Monday, January 20, 2020

Is India going on for Trade War with Malaysia?

India is planning to widen curbs on palm oil from Malaysia to oil, gas and other products, news agency Reuters reported on Wednesday. India is the world’s biggest buyer of edible oils and has already effectively stopped importing palm oil from Malaysia by asking importers to look elsewhere. According to the report, New Delhi is now planning to restrict buying of petroleum, aluminum ingots, liquefied natural gas, computer parts and microprocessors from Malaysia. Meanwhile, another Reuters report said Malaysia will use diplomatic channels to try and resolve concerns over the palm oil exports.

World Economic Forum’s annual meeting for this FY at Davos is scheduled on 21st – 24th January 2020 and the sources have mentioned that Mr. Piyush Goyal, Minister of Railways and Commerce is not going to meet his Malaysian counterpart Darell Leiking

India imports 70 percent of its edible oils: soya, rapeseed, and palm. Palm oil leads the pack with a 40 percent share, of which 95 percent used to be imported from Malaysia and Indonesia. This once made India the largest destination for Malaysia’s refined palm oil.

Malaysia Palm Oil Export: 18.5 Mn tonnes

India imported 24% of the same ie 4.4 mn tonne followed by China at 8 percent.

3 points to know about this hostility:

1.    Malaysia had joined Turkey and China in raising the Kashmir issue at the United Nations General Assembly (UNGA), with its Prime Minister Mahathir Mohamad accusing India of "invading and occupying the country" of Jammu and Kashmir.

2.    On the citizenship law too, Mr Mahathir commented labelling it as “grossly unfair”

3.    The government of India has also been unhappy with Malaysia's refusal to revoke permanent resident status for controversial Islamic preacher Zakir Naik, who has lived in Malaysia for about three years and faces charges of money laundering and hate speech in India.

Because of these reasons, India has announced the curbs on imports of refined palm oil on Jan 8. Though the official reasons stated for the same has been mentioned to help domestic refiners raise their plant utilization rates, according to industry officials familiar with the matter. In a typical year, India relies on imports for almost all of its supply of the veg oil used in everything from soap to cookies.

The reason for such a stand by the Malaysian PM on internal issues of India can be attributed to these reasons:

1. Mahatir is trying to outflank his opposition leader Anwar Ibrahim by playing the Islamic card. He has not just attacked India but also has said things about Israel- Palestine issue to gain that status in religious front.
2. Mahatir is of Indian origin. His father, Mohamad Iskandar, was a Penang Malay of partly Indian ancestry. Mahathir's paternal grandfather had come from South India and married a Malay woman. To counter his image of that kind, he has said the statement about India in the past too.
As of now, Mahathir commented that "We are too small to take retaliatory action," He told reporters in Langkawi, a resort island off the western coast of Malaysia. "We have to find ways and means to overcome that," he added. The experts have been of the belief that India is not going to

Benchmark Malaysian palm futures fell nearly 10% last week, their biggest weekly decline in more than 11 years as the palm oil was shifted to 'Restricted category' from 'Free'

About Palm Oil:

Items that do have palm oil have their ingredients are Lipstick, Pizza, Soap, Biodiesel, cookies, chocolate, ice cream, instant noodles, shampoo. Though palm oil may be associated with these ingredients too.  "Vegetable Oil, Vegetable Fat, Palm Kernel, Palm Kernel Oil, Palm Fruit Oil, Palmate, Palmitate, Palmolein, Glyceryl, Stearate, Stearic Acid, Elaeis Guineensis, Palmitic Acid, Palm Stearine, Palmitoyl Oxostearamide, Palmitoyl Tetrapeptide-3, Sodium Laureth Sulfate, Sodium Lauryl Sulfate, Sodium Kernelate, Sodium Palm Kernelate, Sodium Lauryl Lactylate/Sulphate, Hyrated Palm Glycerides, Etyl Palmitate, Octyl Palmitate, Palmityl Alcohol"

Though few have the view that the ban on imports of Malaysian palm oil might end up hurting those on the poverty line in India, by increasing the risk of food inflation. Though many have argued on the same by mentioning that Indonesia may fill up that shortfall and India will be unaffected by the tension. Indonesia, the world's biggest producer of palm oil, boasts lower production costs and has a bigger share of the market in many palm oil-consuming countries. It has also historically offered palm oil at cheaper prices than Malaysia, although recently Malaysian export prices have slumped below Indonesian rates as Indian buyers retreated from the market. Though it would be interesting to see further developments with Malaysia as well as the ASEAN nations.

