ConocoPhillips Said to Plan Halt of German Refinery

By Nidaa Bakhsh

April 9 (Bloomberg) -- ConocoPhillips will shut its German oil refinery, the country’s third largest, in the fourth quarter for maintenance, two people familiar with the situation said.

Work on the Wilhelmshaven plant will start in October and last 6 to 10 weeks or possibly longer, the people said, declining to be identified because the information is confidential.

The maintenance work, which occurs every five years, will affect all the refinery’s units, one of the people said. Bill Stephens, a ConocoPhillips spokesman based at company headquarters in Houston, declined to comment on refinery operations.

The Wilhelmshaven plant, which uses oil mainly from the North Sea, can process 260,000 barrels a day, according to the company’s Web site.

Refiners typically conduct maintenance in the spring before gasoline demand rises in the summer, and also in the autumn to meet winter demand for gasoil, a form of heating fuel.

ConocoPhillips, the second-largest U.S. refiner after Valero Energy Corp., was forced to cut runs at the plant last quarter because of weakening demand for fuels. It also reduced operating rates in the second and third quarters of 2008 as the price of gasoline fell below Brent oil, its raw material, cutting profits for refiners.

Refining Margins Shrink

Refiners processing Brent in northwest Europe may have earned $5.18 a barrel yesterday, compared with $9.57 on Feb. 3, according to data compiled by Bloomberg.

ConocoPhillips may invest in a new coker, a hydrocracker and hydrogen units at the Wilhelmshaven refinery to increase fuel production, it said in a March 11 presentation. The upgrade will also allow the company to use heavier, high-sulfur crudes from Russia, Willie Chiang, senior vice president of refining, marketing and transportation, said in the presentation.

Hydrocrackers are used in diesel production. Cokers convert heavy crudes into lighter products such as gasoil and naphtha, used in gasoline and petrochemicals.

“We’re currently proceeding through the permitting process, and we’re hoping to get our estimates in the next few months to lead us to a final investment decision here later this year,” Chiang said on March 11.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net

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Holdren Puts U.S. Climate Goals Before International Agreement

By John Lauerman

April 9 (Bloomberg) -- Securing a climate-change policy for the U.S. that cuts greenhouse gases and stimulates the economy is more pressing than reaching an accord with other nations on the contentious issue, said John Holdren, the top science adviser to President Barack Obama.

Holdren, a former Harvard University professor, wants a climate change program in place before the December meeting in Copenhagen when energy and science officials from around the world will complete an international climate change treaty, he said yesterday in a telephone interview.

The U.S. has been criticized for failing to ratify the Kyoto Protocol, accepted by 183 countries, that limits emissions of heat-trapping greenhouse gases. Holdren said that before he and President Obama address international concerns, they will seek quick passage of an “integrated” bill in Congress dealing with a range of energy and climate issues.

“The more important thing is to get our domestic house in order,” Holdren said. “We can’t go from international negotiations” in Copenhagen, “and then ask Congress ‘Will you do something compatible with this?’”

Henry Waxman, a California Democrat who heads the House energy and commerce committee, and Ed Markey, the Massachusetts Democrat who chairs the energy and environment subcommittee, co-wrote a clean-energy bill. They have pledged to have the bill through their committees by Memorial Day, saying clean energy might create 4 million new jobs.

Carbon Emissions

While Obama has said he will seek to reduce carbon emissions down to 1990 levels by 2020, the European Union has pledged to cut emissions 20 percent lower within the same time period. Holdren, who was confirmed as Obama’s top science adviser by the U.S. Senate on March 20, said he didn’t see a change in the Obama administration’s stance before the Copenhagen meeting.

“Arguments at this juncture about where we need to be, and in what year, are a little bit misplaced,” he said.

Holdren first gained public attention in December 1981, at age 37, when he won a MacArthur Foundation fellowship, or “genius” grant, for analyses of energy and arms control. He joined the Pugwash Conferences on Science and World Affairs, an organization focused on limiting nuclear weapons, and gave an acceptance speech in Oslo in December 1995 after Pugwash shared the Nobel Peace Prize.

Holdren arrived at Harvard, in Cambridge, Massachusetts, in 1996. He became a professor focused on environmental science and policy, teaching at both the John F. Kennedy School of Government at the university and the Department of Earth and Planetary Sciences. When named to his new post by Obama, Holdren was serving as director of the Kennedy School’s Program on Science, Technology and Public Policy.

$150 Billion

Obama has said he will commit about $150 billion over 10 years to develop new energy sources that don’t contribute to climate change. Holdren has also called for a so-called “cap- and-trade” system for greenhouse gases.

Such a system would set a national limit on the amount of gases that can be produced by companies and then sell tradable permits to emit the gases.

“Without having a mechanism that limits emissions, I don’t think we’re going to get enough done,” Holdren said in the interview. “I think this is a sensible approach and it has a good chance to be passed by Congress.”

Holdren said that funding new energy-source development will help stimulate the economy during the biggest recession since World War II.

‘Position to be Building’

“This puts us in a position to be building and selling the technologies that are going to solve this problem,” he said. “This is the way to go, not just from a climate standpoint, but from an economic standpoint and to reduce oil imports.”

The administration isn’t currently considering drastic measures to control warming, such as blowing particles into the upper atmosphere that would reflect the sun’s rays away from the earth, he said. Such techniques, often called “geo- engineering,” ought to be studied, though, in case temperatures reach catastrophic levels, Holdren said.

That might happen if the Arctic tundra, which traps greenhouse gases, were to begin to thaw, or if sea ice were to stop reforming at the end of the summer, which it currently does annually. Researchers still don’t know enough about the mechanisms of climate change to predict when such events might occur, he said.

“It’s not to say that disaster is imminent, but we don’t know how far we can go before the magnitude of climactic change is unmanageable,” he said. “It’s already problematic.”

The funding and greenhouse gas goals Obama has outlined should be sufficient to avoid such occurrences, Holdren said.

“It will be a challenge,” he said, “but I think we can do it in a way that will not have any significant adverse impacts, and it’s a trajectory that, if extended over time, is consistent with a prudent strategy for the world.”

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net.

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Ahmadinejad Opens Iran’s First Nuclear Fuel Plant

By Ladane Nasseri and Jonathan Tirone

April 9 (Bloomberg) -- President Mahmoud Ahmadinejad inaugurated Iran’s first nuclear fuel plant a day after he insisted that the Persian Gulf country doesn’t aim to develop atomic weapons.

Ahmadinejad cut the ribbon at the facility in the central province of Isfahan during a ceremony marking National Nuclear Technology Day, the state-run Islamic Republic News Agency said.

The formal opening of the Isfahan plant indicates that the country is pushing ahead with its nuclear research reactor in Arak, which the United Nations Security Council has demanded stopped. Uranium pellets like the ones produced in Isfahan will feed the Arak reactor after its completion, producing plutonium as a by-product. Plutonium can be used to make atomic bombs.

The Obama administration said yesterday it plans to join China, Russia and European allies in talks with Iran on the country’s nuclear program, marking a shift in U.S. policy. Former President George W. Bush made U.S. participation in such talks conditional on Iran suspending its nuclear work. The U.S. and several major allies have said the Iranian program is cover for weapons development.

