Europe’s consumers face rising prices but the ECB is unfazed

Europe’s consumers face rising prices but the ECB is unfazed
Lockdowns have deprived well-off consumers in Europe and elsewhere of the opportunities to spend their cash. (AFP/File)
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Updated 08 May 2021

Europe’s consumers face rising prices but the ECB is unfazed

Europe’s consumers face rising prices but the ECB is unfazed
  • Many firms eye scope to raise prices; European consumers in buoyant mood
  • Even after stripping out energy, eurozone producer prices in March recorded a year-on-year increase of 2.3 percent, nearly double the gains seen in February

LONDON: Europe’s consumers will feel the hit from price rises this year as companies seek to recoup revenues and cover pandemic-related costs. But for now, this is inflation the European Central Bank believes it can live with.

Over the past year, the fallout from COVID-19 has contorted both the demand and supply sides of the global economy, creating bottlenecks in supply chains, havoc in freight markets and a rally in raw materials from corn to copper.
Lockdowns, meanwhile, have deprived well-off consumers in Europe and elsewhere of the opportunities to spend their cash, creating record levels of savings and a window of opportunity for companies to push through price increases.
While US inflation fears mount in the wake of President Joe Biden’s massive stimulus plans — prompting Treasury Secretary Janet Yellen to clarify this week that she sees no problem brewing — things look different in a European economy still weighed down by coronavirus restrictions.
On the surface, there is a perfect storm for price pressures to keep building as the region finally enters a recovery.
Even after stripping out energy, eurozone producer prices in March recorded a year-on-year increase of 2.3 percent, nearly double the gains seen in February. Typically, price rises at factory gates end up being passed onto consumers.
Moreover, those same consumers look more than ready to spend. Eurozone retail sales were up 2.7 percent month-on-month in March, a 12 percent surge from a year ago.
This could be music to the ears of companies whose revenue or profit has been hit by the pandemic fallout in the shape of travel restrictions, supply chain bottlenecks or global shortages of components such as semiconductors.
Germany’s Lufthansa signaled that despite competition from low-cost rivals, it and other airlines would no longer offer the kind of discounts that were common before the pandemic ravaged the industry.
“Early bookers may get good deals. But in the medium term there will be very disciplined prices because airlines can ill-afford high rebates and low fares as before,” CEO Carsten Spohr said in a call about first quarter results.
Germany’s BASF, the world’s largest chemicals and plastics maker by sales, said raw materials prices were higher than expected but it lifted its profit outlook because it was confidently passing those costs on to customers.
Other companies in Europe’s manufacturing powerhouse have been equally clear about the scope for price rises.
In the premium auto sector, the argument runs that the chip shortage has hit car production and canceled out excess supply, which might have led to offers to shift stock in the past.
Elsewhere, price rises are planned to pay for investment in the post-pandemic world. Dutch telecoms firm KPN said it was raising retail internet rates by 2.9 percent, a good percentage point above inflation, to pay for network upgrades.
This could be seen as the kind of reflation story told to justify a scaling down of ECB support for the euro economy. But that’s a narrative the bank wants to avoid for now.
Year-on-year inflation stood at 1.6 percent in April, comfortably below its near-2 percent target and it was only in that region because of a 10.3 percent surge in energy prices. Strip that out and core inflation was just 0.8 percent year-on-year, down from 1.0 percent in March.
While the ECB acknowledges that the time could be ripe for manufacturers to pass on higher costs, it believes the impact on consumers will be a one-off and limited.
In a blog last month, its chief economist Philip Lane cited staff estimates that the 38 percent increase in global basic metal prices between June 2020 and January 2021 would only add about 1.5 percent to economy-wide output prices.
A massive 355 percent increase in freight costs from China to the euro area over the same period would in itself lead to just a 0.3 percent rise euro area output prices, he said.


Suez Canal posts second-highest monthly revenue

Suez Canal posts second-highest monthly revenue
Ever Given, a Panama-flagged cargo ship, is seen in Egypt's Great Bitter Lake Tuesday, March 30, 2021. (AP)
Updated 16 min 31 sec ago

Suez Canal posts second-highest monthly revenue

Suez Canal posts second-highest monthly revenue
  • Tonnages amounted to 10.6 million in May, compared to 9.94 million tons during the same period last year, an increase of 11.8 percent

CAIRO: The Suez Canal Authority has posted May revenues of $530 million, the second-highest monthly revenue in the authority’s history.

Osama Rabie, head of the authority, said that it is prepared to confront any crises, and that a strategy has been prepared to handle repercussions of the pandemic.

