Inflation, Investing and Everything
Indonesia's gas distribution firm PT Perusahaan Gas Negara (PGN) and electricity firm PT Perusahaan Listrik Negara (PLN) plan to jointly build a liquefied natural gas (LNG) terminal on Java island, a senior PGN official said on Friday [14 Dec 2007].
Indonesia, Asia-Pacific's only Opec member, is increasing its use of energy sources such as natural gas in a bid to reduce oil use because of high prices and dwindling domestic supply. "We plan to build the LNG terminal in cooperation between PLN and PGN with possible capacity of 1.5 million tonnes per year," Sutikno, PGN president director, told reporters.
- Let's just say that that importing natural gas from neighbours with rapidly depleting reserves to generate electricity is not a very good idea. And yup, that's right, Singapore is doing just that. 80% of Singapore's electricity is generated from natural gas coming from our rapidly depleting neighbours Malaysia and Indonesia.
Solar and wind may have a part to play but they are intermittent sources at best. Their capacity factor is typically 20% or less, compared to the 90% or higher, also known as baseload power, that is required to maintain the smooth functioning of society. With currently available technology, the possible sources of baseload power are : oil, gas, coal, nuclear, hydro, and geothermal.
The last two are subject to geographical constraints, and Singapore has neither of these. We do not have the large rivers, nor the height differential, nor the catchment area for hydro. Singapore sits mostly on hard, stable bedrock, which insulates us somewhat from earthquakes but also rules out easily-accessible sources of geothermal energy. The one geothermal source that the locals know of is a small spring in the Sembawang area, which is about big enough to dip your feet in.
At $90 or so, oil is not very far from all-time record highs. And there are much better uses for oil than burning it for electricity - such as powering road transport, and petrochemical products. We've discussed gas above. Singapore is a signatory to the Kyoto climate procotol, thus building new coal plants which emit massive amounts of CO2 is not likely. Unless things get truly desperate, in which case, you never know, we could then say forget climate change, and let's burn coal. But it's not very likely.
You may or may not like it, but if we leave out un-proven, blue-sky solutions, there is just one answer left. The current Prime Minister may have ruled out nuclear power but let's not forget that his father had earlier ruled out casinos as well and we are going to have not just one but two of these. Never say never.
As for the safety radius consideration, Nimitz-class U.S. aircraft carriers have been known to dock at Changi Naval Base from time to time. These are nuclear-powered, are they not? Should one believe that these were towed all the way down the Straits of Malacca with their nuclear reactors shut off? I think not. And for all practical purposes, Changi Airport, a very strategic national asset, is practically next door to the Changi Naval Base.
I wish there were another way. Maybe we should construct a huge underground battery that discharges a few thousand megawatt-hours as needed when the sun isn't shining or the wind isn't blowing. Perhaps we should start construction of a space elevator on Sentosa island, or on one of the southern islands. Maybe we could build an antenna farm to receive space-based solar power when it launches. Why, we could even try building a spaceport to help launch these space solar satellites! But that is blue-sky, sci-fi style speculation. Would you bet your entire country on a solution nobody else has gotten to work yet?
In the meantime, when our LNG terminal comes online in 2012, just in time for the global bidding war for the remaining natural gas reserves around the world, we'll just have to see what our electricity will be priced like then. If there are no other plans, that will be all the plan we have.
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This article belongs to the Singapore stagflation watch story arc.
Singapore's non-oil exports (NODX) fell in November, dropping by 6.0% after seasonal adjustments from October, International Enterprise Singapore said in a statement on Monday [17 Dec 2007]. This was the biggest fall in seven months. Singapore's mainstay exports fell unexpectedly as the electronics sector remained weak and drug shipments tumbled. IE Singapore said electronics exports fell 8.2% from the same month of 2006, marking the tenth straight on-year decline.
Non-electronic exports, mainly pharmaceuticals and petrochemicals, have traditionally compensated for sluggish shipments of computer chips and other related tech exports. However, a 21.5% slump in pharmaceuticals last month weighed down on the sector, which has become a key export for Singapore after the government invested heavily to build up the industry.
Compared with a year earlier, overall non-oil exports fell 3.4% to S$14.6 billion. The Singapore economy is heavily dependent on trade, and NODX were equal to 80% of the Republic's gross domestic product last year.
- This looks bad. Electronics exports are down 8.2% year-on-year, making for 10 straight months of declines. Pharmaceuticals are falling off the cliff. Overall NODX down 3.4% year-on-year. I would have yelled "stagflation", but this might look more like outright contraction if the export figures keep going down like this.
For good measure, the STI dropped 112.82 points today to 3353.56 - unless something fun and interesting happens, like a 700-800 point rally next week (yeah, right), I'd suppose there goes some industry watchers' earlier dreams of STI 4000 by year-end.
The rest of the Asian and regional markets have been tanking as well. Shanghai is down 126 points, India jumped off the building - it's down 794 points, Nikkei is down 264, Australia is down 224, and South Korea is down 55.
This article belongs to the Global food crisis story arc.