Ahmadinejad said yesterday he would welcome a genuine overture from President Barack Obama, while underlining Iran’s stance that its nuclear work is peaceful and intended to generate electricity. “Our stance is clear: Iran is a proponent of talks if based on justice, respect and rules,” Ahmadinejad said today in a speech today to mark the fuel plant’s inauguration.

World Powers’ Offer

Earlier today, the president’s media adviser, Ali Akbar Javanfekr, said the offer by world powers to hold talks with Iran on its nuclear drive is “constructive,” Agence France- Presse reported.

“We hope that this proposal means a change of approach to a more realistic attitude,” he said, adding that Iran will “examine” the offer and give a response.

The UN’s International Atomic Energy Agency said Feb. 19 that Iran had already begun producing uranium pellets and fuel rods. IAEA inspectors haven’t had access to the Arak facility, about 150 miles (240 kilometers) southwest of Tehran, since August, after Iran denied investigators access to plant.

Iran has 7,000 centrifuges operating at its uranium enrichment plant at Natanz in central Iran, Gholam Reza Aghazadeh, head of the country’s Atomic Energy Organization, said today on state television. Centrifuges are fast-spinning machines that enrich nuclear fuel by separating uranium isotopes. Iran aims to have 50,000 centrifuges in the next five years.

New Centrifuge Types

Iran has tested two new types of centrifuges with “capacity several times higher” than that of previous models, Ahmadinejad said today.

The IAEA said Feb. 19 that Iran’s stockpile of low-enriched uranium increased by about 60 percent since the IAEA’s last report, in November, giving the country around 1,010 kilograms (2,227 pounds) of the material.

London’s Verification Research Training and Information Center estimates that 630 kilograms of low-enriched uranium could yield 15 to 22 kilograms of weapons-grade uranium, enough for the production of a device under the supervision of an expert bomb-maker.

Since Ahmadinejad took office in 2005, the government in Tehran has consistently rejected United Nations Security Council demands to halt its enrichment activities, with international sanctions imposed as a result.

Ahmadinejad has portrayed developments in Iran’s nuclear program as a matter of pride and a symbol of its autonomy from Western countries. He routinely accuses the west of pressuring it to cut short the country’s technological advancement and force it into submission and dependence.

To contact the reporter on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net; Jonathan Tirone at jtirone@bloomberg.net.

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Natural Gas Futures Drop After Supplies Gain More Than Expected

By Reg Curren

April 9 (Bloomberg) -- Natural gas futures fell in New York after a government report showed that U.S. inventories advanced more than analysts expected as the recession cuts into demand for the industrial fuel.

Supplies rose 20 billion cubic feet in the week ended April 3 to 1.674 trillion cubic feet, the Energy Department said. Analysts expected a gain of 14 billion. Inventories were 23 percent higher than the five-year average compared with a 22 percent surplus in last week’s report. The average change over the past five years is an increase of 13 billion cubic feet.

“All of the data points we get are incrementally negative,” said Tom Orr, research director at Weeden & Co., a brokerage in Greenwich, Connecticut. “Gas will continue to be plagued by its own woes. We’re probably going to work our way down to the lower $3s and maybe even $3.”

Natural gas for May delivery fell 4.6 cents, or 1.3 percent, to $3.584 per million British thermal units at 12:29 p.m. on the New York Mercantile Exchange. Gas has declined 36 percent this year and is down 74 percent from a 2008 high of $13.694 reached on July 2. Futures earlier fell to $3.555 per million Btu, the lowest since Sept. 26, 2002.

Weeden cut its full-year price forecast for natural gas to $4 per million Btu from $4.75 because of sluggish demand from manufacturers and power generators. Futures will average $3.50 per million Btu in this quarter and the next, Ellen Hannan, an energy analyst at Weeden, said in an April 6 report.

Gas consumption by factories may drop 6 percent this year as the recession cuts demand, the department said last month.

Weak Economy

Gross domestic product in the U.S. probably shrank 5 percent in the first quarter, the median estimate of 57 economists surveyed by Bloomberg News. The economy contracted 6.3 percent in the fourth quarter of last year.

“It wasn’t an overly bearish number, though it does seem to suggest maybe there was a little more weakness on industrial demand,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.

Horwitz doesn’t expect prices to fall much further because producers have shut rigs in the U.S., which will cut supplies in the second half of this year. Demand will also begin to stabilize, he said.

Prices will need to average about $4.50 per million Btu in 2009 to help reduce supplies and bring them in line with demand, Horwitz said.

Storage operators and utilities injected 2.178 trillion cubic feet between April and November 2008. A similar rebuilding of inventories this year would put stockpiles at 3.83 trillion cubic feet by Oct. 31, 8 percent above the record 3.545 trillion in storage on Nov. 2, 2007.

To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.

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EU Carbon May Gain, Fibonacci Chart Shows: Technical Analysis

By Mathew Carr

April 9 (Bloomberg) -- European Union emission permit prices may extend gains after reaching their highest in almost three months today, Evolution Markets Inc. said, using a Fibonacci chart to make forecasts.

Carbon for December delivery exceeded 13.25 euros ($17.60) today for the first time since Jan. 16. That price is a 61.8 percent retracement of the decline from 16.45 euros on Dec. 17 to a record low of 8.05 euros. Should the contract close twice above 13.25 euros, prices will have a base to rally toward 16 euros, said Brett Genus, a broker for Evolution in London.

Fibonacci charts use the ratio between numbers in the sequence identified by 13th-century Italian mathematician Leornardo Fibonacci. The ratio, known as the golden mean, locates points of support or resistance as prices retrace rallies or declines between previous high and lows.

EU carbon dioxide allowances for December climbed as much as 5.6 percent to 13.50 euros a metric ton on London’s European Climate Exchange, the highest since Jan. 15. They traded at 13.20 euros as of 10:34 a.m. local time.

“I think we will have another run at 13.25 euros next week,” assuming the market closes below that level today, before the Easter holiday weekend, said Dennis Mignon, a trader with First Climate in Bad Vilbel, Germany, by telephone. “If we bounce off and head towards 12 euros again, this will be a negative signal.”

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net

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Maryland Taps Carbon Permit Coffers for Power Bill Rebates

By Jim Efstathiou Jr.

April 9 (Bloomberg) -- Maryland will take $70 million it receives by charging utilities for carbon emissions to help low- income residents pay power bills, breaking with neighboring states that will use the revenue to lower energy use.

The state’s legislature is expected to approve a budget by April 13 that will divert spending on energy-efficiency projects to rebates. The move proposed by Maryland Governor Martin O’Malley will make it more costly to fight climate change with a “cap-and-trade” emissions market, said Brad Heavner, state director for Environment Maryland, a non-profit advocacy group.

Maryland is one of 10 Northeastern states in the Regional Greenhouse Gas Initiative, or RGGI, the first U.S. market for carbon-dioxide emissions. Maryland is being outspent by New York, New Jersey and the rest of the RGGI states on energy- saving solar-heated water systems and improved home insulation, the best way to lower costs for consumers, Heavner said.

“It’s incredibly shortsighted,” he said in an interview. “We need to make sure that the bulk of the money is used for energy-efficiency programs. If it isn’t, then cap-and-trade doesn’t function very well.”