He added that 1,712 ships transmitted through the canal during May, compared to 1,602 during the same month last year, an increase of 9.6 percent.

Tonnages amounted to 10.6 million in May, compared to 9.94 million tons during the same period last year, an increase of 11.8 percent.

Rabie stressed that these improvements attracted praise from trade bodies such as the Baltic and International Maritime Council, Sea Trade, Forbes, and Argos. The groups have lauded the authority for attracting container ships and gas and oil tankers coming from the East American coast in the direction of Asia.

He pointed out that the authority will always be a pioneer in adopting the latest methods and techniques of management and operation, as well as applying the mechanisms of integration between all elements of maritime transport.

Rabie said: “The Suez Canal Authority has prepared all scenarios to confront any emergency crises, which was clearly demonstrated when facing the coronavirus pandemic, which hit global trade and economic movement at the beginning of 2020, and negatively affected all areas related to international navigation and maritime transport in general, but this negative impact has been kept to a minimum thanks to an integrated proactive strategy prepared by the canal.”

 


Egypt, France sign transport, housing, energy agreements

Egypt, France sign transport, housing, energy agreements
Egypt's PM Mostafa Madbouli (C) looks on as France's Economy and Finance Minister Bruno Le Maire (L) signs agreement with Egyptian Minister of Transportation Kamel el-Wazir (R) in Cairo on Sunday. (AFP)
Updated 24 min 52 sec ago

Egypt, France sign transport, housing, energy agreements

Egypt, France sign transport, housing, energy agreements
  • Projects offering development financing of around 1.7 billion euros ($2.06 billion) were agreed with 776 million euros coming from the French government and 990 million euros from the French Development Agency

CAIRO: Egyptian President Abdel Fattah El-Sisi has highlighted the importance of his country’s strong relationship with France after the two nations signed a raft of cooperation agreements.

His comments came during a meeting with French Finance Minister Bruno Le Maire who also praised Egyptian-French economic and commercial links while passing on President Emmanuel Macron’s congratulations to Egypt for its efforts in helping negotiate a ceasefire in the recent Israel and Gaza conflict.

Egypt’s Prime Minister Mostafa Madbouly and Le Maire witnessed the inking of a number of agreements between their two countries relating to the transport, housing, and energy sectors.

Projects offering development financing of around 1.7 billion euros ($2.06 billion) were agreed with 776 million euros coming from the French government and 990 million euros from the French Development Agency.

Two agreements worth 150 million euros were penned to support Egypt’s social protection sector and implement a universal health insurance system.

A deal to re-establish the French University in Egypt by constructing a fully equipped new campus was also signed with funding of 12 million euros and a grant of 2 million euros.

 


Energy majors bid for Qatar LNG project despite lower returns

Energy majors bid for Qatar LNG project despite lower returns
Updated 14 June 2021

Energy majors bid for Qatar LNG project despite lower returns

Energy majors bid for Qatar LNG project despite lower returns
  • Qatar plans to grow its LNG output by 40 percent to 110 million tons per annum (mtpa) by 2026

