Reuters Defensives lift Dow but tech weighs on Nasdaq

NEW YORK (Reuters) - The Dow moved into positive territory for the year for the first time since early January on Friday, lifted by defensive sectors like pharmaceuticals while a disappointing outlook from National Semiconductor (NSM.N) weighed on technology stocks.

The healthcare sector rose as investors rotated money into defensive plays, which pushed the S&P 500 to a seven-month high. The AMEX Pharmaceutical index .DRG gained 1.2 percent.

Defensive plays are stocks of companies that tend to weather a recession better than others because their products -- such as food or toothpaste or drugs -- are things that people buy, even if they cut spending, in leaner times.

Procter & Gamble Co (PG.N) rose 1 percent to $52.55.

But technology shares weighed on the Nasdaq after chipmaker National Semiconductor Corp (NSM.N) posted quarterly results and gave an outlook that topped Wall Street's estimates, but the guidance fell short in comparison to an outlook earlier this week from fellow chipmaker Texas Instruments (TXN.N).

National Semi's shares slumped 6.1 percent to $13.59 while the PHLX semiconductor index .SOXX, slid 1.8 percent.

The S&P has risen 39.8 percent since hitting a 12-year closing low on March 9, leading some analysts to believe a pullback is in the offing.

"Everybody is waiting for a correction and certainly when that correction comes, those sectors that will do well are your more defensive sectors," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

The Dow Jones industrial average .DJI gained 28.34 points, or 0.32 percent, to 8,799.26. The Standard & Poor's 500 Index .SPX gained 1.32 points, or 0.14 percent, to 946.21. The Nasdaq Composite Index .IXIC dropped 3.57 points, or 0.19 percent, to 1,858.80.

For the week, the Dow gained 0.4 percent, the S&P 500 added 0.7 percent and the Nasdaq rose 0.5 percent.

For the year, the blue-chip Dow average is up 0.26 percent. more...

CNBC Week Ahead: Stocks Trapped in a Range

Stocks could have a hard time snapping out of their current trading range, which seems to be getting narrower and narrower.

* Your First Move for Monday, June 15

In the coming week, there are a few catalysts for markets in inflation and housing data, and in Friday's quadruple expiration of futures and options. Traders are also watching the dollar and the corresponding moves in commodities, particularly oil, which at a 7-month high is beginning to worry stock investors.

The aftermath of the Iranian presidential election; the meeting of G-8 finance ministers in Italy over the weekend, and a meeting between the BRIC countries in Russia Tuesday are also being watched for their potential impact on markets.

Stocks ended the past week barely changed from the prior week's close, but the Dow managed to finish Friday in positive territory for the year. The Dow added just 0.4 percent to 8799, while the S&P 500 added 0.65 percent for the week to finish at 946. Investors, meanwhile, bid up some of the more defensive sectors, with utilities gaining 3.8 percent, as the week's top performer. Telecoms were also a winner, up nearly 2 percent, and energy stocks were up 2.3 percent, rising with the price of oil.

Stocks have defied the conventional view and have paused, but not pulled back, as many traders were expecting. Now that the quarter end approaches, some traders say stocks could be supported by fund managers who still need to show good returns for the quarter but also face pressure as others sell to lock in gains. The result could be continued sideways trading.

"You could have buyers go on strike because they know everyone's waiting for a pull back, and you have sellers not pulling the trigger," said Art Hogan of Jefferies. more...

Bloomberg Commodity Investment Surge Yet to Peak, Barclays’ Norrish Says

June 12 (Bloomberg) -- Hedge funds and other large investors are leading a surge of commodities investment that may continue to grow as optimism increases that the worst global recession since World War II is easing, Barclays Plc said.

“People are investing in commodities again because the prices are going up and because the fundamentals look a lot better,” London-based Kevin Norrish, director of commodity research at Barclays, said in an interview in Perth. “We’ve seen a lot of money come in. Hedge funds certainly have come back into commodities over the last few months in a big way. It hasn’t reached its peak.”

The Reuters/Jefferies CRB Index of 19 raw materials surged 14 percent in May, the most since July 1974. More than $6 billion has poured into commodity-industry funds so far this year, swelling assets under management by more than 21 percent, according to Cambridge, Massachusetts-based researcher EPFR Global, which tracks global fund flows.

“There are a number of big investors who are very positive toward commodities now because they realize the supply-side constraints are really important,” Norrish said. “If you have commodities in your portfolio, it does give you diversification that other assets don’t.”

Most large investors aspire to have 5 percent of their portfolios directly invested in commodities, Norrish said.

“If you look at the global portfolioable assets, then commodities as a proportion of that would be a fraction of 1 percent, so there’s lots of potential room for growth,” he said.

Second-Half Concerns

The London Metal Exchange index of six metals has jumped 48 percent this year after falling 49 percent in 2008.

Still, the surge in base and precious metals may peter out in the second half, Norrish said. China’s iron ore restocking trend may reverse and nickel prices will struggle to maintain a price above $14,000 a metric ton, “because that’s the level at which nickel pig-iron production in China becomes profitable,” Norrish said.

Nickel for three-month delivery on the London Metal Exchange hasn’t closed below $14,000 a ton since May 29 and last traded at $15,800 a ton at 11:30 a.m. Singapore time.

Demand for aluminum will fall as supply-side challenges dwindle, he said.

“There’s probably a bit of sideways trading and perhaps some downward momentum to come,” he said. “We don’t think China is going to be able to be the galvanizing force that it has been in the early part of this year. It’s not going to be able to extend that throughout the second half of the year.”

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net

Bloomberg Oil, Gasoline, Fall on Record European Industrial Output Drop

June 12 (Bloomberg) -- Crude oil and gasoline fell for the first time in four days as a record plunge in European industrial production prompted speculation that bets on an economic recovery are premature.

Futures dropped from a seven-month high after a report showed that output in the euro region declined 21.6 percent from a year earlier. The dollar strengthened, undermining the attractiveness of commodities as an alternative investment. OPEC said members raised production in May for a second month, straying further from quotas.

“Crude had such a powerful rally that it was vulnerable to a correction,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “The negative economic numbers from the euro zone got it going. The dollar got stronger on the news from Europe, which has hit crude.”

Crude oil for July delivery fell 64 cents, or 0.9 percent, to settle at $72.04 a barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures have gained 62 percent this year. more...

Associated Press G-8 finance chiefs get ready for economic recovery

LECCE, Italy (AP) -- The Group of Eight industrialized nations have begun preparing for an economic recovery, acknowledging on Saturday "signs of stabilization in our economies" and agreeing to ask the International Monetary Fund to investigate ways to unwind hefty stimulus packages.

In a communique released at the end of a two-day meeting here, the group's finance officials said that so-called exit strategies from monetary and fiscal stimulus measures -- like tax cuts and lower interest rates -- were "essential to promote a sustainable recovery over the long term."

The ministers said they had asked the IMF to begin analyzing potential strategies to assist with the process.

However, ministers from the U.S., Japan, Germany, France, Britain, Italy, Canada, Russia and the European Union also stressed their commitment to provide any more stimulus the economy might need -- as long as it does not threaten to spur inflation or push state budgets further into deficit.

"We must remain vigilant to ensure that consumer and investor confidence is fully restored and that growth is underpinned by stable financial markets and strong fundamentals," they said in the statement.

"We will continue working with others in taking the necessary steps to put the global economy on a strong, stable and sustainable growth path, including by continuing to provide macroeconomic stimulus consistent with price stability and medium-term fiscal sustainability," they added.

The ministers also agreed on the need for a set of common principles and standards for propriety, integrity and transparency regarding the conduct of international business and finance. more...

GlobalCoal Newcastle Coal Index

Weekly NEWC Coal Index
15-May-09 63.33
22-May-09 64.82
29-May-09 67.09
05-Jun-09 74.31
12-Jun-09 76.75

Monthly NEWC Coal Index
Feb-2009 75.03
Mar-2009 61.37
Apr-2009 62.55
May-2009 64.24

Business Times Palm down on rising inventory conern

CPO FUTURES

Palm oil futures yesterday dropped for a second week on concern that rising stockpiles in Malaysia, the second-biggest producer, may damp a 45 per cent rally this year.

Output in Malaysia surged 8.5 per cent to 1.4 million metric tons in May, lifting stockpiles for the first time in six months by 5.7 per cent to 1.37 million tons compared with April, the nation’s Palm Oil Board said on June 10.

“Prices are unlikely to rise as production is recovering” in Malaysia, Sunaina Dhanuka, an analyst at Macquarie Research, said in a report. “Reports out of India suggest that imports there are likely to slow due to large stockpiles” in that country, the report said.

August-delivery palm oil dropped 0.8 per cent for the day, and 2.2 per cent for the week, to RM2,465 ringgit a metric ton on the Malaysia Derivatives Exchange.

Malaysian palm oil exports to India slowed to 2,200 tons in the first 10 days of June from 34,700 tons in the same period in May, according to cargo surveyor Societe Generale de Surveillance. Sales to India in May fell 26 per cent to 121,000 tons from April.

AmResearch warned in a report this week that there may be “unfavorable weather, which could affect output,” referring to the possible development of the El Nino weather pattern.

El Nino causes drier-than-usual conditions in many Asian countries including Indonesia and Malaysia, which account for about 90 per cent of palm oil output. More than half of annual output in the two countries usually occurs in the second half.

The US National Oceanic and Atmospheric Administration’s Climate Prediction Center warned on June 4 of El Nino conditions developing in June to August. The risk of El Nino weather this year has grown, Australia’s Bureau of Meteorology said on June 3.

US stockpiles of soybeans are likely to be at their lowest since 1977 by the end of the crop year, the US Department of Agriculture said June 10.

US stockpiles on August 31 will total 110 million bushels, down from a May forecast of 130 million and the year-earlier total of 205 million, it said.

Soybeans, crushed to produce a rival oil, have surged 29 per cent this year as smaller crops in South America boosted buying of US supplies, depressing stockpiles. The US, Brazil and Argentina are the largest producers of soybeans.

