China’s Manufacturing Growth Weakens as New Orders Decline

By Bloomberg News - Jul 1, 2012 8:16 AM GMT+0700

China’s manufacturing expanded at the weakest pace this year as new orders and export demand dropped, adding to evidence the nation’s economic slowdown is deepening, a government report showed today.

The Purchasing Managers’ Index fell to 50.2 in June from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said. That compares with the 49.9 median estimate in a Bloomberg News survey of 24 economists. A reading above 50 indicates expansion.

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Employees put on clean suits at Semiconductor Manufacturing International Corp. (SMIC), in Shanghai. Photographer: Qilai Shen/Bloomberg

Today’s data increase the odds Premier Wen Jiabao will introduce more stimulus to stem a deceleration in the world’s second-biggest economy that may have extended into a sixth quarter. The central bank will fine-tune economic policies in a “timely and appropriate” manner, central bank Governor Zhou Xiaochuan said on June 29.

“The weaker reading should trigger more-aggressive policy easing,” Sun Junwei, a Beijing-based economist with HSBC Holdings Plc, said before the release. “Economic growth will rebound to over 8.5 percent in the second half once these additional easing measures filter through,” she said.

Steps may include a reduction in interest rates, four cuts in banks’ reserve requirements, more fiscal spending on public works and tax cuts, according to Sun, who forecasts second- quarter economic growth may have slid to 7.8 percent from a year earlier, after slowing to 8.1 percent in the first three months of the year.

Orders Contract

A separate purchasing managers’ index released by HSBC Holdings Plc and Markit Economics indicated that manufacturing may have contracted for an eighth month in June, according to a preliminary reading on June 21. The final reading of the survey, which covers more than 420 companies and is weighted more toward smaller businesses, is due tomorrow.

The federation’s index is based on responses from managers at 820 companies in 31 industries.

A measure of output fell to 52.0 in June from 52.9 the previous month, according to the federation. A gauge of new orders contracted for a second month and export orders contracted for the first time since January.

Gains in China’s currency against the U.S. dollar have stalled as growth in Asia’s biggest economy has slowed and Europe’s debt crisis curbed demand for exports. The yuan weakened 0.88 percent in the second quarter, according to the China Foreign Exchange Trade System, its biggest quarterly decline since a dollar peg ended in 2005.

Profits Fall

UBS AG cut its end-2012 estimate for the yuan to 6.25 to 6.35 per dollar from a previous forecast of 6.15, according to a June 29 note.

The benchmark Shanghai Composite Index has fallen 9.6 percent from this year’s peak on March 2 on concern the government isn’t loosening monetary policy quickly enough to stem a slowdown. The gauge rose for the first time in eight days on June 29 on speculation European turmoil is easing after the region’s leaders agreed to soften repayment conditions for loans to Spanish banks.

Industrial companies’ profits fell for a second month in May, a statistics bureau report showed on June 29, adding to signs the economy is weakening.

Baoshan Iron & Steel Co., China’s biggest publicly traded steelmaker, said June 11 it lowered prices as demand from makers of appliances and cars slowed. Prices were cut by as much as 400 yuan ($63) a metric ton for July delivery, the Shanghai-based company said in a statement on its trade website bsteel.com the same day.

--Zheng Lifei. With assistance from Cynthia Li in Hong Kong. Editors: Nerys Avery, Scott Lanman

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Christie Calls Special Legislative Session on Tax Cuts

By Terrence Dopp - Jul 1, 2012 2:19 AM GMT+0700

New Jersey Governor Chris Christie called for a special session of the Democratic-led Legislature to pass his proposed tax cut, which he said lawmakers “held hostage” in the $31.7 billion budget approved this week.

Christie, a first-term Republican, said in a statement he has sent a letter to Senate President Stephen Sweeney and Assembly Speaker Sheila Oliver, both Democrats, notifying them of the session. Christie said he plans to address a joint session of the Senate and Assembly at 11 a.m. on July 2.

In his February budget address, Christie called for a 10 percent income-tax cut across the board. He later agreed with Democrats on a plan to give residents property-tax credits. Senate Budget Committee Chairman Paul Sarlo, a Democrat from Wood-Ridge, said his party opted to delay the credits until later in the year, conditional upon revenue meeting expectations.

“The budget, which contained billions of dollars in spending, failed to address the single issue that strikes at the heart of our shared interests, and our continued prosperity,” Christie, 49, said in the letter, according to a statement released today by his office. “Lowering the tax burden on every New Jersey resident is a matter of unique and critical interest that demands our immediate and full attention.”

Property-Tax Credits

The governor vetoed $361 million in spending initiatives added on by Democrats when he signed the spending plan in Trenton. New Jersey law allows governors to call the Legislature into session when they deem doing so is “in the public interest.”

Democrats in their budget stuck closely to the revenue and spending targets outlined by Christie and set aside $183 million in the state’s rainy day account to cover property-tax credits.

“We presented the governor with a budget committed to providing middle-class tax relief, and regardless of the governor’s political theater no tax breaks will even go into effect until 2013,” said the Senate’s Sweeney in a statement this afternoon. “While the last thing anyone wants in the middle of a heat wave is hot air coming from Trenton, we will be there.”

The legislature’s top budget analyst has said tax collections may drop as much as $1.4 billion below Christie’s original targets through the end of next fiscal year, double a revised figure from Treasurer Andrew Sidamon-Eristoff.