The global commodities boom that has lifted prices of everything from gasoline to gold is now elevating rice - a staple food for half of the world - to its highest level in nearly 20 years. Rice's surge has complex consequences for the global economy. The ubiquitous grain is suffering poor harvests and tight supplies in some of the biggest rice-exporting and rice-consuming nations, just as demand grows in places like India and the Philippines. The higher price is a boon for some farmers and investors. But at the same time, it is expected to contribute to a protracted bout of food-price inflation for the foreseeable future, which could widen the rift between the world's haves and have-nots.
Soaring prices are drawing myriad investors into the market. On the Chicago Board of Trade, the number of bets outstanding on rice futures contracts recently reached a high - a basic sign that more traders see a chance to make money on rising prices. On the CBOT Friday, rice futures contracts settled at $13.1250 per 100 pounds, down 5.5 cents. That is up from $9.87 a year ago and just shy of the previous record price of $13.40, set in January 1988 when rice was traded at the Mid-America Exchange. While prices like these aren't at record levels in inflation-adjusted terms, they nevertheless threaten to exacerbate poverty in large areas of the world.
The story of rice echoes that of nearly all commodities, whether petroleum, copper or wheat. Prices for many commodities are surging thanks to booming demand from emerging economies like China. It is having broad ripple effects: Steel prices make it costlier to construct buildings; the rising cost of oil helps to drive up the cost of world shipping rates. Rising oil prices also make it costlier to grow and ship rice and other grains - which, in turn, drives up food prices.
In July, Vietnam - the world's second-largest rice exporter after Thailand - said it would restrict rice exports in order to meet domestic needs first. India, another large exporter, announced similar export restrictions in October.
- Read that last part again. And then re-read it.
Wheat rose above $10 a bushel for the first time and soybean and corn prices surged, fueling inflation that's threatening to derail global growth. Chicago wheat futures jumped by the exchange-imposed daily limit to $10.095 a bushel as dry weather threatened crops in Argentina, renewing concern that farmers may fail to supply enough to meet rising demand. Soybeans advanced to $11.9225 a bushel, the highest in 34 years, and corn rose to $4.4325 a bushel, a nine-month peak.
Food companies such as Kellogg and General Mills have raised prices because of higher wheat costs, which are stoking inflation and making it more difficult for the world's central bankers to lower interest rates. Sara Lee said Dec. 13  it will increase bread prices for a second time since September to counter higher input costs.
Wheat for March delivery, the most-active contract, traded at $10.07 a bushel in after-hours electronic trading on the Chicago Board of Trade at 2:09 p.m. Sydney time. The price has more than doubled in the past year as adverse weather reduced output from Australia to the U.S. and Canada. Soybean futures for March delivery rose as much as 17.25 cents to $11.9225 a bushel on the Chicago Board of Trade. Prices have gained 73% this year after U.S. farmers planted the fewest acres in 12 years in favor of corn.
U.S. consumer prices rose the most in more than two years last month, reinforcing the Federal Reserve's concern that inflation will erode confidence in the economy. The consumer price index increased 0.8% in November, up from 0.3% the previous month, the Labor Department said Dec. 14. Inflation in Europe last month rose at its fastest annual pace since May 2001, increasing by 3.1% as food costs soared.
- Let's digest this a bit. Wheat hits $10. That's a nice psychological level, something like $100 oil, which we haven't quite reached - yet. Bread prices going up again. Soybeans hit 34-year highs, yeow. Even the heavily tweaked and suppressed CPI and core inflation rates are edging up. We're having fun, aren't we?
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Advanced Micro Devices acknowledged Wednesday [12 Dec 2007] it overpaid in its $5.6 billion acquisition of graphics chip maker ATI Technologies, adding to the deepening financial woes of the slumping semiconductor company. AMD said in a filing with the Securities and Exchange Commission it will have to write down the value of the goodwill estimate it attached to ATI when it bought the company in October 2006. AMD said it does not currently know how big the charge will be.
Goodwill refers to the value of intangible assets such as a company's reputation or influence within an industry, or even employee morale, all of which are believed to influence its ability to drive future sales. AMD's final purchase price for ATI included a $3.2 billion allocation for goodwill, nearly three times the value of product technology that ATI had already developed and was working on in its laboratories, according to AMD's regulatory filings.
AMD, which was riding high off several years of impressive market-share gains at Intel's expense, suddenly fell on hard times in the summer of 2006 when Intel struck back with a new product lineup. AMD's finances were hurt by a fierce price battle and slumping demand for its chips, and its deep losses and gloomy outlook forced the company to go to Wall Street earlier this year to help pay down its oppressive debt. AMD's stock price has fallen by 54% since the start of the year in a plunge that has wiped out more than $5 billion in shareholder wealth.
- AMD's recent technical problems with its next-generation quad-core chips don't help either. And for Singapore's Chartered, AMD's newly-renewed partnership with TSMC doesn't help at all. The Intel empire has struck back, and hard. AMD could call their next chip Jedi, or Skywalker, because that's what they'll need.
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