US employment rate historical trend and 2015 projection at best 6%

Source Bloomberg

It will take at least until 2015 for the U.S. jobless rate to drop to 6 percent if the labor force and employment keep growing at the current pace.

The CHART OF THE DAY shows the projected path of unemployment assuming monthly payroll gains match the 124,167 increase averaged over the past 12 months and the labor force expands as it’s done since January 2010.

“If anything, the estimate of when we would return to the target unemployment rate is optimistic,” said Patrick O’Keefe, chief of economic research at JH Cohn LLP in Roseland, New Jersey, and a former deputy assistant secretary at the Labor Department. “This jobs recovery is so weak that it will take years before we get back to an unemployment rate that, prior to the recession, would have been considered high.”

The departure from the workforce of discouraged workers, who have stopped looking for a job and are therefore no longer considered unemployed, is helping depress joblessness. The labor force has grown 0.4 percent over the past 20 months.

By contrast, the Congressional Budget Office forecasts the labor force will climb 0.9 percent a year through 2014. At that rate, and with payroll growth holding at the pace of the last year, it will be 2025 before unemployment reached 6 percent.

The unemployment rate has remained above 8 percent since February 2009, the longest such stretch since record-keeping began in 1948. The proportion of the labor force either working or actively looking for work was 64.2 percent in September, close to July’s 63.9 percent, which was the lowest since 1984.

Discounted China Stocks with attractive P/B : Time to buy?

Source: Bloomberg

China stocks may extend their rally after having traded at the biggest discount to global equities in more than five years, if history is any guide.The CHART OF THE DAY tracks the price-to-book ratios of shares on the Hang Seng China Enterprises Index and the MSCI World Index of developed and emerging stocks since March 2006. Chinese companies listed in Hong Kong were valued at 1.3 times net assets on Oct. 5, compared with 1.5 times for the MSCI counterpart, data compiled by Bloomberg show. That discount was the biggest since March 22, 2006. The China measure traded at a 1.4 multiple yesterday, after the index rallied 2.1 percent.

The last time there was such a discount, the Hang Seng China gauge surged 66 percent in less than 10 months through early 2007, compared with a 12 percent advance by the MSCI index, the data show. After the Chinese index’s multiple sank to a record low of 1.05 on Oct. 27, 2008, the index rallied 176 percent through Nov. 16, 2009, compared with a 47 percent advance by MSCI’s global measure.

“The market has reacted very negatively to the potential for overheating and hard landing in China,” as well as concerns about European debt and the U.S. economy, said Mark Konyn, who helps manage about $15 billion as chief executive officer of RCM Asia Pacific Ltd. “We look more towards the price-to-book ratio, and believe the market is oversold and share prices have discounted a significant number of potential negatives.”

The so-called H-share stock index tumbled 29 percent in the past 12 months through Oct. 11, compared with a 6.2 percent decline by MSCI’s gauge. Chinese stocks dropped as the government set measures to cool inflation and amid expectations export demand would falter. Twelve percent of global investors in a Bloomberg poll published last month predicted economic growth will slow to less than 5 percent within a year, a pace unseen in the past two decades.

The Hang Seng China Enterprises Index rose 17 percent over the five days through Oct. 12, rebounding from its lowest level since April 2009 and boosted by China’s state-run Central Huijin Investment Ltd. buying shares of the nation’s four biggest banks. The index’s price-to-book ratio yesterday was 43 percent less than the five-year average of 2.5 times.

Most Oil Tankers Idled Since ’80s

Source Bloomberg

Owners of supertankers, losing money for a sixth consecutive quarter, will probably idle the most ships in more than two decades as they contend with a glut that drove charter rates to the lowest in at least 14 years.

The combination of too many ships and slowing demand growth for oil means that about 6 percent of the fleet will be anchored in a year from almost none now, according to the median in a Bloomberg survey of eight brokers and analysts. That may not be enough to end the slump. Forward freight agreements, traded by brokers and used to bet on transport costs, anticipate rates no higher than $13,819 a day through 2013.

