Year: 2011

For the first time in three days the FTSE Asia Pacific index has fallen 0.4 percent, while the Nikkei stock average fell 0.57 percent or 57.60 to 9578.53.

Renewed worry about high levels of radiation at Japan’s nuclear power plant in Fukushima has again put Asia Pacific shares under pressure with radiation levels said to be 100,000 times higher than usual. Workers had to be evacuated late on Sunday from Reactor 2 in Fukushima following the finding that extremely elevated radioactivity levels were identified at the plant.

Stocks may have also been affected as an earthquake with a initial magnitude of 6.5 hit Miyagi Prefecture and its vicinity in north-eastern Japan this morning, Japan Meteorological Agency said. A tsunami warning was issued for the Pacific coast of the prefecture but was later lifted.

The FTSE Hong Kong index fell 0.46 percent but remained up by 0.2 percent after banks and the coal mining industry published results that showed higher than expected earnings.

Meanwhile the FTSE ALL-World equity index has suffered its first loss in eight sessions, down 0.2 percent, and so terminates the successive stint that elevated stocks back to levels observed prior to the March 11 earthquake in Japan.

Oil has retreated with Brent slipping below $115 after Libyan rebels regained control of key oil towns, and unrest over the weekend was limited to minor crude exporters Syria and Yemen.

Western-led military intervention in Libya prompted speculators to raise their bets on higher prices by 6 percent in mid-March, before rebels took back a series of towns including oil terminals over the weekend.

A Libyan rebel official said Gulf oil producer Qatar had agreed to market crude oil produced from east Libyan fields no longer in Muammar Gaddafi’s control.

“These are positive developments which are negative for oil prices potentially as they have taken back some of the main oil export towns,” said Olivier Jakob, oil analyst at Petromatrix.

Rebels have regained control of all the main oil terminals in the eastern half of Libya, namely Es Sider, Ras Lanuf, Brega, Zueitina and Tobruk. On Monday, they also claimed to have taken control of Sirte, Gaddafi’s hometown.

A Reuters reporter in Sirte said there was no indication the city was under rebel control.

Jakob also pointed to the fact that the dollar was slightly stronger this morning. A stronger dollar means that commodities priced in dollars are more expensive for those using other currencies.

Output from Libyan oilfields controlled by rebels was running at about 100,000 to 130,000 bpd, which could be increased to 300,000, Ali Tarhouni, a rebel official in charge of economic, financial and oil matters, said. Libya was pumping about 1.6 million bpd before the rebellion.

But some analysts are sceptical about how quickly things will return to normal.

“Maybe there’s some hope that with rebels regaining control of most of the Eastern part of Libya and the lion’s share of Libyan production, normality may resume soon but I think it is still too early,” said Carsten Fritsch, an analyst at Commerzbank. “Damage to oil facilities will prevent a sudden return to normal production levels.”

Eurozone debt
European leaders agreed a new package of anti-crisis measures at a two-day summit, but were forced to delay increasing their rescue fund and acknowledged they faced new threats from a government collapse in Portugal.

“The unrest in the Middle East is providing support, but the Portugal crisis is capping gains,” said Natalie Robertson, a commodities analyst at ANZ.

“Investors will hold onto their long position until something of significance occurs in the market. If they have fully priced in the unrest, the market is susceptible to drops due to profit taking.”

Syria deployed the army to the country’s main port in an attempt to rein in spreading protests across the country, while in Yemen talks stalled between the government and opposition.

Bahrain’s foreign minister said it was “completely untrue” that Kuwait would mediate to resolve Bahrain’s political crisis. The Gulf Cooperation Council – a regional political and economic bloc made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – had welcomed the mediation move.

Saudi Arabian King Abdullah earlier in March announced $93bn in social handouts, the second benefits package to be unveiled within a month as the kingdom attempts to contain discontent, especially from Shi’ites in the east of the country, where the world’s biggest oil reserves are located.

“That’s a reason oil is trending higher – simply OPEC is demanding a higher price for its oil, and the developments in the Middle East are exacerbating that trend by pushing some producers like Saudi Arabia to expand their expenditures at rapid rates,” Francisco Blanch, Bank of America Merrill Lynch’s global head of commodity research, told reporters in Calgary.

“The economy is squarely reliant on oil and becoming a lot more reliant because the unrest is forcing politicians in Saudi to start throwing money at the problem.”

Britain has cut its economic growth forecast and said inflation would remain above target this year and next in a budget that stuck to ambitious deficit-busting goals.

Seeking to support a faltering economy, finance minister George Osborne said corporation tax would be cut by two percentage points to 26 percent from April, rather than by just the one point originally planned.

A levy on banks would be increased to pay for it.

Osborne cut his growth forecasts to 1.7 percent in 2011, and 2.5 percent in 2012, citing figures from the government’s independent fiscal watchdog. In November, growth was estimated to be 2.1 percent this year and 2.6 percent in 2012.

