News Archive


Monsanto profit tops expectations as soybean sales surge


U.S. seeds and agrochemicals company Monsanto Co (MON.N), which is in the process of being bought by Germany’s Bayer AG (BAYGn.DE), reported a stronger-than-expected quarterly profit on Wednesday as record soybean plantings lifted seed sales.

Shares climbed 1 percent and hit a two-year high of $118.47 a share.

St. Louis-based Monsanto reaffirmed its earnings per share target and raised its gross profit outlook for its seeds and genomics unit, which sells seeds, licenses biotech traits and sells farm data services.

Record soybean seedings in the United States and Brazil, the top two producers, were a boon for the world’s largest seed company.

“There was a lot of acreage that rotated out of corn and into soy and Monsanto was set up really well for that since they had some product launches in soy this year,” said Matt Arnold, an analyst with Edward Jones.

Sales of soybean seed and traits, the second-biggest business by revenue, jumped 29.3 percent to $896 million in the third quarter ended May 31.

Seedings of Monsanto’s Xtend soybeans, the newest U.S. varieties, totaled 20 million acres this spring, above earlier forecasts for 18 million. Intacta, its South American variety, was planted on more than 50 million acres, near the high end of expectations.

However, sales of corn seed and traits, the company’s biggest revenue generator, fell 6.3 percent to $1.49 billion.

Monsanto agreed in September to a $66 billion buyout offer from Bayer, that, if approved by regulators, would create a company commanding more than a quarter of the world market for seeds and pesticides.

Monsanto said on Wednesday it was working toward completion of the merger by the end of 2017 and expects to submit merger-related filings to the European Union by the end of this month.

Bayer has said it would sell its LibertyLink-branded seeds businesses to help satisfy competition authorities looking at the Monsanto deal.

Net income attributable to Monsanto rose to $843 million, or $1.90 per share, in the quarter, from $717 million, or $1.63 per share, a year earlier.

Excluding certain items, Monsanto earned $1.93 per share, beating the analysts’ average estimate of $1.76, according to Thomson Reuters I/B/E/S.

Earnings per share guidance remained at the high end of the range of $4.50 to $4.90 on an ongoing basis. Seeds and genomics gross profit for fiscal 2017 was projected in the high single digits in percentage terms, up from a mid-single-digit forecast previously.

(Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Sriraj Kalluvila, Nick Zieminski and David Gregorio)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/lPe1S8Z3Orw/us-monsanto-results-idUSKBN19J1IJ

Wall St. higher as banks, consumer stocks rise


Wall Street was higher in late morning trading on Wednesday as financial and consumer stocks led a broad rally among the major sectors.

Bank stock reflected a rise in treasury yields, following a Reuters report that the market had overinterpreted chief Mario Draghi’s comments that the ECB was ready to start withdrawing the emergency stimulus for the economy.

The sources clarified that Draghi intended to signal tolerance for a period of weaker inflation, not an imminent policy tightening.

The financial index’s .SPSY 1.16 percent rise led the gainers, with Bank of America (BAC.N), JPMorgan (JPM.N) and Citigroup (C.N) all up more than 1 percent.

The consumer discretionary index .SPLRCD rose 0.9 percent, helped by a gain in Walt Disney (DIS.N), Comcast (CMCSA.O) and Amazon (AMZN.O).

At 10:57 a.m. ET (1457 GMT), the Dow Jones Industrial Average .DJI was up 126.57 points, or 0.59 percent, at 21,437.23, the SP 500 .SPX was up 18.26 points, or 0.75 percent, at 2,437.64.

The Nasdaq Composite .IXIC was up 54.76 points, or 0.89 percent, at 6,201.38.

With investors awaiting second-quarter corporate earnings, equity valuations have come under focus at a time when inflation remains low, recent economic data has been tepid and President Donald Trump’s pro-growth policies face delays.

The SP 500 is trading at nearly 18 times forward earnings estimates, well above its long-term average of 15 times.

“Valuations are certainly a little bit elevated and they are a bit of a concern,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

“We saw valuations run up in the first quarter but then when earnings came out they were pretty solid so ultimately if earnings continue at the rate we’ve seen recently, then those valuations will be fine.”

Federal Reserve Chair Janet Yellen said on Tuesday that by standard metrics, some asset valuations look high while Vice Chair Stanley Fischer warned that central bank must remain vigilant in monitoring financial stability risks.

