We are not going anywhere, BAT tells Govt

News Update as @ 1530 hours, Wednesday 11 June 2014Feedback: [email protected]: [email protected]

By Tawanda Musarurwa

British American Tobacco Plc has engaged the Government to commit its long-term presence in the country.

BAT Zimbabwe managing director Lovemore Manatsa yesterday said the Government was one of the key stake-holders that the company was engag-ing to reassure them that they had no plans to exit the country.

Manatsa was speaking on the sidelines of a tour of the company's Souther-ton plant by Information, Media and Broadcasting Services Minister Jona-than Moyo this morning.

"As BAT Zimbabwe, as BAT Plc we are not divesting out of Zimbabwe. If any-thing we are investing . Over the last four years we have put in $5,4 million into infrastructure, marketing and dis-

tribution part of the business.

"So that was the basis of our engage-ment with key stakeholders includ-ing the Minister of Information to put across our point that we are not divest-ing from Zimbabwe," said Manatsa.

The MD said BAT's commitment to Zimbabwe was express in its full com-

pliance to the country's indigenisation laws. "At this stage we are fairly confi-dent that we are considered an indige-nous player in the country through two vehicles our Tobacco Empowerment Trust which owns 10,74 percent of the company and 10 percent which is owned by the Employee Share Owner-ship Trust which are both independent of BAT as a company and already up and running," he said.

In 2012, it ceded a 26 percent stake to Zimbabweans in compliance with indi-genisation laws, compelling foreigners to give majority shareholding to locals.

The 20,74 percent shareholding alloo-cated to the two empowerment vehi-cles translated to four million shares worth a combined $20 million. Mean-while the company, which has an installed production capacity of 2,3 bil-

lion sticks per annum said it is currently operating at around 70 percent of that capacity.

This makes it one of the most effective industries in the country at present. Average industrial capacity currently stands at just below 40 percent, according to the Confederation of Zim-babwe Industries.

Manatsa said they can easily reach full production capacity, but have had to cut back on production due to limited local demand.

"Right now we are running about 70 percent of that capacity reason being a function of demand...we have got more than enough capacity to supply the market, it is a function of demand or the consumer offtake in the mar-ket," he said. •

We are not going anywhere, BAT tells Govt

By Rumbidzayi Zinyuke

Econet Wireless Services has launched a new online remittance service which will enable people living in the diaspora to transfer money directly into an Eco-Cash wallet in Zimbabwe.

The service, EcoCash Diaspora, is being rolled out in partnership with World Remit, an online money transfer ser-vice based in London.

Speaking at the launch of EcoCash Diaspora this morning, EcoCash chief executive Cuthbert Tembedza said the product would get rid of the red tape involved in sending and receiving money from the diaspora.

“People outside Zimbabwe can now just send money straight to the recip-ients’ Ecocash wallets regardless of where they are located. The money doesn’t have to go through an agent and once it has arrived it is treated like a cash-in, the receiver can do what they want with it,” he said.

He said the service would have lower costs of transferring money as WorldRemit will charge around 5 per-cent while EcoCash will not charge the recipient any additional fees for the

transaction. This is almost 50 percent lower than Western Union charges which are at around 10 percent.

Tembedza said the new service would harness the diaspora remittances that have been coming into the country through informal channels.

“Last year alone, global remittances stood at $540 billion of which $60 bil-lion came from Africa and $1,8 billion of it from Zimbabwe. And this is only through the formal channels. If we add remittances from the informal channels the figure exceeds $2 billion,” he said.

He said the service would bring visibility to those transactions that were being done underground and give regulatory authorities a chance to tap into the growth of the economy.

The product, however, will only cater for money coming into the country and not money going out due to exchange control regulations that restrict the outflow of foreign currency from the country. World Remit director for North America Rob Ayers said the new ser-vice would capture more than 50 per-

cent of remittances.

“Online Remmitances make up 5 percent of global remittances but we expect it to grow. In Zimbabwe we expect to reach 50 percent or more once we have launched because this service will bring security, speed and convenience to people sending money,” he said.