The Maryland debate is resonating in Washington where President Barack Obama and Democrats in Congress are crafting a federal cap-and-trade program projected to take in $646 billion in carbon-auction revenue over eight years. Obama wants to use $526 billion of that for a tax cut.

“It’s a big pot of money and everyone wants a piece,” Heavner said.

‘Unprecedented Economic Times’

O’Malley’s decision took into consideration rising energy costs and the impact of the recession on low-income families, said the governor’s spokesman Shaun Adamec. Household power prices in Maryland are the 13th highest in the country, according to Energy Department data.

“One of his chief obligations as governor is to ensure that the safety net, particularly in these unprecedented economic times, is there for families who are struggling to keep their lights on and keep their heat on,” Adamec said in an interview.

The shift to short-term aid means higher costs later, according to Sam Krasnow, a policy advocate at the Rockport, Maine-based consulting firm Environment Northeast. Every dollar spent on efficiency cuts energy costs $3 to $4 by lowering demand, said Krasnow. At least 30 percent of cap-and-trade revenue should be used to lower energy use, he added.

“If you want to do cap-and-trade and you care about protecting consumers, you have to invest a substantial portion in efficiency in order to keep carbon prices low,” Krasnow said in an interview.

Climate Damage

RGGI seeks to reduce climate damage by setting limits on greenhouse-gas pollution and making companies get permits for their emissions. By gradually reducing available permits, RGGI aims to reduce global-warming gases 10 percent by 2019.

The 10 RGGI states agreed to use at least 25 percent of permit revenue for “consumer benefit or strategic energy purposes,” which include energy-efficiency programs, according to the 2005 RGGI memorandum of understanding.

O’Malley’s plan would divert $70 million over two years to rebates, lowering the share of permit revenue for energy efficiency to 17.5 percent, said Malcolm Woolf, director of the Maryland Energy Administration.

The RGGI memorandum has “generally been interpreted as being energy-efficiency, or something closely related to that,” Judi Greenwald, a policy director at the Arlington, Virginia- based Pew Center on Global Climate Change, said in an interview. “Any diversion is worrisome from that perspective.”

RGGI States

The RGGI states are allocating an average 71 percent of permit revenue to energy efficiency, according to Environment Northeast. Maryland would use 73 percent of the revenue, or $77 million, for rate rebates and low-income energy assistance, Woolf said.

Electricity rates in Maryland have surged 68 percent since 2006 when state utilities were allowed to pass on higher power costs to consumers. Maryland’s average household power price last year was 13.81 cents a kilowatt hour compared with 8.23 cents in 2005.

In 2006, then-Baltimore Mayor O’Malley, a Democrat, campaigned against utility rate increases in his bid to unseat Governor Robert Ehrlich.

“We are using the money on energy,” Woolf said in an interview. “We’re not paying off the teachers’ pension or building a highway.”

Aaron Koos, a spokesman for Baltimore-based Constellation Energy Group Inc., declined to comment on the state’s budget. Constellation owns power plants in seven states including Maryland.

Economic Stimulus Tie-In

Maryland is also counting on a boost in federal funding for energy-efficiency programs from February’s $787 billion economic-stimulus package, Adamec said. Maryland will receive $165.5 million under the plan.

The Maryland Senate last week passed the state’s $31.5 billion budget. The 40-7 vote paves the way for talks with the House of Delegates on a compromise spending plan. A final vote on the budget is expected by Monday.

The 2010 budget will allocate $53 million to help up to 140,000 families with incomes of less than $36,000 a year pay utility bills, Woolf said. An additional $24 million will lower bills for all state rate-payers. Energy-efficiency programs will get $29 million.

“Taking money away from energy-efficiency programs hurts the very families you’re trying to help,” Heavner said.

The RGGI program also includes Connecticut, Delaware, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net.

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EDF Says French Power Flows Intact as Workers Strike

By Nicholas Comfort

April 9 (Bloomberg) -- Electricite de France SA, Europe’s biggest electricity generator, said power flows between users and producers on the grid were balanced after a one-day strike resulted in production cuts at two of its nuclear reactors.

“The balance is intact,” Capucine Leroux, a spokeswoman for the Paris-based company, said by phone. She declined to say whether EDF was forced to buy electricity on the spot market to meet demand or comment on output levels.

Labor groups switch off or curb generation at power plants as a bargaining tool in conflicts with employers, as it can force them to buy pricier electricity to meet delivery obligations. France’s Confederation Generale du Travail, or CGT, union said today that workers cut output at the Cruas-Meysse and Penly nuclear facilities in a dispute over pay.

A protest at the port of Le Havre reduced the number of vessels able to load or unload by half. Total SA said operations at its Normandy refinery weren’t affected. GDF Suez SA, operator of Europe’s biggest natural-gas network, may have to reduce supplies after employees walked out, a union said.

Unions are demanding a 5 percent salary increase and one- time payment of 1,500 euros ($1,995) for all of France’s 155,000 power and gas workers. Jean-Francois Cirelli, vice chairman of GDF Suez, saw his pay almost triple after the company was created from the merger of Gaz de France SA and Suez SA.

Broke Down

“After that, you can’t even ask why we’re striking,” CGT representative Olivier Barrault said by phone from Paris. “Nothing says that these guys will go back to their jobs tomorrow.”

Talks with EDF broke down last night after the French utility made an offer that was “clearly” below employee expectations, he said, adding that negotiations are due to resume after the strike.

EDF’s Leroux declined to say what the company will seek in the next round of negotiations. About 5.4 percent of employees took part in today’s protest, she added. Nobody from the company’s ERDF power distribution unit were available for comment.

Employees began the strike at 8 p.m. yesterday and are scheduled to return to their stations by 11 p.m. tonight, said Maurice Marion at the CGT. Typically, workers begin to lower output at nuclear plants from 9:30 p.m., he added.

Job Losses

EDF unions lowered power generation by as much as 10 gigawatts, or 16 percent of French nuclear capacity, last month as workers pressure the government into raising the minimum wage and preventing job losses.

While the CGT and four other unions haven’t issued any recommendation for the industrial action to continue tomorrow, other groups will extend the strike, the CGT said, declining to say if that will affect power generation.

Cirelli earned 1.3 million euros last year, compared with 459,234 euros in 2007, when he was head of state-controlled GDF, according to an annual report. Chief Executive Officer Gerard Mestrallet received 3.17 million euros in 2008, compared with 2.7 million euros the previous year.

Both Mestrallet and Cirelli last month said they would give up their 2008 stock options, bowing to union and government pressure amid mounting joblessness in France.

Total’s Normandy refinery was unaffected after workers walked out, company spokesman Michael Crochet-Vourey said by phone from Paris.

‘No effect’

“The strike has had no effect on operations. I only speak of the refinery,” the spokesman said, referring to the 345,000 barrel-a-day Gonfreville facility.

Total, Europe’s third-biggest oil company, announced a plan on March 10 to cut 555 refining and petrochemical jobs in France. The Paris-based company, which employs about 4,800 at its refining division, came under fire from unions and the government over the announcement, which followed record profit last year.

Employees at Le Havre, which handles almost two-thirds of French cargoes, also staged protests. Four out of 10 docked vessels were unable to unload or load cargo as of 11 a.m. local time, port spokeswoman Veronique Hauchecorne said by phone.