Frontline Ltd., the biggest operator of the vessels, says it needs $29,800 to break even. The Hamilton, Bermuda-based company will report its biggest annual loss in 12 years in 2011, analysts’ estimates compiled by Bloomberg show. While owners can cut operating costs to as little as $2,000 a day from $12,000 by anchoring ships, it also means no income, said Andreas Sohmen- Pao, chief executive officer of the oil and gas shipping unit of BW Group Ltd., which is idling three vessels.

“When it’s this bad, eventually it wears people down a bit and some do get out of the market,” said Martin Stopford, the London-based managing director of Clarkson Research Services Ltd., a unit of the world’s biggest shipbroker. “To lay the ship up, you would eventually have to totally lose confidence in the market improving for some time.”

Global Demand

The global fleet of very large crude carriers expanded about 9 percent to 570 ships in the past two years, the most since 1983, Clarkson data show. Owners ordered the greatest number of new vessels since the 1970s between 2006 and 2008, when charter rates surged to as much as $289,000. Those tankers started joining the fleet just as global demand for oil fell by the most in 27 years, data from London-based BP Plc show.

Demand for oil tankers will match fleet capacity by the Northern Hemisphere’s next winter, lifting charter rates, Peter Evensen, the CEO of Teekay Corp. (TK), said in an interview in London on Oct. 6. The Hamilton, Bermuda-based company is the largest U.S.-listed owner of the ships.

Owners are also responding to the slump in rates by sailing slower to reduce fuel costs. Speeds averaged about 10 knots in the past three months, compared with almost 11 knots a year earlier, vessel-tracking data compiled by Bloomberg show.

Shipping may be “relatively close” to a bottom, Wilbur Ross, the billionaire chairman of private-equity firm WL Ross & Co., said in an interview in August. He was part of a group who spent $900 million on oil-product tankers last month.

Cutting Costs

Rates on the Saudi Arabia-to-Japan route, the industry’s benchmark, were at negative $5,974 a day yesterday, according to the Baltic Exchange in London, which publishes daily rates for more than 50 maritime routes. Shipping companies are effectively paying customers to charter vessels because clients pay for some of the fuel, cutting costs for owners moving vessels into regions with better returns.

Rates have averaged less than Frontline’s breakeven since the third quarter of 2010, according to bourse data and an Aug. 26 statement from the company. Daily returns from the vessels in the spot market averaged $11,372 in the third quarter, the lowest since at least 1997, according to Clarkson.

Prospects for a surge in global oil demand that would erode the glut in tankers are weakening as growth slows. The International Energy Agency, the Paris-based adviser to 28 nations, reduced its forecast for 2012 crude demand by 0.4 percent to 90.7 million barrels a day last month. It was the biggest cut since April 2009.

Mercantile Exchange

Growth in oil demand will slow to 0.5 percent this quarter and 0.1 percent in the following three months, compared with 2 percent in the third quarter, the IEA estimates. Crude fell 6.2 percent this year to $85.74 a barrel on the New York Mercantile Exchange as of 12:42 p.m. yesterday, reaching a one-year low of $74.95 on Oct. 4.

The International Monetary Fund lowered its global growth forecasts to 4 percent for this year and next on Sept. 20, from earlier estimates of 4.3 percent for 2011 and 4.5 percent in 2012. That compares with the 5.2 percent contraction the World Bank estimates took place in 2009.

The IEA still anticipates record demand next year. China’s economy, the world’s largest energy user, will expand 8.7 percent in 2012, compared with 9.3 percent this year, according to the median of 10 economists’ estimates compiled by Bloomberg. Growth in the U.S., the biggest oil consumer, will accelerate to 2.2 percent from 1.6 percent, the estimates show.