He said anyone in the 35 markets that WorldRemit operates from, including United States, UK, South Africa, Aus-tralia, Canada, will be able to transfer money using credit or debit cards via their website.

WorldRemit already has a similar partnership with mobile operators in Kenya, Ghana, Ethiopia and other parts of Africa. •

NEWS2

Ecocash taps into Diaspora remittances

3 NEWS

By Tawanda Musarurwa

• Revived plant to treat nickel leach alloy and Platinum Group Metals.

Alternative Investment Market-listed Mwana Africa Plc has announced the completion of an independent study of an accelerated restart plan for the nickel smelter of its 76.3 percent owned Bindura Nickel Corporation.

The independent study, which was car-ried out by Hatch Goba, represents a technical and economic assessment of the potential refurbishment and restart plans of the smelter complex in Bind-ura. Mwana Africa said it now plans to have the BNC smelter in operation dur-ing the first half of next year.

And should be contributing to cash flows in 2016. According to the study "overall capital cost to execute the restart is estimated to be $26.5 mil-lion" and "approximately half of the capital cost will be funded through debt finance, with the remainder to be financed from existing BNC cash flow and company cash balances." CEO Kalaa Mpinga, CEO of Mwana, com-mented: “I am pleased to announce completion of the independent study

of the accelerated smelter restart plan. This paves the way for us to capital-ise on the opportunity presented by a favourable nickel market.

“We can grow our revenue stream by moving rapidly up the value chain from current production and sale of concen-trate, with the associated transporta-tion saving cost of this, to production and sale of higher value nickel leach alloy."

“This study outlines the costs and key milestones required to restart the smelter, and we look forward to updat-ing the market on financing and devel-

opment of the accelerated smelter restart plan as it evolves over the com-ing months," he added.

Mwana said further opportunities for the company exist beyond the smelter restart, including: potential to increase volume through development of BNC’s Hunters Road Mine Project at a later date; investment in adaptation of the smelter to treat platinum group met-als (PGMs), contingent on securing PGM feedstock; and restart of the BNC refinery, currently on care and mainte-nance, to treat nickel leach alloy and PGMs. •

BNC smelter to resume operations next year

BH24 Reporter

Zimbabwe Stock Exchange listed Rain-bow Tourism Group says revenues for first quarter went up by 7 percent as room occupancy went up as a result of successful promotions ran in the begin-ning of the year.

Giving a trade update at the company’s annual general meeting, chief execu-tive Tendai Madziwanyika said for the period from January to April revenues stood at $6 million from $5,7 million in the comparable period. The number of rooms sold increased by 16 percent resulting in an occupancy growth to

44 percent in the review period from 38 percent in the first quarter of 2013. “The positive performance during the stated period compares favourably to the growth in rooms revenue and therefore points to the efficacy of the RTG mobile strategy,” he said.

He said Zimbabwe operations reve-nues increased to $8,2 million from $7,7 million mainly due to improved performance by A’Zambezi lodge which recorded a 25 percent revenue growth whilst the Rainbow Towers Hotel and conference centre recorded a 10 percent growth in turnover. This

was mainly due to the success of the rainmakers promotion launched at the beginning of 2014. Madziwanyika said the significant growth in conferencing business during the period resulted in a 12 percent increase in revenues of for food and beverage for rainbow towers hotel and conference centre. “The Bul-awayo Rainbow Hotel performed well during the ZITF period achieving a 24 percent increase in revenues as com-pared to last year,” he added.

He said e-commerce revenues for the period went up 19 percent while inter-national arrivals into RTG grew by 13 percent over the same period last year as the contributions from the South African office increased by 51 percent. This enhanced revenues for the Victoria falls properties.

Hotel Mozambique has been depressed but the group has since implemented revenue generation strategies to drive the business. Madziwanyika added that cost sales remained within the expected levels of 10 percent of turn-over. He said the voluntary retrench-ment exercise was expected to be completed this month but would not disclose the numbers of employees being retrenched. •

4 NEWS

RTG Q1 revenues up

BH24

By Elita Chikwati

Cotton producers could be in for another bad season if China continues to offload 10 million tonnes of cotton lint in its stocks onto the international market.