Five ships transporting crude and oil products to and from the port will be able to operate as usual since longshoremen for those vessels are working, she added.

To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

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EDF Should Sell Power to Rivals to Open Market, GDF Suez Says

By Tara Patel

April 9 (Bloomberg) -- GDF Suez SA, bidding for a bigger share of France’s power market, wants Electricite de France SA to sell more power to competitors so 30 percent of French customers can use alternative suppliers.

“EDF as the dominant operator should supply energy to all operators to allow the development of competition,” Paris-based GDF Suez said in a document distributed to reporters at a press conference.

Suppliers other than EDF should have a minimum of 30 percent of the French market by 2012, including households, small businesses and industry, the document states. The proposals would allow a transition period to further opening up the French power market, the utility said.

The French government delayed publication of a report on power rates last week because it’s working out how to implement the recommendations, people familiar with the plan have said. The report by a commission headed by Paul Champsaur recommends abolishing regulated power rates for business customers and forcing state-owned EDF to sell more electricity to rivals, the people said.

The transition period to opening the French market should allow a “liquid” wholesale power market so companies will be encouraged to build new power plants including nuclear reactors, GDF Suez said today.

EU Probes

EDF, the continent’s biggest power generator, is facing increased scrutiny from the European Commission, which recently carried out a series of antitrust raids at its Paris offices. The French government commissioned its own report to help navigate between demands that the French power market be further opened up to competition while the interests of consumers and industrial users are protected.

The utility, along with some local state providers, supplied nearly 98 percent of the French household market by volume at state-regulated prices at the end of last year, according to data published on the Web site of the French regulator, Commission de Regulation de l’Energie.

EDF says it holds 85 percent of the overall French market by volume.

New entrants have made limited inroads since France’s power and gas markets were opened to competition in July 2007. Rivals in the French market such as Direct Energie and Poweo SA say they are prevented from competing profitably against the utility, which generates 87 percent of its power using 58 nuclear plants.

To contact the reporters on this story: Tara Patel in Paris at tpatel2@bloomberg.net

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BG, Petrobras to Dig Deeper on Brazil Oil Discovery

By Eduard Gismatullin and Heloiza Canassa

April 9 (Bloomberg) -- Petroleo Brasileiro SA, Brazil’s state-controlled oil company, and Britain’s BG Group Plc will dig deeper into a well off the South American coast after finding oil.

The partners discovered oil in the Corcovado-1 field in the Santos Basin, located off the coast of the southeastern state of Sao Paulo, BG said in a statement posted yesterday on its Web site. BG, the U.K.’s third-largest natural-gas producer, operates the exploration project and holds 40 percent of the BM- S-52 block where the oil was found.

The companies “intend to continue drilling to deepen Corcovado-1, and further evaluation of the well will be undertaken once this is complete,” BG said. “A second exploration well on the block is also planned in 2009 to comply with the National Petroleum Agency commitments.”

BG rose 2.3 percent to 1,055 pence in London trading today. While the shares are up 10 percent this year, they fell almost 7 percent in the last five days, underperforming the 40-member Dow Jones Stoxx Oil & Gas Index in Europe.

“With BG shares having underperformed the European integrated oils by 5 percent over recent days, this news event, although hardly definitive on resources potential, should be taken positively by the market,” wrote David Thomas, a London- based analyst at Citigroup Global Markets Inc., today in an e- mailed report.

Pilot Projects

Reading, England-based BG will invest between $4 billion and $5 billion through 2012 to develop pilot projects in the Tupi, Iara and Guara fields in Brazil’s so called pre-salt basin, which has reservoirs beneath as much as 3,000 meters of water and 7,000 meters of seabed.

BG’s net share of output from the fields will reach 400,000 barrels of oil equivalent a day by 2020, the company said in its annual report.

The U.K. company plans to drill five exploration wells in Brazil this year. Two wells will be at the BM-S-9 on the Iguacu complex, “which is a multi-billion barrel prospect,” Chief Executive Office Frank Chapman said Feb. 5. Two wells also are planned in Corcovado, including Corcovado-1, in the BM-S-52 area, “another multi-billion barrel prospect,” and a well on Sagittario in BM-S-50, he said.

“The Tupi, Corcovado and other neighboring basins are arguably once-in-a-generation discoveries,” Gianna Bern, president of Brookshire Advisory and Research Inc. in Flossmoor, Illinois wrote in an e-mail. “As part of the Petrobras consortium, the BG Group will be on the few companies that will be very well-positioned to extract crude oil from the many basins being developed in the South Atlantic.”

-- With reporting by Laura Price in London. Editors: Mike Anderson, Will Kennedy.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.netHeloiza Canassa in Sao Paulo at hcanassa@bloomberg.net

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Oil Chart Signals a Bounce Needed for Rally: Technical Analysis

By Mark Shenk

April 9 (Bloomberg) -- Crude oil futures for May delivery are testing key support levels and an “immediate bounce” is needed for the contract to return to recent highs, according to technical analysis by Newedge Group.

If prices break through support at the $47.50 to $48, a barrel level, the contract may fall toward $46 a barrel and as low as $43.74, Veronique Lashinski, a senior research analyst for Newedge USA LLC in Chicago, wrote in a note to clients yesterday. Failure breach the support level may indicate a “bounce” to $54, she said.

“We can’t go any lower than $43.74 without causing severe technical damage,” Lashinski said in a telephone interview yesterday. This chart will be the daily technical focus until the May contract expires on April 21, she said.

Crude oil for May delivery reached $54.66 a barrel on the New York Mercantile Exchange on March 26, the highest since Nov. 28. The contract rose 23 cents, or 0.5 percent, to settle at $49.38 a barrel yesterday.

A longer-term study features resistance around $55 and $60 and support around $38.50 and $40, according to the report.

“It will take a lot to get above $60 unless there is a big change in the market fundamentals,” Lashinski said. “It looks like we have found market equilibrium here.”

Technical traders watch for patterns on daily charts for clues to price direction, and may sell or buy based on those signals.

For Related News and Information:

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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Yung Departure May Prompt ‘Drastic’ Changes at Citic

By Theresa Tang and Wendy Leung

April 9 (Bloomberg) -- Larry Yung’s resignation as Citic Pacific Ltd.’s chairman may prompt “drastic” changes as Chang Zhenming today takes the reins of a company mired in a police probe and $1.9 billion of currency losses.

Citic Pacific shares surged 12 percent in Hong Kong after Yung, 67, and Managing Director Henry Fan, 60, quit yesterday, following a police raid on the offices of the investment company controlled by China’s cabinet. Chang, 52, was appointed to both posts by Citic’s Beijing-based parent.

“We believe drastic changes are needed to turn the company around,” analysts at Bank of America Corp.’s Merrill Lynch & Co. unit led by Christie Ju wrote in a report to clients. Yung’s resignation was “positive, but not enough,” according to the analysts, who wrote in an April 5 report that Citic Pacific may need to sell some of its assets.

Citic Pacific jumped to HK$10.62, the highest level since Jan. 12, at the 4:00 p.m. close. The stock resumed trading today after it was suspended April 3 because of the police raid. The Hang Seng index rose 3 percent.

