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After years of stagnation, New Zealand's interest in gas exploration is picking up.
Seven oil and gas companies are racing to secure offshore exploration rights before a New Zealand national election, which could result in a ban on new permits. The country's main parties?battle about the need for natural gas. New Zealand has attracted?interest? after the conservative government overturned last year a ban on offshore drilling, imposed in 2018. The goal was to avoid gas shortages for industry users and boost power generation during dry years when hydropower production falls. In May, the country produced 7,6 petajoules (PJ) of gas. This was largely due to fields that have declined or are about to decline. The government reported in January that gas reserves will drop 23%, to 731 PJ by 2025. The gas is all used in New Zealand. According to Energy Resources Aotearoa, if there were more gas available, the demand would increase by 100 PJ per year. According to industry and government, the former Prime Minister Jacinda's government prohibited offshore bids. They also waited long for environmental approvals. After the offshore ban came into effect, Chevron and Equinor both renounced their exploration permits. "We're kind of jammed at one side." "We've got mature and old fields near the end of their life at one end," said ERA Chief Executive John Carnegie. We have a gap of?seven years because of the ban. He said that we are rebuilding the entire sector from scratch. New Zealand set up a fund of NZ$200,000,000 ($117,000,000) last year to assist operators in?developing projects, such as extracting more gas from mature reservoirs. But so far, no new permits were issued. A PROMISING FIND Sunda Energy, based in the UK, Pancontinental Energy of Australia and EnZed (privately owned) have all received grants and are waiting for formal permits. Three New Zealand companies are working together to secure another permit, and CBX Energy has been working on securing a permit for the Canterbury Basin off the South Island. Three months is the time limit for competitors to come up with superior plans of work in the same area. EnZed and Sunda are both targeting the Taranaki Basin, which is the only offshore producing basin in the country. This area has extensive subsurface data as well as known gas discoveries. Andy Butler, Sunda's CEO, said: "We find it an interesting discovery. We'd love to work with it." It is a country that attracts smaller explorers, especially at a moment when the gas policy in Australia, whose neighbour is a major player in the sector has caused confusion and consternation. Neil Young, founder of EnZed, said: "I believe that Australia's domestic?gas mess has caused capital?allocators to look at New Zealand as a possible alternative." Shane Jones, Minister of Resources, said that investor confidence is returning. He said, "It took us a long time to get the regulatory environment straightened out and people have recently shown that they are willing to take a risk and give it a try." The explorers are looking to secure drilling rights before the New Zealand election in November, as the Labour Party intends to reinstate a ban on off-shore exploration while honoring existing permits. Tangi Utikere, acting Labour Energy and Resources spokesperson said: "Labour will reinstate a ban on the issuance of new oil and gas permits. It's the right decision for New Zealand's long-term energy security and to reduce power bills." He said: "We have stated that we will honour existing permits. However, we do not believe the government should support an outdated industry." The polls show that the race for the presidential election is still too close to call.
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Gold prices steady as markets evaluate Middle East escalation and Fed raise bets
Gold prices were little changed Monday as investors assessed the escalation of the Middle East conflict that has pushed up oil prices, and another U.S. Federal Reserve official signaled that higher interest rates may be necessary to reduce price pressures. As of 0455 GMT, spot gold was $4,018.90 an ounce. U.S. Gold Futures for August 'delivery' gained 0.1%, to $4 023.10. U.S. gold futures for August?delivery gained 0.1% to $4,023.10. Brian Lan, GoldSilver Central's Managing Director, said: "The war continues, and the focus is on rising oil costs that could lead higher inflation. This is what keeps gold under pressure." The metal is still supported when the price falls below $4,000. Oil prices are rising, which