Already farmers have been selling their crop at heavily discounted prices as

ginners refused to negotiate on prices with farmer organisations.

The highest price being offered for seed cotton is 40 cents per kilogramme while last season prices went as high as 75 cents per kg.

Zimbabwe Farmers Union weekly guide shows that cotton prices started

falling after the Chinese government announced its intention to start selling its cotton stocks. “Cotton prices tum-bled 14 percent after the Chinese gov-ernment announced that it intended to start selling cotton from its 10-million tonnes stock,” read the guide.

Most of the cotton being sold by China is from the 2011 season. “Cotton pro-

ducers could be in for another wild ride in 2014 as the Chinese government continues to reduce its stockpile. It also plans to announce new policies in the spring for the 2014/2015 growing season," the weekly guide stated.

Some agriculture economists believe that the Chinese government will refrain from continuing to dump ̀ its

Poor funding and lack of markets is discouraging farmers from growing sunflower, which has potential to gen-erate income for rural communities, an official said on Wednesday.

Zimbabwe Commercial Farmers Union president Wonder Chabikwa said many farmers were moving away from sun-

flower to soya beans, cotton and other small grains which had ready markets.

“A significant number of farmers are moving from traditional crops such as sunflower to soya bean and other small grains which are fetching lucra-tive prices on the market despite being capital intensive,” he said.

Chabikwa said many farmers were also opting for crops that were produced under the contract system.

“Contract farming has taken center stage and no contractor is willing to fund sunflower, resulting in a decline in its production,” he said.

He said changes in climatic conditions were also impacting negatively produc-tion of the crop as rainfall was no longer dependable.

Chabikwa said there was need for the Government to intervene and fund pro-duction of the crop, which had dropped to critical levels. — New Ziana •

6 AGRICULTURE

Lack of markets affecting sunflower production

Zim cotton market under threat

By Lynn Murahwa

There has been a 13 percent increase in tobacco sales this season compared to last year’s season, according to the figures released by the Tobacco Indus-try Marketing Board (TIMB).

So far the tobacco sales have reached $597 million compared to last year’s $527 million during the same period. According to TIMB, as from yesterday a total of 187 million kilogrammes of tobacco have been sold in comparison to the 142 kilogrammes sold last year, showing a 31.67 percent increase for both auction and contract sales. At an average price of $3,18 per kg the total revenue achieved to date is $597 million which compares positively to last year’s figure of $527 million at an

average price of $3,70 per kg. The fig-ures released by TIMB show a steady increase in revenue and tobacco vol-umes sold during the past week.

A total of 140 million kilogrammes

of contract tobacco has been sold to date giving a total revenue of $466 million at an average price of $3, 33 per kg. A lesser volume of 47 million kilogrammes of auctioned tobacco has been sold at a lesser average price of $2, 75 per kg giving a total revenue of $130 million.

The total amount of rejected tobacco has decreased this year to 5, 69 per-cent in comparison to last year’s rejected 7 percent. A low 3, 35 percent of contract tobacco was rejected this season while a higher 11, 15 percent of auction tobacco was rejected this season. A total of 2 412 773 bales of tobacco have been sold to date com-pared to the 1 850 029 bales sold last year showing a significant 23.27 per-cent growth in sales. At least 1 730 578

bales of contracted tobacco have been sold compared to a lesser 682 195 bales of auctioned tobacco sold to date according to TIMB.

There has been an increase in the total amount of tobacco bales laid. This sea-son 2 558 411 bales have been laid compared to last season’s 1 950 217 bales laid, showing a 38,29 percent increase.

The total amount of rejected bales for this season is a 15 percent higher 121 988 bales in comparison to last sea-son’s 100 188 bales. The total weight of tobacco bales so far has shown an increase since last season. This year the total weight of bales is 78 kilo-grammes showing a 1 percent growth from last year’s 77 kilogrammes. •

7 AGRICULTURE

$597 million worth of tobacco sold

reserves on the market for fear of undercutting the value of its reserve and hurting its domestic producers.

