Devaluation of Taka should be gradual, says Mostafa Kamal

Over the years I have been saying that Pakistan suffers from cost pushed inflation. The depreciation or devaluation of currency does not provide a sustainable solution to boost export or accelerate GDP growth rate. Today I am presenting the interview of Mostafa Kamal, a leading businessman of Bangladesh in support of my narrative.

The central bank should depreciate the taka against the US dollar gradually, if necessary, in order to avoid hurting the economic recovery and stocking inflationary pressures as Bangladesh is an import-dependent country, said Mostafa Kamal, chairman and managing director of Meghna Group of Industries.

“If the depreciation is not gradual, it will have a huge impact on every sphere of the economy and life,” he told The Daily Star in an interview.

Lately, the Bangladesh central bank brought about a major depreciation of the local currency to tackle pressure stemming from surging import payments and encourage remitters.

The interbank exchange rate hit Tk 86 per US$ for the first time in history, up from US$85.80 on Thursday, showed data from the central bank.

Kamal says the current interbank exchange rate is much lower than in the rate in the kerb market, where it stands at around Tk 90 per US$.

Importers used to buy US dollars for Tk 85 two months ago but it has gone past Tk 87 per US$.

Currency devaluation is preferred by exporters, but Kamal says depreciation is not a continuous solution.

“As Bangladesh is an import-based country, we have to strike a balance between the interests of importers and exporters.”

According to the noted businessman, any major devaluation of the taka will raise the prices of all goods. “It has a bigger effect on food and diesel prices and transport fare.”

“Policy-makers would have to find out whether the depreciation would be fast or gradual.”

Kamal says that most businessmen are importers. This is also true in the garment industry.

“We have been able to manufacture some accessories, but a majority of them are still imported.”

Speaking about the increased of commodity prices, he says the price of crude degummed soybean oil, or palm oil, has risen.

It used to cost US$500 to US$800 per ton in the past. Now it costs US$1,400. The duty has also increased.

“If the price increases by Tk 0.5 because of the currency devaluation, the price of the final goods will go up as well because import duties and other costs are added,” said Kamal.

He thinks it will not be a good idea to recommend curbing imports for the sake of keeping the foreign currency reserves stable as the move will rein in the growth of the economy.

Remittance flow to Bangladesh has slowed to some extent in recent months. But exports are performing well compared to the previous year.

A higher growth in the import of machinery means the economic stagnation has been over. It will generate jobs and accelerate economic activity.

“Imports have surged. Machinery imports have gone up after a lull for two years. There is no need to panic about rising machinery imports. Rather, it should be encouraged. People are returning to activities strongly.

“It is a good sign for the economy,” said Kamal.

He calls for looking at Turkey’s situation. The country’s currency, lira, has lost at least 35% of its value against US$. Inflation has touched a two-decade high. As a result, there is a crisis in the country.

“As we are import-dependent country, any major hike in the interbank rate will stoke inflationary pressure. The effects will be felt across the country,” Kamal said.

According to the entrepreneur, the economy has just started to return to normalcy from the coronavirus pandemic. “We, the businessmen, are optimistic.”

“Businessmen could not do well in 2020 and 2021. Now, they are more serious. Their business volume is growing. Businessmen hope that there will be a boom in the economy.”

Although the prices of imported goods and materials have gone up, the prices can’t be passed onto customers automatically, he said.

“Sometimes, we are compelled to raise prices. Sometimes, we keep the cost in the off-balance sheet. We will adjust the balance sheet when we make profit,” Kamal added.

 

US drillers add most oil and gas rigs in a week since April 2020

The US energy firms added the most oil and natural gas rigs in a week since April 2020 as rising oil prices prompt more drillers to return to the wellpad. The oil and gas rig count, an early indicator of future output, rose by 13 to 601 in the week ended on January 14, 2022, the highest since April 2020, energy services firm Baker Hughes Co. said in its closely followed report on Friday.