Mandiri Sekuritas FOCUS (12-Jun-2009) MEDC: Senoro project overhang

Senoro project overhang
YTD average crude prices reached US$49.5/boe, while spot at US$70/boe as stockpiles drop unexpectedly and the dollar index continued its fall. These recent events will at least bring a positive impact for Medco despite falling production volumes. On the other hand, we are concerned on the developments of the Senoro project as there are still several difficult issues to be solve. We therefore downgraded our recommendation to Neutral from Buy, with a price target of Rp3,700/share as we apply a ! 20% disco unt to our upgraded DCF-based fair price (since we lower our risk free rate assumption of 9.5%) to around US$0.45/share or Rp4,640/share.

Capex pull down. In our recent chat with the company, it was mentioned that they may trim down its FY09F capex plan to around US$200-250mn from around US$370mn previously, as they will lower number of exploration in several blocks such as Simenggaris and Bangkanai, as well as Libya. Moreover, the company has not decided the exact amount yet, with the uncertainties still lingering on the Senoro project as well as contract extension ! for block A, Aceh.

Selling Kakap to fund capex… To help financing the capex, the company has also entered into a conditional share sale purchase agreement with Star Energy Holdings to sell its 25% participating interest in Kakap PSC. However, they have not disclosed the transaction value and will make an announcement in 15 July 2009, which is the signing date.

….as well as bonds issuance. Aside from selling Kakap, the company will also issue 2 series of bonds with total value of Rp1.5tn or around US$150mn to help further finance its capex. The bonds have 3-year and 5-year tenor with a fixed coupon rate of 13.4% and14.3%, respectively. We view that it would be sufficient to finance this year’s capex, particularly with current cash position.

Uncertainty over Senoro project. Currently, MEDC has not yet to reach an agreement with the government regarding Donggi-Senoro project. There are 3 issues which still need to be approved by the government; 1) seller appointment agreement and 2) plan of development, which both need an approval from BP Migas, and 3) Gas selling price, which should be approve by Ministry of Energy and Natural Resources. Other than that, the company should als! o guarant ee gas supply to the domestic market. We view that such problem may take some significant amount of time to solve, thus further delay is likely.

CIMB Oil and Gas

Sector Note - Turning point? - by Itphong Saengtubtim ( - )

We have raised our oil-price assumptions by 33-42% for FY09-12, to US$60/bbl for FY09, US$75 for FY10, US$80 for FY11, and US$85 for the long term. With an improving demand outlook, we expect crude oil prices to trend higher over the next few years. Our new assumptions are based on: 1) a continued recovery in the global economy; 2) US$ weakness; 3) speculators' premiums on general commodity prices; and 4) continued tight supply from OPEC and non-OPEC producers. We have raised our EPS forecasts for oil and gas companies for FY10-11 as well as our target prices. Upgrade the sector to OVERWEIGHT from UNDERWEIGHT. Maintain OUTPERFORM on PTTEP and PGAS; upgrade PTT to OUTPERFORM from Neutral.

UOB Kay Hian - China Macro

Loan growth rebounds to Rmb664.5b, and target of Rmb8t will likely be exceeded
Analyst: Nan Sheng

Loan growth rebounds to Rmb664.5b
May loan growth picked up pace again as a total of Rmb664.5b of new loans were issued over the month, versus Rmb592b issued in April. The highly anticipated slowdown in loan growth again failed to materialize as banks continued to inject liquidity into the economy.

From the structure of new loan growth, medium- to long-term loans continued to be the primary driving force behind new corporate loans. A total of Rmb476.9b of loans was issued to non-financial corporations, among which, Rmb348.5b were medium- to long-term loans and only Rmb21.2b were short-term loans. Discounted bills continued to decline, with Rmb86.2b worth of bills were issued in May versus Rmb125.7b in April.

Retail loans totaled Rmb187.6b for the month versus Rmb147.2b issued in April. We believe strong mortgage loans were the primary driving force behind the continued strength in retail loan growth.

M1 growth outpaces M2 on a sequential basis on higher corporate demand deposits
M1 supply reached Rmb18.2t in May, up 18.7% yoy and M2 supply reached Rmb54.82t, up 25.74% yoy. However, M1 increased 2.1% over April while M2 increased 1.4% sequentially. The faster increase in M1 is largely reflective of higher increases in corporate demand deposits. This shows us that corporations are gaining more confidence in the economy and are preparing to partake in further investment projects.

Deposits increased by Rmb1.33t, staying above Rmb1t for the fifth consecutive month
Rmb deposits increased by Rmb1.33t during May, boosting total deposits outstanding to Rmb54.63t, up 26.67% yoy and 2.5% sequentially. Retail deposits increased by Rmb188.6b and deposits of non-financial firms increased by Rmb669.8b.

Full-year loan target of Rmb8t likely to be exceeded
A total of Rmb5.83t of loans has already been issued over 5M09, representing 73% of the full-year target of Rmb8t. Although we continue to believe the pace of loan growth will eventually slow, it is very likely that the full-year target of Rmb8t will be exceeded. We expect new loan growth to slow down to Rmb450b over the next few months before slowing further to a range around Rmb300b during 4Q09. On a policy front, we believe regulators will push for an increased focus on risk management during 4Q09 and my issue guidance to tighten liquidity. Although we do not expect a rise in interest rates or reserve ratios, we do think regulatory guidance will force loan growth to slow noticeably. Nevertheless, we believe a full-year target of Rmb8.3t is likely. The historical trend over the past three years averaged Rmb325b on a monthly basis.

CIMB IND: United Tractors - Encouraging signs

(UNTR IJ / UNTR.JK, OUTPERFORM - Maintained, Rp11,050 - Tgt. Rp13,300, Industrial Goods and Services)

We upgrade our coal-price assumptions by 9-15%, which is positive for UT's mining contracting and mining divisions. The former would benefit from higher margins and the latter, from higher coal ASPs. Additionally, a more positive macro environment can boost heavy-equipment sales for UNTR. We upgrade our EPS estimates by 8-13% for UNTR, factoring in positives for all three divisions. Maintain OUTPERFORM with a higher target price of Rp13,300 (from Rp10,850), now based on 13x CY10 P/E (previously 12x).

Danareksa Bank Danamon (BDMN IJ, Rp4,350 BUY) In the fast lane

TP raised to Rp6,600
We have raised our FY10-11E EPS estimates by 4-15% due to: 1) a lower COF stemming from BDMN’s plans to reduce its proportion of high cost deposits and 2) higher loans growth assumptions. For the bank to attain sustainable loans growth going forward, we believe the key lies in its ability to build up high yielding assets - be it through maximizing its DSP (Danamon Simpan Pinjam) network, channeling loans to Adira, or by offering innovative products. Accordingly, we have raised our TP to Rp6,600 from Rp3,600 previously, assuming a lower cost of equity of 16% from 20% previously. Our new TP implies 4.2-3.9x FY09-10E PBV. This is at the high end of its historical trading range. However, we believe it is justified given the bank’s robust NIM, strong loans growth, cost turnaround and large capital base.

A shift in strategy: reducing its COF
What really excites us is BDMN’s desire to reduce its proportion of high cost deposits. Low interest rates have already reduced BDMN’s COF by 50bps as of April 09. And a reduction in the proportion of time deposits will cut its COF further to about 7% by YE09 and to 6% in 2 years, in our estimate. This does not mean that we expect a decline in the amount placed in time deposits, but rather that there will be an increase in the amount placed in current and saving accounts (CASA). However, this will take time - most probably about 3 years. As for the increase in CASA, we expect it to come from: 1) the bank capitalizing on its DSP units, where lending (rather than taking deposits) has been the focus, and 2) the offering of more innovative products. The latest product launched is Danamon Lebih, a product which gives free insurance and 5% cash back to depositors. The results are highly encouraging and 500,000 customers have been added in 6 months (normally, we could expect the bank to add only 100,000 customers in a year!). Overall, we expect BDMN to reduce its proportion of time deposits by 5% over 3 years.

Strong loans growth ahead
Our 1-2% upward adjustment to FY10-11E loans growth reflects 4-6% consumption growth over the next 2 years, supported by a Rp50trn fiscal stimulus next year, of which 80% is for tax purposes. This, combined with benign inflation of 6-7% and lower interest rates, should boost consumer loan demand, in our view. Since 50% of the bank’s total loans are consumer loans, we are confident that total loans growth can be sustained at 20% p.a. over the next 3 years. Consumer loans alone are expected to grow 27% p.a. over the same period. In our opinion, the key lies in the bank’s ability to maximize its DSP network (some 1,000 units) and, more importantly, to channel loans through Adira. With high exposure to consumer loans, the bank’s NIM should be maintained above 10% over the next 2 years, or well above that of its local peers. This will translate into strong profits growth.

2Q09 preview: looking good
Total outstanding loans as of April were around Rp62trn, or 7% lower compared to Dec 08’s Rp67trn. Yet the indications for loans growth in 2H09 are much better. However, for now, we still stick with our 2009E loans growth assumption of 11%. In 2Q09, we expect the bank’s profitability to remain sound with an excellent NIM of at least 10% reflecting our expectation that BDMN’s lending rate remains unchanged at an average of 16% and in addition the fact that its COF has already declined by 50bps as of April 09 to 8%. Note that the lending rate tends to be sticky given that BDMN’s mass market loans typically have a tenor of around 3 years with an average duration of 18 months. In regard to provisioning, the amount booked YTD remains at 2.5% of average loans, or in line with our estimates so far.

CIMB IND: Coal Mining - Back to the heyday?

We upgrade the coal sector to Overweight from Neutral. First, we believe coal prices are bottoming out. We are raising our benchmark coal-price assumptions for FY09-11 by 9-15% to US$78-100/tonne and by 21% to US$70/tonne for the long term. Second, the sector should be a beneficiary of consolidation. Third, there is a growing demand for Indonesia's low-rank coal. Our higher coal and oil-price assumptions raise our EPS estimates by 14-38% for FY10-11 and our target prices by up to 60%. Indonesian coal stocks remain at discounts to Chinese peers. Adaro is our top pick for its operational superiority and moderate corporate-governance risks. We upgrade Bumi and Bukit Asam to Outperform from Trading Buy and Neutral respectively while Indo Tambang has been upgraded to Neutral from Trading Sell.

Valuation and recommendation
Upgrade to Overweight from Neutral. There have been a number of positives emerging for the Indonesian coal sector. First, higher coal demand and international coal prices could last into FY11, in our view. Coal prices could have bottomed out, benefiting Indonesian exporters particularly. Second, the sector would also be beneficiary of consolidation. Third, there is a growing demand for Indonesia’s low-rank coal. Indonesian coal stocks remain at discounts to their peers overseas, despite potentially greater returns.

