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BHP hit by cost of own iron
Nigel Wilson and Andrew Trounson, The Australian
BHP Billiton is breaking production records but is still being squeezed by the rising price of one of its own products, iron ore.
A sharp kick in the price of steel a year ago appears to have almost singlehandedly caused a rise of 27 per cent, or $80 million, in the cost of the Stybarrow oil development off Exmouth on the West Australian coast. The project, which is yet to begin production, is jointly owned by BHP Billiton and Woodside.
When it was approved in November 2005, BHP Billiton said its half share would cost “approximately $US300 million.” This has grown to $US380 million ($429.5 million). The entire oil industry is believed to be suffering from the same problem, since all offshore developments require steel in big quantities.
The North West Shelf gas development partners, including BHP Billiton and Woodside, have already lifted the costs of the processing unit under construction by about 25 per cent to more than $2.4 billion and construction industry forecasts put the final cost at $2.6 billion.
The Gorgon LNG project partners, who have not formally costed their Barrow Island project plan for 10 million tonnes a year, will not comment on US reports that the latest cost estimates have reached [Au]$23 billion. ..
(25 Jul 2007)
Rising food prices curb aid to global poor
Mark Trumbull, The Christian Science Monitor
Food commodity prices have risen by 21 percent since 2005, which will stretch aid groups’ resources.
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Rising food prices are threatening the ability of aid organizations to help the world’s hungriest people.
Worldwide, basic foods now cost 21 percent more at the wholesale level than in 2005, with key commodities such as grains and oils up more than 30 percent, according to World Bank price indexes.
For poor people, that means the quality and quantity of nutrition are at risk. For relief organizations, it means aid resources are stretched thin.
Typically, donor governments boost their food-relief funding when a crisis demands it. What’s happening now is not so much a crisis as a quiet squeeze.
“It’s both the rising food prices and the rising cost of freight…. It definitely is affecting what we’re able to provide” to people in need, says Lisa Kuennen-Asfaw, a food aid expert at Catholic Relief Services in Baltimore. This year, she says, “every one of our programs has received a little bit less [food] than what they expected.”
Retail food prices haven’t spiked as much as wholesale prices. But for both aid groups and people in developing nations, the costs have generally been rising. Experts cite several main reasons:
•Growing demand for grains as biofuels is pushing up the price of grains for human and livestock food.
•The success of India and China in lifting millions of their people out of poverty has increased global demand for higher-value foods.
•Rising food demand worldwide has worn down inventories. Stocks of wheat sit at 30-year lows.
•The jump in oil prices since 2004 has rippled into various food-related costs: fertilizer, refrigeration, transport.
(24 July 2007)
Wall St smarties do it again: man-made monster escapes
Tom Petruno, Sydney Morning Herald
When the rocket scientists on Wall Street outsmart even themselves, bad things can happen. The 1987 stockmarket crash was fuelled by an institutional investment strategy that its creators ironically had termed “portfolio insurance”.
The collapse of the giant hedge fund Long-Term Capital Management in 1998 was triggered by a sequence of market events that the fund’s engineers believed couldn’t occur in billions of years.
Today’s version of Frankenstein turning on its creator is the mortgage loan mess. Wall Street in recent years has taken a simple concept – bundling mortgages and selling them to investors as interest-paying bonds – and concocted an alphabet soup of securities so incredibly complex they defy understanding by all but a handful of PhDs. ..
(24 Jul 2007)
Money is Also Destroyed
Michael Nystrom, Bull Not Bull
If money can be created from thin air, the opposite is also true: it can be destroyed as well. Usually it is the Federal Reserve System that does the creating, but the destruction comes by other means.
Bear Stearns’ hedge fund investors have found this out the hard way. Two of its funds recently went belly up, taking 100% of investors’ capital with them. One of the funds, the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage fund, reported $638 million of investor capital in the first quarter. Today nothing remains.
How can money so quickly and effectively be destroyed? To understand this, we have to understand how the money was created in the first place. According to news reports, the underlying securities in the hedge fund in question were subprime mortgages.
Let’s say it’s 2003, and Mr. Jones, who has less than stellar credit wants to buy a house. ..
(20 Jul 2007)