U.S. oil rigs rose 11 to 492 this week, their highest since April 2020, while gas rigs rose two to 109, their highest since March 2020.

The Eagle Ford in South Texas gained six rigs this week, the most of any basin, bringing its total to 50; it is highest since April 2020. The Haynesville shale in Texas, Louisiana and Arkansas gained three to 52; it is highest since November 2019.

The US crude futures were trading around US$84 per barrel on Friday, putting the contract on track to rise for a fourth week in a row for the first time since October.

With oil prices up about 12% so far this year after soaring 55% in 2021, a growing number of exploration and production (E&P) firms plan to enhance spending for a second consecutive year in 2022.

The rig count has climbed gradually for a record 17 months in a row, but US oil production slipped in 2021 as many energy firms focused more on returning money to investors rather than boosting output.

The US oil output was hit by the coronavirus pandemic which crushed demand and prices, and is only forecast to surpass 2019's record levels of 12.3 million barrels per day (bpd) next year. The government projects production will rise from 11.2 million bpd in 2021 to 11.8 million bpd in 2022 and 12.4 million bpd in 2023.

Rig activity across the five largest US oil plays would need to increase by about 13 weekly over next eight weeks to reach a sustainable plateau to hold current oil volumes in 2022, versus average rig gains of about two over the last four weeks, Mizuho said this week.

"We continue to believe drilling activity will be a put a ceiling on US supply growth, which is positive for the commodity and large cap E&Ps," the bank said.

 

 

Microsoft to invest in alcohol to jet fuel refinery

Microsoft is investing US$50 million in a LanzaJet facility in Georgia that will produce jet fuel from ethanol next year. Microsoft created the Climate Innovation Fund in 2020 to invest US$ one billion over the next four years to speed up the development of carbon removal technology.

The airline industry is considered one of the hardest to decarbonize. Renewable aviation fuel accounted for less than 0.1% of current global jet fuel demand of about 330 million tons in 2019, investment bank Jefferies said last year. Governments and investors are trying to boost incentives to produce lower-carbon emitting jet fuel.

LanzaJet, based in Chicago, said it has nearly completed on site engineering at its Freedom Pines Fuels Biorefinery, with plans to start producing 10 million gallons of sustainable aviation fuel (SAF) and renewable diesel per year from sustainable ethanol, including from waste-based feedstocks, in 2023.

Oil majors, airlines and other petroleum trading companies including Suncor Energy Inc., British Airways and Shell are also funding the company.

The White House said last year that it wants to lower aviation emissions by 20% by 2030, as airlines face pressure from environmental groups to lower their carbon footprint.

The Biden Administration has touted tax credits for production of sustainable jet fuel as part of its Build Back Better legislation, which is currently stalled in Congress.

The European Union is aiming to increase the amount of SAF blended in petroleum jet fuel to 63% by 2050.

 

Global shipping costs are moderating

Lockdowns, labor shortages, and strains on logistics networks led to shipping-cost increases and significantly lengthened delivery times, though those pressures are easing. The Chart of the Week shows global container rates began to pull back from their record in September 2021.

Since then the rates have declined by 16 percent, mostly due to falling rates for trans-Pacific eastbound routes, the main sea link from China to the United States.

According to IMFBlog, shipping costs soared over the past year as the consumers unleashed pent-up savings to buy new merchandise, while the pandemic continued to snarl the world’s supply chains. Container rates have more than quadrupled since the start of the pandemic, with some of the biggest gains concentrated in the first three quarters of last year.

The drop indicates that strong goods demand is diminishing after the traditional peak shipping season, which is typically from August to October. In addition, the US recently ordered some ports to expand operating hours and boost efficiency to reduce congestion and ease supply bottlenecks.