Adaro is our top pick. We continue to like Adaro for its fundamental strength. It is also a possible M&A target (remaining 13% stake from foreign institutional shareholders) and is a large low-rank coal player. We believe it should be trading at premium P/Es to peers on account of its operational superiority and moderate corporate-governance risks. We raise Adaro’s DCF-based target price to Rp2,000 from Rp1,270 following EPS revisions and lower WACC assumptions from 16% to 13%.

Upgrade Bumi to Outperform from Trading Buy. Bumi is increasingly attractive given its strongest earnings sensitivity to coal-price movements. We raise Bumi’s DCF-based target price to Rp3,500 from Rp2,600, following our EPS revisions and lower WACC assumptions from 18% to 16%.

Upgrade Indo Tambang to Neutral from Trading Sell. We upgrade Indo Tambang to Neutral from Trading Sell, seeing its dividends could still be appealing. We raise our DCF-based target price to Rp24,000 from Rp15,000 following our EPS revisions and lower WACC assumptions to 13% from 16%.

Upgrade Bukit Asam to Outperform from Neutral. We upgrade Bukit Asam to Outperform from Neutral as a higher coal-price outlook would reduce concerns of deteriorating earnings into FY10. We raise our DCF-based target price to Rp17,000 from Rp11,300 following our EPS revisions and lower WACC assumptions to 13% from 15%.

Danareksa Perusahaan Gas Negara (PGAS IJ, Rp 3,050 BUY) Flowing smoothly

Target price raised to Rp3,800
Our new TP of Rp3,800 reflects a lower cost of equity of 16% compared to 20% previously. PGAS has a sound business model and with the improving economic outlook we are more upbeat on the company’s long term prospects. Thus, we maintain our BUY recommendation on the counter with 24.5% potential upside.

Good 1Q09 performance
PGAS has a recession-proof business model and booked strong results in 1Q09 despite fears of declining demand. Crude oil prices may have seen sharp declines from their peaks last year, but gas remains a cheaper alternative even if the crude oil price is as low as US$40 per barrel. Thus, with the price of crude oil having since recovered to above US$60 per barrel, we are confident that demand for gas will remain firm. State electricity company PLN is one of PGAS’s major customers, and in April 09 PGAS was able to deliver 740mmscfd, or higher than the 1Q09 volume of 722mmscfd. Since the economy is now headed in the right direction – as reflected in declining interest rates, low inflation and a strong rupiah – economic growth should pick up going forward. This bodes well for gas demand.

Minor revisions
Despite the positive outlook for the company, we have slightly lowered our earnings estimates by 5.7% for FY09 and 1.4% for FY10. This stems from lower gas volume estimates for FY09 – our distribution gas volume estimate is reduced to 792mmscfd from 820mmscfd previously. For FY10, there is no change in our estimate. At the same time, however, we raise our FY09 transmission volume estimate to 780mmscfd from 750mmscfd previously to reflect the performance in 1Q09. Our gas selling price estimate of US$5.5/mmBTU is unchanged as the company does not expect to make any price increases this year.

Considering an LNG project
During our conference call with the company, PGAS said it was looking at the idea of investing in an LNG terminal. Through such a terminal, PGAS would be able to bring the gas from East Kalimantan to the island of Java where demand is high. It is considering three locations - West Java, Medan and East Java - with West Java being the most likely location. The company has not released any numbers in regard to the planned investment.

Mandiri Sekuritas KLBF: Improving profitability

The rupiah’s recent strengthening against the US dollar will benefit Kalbe Farma (KLBF) as most of its raw materials are still imported. Our recent visit to the Company affirmed such improving outlook, coupled with strong 1Q09 results made us to upgrade our earning estimates on the company. Additionally, adopting lower risk- free rate assumption of 9.5% (from 12.0% previously) allowed us to upgrade our target price from Rp600/share to Rp1,200/share. We t! hus upgra ded our recommendation to buy from neutral.

Improvement in gross margin starting 2H09…. The rupiah’s appreciation against the US dollar in 2Q09 (average exchange rate was Rp10,690 from 1Apr - 2 Jun09 vs Rp11,630 in 1Q09) will benefit Kalbe Farma (KLBF) as most of its raw materials are still imported. We expect such improvement to occur in 2H09 due to the usual one-quarter lag on the impact of exchange rate on the company’s costs. We expect a 55-bp improvement in gross margin for FY09 to 48.6%. Please note, howe ver, that the gross margin still expanded in 1Q09 despite higher exchange rate as some of raw material prices weakened (skim milk powder, for instance, falling by 27.0% yoy in 1Q09). Moreover, KLBF also booked higher margin from its distribution division due to increasing contribution from trading which earned higher margin (20-25% gross margin for trading vs 11-12% for distribution).

.. with sales targeted to grow by 12-14% yoy. Despite dissapointing sales growth from nutrition division in 1Q09 (+9.2% yoy), total sales managed to grow by 14.1% yoy, thanks to strong growth from consumer health division (+26.1% yoy). Going forward, the management plans to increase marketing efforts of its nutrition products, expecting it to grow by 12.0% yoy (vs 20.5% yo! y in 2007 )..

Improved efficiency. KLBF has succesfully implemented end-to-end suply chain management (SCM), resulted in improvement in inventory turnover from previously 149 days in 1Q08 to 135 days in 1Q09. The Company targets its inventory turnover to be reduced to 130 days within two years.

Upgrade TP to Rp1,200/share. We upgraded our forecast on KLBF on the back of higher gross margin. We arrived at net profit of Rp895bn for FY09F, an increase of 19.5% from our previous forecast. Coupled with lower risk-free rate assumption of 9.5% (from previously 12.0%), we arrived at new target price of Rp1,200/share. At our target price, the stock will be traded at FY09F PER of 13.6x. At current price, the stock still offers 21.2% upside potential. We therefore upgraded our recommendation to buy from neutral.

Mandiri Sekuritas Indonesia’s credit rating outlook rose to Positive

The rating agency Moody’s Investor Service has raised Indonesia’s credit rating outlook to Positive from Stable on the back of relatively solid economic development prospect and sound macroeconomic policy, particularly in debt management policy. The upgrade of outlook may lead to an increase in the credit rating in the next 18 months.

Indonesia’s economic growth prospect is steadier and better compared to most other regional economies. In the 1Q09 the economy grew by 4.4% yoy, while Malaysia and Thailand have negative growths of -6.2% and -7.1% yoy. For the whole 2009 and 2010 market consensus expects Indonesia’s economy to grow by 3%-4% and 5%-5.5%, while Malaysia and Thailand are likely continued to struggling with the negative growth in
2009 of -0.7% and -2%, respectively, before it recover slowly in 2010 to 3.6% and 1.7%.

Indonesia also shows sound debt management policy. The ratio of external debt to GDP declined significantly to 31% by 2008 and expected to decline further to 29% by end 2009 from the high of 49% in 2005. While short-term debt to GDP ratio is only 4% of GDP in 2009 compared with Philippines, Malaysia and Thailand of 20%, 17% and 7%,
respectively.

We view this result positive to boost investor and market confidence. Significant improvement in Indonesia credit default swap (CDS) to 300bps in Jun09 from the highest of 1248bps in Oct,08 also indicates that foreign investor perceives lower risk perception in Indonesia that may lead foreign money to come in. We noticed that foreign ownership in government securities rose to Rp 90tn in early Jun09 from around Rp 80tn in Mar09, while in the equity market net foreign buying has risen significantly with an average of Rp2tn since Apr09 compared with net selling of Rp1.2tn in Jan09. Looking ahead we expect foreign inflow to continue along with the improvement in Indonesia’s economic outlook rating and risk perception. At this juncture we have revised up our YE09 Rupiah exchange rate forecast to Rp/US$ 9,772 from previous forecast of Rp/US$11,705 and YE10 forecast to Rp/US$9,539 from Rp/US$10,909.

[BRIGHT INFO] "Just a Note"

Good day to you.
U.S. stocks racked up gains across a wide array of sectors by rising commodity prices and improving labor market conditions, along with a sharp drop in interest rates.

Major Southeast Asian stock markets came off their early highs on Thursday. Jakarta's index JCI dropped 0.9 % after a 2.5 % rise in the past two days. Indonesia's largest telecommunications firm TLKM was down 2.6 % and the largest automotive distributor ASII lost 3.7 %.

Crude oil climbed to a seven-month high. Crude oil for July delivery rose $1.35, or 1.9 %, to $72.68 a barrel. China's top five power generating groups have signed 2009 coal supply contracts with prices up 4 percent on the year. Nickel rose more than 6 % to an eight-month high of $15,860, and closed at $15,800 from $14,905.

Malaysia’s palm oil inventory at end-May rose 5.72% to 1.37 million tons from a 22-month low of 1.29 million tons in April, mainly due to higher production. Year-on-year stocks, however, fell 28.7%.

Hopes that a global economic recovery would come earlier than previously expected had a positive impact on corporate earnings outlooks and stock valuations. The recovery story will push equities prices higher because of analyst upgrades on earnings and target prices.

Maintain Positive for Our Market View for 2187.5 point Index. Our Top Pick still on mining and commodity sector. We are still recommended by on weakness TLKM and BNBR for better growth.

Top Pick is ANTM, INCO, TINS, TLKM, BUMI, BNBR, PGAS, SGRO and ELSA.

Trading Idea ANTM, INCO, ELSA

“THE BRIGHT FUTURE”


[Personal Opinion ]
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DISCLAIMER: This report is issued by [BRIGHT INFO]. Although the contents of this document may represent the opinion of [BRIGHT INFO]. We cannot guarantee its accuracy and completeness.

Reuters Oil's spike, retail and jobless data lift Wall Street

NEW YORK (Reuters) - U.S. stocks racked up gains across a wide array of sectors on Thursday, aided by rising commodity prices and improving labor market conditions, along with a sharp drop in interest rates.

But stocks faded late in the session as analysts said the recent pattern of light volume has made it difficult for the S&P 500 to close above the psychologically important 950 level.