The Conservative-Liberal Democrat coalition government is attempting to eliminate most of a deficit of 10 percent of national output before the 2015 election, while also nurturing a fragile economy back to health.

Public borrowing would fall less steeply over the next four years than previously hoped but the bulk of the budget deficit would still be eliminated by 2015, Osborne said.

Policymakers at the Bank of England face a dilemma, with inflation running at more than double their two percent target while the economy is still in a fragile state and needs the support of record low interest rates.

Osborne said soaring oil prices meant inflation would remain between four and five percent this year before dropping to 2.5 percent next year.

Uncertain backdrop
The economy unexpectedly shrank at the end of last year and, although it is seen bouncing back this year, the recovery faces headwinds from constrained credit, weak household finances, high oil prices and the prospect of tighter monetary policy.

Minutes of the Bank of England monetary policy meeting showed no more policymakers had joined the camp wanting to raise interest rates, with three out of nine MPC members backing a hike and the rest wanting to hold rates at a record low of 0.5 percent.

Markets have been betting that the BoE could start to raise rates in the coming months, potentially creating a headache for a government banking on loose monetary policy to support the recovery while it slashes spending. Any delay will be a welcome relief for Osborne and his team.

The coalition – which set four-year plan to cut public spending by about a fifth last year – has little cash to spend to ease the pain for struggling businesses and families.

Labour, the unions and some economists argue the government is putting the recovery at risk by cutting the deficit so fast.

The wisdom of the government’s harsh four-year spending review has also been brought into question for other reasons.

British fighter jets are now operating in Libyan skies to quell attacks by Muammar Gaddafi on his own people, but any sustained military engagement could put Britain’s cash-strapped armed forces under strain.

European private equity firm Cinven has kicked off a fundraising drive for its fifth buyout fund, aiming to gather up to 5bn euro ($7.1bn) for new deals, people familiar with the situation said.

The buyout firm, whose investments include Pizza Express group Gondola Holdings and Dutch cable operator Ziggo, is hoping to buck tough fundraising markets in which amassing new funds can take up to two years.

Cinven targeting a first close – the point after which investors are locked in and it can start investing the capital raised – in the autumn, three people familiar with the situation said.

It has deployed about 70 percent of its fourth fund and has told investors it planned to extend the investment period of the fund by one year, allowing it to continue spending the remaining almost €2bn until mid-2012, they said.

Cinven, which declined to comment, last raised money in 2006, drawing in €6.5bn from more than 100 institutional investors to beat its initial target of €5bn.

Private equity fundraising has become more difficult in the wake of the credit crisis as cautious investors pledge less money to fewer buyout firms.

Rival buyout firm BC Partners earlier in March raised €4bn towards its latest buyout fund, beating initial expectations and providing a ray of hope to the many firms ready to follow it this year.

Private equity professionals attending the SuperReturn private equity conference in Berlin said they expected funds to be dramatically smaller than those raised at the peak of the buyouts boom.

Global companies from semiconductor makers to shipbuilders faced disruptions to operations after the earthquake and tsunami in Japan destroyed vital infrastructure and knocked out factories supplying everything from high-tech components to steel.

Thousands of people have been killed and millions have been left without water, electricity, homes or heat after the 8.9 magnitude quake triggered a massive tsunami which tore across a wide swathe of coastline north of Tokyo.

The earthquake has forced many firms to suspend production and shares in some of Japan’s biggest companies have tumbled, with Toyota Corp and Sony Corp falling eight percent and nine percent, respectively.

Plant closures and production outages from Japan’s host of high-tech companies were among the biggest threats to the global supply chain, analysts said.

“Japan remains critical to the global tech food chain,” analysts at CLSA said in a report. “Beyond damage to facilities, supply chain disruptions driven by road-port-power outages are key factors to watch,” CLSA said, estimating a fifth of all global technology products are made in Japan.

Korean shipbuilders and US solar power companies were among other companies facing the threat of disruptions to supply, but with initial damage assessments still being made, companies and analysts said it was too early to accurately gauge how long disruptions might last.

Rolling power blackouts are likely to affect Tokyo and surrounding areas, adding to the existing challenge of inspecting and repairing north Japan plants amid continuing aftershocks and the threat of major radiation leaks from damaged nuclear power plants.

Korean companies hit
Japanese ports handling as much as seven percent of the country’s industrial output sustained major damage from the earthquake, with most seen out of operation for months.

Companies in neighbouring South Korea, which depend heavily on Japan supplies such as LCD glass, chip equipment, silicon wafers and other products to produce semiconductors, were some of the most affected.

Hynix Semiconductor , the world’s number two memory chipmaker and a rival of Japan’s quake-hit Toshiba Corp and Elpida Memory , said it was concerned the quake may weaken consumer demand further and disrupt supplies of chip components.