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Saturday, January 11, 2020

Elon Musk: The man OR myth worth the hype?

Let’s start the article with the EPS of Tesla. For a while, you may take EPS synonymous with the profit if EPS gets too technical. The snapshot of the Bloomberg Terminal does show that the company has made profits in 5 quarters after it went public in 2010. Out of 40 quarters (10 Years), the company has made a profit just 5 times (The fifth upward stick is missing from the chart. It was in 2013). There are multiple companies or organizations that are just bleeding money for the last many quarters and we wouldn’t be talking specifically about them but the bottom line remains that Mr. Elon Musk is inching towards to become the ‘Real Iron Man’ of this era. Hence, it becomes more important to understand and know more about the revolution that is underway for a decade now.  
(Note: The title of ‘Real Iron Man’ was first used by Bloomberg on Jun 10, 2014, to refer Mr. Musk)

There are 10 points that summarise Mr. Musk and the company itself. In the latter points, I have even mentioned Indian automobile companies justifying the header image with the data file too.
1.    The electric-car maker posted a surprise profit of $342 million in the third quarter of 2019. Wall Street had expected the company would post a net loss as big as $257 million. Tesla (TSLA) shares soared by up to 20% in after-hours trading. It marked the first quarter Tesla was profitable since the company posted back-to-back profits in the second half of 2018. Before that, Tesla had posted profits only twice since it went public in 2010 — once in 2013 and again in 2016.
2.    Tesla delivered a record 112,000 vehicles globally during the fourth quarter, significantly topping Wall Street estimates and achieving CEO Elon Musk’s year-end sales goal.
3.    Many analysts does believe that Tesla is ‘OverValued’. They are quite cautious about the company as they still haven’t settled for something that could be relied upon for a steady flow of revenue.

4.    The Tesla Gigafactory in Shanghai opened last year as China's first wholly foreign-owned auto production plant since the government eased regulations, and the sedans delivered this week were Tesla's first made-in-China cars to be shipped out to customers. The Chinese government lifted restrictions on foreign ownership for auto manufacturers in 2018. Previously, foreign carmakers could only produce and sell in China through joint ventures with Chinese companies.

5.    Influence of charismatic CEO: In the recent Bloomberg survey ( _November_2019, a question was asked to around 5000 Tesla owners. Question: Did the opinion of Elon Musk influence purchases? 55.4 percent responded affirmative (30.8 percent- strongly agree, 24.6% agree).         

6.    Controversies: Elon Musk on 07 August 2018: Tweet: ‘Am considering taking Tesla Private at $420. Funding secured’ His tweet “set off a trading frenzy,” and pushed Tesla’s stock price up more than 6 percent, forcing Nasdaq to halt Tesla trading for 90 minutes until the company gave an official response. The company’s stock price hit the intraday high of $387 before closing at $379.57 on the day of the tweet. It's currently trading at 478.15 10 Jan, (7:59 pm GMT-5, 10 January, 2020·The US Securities, and Exchange Commission (SEC) sued Mr. Musk after his tweet. The SEC later claimed that the tweet was “false and misleading.” 

Outcome: Mr. Musk was directed to step down as chairman. Paid a fine of 40 million. Appointed 2 independent directors; Was directed to get his tweets reviewed before posting.
Other incidents include him smoking weed on Joe Rogan Podcast and calling Vernon Unsworth, the diver, in July 2018, a pedo guy in one of his tweets.

7.    China can be the swing factor for Tesla: The forecasted growth for the EV share for China is quite high. It is as high as 27 percent. Also, Tesla delivered its first China-made cars to its customers and it has come when Mr. Musk has been very popular in missing his deadlines.  
Tesla Killers in the Chinese market are  NIO, XPENG, GEELY, BYD

8.    The combined valuation of Tesla has eclipsed the total market cap of Ford and General Motors combined.

9.    The combined valuation of Tesla has eclipsed the total market cap of Ashok Leyland, Bajaj Auto, Tata Motors, Maruti Suzuki and Mahindra & Mahindra combined.

