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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SocGen launches rights issue at deep discount

(Reuters) - Societe Generale (SOGN.PA: Quote, Profile, Research) launched a 5.5 billion euros ($7.97 billion) capital increase on Monday to plug holes in its balance sheet following a rogue trading scandal.

The one-for-four rights issue at 47.50 euros per share offers a discount of 38.9 percent to Friday's closing price.

"The price is very low. The feedback from the market cannot have been very encouraging. As they can't miss this deal they decided to strike very low," said Landsbanki Kepler banking analyst Pierre Flabbee.

Fund managers contacted by Reuters last week had been looking for a discount of up to 30 percent.

The bank's shares fell 3 percent to 75.40 euros by 1156 GMT with France's benchmark CAC 40 index .FCHI down 0.5 percent.

SocGen revealed plans to tap investors on January 24 when it stunned the financial world with 4.9 billion euros of rogue trading losses blamed on a single trader.

 

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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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Wall Street Shareholders Suffer Losses Partners Never Imagined

(Bloomberg) -- Less than a decade after Wall Street's last major partnership went public, stockholders are paying the price for bankrolling the industry's expanding risk appetite.

Four of the five biggest U.S. securities firms lost about $83 billion of market value last year, almost 90 percent of their net income since 1999, data compiled by Bloomberg show. That cut the annual average return for Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. during those nine years to 9.7 percent from 16.8 percent.

The private partnerships that once dominated Wall Street guarded their capital, used less leverage and limited their risk to trading blocks of stock for clients and shares of companies in mergers, said Roy Smith, a finance professor at New York University's Stern School of Business and a former partner at Goldman Sachs Group Inc. Since raising money from the public, many of the biggest firms have abandoned that caution.

``If you're betting with other peoples' money, you're more willing to take risk than if it's your own,'' said Anson Beard, 71, who retired from Morgan Stanley in 1994 after 17 years at the New York-based company, where he ran the equities division and helped with the initial public offering in 1986. ``You think differently if you're paid in cash and not in ownership. It's heads you win, tails you don't lose.''

Shareholders, stung by the securities industry's losses last year on subprime mortgage-backed bonds and leveraged loans, may be in for more pain.

Shrinking Fees

Morgan Stanley, Merrill, Lehman and Bear Stearns have lost between 3 percent and 19 percent of their value this year in New York Stock Exchange trading on concern that they may be forced to take more writedowns if bond insurers like MBIA Inc. and Ambac Financial Group Inc. are stripped of their top credit ratings. Revenue from structured credit and leveraged finance has dropped and demand for takeover advice and underwriting may dwindle as the U.S. economy slows, analysts say.

Even Goldman has faltered. New York-based Goldman, which went public in May 1999, evaded last year's market losses and reaped record earnings. This year, the biggest and most profitable securities firm has lost 13 percent in NYSE trading, while analysts predict earnings will drop as equity stakes in companies such as Beijing-based Industrial & Commercial Bank of China Ltd. lose value and investment-banking fees decline.

Merrill, which went public in 1971, outperformed the Standard & Poor's 500 Index in just five of the past 10 years. The largest U.S. brokerage paid more to employees last year than it collected in revenue. Morgan Stanley, public since 1986, beat the index in four of the past 10 years. Both New York-based companies diluted investors' stock last year when they sold stakes to foreign governments to shore up capital.

Other People's Money

``Shareholders share in the downside and not necessarily in the upside, that's the whole story,'' said John Gutfreund, 78, who ran Salomon Brothers in the 1980s when it was renowned for the size of its trading bets. ``It's OPM: Other People's Money.''

To be sure, the firms have been good investments over a longer period. Merrill rose at an average annual rate of 14.7 percent, including dividends, from 1980 through the end of 2007, according to data compiled by Bloomberg. Bear Stearns returned an average 15.2 percent since the end of 1985 and Lehman's average annual gain was 25.5 percent since it became a separately listed company at the end of 1994.

While none of the companies are more than one-third owned by employees today, senior executives typically receive at least half their pay in shares. At Merrill, top managers get 60 percent of their compensation in stock; they're required to keep three quarters of it each year and are prohibited from hedging it, according to the brokerage's proxy statement.

 

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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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Ford May Cut 9,000 More U.S. Plant Jobs, Person Says

 (Bloomberg) -- Ford Motor Co., the world's third- largest automaker, may eliminate as many as 9,000 more U.S. factory jobs through its latest buyout offers, a person with direct knowledge of the situation said.

The cuts would be in addition to the 33,600 union workers who left through buyouts and early retirements in 2006 and 2007, when Ford lost a combined $15.3 billion. Further reductions may help Ford restore profit by speeding the hiring of new workers who would be paid about half as much as current employees.

``These are realistic numbers,'' said Harley Shaiken, a labor professor at the University of California at Berkeley. ``Workers are reassessing their options. It is a very tough choice.''

Ford doesn't have an estimate of how many workers will accept the buyouts, proposed to a first group of workers last month, the person said. The Dearborn, Michigan-based automaker won't limit the number who leave if more than the target range of 8,000 to 9,000 opt for the offers, the person said.

Marcey Evans, a Ford spokeswoman, declined to comment. Roger Kerson, a spokesman for the United Auto Workers union, didn't return telephone messages. The Detroit Free Press reported Feb. 9 that Ford had an internal target of 8,000, citing people familiar with the objective. That reduction would represent more than 12 percent of the carmaker's North American factory workers.

Ford's employment fell to 64,000 at the end of last year at North American plants from 99,500 two years earlier. That decline includes the 33,600 UAW-represented jobs shed through the buyout and retirement offers.

New Contract

Ford and the UAW in November agreed on a contract that permits the company to pay lower wages for new hires while keeping open five factories targeted for closure. Under the four-year agreement, Ford can pay up to 20 percent of its U.S. factory workers the reduced wage.

Under the accord, Ford's hourly costs for new workers will be $26 to $31, or about half the $60 expense for a current UAW member's wages and benefits.

Before any new, lower-paid workers can be hired, Ford must resolve the fate of workers at closed factories and at its Automotive Components Holdings unit. Automotive Components includes factories Ford took back from former parts subsidiary Visteon Corp. Most of those plants are being closed or sold, and some of the UAW-represented employees may go to Ford plants.

UAW workers at Automotive Components are eligible for buyouts. The outcome of the buyout program will determine how many of those employees are reassigned to Ford factories.

Ford has about 54,000 UAW-represented employees, with about 12,000 eligible to retire.

Savings

UAW President Ron Gettelfinger last month estimated that new contracts at Ford, General Motors Corp. and Chrysler LLC will save the automakers ``somewhere in the neighborhood'' of $1,000 per vehicle. Buyouts of higher paid workers will help Ford increase the number of new hires at lower wage levels.

Ford hopes to reach the 9,000 target through offers pending at four closed U.S. plants that will be broadened to other U.S. factories next week.

Workers at St. Louis; Edison, New Jersey; Norfolk, Virginia; and Atlanta began considering buyouts Jan. 22 and have a ``buyout window'' running through Feb. 28, Ford said Jan. 24 when it released 2007 year-end earnings. Workers from that group who accept buyouts are to leave the company by March 1.

Workers at those sites are being offered buyouts or relocation to other Ford plants. Workers who don't accept either choice will be placed on a ``no-pay, no-benefit leave,'' Ford's Evans said. That leave would last as long as their employment with Ford, she said.

 

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