Energy shares helped lead the advance after the International Energy Agency raised its demand forecast for the first time in 10 months. Crude oil surged briefly to more than $73 a barrel and lifted shares of resource companies, such as Chevron (CVX.N), up 2.4 percent at $71.90 and Alcoa (AA.N), up 6.4 percent at $12.22. An S&P index of energy stocks gained 1.8 percent.

But energy shares weren't Wall Street's only climbers. An

upgrade of some regional banks by analysts at Goldman Sachs and a separate upgrade of Bank of America (BAC.N) lit a fire under banking shares. The KBW bank index .BKX shot up 2.6 percent.

The stock market has rallied since hitting 12-year lows in early March, with the S&P rising 39.7 percent. However, stocks have failed to substantially build on those gains since mid-May, while an expected correction has yet to materialize.

Rising energy costs are now being viewed in a positive light by investors as a signal of renewed demand. Recent concerns about large debt auctions have been shrugged off, with a big rally in the bond market on Thursday as the Treasury sold $11 billion of 30-year bonds.

"Isn't that typical? The more you look for something, the less likely it is going to appear, at least as far as the market is concerned," said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

"That's why it keeps going up. There's a lot of worry. The market climbs a wall of worry, right?"

The Dow Jones industrial average .DJI gained 31.90 points, or 0.37 percent, to 8,770.92. The Standard & Poor's 500 Index .SPX rose 5.74 points, or 0.61 percent, to 944.89. The Nasdaq Composite Index .IXIC added 9.29 points, or 0.50 percent, to 1,862.37. more...

Bloomberg IEA Raises Oil Outlook for First Time in 10 Months

June 11 (Bloomberg) -- The International Energy Agency raised its global oil-demand forecast for the first time in 10 months on signs that the economic slowdown is abating.

The adviser to 28 nations increased its global oil demand estimate for this year by 120,000 barrels a day to 83.3 million barrels a day, driven by consumption in U.S. and China. Consumption worldwide will contract by 2.9 percent from last year, the biggest drop since 1981, the agency said in its monthly report today.

“These revisions do not necessarily imply the beginnings of a global economic recovery, and may only signal the bottoming out of the recession,” the Paris-based agency said. “It’s a fairly modest uptick. Underlying demand levels remain weak.”

Oil prices have climbed 61 percent this year. They traded above $72 a barrel in New York today for the first time in seven months on growing optimism about an economic recovery and as a weaker dollar drives investors toward commodities. Futures in New York rebounded to a seven-month high of $72.30 after the release of the report from as low as $71.32 earlier in the day.

Confidence in the world economy rose for a third month as U.S. job losses slowed and global production improved, a Bloomberg survey of users showed yesterday. A U.S. Labor Department report on June 5 showed the country lost the fewest number of jobs since September last month. more...

Bloomberg Oil Rises to 7-Month High, Gasoline Surges, on Demand Outlook

June 11 (Bloomberg) -- Crude oil climbed to a seven-month high and gasoline surged after the International Energy Agency raised its global demand forecast.

The IEA, adviser to 28 nations, increased its consumption outlook for the first time since August amid signs the recession is bottoming out. Nouriel Roubini, the New York University professor who predicted the financial crisis, said crude will likely touch $100 a barrel next year. Oil also advanced as equities rose on lower jobless claims in the U.S.

“Futures are forward-looking and the market is discounting any present difficulties,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, energy consultant. “It looks like we’ve seen the worst of the recession and demand will start to improve during the second half of the year.”

Crude oil for July delivery rose $1.35, or 1.9 percent, to $72.68 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the highest settlement since Oct. 20. Prices are up 63 percent this year.

Gasoline for July delivery gained 4.96 cents, or 2.5 percent, to end the session at $2.0649 a gallon in New York. It was the highest settlement since Oct. 3.

The Paris-based IEA increased its global estimate for daily oil demand by 120,000 barrels to 83.3 million barrels in its monthly report. The gain was driven by the U.S. and China. Consumption worldwide will contract by 2.9 percent from last year, the biggest drop since 1981, the adviser said. more...

Reuters China top power firms sign regional coal contracts

SHANGHAI, June 11 (Reuters) - China's top five power generating groups have signed 2009 coal supply contracts with miners in Guizhou and Xinjiang, with prices up 4 percent on the year, or flat after tax effects, sources said on Thursday.

The price increase is in line with the deals signed earlier in Shandong and Henan provinces, said the sources, including an executive at one of the power producers and a power industry official, both with knowledge of the negotiations.

The tonnage contracted so far, estimated at more than 100 million tonnes, accounts for up to 20 percent of the total annual coal consumption at these companies, the sources said.

source: Reuters 11 June 2009

Palmoil HQ Crude palm oil futures retreat after short-lived rebound

Malaysian crude palm oil futures closed lower yesterday after crude oil, which sparked a midday rebound, retreated from its high in Asian hours, traders said.

Crude had support palm prices, which otherwise should have come under pressure after industry data showed Malaysian palm oil stocks rose again in May after falling to 22-month low in April.

“I think we will continue to see range-bound trade today. The top side would be around RM2,550 while support is at around RM2,450,” said a trader at Kuala Lumpur-based brokerage.
The benchmark August contract on the Bursa Malaysia’s Derivatives Exchange fell RM16 , or 0.6 per cent, to RM2,485 (US$708.99) per tonne, after going as high as RM2,519. Overall
volume was 16,718 lots of 25 tonnes each.

US crude rose 56 cents to US$71.88 a barrel by 1005 GMT, coming off early high of US$72.30 in electronic trading.

In the Malaysian physical market, palm oil for June delivery was traded at RM2,490-RM2,510 in the southern and central regions.

Palmoil HQ Palm oil stocks rise on higher production

Malaysia’s palm oil inventory at end-May rose 5.72% to 1.37 million tonnes from a 22-month low of 1.29 million tonnes in April, mainly due to higher production.

Year-on-year stocks, however, fell 28.7%, according to statistics released by the Malaysian Palm Oil Board yesterday.

Production, in line with market expectations, was highest year-to-date at 1.4 million tonnes in May, 8.49% higher than the 1.28 million tonnes posted the month before.

Year-to-date, production amounted to 6.5 million tonnes, 4% lower than in the equivalent period last year.

An analyst at a local research house said the seasonal higher palm oil production in the second half of the year would have a negative impact on the price of palm oil.

“Crude palm oil (CPO) should be between RM2,200 and RM2,400 per tonne for the next three to six months,” he told StarBiz, adding that demand could not offset the bigger rise in production.

However, should the potential El Nino phenomenon fully develop in Malaysia, palm oil prices may increase following an anticipated lower output.

“We can only see the impact when El Nino is fully developed. There are signs of the phenomenon coming now but it’s not confirmed,” the analyst said.

El Nino is a climatic condition where abnormal warming of the Pacific Ocean causes dry weather in South-East Asia and northern Australia.

Meanwhile, AmResearch Sdn Bhd in its sectoral report yesterday said it was natural for palm oil inventory to rise in May after falling for five consecutive months.

“We reckon that CPO prices would sustain, underpinned by unfavourable weather which could affect output in coming months, rising crude oil and soybean oil prices and a weak US dollar,” it said.

The average price of CPO was RM2,743 per tonne in May compared with RM2,387 in April.

Palm oil exports were 2.26% higher at 1.22 million tonnes in May versus 1.19 million tonnes in April. Year-on-year, exports were 1.67% higher.

Independent cargo surveyor Intertek reported that palm oil exports for the first 10 days of June were 28.35% lower at 289,437 tonnes against 403,934 tonnes in the same period in May.

In the first five months of the year, palm oil exports increased 8% year-on-year to 6.3 million tonnes, AmResearch said.

China was the main buyer of Malaysia’s palm oil, accounting for 21.5% of the country’s exports in the first five months.

According to the research house, China was the main importer of Malaysia’s palm oil in May, increasing its imports by 23% month-on-month to 319,097 tonnes.

The increase in palm oil exports to China had helped compensate for the decline in exports to Pakistan, India and the European Union, AmResearch said.

Palmoil HQ El Nino reduces rain in Indonesia and Malaysia

World’s top two palm oil producing countries of Indonesia and Malaysia now facing a new crisis as a strengthening El Nino influence in the Indonesian Basin has reduced rainfall in the these countries.

Heavy rainfall was considered favorable for palm fruit development and high yields in palm oil, during La Nina’s reign last year.

The tide seems to be turning, as drier conditions have taken hold in the western Indonesian Basin these past 30 days. The outgoing heat-radiation analysis is a proxy for rainfall showing hotter and drier conditions in the top producing areas for palm fruit, in Sumatra, Borneo and the Malaysian peninsula.

Indonesia has been increasing the area of palm fruit plantations in Borneo and Sumatra. Trees planted 8-10 years ago are coming of age, partially explaining the surge in palm oil production last year to 20.98 million metric tons.

Favorable growing conditions with plentiful rainfall also have contributed to high yields and record palm oil output.

India and China are the largest importers of Asian palm oil buying up 15.2 million metric tons of the 32.7 million metric tons of palm oil shipments from Indonesia and Malaysia in 2008-09.

Citigroup - China Equity Strategy: May FAI Growth Reaching a 5-Year High

What's new? - May FAI growth reached a very high level at 32.9%, the highest level seen in the past 5 years if we strip out the abnormal SARS impact in 2003/04. This together with the MoM improvement in electricity consumption (May electricity consumption down 2.58% vs. April's 3.63% decline), further supports our view that China is experiencing an unusually strong summer from a physical economic activities perspective.

What's behind this? - We believe the strong pick-up in economic momentum is mainly attributable to two factors: 1) the kick-off of government led projects after resolving funding issues; and 2) the pick-up in property construction.

Property sector fundamentally strong with construction activities accelerating - After seeing months of stronger-than-expected sales (for the first 5 months of 2009, residential commodity housing sales grew 49% YoY while volume grew 26.7%), we are seeing construction activities picking up. For the five months of Jan-May'09, total property investment reached RMB1.02 trillion, representing a YoY growth of 6.6%. This is a 1.9 percentage point pick-up compared to the growth momentum of 4.7% for the first four months of the year. Out of which, commodity property investment reached over RMB710bn, representing a YoY growth of 4.4%, also 1 percentage point higher than the first 4 months' momentum.

Strong loan growth to stay to ensure sustainability of current momentum - We believe that May lending could still exceed the April level (which was close to RMB600bn).
For the entire year of 2009, total new lending could still reach RMB8-9 trillion.

