R343.8m shot for local Mittal op

(Fin24) - ArcelorMittal SA (ACL), the SA arm of the world's largest steel producer, announced on Monday that it would spend R343.8m in capital expenditure at its Newcastle works.

The company said in a statement that the capital would be used to improve the plant's production capacity as well as improve its safety, health and environmental impact by bringing the plant in line with worldwide environmental standards.

Expenditure will be split into three parts, with R103.2m spent on the Sinter Plant refurbishment, R74.6m on a Hot Metal
Desulphurisation project and R166m on the Blast Furnace mini- reline.

The projects form part of ArcelorMittal SA's capacity
expansion programme to increase its liquid steel production to 9.5m tonnes by 2011, the company said.

Construction and installation for the Hot Metal Desulphurisation project began in November 2007 with commissioning taking place in January 2008, while refurbishment work on the sinter plant and raw materials handling plant will begin in May 2008 to coincide with the mini-reline of Blast
Furnace No 5 at Newcastle.
 

 

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G7 discussed joint action to calm financial markets

(Reuters) - Finance leaders from the Group of Seven industrialized nations discussed collective action to calm markets if price moves become irrational, Eurogroup Chairman Jean-Claude Juncker was quoted as saying on Monday.

Juncker, who chairs the Eurogroup -- the monthly meetings of euro zone finance ministers and the European Central Bank -- told the Luxemburger Wort newspaper in an interview that turbulence on financial markets could continue for months.

"We are not yet at the end of the market crisis," Juncker was quoted as saying.

"The corrections will drag on for a few weeks, months. We have agreed in Tokyo that if there are irrational price movements in the markets, we will collectively take suitable measures to calm the financial markets," he said.

Asked what form such collective action may take, he said:

"Whoever has a strategy, should not set it out. Otherwise it will lose its effect if it is explained."

Finance ministers and central bankers from the G7 -- the United States, Canada, Japan, Britain, France, Germany and Italy -- said on Saturday in Tokyo that financial market turmoil was serious and persisting.

 

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Auto Insurers Boost Premiums on Injury, Crash Costs

(Bloomberg) -- Allstate Corp. and Progressive Corp. are leading the push by U.S. auto insurers to raise premiums in at least 20 states as the $160 billion industry moves to end two years of price reductions.

Insurers say they need higher prices to counter climbing repair and medical costs. Allstate, ranked second by premiums, said collision bills rose 2.2 percent in the fourth quarter from a year earlier and payouts for injuries gained 9.3 percent. Safeco Corp., which gets almost half its total premiums from drivers, reported a $19 million loss on auto underwriting.

The rate adjustment may reverse the 20 percent drop in the market values of Allstate and Progressive during the past 12 months, said Bear Stearns Cos. analyst David Small. Earnings should improve this year because insurers have become better at predicting driving records and then setting prices, he said.

``There's a lag before rate increases show up on the income statement,'' said Small, who works in New York. ``But it's real, it's happening, and you'll see it in earnings by the end of the year.''

The largest car insurers include No. 1 State Farm Mutual Automobile Insurance Co., which isn't publicly traded, and Berkshire Hathaway Inc.'s fourth-ranked Geico Corp. Bear Stearns's Small rates Northbrook, Illinois-based Allstate ``outperform'' with a target of $69 a share, and has a ``peer perform'' rating on Mayfield Village, Ohio-based Progressive.

Allstate fell $1.10, or 2.3 percent, to $46.57 at 4 p.m. in New York Stock Exchange trading and Progressive fell 16 cents, or 0.9 percent, to $18.49.

Warren Buffett

``Auto insurance has been surprisingly good for quite awhile. That's turning now,'' said Warren Buffett, the billionaire chairman of Berkshire Hathaway, at an appearance in Toronto this week. ``Frequency of accidents just kept going down for three or four years, which was just amazing, and the severity was not particularly bad. Now both are picking up somewhat.''

Rising prices for new vehicles and expenses for labor and replacement parts contributed to a 45 percent increase in car repair costs during the past decade, according to information compiled by the Highway Loss Data Institute in Arlington, Virginia.