Cotton council spokesman Garikayi Msika said the move by China could be disastrous if it coincides with the local cotton marketing season. If they sell the whole consignment now, it will

greatly affect us considering that they are selling lint (processed cotton).

Msika said if China does not sell the whole consignment there will not be any great change on the international market. “Local ginners are taking advantage of the Price Tariff Commis-sion that declared that farmers nego-

tiate for higher prices with ginners individually. The same companies are offering high prices to cotton farmers in Malawi whose production costs are far way below ours,” he said. Farmer organisations’ leaders feel that their members do not have the capacity to negotiate with ginners.

Meanwhile, there is speculation that cotton prices will be strengthened by a decline in the United States cotton pro-duction this year.

Some US farmers decided to cut on cotton production and increase corn production which offered high prices. •

The equities market has strengthened on gains made yesterday, albeit mar-ginally, as positive trading hit a second straight gain following the Monday hic-cup.

The Industrial Index was up 0.53 points (or 0.30 percent) to close at 179.02 points.

Conglomerate Innscor gained 2.01 cents to 75.51 cents, while crocodile skin producer Padenga rose 0.20 cents to trade at 8.50 cents.

ZHL added 0.15 cents to 0.90 cents.

Pearl inched up 0.14 cents to 2.60 cents and ZPI gained inched up 0.01 cents to settle at 0.81 cents.

Only a single counter traded in the red today. Giant insurer Old Mutual eased

0.01 cents to 249 cents.

Overall the value of trades was at just below $860 000 driven by blue chip counters, Econet, Delta and Innscor.

The Mining Index continued on a posi-tive path, adding 2.04 points (4.97 per-cent) to close at 43.12 points as Bind-

ura gained 0.16 cents to 3.16 cents.

Also positive was Hwange which had a firm bid at 5 cents. Falgold and Riozim maintained previous trading levels.

— BH24 Reporter •

8 ZSE REVIEW

Equities strengthen on gains

One of the main news headlines today is about the seven gold miners that lost their lives when a hoist cage that was transporting them fell into a pool of water.

Eleven others were also injured in the June 9 incident at Golden Valley Mine in Kadoma, 160 kilometers (99 miles) west of Harare when the miners' hoist cage plunged about 80 meters (262 feet) into a pool of water.

It's a tragedy. Any loss of life is, worse still when it occurs at the workplace.

This is because, for one thing, it may be the result of mere negligence on the part of management or perhaps the workers themselves.

Notwithstanding who is to blame, the tragedy points to the need for enhancement of working conditions especially in the mining sector.

Furthermore, working conditions need to be improved particularly for the smaller mining companies and individ-ual panners.

The larger mining corporations tend to have better working conditions and have periodical safety reports pub-

lished for public consumption. The lat-ter naturally makes these companies safety-conscious.

But this does not always apply to the smaller miners, especially the individ-ual panners who risk life and limb to make a living.

Perhaps as a result, Zimbabwe has not been immune to mining deaths in the recent past.

Last year alone, 35 people died in min-ing accidents in the country figures from the Chamber of Mines of Zimba-bwe show.

A recent study by the Mining, Minerals and Sustainable Development (MMS-D),"very poor health and safety condi-tions exist in small-scale mines due to ignorance, lack of resources and skills".

"Over 20 people are killed in the sec-tor every year, but because both the Mines Department and the Chamber of Mines do not recognize these as mine accidents or fatalities due to the illegal nature of

the operations, nobody is interested in

collecting and maintaining the data," says the MMSD of Zimbabwe's formal small-scale mining sector.

"Most of the accidents occur when the sidewalls and hangingwalls collapse due to undercutting worsened by lack of support," it added.

So it is clear that some of these safety problems have been in existence for some time. The issue then is, how do we as a country resolve them?

Clearly it is necessary for the relevant authorities to put in place mechanism that regulate workplace safety on small-scale mining operations (that is, if they do not already exist).