is causing inflation fears and speculation about higher interest rates for longer. Gold is often seen as a hedge against inflation, but high interest rates increase the opportunity costs of holding this non-yielding investment. Beth Hammack, Cleveland Fed President, added her voice to the growing chorus of policymakers who argue that?interest rates might need to be raised to beat back persistent price inflation. This will set up a heated debate at the next Fed meeting on July 29, According to CME FedWatch, traders now price in an 82% probability of a December rate hike, up from 73% last week. Kelvin Wong is a senior market analyst at OANDA. He said: "I'm cautious about gold in the long term and I am looking at the $3,886 key level. If it were to be taken down on the downside, this could unleash further weakness towards $3,500." The price of spot silver rose 1.7%, to $56.87 an ounce. Platinum was unchanged at $1,592.34, while palladium increased 0.1% to $1,249.25. (Reporting and editing by Sherry Phillips and Harikrishnan Nair in Bengaluru, and Pablo Sinha from Bengaluru)
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HDFC Bank drags down Indian shares; oil prices also weigh
Indian?shares fell on Monday. The decline was largely due to the?HDFC Bank reducing its quarterly net interest margins. By 10:04 a.m. IST, the?benchmark Nifty 50 index fell 0.60%, to 24,187.25. The BSE Sensex dropped 0.76%, to 77566.17. HDFC Bank fell 5%, its steepest intraday drop in four months, after in-line June-quarter profit was overshadowed by a sharper-than-expected net interest margin decline. HDFC Bank's?drop was greater than Reliance Industries' 0.3% increase and ICICI Bank?s 0.6% gain after their results. Reliance surpassed profit expectations on the strength of oil-to chemicals and telecom?verticals. This was announced after market hours on Friday. ICICI Bank also reported a higher than expected profit for the June quarter, due to strong?loan demands. Kotak Mahindra Bank & Axis Bank both fell by 3% & 6% respectively after multiple brokerages flagged softer first quarter margins. Analysts at Jefferies, Prakhar Sharma & Vinayak Agarwal said that the rise in corporate loans as well as recent spikes in wholesale prices have led to a decline in net interest margins for banks in this quarter. They said that they expected margins to be under pressure during the current September quarter. Seven of the 16 major sectors suffered losses. Banks and financials both lost 1.5%. Private lenders dropped 2.5%. Small-caps and midcaps both rose by?0.2%. The price of crude oil topped $90 per barrel and weighed on the sentiment after the?U.S. Forces?struck Iran on a ninth consecutive night. India's vulnerability will be re-emerging if this trend continues with negative implications for the rupee, and foreign flows, said VK Vijayakumar. Chief investment strategist at Geojit Investments. ONGC and Oil India buck the trend by rising 1.6% and 2.5% respectively, as the upstream oil producers gain from higher crude prices, which improves revenue and profitability. VA Tech Wabag increased its revenue by 4.7% as a result of winning contracts for wastewater treatment facilities. (Reporting and editing by Vivek M and Bharathrajeswaran, Subhranshu Sahu and Ronojoy Mazumdar; Niveditor Bhattacharjee).
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Morning Bid Europe-Rising Oil, rains on AI Party
Wayne Cole gives us a look at what the future holds for European and global markets. While Spain hoisted the World Cup in celebration, the U.S. Military began?its ninth day of attacks against Iran. Iran was also?hitting targets throughout the region. On Sunday, only a few ships crossed the 'Strait of Hormuz. One was on fire. Brent crude oil rose above $90 per barrel for the very first time since June. Treasury bond futures fell as investors lowered the odds of a Federal Reserve interest rate hike in September. The implied probability was around 65%. The rise in 30-year Treasury rates above 5.0% is a warning to equity valuations. A quick glance at a chart shows that yields have rarely risen above this barrier over the last two decades. Stocks tend to suffer when they do. This week, Alphabet, Intel and Tesla are among the companies that will be reporting their earnings. The expectations for tech profits is sky high and the results must be truly exceptional to avoid being punished. Taiwanese chips maker TSMC beat its guidance last week, but shares fell 7%. The chip-heavy South Korean market has fallen by a quarter over the last month, as retail investors were forced out of