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Bloomberg Energy
Fri, 25 Aug 2000, 6:29am EDT


08/25 00:16 India May Raise Fuel Prices, Crimping Profits, Growth (Update1)
By Subramaniam Sharma

New Delhi, Aug. 25 (Bloomberg) -- Eicher Motors Ltd., India's fourth largest truck maker, is bracing for a double blow from higher domestic fuel prices.

``Not only will we be hurt by freight operators not buying new trucks, but our transportation costs will rise, squeezing our profit margin,'' said Vinod Aggarwal, director of finance at Eicher Motors. ``Either way, we're stuck.''

The government said last week it may raise gasoline and diesel prices as a jump in global crude oil prices to near 10- year highs makes subsidizing them too expensive. India, which imports 70 percent of its oil, could announce an increase as early as this weekend.

The immediate effect of a price increase will be to boost costs at companies from truck makers to steel companies. Over the longer term, it could also stoke inflation and weaken demand for manufactured goods as consumers have less cash to spend, slowing economic growth.

Crude oil prices in London have risen 13 percent this month and are up almost 25 percent since the start of the year. Indian gasoline and diesel prices haven't risen this year as the government absorbs the cost increases.

Diesel prices may rise as much as 20 percent from 14.04 rupees (31 U.S. cents) per liter, analysts said. The government last raised diesel prices in October 1999 and boosted kerosene prices in March this year.

Budget Strain

Higher oil prices are straining the government budget by pushing up the cost of subsidies.

Though the government offsets the cost of subsidizing products such as kerosene and diesel by selling others, such as gasoline and aviation fuel, above international prices, that doesn't always cover the subsidies.

The resulting difference, the oil pool deficit, widens 20 billion rupees for every price increase of $1 per barrel, according to E.A.S. Sarma, secretary for economic affairs in the Ministry of Finance.

If the government passes higher oil costs on to consumers, inflation will accelerate and the central bank may push up borrowing costs, economists and analysts said. Wholesale prices rose 5.75 percent from a year earlier in the week to Aug. 5., up from 2.7 percent at the beginning of the year.

``Inflation will gradually rise to 7 percent, and that will put pressure on interest rates,'' said Rahul Nayar, an economist at Batlivala and Karani Securities in Mumbai. ``If interest rates rise, (company) balance sheets will show a negative impact.''

The government's budget assumes an average inflation rate of 5 percent and average global crude oil prices of $25 a barrel for the year to March 2001. Inflation has averaged 5.74 percent so far during the year, and oil prices have averaged $27.49.

`Double Whammy'

The central bank last month raised its key bank rate to 8 percent from 7 percent and increased its cash reserves requirement for banks -- the cash lenders must keep as a proportion of total deposits -- to 8.5 percent from 8 percent. Any pickup in inflation would likely force the bank to raise its lending rate for the second time this year.

Oil prices are rising at a bad time for India. The rupee has slid 5.2 percent against the dollar since the beginning of April, which means companies are already being hit by higher costs for imported raw materials, machinery and other goods. The currency weakened 0.05 percent today to 45.96 per U.S. dollar, sliding for a fourth straight day.

``There are already signs of a slowdown in the economy,'' Nayar said. ``This will be a double whammy.''

Rising global oil prices mean India will have to spend more dollars to buy oil, extending the rupee's slide. In response, the central bank could try to bolster the currency by raising interest rates further.

Nayar expects economic growth to slow to 6 percent in the year to March 2001 from 6.4 percent the previous year, falling short of the government's 7 percent target.

Higher Freight Costs

The most immediate impact of a fuel price increase will be higher freight rates, which analysts said would rise 7 percent to 8 percent if the government raises diesel prices. A 15 percent increase in diesel prices would boost cement prices by 1 rupee per 50 kilogram bag, analysts said. A bag now sells for between 120 rupees and 145 rupees.

Some companies will benefit from rising fuel prices. Motorbike makers such as Hero Honda Ltd., the country's biggest, may gain as people shift from cars to more fuel-efficient vehicles.