If they do (which is most likely the case) the same authorities need to enforce these regulations. •

9 BH24 COMMENT

Need to improve mining working conditions for smaller producers

BH24

Investors buying South African bonds at the fastest pace this year are using swap markets to limit the risk of a weaker rand as ratings companies pre-pare to rule on the nation’s creditwor-thiness.

Cross-currency basis swaps, used by traders to exchange cash flows in rand for those in dollars, climbed as much as five basis points yesterday to 42, the highest level in a month and the most among 18 developed and emerging markets tracked by Bloomberg. The premium rose even as foreign investors bought 6.5 billion rand ($610 million) of domestic bonds last week, the most since September. The rand is the worst performer in the past month among emerging-market peers, according to data compiled by Bloomberg.

While yields among the highest in emerging markets are luring investors to South African debt, the outlook for the rand is less rosy. The continent’s second-biggest economy contracted in the first quarter for the first time since the 2009 recession as work stoppages caused platinum production to plunge. Standard& Poor's which cited weak growth and labor unrest among rea-sons for maintaining its negative out-

look on the nation’s debt in December, will announce the result of its sovereign review on June 13, the same day as Fitch Ratings.

“The prevailing tone is one of appre-hension and nervousness,” Moham-

med Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg yesterday. “Carry trade investors are happy to buy the bonds, but they appear to be protect-ing against some of the currency risk in the swaps market.” Bond Buying

Carry trade refers to when investors sell a currency with a relatively low interest rate and use the funds to purchase higher-yielding assets in a different cur-rency. South African benchmark bonds due December 2026 had a yield of 8.36 percent yesterday, the sixth-highest among 23 developing-nation sover-eigns monitored by Bloomberg.

Bond inflows have picked up since the European Central Bank cut its deposit rate to below zero on June 5, with investors buying the most debt the following day since October 2012. The rate on cross-currency basis swaps is still lower than the year’s high of 53 reached on Jan. 29, when central bank Governor Gill Marcus raised the bench-mark interest rate and a day before the rand fell to a 5 1/2-year low against the dollar. — Bloomberg •

11 REGIONAL NEWS

Rand bond buffs keeping escape hatch ajar: South Africa credit

12 DIARY OF EVENTS

The black arrow indicate level of load shedding across the country.

POWER GENERATION STATSGen Station

11 June 2014

Energy

(Megawatts)

Hwange 439 MW

Kariba 750 MW

Harare 44 MW

Munyati 31 MW

Bulawayo 20 MW

Imports -50 MW

Total 1234 MW

11 June - Rainbow Tourism Group 15th Annual General Meeting of the Shareholders, Place: Jacaranda Rooms 2 and 3 at the Rainbow Towers Hotel and Conference Centre, 1 Pennefather Avenue, Harare, Time: 12:00

13 June 2014 - Securities and

Exchange Commission of Zimbabwe 2nd Shareholders Forum & Responsible Invest-ing in Zimbabwe Conference 2014 Place : Cresta Lodge, Harare, Time : 8am -2pm

26 June - Masimba Holdings Limited Thirty-Ninth Annual

General Meeting of Mem-bers for the period ended 31 December 2013, Place: 44 Til-bury Road, Willowvale, Harare, Zimbabwe, Time: 12:00