Although rates have subsided, they may remain elevated through the end of the year. Some underlying supply constraints do not have immediate fixes. Backlogs and port delays, labor shortages in related occupations, supply chain disruptions moving inland, and shipping industry challenges such as the slow capacity growth and consolidation that concentrated the market power of a few carriers. If the pandemic is controlled in the future, the demand for tradable goods might gradually decline as some service-providing sectors, such as travel and hospitality, recover.

Higher shipping costs and goods shortages are expected to boost merchandise prices. The United Nations Conference on Trade and Development (UNCTAD) projects that if freight rates remain elevated through 2023, global import price levels and consumer price levels could rise by 10.6% and 1.5%, respectively. This impact would be disproportionately larger for small, developing islands which heavily rely on imports that arrive by sea.

Higher freight rates will also result in larger increases in the final price of low-value-added products. Smaller developing economies that export many of these goods could become less competitive and face difficulties with their economic recoveries. Moreover, the final prices of products that are highly integrated into global value chains such as electronics and computers will also be more affected by higher freight rates.

Returning to pre-pandemic shipping rates will require greater investment in infrastructure, digitalization in the freight industry, and implementation of trade facilitation measures.

 

Hamas hails Iranian support for Palestinians

Palestinian resistance group Hamas has hailed the position of the Islamic Republic of Iran in support of Palestine. In a recent meeting with Iranian Foreign Minister Hossein Amir Abdollahian in Doha, a delegation of Hamas, headed by its Political Bureau Chief Ismail Haniyeh, appreciated the Iranian backing. 

The Hamas delegation addressed the developments related to the Palestinian cause, particularly with regard to the situation in occupied Jerusalem and the West Bank, Palestinian detainees in Israeli prisons, and the 15-year Israeli siege on Gaza. 

The Iranian minister discussed the developments concerning a number of matters, including regional alliances and the Vienna talks, reiterating his country's stance in support of the Palestinian people and resistance.      

Hamas delegation welcomed the endeavors being made to achieve unity among Arab and Muslim nations, especially the efforts being exerted by Iran and Saudi Arabia. 

Besides the Hamas chief, the meeting was attended by members of Hamas Political Bureau Khalil al-Hayya and Mousa Abu Marzouq, in addition to Majdi Abu Amsheh, Head of Haniyeh's office.

The Iranian Foreign ministry said in a statement that during the meeting, Amir Abdollahian outlined the Islamic republic’s principled policy toward the issue of Palestine as a plight in the heart of the Islamic Ummah created by the child-killing Zionist regime which enjoys support from the West.

He also condemned the brutal crimes of the Zionist occupiers against al-Quds, al-Aqsa Mosque, Gaza and occupied Palestinian territories as well as the regime’s aggression and atrocities against the Palestinian people and sanctities.

Amir Abdollahian reaffirmed Iran’s support for the legitimate defense of the Palestinian people and resistance against the occupation of the Zionist regime. 

Haniyeh, for his part, appreciated Iran’s support for the Palestinian people in their struggle against the Zionist regime’s continued aggression.

He also called on the Muslim and Arab world as well as the international community to adopt a decisive stance against the Israeli regime’s violations.

The meeting was part of Amir Abdollahian’s high-level meetings in Qatar, where he met with the emir and the foreign minister of the tiny Persian Gulf nation. 

In his meeting with Qatar’s Emir Sheikh Tamim bin Hamad Al Thani, Amir Abdollahian extended the Iranian President’s greetings to the Qatari leader. He examined the latest developments in bilateral ties in political, security, trade and economic areas. Amir Abdollahian referred to the existing capacities for expanding economic relations between Iran and Qatar, underlining the need for forging cooperation in economic areas given the existing advantages of Iran in this regard. 

The Iranian foreign minister further outlined the current Iranian administration’s approach to relations with neighboring countries and emphasized the exchange of delegations at high levels between the two countries for consultations.

Amir Abdollahian also underscored the regional views of Iran and declared Tehran’s readiness to develop interaction with regional nations in bilateral and multilateral ways.