LONDON: Six top western energy firms are vying to partner in the vast expansion of Qatar’s liquefied natural gas output, industry sources said, helping the Gulf state cement its position as the leading LNG producer while several large projects around the world recently stalled.
Exxon Mobil, Royal Dutch Shell, TotalEnergies and ConocoPhillips, which are part of Qatar’s existing LNG production were joined by new entrants Chevron and Italy’s Eni in submitting bids on May 24 for the expansion project, industry sources told Reuters.
The bids show energy giants continue to have appetite for investing in competitive oil and gas projects despite growing government, investor and activist pressure on the sector to tackle greenhouse gas emissions.
Unlike Qatar’s early LNG projects in the 1990s and 2000s when the country relied heavily on international oil companies’ technical expertise and deep pockets, the country’s national oil company Qatar Petroleum (QP) has gone ahead alone with the development of the nearly $30 billion North Field expansion project.
It is, however, seeking to partner with the oil majors in order to share the financial risk of the development and help sell the additional volumes of LNG it will produce.
“I don’t think QP need the IOCs expertise in the upstream or midstream construction of the project but they will be glad to see someone take some LNG volumes off their hands,” a senior source in one of the bidding companies said.
Qatar plans to grow its LNG output by 40 percent to 110 million tons per annum (mtpa) by 2026, strengthening its position as the world leading exporter of the super-chilled fuel.
An Eni spokesperson confirmed the company is participating in the bidding process. QP, Shell, Chevron, TotalEnergies, Conoco declined to comment.
Exxon said it did not comment on market rumors, but added: “We look forward to continuing success in future projects with our partners Qatar Petroleum and the State of Qatar. ExxonMobil affiliates are working with Qatar Petroleum to identify international joint venture opportunities that further enhance the portfolio of both.”
Leading energy companies see natural gas as a key fuel in the world’s efforts to cut carbon emissions and replace the more polluting coal, although the International Energy Agency said in a report last month that investments in new fossil fuel projects should stop immediately in order to meet UN-backed targets aimed at limiting global warming.
Activists say that expansion in natural gas delays a transition to renewable energy that is needed to meet UN-backed targets to battle climate change. The European Union is in the midst of a debate about what role gas should take in the energy transition.
The outlook for global LNG supplies tightened sharply in recent months after Total suspended its $20 billion LNG project in Mozambique due to a surge in violence.
It followed a string of delays of LNG projects in North America as COVID-19 hobbled demand last year.
Global LNG demand has increased every year since 2012 and hit record highs every year since 2015 mostly due to fast-rising demand in Asia. Analysts have said they expect global LNG demand will grow about 3-5 percent each year between 2021 and 2025.
Lower returns
The interest from companies in the Qatari expansion comes despite relatively low returns.
QP offered international bidders returns of around 8 percent to 10 percent on their investment, down from around 15 percent to 20 percent returns Exxon, Total, Shell and Conoco have seen from the early LNG facilities, according to sources in three companies involved.
Qatar project returns have never previously been disclosed.
The six companies and QP declined to comment on the terms of the bids.
“Clearly Qatar has become more competitive,” a source said. “But it remains very low risk from the resource perspective.”
The results of the tender process are not expected to be announced before September, two of the sources said.
In March, QP said it will take full ownership of Qatargas 1 LNG plant when its 25-year contract with international investors including Exxon and TotalEnergies expires next year, in a sign of its growing confidence.
Qatar is also in talks to make Chinese firms partners in the project, sources told Reuters last month.
QP last month hired international banks for a multi-billion dollar debut public bond sale by the end of June, two sources said, to help in part development the Northern Field project.


Cash will not be used in Saudi energy industry city

Cash will not be used in Saudi energy industry city
Updated 14 June 2021

Cash will not be used in Saudi energy industry city

Cash will not be used in Saudi energy industry city
  • SPARK announced in March that 80 percent of the project’s first phase was officially complete

RIYADH: A new city being developed in Saudi Arabia’s Eastern Province will be cashless according to Riyad Bank CEO Tareq Al-Sahdan.
King Salman Energy Park (SPARK), located between Dammam and Al-Ahsa, is being built on an area of 50 square kilometers and will include a dedicated logistics zone and dry port. SPARK announced in March that 80 percent of the project’s first phase was officially complete.
A new agreement signed between Riyad Bank and the King Salman Energy City (SPARK) aims to fully transform the project into a fully digital city, Al-Sahdan told Al Arabiya.
“We aspire that Spark City will be completely digital, since it is a new city, where cash is not used, and there will be payment solutions for all uses and a special pass card used in shops and services,” he told Al Arabiya.
An agreement between the pair, which includes ten initiatives, aims to support the Kingdom’s ranking in ease of doing business and the digital economy.

 


Abu Dhabi’s ADIA said to review property strategy

Abu Dhabi’s ADIA said to review property strategy
Updated 14 June 2021

Abu Dhabi’s ADIA said to review property strategy

Abu Dhabi’s ADIA said to review property strategy
  • ADIA may consider cutting its exposure to some troubled sectors, the sources said

RIYADH: The Abu Dhabi Investment Authority (ADIA), one of the world’s biggest property investors, is considering changes to its real estate strategy after some of its major holdings suffered during the pandemic, Bloomberg reported citing people with knowledge of the matter.
ADIA may consider cutting its exposure to some troubled sectors, the people said, asking not to be identified.
The state-owned sovereign wealth fund has been making more direct property investments in recent years, and has amassed just under $700 billion in assets, according to estimates from data provider Global SWF.
Real estate traditionally accounts for about 5 percent to 10 percent of that overall portfolio.
ADIA could shift its focus for future deals and increase exposure to areas like warehouses, life sciences properties, technology hubs and affordable housing, one of the people said.
The fund has also invested more in private equity investments, which have outperformed during the pandemic, the people said.
The review is ongoing, and ADIA hasn’t made any final decisions on the changes it will make, Bloomberg reported.