San Francisco Fed head John Williams said investors may be getting overly complacent about risks and that “the stock market seems to be running pretty much on fumes.”

Meanwhile, Trump administration’s ability to deliver on election promises came under focus on Tuesday after a planned vote on Republican healthcare bill to dismantle the Affordable Care Act was put off to after the Senate’s July 4 recess.

The healthcare legislation is the first plank of President Trump’s domestic policy agenda, with investors eager for him to move onto his other plans, including tax cuts and infrastructure spending.

Oil prices rose about 1 percent but concerns remained that a three-year supply glut is far from over. [O/R]

KB Home (KBH.N) was up 3.2 percent at $23.54 after the homebuilder increased its full-year forecast.

General Mills (GIS.N) rose 2.3 percent to $56.81 after the Cheerios maker’s quarterly profit beat estimates.

Advancing issues outnumbered decliners on the NYSE by 2,263 to 516. On the Nasdaq, 2,016 issues.

(Reporting by Tanya Agrawal; Editing by Arun Koyyur)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/G5edfHIbjUI/us-usa-stocks-idUSKBN19J1CX

BMW to streamline car equipment levels to pay for R&D


MUNICH BMW (BMWG.DE) will streamline its manufacturing process, offering fewer variants of engines and equipment, to offset high research and development (RD) spending through 2019, the German carmaker’s finance chief Nicolas Peter said on Wednesday.

The group is developing electric, autonomous and connected cars in addition to vehicles with combustion engines to meet more stringent emissions tests.

At the same time, China’s aggressive push to introduce electric car quotas has forced European carmakers to accelerate the development and roll-out of electric and hybrid vehicles, pushing up their costs.

In 2016, BMW spent 5.16 billion euros or 5.5 percent of revenue on RD.

“The next three years will be between 5.5 percent and 6 percent,” Peter told journalists.

Because electric and hybrid cars are less profitable than cars with petrol and diesel engines, BMW is looking for savings by reducing the complexity of its engine and equipment portfolio.

“We have over 100 steering wheels on offer. Do we need that many variants?” Peter said.

BMW will drop manual gearshift variants of the BMW 2 series Coupe in the United States to cut down the cost of certifying components in each market, and it has dropped manual shift options from entry-level versions of the new 5 series diesel, he said. It will also cut down the number of engine variants.

“In the 5 series we have four diesel engines on offer. I would not bet on there being four diesel engines on offer in the next generation vehicle,” Peter said.

BMW stuck with its guidance for a slight increase in both vehicle sales and pre-tax profit tax this year as well as a margin on earnings before interest and tax (EBIT) of between 8 and 10 percent.

Sales have received a boost from the launch of a new BMW 5 series limousine, which has exceeded expectations, Peter said, without providing details.

The carmaker has seen double-digit sales growth in China and remains on track to keep this momentum with the launch of a long-wheelbase 5 series and a BMW X1, Peter said.

BMW has also seen slight growth in Europe, although there are signs that demand in England is softening, he added.

“There are some signals that the market is getting more difficult,” Peter said, adding that order intake was slower and residual values were falling.

The U.S. market may remain stable or even shrink slightly, Peter said, adding that BMW was working on cutting back vehicle inventory.

He also said the group had not yet decided where to build the next electric version of the Mini, though a decision would come this year, with Oxford remaining a contender for the manufacturing site.

(Reporting by Edward Taylor; Editing by Adrian Croft)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/avJTBZdWKuI/us-bmw-strategy-idUSKBN19J1NX

Despite weak oil prices, OPEC still pockets more dollars


LONDON With world oil inventories swelling despite a global pact on cutting output and crude prices falling by a fifth in the past month, OPEC appears to be losing its battle to balance the market.

But there is one crucial fight the oil-exporting group has been winning so far: its members have earned more money this year than last and the prospect of higher revenues is likely to motivate OPEC to stick with output cuts or even deepen them.

OPEC’s first output cut in eight years has earned the group $1.64 billion a day so far this year, up more than 10 percent from the second half of 2016, according to Reuters calculations based on OPEC figures for average production and its crude basket price up until June 20.