Collision costs rose 2.4 percent in the third quarter from a year earlier, according to data compiled by the Property Casualty Insurers Association of America in Des Plaines, Illinois. The cost of auto-body work was up 3.3 percent in 2007, the U.S. Department of Labor reported.

 

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Yang's $2 Blackjack Limit, EBay Failure Leave Yahoo Unprepared

(Bloomberg) -- Fourteen years after publishing his first guide to the Internet from a Stanford University trailer, Jerry Yang isn't ready to see his creation absorbed by the world's largest software company.

Yahoo! Inc.'s 39-year-old co-founder survived the dot-com bust and weathered failed efforts to challenge EBay Inc. in online auctions and Google Inc. in Web searches. He and the board plan to reject Microsoft Corp.'s $44.6 billion bid today, a person familiar with the decision said, leaving Yang to battle to keep his Sunnyvale, California-based company independent.

While the offer lifted Yang's net worth by more than a half-billion dollars, money means little to Yang, former executives say. He spent his career building the most-visited U.S. Web site. Yang took his first crack at being chief executive officer in June, aiming to reclaim the company's dominance on the Internet.

``It's his baby,'' said Steve Mitgang, a Yahoo senior vice president who left last year to run Web TV company Veoh Networks Inc. in San Diego. ``He wants to win, and he wants to fight to win.''

The board spent a week reviewing the $31-per-share offer before deciding it was too low, said the person, who declined to be identified because the discussions aren't public. Yahoo wants at least $40, the Wall Street Journal reported this weekend.

Yahoo spokeswoman Diana Wong said over the weekend the company doesn't comment on rumors or speculation. Microsoft spokesman Bill Cox declined to comment.

In rejecting the offer, Yang confronts Microsoft CEO Steve Ballmer and Yahoo investors whose stock tumbled by half in the past two years. Redmond, Washington-based Microsoft's $31-a- share offer on Feb. 1 was 62 percent higher than Yahoo's price before.

`Uncouth' Name

In an e-mail to his 14,000 employees last week, Yang said Yahoo was weighing its options. Analysts including Gartner Inc.'s Andrew Frank in New York said alternatives like linking up with Google or News Corp. won't work. Investors like Firsthand Capital Management's Kevin Landis said Microsoft made a ``fair offer.''

Born in Taiwan, Yang was brought to the U.S. when he was 10. He worked in the Stanford library to help fund his undergraduate education.

Yang and David Filo cooked up what became Yahoo in 1994 as graduate students. ``Jerry and David's Guide to the World Wide Web,'' used to keep track of their interests on the Internet, became a popular Web page in Silicon Valley. By the end of 1994, the site got more than 1 million hits a day.

Venture capital firm Sequoia Capital invested $2 million to help the duo build Yahoo, a name they picked because of its definition: ``rude, unsophisticated, uncouth.''

``He cares deeply about the thing he created in that trailer with Filo,'' said Rob Solomon, who worked at Yahoo for six years and is now CEO of the travel site SideStep Inc. in Santa Clara, California. ``They thought they could build a really big, new type of company, and they did.''

Too Rich

Yang wasn't available to comment, said spokeswoman Tracy Schmaler. Filo, responsible for the technical aspects of Yahoo's biggest sites, also wasn't available.

After Yahoo's initial public offering in 1996, sales jumped from $20 million to more than $1 billion in 2000 as advertisers rushed to tap the Internet's popularity. Yang and Filo were each worth more than $4 billion, according to Forbes magazine.

Wealth didn't turn Yang into a big spender, said John Cecil, a former Yahoo salesman. At a Las Vegas conference in 1998, the two were playing blackjack with Yahoo employees. Yang refused to bet more than $2 a hand, Cecil said.

``He said, `It's too rich for my blood,''' said Cecil, now president of the online ad company Innovate Media in Costa Mesa, California.

EBay Wins

Three years of surging sales lifted Yahoo's value past $100 billion, then the technology market crashed, wiping out 97 percent of Yahoo's worth. While the collapse sent Pets.com Inc. and Webvan Group Inc. into bankruptcy, Yahoo survived and began growing again in 2002.