THE BH24 DIARY

BH24

14 ZSE

ZSEMOvERS CHANGE TODAY PRICE USC SHAKERS CHANGE TODAY PRICE USC

ZIMRE 20.00% 0.90 OLD MUTUAL -0.00% 249.00

PEARL 5.69% 2.60

BNC 5.33% 3.16

INNSCOR 2.73% 75.51

PADENGA 2.40% 8.50

ZPI 1.25% 0.81

Indices

INDEx PREvIOUS TODAY MOvE CHANGE

INDUSTRIAL 178.49 179.02 +0.53 POINTS +0.30%

MINING 41.08 43.12 +2.04 POINTS +4.97%

Stocks Exchange

15 AFRICA STOCkS

Botswana 8,664.65 -11.96 -0.14% 12July

Cote dIvoire 246.37 +2.18 +0.89% 07Mar

Egypt 7,949.60 -75.68 -0.94% 06Mar

Ghana 2,343.98 +9.46 +0.41% 06June

Kenya 4,881.56 +12.30 +0.25% 06June

Malawi 12,662.47 +0.00 +0.00% 07Mar

Mauritius 2,074.51 -3.51 -0.17% 07Mar

Morocco 9,544.10 +21.01 +0.22% 07Mar

Nigeria 41,529.11 -40.98 -0.10% 06June

Rwanda 131.27 +0.00 +0.00% 24Oct

Tanzania 2,018.97 +25.40 +1.27% 07Mar

Tunisia 4,624.39 -39.32 -0.84% 07Mar

Uganda 1,503.90 +0.81 +0.05% 10Sep

Zambia 4,242.74 +14.95 +0.35% 10April

Zimbabwe 178.58 +1.54 +0.87% 06June

African stock round up Commodity Prices

Name Price

Crude Oil 1,300.91 -0.21%

Spot Gold USD/oz 1,292.63 -0.26%

Spot Silver USD/oz 19.38 -0.46%

Spot Platinum USD/oz 1,421.25 -0.33%

Spot Palladium USD/oz 798.50 -0.64%

LME Copper USD/t 6,770 -0.18%

LME Aluminium USD/t 1,780 -1.17%

LME Nickel USD/t 18,230 -1.73%

LME Lead USD/t 2,095 -1.41%

Quote of the day —"The hisTory of The world is The hisTo-ry of a few people who had faiTh in Themselves." - swa-mi vivekananda

Globalshareholder.com

16 INTERNATIONAL NEWS

Toyota recalls 2.27 mln vehicles over airbag defect

Toyota on Wednesday recalled 2.27 million vehicles globally over a defect that could see airbags fail to deploy in a crash and also posed a fire risk, dealing another blow to the Japanese giant's safety record.

The world's biggest automaker said the latest call back involved 20 models, including its Corolla sedan, Yaris sub-compact and Noah minivan, and cov-ered about 1.62 million cars overseas and 650,000 in Japan. Some of the affected overseas cars were already

included in a recall last year, but had not had their airbag inflator replaced, Toyota said.

"The involved vehicles were equipped with front passenger airbag inflators which could have been assembled with improperly manufactured propellant wafers," it said in a statement. "(That) could cause the inflator to rupture and the front passenger airbag to deploy abnormally in the event of a crash."

A company spokesman in Tokyo said it

had received a complaint from a Japa-nese customer who said his passenger seat was burned from the defect. No serious injuries or accidents had been reported, he added.

In April, Toyota recalled 6.39 million vehicles globally over a string of prob-lems, and another 520,000 last month, mostly in North America, over several issues including cable corrosion that could lead unused spare tyres to fall off.

In February, it recalled 1.9 million units of its signature Prius hybrid cars, after recalling millions of other models in recent years over a possible fire risk and other safety issues.

Despite logging record sales and bumper profits, Toyota has been fight-ing to protect its reputation as US rival GM scrambles to contain a deadly igni-tion-linked scandal. Nissan and Honda have also issued major recalls in recent years. In March, Toyota agreed to pay $1.2 billion to settle US criminal charges that it lied to regulators and the public as it tried to cover up deadly accelerator defects, which caused vehi-cles to speed out of control and fail to

respond to the brake. Toyota eventu-ally recalled 12 million vehicles world-wide in 2009 and 2010.As part of the settlement, the automaker admitted that it lied when it insisted that it had addressed the "root cause" of the prob-lem by fixing floor mats that could trap the accelerator.

In the United States, General Motors has been sideswiped by accusations that it hid a decade-long ignition and airbag problem linked to 13 deaths.

On Tuesday, GM chief executive Mary Barra said the company has not yet figured out how much its deadly, faulty car ignitions will cost the Chevrolet and Cadillac maker.