Compared with the first half of 2016, when oil prices sank to a 12-year low near $27 a barrel, the increase in income is a dramatic 43 percent, even though production by the Organization of the Petroleum Exporting Countries was little changed.

Income could rise in the rest of the year if, as OPEC hopes, a supply glut is banished. OPEC plus Russia and other non-OPEC producers agreed on May 25 to extend supply cuts to March, after an initial deal to keep them in place for the first half of 2017.

“I expect the gains for OPEC to be higher during the second semester 2017 due to a tight market in the third and fourth quarter, despite an oversupply from non-OPEC not tied to the OPEC agreement and higher-than-expected production from Libya and Nigeria,” said Chakib Khelil, Algeria’s former oil minister.

He estimated OPEC revenues rose about 8 percent in the first half of 2017, following its move at the end of 2016 to cut overall output by about 4 percent.

“The overall gain in revenues for OPEC would be in the 9 to 10 percent range for the whole of 2017 compared to 2016,” the former minister said.

OPEC’s decision in late 2016 to return to a policy of limiting supply, in cooperation with Russia and other non-members, marked the end of a two-year period in which the group pumped at will in a Saudi-led shift to curb rival output and boost market share, which accelerated a drop in prices.

“I think the extent to which Saudi Arabia bled revenue during 2014-2016 forced them back to the OPEC table before the job of really turning the screw on U.S. shale and other non-OPEC supply was completed,” said David Fyfe, chief economist at trading firm Gunvor.

“However, the production deal has at least staunched the cash hemorrhage for now,” he said.

The Reuters calculation is based on data from the International Energy Agency and figures published by OPEC about its production according to estimates by six secondary sources.

For the price, Reuters used the OPEC basket, an index of the crudes sold by the member countries.

It is intended to illustrate the general trend for oil revenues and does not aim to give exact estimates of countries’ oil export earnings.

STICK WITH IT

OPEC and non-OPEC allies led by Russia initially agreed to cut about 1.8 million barrels per day (bpd) in the first half of 2017. But with the supply glut proving slow to shift, they agreed on May 25 to prolong the deal to the first quarter of 2018.

A drop in prices since then has prompted some OPEC delegates to question whether the deal is enough, but the group is in no rush to deepen its output cut.

Rising U.S. production has undermined some of the impact of the OPEC-led cuts. In addition, Libya and Nigeria, two OPEC members exempted from the curbs, have increased output although not by enough to alter the overall picture of lower OPEC output in the six-month period.

While OPEC states will welcome the extra revenue, it has not yet plugged budget deficits that have opened up. To balance its books, Saudi Arabia needs oil closer to $75 a barrel, asset management firm AB Bernstein estimates.

However, Fyfe of Gunvor said the higher earnings during the first half of this year will probably give producers sufficient motivation to keep going and even consider further measures.

Taking Dubai oil as a benchmark, prices so far in 2017 are 25 percent above last year’s $41 average, while OPEC production in the same time is 2 percent, or 700,000 bpd, below 2016’s average, he said.

“That arithmetic ought to persuade OPEC and Russia of the value of sticking with it, maybe cutting sufficient extra barrels to offset Libya and Nigeria increases and reaping the reward of higher overall 2017 revenues,” said Fyfe.

“But the politics of apportioning further cuts will get messy,” he added.

Khelil also said he thought OPEC needed to keep on with supply restraint beyond the expiry of the current deal to protect the increase in income earned this year.

“It would be in the best interest of OPEC to plan on continuing curtailing production after the end of March 2018 so as to maintain the 9 to 10 percent gain in revenues achieved in 2017,” he said.

(Editing by Dmitry Zhdannikov and Edmund Blair)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/GUCzlqj_cpI/us-opec-oil-revenues-analysis-idUSKBN19J1QM

Alibaba spending $1 billion to raise stake in Southeast Asia’s Lazada


SINGAPORE Chinese e-commerce company Alibaba Group Holding is investing an additional $1 billion in Southeast Asian online retailer Lazada Group, boosting its stake by nearly a third to 83 percent and amplifying its focus on the region.

Alibaba’s announcement comes as its rivals such as Chinese e-commerce firm JD.com Inc are expanding operations in Southeast Asia and amid media reports that Amazon is eyeing an entry into the region of 600 million people where only a fraction of total retail sales are currently conducted online. (tcrn.ch/2mSzlop)

The region may be the first market where Amazon and Alibaba will go head-to-head, if the U.S. firm confirms the plans.