The top Iranian diplomat then spoke about the Vienna talks over removing the oppressive sanctions against Iran as well as the issues related to Afghanistan and Yemen. The Qatari emir also outlined his views regarding these matters.

Need for resolving Kashmir conflict

Aizaz Ahmad Chaudhary has described the life of a Kashmiri in a unique manner. He asks the reader to imagine he/she is a Kashmiri born in Srinagar on January 05, 1949. By this time the reader is 73 years old and has completed nearly every phase of life. 

Decisions were taken on what to study, where to work, how to contribute, and preparing to retire, a full circle of life. But at every stage, the reminder was that he/she was not free and under Indian occupation, a kind of colonial rule. It is the story of every man and woman who lives in the Valley of Kashmir or the Jammu region, who feels helpless as well as angry.

For all Kashmiris, January 05 is a reminder that the promise was made to them on this date in 1949, which remains unfulfilled. It is the day, the United Nations Commission on India and Pakistan adopted a resolution calling for a free and fair plebiscite in Jammu and Kashmir. Ever since, like a ritual, the Kashmiris mark self-determination day, hoping that the world would listen. But year after year, the frustration has mounted. It is understandably getting hard for the Kashmiris to keep faith in international justice, or even stay optimistic. Yet the Kashmiris struggle goes on, the torch of freedom remains aloft.

The right of a nation or community to self-determination is an important principle of the UN Charter. When the UN was born in 1945, it had only 73 members. Over the years, scores of nations attained their independence thanks to the principle of self-determination, swelling the UN membership to 193. The two peoples that could not access their right to self-determination are the Palestinians and Kashmiris.

Most of the Kashmiris have close relations with the people living in central and northern Punjab. The rivers flow down from Kashmir to present day Pakistan for centuries. All roads from the Kashmir Valley head towards northern Punjab. Kashmir’s mandi (market) had traditionally been Rawalpindi. How can all these links be cut off simply because India does not want to let Kashmiris decide how they wish to live? One is completely surprised that even after seven decades of Kashmiri resistance against Indian rule, the Indian leadership is unable to deduce that the Kashmiris simply do not wish to live with India.

In the past two and a half years, the situation has taken an ugly turn. The Indian government abrogated Article 370 of the Indian constitution, robbed the Kashmiris of their statehood, and started inflicting further excesses on these freedom-loving people. Kashmiris often wonder what end goal India has in mind for Kashmir. Can it realistically maintain its colonial-like rule over eight million people? Perhaps not! India is already experiencing centrifugal tendencies in several parts of the country; how would India keep its internal stability by continuing its occupation of another 8m agitated souls?

Some analysts have argued that India does not wish to let Kashmiris exercise self-determination because if that happens, other regions in the country would also demand freedom. This argument contradicts the historical process. No nation can forever rule an unwilling population. Some strategists assert that Kashmir’s location is strategically important for India. Again, how can an unwilling population be a strategic asset for India? Some ambitious BJP enthusiasts are excited that after the actions of August 2019, and the introduction of a new domicile law, Kashmiris would no longer be a Muslim-majority community. This approach too would not work as all Kashmiris, including pro-India factions, have united in their opposition to the assault on Kashmiri statehood and identity.

It is important for the Indian leadership and its thought leaders to think this through. Ruling a population by force, undermining their identity, and suspecting each Kashmiri who aspires self-determination for his people, will never consolidate the Indian occupation of Kashmir.

A better alternative is to find ways to resolve the Kashmir dispute with Pakistan in accordance with the wishes of the Kashmiri people. The UN Security Council resolutions provide a reasonably good framework to resolve this conflict.

Can we all imagine how life would have been for every South Asian, if India had chosen the path of leading the region, not by coercion, but by mutual respect and nurturing interdependence? Today, South Asia is the least integrated and most conflict-ridden region. Can all this change? Perhaps a resolution of the Kashmir dispute could be a good beginning to defuse tensions, and let South Asia emerge as a region of peace and tranquility. Will India listen to the voice of Kashmiris? Not sure, but one does hope that one day it will.