“With Chang as the CEO, the company will move to a new direction,” said Liu Yang, who helps manage $1.8 billion at Atlantis Investment Management Ltd. in Hong Kong. “To some extent it’s very positive for the company going forward” with Yung’s departure, Liu said.

Simpler Structure

Chairman since Citic Pacific’s inception in 1990, Yung expanded into aviation, power plants, real estate development and steelmaking. The son of a former Chinese Vice President, he was forced to seek a bailout from Beijing after Citic disclosed losses on wrong-way currency bets that had been designed to hedge an iron-ore project in Australia.

“Citic Pacific may want to simplify the structure,” said shareholder activist David Webb, adding that the company has too many businesses. “Otherwise, they may just become a zombie conglomerate with no great strategy at all.”

China has previously turned to Citic Group’s Chang when investors’ confidence in its companies has been shaken. Chang was appointed acting chairman of state-owned lender China Construction Bank Corp. after then Chairman Zhang Enzhao resigned for undisclosed reasons. Chang helmed the lender’s public share sale in 2005.

“We expect the chairman to speed up the progress of non- core asset disposals,” Citigroup Inc. analysts led by Anil Daswani wrote in a report distributed today about the start of Chang’s reign. The company may sell its power assets, Hong Kong tunnel holdings and its stake in Cathay Pacific Airways Ltd., the analysts wrote.

Chang may meet the press in a few days to talk about his new position, Radio Television Hong Kong reported today, citing the executive. No other details were provided.

First Annual Loss

Moody’s Investors Service and Standard & Poor’s Ratings Services both said the management change at Citic Pacific won’t have an immediate impact on its debt ratings. Moody’s has a ‘Ba1’ rating and Standard & Poor’s has a ‘BB+’ recommendation.

Citic Pacific on March 25 reported its first annual loss of HK$12.7 billion. The company announced its currency losses in October from contracts to fund an iron ore mine in Australia. Bets that the Australian dollar would gain incurred losses after the currency tumbled.

Financial Director Leslie Chang and Financial Controller Chau Chi Yin were ousted because of the bets. Carl Yung and Frances Yung, the son and daughter of Larry, left the company, the Standard newspaper reported today, citing unidentified people. Zhao Tong at Brunswick Group Ltd., an outside spokeswoman for Citic Pacific, declined to comment.

Citic Bailout

As part of the bailout, Citic Group bought convertible bonds, which it used to double its stake in the Citic Pacific to 57.6 percent, and assumed some of the currency losses. Yung’s stake was diluted to 11.5 percent from 19.1 percent.

The Hong Kong Commercial Crime Bureau on April 3 demanded that Citic Pacific and its directors provide information on currency contracts entered in 2007 and 2008, and statements made between July 1, 2007, and March 16, 2009. The Securities and Futures Commission is investigating Yung, Fan and 15 directors.

The police raid “had a great impact in society,” Citic Pacific said in its statement to the Hong Kong stock exchange yesterday. “Faced with this reality, Mr. Yung believed that his resignation would be in the best interest of the company.”

There haven’t been any charges or arrests, Citic Pacific said. The Securities and Futures Ordinance allows civil or criminal punishment for market misconduct. The maximum penalty is 10 years in prison and a fine of HK$10 million.

Son of Rong

Born in Shanghai in 1942, Yung is the son of former Chinese Vice President Rong Yiren. When many of China’s wealthy fled the nation before the Communist Party took power in 1949, Rong stayed and in 1956 handed over the family’s mainland holdings to the government. Rong was named Shanghai vice major the next year and was vice president of China from 1993 to 1998.

Mao Zedong called the Rong family: “China’s first batch of indigenous capitalists; the one true Chinese conglomerate in the world.” In 1979, Rong set up China’s first state-owned investment corporation, today called Citic Group, under the direction of Deng Xiaoping.

His family’s wealth afforded Yung, the Cantonese pronunciation of Rong, a red convertible sports car in his teens, with which he drove friends around 1950s Shanghai. He also regularly treated friends to dinners, Yung told the Guangzhou, southern China-based Yangcheng Evening News in 2002.

Yung and Fan established Citic Pacific in Hong Kong in 1990. The company’s backdoor listing helped make Yung China’s richest man as recently as 2005, according to Forbes Magazine.

Race Horses

That wealth allowed Yung to acquire racehorses in Hong Kong, where he was one of 12 board members, or stewards, at the Hong Kong Jockey Club from 1994 to 2004. He’s had 13 racehorses compete at the club and won almost HK$100 million in prize money, race records showed.

Yung’s wealth has plummeted since Citic announced its currency losses. He fell to 63 on Forbes’s 2008 list of China’s richest, released after the losses, with $660 million of estimated wealth. Yung had been ranked the nation’s ninth richest man in Forbes’s 2007 list with $3.65 billion.

To contact the reporters on this story: Wendy Leung in Hong Kong at wleung12@bloomberg.net; Theresa Tang in Hong Kong at ttang3@bloomberg.net

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Brazil’s Real Rises to Three-Month High on Stocks, Commodities

By Renato Andrade

April 9 (Bloomberg) -- Brazil’s real rose to the highest in more than three months as gains in commodity prices and global stocks boosted demand for emerging-market assets.

The real strengthened 1 percent to 2.1810 per U.S. dollar at 10:08 a.m. New York time, from 2.2032 yesterday. It touched 2.1761, the strongest since Jan. 7. The currency is poised for a second consecutive weekly gain, increasing 1.3 percent since April 3. Brazilian markets will be closed for the Good Friday holiday tomorrow.

“The real is in tandem with commodity and stock prices, that’s the reason behind the currency’s gain today,” said Tony Volpon, chief strategist at CM Capital Markets in Sao Paulo.

The UBS Bloomberg Constant Maturity Commodity Index rose 2 percent, while stocks rallied as investors speculated government measures globally to revive economic growth are working.

“It seems the worst of the crisis is over, what we expect from now on is some improvements,” said Paulo Nepomuceno, a strategist at brokerage Coinvalores, in an interview with Bloomberg Television in Sao Paulo.

The optimism halted the trend of falling yields on the overnight futures market in Sao Paulo, where the contract for January 2010, the most-traded on the BM&F commodity and futures exchange, rose one basis point, or 0.01 percentage point, to 9.74 percent.

“If things start to change for the better, the central bank will not need to be so aggressive, and the overnight market will halt the trend of reducing yields,” said Volpon.

The yield on the nation’s zero-coupon bonds due January 2010 was unchanged at 9.82 percent, according to Banco Votorantim.

To contact the reporter on this story: Renato Andrade in Sao Paulo at randrade11@bloomberg.net

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Korea Sells $3 Billion of Bonds to Bolster the Won

By Kim Kyoungwha and Seonjin Cha

April 9 (Bloomberg) -- South Korea sold $3 billion of dollar-denominated bonds overseas, after attracting orders for more than double that amount, to bolster its defense of the won.

Five-year notes maturing in April 2014 were sold at a yield of 5.864 percent, 400 basis points more than similar-maturity U.S. Treasuries, and 10-year bonds at a premium of 437.5 basis points, the finance ministry said in a statement. A security expiring in September 2014 yesterday yielded 318 basis points more than U.S. debt, according to prices from BNP Paribas SA.

