethanol and entrance of some unlikely participants into biofuels.
Shaw Capital Management Korea News: Cosan stands to gain big from an efficient system of turning agricultural leftovers into fuel in its own right. Of all the money and knowledge changing hands, one part is most important: By gaining access to Shell's distribution system, Cosan will have the luxury of ramping up production without worrying if there will be buyers.
Shell wants to fertilize Cosan's cane-based business. Cosan output now has to grow from 2 billion liters per year up to the 3 billion that will be needed to satisfy a total 4,500 fuel stations in Brazil. From there, it's up to 4 and 5 billion liters annually and on to making ethanol a global commodity. You'd be hard pressed to tell the difference between Shell and Cosan's statements on this joint venture if you removed a couple of words. Very simply, each company wants access to the other's expertise. "Cosan represents the best entry to sustainable biofuels in the market... the best entry of scale," Shell's Mark Williams said in London. In Sao Paulo, Cosan Chairman Rubens Ometto said the tie-up is intended to be "the step forward that was lacking, in spite of all our efforts, to make ethanol a global commodity." Shell's 45,000 stations around the world will pump biofuel to vehicles that can run on gasoline, ethanol, or a mixture of the two.
Shaw Capital Management Korea News: Low prices also help, as evidenced in Brazil where flex-fuel vehicles now account for 90% of new cars and truck sales. Shell's 45,000 stations around the world will pump biofuel to vehicles that can run on gasoline, ethanol, or a mixture of the two (Brazil mandates that all gasoline have at least a 20% ethanol component). As it stands, Brazilians are the end users of the vast majority of the ethanol that their country produces (about 25 billion liters annually). And you wouldn't know it from most of the media, but ethanol is more than just an automotive matter...
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Tuesday, October 19, 2010
Foreign Exchange Markets 2010 Part 3: Shaw Capital Management
The recent State of the Union message to Congress by President Obama included a request for the approval of a further fiscal stimulus package this year amounting to around $100 billion to help to tackle the unemployment problem, and he has also presented a $3.8 trillion budget for fiscal 2011 that is likely to maintain the overall deficit around the $1.35 trillion level expected this year.
(1888PressRelease) September 15, 2010 - Foreign Exchange Markets 2010 Part 3: Shaw Capital Management - Much will depend on the attitude of overseas holders, and especially on the attitude of the Chinese and Japanese authorities. For the present they seem to be prepared to maintain and even increase their dollar exposure; and if this continues, and the problems of other major currencies remain unresolved, it should be enough to allow the dollar to "improve". The euro struggled to recover in the early part of January from the big fall that occurred in December; but the recovery did not last very long, and it has subsequently fallen sharply again, to leave it value against the dollar around 10% below the level in early- December.
There has been no significant change in the underlying economic background, although there is some evidence that the fragile recovery that was developing is losing some momentum.
Foreign Exchange Markets 2010 Part 3: Shaw Capital Management Korea - But there has been a serious deterioration in the financial background as the fears have increased that Greece and some other periphery countries in the euro-zone may be unable to fund their massive fiscal deficits, and service their sovereign debts. There is also considerable uncertainty about the intentions of the European Central Bank and the stronger countries if conditions continue to worsen, and so overseas holders have started to withdraw funds from the European capital markets to await developments.
The present lack of urgency at the central bank and amongst the key politicians suggests that this trend will continue, and that the euro will fall still further; but there is still some hope that the seriousness of the situation will finally produce a support operation that will ease the situation.
Shaw Capital Management News - All the available evidence continues to point to a slow, two-speed recovery in the euro-zone economy. Germany and France appear to be performing reasonably well, although there are some signs of slowdown in Germany; but Greece, Portugal, Spain, Ireland, and even Italy are struggling to escape from recession, and are expected to keep overall output in the euro-zone this year around the 1% level.
Shaw Capital Management News - There is also considerable uncertainty about the intentions of the European Central Bank and the stronger countries if conditions continue to worsen, and so overseas holders have started to withdraw funds from the European capital markets to await developments.
Retail sales remain depressed, and fell by 1.2% between October and November to reflect the continuing caution of consumers; and industrial orders in Germany rose by much less than expected in November, after a very disappointing result in October, to indicate some weakness in export prospects that had been expected to provide significant momentum to the economy.