Stock Market Outlook - Ample liquidity continues to push asset prices up; Potential upward earnings revision most likely coming from the financial sector while industrial profitability lags; ROE deterioration should have bottomed for the near term; We still see further upside for the market.

Strategist's top picks in current environment - Baidu, CCB, CC Land, Citic Bank, Dongfeng Motor, Hidili, Hopson, ICBC, Tencent, Tianjin Port Development and Yanzhou Coal (see Pg. 2 for valuation summary and FAI growth chart).

BASML - Metal Strategy

Metal Strategy - Monetary policy is helping to reflate metals prices commodity crunch and the credit crunch are linked to the same market failure. A decade-long misallocation of capital has seen too much money going into real estate and durable goods, too little into natural resources. Naturally, utilization rates in the metals & mining sector have only fallen modestly in spite of the collapse in global industrial activity. Going forward, if government policies are successful in reigniting growth, physical commodity supply constraints could resurface, resulting in more commodity price inflation. We like Zinc Nickle and Gold.

Global Metals & mining: Resources: back on track Recovery underway, perhaps even another boom... Confidence & liquidity have returned to Resources after 2008Q4's price correction plus six months of trading grief. Curiously, utilization rates in the metals & mining sector have only declined modestly, such that going forward, if government policies successfully refire growth, physical commodity supply constraints could resurface, resulting in another cycle of commodity price inflation. Get some zinc, nickel & gold; neutral copper; avoid ally. Iron Ore glut looms large; China & India buoy the coals.

Credit Suisse - Asia Equity Strategy: Leading Indicator Watch

US mortgage applications have fallen sharply over the past month

While most of the nine global leading indicators that we watch continue to surprise on the upside (US ISM new orders rising above 50 in May, only a 0.4pp fall in the China PMI in May), the one that has weakened considerably over the past month has
been US mortgage applications and in particular refinancing.

While US mortgage applications are still up 60% from the October lows, they are down 38% over the past one month (first week of June versus first week of May). This fall has been driven entirely by the 50% fall in US mortgage refinancing (see Figure 1), as purchases are up 2% over this period. With the further spike in US bond yields last night to almost 4% (and, with it, mortgage rates), this weakness in mortgage applications looks likely to intensify further.

As long as the job picture improves, we think this is unlikely to derail the US recovery. However, we note that the two most overvalued cyclicals within Asia are Taiwan tech (82% premium) and Chinese materials (88% premium,). We reiterate our call to switch to cheaper cyclicals.

US mortgage applications fell sharply over the past month While most of the nine global leading indicators that we watch continue to surprise on the upside (US ISM new orders rising above 50 in May, only a 0.4 p.p. fall in the China PMI in May), the one that has weakened considerably over the past month has been US mortgage applications and, in particular, refinancing.

While US mortgage applications are still up 60% from the October lows, they are down 38% over the past one month (first week of June versus first week of May). This fall has been driven entirely by the 50% fall in US mortgage refinancing, as purchases are up 2% over this period.

With the further spike in US bond yields last night to almost 4% (and, with it, mortgage rates), this weakness in mortgage applications looks likely to intensify further. As long as the job picture improves, we think this is unlikely to derail the US recovery.

But we note that the two most overvalued cyclicals within Asia are Taiwan tech and Chinese materials. Taiwan tech trades at an 82% premium on our P/B versus ROE valuation model. For the premium to go to zero, ROE needs to rise from the current 4.4% to 13%. Taiwan tech’s ROE has averaged 12% since 2002.

The premium on Chinese metals has risen to 89%, which is the highest since our data started in 2002. The previous high was 85% in September 2007. For the 88% premium to go to zero, we estimate that ROE needs to recover from the current 5.4% to 15%.

In contrast, we are still finding substantial discounts in Indonesian coal (142%), Indonesian palm oil (66%), regional steel (35%), Korean industrials (33%) and Chinese oil (30%).

UBS Bank Danamon Indonesia Downgrade to Sell on valuation

Share price has discounted a lot of good news The 183% rise in Bank Danamon Indonesia’s (Danamon) share price from its low on 11 February 2009 was partly justified given record low interest rates, in our view. However, we believe the implied sustainable ROE of 22% is unlikely to be achieved in 2010, even if the cost of credit normalises as early as 2010. We think the share price has run ahead of fundamentals and downgrade the stock from Neutral to Sell.

Buying at this level requires an extremely positive environment Our explicit forecast already assumes 53% EPS growth in 2010 and 34% in 2011 on record NIM and 20% loan growth. Should provisioning charges normalise, the ROE in 2010 would still be lower than 22%. Given internal constraints, we also think Danamon is unlikely to deliver a higher than 20% loan growth in 2010. We upgrade our EPS estimates for 2009/10/11 from Rp219/283/379 to Rp225/346/463.

Still the preferred bank in an expensive sector With this downgrade, all the big four Indonesian banks under our coverage are Sells. We still think Danamon is the preferred stock in an expensive sector. Danamon has the strongest capital and a higher potential of positive earnings surprise. It is a key beneficiary of lower interest rates; it is more disciplined in recognising NPL given its mass-market focus and that expectation on credit costs is already the highest for 2010.

Valuation: raise price target from Rp2,775 to Rp3,500, downgrade to Sell We derive our Rp3,500 price target using the Gordon Growth method. We assume a risk-free rate of 11.9%, sustainable ROE of 21.2%, and a June 2009 cut-off date.

Mandiri Sekuritas Heavy Equipment: Commodity pick up beneficiary

Commodity pick up beneficiary

We upgraded our view on this sector to overweight due to: 1) healthier result from May09 unit sales, 2) commodity prices trading well above the 8-year average, and 3) leasing rates fall for heavy equipment. United Tractors (UNTR) would be our top pick, thanks to its more stable operating income, bigger market capitalization, and higher amount of share free float. We also lower risk-fr! ee rate a ssumption of 9.5%, resulting in higher target price. We raised the target price of UNTR to Rp13,000/share and maintain buy. As for HEXA, we upped its target price to Rp1,960/share, but downgraded it to Sell recommendation as its current price is already beyond its intrinsic value.

Upgrade to Overweight on positive outlook. During the crisis period of Oct08 to Apr09, monthly heavy equipment sales of UNTR and HEXA dropped from monthly average of 600 units to 250 units (between Jan08-Sep08). However, the 381 unit sales in May09 were positive wind that could indicate that the trend has seen its bottom (exhibit 1). We believe that demand still supports for better heavy equipment sales in FY09F and deem that our FY09F forecast of 2,515 for UNTR and 571 units for HEXA can be comfortably achieved. Commodity prices are still trading above the long-term average (exhibit 2) and leasing rates for heavy equipment have already eased to between 20-21% p.a. for rupiah (versus 24% p.a. during its peak). We remain positive for FY09F heavy equipment sales outlook and thus we upgraded our stance for the sector to overweight from Neutral

United Tractors is our top pick. We chose UNTR, over HEXA, as our sector top pick for its stability in generating operating income, bigger market capitalization, and higher floating rate. UNTR has lower operating income CoV (based on 8-year data) of 72.1% than HEXA of 94.9% CoV. This is due to UNTR’s diversification into mining contracting (contributing 54.0% to operating inco! me), more defensive than selling heavy equipment (exhibit 3). With foreign funds eyeing the emerging market, including Indonesia, UNTR would be more preferred thanks to its bigger market capitalization of Rp36.9tn than HEXA of Rp2.0tn. UNTR’s free-float stock is also bigger, at 40.5% versus HEXA of 25.0%. We forecast ROE09F-10F of UNTR at 25.1%-25.6% (versus 8-average of 26.4%) and HEXA at 30.7%-19.6% (versus 8-year average of 21.1%). Note that UNTR would be a better bet for positive outlook in coal, as it has higher correlation with coal price fluctuation than HEXA.

Raising target prices. We reduced our risk-free rate assumption to 9.5%, resulting in lower WACC and higher valuation. For UNTR, with WACC at 12.4% and TG of 5.0%, we upgraded our target price to Rp13,000/share from Rp12,000/share. This implies PER09F-10F of 13.4x-10.0x and PBV09F-10F of 3.3x-2.6x. We remain a buyer for UNTR. We raised the target price for HEXA as well, to Rp1,960/share from Rp1,450, implying PER09F-10F of 7.3x-9.7x and PBV09F of 2.2x-1.9x. However, HEXA’s current price is already beyond its intrinsic value thus we downgrade to Sell from buy.

Deutache bank - Bakrieland Development - Sales bottoming out; Buy maintained

Property sales are off lows; Buy maintained
ELTY's March residential sales grew 5% mom. This trend will continue as banks resume lending, given liquidity improvement and manageable NPL. Mortgage rates dropped 500bps from recent peak to c. 10% as mortgage is one of the key drivers for loan growth. Early completion of toll roads too should allow ELTY to record positive FCF in 2011. Concerns over corporate governance are largely reflected in the high COE of 18.2%, a 100bps premium over other developers. This note marks the transfer of coverage from Raymond Kosasih to Fiky Silvia.

Bottoming out property sales
We believe the upcoming Bogor Outer Ring Road will alleviate the area's traffic congestion, further unlocking its landbank value. Although the credit crisis has affected the sector, we think it is on a path to recovery, albeit slowly, supported by long-term demand for new housing and the recent downward trend in rates. Early completion of toll road should start contributing to earnings in 4Q09 (from 2H10
previously), providing downside cushion with sustainable recurring income.

DCF is a more conservative valuation given lower price increase than
WACC
We believe DCF is a more conservative way to value Indonesian developers as opposed to PER and/or PB, given the long-term monetizing period of its asset base (land bank). Also, our DCF (property and toll) of Rp475 is more conservative than the company's property-only NAV of Rp531 (or Rp777 inclusive of toll-road).

Target price cut to Rp475; risks: delays in construction, lower
sales/prices
We assumed RFR of 11.1%, ERP of 5.4%, and beta of 1.3x to derive our DCF-based TP. Risks: higher mortgage rates, rising costs. See pp.10-12 for details.