Shipping Industry

Oil is the single biggest commodity transported by sea, according to Clarkson. Trade will total about 1.9 billion metric tons this year, compared with 1.1 billion tons of iron ore and 921 million tons of coal. The shipping industry handles about 90 percent of world trade, according to the Round Table of Shipping Associations.

As many as 168 tankers of all sizes were removed from the fleet in 2009 to store oil for companies seeking to profit from longer-dated energy futures trading at a premium to contracts for immediate delivery. Idling 6 percent of global supertankers anticipated in the Bloomberg survey would be equal to about 34 vessels.

Owners can still make money by locking their ships into longer-term charters. Rates for a three-year accord are at $32,955 a day and those fixed for five years at $32,000, both above Frontline’s break-even, according to London-based Clarkson Plc. Tying ships up for that long would mean owners missing out on any rally in the single-voyage market.

Morgan Stanley

The glut extends across most of the fleet. Capesize vessels carrying iron ore are earning 88 percent less than they made in 2008, Baltic Exchange data show. Container ships delivering goods to Europe from Asia made almost nothing in July and August, according to Morgan Stanley.

Frontline will report a loss of $82.8 million this year, compared with profit of $161.4 million in 2010, according to the mean of 20 analysts estimates compiled by Bloomberg. The company will also be unprofitable for the next two years, the estimates show. Its shares fell 81 percent in Oslo trading this year, on track for the biggest annual decline in 13 years.

Every company in the six-member Bloomberg Tanker Index (TANKER) will lose money this year, analysts’ estimates show. The gauge slumped 54 percent this year, compared with an 11 percent decline by the MSCI All-Country World Index of global equities.

The shipping industry’s fragmentation means few owners have big enough fleets to idle vessels. That decision can only be taken by those in a “position of strength,” BW Group’s Sohmen- Pao said in an interview on Oct. 3. His company has two supertankers idling and a third mothballed for a longer period.

“The tanker industry is too fragmented to remove the necessary capacity,” said Jonathan Chappell, an analyst at Evercore Partners Inc. in New York. “There needs to be more.”

Widening spread between Gold and DJIA

Coal shares divergence against stable coal prices

“Opportunity knocks” in the shares of coal producers because they have fallen far more than the commodity’s price would justify, according to Frank Holmes, chief executive officer of U.S. Global Investors Inc.

The chart tracks the performance of the Market Vectors coal exchange-traded fund, run by Van Eck Global, and the IntercontinentalExchange’s Newcastle coal futures for the past two years.

The ETF tumbled 43 percent between July 22 and Oct. 3 as five of its holdings -- Alpha Natural Resources Inc., Arch Coal Inc., Patriot Coal Corp., Peabody Energy Corp. and Walter Energy Inc. -- reduced profit or production estimates. The Newcastle index lost 0.4 percent in the same period.

“This extreme divergence between coal companies and the commodity seems unwarranted,” Holmes, based in San Antonio, wrote in an Oct. 3 blog posting that featured a similar chart.

Holmes wrote that producers still stand to benefit from rising demand from China, the world’s largest consumer of coal, as foreseen by the U.S. Energy Information Administration. The agency estimated last month that Chinese coal use will rise by an average of 2.1 percent a year from 2008 to 2035, exceeding the U.S.’s projected 0.5 percent growth rate.

Concern that global economic expansion may slow is already reflected in coal-stock prices, according to Holmes. “Fear is the driver” that sent the shares tumbling, he wrote. His firm manages $2.8 billion in assets.

Oil Shocks correlation with US Recessions

Coal Pricing Outlook (bloomberg)

Aug. 24 (Bloomberg) -- China’s unprecedented appetite for imported coal is about to be sated, jeopardizing a five-month rally in prices by adding to a global surplus of the fuel used in power plants from Perth to Chicago.After importing a record 48 million tons in the first six months, China is opening mines idled by worker deaths this year following safety upgrades in a bid to bolster economic growth. Huadian Power International Corp. expects China’s largest coal- mining province, Shanxi, to boost output by 60 percent in the second half of the year. That would mean an increase of 150 million metric tons, almost twice what Germany burns annually.