Bigger competitors were emerging, crimping Yahoo's ability to expand beyond selling banner ads on Web pages. San Jose, California-based EBay became the dominant auction site. Google's search engine was pulling ad spending to a business that Yahoo lacked.

Solomon, 41, who ran the auction business, told Yang that Yahoo would be better suited investing elsewhere.

``The auction wars were won, and he didn't want to give up,'' Solomon said. ``That's not him being obstinate. It's him pushing us to come back with creative solutions and being tough.'' Yahoo closed the auction site last year.

 

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Cheap Gas Seen Returning 20% as Oil Meets Slowdown

 (Bloomberg) -- U.S. natural gas is the cheapest it's been relative to oil since the 1991 Gulf War, raising the prospect of a windfall for investors who sell crude and buy the other heating fuel.

Gas prices will probably rise because inventories are at a four-year low and below-normal temperatures are stoking demand, said Brian Hicks, who helps manage $1.5 billion at U.S. Global Investors in San Antonio. At the same time, he said, an increased supply of oil and a slowing U.S. economy will drag crude prices lower.

A barrel of crude has cost at least 11 times as much as 1 million British thermal units of gas for three months, compared with an average of 7.8 times in the past 10 years and 18 times in July 1991, when the Gulf War threatened oil supplies from Kuwait and Iraq. The spread, a function of oil's 54 percent surge in the past year, was as high as 13.6 times before oil peaked at $100.09 a barrel on Jan. 3. Gas has climbed just 5 percent in the year.

``In the world of hydrocarbons, natural gas is a bargain compared to crude,'' said Peter Beutel, the president of energy consulting firm Cameron Hanover Inc. in New Canaan, Connecticut. He correctly predicted oil would reach $98 a barrel last year.

Futures contracts on the New York Mercantile Exchange indicate traders are betting this year will be the first since 1993 that gas prices advance while oil declines. Consumers would pay higher household gas and electricity bills, and costs for companies such as Dow Chemical Co., the biggest U.S. chemicals maker, would climb. Profit at gas producers ConocoPhillips, biggest in the U.S., XTO Energy Inc. and EOG Resources Inc. will advance this year, according to analysts surveyed by Bloomberg.

Gas Seen Rising

Gas may increase to $9 or $10 per million British thermal units by May or June, up from $8.30 on Feb. 8, according to Neal McAtee, who was named to the All-Star Analysts Hall of Fame in 1998 by the Wall Street Journal. Oil, which ended last week at $91.77 a barrel, may go to $70 or $72, he said.

U.S. natural gas for March delivery rose as much as 15.3 cents, or 1.8 percent, to $8.454 per million Btu in electronic trading on the New York Mercantile exchange at 10:47 a.m. London time. Crude oil for March delivery traded at $91.66 a barrel, down 11 cents.

A trader who sells $10 million of Nymex oil and buys an equal amount of gas right now would come out about $4 million ahead, or 20 percent, should gas reach $10 and oil $70.

``Natural gas looks to be setting up for a bullish run going into the summer,'' said McAtee, who helps manage $18 million at Red Rock Asset Management in Memphis, Tennessee.

In the past decade, oil sold for more than 12 times natural gas in three stints prior to the latest one. Each time the gap narrowed to the average within four months.

XTO's Simpson

XTO Chief Executive Officer Bob Simpson is predicting something similar this time. Oil will sell for as little as 10 times gas next year and 8 times within five years, he said.

``There's a perceived oversupply of natural gas that's transitory and illusory,'' Simpson, 59, said in a telephone interview from the company's headquarters in Fort Worth, Texas. ``There's going to be a correcting event.''

The last such event was in August 2005, when Hurricane Katrina shut down every gas well and pipeline off the U.S. Gulf Coast. Gas prices peaked in December 2005 at $15.78.

XTO's profit will rise by 4 percent this year to $1.76 billion, according to analyst estimates compiled by Bloomberg. EOG, the Houston-based gas producer born out of Enron Corp., will post a 27 percent increase to $1.38 billion, the data show.