Proceeds from South Korea’s first international bond sale since 2006 will be used to support a currency that tumbled 27 percent against the dollar in the past 12 months, Asia’s worst performance. The won slumped as overseas banks hoarded dollars following the September collapse of Lehman Brothers Holdings Inc. and a global recession battered exports, starving South Korea’s banks and companies of foreign exchange needed to pay debt.

“Any risk of short-term liquidity or balance of payments shocks have now become negligible,” said Ernesto Bettoni, a London-based investment specialist at Fortis Investments, which oversees $225 billion globally. He said the funds he helps manage bid for the 10-year bonds in yesterday’s sale.

South Korea’s currency reserves slid to $206 billion at end-March, from a record $264 billion a year earlier, as policy makers lent money to enable banks and companies to pay overseas debt. The government has expanded its access to foreign exchange in the past six months via currency swaps with the U.S., Japan and China, and this week said it will extend a $100 billion state guarantee on banks’ foreign debt until the end of 2009.

‘Prepare For Uncertainty’

Moody’s Investors Service rates South Korea’s debt A2, the sixth-highest investment grade. That’s on a par with Poland, whose dollar-denominated bonds due January 2014 yielded 5.317 percent yesterday, 55 basis points less than the new Korean five-year bond, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

South Korea sold $1.5 billion of each tranche of bonds, boosting this year’s tally for global debt sales by emerging- market nations to $27 billion. That compares with $30 billion for the whole of 2008, according to data compiled by Bloomberg.

The finance ministry said yesterday’s sale drew orders totaling $8 billion and was a pre-emptive measure to “prepare for uncertainty in global financial markets.”

The Korean currency strengthened 0.9 percent to 1,343.05 per dollar as of 12:10 p.m. in Seoul, paring this year’s loss to 6.1 percent, still the biggest drop among the 10 most-traded Asian currencies tracked by Bloomberg. It’s jumped 16 percent in the past month, a performance second only to the New Zealand dollar among some 170 currencies tracked by Bloomberg.

Improving Outlook

Investor interest in the sale “fits in with the fact that the optimism in emerging markets is continuing,” said Win Thin, senior currency strategist at Brown Brothers Harriman & Co. in New York in a telephone interview. “The outlook is improving and Korea has been holding up. Its currency really was getting hammered earlier in the year, and it’s kind of snapped back.”

The extra yield investors demanded to own developing-nation debt instead of U.S. Treasuries increased four basis points to 573 yesterday, according to JPMorgan Chase & Co.’s EMBI+ Index. The spread averaged 650 points this year, down from a six-year high of 865 in October.

South Korea’s government in September scrapped plans to sell $1 billion of bonds as borrowing costs soared after Lehman’s bankruptcy filing.

Bank Finances

The new bonds will act as a benchmark for companies and banks tapping overseas debt markets. State-owned Export-Import Bank of Korea plans to meet investors in the U.S. to gauge demand for a potential bond sale later this year, a company official said on March 25.

Hana Bank, South Korea’s fourth-biggest lender, sold $1 billion of three-year notes backed by the government last week, becoming the first company to tap the state guarantee. The 6.5 percent debt was priced to yield 543 basis points more than Treasuries of similar maturity.

The government’s 4.875 percent dollar bond due in September 2014, which was sold in September 2004, yielded 5.03 percent yesterday. That’s 15 basis points more than a similar-maturity note issued by the Philippines, whose BB- rating at Standard & Poor’s is seven levels below South Korea’s A grade.

“Korea is A rated and trading like BB,” Fortis’ Bettoni said. “Although the country is being hit hard by the global downturn and its private sector short-term debt rollovers are significant, a lot of this is priced in.”

To contact the reporter on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.netSeonjin Cha in Seoul at scha2@bloomberg.net

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Hong Kong Ready to Start Trade Settlement in Yuan

By Bob Chen and Nipa Piboontanasawat

April 9 (Bloomberg) -- Hong Kong plans to be the first city outside mainland China to start settling trade in yuan, expanding use of the currency in a city whose exchange rate is pegged to the dollar, Chief Executive Donald Tsang said.

“It will reduce foreign-exchange risks for companies, create more business for Hong Kong banks and diversify use of yuan funds,” Tsang said at a press briefing in the city. “The policy has already been approved. It’s almost here.”

China is seeking to promote the yuan as an international currency after signing 650 billion yuan ($95 billion) in swap agreements with Hong Kong, Argentina, Indonesia, South Korea, Malaysia and Belarus in the past four months. The yuan has gained 21 percent against the dollar since its fixed exchange rate was scrapped in 2005, eroding the value of China’s central bank reserves and exporters’ profits.

“These are baby steps toward liberalization of China’s capital account and internationalization of the renminbi,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. “Access to renminbi is not going to be an issue. China is using its financial might to hedge any risk it might face in terms of supplies of central raw materials for its growth and demand in other markets for its products.”

China’s State Council said yesterday it allowed yuan settlement for international trade in Shanghai and four cities in Guangdong province to promote global use of the currency and protect companies from swings in the dollar. The cabinet will release related regulations “as early as possible,” it said in a statement on its Web site.

Hong Kong

While China allowed the currency to be used for trading goods and services in December 1996, it had to be converted before cross-border payments were made. Hong Kong banks have been able to accept yuan deposits since 2004 and stores have increasingly welcomed payment in China’s currency since 2003, when a relaxation of visa controls led to a surge of mainlanders visiting the city.

Hong Kong has pegged its dollar to the U.S. currency since 1983 and allows it to trade 5 cents on either side of HK$7.80 per dollar. It was at HK$7.7507 as of 12:08 p.m. local time. When asked how the program would affect the link, Tsang signaled his support for the exchange-rate system.

‘An Anchor’

“Hong Kong’s U.S. dollar peg is an anchor to Hong Kong’s financial stability,” Tsang said today.

The four other Chinese cities permitted in the program are Guangzhou, Shenzhen, Zhuhai and Dongguan. The statement didn’t say with which countries the five cities will settle trade with. There is no upper limit for yuan settlements in Hong Kong, said K.C. Chan, the Secretary for Financial Services and the Treasury, in a Radio Television Hong Kong report.

“In the endgame, we know it’s going to be one country, one currency,” said ING’s Condon. “The Hong Kong dollar will go the way of the Macanese pataca in time, but that can be 15 years away. It’ll be a series of these baby steps.”

The pataca is the official currency of Macau, even though most of the money in circulation in the former Portuguese territory is Hong Kong dollars.

The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, has fallen 16 percent this decade and plunged 2.9 percent last month, the worst performance this year, on concern Federal Reserve purchases of Treasuries will boost the supply of the greenback.

The yuan was little changed at 6.8354 per dollar, according to China Foreign Exchange Trade System. The government has allowed it to decline 0.2 percent this year against the U.S. currency as manufacturers complained its appreciation has eroded the value of their overseas income. Exports tumbled a record 25.7 percent in February, narrowing its trade surplus to $4.8 billion, the smallest in three years.

To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net; Nipa Piboontanasawat in Hong Kong at Or npiboontanas@bloomberg.net

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Taiwan Dollar Gains as Risk Appetite Lifts Stocks; Bonds Drop

By Carmen Ng and Yu-huay Sun

April 9 (Bloomberg) -- Taiwan’s dollar rose, following its biggest two-day drop in eight years, as prospects for additional stimulus spending by Japan fueled demand for Asian assets. Government bonds fell.