Credit Suisse - Indonesia - United Tractors (UNTR IJ, BUY): A proxy to infrastructure building in Indonesia

United Tractors (UNTR IJ, BUY, 12M TP IDR 13,000)

Strong industry position to benefit from government's infrastructure focus
United Tractors (UT) is an exclusive distributor of Komatsu heavy equipment for use in mining, construction and agribusiness. UT also provides mining contract services to coal mines. We expect that the incumbent president in Indonesia is likely to be re-elected in July 2009 and believe that he would continue his reform agenda in a more ambitious way. UT, being an industry leader with over 40% market share would be one of the beneficiaries of the government's focus on building infrastructure.

Improving earnings outlook justifies re-rating
We forecast a recovery in equipment sales and average selling prices in FY 2010. Our HOLT model derives a revised 12M target price of IDR 13,000 implying a 12M forward P/E of 11.7x. Despite the recent sharp rally, we believe that there is still re-rating potential on improving earnings outlook and with the Indonesian market now trading at a 12M forward P/E of 12x. We also note that UT has a long history of trading at a P/E range of 12x-15x during its growth period. We upgrade UT to a BUY.


Bottoming out of equipment and machinery sales
While heavy equipment sales volume fell by 46% YoY in Q1, this was offset by average selling prices that rose by 70% YoY. This suggests that if we are seeing a recovery in the equipment sales volume in H2 2009, there would be upside to revenues even if average selling prices are to stay flat in H2. We believe that equipment and machinery sales have bottomed out in Q1, as management guided for sales volume to decline by 50% YoY in 2009 and Q1 has already seen a 46% YoY decline. For the coal mining contract business, management is guiding for a 10% YoY increase in Pama coal extraction to 65 m tons in 2009 premised on improvement in stripping ratio. In addition to the machinery sales, UT is gaining a more stable flow of income from the maintenance and service business segment, thanks to the strong machinery sales in the previous years and we expect this recurring revenue to grow 10% for FY 2009.

BASML - INDO Up INCO and ANTM to Buy

Upgrade INCO & ANTM to Buy

After factoring in our new higher nickel px forecast, US$23mn insurance receipt, and 50% lower costs from efficiency program, INCO's earnings got quite a boost by 542% for 2009, 137% for 2010 and 87% for 2011.

Hence, Daisy upgraded INCO to Buy with PO Rp 6,500, based on 47% premium to NPV which Daisy thinks is justifiable as cyclical stocks did trade at a premium to NPV in past cycles in anticipation of rising prices (up to 2x for gold stocks). As the saying goes "don't dance cha-cha when everybody is dancing disco", so just ride along because INCO will continue to rerate with nickel px recovery given close correlation (R²=0.9) b/w INCO’s shr px and nickel px.

Aside from being one of the lowest cost producer, INCO's other catalysts include solid 2Q and higher dividend as it remains cash flow positive even at the current low nickel px environment. Our commodity team raised nickel px to US$5.7/lb for '09, $6.4 for '10, $5.6 for '11 and $5.3 for LT…these are higher by 27%, 26%, 15% and 9% respectively.

ANTM also got upgraded to Buy with PO Rp 2800. Daisy raised earnings by 227%, 203%, and 83% for 2009-11. Our new PO is based on 26% premium to NPV of Rp2,215. Nickel contributes ~60% to ANTM’s revenue. We see turnaround in ANTM on the back of its nickel bizz returning to profit in 2Q with nickel px now above ANTM's breakeven level of US$5.5/lb (vs loss of Rp29.4bn in 1Q). Further, with the re-commissioning of its FeNi3’s copper cooling system in Sept, we see limited downside risk to its ferronickel output.

OSK - Perusahaan Gas Negara BUY Price Rp3,150 Target Rp3,975

On A Solid Platform

Perusahaan Gas Negara (PGAS) is well positioned to be one of key beneficiaries in
Indonesia’s moves to commercialize its large gas reserves, reduce dependency on
crude oil, and support adequate gas supply to meet domestic demand given the
company’s strategic assets and favorable pricing. Expanded pipeline coverage
should build PGAS a solid platform to deliver the goods and generate strong free
cash flows to undergo expansion within and beyond the pipelines. Higher than
expected gas price increases may present as catalyst, while new gas supply is
adding positive into the counter. We initiate our coverage on PGAS at BUY with
DCF-derived target price of Rp3,975, based on 11.0% WACC and 5% terminal value
growth, implying 2010-11F PER of 18.3- 15.0x.

Indopremier BISI MAINTAIN BUY, UPGRADE TP to Rp 2,405

We Maintain our BUY recommendation for BISI and upgrade our TP from Rp 1,940 up to Rp 2,405 considering the prospect for hybrid seeds that remain strong in our view especially come from rice/paddy seeds. Hybrid seed price remain robust given yield advantage. While for Corn we expect that peak harvest would occur in late second half 2009. We adjust some key base assumptions, risk factor and tax rate into our DCF valuation model, resulting earning revised up by 5.5% and 5.1% in 2009F and 2010F.

Hybrid Seeds Prospect Still Promising..
Based on Ministry of Agriculture RI, production CAGR of hybrid rice seeds until 2014 would reach 35.28% which is a good point for BISI long term’s prospect. However, our view and assumption are remain above since we are quite optimist with the hybrid rice seed trend considering the hybrid seed utilization in Indonesia is low compare to peers.

BISI has developed 33,000 ha per Q109 which grew by 36.8% CAGR since 2003. Total farmers have increased up to 108,000, grew by 37% CAGR from 2003 with only 16,300 farmers.

Q109 result not too bad, Corn harvesting peak season estimate occur in late second half 2009
BISI Q109 performance result was not too bad, in our view. Hybrid rice seeds surged up more than expected around 409% YoY to 530,058 kg or realized 29.4% our previous assumption. Hybrid corn seed was the most dampened sales among others down by 71.4% YoY to 2,960,496 tons or realized 10.4% of our original assumption. However based on management guideline, falling corn sales volume in Q109 was due to weather issue. Peak corn harvesting will occur in second semester this year, which we expect it would help to accomplish our estimates. Other products seem dropped modestly and realized our estimates at modest range 18 – 22%., which more predictable.

Rice and Vegetable Seeds growth still strong & kept on track
Sales of rice seeds in 1Q09 grew by 409% YoY up to 530,058 kg and vegetable seeds also booked up to 566,088 kg or grew by 51.7% YoY, which have realized 29.4% and 28.3% of our FY09 old estimates respectively. As seen in exhibit 2, we view that the sales cycle for vegetable and rice seeds would remain on track and are expected to soar in 2Q onwards. While ASP for vegetable seeds was quite volatile and unpredictable, which have surged up to Rp 95,287 per kg as seen in exhibit 3. Corn and rice seeds price are considerably stable.

Maintain BUY upgrade TP to Rp 2,405
Based on our new assumption, our DCF model with WACC 16% arrive new TP at Rp 2,405 per share implying PER09F at 25.5x and PER10F 15.29x. TP at Rp 2,405 offers additional potential upside of 20.8%. Currently BISI price at Rp 1,990 traded at 21.1x PER09F and 12.7x PER10F. Our previous TP at Rp 1,940 has been reached and we still see that currently BISI still traded at attractive price by focusing on 2010F valuation with implied PE of 15.2x (which we estimate that JCI at bullish market in 2010 PE may reach at range 14-15x as well). We maintain our BUY recommendation for BISI.

Credit Suisse - Indonesia daily snippet from Credit Suisse

Global Investment Strategy - The New Perspectives Series – Agriculture – a structural story

Andrew Garthwaite / Research Analyst / 44 20 7883 6477 / andrew.garthwaite@credit-suisse.com

We first highlighted the imbalance in supply and demand for global agricultural products, and specifically the prospect for rising prices, in our report ‘Higher agricultural prices: Opportunities and risks’ (November 2007). Much of what we said in this report is still relevant today and we are keen to revisit what we believe is a structural bull story in the agricultural sector.

While we recognise global demand for agricultural produce will likely suffer a cyclical downturn this year (we expect a contraction of 1–2% in 2009) as both food and biofuel demand falls, we believe the degree of the likely supply-side contraction will outstrip this.

We calculate falling planted acreage, lower fertiliser application and adverse weather conditions may drive a 3–4% fall in crop production over the next 12 months.

We highlight 20 stocks within our global coverage that should ultimately benefit from this ongoing theme: AGCO, BrasilAgro, Bunge, China Yurun, Deere, Dupont, Illovo Sugar, Indofood Agri, Israel Chemicals, Kroger, London Sumatra, Marfrig, Nissin Food Holdings, Perdigao, SLC Agricola, Syngenta, Taiwan Fertilizer, Tesco, Wilmar and Yara International. ( Credit Suisse offers a Delta One basket based around this list.)

Asia Equity Strategy: Consensus EPS – Broad-based upgrades continue in June; China the only exception

Sakthi Siva / Research Analyst / 65 6212 3027 / sakthi.siva@credit-suisse.com
Kin Nang Chik / Research Analyst / 852 2101 7482 / kinnang.chik@credit-suisse.com

The key factor that drove the upgrade of our MXASJ (MSCI Asia ex. Japan) Index target from 370 previously to 425, was our confidence in Asia achieving 25% EPS growth next year (see our 22 May report, Is 25% EPS growth achievable in 2010”). So, we are rather encouraged to see consensus EPS upgrades – and broad-based upgrades – continuing into June.

So far in June, 2009E Asia ex. Japan consensus EPS is +1.5%, and this comes after May’s +3.4%.

Except for China (June so far -0.3%), all countries were associated with upgrades in June. At the sector level, except for telecoms (-0.4%) and industrials (-0.4%), all sectors were associated with upgrades in June.

Countries that have now seen three consecutive months of upgrades to consensus EPS are Taiwan, Korea and Indonesia.

Thailand is seeing upgrades for the first time in June.

Asia Palm Oil Sector – New report: The El Niño "wild card"

Tan Ting Min / Research Analyst / 603 2723 2080 / tingmin.tan@credit-suisse.com

The risk of an El Niño happening is increasing. Further updates on El Niño will be released on 17 June, 3 July and 9 July 2009.

If El Niño develops, one would expect warmer and drier conditions in South East Asia. Although El Niño results in a drop in palm oil production, it is usually more than made up by a significant spike in palm oil prices. Hence, El Niño has historically been a windfall for plantation companies.

