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.

Do subscribe to our newsletter to get these articles at length. You may also follow Team_Osmosis Instagram page for regular updates on economic and financial news.



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


Friday, January 3, 2020

India's economy will suffer eventually as the US attacks Iran!!


Stena Impero, a British Oil tanker, on its way to Saudi Arabia was dramatically boarded and seized by Iran’s Revolutionary Guard on July 19th, 2019. The Radio message received was:
“If you obey, you will be safe. Alter your course TO 360 degrees immediately” said the Iranian Naval Forces.

Note: In their language, altering TO 360 degrees means to change course so that the compass read 360 degrees or due north.
The oil prices spiked $2 per barrel after the incident.

Let's ignore the quoted lines for a while and try to understand the relation between the US and Iran. The above-quoted para will find its relevance in the last and most importantly, I promise that the justification of the headline too will be explained in the latter part. Just be patient and try to understand the history of animosity.
Pre 1979, Saudi Arabia and Iran constituted to be the twin pillars of the middle east providing stability in the region. Iran shared a much longer border with USSR and to keep the soviet’s influence off the region, the USA sold guns, bombs and virtually any conventional weapon to secure Iran as well the Saudi from soviets. Ultimately the goal was to secure the oil that the US was importing from the middle east. But things fell apart.

Act I: Iranian Revolution 1979

The Iranian Revolution overthrew the monarchy and Iran was declared an Islamic Republic led by Ayatollah Khomeini. But interestingly the monarch which was led by Mohammad Reza Pahlavi, the last Shah shared great relations with the United States. The fact remains that Shah was led to the throne because of the US. Shah was forced to leave his country and was admitted to the US for cancer treatment. Back in Iran, the new government in place demanded his return in order to face the trials for the crime he had been accused of. The demands were rejected by the US.
And then the Unthinkable happened.
Fifty-two American diplomats and citizens were held hostage for 444 days from November 4, 1979, to January 20, 1981, after a group of Iranian college students belonging to the Muslim Student Followers of the Imam's Line, who supported the Iranian Revolution, took over the U.S. Embassy in Tehran.
By Algerian Declaration, the 52 American citizens were set free and were able to leave Iran. One among other key provisions of the accord was that the US would not intervene politically or militarily in Iranian internal affairs.
Also the movie Argo is based on a similar incident of the "Canadian Caper" which was the joint covert rescue by the Canadian government and the CIA of six American diplomats who had evaded capture during the seizure of the United States embassy in Tehran, Iran, on November 4, 1979


The Iranian Revolution terrified the Kingdom of Saudi Arabia and which has led to the cold war between Iran and Saudi Arabia since then. The US is a very strong ally of Saudi. On May 20, 2017, U.S. President Trump and Saudi Arabia's Salman bin Abdulaziz Al Saud signed a series of letters of intent for the Kingdom of Saudi Arabia to purchase arms from the United States totaling US$110 billion immediately and $350 billion over 10 years. The statement has been mentioned to signify how Saudi Arabia is important to the states.

Act II: Tanker War

The Iran–Iraq War began on 22 September 1980, when Iraq invaded Iran, and it ended on 20 August 1988. The so-called "Tanker War" started when Iraq attacked the oil terminal and oil tankers at Kharg Island in early 1984. Iraq's aim in attacking Iranian shipping was to provoke the Iranians to retaliate with extreme measures, such as closing the Strait of Hormuz to all maritime traffic, thereby bringing American intervention; the United States had threatened several times to intervene if the Strait of Hormuz were closed. As a result, the Iranians limited their retaliatory attacks to Iraqi shipping, leaving the strait open to general passage.
How the US was involved in the Iraq-Iran war?
1.    Iraq acquired 60 multi-role military helicopters (MD 500 Defender) directly from the United States in 1983
2.    USS Stark was deployed to the Middle East Force in 1984 and 1987. The ship was struck on 17 May 1987 by two Exocet anti-ship missiles during the Iran–Iraq War fired from an Iraqi Dassault Mirage F1 aircraft. The Reagan administration, however, attributed the blame to Iran for its alleged belligerence in the underlying conflict.
3.    American support for Ba'athist Iraq during the Iran–Iraq War, in which it fought against post-revolutionary Iran, included several billion dollars' worths of economic aid, the sale of dual-use technology, non-U.S. origin weaponry, military intelligence, and special operations training. However, the U.S. did not directly supply arms to Iraq
4.    Iran Air Flight 655 was a scheduled passenger flight from Tehran to Dubai via Bandar Abbas, that was shot down (the flight was mistaken for a jet fighter) on 3 July 1988 by an SM-2MR surface-to-air missile fired from USS Vincennes, a guided-missile cruiser of the United States Navy. The aircraft, an Airbus A300, was destroyed and all 290 people on board, including 66 children, were killed. In 1996, the governments of the United States and Iran reached a settlement at the International Court of Justice which included the statement "...the United States recognized the aerial incident of 3 July 1988 as a terrible human tragedy and expressed deep regret over the loss of lives caused by the incident.”

US Army helicopters protecting the Oil Tankers crossing the Strait of Hormuz

Act III: Iran Nuclear Deal

By 2002, Iran was fighting multiple proxy wars and the US feared that their Nuclear weapon may fall into wrong hands.
In 2002 State of the Union Address, George W Bush referring to North Korea and Iran mentioned that “States like these and their terrorist allies constitute an axis of evil, arming to threaten the peace of the world” The term ‘axis of evil’ has got a lot of repetitions after then to pinpoint the common enemies of United States.
UN report also revealed that Iran has carried out activities relevant to the development of a nuclear explosive device. The mutual distrust between the US and Iran boiled over. Iran has refused to satisfy legitimate concerns about the nature of its nuclear program. Eventually, The US announced sweeping sanctions against Iran
[On June 24, 2010, the United States Senate and House of Representatives passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), which President Obama signed into law July 1, 2010.]
The sanctions again brought Strait of Hormuz into the limelight as Iran threatened that they would not allow a single drop of oil to pass by. The US retaliated saying that they were well prepared to take any action. The economy of Iran contracted for the first time in a decade after the sanctions as oil makes up 80% of their exports.