The island’s currency climbed as the MSCI Asia Pacific Index of regional shares rose for the first time in three days and a Japanese report today showed February machinery orders unexpectedly increased in the world’s second-biggest economy. Taiwan’s benchmark Taiex index of shares surged 4.1 percent, the most in four months, as overseas investors purchased more of the local shares than they sold.

“The Taiwan dollar has been closely tracking the global stocks move,” said Sebastien Barbe, the Hong Kong-based head of emerging-market strategy at Calyon, the investment banking unit of France’s Credit Agricole SA. “Whenever the U.S. market rebounds, the Taiex will rally on better risk appetite.”

The local currency strengthened 0.4 percent to NT$33.777 against the greenback as of the local 4 p.m. close, according to Taipei Forex Inc. Overseas investors today added NT$11 billion ($326 million) of Taiwan shares to their holdings, after selling NT$17.4 billion in the previous two days, when the currency dropped 2 percent.

The island’s dollar dropped almost 2 percent in the last two days, the most since May 2001, as a government report on April 7 showed exports slid for a seventh month in March.

The Central Bank of the Republic of China (Taiwan) said yesterday in a statement that the currency was “relatively stable.” It bought between $400 million and $500 million of U.S. dollars on April 7 to weaken the local currency, the Commercial Times reported yesterday. Local banks were told not to speculate on gains in the island’s dollar, the newspaper said, citing unidentified traders.

Equities-Driven

“The rise today is not a big one, it’s an equities-driven correction,” Calyon’s Barbe said. “The main uncertainties here are still the earnings ahead.” He predicted the currency may extend this year’s 2.8 percent slide in the coming two weeks.

Taiwan’s overseas sales shrank 36 percent last month from a year earlier. Japan yesterday said its exports halved in February and Germany, the world’s No. 1 exporter, reported a fourth decline in monthly shipments.

Taiwan’s economy contracted 8.4 percent in the fourth quarter, pushing the island into its first recession since 2001. The jobless rate climbed to a record 5.6 percent in February.

Japan’s ruling Liberal Democratic Party will propose the government implement a 15.4 trillion ($154 billion) stimulus package to help revive the economy, according to a document obtained by Bloomberg News.

Bonds Drop

Taiwan’s 10-year government bonds fell, snapping a two-day advance, as stock gains lured investors away from debt.

“The market is very dull,” said James Wang, a bond trader at Yuanta Securities Co. in Taipei. “Yields climbed, mainly because of the impact from stocks.”

The yield on the 1.375 percent bond maturing March 2019 climbed one basis point to 1.54 percent as of the 1:30 p.m. close in Taipei, according to Gretai Securities Market, Taiwan’s biggest exchange for bonds. Its price fell 0.089, or NT$89 per NT$100,000 face amount, to 98.5317. A basis point is 0.01 percentage point.

To contact the reporters on this story: Carmen Ng in Hong Kong at cng98@bloomberg.net; Yu-huay Sun in Taipei ysun7@bloomberg.net

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Australian, N.Z. Dollars Rise, Reversing Losses, as Stocks Gain

By Candice Zachariahs

April 9 (Bloomberg) -- The Australian and New Zealand dollars erased earlier losses as Asian equities gained and U.S. stock futures pointed to a higher open, raising speculation investors will buy higher-yielding assets.

New Zealand’s currency gained for a second day as home sales advanced to the highest since November 2007. Australia’s dollar earlier dropped after the unemployment rate unexpectedly rose by the most in 18 years to 5.7 percent, exceeding the median estimate in a Bloomberg News survey of 5.4 percent.

“U.S. equity futures are up at this stage so once the data washes through, the market is going to get back to watching what’s happening to equity market futures,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. “You continue to see support for the Aussie at the mid to low 70 U.S. cent level, driven off equity market optimism.”

Australia’s dollar rose 0.4 percent to 71.30 U.S. cents as of 4:25 p.m. in Sydney from 71.01 cents in New York yesterday. The currency gained 0.7 percent to 71.33 yen.

New Zealand’s dollar advanced 0.6 percent to 58.28 U.S. cents from 57.97 in New York and bought 58.36 yen from 57.83 yen.

Asian stocks rose for the first time in three days as Japan’s ruling party proposed $154 billion of extra spending and the country’s machinery orders unexpectedly increased.

Gains in the Australian dollar towards 71.50 cents would “represent very good selling opportunities,” Cavenagh said.

N.Z. House Sales, Prices

New Zealand’s home sales in March totaled 6,694 in March from a record-low 3,706 in January and 5,228 in February, the Auckland-based Real Estate Institute of New Zealand Inc. said today. House prices fell 9.4 percent last month from a year earlier, the biggest drop since the series began in 2005, according to Quotable Value New Zealand Ltd., the Wellington- based government valuation agency.

Traders estimate the Reserve Bank of New Zealand will lower its benchmark at least 25 basis points at the April 30 board meeting, according to a Credit Suisse index based on swaps trading. Policy makers cut borrowing costs by 5.25 percentage points since July, to 2.75 percent on April 30,

Australian government bonds declined. The yield on 10-year notes added four basis points, or 0.04 percentage point, to 4.59 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.36, or A$3.60 per A$1,000 face amount, to 105.25.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.86 percent from 3.89 yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Asian Currencies: Won Rallies on Bond Sale; Taiwan Dollar Gains

By David Yong and Lilian Karunungan

April 9 (Bloomberg) -- South Korea’s won rose, leading gains in Asian currencies, after the government sold $3 billion of global bonds, boosting the nation’s foreign-exchange reserves and its capacity to defend the currency.

The won snapped a two-day loss after the central bank kept the benchmark interest rate at a record low today, citing signs that manufacturing is improving. A gauge of regional stocks rebounded after Japan’s machinery orders rose for the first time in five months as the government prepares a $154 billion stimulus package to pull Asia’s biggest economy out of recession. Taiwan’s dollar advanced as risk appetite in emerging markets improved.

“Investors would want exposure to Korea for a turnaround story,” said Singapore-based Scott Bennett, who helps manage $28 billion in the region at Aberdeen Asset Management Asia Ltd. “The currency has come back a lot.”

The won climbed 2.4 percent to 1,322.50 per dollar at the 3 p.m. local close, according to Seoul Money Brokerage Services Ltd. It appreciated 17 percent over the past month and reached a three-month high of 1,306 on April 6. Taiwan’s dollar rose 0.4 percent to NT$33.777 and Malaysia’s ringgit strengthened 0.5 percent to 3.6125.

Korea sold $1.5 billion each in notes maturing in five and 10 years in its first overseas debt offering since November 2006, attracting $8 billion of orders, the finance ministry said.

Bank of Korea

The sale was a pre-emptive measure to “prepare for uncertainty on global financial markets,” the ministry said in a statement. Korea’s foreign-currency reserves rose to $206.3 billion at the end of March from $201.5 billion a month earlier, the Bank of Korea said on April 2.

Korea’s central bank today kept the seven-day repurchase rate at 2 percent, as expected by nine of 11 economists surveyed by Bloomberg News.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, halted a two-day decline, rising 0.3 percent. The MSCI Asia Pacific Index of stocks climbed 3.2 percent, the biggest gain in a week.