To contact the reporter on this story: Terrence Dopp in Trenton at tdopp@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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Iran Oil Sanctions Starting Risks Biggest OPEC Loss Since Libya

By Ewa Krukowska - Jul 1, 2012 5:01 AM GMT+0700

Behrouz Mehri/AFP/Getty Images

A petrol station in central Tehran. Iran has halted its limited oil sales to France and Britain in retaliation for a phased EU ban on Iranian.

European Union sanctions on Iran entered into full force today after exemptions on some contracts and insurance ended, boosting crude prices and pressure on the Persian Gulf nation to halt its nuclear-enrichment program.

The reduction in Iranian exports may become the biggest supply disruption from a member of the Organization of Petroleum Exporting Countries since an armed rebellion all but halted pumping in Libya last year, according to the International Energy Agency. It also comes just as a strike by Norwegian workers is curbing flows from North Sea fields.

“We expect Brent oil prices to be supported by Iranian oil sanctions and potential loss of supplies from the North Sea,” Gordon Kwan, the head of regional energy research at Mirae Asset Securities based in Hong Kong, said in a June 28 report. “The imminent EU insurance ban on tankers carrying Iranian crude could drive up demand for Brent and Dubai crude.”

Brent futures fell below $90 a barrel on June 21 for the first time in 18 months as concern that Europe’s debt crisis would spread sapped the outlook for fuel use worldwide. Now, the Iran embargo and Norwegian strike are stoking speculation about a rebound in prices, according to analysts such as Kwan and Ole Hansen at Saxo Bank A/S. Brent for August settlement surged 7 percent on June 29 to close at $97.80 a barrel on the ICE Futures Europe exchange.

Unsold Barrels

Iran, the second-biggest producer in OPEC after Saudi Arabia, was producing about 3.3 million barrels a day in May. Full implementation of sanctions will remove about 1 million barrels a day during the second half of the year as buyers disappear and Iranian storage tanks become full, the Paris-based IEA forecast in a June 13 report.

Iran called on OPEC to convene an emergency meeting to address the group’s production in excess of its target of 30 million barrels a day, the state-run Mehr news agency reported yesterday, citing Oil Minister Rostam Qasemi. Disregard of the limit by some OPEC members “will negatively impact oil prices in the international market,” Qasemi said. The 12-member organization, which decided on June 14 to retain its daily ceiling of 30 million barrels, pumped about 1.6 million barrels more than that in May, according to data compiled by Bloomberg.

The EU decided in January to ban oil imports from Iran, offering a five-month phase-in period for existing contracts to let member states such as Greece find alternative supplies. An exemption on tanker insurance restrictions for the worldwide shipping industry also ran out today.

Nuclear Impasse

Foreign ministers from the 27-nation bloc decided on June 25 the exemptions shouldn’t be extended after talks between Iran and the world’s powers about the nuclear program failed to reach a breakthrough since they started in April. Iran denies that it is developing nuclear weapons.

“Our purpose is to persuade Iran to come and negotiate with us and to show by action the reassurance that we’re seeking,” the EU’s foreign policy chief, Catherine Ashton, told a news conference in Luxembourg after the ministers met. “We need, not just in the EU but across the world, to keep the pressure up.”

The EU ban on insurance for ships carrying Iranian oil affects 95 percent of the world’s tankers because they’re covered by the 13 members of the London-based International Group of P&I Clubs, which is adhering to the EU rule.

In an effort to retain an important Asian customer, Iran offered to supply oil to South Korea using its own tankers, a government official in Seoul said June 29, asking not to be identified because the matter is confidential.

Parallel Action

Complementing the European sanctions, a U.S. law enacted Dec. 31 cuts off international banks from the U.S. financial system if they settle oil trades with Iran. The U.S. rule gave importing nations, including China, India and Japan, until June 28 to demonstrate they had “significantly reduced” their purchases of Iranian oil in order to qualify for exemptions.

Oil and its derivatives account for nearly 80 percent of Iran’s exports and about half of government revenue, according to the U.S. Energy Information Administration, which estimates the country’s 2010 net oil export revenues at $73 billion.

Iran’s oil exports may “gradually” decline by 20 percent to 30 percent after sanctions start and amid field maintenance work, Deputy Oil Minister Ahmad Qalebani said on June 26.

Such acknowledgement hasn’t erased tensions over the sanctions. Iran warned it can strike any target in the Strait of Hormuz and Persian Gulf and will soon equip ships with missiles capable of firing more than 300 kilometers (186 miles), Mehr reported June 29, citing a commander of the Islamic Revolutionary Guards Corps. Tankers carrying about a fifth of globally traded oil exit the Gulf though the Hormuz chokepoint.

Iranian ‘Playground’

“The Strait of Hormuz and the Persian Gulf is Iran’s playground and no one else’s,” Admiral Ali Fadavi told Mehr. “Any issues related to the Strait of Hormuz will be a very big story that will have consequences on the price of oil.”

A survey of 42 analysts on June 28 showed that 16, or 38 percent of them, predicted crude futures will increase in the week starting tomorrow, citing the new sanctions. Among the remainder, 12 forecast little change in prices and 14 expected a decline.

“That is the wildcard, the Iranian situation,” Torbjoern Kjus, an oil analyst at DnB ASA, an Oslo-based bank, said by phone on June 29.

“Nobody can be totally certain how it’s really going to affect the market,” he said. “There’s probably been huge inventory builds in Iran, and this could pose a bearish effect for next year or the second half of this year if there is a resolution.”

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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