The Iran nuclear deal framework was a preliminary framework agreement reached in 2015 between the Islamic Republic of Iran and a group of world powers: the P5+1 (the permanent members of the United Nations Security Council—the United States, the United Kingdom, Russia, France, and China—plus Germany) and the EU

In all the three acts, a name that has come often is the Strait of Hormuz. A third of the world’s liquefied natural gas and almost 25% of total global oil consumption passes through the strait, making it a highly important strategic location for international trade. The jugular of the world economy seems to have found its relevance again and again whenever Iran has been placed in a discomfort position.

Act: IV: Withdrawal from Iran Nuclear Deal

On May 8, 2018, United States President Donald Trump announced the United States was withdrawing from the deal.
Iran has the world's fourth-largest oil reserves. But sanctions prevented it from capitalizing on that resource. As a result, Iran is only the world's seventh-largest oil producer, pumping 4.5 million barrels per day. In 2018, it exported 1.9 million barrels per day. Without sanctions, Iran had hoped to double that amount once it built up the necessary infrastructure. With the reinstatement of sanctions, exports were projected to plummet to 945,000 barrels per day. In 2018, Iran's unemployment rate rose to 13.8%. Sanctions caused its currency, the rial, to plummet. That's caused its inflation rate to skyrocket to 55% in 2018.
On July 19th, 2019, Stena Impero, a British Oil tanker, on its way to Saudi Arabia was dramatically boarded and seized by Iran’s Revolutionary Guard. It was passing through Strait of Hormuz. I had said that the quoted text will find its way.
The above clearly states how US and Iran relations have only deteriorated over the years but most importantly mentions as to how the strait is used as leverage by Iran to oppose their oponents

Act V: Things that could have been avoided 

These 4 incidents happened as the world was on the verge to enter a new decade.
1.    December 28, 2019: A US civilian contractor was killed Friday in a rocket attack on a base near Kirkuk, Iraq, where US service members and civilian contractors were located. The attack was linked to groups backed by Iran.
2.    The 2019 U.S. embassy attack in Iraq happened in Baghdad, Iraq, on 31 December 2019. Iraqi militiamen, pro-Iran protesters, and supporters of the Kata'ib Hezbollah, an Iran-backed militia, attacked the U.S. embassy in response to U.S. airstrikes on 29 December 2019 that killed 25 fighters of Kata'ib Hezbollah in Iraq
3.    Maj. Gen. Qassim Suleimani (architect of nearly every significant operation by Iranian intelligence and military forces over the past two decades) was killed in an American drone strike in Baghdad on Friday.
4.    His death is a considerable blow to Tehran, and Iran’s supreme leader, Ayatollah Ali Khamenei, called for retaliation on Friday and for three days of national mourning.

The #WWIII and #Worldwar3 were the trending topics on Twitter on 3rd January. But the most significant point remains that India has a lot to lose in these things.

Point A: The Strait of Hormuz is again going to be affected in between this feud. And this is something we can very sure about as we have read about the history of the nations. India is in a no state to handle further distress to the economy as the current economic slowdown has come at a time when the oil prices are at a record low. This, in fact, has been stated as a cushion and widely mentioned that this government has been lucky in this regard. But the fact remains that the spike in the oil prices is going to make things worse. Iran’s Oil imports to India has dipped to 1.7 mt in the current fiscal year down from 23.9 mt in 2018-19. But still, we import 226.5 mt (during FY19) that has cost India about $111.9 Billion. This is when the crude prices are at $61.18 per barrel (It was $106 per barrel in July 2014)


The News: Oil prices jump after top Iranian general killed by US – BBC

Point B: Reliance Industries toppled the IOCL as the largest company in India in terms of revenue. I am mentioning this fact because this company is one of the major index heavyweights of Nifty50 and Sensex. Reliance mentioned earlier that they have the plan to become the zero-net debt company. Their plans have been drawn on the altars of partnership that they are looking forward to forge with Aramco and BP (Both being, Oil-based company). With the recent developments in the oil market, we could see that a chunk of investors’ money wiping out because of the escalation.
Point C: Nevertheless, the positive sides are that macroeconomics factors have been quite stable for the nation. We have healthy foreign exchange reserves. The data reached an all-time high of 413.0 USD bn in Oct 2019 and a record low of 1.1 USD bn in Jun 1991 (just for a perspective). This would mean that we have enough cushion to shrug off the exchange rate fluctuation that the economy may face in the wake of the oil price fluctuations. Though weak rupees would mean a lower dollar return for foreign investors and making India an unattractive market for investment.
Point D: In the domestic stock market, oil-linked stocks like Spice Jet, InterGlobe Aviation; Paints stocks like Asian Paints, Berget Paints, and Nerolac may face the brunt. BPCL, HPCL, and IOCL are too not going to be spared

Point E: For a country like India which meets 80 percent of its oil demand through imports, any further rise in crude prices may have an impact on government finances. Every $10 a barrel rise in crude oil prices expands India’s current account deficit (CAD) by 0.4 percent of GDP. Every 10 percent increase in crude oil prices can push up the inflation rate by 20 basis points.
The preventive measures for the same distress may find its way to the highly talked next budget.


Ads Inside Post