“It is a clear signal from (Alibaba) that, now having learned the market better, that they really believe in the opportunity of ecommerce in southeast Asia,” Lazada Chief Executive Maximilian Bittner told Reuters in an interview.

The move doubles Alibaba’s investment in Lazada after last year’s deal to buy a controlling stake in it for about $1 billion and is a part of its efforts to boost its global sales. Alibaba had the option to buy the remaining stakes from some Lazada investors, 12-18 months after the deal closed.

Besides financial support, Alibaba’s investment has provided Lazada with several benefits, including access to a wider range of merchants and improving its logistics capabilities.

Lazada has been expanding its offerings over the last year, buying Singapore-based online grocer RedMart and tying up with companies such as Netflix and Uber [UBER.UL] for a membership program.

Bittner said having Alibaba as a backer was “very helpful” in distinguishing itself from Amazon and other competitors.

“It will be easier to take on one 800 pound gorilla when you have the other 800 pound gorilla behind you,” he said, when asked about a potential Amazon entry.

On Wednesday, Alibaba said it will purchase the shares from certain Lazada shareholders at an implied valuation of $3.15 billion. Germany’s Rocket Internet and Sweden’s Kinnevik confirmed in separate statements that they were among the selling shareholders.

Last year’s deal had included partial stake sales by investors, including British supermarket operator Tesco Plc, Rocket and Kinnevik.

Bittner said Lazada management and Singapore state investor Temasek Holdings [TEM.UL] were the only other remaining shareholders, besides Alibaba.

Lazada, founded in 2012, is headquartered in Singapore and also operates in Malaysia, Indonesia, the Philippines, Thailand and Vietnam. In the twelve months ended March 31, 2017, Lazada had about 23 million annual active buyers, according to Alibaba’s annual report.

“The e-commerce markets in the region are still relatively untapped, and we see a very positive upward trajectory ahead of us,” Daniel Zhang, CEO of Alibaba, said in a statement. “We will continue to put our resources to work in Southeast Asia through Lazada to capture these growth opportunities.”

Alibaba shares were down 0.4 percent in pre-market trading, while Rocket shares were 2.3 percent lower.

Amazon did not immediately respond to an emailed request for comment on its plans for the region.

(Reporting by Aradhana Aravindan; Additional reporting by Anshuman Daga in SINGAPORE and Emma Thomasson in BERLIN; Editing by Muralikumar Anantharaman and David Evans)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/SbNsfl1tFvY/us-lazada-m-a-alibaba-idUSKBN19J0XV

Exclusive: Halliburton in talks to buy billionaire Kaiser’s equipment firm


HOUSTON Halliburton Co (HAL.N) is in late-stage talks to acquire a fast-growing U.S. oilfield equipment supplier backed by Oklahoma energy and banking billionaire George Kaiser, according to sources familiar with the matter.

The move comes after the No. 2 oilfield services company was rebuffed in two earlier efforts to acquire similar products. Houston-based Halliburton has set its sights on Summit ESP Inc, said the sources, who spoke in recent days. The people spoke on condition of anonymity because the discussions are not public.

Tulsa, Oklahoma-based Summit ESP makes pumps used to maintain well pressure to increase oil and gas production in aging wells. The devices, components in a business called artificial lift, increasingly are being used to prolong the life of shale wells.

Halliburton’s 2014 attempt to buy Baker Hughes Inc (BHI.N) was opposed by U.S. regulators and its 2016 bid for a Russian company has been stalled by Russian regulators.

Halliburton declined to comment on Tuesday. Summit did not return calls seeking comment. Argonaut Private Equity, Kaiser’s investment vehicle, declined to comment.

Summit ESP was founded in 2011 and is led by executives who had earlier held senior posts at Baker Hughes, including Chief Executive John Kenner. It has expanded quickly in the United States and Canada, and in May announced it had installed its 8,000th electric submersible pump (ESP), an increase of 1,000 since November.

ESPs are a worldwide business of about $5 billion a year, according to market researcher Frost Sullivan. The main providers are Schlumberger NV (SLB.N), Baker Hughes and Weatherford International PLC WTF.N.