Shaw Capital Management News -Foreign Exchange Markets 2010 Part 4
Prospects therefore remain disappointing, and are being made worse by the differences that exist between member countries. The European Central Bank therefore faces a difficult situation. It continues to forecast “moderate” growth and “moderate” inflation; but it is being severely criticised for failing to address the problems of a two-speed economy, and for its unwillingness so far to face the threat that the deteriorating situation in Greece could quickly begin to destabilise other member countries and have serious consequences for the financial stability and growth prospects of the entire area.
It is not surprising therefore that investors and speculators have started to reduce their exposure to the euro.
Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The critical question therefore is whether the fall of the euro is now over. Since the currency is unlikely to receive any real support from the general background situation in the euro-zone, everything depends on the developing debt situation, and particularly on the situation in Greece; and also on the possibility of support operations from stronger member countries and from the European Central Bank, and the European Commission. The situation remains uncertain. The central bank appears to be reluctant to offer help, and the German government, which might have been expected to become involved, has also made no response so far.
Shaw Capital Management News - But the European Commission has endorsed the latest plans by the Greek government to introduce an across-the-board freeze on public sector wages and cuts in allowances that are expected to reduce the overall public sector wage bill by around 4%.
This may encourage support from elsewhere; however the Commission has warned that it will not tolerate any slippage from the target and will if necessary demand tougher action from the government to ensure that it stays on course.
But it is far from clear that the Greek government can obtain the necessary support in parliament even for the present proposed measures, and so the uncertainty will continue.
It is therefore likely that there will be further falls in the euro over the coming weeks.
Sterling has improved slightly over the past month, helped by the weakness of the euro.
Shaw Capital Management News - The background situation in the UK remains unattractive, and there have already been threats that its AAA credit rating is at risk unless there are credible measures to reduce the massive fiscal deficit after the forthcoming general election is over.
Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The European Central Bank therefore faces a difficult situation. It continues to forecast “moderate” growth and “moderate” inflation; but it is being severely criticised for failing to address the problems of a two-speed economy, and for its unwillingness so far to face the threat that the deteriorating situation in Greece could quickly begin to destabilize other member countries and have serious consequences for the financial stability and growth prospects of the entire area.
But the UK is not constrained by membership of the European single currency system, and so there is no immediate risk of a default on its sovereign debts.
It has therefore been able to benefit from the problems affecting some other European countries.
Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The latest figures from the Office of National Statistics indicate that the UK just managed to move out of recession in the final quarter of last year. The estimate of growth of only 0.1% in the quarter was a considerable disappointment, and it is expected that it will be revised higher; but clearly the economy is not performing very well.
Government spending remains strong, and there was a surge in retail sales in the run-up to Christmas; but the anecdotal evidence suggests that consumers became much more cautious again in January.
The latest meeting of the Monetary Policy Committee of the Bank of England was concerned by the poor reaction so far to the dramatic measures that have been introduced to counter the recession, and reacted to this situation by leaving UK base rates unchanged once again at 0.5%.
Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - It clearly has no intention of moving to an “exit strategy” until there is convincing evidence that a sustainable recovery in the economy is underway.
It did announce that purchases of market securities under the quantitative easing programme would now be discontinued after the £200 billion target has been reached; but its main priority is to continue to provide support for the fragile economic recovery.
Foreign Exchange Markets 2010 Shaw Capital Management
The main feature of the foreign exchange markets over the past month has been the further sharp fall in the euro. There has been no real change in the background economic situation in the euro-zone; but there has been a serious deterioration in the financial background as doubts have increased about the ability of Greece and some other periphery countries to cope with their massive fiscal deficits and service their sovereign debts.
Foreign Exchange Markets 2010: Shaw Capital Management Korea: This is clearly leading to a withdrawal of international funds from the European capital markets, and is dramatically illustrated in the widening of yield spreads in the bond markets of member countries. There is still a general assumption that the stronger members will provide support for the weaker members if this proves to be necessary to prevent a default on sovereign debts.
But the uncertainties have been increased by conflicting statements from the European Central Bank and some politicians about the willingness to undertake such operations, and so investors and speculators have taken evasive action, and the euro has fallen by around 10% from its peak in early-December.
This fall has provided support for the other major world currencies, including the dollar; but the background situations in Japan, and in the UK, also provide reasons for concern, and so the currency markets remain in a very uncertain state.
Foreign Exchange Markets 2010: Shaw Capital Management - It is likely that the uncertainty will continue. The US economy is clearly recovering from recession; economic conditions in Japan are very weak, and Japan appears to face the possibility of a credit downgrade if it does not take steps to reduce its massive fiscal deficit; and there have already been warnings from Standard and Poor’s that the UK also faces the possibility of a credit downgrade if there are no convincing measures to reduce its huge fiscal deficit after the forthcoming general election. Prospects are therefore very difficult to assess; but our tentative conclusion is that the dollar will continue to “improve”, helped to a considerable extent by weaknesses elsewhere; and that this will allow market pressures to gradually subside as the global economic recovery continues through the year.