leveraged positions. The index fell another 3.0% Monday, but that was a better result than many had expected. The Nikkei 225 was on holidays in Japan, but the futures actually traded higher. This gave hope of stabilisation. Futures for Nasdaq &?S&P500 were slightly firmer. This was a good performance, given the recent negative news. The latest spike in oil prices will cause a headache to the European Central Bank, which is meeting on Thursday. It's expected that they will keep rates at 2.25 percent following June's increase. Markets are almost fully priced in for an increase at the September meeting, and rates of 2.5% to begin next year. The sterling held steady at $1.3447 while bond markets awaited the appointment of a new Treasurer by Britain's incoming PM Andy Burnham. Shabana Mahmood is the preferred candidate of the market ahead of Ed Miliband. Market developments on Monday that may have a significant impact - Canada CPI, U.S. Leading Index for June
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Copper prices rise as fears over supply offset demand concerns
Prices of copper edged up on Monday due to a?shrinking inventory and supply risk, but uncertainty about the?demand outlook limited gains. By 0300 GMT, the benchmark three-month copper contract on the London Metal Exchange had risen 0.16% to $13,546.5 per metric ton. The Shanghai Futures Exchange's most traded copper contract rose 0.39%, to 104210 yuan (US$15,389.50). Daniel Hynes said that the growth of copper production in Chile, the world's largest producer, has been "elusive" so far, according to a note by Daniel Hynes senior commodity strategist with ANZ. South32, an Australian mining company, reported lower fourth quarter copper production, falling short of market expectations. Inclement weather at the Sierra Gorda Project in Chile hampered operations. BHP Group announced last week that its fourth-quarter output of copper fell by 5%. It also predicted a decline in Chilean production of copper next year. Goldman Sachs stated on Monday that it expects ex-U.S. Copper market to remain tight in the near term. Goldman Sachs said that prices may be affected if the Middle East conflict escalates and increases inflation and rate hike fears. Copper inventories are declining. Copper stocks available on the LME The number of warrants issued has dropped sharply in the wake of a wave cancellations. As of Friday, more than half (55%) of the copper stored in LME registered warehouses was under a cancelled warrant, which means that they were earmarked for removal, according to data from the exchange. The U.S. has also imported metal ahead of a possible tariff on?refined?copper. In the meantime, the U.S.-Iran conflict continued over the weekend. This boosted oil prices while fanned fears that inflation would lead to higher interest rates for longer. Increased interest rates dampen economic activity, which in turn affects industrial minerals that are dependent on growth. Aluminium?added 0.32 %, Zinc?strengthened 0.38%, Lead?slid 0.05% and Nickel rose 0.47%. Tin gained 0.51%. Aluminium fell 0.24% on SHFE. Zinc dropped 0.61%. Lead ticked higher by 0.06%. Nickel dipped by 0.18%. Tin rose 1.88%.
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Weather agency: 'Super El Nino' to bring record temperatures to Malaysia next year
Malaysia's meteorological department has said that it expects to record high temperatures in Malaysia next year due to the strengthening of?El Nino. El Nino is a natural part of the weather cycle. It's characterized by weakened trade winds, and warmer ocean currents. Climate experts warn of a super-strong El Nino in this year. This could lead to severe weather like droughts, heatwaves and floods. Malaysia's Director-General of the Meteorological Department, Mohd Hisham Mohd Aip, said that the agency predicts El Nino will peak between March 2027 and May 2027. Maximum temperatures are expected to exceed the 1998 Chuping record of 40.1, degrees Celsius (104.2 degrees Fahrenheit). In an interview, he stated that Malaysia's average temperatures have risen since the 1980s. The highest temperatures are often recorded when "super" El Nino occurs. Mohd Hisham said that the global warming was a factor in the rising heat. He said that the?department expected much lower rainfall in the northern areas of Malaysian Peninsula, as well as higher temperatures in Sabah and Sarawak - Malaysia's two largest palm oil producing States on Borneo Island. Sabah's proximity to the Pacific is one of the reasons why some of El Nino's most powerful effects are seen there, he said.