Hurricane Season Flopped

Natural gas represents 24 percent of U.S. energy supply, about as much as coal, according to statistics compiled by BP Plc. Oil contributes about 40 percent, and much of the rest comes from nuclear reactors and hydropower plants.

One reason not to buy gas is the unpredictable nature of weather. Amaranth Advisors LLC lost $6.6 billion on the expectation gas prices were poised to rebound in 2006, leading to the biggest hedge-fund collapse on record. When forecasts for a strong hurricane season proved incorrect, producers were able to keep output flowing from the Gulf of Mexico, the biggest domestic source of gas in the U.S.

Commercial traders such as power-plant owners had a record- large holding in natural gas at a net 81,263 contracts on Jan. 7, according to U.S. Commodity Futures Trading Commission data. As of Jan. 29, commercial traders held 24 percent more short positions than long positions on oil futures, meaning most were betting on declines in prices, and 15 percent more long positions than short positions on gas.

U.S. gas inventories fell 12 percent to 2.06 trillion cubic feet in the past 12 months, reaching the lowest for this time of year since 2004, according to Energy Department data.

 

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CDO Losses Driving Credit-Default Swaps to Record, Analysts Say

(Bloomberg) -- Banks are driving the cost of protecting corporate bonds from default to the highest on record as they seek to hedge against losses on collateralized debt obligations, according to traders of credit-default swaps.

Contracts on the benchmark Markit iTraxx Crossover Index soared 17 basis points to 547 at 12:50 p.m. in London, according to JPMorgan Chase & Co. The Markit iTraxx Asia Ex-Japan Series 8 Index soared the most in one day, rising 15 basis points to an all-time high of 144.5, according to BNP Paribas SA. The Markit CDX North America Investment Grade Index rose 2.5 basis points to 132.25, Deutsche Bank AG prices show.

``Banks have taken losses, spreads are going wider and they are just cutting positions,'' said Andrea Cicione, a senior credit strategist at BNP Paribas in London. ``Lenders are probably reducing risk positions in a deteriorating credit environment by unwinding CDOs.''

Banks are facing mounting writedowns on CDOs, securities that package credit-default swaps, bonds or loans, as the fallout from the collapse of U.S. subprime mortgages spreads across financial markets. The Group of Seven estimates banks worldwide will suffer writedowns of $400 billion on home loans, German Finance Minister Peer Steinbrueck said at a weekend meeting of officials and central bankers in Tokyo.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates worsening perceptions of credit quality; a decline, the opposite.

CDO Downgrades

Fitch Ratings may downgrade the $220 billion of CDOs it assesses that are based on corporate securities because of rising losses, the New York-based company said last week. CDOs with AAA grades that are based on credit-default swaps and aren't actively managed may face the steepest reductions of as much as five steps, the company said.

Ratings firms are responding to criticism that they failed to react quickly enough as increasing defaults on subprime mortgages caused a plunge in the value of CDOs. Fitch, a unit of Fimalac SA in Paris, lowered $67 billion of mortgage-linked CDOs in November, slashing some top-rated debt to speculative grade, or junk.

LevX Index

Falling prices for leveraged loans may be forcing banks to unwind collateralized loan obligations. UBS AG and Wachovia Corp. are trying to sell $700 million in loans because of the unwinding of their so-called market value CLOs, which package the debt and are based on the net value of the underlying loans, the Wall Street Journal reported.

The Markit iTraxx LevX Senior Index of credit-default swaps on 26 European loans fell to a record of 90.625, according to Bear Stearns Cos. A level below 100 indicates loans are worth less than face value.

The value of the most-traded U.S. leveraged loans plunged to a record low amid reports of forced CLO sales, according to Standard & Poor's.

In the European credit-default swaps market, contracts on Carlsberg A/S in Copenhagen, the largest Nordic brewer, jumped 22 basis points to 157, according to CMA Datavision in London. The company is buying brewer Scottish & Newcastle Plc with Heineken NV.

 

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