Halliburton, which has a small ESP business, “is trying to catch up to Schlumberger and Weatherford,” Anand Gnanamoorthy, industry manager at Frost Sullivan, said in an interview this month. ESPs generally cost between $50,000 and $200,000 for a complete system, he said.

Summit, said one of the sources, wants to reach a deal soon to pre-empt the announcement of Baker Hughes’ closing on its merger with General Electric Co (GE.N) oil and gas unit, which is expected at mid-year.

Kaiser, who controls Kaiser-Francis Oil Co and is the majority owner of BOK Financial Corp (BOKF.O), which owns banks from Arizona to Missouri, financed Summit ESP through his Argonaut Private Equity investment firm. It has more than $3 billion of capital deployed in more than 100 investments. Sales talks between Halliburton and Summit have been on and off several times in the last year over valuation differences. Summit ESP’s revenue last year was about $180 million, a decline of 10 percent from 2015, according to market researcher Spears Associates. After initial talks with Summit last year, Halliburton shifted its focus to reaching an agreement with Novomet Oil Services Holdings, a Russian supplier of electric submersible pumps that has operations in about 17 countries. In December, Halliburton disclosed it had sought Russian government approval for a deal to acquire up to 100 percent of Novomet.

Halliburton Chief Executive Jeff Miller twice this year has told analysts the company was looking to fill a gap in its artificial lift business through mergers and acquisition. Halliburton renewed talks with Summit this year after Russia’s Federal Antimonopoly Service failed to rule on the application. A Halliburton spokesman declined to comment on the status of that application. A representative of the FAS told Reuters earlier this month it had not decided whether a government strategic review would be needed. A source familiar with the matter said the Russian review has been stalled over concerns about the strategic implications of a U.S. company owning a domestic supplier whose gear keeps aging Russian fields producing.

(Additional reporting by Maria Kiselyova in Moscow; Editing by Matthew Lewis)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/4O4zoZgYItc/us-esp-m-a-halliburton-idUSKBN19J13B

Japan Tobacco tries to catch up with rival in smokeless tobacco


TOKYO Japan Tobacco Inc (2914.T) said on Wednesday it hoped to catch up with Philip Morris International Inc (PM.N) in smokeless tobacco by expanding the number of smoke-free restaurants and public places that allow its vaping product.

Tobacco firms see Japan as a test ground for vaping products, as e-cigarettes using nicotine-laced liquid are not allowed under the country’s pharmaceutical regulations.

While Marlboro maker Philip Morris’s heat-not-burn “IQOS” tobacco device is already enjoying strong demand in Japan, Japan Tobacco’s launch of its “Ploom Tech” product has run into delays due to production shortages.

Japan Tobacco, a former state monopoly still a third owned by the government, will start selling Ploom Tech at its flagship shops on Thursday and 100 tobacco stores on July 10 in Tokyo. The company has said it plans to sell it nationwide in the first half of the next year.

The company test-launched the product in southwestern city of Fukuoka in March last year and at its online shop. It had to temporarily suspend sales after demand overwhelmed supply. Japan Tobacco said it had sold 250,000 Ploom Tech devices by the end of last year.

Unlike Philip Morris’s IQOS, Ploom Tech does not directly heat tobacco leaves. Instead, the battery-powered device generates vapor that goes through a capsule packed with tobacco leaves.

Japan Tobacco said the mechanism produces less smell than “heat-not-burn” products, and the company hopes it will be a strong differentiating factor against rivals. It said Ploom Tech emits smell a five-hundredth of a conventional cigarette.

The company said about 80 smoke-free restaurants, cafes and other public places in Fukuoka allow the use of Ploom Tech. In Tokyo, there are about 120 such facilities, it said.

“The number of smoke-free places that allow Ploom Tech is increasing,” Chito Sasaki, president of the company’s Japanese tobacco business, told reporters.

(Reporting by Taiga Uranaka; Editing by Stephen Coates)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/ubJLXP9lpi0/us-japan-tobacco-smokeless-idUSKBN19J0DU

Oil pipeline firms’ discounts rile clients, roil markets


NEW YORK U.S. pipeline operators are selling their underused space at steep discounts to keep crude flowing – angering shippers and distorting an already opaque market for oil trading.

Pipeline firms such as Plains All American (PAA.N) and TransCanada Corp (TRP.TO) move about 10 million barrels of crude around the United States every day.