Heavy rains in Brazil disrupts iron ore production

According to a Reuters report, heavy rainfall in southeastern Brazil has prompted miners including Vale SA to suspend some operations after downpours caused deadly floods in the northeast. 

Rainfall is expected to remain heavy this week in most of top mining state Minas Gerais, after runoff closed roads and railways.

The rains may also have contributed to the dramatic collapse of a canyon rock face in the state on Saturday, killing 10 people visiting a waterfall on boats.

In the northeastern state of Bahia, flooding displaced about 50,000 families and killed some two dozen over the holidays.

Vale said on Monday it has partially suspended operations at its Southeastern and Southern iron ore systems due to the bad weather, but reaffirmed its 2022 production target as the Northern system was not affected.

Samarco, a joint venture between Vale and BHP also cut back operations in its Germano complex, producing at an estimated 50% of capacity until weather allows it to ramp up.

Brazilian steelmakers Usiminas and Companhia Siderurgica Nacional (CSN) also halted operations of their mining units.

Anglo American said its Minas-Rio system continued to operate as planned during the rainy season.

Over the weekend, France's Vallourec suspended production from its Pau Branco mine after heavy rainfall caused a dike to overflow.

"We see the news as potentially negative for the entire mining sector, as it could result in new regulations to suspend existing operations or delay new projects," analysts at XP Investimentos said in a research note.

BTG Pactual analysts said economic impacts could be muted if normal operations are restored quickly, but noted it all depends on how long the heavy rainfall will last.

"We estimate there could be more than 100 million tons of annualized iron ore supply at risk at this stage in Brazil, which is a relevant number ‑ roughly 7% of seaborne supply and about 30% of Brazilian supply ‑learly the stakes are high and we could see impacts on short-term iron ore movements," they said.

INTERRUPTED RAILWAYS, CLOSED HIGHWAYS

Vale said in a securities filing that train circulation at its Vitoria-Minas railway was partially interrupted by the rains, halting output at the Brucutu mine and the Mariana complex due to a lack of transportation.

Both mines are part of Vale's Southeastern system, along with the Itabira complex, where production was not affected.

In the Southern system, Vale said all of its complexes had to halt production because key highways BR-040 and MG-030 were closed.

Vale said its Northern System is still operating as planned, and maintained its 2022 iron ore production forecast at 320-335 million tons. It noted its production plan takes into account the seasonal rainfall impact.

The miner also said the rains had not changed the alert level for any of its tailing dams which are under constant, "real-time" monitoring.

"While Vale did not change its production guidance for 2022, we believe that the market could start to project volumes closer to the low end of the range," Itau BBA analysts said, noting that iron ore prices could be supported at their current high levels.

Vale's two halted operations accounted for about 31% of its output in the first nine months of 2021, the Itau BBA analysts said. A two-week halt in these operations could represent an impact of about 3 million tons for the company, according to their preliminary calculations.

Steelmaker Usiminas announced a stoppage at its mining subsidiary Mineracao Usiminas (MUSA) due to weather, but said it had enough inventory of raw material to avoid disruption.

The company also said its Barragem Central tailings dam, which has been inactive since 2014, reached alert level 1 - an initial warning that does not mean a safety breach was noted.

CSN and its steel mining subsidiary CSN Mineracao SA announced a halt to operations of the Casa de Pedra mine, but said they are expected to resume in coming days.

They said port operations at the Itaguai coal terminal, located in the neighboring state of Rio de Janeiro, were also suspended due to excessive rains.

Brazil's regulatory National Mining Agency (ANM) suspended operations at French steel pipe maker Vallourec's Pau Branco iron ore mine in the state after a dike overflowed, cutting off a federal highway. There were no reported injuries.

"After the dam incidents of the past, we welcome the zero tolerance approach that miners are taking in the country to minimize operational risks, which we consider the prudent approach," BTG Pactual said.