GM has already set aside $1.7 billion to cover some of the costs of recalling 2.6 million cars with the problem ignition switches, Barra said at the company's annual shareholders meeting.

But it faces the possibility of having to spend billions more to answer lawsuits from car owners and victims of crashes tied to the ignition problem, as well as their relatives. — AFP •

The World Bank cut its global growth forecast amid weaker outlooks for the U.S., Russia and China, while calling on emerging markets to strengthen their economies before the Federal Reserve raises interest rates.

The Washington-based lender pre-dicts the world economy will expand 2.8 percent this year, compared with a January projection of 3.2 percent. The U.S. forecast was reduced to 2.1 percent from 2.8 percent while out-

looks for Brazil, Russia, India and China were also lowered. The setbacks may be temporary: the 2015 esti-mate for world economic growth was unchanged at 3.4 percent.

“The global economy got off to a bumpy start this year buffeted by poor weather in the United States, financial market turbulence and the conflict in” Ukraine, the World Bank said in its Global Economic Prospects report yes-terday. “Despite the early weakness, growth is expected to pick up speed as the year progresses.”

Developed economies, where domestic demand is improving as fiscal pressure eases and labor markets recover, are

providing the global expansion with momentum just as their developing counterparts fail to accelerate. The bank is projecting growth in China and Brazil will slow this year from 2013.

In the report, the World Bank warned emerging markets that the next bout of financial unrest may catch them off guard, recommending smaller budget deficits, higher interest rates and measures to boost productivity. — Bloomberg •

17 INTERNATIONAL NEWS

World Bank Cuts Global Growth Forecast after ‘Bumpy’ 2014 Start

OPEC agrees to maintain oil output ceilingOPEC has agreed to maintain its oil pro-duction ceiling at 30 million barrels a day, Venezuelan Energy Minister Rafael Ramirez said today after the cartel met in Vienna.

Asked whether ministers had decided to leave the output target unchanged, Ramirez replied: "Yes, I confirm."

Saudi Arabia, the cartel's most influen-tial player and biggest producer, added that it was "very happy" with the state of the global oil market The Organisation of Petroleum Exporting Countries, which

accounts for one third of the world's oil, has held its daily production ceiling at 30 million barrels since December 2011.

In the run-up to the ministerial gath-ering, more than half of OPEC's dozen member nations indicated that there would likely be a rollover of the collective output target.

Members remain pleased with current oil price levels, which have jumped by around 10% since December on supply strains arising from unrest in Iran, Libya and Ukraine. Ramirez indicated earlier

this week that the cartel had reached a consensus for no change, before for-mally agreeing to the decision. Naimi had already expressed satisfaction with the state of the oil market, stressing that it was stable and balanced.

"Everything is in good order, supply is good, demand is good, price is good," he said yesterday. Earlier this week, fellow OPEC members Angola, Ecuador, Iraq, Kuwait, Libya and Venezuela also hinted at no change being made.Global oil prices have held above $100 a barrel this

year, boosted partly by the Ukraine crisis, which has stoked worries of a brutal civil war that could disrupt energy supplies.

Iran's output meanwhile remains plagued by Western sanctions over its disputed nuclear programme. Oil futures rose today after OPEC decision.

Brent North Sea crude for delivery in July rose 45 cents to stand at $109.97 a barrel in London midday deals. US main contract West Texas Intermediate for July gained 16 cents to $104.51 a barrel. — RTE News •

By Nick Cunningham

Last December, as OPEC prepared to meet in Vienna, Bloomberg News reported that analysts it polled had pre-dicted that the oil cartel would leave its production quota unchanged in the face of a growing supply glut.

Despite its plans, “falling oil demand and prospects for increased supply from some member states mean the group’s leader, Saudi Arabia, will have to cut pro-duction anyway,” Bloomberg predicted. The age of abundance appeared to be upon us.

Six months later, OPEC may have the opposite problem on its hands. Despite December predictions that Saudi Arabia would need to trim its output by 1 to 2 million barrels per day (bpd) to prevent a price collapse, the oil kingdom kept its output level in the intervening months, and even slightly increased output to 9.66 million bpd in April from 9.56 million bpd in March.