For pipeline operators to secure financing to build pipelines and storage facilities, they need oil producers, refiners and traders to sign long-term contracts to use space on the pipelines.

Pipeline firms can then use the guaranteed revenue from those contracts as collateral. Firms shipping on the pipeline have historically benefited from the long-term deals because they offered a discount compared to the price of buying space occasionally.

But now, in the wake of a two-year oil price crash, pipeline firms are still struggling to keep their lines full. So their marketing arms are offering steep discounts to ad-hoc buyers of pipeline capacity – which irritates customers whose long-term contracts are now more expensive than spot purchases.

“If I were a producer with a long-term contract, I would be very unhappy at the present time,” said Rick Smead, managing director of advisory services at RBN Energy in Houston. “But, the reality is that when they (signed contracts), they were trapped.”

Eight pipeline operators contacted by Reuters for this story declined to comment on their discounted spot pricing or the secondary market for pipeline capacity.

Some of those pipeline firms are offering prices as low as 25 percent of federally regulated rates, creating a secondary market that undercuts shippers with long-term contracts, according to four sources at companies that regularly ship on the pipelines.

For a graphic detailing how the discount deals work, see: tmsnrt.rs/2sJwW5E

The discounts emerged after a global glut and crashing oil prices caused many shippers to let their pipeline contracts lapse or declare bankruptcy.

More than a dozen producers, traders and refiners told Reuters they were angry and frustrated that these discount deals have become a mainstay. They declined to be named because they were not authorized to speak publicly.

The contract and regulatory framework of the industry makes it difficult for them to bargain down their own long-term contracts, leaving them paying more for the pipeline space than occasional shippers competing to send oil through the same lines.

This gives the occasional shippers the edge in delivering cheaper crude to potential buyers at the end of the line.

DEEP DISCOUNTS

TransCanada’s 700,000 barrel-per-day Cushing-Marketlink pipeline – which carries oil from Cushing, Oklahoma, to Texas refineries – has long-term rates of between $1.63 and $2.93 a barrel to transport heavy crude, while occasional shippers typically paid $3.

The industry downturn since 2014 has reduced demand from occasional shippers to use the line at that price.

Earlier this year, TransCanada’s marketing arm offered customers the right to send crude through the line at a tariff of between 80 to 90 cents, traders using the line said.

At the end of 2016, the rate offered was as low 30 to 40 cents. Even with the discounts, the line rarely reached 70 percent capacity.

TransCanada declined to comment.

Pipeline operators agree to charge specific tariffs for sending oil through the lines when they sign long-term contracts with oil shippers.

Those rates are known as committed tariffs, and are subject to approval by the U.S. Federal Energy Regulatory Commission (FERC). The FERC also reviews the rates paid by occasional shippers, known as uncommitted tariffs.

The FERC declined to comment on the secondary market and on the tariffs that the marketing arms of pipeline operators are charging in that market.

AGGRESSIVE MARKETING

Most of the 10 largest U.S. pipeline operators – such as Enbridge (ENB.TO) and Enterprise Products Partners (EPD.N) – have established their own marketing or trading arms that are reselling space.

Last year, TransCanada – which operates the massive Keystone pipeline system – became the most recent player to open a unit to trade oil and resell pipeline space.

A few, such as Plains, have had marketing arms for more than a decade, but in the past they had mostly just sold or traded space that went unused by major producers who had committed to long-term contracts.

On lines such as TransCanada’s, big producers such as ExxonMobil (XOM.N) and Suncor Energy (SU.N) account for up to 90 percent of the flow in a pipeline. The remaining 10 percent is sold to occasional shippers.

Suncor and ExxonMobil declined to comment.

With the three-year rout in oil, the volume accounted for in long-term contracts has fallen, and the marketing arms have gone from simply selling occasional space to needing to make big deals to fill the lines.

The practice has become so widespread that even pipeline operators who had previously said they disliked the emergence of the secondary market have now joined the fray.

Magellan Midstream Partners (MMP.N), for instance, in November applied to the FERC to establish a marketing arm, citing the more favorable terms other firms can offer customers. The move came after Magellan had declined for years to run its own operation out of fear that it would compete with its own customers.