The yen declined to 132.85 per euro in London from 132.48 in New York yesterday as investors reduced demand for safer currencies. It was little changed at 99.99 per dollar from 99.76.

Japan Orders

Japanese machinery orders, an indicator of capital investment in the next three to six months, climbed 1.4 percent in February from a month earlier, the Cabinet Office said today in Tokyo. The median estimate of 28 economists surveyed by Bloomberg was for a 6.9 percent drop.

Taiwan’s dollar rose following its biggest two-day drop in eight years as prospects for additional stimulus spending by Japan fueled a rally in stocks. The island’s Taiex index surged 4.1 percent to the highest level since Oct. 3.

“The Taiwan dollar has been closely tracking the global stocks move,” said Sebastien Barbe, the Hong Kong-based head of emerging-market strategy at Calyon, the investment banking unit of France’s Credit Agricole SA. “Whenever the U.S. market rebounds, the Taiex will rally on better risk appetite.”

Malaysia’s ringgit held gains, snapping a two-day slump, after a government report showed industrial production fell 15 percent in February from a year earlier. Figures for January were revised higher to a 19.8 percent drop. The Kuala Lumpur Composite Index of shares climbed 1.2 percent after two days of losses.

Thai Protests

Thailand’s baht was little changed at 35.44 per dollar after losing as much as 0.3 percent. Prime Minister Abhisit Vejjajiva today said he has no reason to resign as anti-government protests escalated. The government can handle those protests without using emergency powers, he said yesterday.

“The mentality for the time being is that the protests are occurring in a civilized manner,” said Kobsidthi Silpachai, head of capital markets research at Kasikornbank Pcl in Bangkok, the nation’s third-largest lender. “Risk appetite is rebounding a bit. It doesn’t take a whole lot of money to move it around.”

Elsewhere, the Singapore dollar traded at S$1.5147 from S$1.5153 yesterday, and China’s yuan was little changed at 6.8351 against the greenback. Vietnam’s dong traded at 17,775 versus 17,783.50 yesterday.

Markets in the Philippines and Indonesia are closed today, and will shut along with Singapore, Hong Kong and India tomorrow for public holidays.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.

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Rupee Pain Means Exporters Gain as Indians Beat China

By Anoop Agrawal

April 9 (Bloomberg) -- Gokaldas Exports Ltd., India’s biggest garment exporter, says the rupee’s slide to a record low helped to win orders from rivals in China, where the yuan gained against the dollar in the past year.

“The yuan’s stability and the rupee’s drop is an advantage for every local exporter to get more business,” Rajendra Hinduja, managing director of the Bangalore-based company, said in an interview. “We are now competing and winning.”

Gokaldas, which makes Gap sweatshirts and Nike tracksuits, and Sarju International Ltd., a producer of Reebok sportswear, say they are becoming more competitive after India’s currency fell 20 percent in the past year to 49.89 per dollar, while the yuan rose 2.4 percent. The rupee was the worst performer after the South Korean won among Asia’s 10 most-active currencies in the past 12 months as economic growth slowed and the global credit crisis prompted funds to sell emerging-market assets.

The rupee will weaken another 5.9 percent to 53 per dollar this year, according to the median estimate of seven exporters surveyed by Bloomberg last week. The Reserve Bank of India may favor a weaker currency to bolster Asia’s third-biggest economy, said Richard Yetsenga, a Hong Kong-based strategist at HSBC Holdings Plc, who forecasts a steeper rupee decline to 54.

“The central bank won’t mind an orderly movement in the currency, even if it means a weaker rupee,” Yetsenga said. “They will allow exporters to take that advantage.”

Slower Growth

India’s $1.2 trillion economy grew at a 5.3 percent annual rate in the three months ended Dec. 31, the slowest pace since 2003. India’s goods exports, which account for about 20 percent of gross domestic product, tumbled 22 percent in February from a year earlier, the most since at least 1995, a Commerce Ministry report showed on April 1. China’s slid 26 percent, according to Chinese customs data.

Fuda Worldwide Sdn., a Malaysian company that imports printing machinery from China, is turning to Mumbai-based Deluxe Printing Machinery Co. for some parts to curb expenditures.

“Our costs have increased because of the yuan,” said Reimund Chong, Fuda’s Kuala Lumpur-based managing director. “We have either asked for discounts, or we have replaced some of the parts-sourcing in India.”

Sebastien Barbe, the Hong Kong-based head of emerging- market strategy at Calyon, the investment banking unit of France’s Credit Agricole SA, is more bullish on the rupee, predicting it will rise 8 percent in the coming year as a global economic recovery lures investors back to emerging markets. MSCI Inc.’s index for developing-nation equities climbed 29 percent in the past month.

‘Over-Optimistic’

The median estimate of 25 analysts surveyed by Bloomberg predicts the currency will strengthen 1.8 percent to 49 this year. The rupee rose 0.6 percent to 49.89 per dollar today.

“It would be over-optimistic for exporters to expect a further drop in the rupee,” Barbe said. “We expect risk appetite to increase because India is less vulnerable to global recession. India’s limited openness to global trade is limiting the pressure on the rupee.”

Non-deliverable forwards indicate the currency may fall. Traders are betting the rupee will weaken 2.9 percent in a year to 51.36, while the yuan may rise 1.4 percent to 6.7390 per dollar, the contracts show. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are used for currencies that aren’t freely convertible.

‘Best Chance’

“China’s stronger currency reflects how it has managed to weather the global financial-markets storm though at the cost of its exports,” said A. Sakthivel, president of the Federation of Indian Export Organisations in New Delhi. “At present, an Indian exporter stands the best chance to outbid a regional rival.”

Gokaldas, controlled by New York-based Blackstone Group LP, expects a further 5.9 percent drop in the rupee in 2009 to boost export revenue by 20 percent in the year ending March 31, 2010, said Hinduja. The company, a supplier for San Francisco-based Gap Inc. and Beaverton, Oregon-based Nike Inc., now exports 2.5 million garments a month and has sales of more than 10 billion rupees ($200 million) annually.

Amit Goyal, managing director at Mumbai-based apparel exporter Sarju, predicts the rupee will end the year at 53 per dollar. Sarju, a supplier for Herzogenaurach, Germany-based Adidas AG’s Reebok International Ltd. unit, shipped $40 million of goods to countries including the U.S., U.K., France and Russia in the year ended June 30.

Turning Around

“We expect to be one up on rivals in China,” Goyal said. “A general recession in major partner countries has shrunk the market but we expect that to reverse in the third quarter.”

Sona Koyo Steering Systems Ltd., India’s biggest maker of steering wheels for passenger cars, has “significantly increased” its competitiveness because of the rupee’s decline, said Chairman Surinder Kapur.

Shipments from New Delhi-based Sona Koyo, which supplies parts to Hyundai Motor Co. in Seoul and Toyota Motor Corp. in Toyota City, Japan, climbed 35 percent to 1.15 billion rupees in the three months ended Dec. 31, from a year ago.

“The situation has turned for us,” said Kapur, who sees the rupee at 54 in a few months. “Our competitors in China and others in Asia will be pushed down.”

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net

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