With little need to buy coal outside the country, prices may tumble, falling as much 7 percent in Europe alone, Barclays Capital says. China’s purchases will plunge 33 percent between June 30 and Dec. 31, based on the median estimate of four analysts surveyed by Bloomberg.
“In the first half, China really supported the market and put a pretty firm floor under the thermal-coal price because it was sucking in so many imports,” said Andrew Harrington, an analyst at Patersons Securities Ltd. in Sydney. “It’s difficult to be confident that it will continue at such a rate.”China’s July coal imports fell 13 percent to 13.9 million tons from 16 million tons in June, a record high, customs data shows today. Demand from China, which uses coal to generate about 80 percent of its electricity, helped ease a global supply glut that sent U.S. inventories to an 18-year high.

Earnings Hit
A retreat in prices may curb profit at Xstrata Plc, the mining company that is the biggest shipper of coal for power stations, said Nick Hatch, an analyst at ING Groep NV in London. Coal was the biggest contributor to operating earnings last year for Zug, Switzerland-based Xstrata, which boosted output of the mineral by 11 percent in the first half.“If China stops importing as much coal, it clearly may mean lower coal prices in the seaborne market, and that could have an impact on earnings,” said Hatch, who has a “buy” rating on Xstrata and mining companies Rio Tinto Group and Anglo American Plc, which also produce coal.Claire Divver, a spokeswoman for Xstrata, declined to comment. Murray Houston, the general manager for the company’s South African coal unit, said on Aug. 13 that shipments to China will increase “due to a tight domestic market.”Six-month supply contracts signed by Chinese buyers in February and March are expiring and aren’t likely to be renewed at the same amounts as global costs remain high and as domestic supplies rise, said Huang Teng, the general manager of Beijing LT Consultant Ltd., a coal consultant based in the capital city.

China Prices
Chinese provinces are accelerating the expansion of coal mines, the China Coal Transport and Distribution Association said in a statement on its Web site today. The reopening of small mines in regions including Shanxi will increase supplies and put pressure on prices. The benchmark price at Qinhuangdao port was unchanged for a third week at 570 yuan ($83.44) a ton on Aug. 24, according to the government-backed association.Coal futures for September delivery at Rotterdam, the benchmark for Europe, have risen 39 percent to $72 a ton on Aug. 21 from this year’s low of $51.75 on March 12. Prices rebounded from a 35 percent decline last year, when the recession slowed demand for electricity. Supplies for delivery in January are trading 7.6 percent higher than the September contract.

Shrinking Premium
That premium for delivery early next year may shrink because China won’t be buying as much of the world’s surplus, said Amrita Sen, a commodity analyst at Barclays Capital in London. Coal delivered at Rotterdam will fall to an average of $67.20 a ton from $72 in the first six months, she said.“China has been a key factor in providing a floor to prices and any softening in Chinese buying will pressure coal,” Sen said. “We will see a softening on a month-on-month basis in Chinese coal imports.”An end to the global recession may trim the surplus. China has spent 4 trillion yuan in a stimulus package designed to support its economy. The world’s third-largest economy grew 7.9 percent in the second quarter from a year earlier after expanding at the slowest pace in almost a decade the previous three months, the statistics bureau said July 16.
‘Extraordinary’ Measures“Price momentum and volume momentum are so strong, it’s difficult to see why the price should go down,” said Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt. “Measures to initiate demand are extraordinary.”
Drax Group Plc, the owner of western Europe’s biggest coal- fed power plant, has no plans to sell its surplus inventories of the fuel because the North Yorkshire, U.K.-based company expects the value of the commodity to increase.“We see the coal market rising,” Chief Executive Officer Dorothy Thompson said in an Aug. 4 conference call with reporters. “It does not make sense to sell coal now.”China, the world’s largest producer and consumer of coal, ordered the closure of almost all 10,000 of the country’s small pits during the Spring Festival in January, and plans to open some were delayed following a deadly accident in February.An explosion at a shaft in Shanxi killed 74 and injured as many as 114 miners, leading to more intense safety checks. Small mines that account for about 25 percent of China’s production were told to merge and those deemed unsafe were closed.