After analysing the last four El Niños, we conclude that share prices start to outperform some 16 to 22 weeks before an El Niño, but palm oil prices usually spike up after the El Niño has started. During the last four El Niños, palm oil prices rose between 15% and 125%, depending on the severity.

If El Niño strikes, it could have a major impact on vegetable oil prices as the stock-to-use ratio this season is already at multi-year lows. Unfortunately, it is too early to call an El Niño.

Maintain an UNDERWEIGHT stance on the Malaysian palm oil sector and an OVERWEIGHT stance on the Indonesian players.

CIMB Company Update – Bank Danamon – Shift to higher gear

Several vital indicators showing a bottoming of the economy have encouraged Danamon to revisit its business targets, especially its loan-growth target. Its capital is now the strongest among peers, enabling Danamon to take up more leverage to support high growth. We still expect NPL hiccups and write-offs in 2H09, but recoveries should become a theme for 2010 given Danamon's record of a 46% recovery rate for written off loans in the past. On the back of a more upbeat outlook, we upgrade our FY09-10 loan growth assumptions to 15-20% (from 9-19%), raising our FY09-10 EPS estimates by 11-27% and our DDM-based target price to Rp5,200 (from Rp3,675). Maintain Outperform.

Credit Suisse - INDOFOOD SUKSES (INDF): Attractive valuation, Leverage and Growth story- Buy

At Rp1,860/share, INDF is trading undemandingly 13.4x-10.3x 2009F-2010F PER and 4.9x-4.6x 2009F-2010F EV/EBITDA, and 28% Discount to SoTP Rp2,600/share, while about 40% discounts to Asian Food 2010F PERs and 20% discounts to Indonesian Plantation 2010F PERs! I continue to recommend BUY INDF under CEO Anthony Salim and its attractive Valuation!

· Arief Wana (Daily): We believe that Indofood is an attractive leverage growth stock, which should do well in a rising market. Our target price is Rp2,600, implying 40% upside, therefore we maintain OUTPERFORM. Indofood is one of our top picks in the market, given its high operating and financial leverage (improving debt mismatch despite1.8x net gearing). We also believe that the company’s more balanced earnings from the key three businesses – consumer branded, agribusiness and flour – would provide more balanced earnings drivers.

· A stronger volume-driven earnings momentum should be the key catalyst. Given the aggressive acquisitions in the past three years, we believe that Indofood’s earnings capacity has grown more than double in volume size (three times in agribusiness and a 40% increase in consumer branded). As volumes are expected to recover, especially in the mass-market segment (please refer to our strategy note with regard to the consumption outlook), we expect Indofood’s earnings to be able to mitigate the impact of lower commodity prices. The ability to address the debt maturity mismatch and the recovery in commodity prices are other catalysts.

· In on our five-day trip to Europe, we found strong interests on the stock especially on the leverage argument. The question most frequently asked was the potential for further acquisition, for which our answer is the risk is low over the next 12-18 months, given its balance sheet constraints.

Credit Suisse - BANK RAKYAT INDONESIA (BBRI): Best Pick to leverage on Consumption recovery

At Rp6,450/share, BBRI is trading on prospective 12.6x-10.6x 2009F-2010F PER, 4% 2010F Dividend Yield, 2.6x 2010F PBR on the back of 26.3% 2010F RoE. During the peak valuation in 2007 falling interest rates environment, BBRI was trading as high as 4.5x PBR, that will imply a share price of Rp11,000/share assuming 4.5x 2010F PBR. I continue to believe ON SBI Policy rate (currently 7%) to fall further to 6%-6.5% at end-2009F, and therefore I continue to like Banks, and continue recommending Top-Buy BBRI!

· Teddy Oetomo (Daily): We believe that the private consumption of Indonesia is not only resilient but has started to show signs of bottoming out (Top-Down and Bottom-up analysis in our Recent Strategy Report- please let us know if you want us to email).

· In Indonesia’s bank sector, BDMN and BBRI are well-positioned to benefit from the bottoming out of the country’s private consumption. We expect consumer loans (including mass market) to comprise 57% and 47% of BDMN and BBRI’s 2009E loans, representing 51% and 41% of their 2009E interest incomes, respectively.

· We maintain BBRI as our top pick in Indonesia’s banking sector. Our preference for BBRI over BDMN is largely due to the more demanding valuations of the latter on price to book (P/B) and return on equity (ROE) perspective.

Credit Suisse - ASEAN EQ STRAT: Implied RoE for Indonesian Energy/Consumer Cyclicals 15.5-16%

Again, as the Asian markets have also gone up, Shakti Siva’s Top-3 Indonesian Stocks (ASII, BUMI, UNTR) are still relatively attractive (PB-RoE are still Discounts to Asian markets). I personally continue to like ASII (Core Holding on diversified Consumer Discretion/Coal-CPO earnings growth) and Energy/Coals (ADRO, ITMG, PTBA, BUMI, UNTR, and PGAS).

· Sakthi Siva (Daily): Our call to switch (further) from Taiwan into ASEAN is driven largely by valuations. In this report, we look at the implied ROE for the cheapest sectors within ASEAN, which are Indonesian energy (114% discount), Philippine telecoms (75% discount), Indonesian consumer cyclicals (61% discount), Thai banks (38% discount) and Singapore industrials (30% discount). In other words, at what level of ROE does the discount go to zero?

· For Indonesian energy, the implied ROE is 15.5% versus the current ROE of 27.8%. Figure 1 illustrates that the implied ROE of 15.5% appears conservative, as the lowest ROE for the sector since it listed was 17.3% in December 2003. Average ROE for the Indonesian energy sector is 30% since December 2003.

· For Indonesian consumer cyclicals (Figure 3), the implied ROE is 16% versus the current ROE of 22.7%, the implied ROE of 16% is similar to the lows seen in the previous cycle in January 2007.

Credit Suisse - STRATEGY: Geared for a brighter outlook- Top Picks Domestic High Beta plays

Arief Wana’s Top-5 Picks are ASII, UNTR, INDF, PGAS and BBRI, while he also thinks six additional thematic ideas: 1) Defensive with Good Dividend Yield- TLKM/PGAS, 2) President SBY stocks- INTP/SMGR/JSMR/BUMI, 3) High Yield Banks- BBRI/BDMN, 4) High Beta Stocks- ASII/UNTR/ITMG, 5) Undervalued Resources- ITMG/ADRO, and 6) Preferred Small Caps- ELTY/RALS!

· Arief Wana (Daily): Despite the good run, we continue to believe that Indonesia will continue to OUTPERFORM rising markets due to its attractive valuations (both regionally and historically based on P/B) and high beta. Our end-2009E index target is 2,276 based on an average five-year 2.9x P/B, implying P/E of 13.7x FY10E and EV/EBITDA of 7x FY10E.

· Our top picks in the market are higher beta names, with domestic exposure, earnings quality and relatively attractive valuations – Astra International, United Tractors, Indofood, PGAS and BBRI. Our least preferred are expensive resources (ie Metals).

· As reflected in 1Q09 GDP – the third highest in the region – we believe that the domestic consumption is not only showing resiliency but also a sign of bottoming-out. Our income analysis suggests higher disposal income (farmers’ income has stablised and is still better than that in 2006-07), and the improving macro outlook (interest rates, money supply and consumer confidence). Our bottom-up analysis suggests a bottoming-out trend, with low-ticket items (basic food and retail) leading the big-ticket items (autos and cement). We also believe that the stimulus package should help consumption improve further.

· In on our recent trip to Europe, we found that less than 30% of them had Overweight positions on Indonesia mostly due to the strong (and quick) rally of the Indonesian stock market in general. Thus, there is a potential for more capital inflows. Most Investors shared our positive views on the markets as well as our top picks.

· The key risks towards the market are oil prices and the IDR exchange rates. We believe that high oil prices are a risk, given its potential pressure on subsidy, especially if it stays above US$80/bbl. We are more constructive on the IDR exchange rate outlook, given: 1) the ongoing potential portfolio inflows, and 2) easing exchange rate policy.

Mandiri Sekuritas Bakrie and Brothers: Call option exercise plan (BNBR, Rp91/share, Not rated)

Dow Jones Newswires stated that BNBR plan to exercise call option later this year on BUMI and ELTY. BNBR has call option on 4.2% BUMI shares with exercise price of Rp1,700/share, and on 7.8% ELTY shares with no publicized exercise price.

The option exercise, which is estimated to cost around US$150mn, may be funded from internal cash or by issuing bonds or seeking bond loans. We think internal cash funding is not feasible given that Mar’31 09 cash position was at only Rp734bn.

If we conservatively assume that BNBR only exercise BUMI shares (as there is no public information on ELTY call option exercise price), and we found that potential gain from BUMI call option exercise is Rp448.2bn or equal to Rp4.8/BNBR shares (we use yesterday BUMI closing price as the benchmark).

SOTP valuation results in fair price (without conglomerate discount) of Rp117/share (using subsidiary fair price) and Rp159/share (using Jun10’ 09 market price).

Macquarie Bumi Resources – trading opportunity

Many analysts and fund managers have a love and hate relationship with this stock. Some things will never change. However, this time around, it could be hard to ignore the positive trading momentum behind this name:

1.Energy price – oil up while US$ strengthens. Oil spiked up to US$71.33bbl (WTI) despite the fact that the US$ was a bit stronger. The DOE inventory stats confirmed the API numbers of yesterday and showed a 4.4 million bbls drop in crude inventory and a 1.55 million bbls drop in gasoline. OPEC says it won't consider an increase in output until oil is at US$100/bbl.

2.China strength – Macq strategist Paul Cavey expects China’s industrial production (IP) number for May to come in above 8.0%. In April it grew by 7.3% yoy and consensus is looking for 7.7%.

3.Solid production in April and May – Bumi had a slow start of the year, with Jan-to-March production totaling to 11.3mn tons. But April and May, the company produced about 10mn tons, or a monthly run-rate of 5mn tons. Considering that monthly run-rate should be 15-20% higher during the dry season (June onward), Bumi may produce more than 60mn tons for the year (vs. Macq estimate of 60mn tons).

4.Short term investment value intact? – When the Bakrie goup is perceived to be having financial difficulties, stock market investors have largely written off the value of Bumi’s US$200+mn cash placement in investment firm Recapital. The prospect of Bumi getting the money back improves after another coal company, Adaro, successfully redeemed its US$100mn investment in Recapital last week, without any loss.