“It could give a boost to battered chip prices but that’s a short-term impact from disrupted supplies by Japanese companies,” said Kim Min-chul, chief financial officer at Hynix. “Longer-term we are more concerned about the quake reducing overall consumer demand and disrupting supplies of chip components and equipment, which could interrupt our production as well.”

Hynix shares surged almost nine percent on expectations of a short-term boost to chip prices and reduced competition, while shares in Toshiba, a conglomerate whose products include semiconductors and nuclear reactors, dived 16 percent.

Toshiba, which supplies more than a third of the NAND memory chips used worldwide in devices such as Apple’s hot-selling iPad, said it was starting the process of restarting a chip factory in Iwate, northern Japan.

Shares of Shin-Etsu fell 6.7 percent in Tokyo, while rival silicon wafter makers Sumco Corp ended flat in a Tokyo market that closed down 6.2 percent.

Spot prices for DRAM chips, mostly used PC, had started rising in China, chip price tracker DRAMExChange said.

“Especially for PC and system manufactures, they need to be more proactive in DRAM inventory for the upcoming peak season,” it said in a note.

Nokia said it was investigating the impact on supplies.

About 12 percent of components used by Nokia were sourced in Japanese yen but the amount of Japanese components was likely larger in its phones as Nokia has recently renegotiated its supplier contracts in Japan to cut risks from swings in the value of the yen.

“Until we have concrete information to share, it would be inappropriate to speculate on the possible impact to Nokia,” a spokesman said.

Steel, solar
Companies reliant on Japanese steel such as South Korean shipbuilders were also expected to face supply constraints or higher prices due to disruptions caused by the quake and its aftermath.

South Korea houses the world’s top three shipbuilders – Hyundai Heavy Industries, Daewoo Shipbuilding and Marine and Samsung Heavy Industries.

“The earthquake has reportedly affected around 20 percent of the Japanese steel production capacity,” said Kim Hyun-tae, an analyst at Hyundai Securities in Seoul. “It will disrupt production in Japan, one of the major steel producers exporting 40 percent of its output. In contrast, steel demand will rise for damage restoration.”

Nippon Steel Corp , the world’s number four steelmaker, said it resumed shipments from all its steel plants except its Kaimishi facility in northern Japan. Rival JFE Holdings said it was forced to stop shipments at one plant near Tokyo due to a power outage.

JFE Steel Corp , the world’s number five steelmaker, halted production at a plant near Tokyo and number four ranked Nippon Steel suspended operations at two small plants.

“If there is a 10 percent rise in steel plates, it can result in a 1.5 percent fall in the operating profit margin for shipbuilders,” said SK Securities analyst Lee Ji-hoon, adding roughly 15 percent of steel plate supplies for Korean shipbuilders come from Japan.

Korean steel maker POSCO was expected to benefit from tighter supplies and pressure on prices. Its shares rose almost nine percent in Seoul.

The earthquake also raised risks of lower production from Japanese manufacturers of polysilicon and wafers – materials found in solar panels that convert sunlight into electricity.

Credit Suisse expects supply problems at solar wafer maker M. Setek Co, a unit of AU Optronics, whose plant is situated near Sendai town, close to the epicenter of the quake.

US solar panel maker SunPower Corp could be vulnerable to wafer supply disruption as it relies on M. Setek for up to 20 percent of its supplies or about 200 megawatts, Credit Suisse said.

An AU spokesman said initial assessment at the M. Setek plant showed no major damage but it was unclear when production would resume.

Taiwan’s TSMC , the world’s largest contract maker of semiconductors, said there was no immediate threat to supplies.

“For raw materials like raw wafers, gases and chemicals and spare parts, we have enough inventories to keep things running for at least 30 days,” said TSMC spokesman Michael Kramer.

Other high tech producers including Taiwanese smartphone make HTC said operations and components supply had not been affected but they would be talking to alternative suppliers and monitoring the situation in Japan.

Nationalised lender Irish Nationwide has had a near 100 percent take-up for its coercive buyback of £146.2m ($236m) of subordinated debt at an 80 percent discount.

The lender, being wound down as part of an EU/IMF bailout, said investors holding £125.7m of bonds due 2016 and £20.5m of notes due 2018 had agreed to the buyback by an early deadline of March 8.

Irish Nationwide had said the offer applied to £126m of bonds due 2015 and £20.6m due 2018.

The company has extended the deadline for its early tender payment to March 18 due to the strong response.

Bondholders who do not accept the offer by March 18 will be offered 0.001 percent of the bonds’ face value.

Irish banks have been imposing losses on junior bondholders as part of government efforts to claw back some of the cost of bailing out the banks after years of reckless property lending.

Ireland’s banking crisis forced the government to seek emergency assistance from the EU and the IMF and the eventual cost of purging the sector of bad debts and recapitalising it could top an eye-watering €80bn, over half of Ireland’s annual economic output.