Most Deadly
The nation’s coal mines are the most deadly in the world, with 3,770 workers killed in 2007, more than 100 times the number of fatalities in the U.S., the second-largest producer, according to government data. Suppliers kept old pits open, ignoring safety rules and forgoing routine checks, to meet surging demand from the world’s fastest-growing major economy.
The mine closures and lower prices led to an increase in purchases from overseas. Imports surged to 16 million tons in June, bringing the first-half total to 48 million, according to customs data. Thermal-coal futures in Newcastle, Australia, the world’s largest coal port, have rallied 22 percent from a low in March to $72.90 a ton on Aug. 21, according to ICE Futures.
While most of the world’s output is used near where it is mined, export prices are determined by the remaining 16 percent bought and sold internationally, data from the London-based World Coal Institute show. Thermal coal used in power plants accounts for 92 percent of global production and 72 percent of international trade, according to the U.S. Energy Department. The rest is mostly used in steelmaking.

Safety Checks
After completing safety checks and consolidating small pits that had an annual capacity of 300,000 tons or less, the province of Shanxi is accelerating the pace of mine openings to revive the worst-performing provincial economy in China. The region’s gross domestic product contracted 4.4 percent in the first half, according to government data.“The province started approving restructuring plans in April and the process of consolidating mines has started,” said David Fang, the director of the international department at the China Coal Transport and Distribution Association. “Small mines are reopening gradually.”Of the 10,000 small mines in China, about 2,598 are in Shanxi, according to the China Daily newspaper. Output in Shanxi may rise to 400 million tons in the second half from 250 million tons in the first six months, said Chen Jianhua, the president of Huadian Power, the fourth-largest Hong Kong-listed Chinese electricity generator. Chen expects Shanxi production to reach 650 million tons in 2009.China produced 2.6 billion tons last year, according to the national bureau of statistics, which compiles data for the government. China is likely to cut imports by 33 percent in the second half of the year to 32 million tons, according to four analysts and industry officials in a Bloomberg survey.

Swelling Supplies
Reduced demand may swell global supplies that ballooned during the recession. Stockpiles held by electricity generators in the U.K., Europe’s biggest importer of coal, rose 68 percent in May from a year earlier to 17.4 million tons, the most since at least 1995, government data show.
“Europeans are fully stocked, but not reselling because they fear higher prices with an Asia-led economic recovery,” said Emmanuel Fages, a Paris-based commodities analyst at Orbeo. “The cost of carry for storing coal is cheaper than buying the coal for later delivery.”

U.S. Inventories
In the U.S., inventories jumped 15 percent in the first four months of the year, compared with a 1.1 percent gain in 2008 and 2.4 percent in 2007, Department of Energy data show. Stockpiles at the end of last year totaled 199.2 million short tons (180.7 million metric tons), the highest since 1991.Global supply of internationally traded thermal coal is forecast at 633 million tons next year, exceeding demand by 14 million tons, according to forecasts from Macquarie Group Ltd., Australia’s largest investment bank.The rapid increase in Chinese coal output may upset the calculations of producers in other countries, including the U.S., where exports rose 38 percent last year.St. Louis-based Peabody Energy Corp. sold 16 percent of its coal production outside the U.S. last year, regulatory filings show. The company’s sales outside the U.S. climbed 30 percent to 40.3 million tons, outpacing total sales growth of 8.2 percent to 255.5 million.“China has been an indirect market” for the U.S., said James M. Rollyson, an energy analyst at Raymond James Financial Inc. “It’s soaked up capacity from Australia, so it kind of makes waves into other markets.”