5.Could be bigger and stronger out of the crisis – It appears that Bakrie & Brothers (see 1Q09 financial statements note 39 subsequent event, attached) has the option to settle a big part of its borrowings by issuance of new shares. We cannot rule out the group emerging out of this global crisis with a stronger balance sheet thanks to a successful debt-to-equity conversion deal, which has yet to happen.

6.Acquisition opportunities – There appears to be a number of high profile assets for grab. BP is auctioning off its ONWJ West Java field (the 6th biggest oil field in Indonesia producing 25k bpd). BHP is letting go its coaking coal COW in Haju Mine, Central Kalimantan. We imagine the Bakrie group could be strong contender for these kinds of assets.

Macquarie analysts Adam Worthington & Albert Saputro rate the stock as Underperform, based on the team’s cautious view on thermal coal and US$70/ton estimate for JFY10. But this morning they highlight that at US$80/t for JFY10, Bumi Resources would be a stand-out among the regional coal peers in terms of valuation, trading on 10-11x FY10.

Reuters Wall Street falls as rate worries dent recovery hopes

NEW YORK (Reuters) - U.S. stocks fell on Wednesday on worries that rising interest rates could put a damper on consumer and business spending, but stocks pared losses late in the session to finish off the day's lows.

The market had extended losses after a 10-year Treasury note auction sparked a sell-off in bonds, pushing yields briefly above 4 percent for the first time since October. Stocks recovered from the sell-off after the bond market rebounded, with the yield at 3.9455 percent.

Investors are worried that higher yields, which act as a benchmark for many lending rates, could handcuff an economic recovery.

Interest rate-sensitive stocks, such as homebuilders and financials, were among the primary laggards, with the Dow Jones U.S. Home Construction index .DJUSHB off 1.5 percent and the S&P Financial index .GSPF down 1.6 percent.

"Rising interest rates are a headwind for the market," said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati.

The Dow Jones industrial average .DJI fell 24.04 points, or 0.27 percent, to 8,739.02. The Standard & Poor's 500 Index .SPX slid 3.28 points, or 0.35 percent, to 939.15. The Nasdaq Composite Index .IXIC dropped 7.05 points, or 0.38 percent, to 1,853.08.

In its latest Beige Book survey of the economy, the Federal Reserve said U.S. economic conditions were weak or worsened through May, but some areas of the country saw signs the contraction was moderating.

U.S. crude oil futures rose to their highest level in seven months at over $71 a barrel, lifting energy companies. ExxonMobil (XOM.N) rose 1 percent to $73.84 and was the top boost to the Dow. The PHLX Oil Service Sector index .OSX gained 1.4 percent.

While gains in oil and other commodities had earlier supported stocks globally on hopes economic activity was quickening, U.S. investors worried that higher prices would fuel inflation and dent an economic recovery.

Trading was low on the New York Stock Exchange, with about 1.22 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.35 billion shares traded, above last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by 1635 to 1376 while decliners beat advancers on the Nasdaq by about 1624 to 1038.

(Additional reporting by Ellis Mnyandu; Editing by Leslie Adler)

Reuters Mounting deficits spark jitters about U.S. economy

WASHINGTON (Reuters) - Gaping U.S. trade and budget deficits and a weak auction of government debt that pushed interest rates higher pointed to a bumpy road to recovery for the world's largest economy on Wednesday.

A Federal Reserve report noting businesses see some signs of moderation in the contraction, even though conditions were weak or deteriorated further in May, failed to ease anxiety about the economy.

Instead, financial markets found new reasons to worry that massive government spending and Fed cash infusions will lead to dangerous inflation and undercut any fledgling rebound.

A government bond auction pushed yields on the benchmark 10-year Treasury note above 4.0 percent for the first time in eight months, suggesting investors want the government to pay a premium to finance its huge deficit.

U.S. stocks ended little changed though, with the three month rally stalling on worry that rising interest rates could dampen consumer and business spending.

"The risk of rising yields should not be discounted," said Joseph Brusuelas of Moody's Economy.com. "If continued, they will reduce home mortgage refinancing and curtail corporate borrowing, both critical to an economic recovery."

Federal Reserve and U.S. Treasury Department officials have cited recent economic data and relative calm in financial markets as hopeful signs that a deep recession begun in December 2007 may be approaching its bottom.

But a sharp upswing in longer-term Treasury bond yields in recent weeks, spurred by worries over the burgeoning government budget deficit, threatens to derail any renewal of consumer spending or home buying.

The rise in bond yields has come despite the Fed's pledge to buy $300 billion in long-term Treasury securities to lower borrowing costs and stimulate economic activity. more...

Bloomberg Oil Rises to 7-Month High, Gasoline Tops $2, on Stockpile Drop

June 10 (Bloomberg) -- Crude oil rose to a seven-month high and gasoline futures climbed above $2 a gallon for the first time since October after a government report showed that U.S. crude and fuel supplies unexpectedly fell.

Stockpiles of oil dropped 4.38 million barrels to 361.6 million in the week ended June 5, the Energy Department said today. Analysts surveyed by Bloomberg News said supplies would rise by 100,000 barrels. Gasoline inventories slipped for a seventh week.

“This was an incredibly bullish report,” said Mike Zarembski, senior commodity analyst at OptionsXpress Holdings Inc. in Chicago. “There were big drops in both crude oil and gasoline, falling imports and increased gasoline demand.”

Crude oil for July delivery rose $1.32, or 1.9 percent, to $71.33 a barrel at 2:44 p.m. on the New York Mercantile Exchange, the highest settlement since Oct. 20. Prices are up 60 percent this year.

Gasoline for July delivery rose 4.86 cents, or 2.5 percent, to $2.0153 a gallon in New York, the highest close since Oct. 9.

Pump prices are climbing along with futures. Regular retail gasoline, averaged nationwide, rose to $2.627 a gallon, the highest since October, AAA, the nation’s biggest motoring organization, said today on its Web site. Prices have jumped 28 percent since April 28, the last day there was a decline.

Stockpiles of gasoline fell 1.55 million barrels to 201.6 million, the report showed. A 750,000-barrel increase was forecast, according to the median of 14 estimates by analysts surveyed before today’s report. more...

Bloomberg World Oil Reserves Dropped Last Year on Russia, China

June 10 (Bloomberg) -- Global proved oil reserves fell last year, the first drop since 1998, led by declines in Russia, Norway and China, according to BP Plc.

Oil reserves totaled 1.258 trillion barrels at the end of 2008, compared with a revised 1.261 trillion barrels a year earlier, BP said in its annual Statistical Review of World Energy today.

“Fossil fuels will remain the dominant source of energy well into the future,” BP Chief Executive Officer Tony Hayward said at a presentation in London. The world has enough reserves for 42 years at current production rates, BP said.

BP and other oil companies are struggling to replace reserves as access to deposits becomes harder and older fields in places like the U.K. and Mexico are depleted. Russia passed a law last year that limits foreign ownership in some of the country’s biggest energy and metals deposits. Middle East countries, which hold 60 percent of global reserves, restrict access for international companies.

Some countries have yet to submit information on reserves, making an upward revision of the data likely, Chief Economist Christof Ruehl said.

Saudi Arabia’s reserves, the world’s largest, stood at 264.1 billion barrels, little changed from 264.2 billion a year earlier, BP said. The Middle East as a whole holds 754.1 billion barrels, compared with 755 billion barrels last year.

“Declines in Russia, Norway, China and other countries offset increases in Vietnam, India and Egypt,” BP said on its Web site.

Canadian Oil Sands

Including Canadian oil sands deposits of 150.7 billion barrels, total global reserves stood at 1.409 trillion barrels, the review said.

BP made an upward revision to 2007’s global oil reserves of 23.1 billion barrels, with the largest increases in OPEC members Venezuela and Angola.

None of the biggest international oil companies have replaced output through new discoveries or extending fields in the past six years, Sanford C. Bernstein & Co. said in an April 2 report. Companies such as Royal Dutch Shell Plc, Europe’s largest oil company by market capitalization, are looking at acquisitions to boost reserves, Bernstein said.

BP said the estimates in today’s report are a combination of official sources, OPEC data and other third-party estimates. Oil reserves include gas condensates and natural gas liquids, as well as crude oil.

To contact the reporters on this story: Rachel Graham in London rgraham13@bloomberg.netAlexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

Bloomberg BHP Agrees to Cut 2009 Coking Coal Prices About 58%

June 10 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, agreed to about a 58 percent cut in annual coking coal contract prices after demand for the steelmaking material declined.

A “significant portion” of supply contracts have been settled with “key global customers,” the Melbourne-based company said today in a statement. BHP and Mitsubishi Corp.’s alliance is the world’s biggest exporter of coking coal.

Nippon Steel Corp. and JFE Holdings Ltd., Asia’s two largest steelmakers, won a 57 percent cut in prices to between $128 and $129 a metric ton in talks with BHP, two industry executives with knowledge of the deal said in March. Global mills have slashed raw material orders as the worst recession since World War II curbs demand from builders and carmakers.

“We saw a little bit of upside” in BHP’s shares as the price cut was not as steep as some investors expected, Chris Weston, an institutional dealer at IG Markets in Melbourne, said today by phone. “It’s a commodities play today. People want a piece of it. We are seeing a lot of positive momentum on this stock.”

BHP rose 3.3 percent to A$37.69 at 2:36 p.m. Sydney time on the Australian stock exchange, after a measure of the six metals traded on the London Metal Exchange rose to the highest in eight months overnight Sydney time.

Lower Demand

BHP’s production of coking coal may be 10 percent to 15 percent less than current capacity this year because of lower demand, BHP said in April. Sales of the coal accounted for 6.7 percent of BHP’s revenue in the year ended June 30, 2008. The annual contracts cover sales running from April 1 to March 31.

Coking coal prices tripled in the year ending March 31 as flooding disrupted supply from Australia’s Queensland state and rising demand from China fueled a surge in commodity prices. Contract prices with Japanese mills were about $50 a ton during most of the 1990s, according to Nippon Steel.

Japan’s steel output tumbled 44 percent in April to 5.72 million tons, the Tokyo-based Japan Iron & Steel Federation said last month. Production was 10.15 million tons last year, and the percentage drop for April is near the March record decline, according to data on the Bloomberg.

Source: Bloomberg