Emerging Markets Monitor - October 2
OPEC+ Considers 1M Barrel Cut, Cargo Sailings Cancel on Sluggish Global Economy, Protests Rock Iran, Investors Exit EM Bond Funds, Peru Copper's New Champion
The Top 5 Stories Shaping Emerging Markets from Global Media - October 2
OPEC+ Will Consider Output Cut of More than One Million Barrels
Bloomberg
“The OPEC+ group of oil producers will consider cutting output by more than 1 million barrels a day when it meets in Vienna on Wednesday, according to delegates.”
“A larger-than-expected reduction would reflect the scale of concern that the global economy is slowing fast in the face of rapidly tightening monetary policy. A stronger dollar has also weighed on prices. A final decision on the size of the cuts won’t be made until ministers meet, the delegates said.”
“Brent crude soared above $125 a barrel following Russia’s invasion of Ukraine in February. It’s since dropped to $85, tempering the spectacular windfall enjoyed by Saudi Arabia, Russia, the United Arab Emirates and other members of the coalition.”
“The 23-nation alliance is scheduled to meet on Wednesday at its headquarters in Vienna, OPEC’s secretariat said a statement on Saturday. The group has been meeting on-line on a monthly basis and wasn’t expected to arrange an in-person gathering until at least the end of this year.” Bloomberg reports.
Cargo Shipowners Cancel Sailings As Global Economy Deteriorates
Wall Street Journal
“Ocean carriers are canceling dozens of sailings on the world’s busiest routes during what is normally their peak season, the latest sign of the economic whiplash hitting companies as inflation weighs on global trade and consumer spending.”
“The October cancellations are a sharp reversal from just a few months ago, when scarce shipping space pushed freight rates higher and carriers’ profits to record levels. Last October, companies like Walmart Inc. and Home Depot Inc. were chartering their own ships to get around bottlenecks at ports to meet a surge in demand for imports.”
“Trans-Pacific shipping rates have plummeted roughly 75% from year-ago levels. The transportation industry is grappling with weaker demand as big retailers cancel orders with vendors and step up efforts to cut inventories. FedEx Corp. recently said it would cancel flights and park cargo planes because of a sharp drop in shipping volumes. On Thursday, Nike Inc. said it was sitting on 65% more inventory in North America than a year earlier and would resort to markdowns.”
“The erosion in global economic conditions, from the war in Ukraine to factory shutdowns in China, have dealt heavy blows to trade activity. The International Monetary Fund has cut its forecast for global growth in gross domestic product multiple times this year. Consumer prices are rising at the fastest rates in years in the U.S., countries in Europe and other parts of the world.”
“One response to the melting demand has been to reduce sailing trips. In September, container capacity offered by ship operators in the Pacific was down 13%, dropping the equivalent of 21 ships that can each move 8,000 containers in a single voyage, from a year earlier, according to shipping-data providers Xeneta and Sea-Intelligence.” Costas Paris reports.
Protests Continue to Rock Iran
Reuters
“Protesters rallied across Iran and strikes were reported throughout the country's Kurdish region on Saturday as demonstrations ignited by the death of a woman in police custody entered their third week.”
“The protests, sparked by the death of Mahsa Amini, a 22-year-old from Iranian Kurdistan, have spiralled into the biggest show of opposition to Iran's clerical authorities since 2019, with dozens killed in unrest across the country.”
“In Tehran's traditional business district of Bazaar, anti-government protesters chanted ‘We will be killed one by one if we don't unite’, while elsewhere they blocked a main road with a fence torn from the central reservation, videos shared by the widely followed Tavsir1500 Twitter account showed.”
“Students also demonstrated at numerous universities. At Tehran University, dozens were detained, Tavsir1500 said. The semi-official Fars news agency said some protesters were arrested in a square near the university.”
“A video posted on social media appeared to show protesters giving flowers to members of the riot police in Tehran, a recreation of Iranians winning over the military to their side in the 1979 Islamic revolution.” Reuters reports.
Investors Pull $70 Billion from EM Bond Funds
Financial Times
“Investors have withdrawn a record $70bn from emerging market bond funds this year, in a sign that soaring interest rates in advanced economies and the strong dollar are heaping pressure on developing countries.”
“Investors took $4.2bn out of EM bond funds in the past week alone, according to an analysis by JPMorgan of data from EPFR Global, a fund flow monitor — bringing the annual outflows to the highest level since the US bank began recording the data in 2005.”
“The investor flight underscores how emerging markets are facing mounting risks from surging interest rates in developed markets, which make the typically high yields on EM debt look less attractive.”
“Powerful gains in the greenback also make it more expensive for EM countries to service dollar denominated debt and increase the cost of importing commodities, which are often priced in the US currency.”
“JPMorgan in September raised its forecast for EM bond outflows in 2022 to $80bn, having previously forecast $55bn. Milo Gunasinghe, emerging market strategist at JPMorgan, described the outflows as relentless, with just seven weeks of net inflows in the year to date. They have also been broad, with investors pulling money from funds holding both local and foreign currency bonds.” Jonathan Wheatley reports.
Peru’s Copper Industry Has a New Champion
Mining.com
“Put the cautious optimism on display at Peru’s top mining event down to three main factors: easing pandemic restrictions, copper’s bright longer term outlook and a diminutive sexagenarian economist.”
“An estimated 50,000 people are doing the rounds at the Perumin show this week in Arequipa, a picturesque yet bustling city surrounded by giant copper deposits.”
“Among them are top executives, who’ve reason to be stressed given volatility in markets of late, local political turmoil and social unrest that saw Peru slip to last in a new competitiveness index of mining nations. But the largely mask-less attendees, while keeping vigil on the current downturn, are pretty upbeat on the future.”
“Some of that buoyancy is attributable to Kurt Burneo, who last month became left-wing President Pedro Castillo’s third finance minister. In a presentation at Perumin, Burneo reiterated the policy priorities that have endeared him to the industry, such as maintaining tax rates, offering fiscal benefits and cutting red-tape in a bid to attract investments and boost the economy.”
“That’s music to executives’ ears given that proposals from some quarters of the ruling coalition have included everything from sweeping tax reform to nationalizations.”
“Output in the No. 2 copper-producing nation is set to rise from about 2.4 million metric tons this year to 2.8 million tons next year as Anglo American Plc’s new Quellaveco mine ramps up, according to IIMP. But after Quellaveco, there’s not much in the way of new mines being built.”
“An estimated $53 billion in possible projects that could double production would require companies to get local communities on board while dealing with sluggish permitting and the global economic downturn.”
“Chahuan sees signs that local uncertainties are easing, while the longer-term outlook for the wiring metal is bright as the world electrifies and moves away from fossil fuels.”
‘“We can get to that level of 5 million tons,’ Chahuan said. ‘I think it can be reached. It’s feasible.’ James Atwood and Maria Cervantes report.
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