Hero Honda, though, is in the minority. The government and most companies are hoping that the Organization of Petroleum Exporting Countries will decide at its Sept. 10 meeting to boost output and bring down global prices, heading off a domestic price increase.

``It will be a meeting we will be watching out for,'' said V.G. Raghavan, chief financial officer at Essar Steel Ltd., which makes hot rolled coils and spends 3 percent of its annual sales, or 600 million rupees, on transportation.

``Any increase in output by OPEC will encourage the government not to raise prices, and that will be good news.''


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Höhenflug für Schwarzes Gold

Steigflug der Ã-lpreise - 40 Dollar pro Barrel befürchtet

NEW YORK: Die Rohölpreise steigen und steigen. Angesichts der nahenden
Heizsaison sagen Marktexperten bereits Preise um 40 Dollar je Barrel
(159-Liter-Fass) voraus, falls die Förderländer nicht den Ã-lhahn weiter aufdrehen.

Am Donnerstag verteuerte sich das Fass Nordseeö° in London weiter um 16 Cents
auf 30,79 Dollar. In New York war Rohö° zur Auslieferung im Oktober mit 32,02
Dollar je Barrel um 17 Prozent teurer als Anfang August. Damit nähert sich der
US-Rohölpreis wie vor einigen Wochen wieder 34,65 Dollar, dem höchsten Niveau
seit zehn Jahren.

Einige Marktexperten halten einen Ã-lpreis von 40 Dollar nicht für ausgeschlossen, falls die OPEC nicht bald die Förderung um mindestens 500 000 Barrels aufstockt. Die Raffinerien müssen nämlich ihre auf ein Minimum reduzierten Ã-lreserven aufstocken und gleichzeitig viel mehr Heizö° für den kommenden Winter produzieren. Seit Wochen treibt die weltweit starke Nachfrage die Preise, weil die US-Lagerbestände auf dem niedrigsten Stand seit 24 Jahren liegen und die Organisation Erdö° exportierender Staaten (OPEC) ihr Angebot nicht entsprechend aufstockt.

Clinton besucht Golfstaaten

US-Präsident Bill Clinton sprach sich am Mittwoch vor Beginn seiner Afrikareise für Ã-lpreise unter 25 Dollar je Barrel aus. Mit einem Seitenblick auf Saudi-Arabien, Kuwait und die Vereinigten Arabischen Emirate erklärte er: «Wir müssen dorthin schauen, wo es Überschusskapazitäten gibt.»

Fördererhöhung bald fällig

Clinton warnte die OPEC-Länder, dass ein zu hoher Ã-lpreis in den Industrieländern eine Rezession verursachen könnte: «Der Ã-lpreis muss irgendwo im unteren 20-Dollar-Bereich liegen.» Der Präsident wird in Nigeria, einem OPEC-Mitglied, mit Präsident Olusegun Obasanjo die Ã-lmarktsituation besprechen. Die OPEC-Länder hatten vereinbart, dass sie ihre Produktion um eine halbe Million Barrel erhöhen wollen, falls der OPEC-Ã-lpreis 20 Arbeitstage lang bei mehr als 28 Dollar liegt. Der OPEC-Ã-lpreis befindet sich seit 14. August über diesem Niveau.

Die weltweite Ã-lnachfrage beträgt etwa 75 Millionen Barrel pro Tag. Die OPEC-Länder steuern 40 Prozent der Ã-lproduktion bei. Sie hatten im Juni einer Produktionserhöhung um 700 000 Barrel pro Tag zugestimmt.

Saudi-Arabien hatte dann Anfang Juli angedeutet, dass der weltgrösste Ã-lproduzent seine Förderung um eine halbe Million Barrel anheben würde, doch ist dies bisher nach US-Schätzungen noch nicht in vollem Umfange geschehen. Venezuela und andere OPEC-Länder widersetzen sich einer Anhebung der Ã-lförderung. Das nächste OPEC- Treffen findet am 10. September statt.


http://www2.lol.li/Volksblatt/livool-5/Wirtschaft-3.html

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