The group will meet on June 11 in Vienna amid sputtering output among many of its member states and better than

expected economic growth in China and the U.S., the world’s largest oil consum-ers. Taken together, global oil markets may be undersupplied for the second half of this year, with analysts now pre-dicting Saudi Arabia may need to lift pro-duction substantially to meet demand.

Saudi Arabia may need to boost output to somewhere between 10.2 and 11 mil-lion bpd to prevent prices from spiking, but the Bloomberg survey suggested analysts question whether or not the

world’s largest oil producer can fill the void.

The big difference over the last six months – and why predictions by mar-ket watchers have been so off – is that several major oil producing countries have been affected by internal instabil-ity or geopolitical upheaval, which has prevented production levels from rising, and in some cases, knocked some out-put offline. Libya has been experiencing internal political battles that appeared to

be on the verge of resolution earlier this year. Anti-government forces have taken control over oil ports in the east, while the recognized government in Tripoli has denounced any efforts by separatists to export oil as illegal.

In April, the two sides appeared to be close to a diplomatic solution that would lead to the resurgence of Libya’s oil sec-tor, which has the potential of producing 1.6 million barrels per day (bpd).

18 ANALYSIS

OPEC meets as world oil demand rises, production sputters

The troubled country has been unsuc-cessful thus far at boosting oil exports and the political struggle between the two sides continues. Libya is now pro-ducing less than 200,000 bpd according to recent data.

Iraq, too, has disappointed oil markets. Despite ongoing violence, Iraq has made enormous strides in bringing many of its oil fields online.

In recent years, Iraq surpassed Iran to become OPEC’s second largest oil pro-ducer, and the government led by Nouri Al-Maliki was aiming to lift oil production to 4 million bpd in 2014. Iraq hit 3.6 mil-lion bpd in February – a 35-year high – but since then its output has fallen back by 8 percent due to attacks on oil pipe-lines. It will struggle to meet production expectations through 2014.

An interim deal between Iran and the West lifted hopes at the end of 2013 that Iran would be able to return some of its oil production to market, sending prices downward.

Western sanctions have targeted Iran’s oil sector with ruthless efficiency, cutting exports from more than 2.5 million bpd before 2012, down to 1 million bpd last year.

The thaw in relations since the July, 2013 election of Iranian President Hassan Rou-hani -- and the six-month sanctions-eas-ing deal reached last November -- led to speculation that Iran would again become a major oil exporter.

Indeed, Iran succeeded in lifting oil exports above 1 million bpd, defying the terms of their deal with the West, but any further increases depend on a comprehensive deal over Iran’s nuclear program, which has thus far proved elu-sive. The July deadline to reach a deal is quickly approaching and the failure to either secure an agreement or a six-month extension would result in an auto-matic return to sanctions.

On top of the unexpected troubles facing several OPEC producers, the economies of China and the United States – the two largest oil consumers in the world – have performed much better than was expected only six months ago.

The U.S. has finally regained the jobs lost in the financial crisis, and fears over a hard landing for China’s economy have not been borne out by the facts, at least not yet.

So we are back to a scenario in which global oil markets are tight once again,

even with Saudi Arabia maintaining ele-vated production.

At the upcoming Vienna meeting, OPEC is expected to leave its output quota unchanged, and any increase in produc-tion would need to come from the cartel’s largest producer.

Saudi Arabia, as the only holder of sig-nificant spare oil capacity, stands alone as a source for additional supplies the world may need for the remainder of the year. But while dipping into Saudi Arabia’s spare capacity – which stood at

only 1.96 million bpd in the first quarter – could provide short-term relief, it would also leave the markets increasingly vul-nerable to a supply disruption.

Six months ago it appeared we were entering a period of a supply glut, but oil markets have suddenly tightened, even though Saudi Arabia decided not to cut production.

Unless other OPEC members pick up the slack, oil prices could climb higher in the latter half of this year. — Oilprice.com •

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