The secondary market is formed by marketing firms signing up to long-term contracts with their parent companies, the pipeline owners. The marketing firms become like committed customers to the line, and pay the same rates for the space as the firms with long-term contracts.

Those marketing firms book a paper loss for shipping the volumes at a discount. But the sales keep the pipelines more full – which makes the parent firm look better to investors, who use pipeline volume as a key metric to judge those firms.

Some companies have felt the pinch of the paper losses. Genesis Energy LP (GEL.N) – a Houston-based midstream firm with a market cap of $3.6 billion – said its supply and logistics unit saw fourth-quarter revenues fall by 15 percent from a year earlier.

The company’s Chief Executive Grant Sims, during a recent earnings call, cited “volume cannibalization” for the decline, saying that it was forced to compete in a market in which participants were willing to lose money.

Genesis declined to comment further to Reuters.

Ed Longanecker president of the Texas Independent Producers Royalty Owners Association, said tensions between producers and midstream firms become more strained in a low-price environment, with producers “at the mercy of an extremely competitive market.”

(Additional reporting by Liz Hampton in Houston; Editing by David Gaffen, Edward Tobin, Simon Webb and Brian Thevenot)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/C3wKFQw6d00/us-usa-pipelines-tariffs-analysis-idUSKBN19J0E9

Asia stocks pressured as Wall St. hit by healthcare vote delay


TOKYO Asian shares slumped on Wednesday after Wall Street was knocked hard in the wake of a delay to a U.S. healthcare reform vote, while the euro rallied after European Central Bank President Mario Draghi hinted that the ECB could trim its stimulus this year.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.4 percent, pulling further away from more than two-year highs probed earlier this week. On Monday, it touched its highest level since May 2015

“We’ve had a pretty good run,” said Sean Darby, chief global equity strategist at Jefferies. “I suspect what people have owned has done very well, and they want to sell some of those positions.”

Japan’s Nikkei share average slipped 0.3 percent, facing headwinds from the dollar’s reversal of its rise against the yen. But the banking and insurance sectors outperformed on expectations of higher rates.

The yield on U.S. Benchmark 10-year Treasury notes stood at 2.198 percent in Asian trading, flat from its U.S. close on Tuesday and above 2.14 percent late on Monday after Federal Reserve chief Janet Yellen said that it is appropriate to gradually raise rates.

“Yellen’s comment is supporting Japanese financial stocks today, and for the long-term, Japanese stocks are on the rising trend supported by U.S.-led global economic recovery,” said Mutsumi Kagawa, chief global strategist at Rakuten Securities.

On Tuesday, the benchmark SP 500 posted its biggest one-day drop in about six weeks and closed at its lowest point since May 31, after the U.S. Senate’s move to delay voting on a healthcare reform bill rekindled worries on the timeline for President Donald Trump’s business-friendly policies. [.N]

U.S. stocks accelerated their losses after Senate Republican leader Mitch McConnell decided to put off a planned vote on a bill to dismantle the Affordable Care Act until after the Senate’s July 4 recess, to get more time to garner sufficient votes for its passage.

Against the perceived safe-haven yen, the dollar slipped 0.3 percent to 112.090 after rising as high as 112.285 yen, its highest since May 17.

The dollar index, which gauges the U.S. currency against a basket of six major counterparts, edged down slightly on the day to 96.365, well below its previous session high of 97.447.

The euro was up 0.4 percent at $1.13480 after rising to a 10-month high of $1.1356 after Draghi, speaking to a conference in Portugal, said the ECB could adjust its policy tools as economic prospects improve in Europe.

Some strategists said that once the dust settled from the impact of his comments, the euro could give back some of its gains.

“To me, it seems the change in policy will not be very substantial, so I think in the coming days, ECB officials will try to water down Draghi’s comments,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

Crude oil futures steadied after their overnight surge. Prices rose nearly 2 percent on Tuesday on the weaker dollar, short-covering and expectations that U.S. crude inventories might decline for a third consecutive week. [O/R]

Brent crude futures edged up slightly on the day to$46.66 per barrel. U.S. crude futures were down 0.2 percent at $44.14.

The weaker dollar helped bolster spot gold, which was up 0.4 percent at 1,252.50 per ounce. [GOL/]

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Simon Cameron-Moore)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/sNTg17lyyNw/us-global-markets-idUSKBN19J02Y