{Just for info: In the middle of these, Morgan Stanley Sales & Trading, US, has picked Maruti Suzuki India as one of the world’s top 20 stocks. According to a recent report released by Morgan’s trading arm, India's car market leader is best positioned when demand picks up.}
10. Tesla has become the 3rd most valuable company in the world after Toyota ($228Bn) and Volkswagen ($100.8Bn).

Tesla stock has doubled since October 2019. It may have eclipsed the valuation of major automobile firms but the fact remains that sale wise, it accounts for just 3 percent of joint vehicle sales volume (Ford and GM). The execution risk more than ever. And the fact remains that the company is about to report its 10th annual consecutive net loss (In the first para we had talked about quarters)
Till then, let’s see how things unfold for Tesla and the legend, Mr. Elon Musk.\

The excel sheets have been attached to this link for further references: File
The Article may be downloaded as pdf from the following link

2.    Bloomberg Technology – Taylor Riggs

Wednesday, January 8, 2020

Oil prices are steady; But Why?

Oil prices jumped 5 percent after Iran launched strikes against US military bases in Iraq in retaliation for the killing of commander Qassem Soleimani. But by Wednesday afternoon gains in crude had reversed, with prices trading lower than before the Iranian general’s assassination.

Having jumped when markets opened to as high as $71.75 a barrel, crude later dropped to below $66 a barrel, a near 9 percent peak-to-trough swing in the course of a day.

So why have oil prices failed to rally despite the tensions in the Middle East?

1.     The crisis is expected to de-escalate. Global cues are meant to calm after Mr. Trump signaled that the US would not respond militarily to Iran’s attacks on American forces in Iraq, in a bid to de-escalate the crisis in the Middle East triggered by his order to kill Iran’s top general, Qassem Soleimani
2.     Saudi Arabia’s state-backed oil tanker giant, Bahri, is temporarily suspending shipments through the Strait of Hormuz following Iranian missile strikes on US military bases in Iraq, according to two sources familiar with the matter.

[ How the Strait of Hormuz is used as leverage and weapon by Iran has been explained in my previous blog Dated: January 3, 2020: India's economy will suffer eventually as the US attacks Iran!!.]

Avoiding the possibility of direct involvement has also made the oil market a bit less fuzzy. 

3.     Russia Crude Oil Production is at a current level of 10.86M, down from 10.90M last month and down from 10.96M one year ago. This is a change of -0.37% from last month and -0.95% from one year ago. The fact remains that Russia has been trimming production for most of the past three years in an attempt to offset a surge in production from the US shale industry. So if the prices get too high, then the POTUS can ask his allies, including Saudi Arabia and the UAE, to boost production to help calm the market and calm down the prices. 

4.     Oil prices are already high: Some traders say the limited price reaction is simply down to oil having already risen strongly in the fourth quarter of last year, with prices gaining about $10 a barrel as concerns over weakening global growth and the US-China trade war receded. Hedge funds already have sizeable bets on rising crude prices, which have largely been established in the past few months, suggesting there may not be the appetite to keep adding more risk to portfolios without evidence of a genuine supply disruption.

5.     Darryl Willis, a 25 year veteran of BP was hired by Google as the VP of Google Cloud Oil, Gas and Energy. And then he shifted to Microsoft as VP Energy Industry. 
Google has already signed up with Total to subsurface data analysis for oil gas exploration and production. Microsoft has already partnered with Exxon and Chevron. Amazon provides cloud services to BP and Shell. The Big Tech companies are already betting high on the oil industry. The fact remains that Machine learning can help in providing seismic segmentation to label geological structures important for oil exploration. The amount of data already collected by the Oil industry can be fed to train the machine (AI). In 2018, the oil and gas industries spent an estimated $1.75 billion on AI — a sum that is projected to balloon to $4 billion by 2025. The bottom line remains that the oil industry is optimistic about the R&D happening and the involvement of Big Tech into this sector. Any sort of breakthrough would mean significant production output and the prices are not going to storm beyond a particular upper bound. This reason may seem vague but if that’s so, let’s keep the other 4 points in mind to answer the question in the headline itself :p


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