But the possibility of a major currency crisis cannot be ignored, especially if the debt problems in Greece and other periphery countries threaten to lead to the break-up of the single currency system in Europe. It is fortunate therefore that the available evidence on the performance of the US economy is more encouraging. Non-farm payrolls fell again in December by 85,000, but are expected to have increased in January; retail sales held up well in the pre-Christmas period; manufacturing output is improving, according to the latest report from the Institute of Supply Management; and even the housing market appears to be recovering.
This general situation is reflected in the first preliminary estimate from the Commerce Department of growth at a seasonally adjusted annualised rate of 5.7% in the final quarter of last year, a higher figure than the market had been expecting. Most economists therefore appear to be forecasting overall growth this year in the 2.5% to 3% range, after the estimated fall of 2.4% last year.
Foreign Exchange Markets 2010: Shaw Capital Management - The Fed is clearly in no hurry to tighten its present monetary stance. The statement after the latest meeting of its Open Market Committee was more upbeat about the prospects for the economy; but shortterm interest rates were left unchanged and close to zero, and there was a clear indication that they would remain at very low levels “for an extended period”.
The bank did state that it will discontinue most of its emergency lending programmes, and that it would end its purchases of mortgage securities in March; but there was no indication that it would be prepared to implement an “exit strategy” until there was convincing evidence of a sustainable economic recovery. It is also unlikely that there will be any early changes in fiscal policy.
Foreign Exchange Markets 2010: Shaw Capital Management Korea: This is clearly leading to a withdrawal of international funds from the European capital markets, and is dramatically illustrated in the widening of yield spreads in the bond markets of member countries. There is still a general assumption that the stronger members will provide support for the weaker members if this proves to be necessary to prevent a default on sovereign debts.
But the uncertainties have been increased by conflicting statements from the European Central Bank and some politicians about the willingness to undertake such operations, and so investors and speculators have taken evasive action, and the euro has fallen by around 10% from its peak in early-December.
This fall has provided support for the other major world currencies, including the dollar; but the background situations in Japan, and in the UK, also provide reasons for concern, and so the currency markets remain in a very uncertain state.
Foreign Exchange Markets 2010: Shaw Capital Management - It is likely that the uncertainty will continue. The US economy is clearly recovering from recession; economic conditions in Japan are very weak, and Japan appears to face the possibility of a credit downgrade if it does not take steps to reduce its massive fiscal deficit; and there have already been warnings from Standard and Poor’s that the UK also faces the possibility of a credit downgrade if there are no convincing measures to reduce its huge fiscal deficit after the forthcoming general election. Prospects are therefore very difficult to assess; but our tentative conclusion is that the dollar will continue to “improve”, helped to a considerable extent by weaknesses elsewhere; and that this will allow market pressures to gradually subside as the global economic recovery continues through the year.
But the possibility of a major currency crisis cannot be ignored, especially if the debt problems in Greece and other periphery countries threaten to lead to the break-up of the single currency system in Europe. It is fortunate therefore that the available evidence on the performance of the US economy is more encouraging. Non-farm payrolls fell again in December by 85,000, but are expected to have increased in January; retail sales held up well in the pre-Christmas period; manufacturing output is improving, according to the latest report from the Institute of Supply Management; and even the housing market appears to be recovering.
This general situation is reflected in the first preliminary estimate from the Commerce Department of growth at a seasonally adjusted annualised rate of 5.7% in the final quarter of last year, a higher figure than the market had been expecting. Most economists therefore appear to be forecasting overall growth this year in the 2.5% to 3% range, after the estimated fall of 2.4% last year.
Foreign Exchange Markets 2010: Shaw Capital Management - The Fed is clearly in no hurry to tighten its present monetary stance. The statement after the latest meeting of its Open Market Committee was more upbeat about the prospects for the economy; but shortterm interest rates were left unchanged and close to zero, and there was a clear indication that they would remain at very low levels “for an extended period”.
The bank did state that it will discontinue most of its emergency lending programmes, and that it would end its purchases of mortgage securities in March; but there was no indication that it would be prepared to implement an “exit strategy” until there was convincing evidence of a sustainable economic recovery. It is also unlikely that there will be any early changes in fiscal policy.
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