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European chemical earnings will test the recovery of demand after conflict-driven pricing boost
Investors are increasingly interested in whether this temporary boost can offset weak demand and the mounting competition of Asian producers. The Middle East conflict has tightened supply conditions, which have helped to support pricing. This has given breathing space to Europe's chemical sector. However, weak demand, overcapacity globally and increasing competition from Asia are still weighing on the long-term outlook of the industry. Investors are also interested in whether the companies have reported sustained volume gains or only temporary price increases, as well their outlooks for second half of the calendar year. Brenntag, BASF, and Evonik are among the chemical companies that have recently increased their profit forecasts for the full year. This suggests that parts of industry are benefiting from higher prices and resilient demand, despite concerns over excess capacity and low volumes. Lanxess Clariant Wacker Chemie results will be closely examined for signs that recent price support is translating to stronger earnings. Analysts say investors have shifted their focus in recent weeks away from the margin benefits of shortages in supply to concern over the underlying weakness in demand in Europe's chemicals sector. MIDDLE-EAST CONFLICT DRIVEN UPLIFT TO FADE Since years, European chemical companies have been struggling with high energy prices, weak demand, and fierce price competition from Asian competitors. The Middle East conflict provided a short-term boost to the chemicals industry in the region, as disruptions in supply raised prices for Asian competitors and made customers prioritize reliability over price. The increase in investment and demand has not been enough to compensate for the weakening of the industry. VCI, the German chemical industry's body, warned that recent improvements in the chemical sector following Middle East disruptions may only be temporary. The report said that the risks for the second-quarter have increased due to the economic boom caused by the Middle East war. It referred to the stockpiling of customers and the precautionary purchases made after supply concerns. The association stated that demand could re-soften once supply chains are adjusted and pre-purchasing activity fades. This would expose what the association described as a structural weakness in market. The report warned that the sector may face new price pressures and lower order volumes. Before the latest Middle East tensions, European manufacturers warned that Asian competitors would gain ground as energy markets stabilized and regional supply chains adapted. Analysts and Strategists say that periodic disruptions in traffic through the Strait of Hormuz, and rising energy prices may keep commodity chemical prices high. However, they doubt prices will return to their peaks at the start of the U.S. - Iran war. Sebastian Bray, Berenberg analyst, said that the latest impact was likely to be less than it was before. He added, "I suspect that some Southeast Asian producers of chemicals have become more proficient at producing feedstocks now."
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Gold falls as oil prices rise, Fed rate hike voices grow
Gold?prices?fell on Monday?as a escalation of the Middle?East?war pushed Brent?crude above $90 a?barrel, heightening concerns about inflation after many U.S. Federal Reserve officials signaled that interest rate increases may be necessary to curb price pressures. As of 0242 GMT, spot gold was down by 0.1%, at $4,014.53 an ounce. U.S. Gold Futures for August Delivery were unchanged at $4,019.80. U.S. officials announced that they had completed nine consecutive nights of attacks against Iran. Earlier, the U.S. announced that two U.S. soldiers were killed in Jordan. Meanwhile, U.S. partners in the region reported more Iranian attacks Sunday. The weekend escalations increased the risk of both sides launching a full-scale offensive, which could threaten gold prices, as the opportunity costs for holding the metal would increase if the ongoing stagflation fear started to take hold, said Kelvin Woong, senior market analyst at OANDA. Brent oil prices rose 3% on the back of reduced energy shipments through the Strait of Hormuz. Oil prices that are high can cause inflation fears, and increase the odds of interest rates staying higher for longer. Gold is often seen as a hedge against inflation, but high interest rates can increase the cost of owning the non-yielding investment. Cleveland Fed President Beth Hammack has added her voice to the growing chorus of policymakers who believe that interest rates need to be raised to combat persistent?inflation. This will set up a heated debate at the Fed’s next meeting, and could lead to disagreements during Chairman Kevin Warsh’s second meeting. CME FedWatch Tool shows that traders now price in an 82% chance for a December interest rate hike, up from 73% last weekend. Wong said, "On the long term, I am more cautious about?gold. I look at the $3,886?level which, if broken on the?downside, could potentially unleash a further decline towards $3,500." Other metals, such as spot silver, rose 1.9%, to $56.95 an ounce. Platinum was up by 0.5%, at $1,599.97, and palladium fell 0.2%, to $1,244.50.
SpaceX's $1.75 Trillion price tag: An unconventional rationale
Wall Street uses some unconventional yardsticks in order to value 'Elon Musk’s SpaceX. One of SpaceX's largest institutional investors benchmarks the rocket and satellite firm not against aerospace competitors like Boeing or telecom titans like AT&T but against AI infrastructure players like GE Vernova, Vertiv and Palantir Technologies in a bid justify a $1.75 billion valuation ahead of the biggest IPO ever.
A source familiar with SpaceX's thinking described the framework to me?for the very first time. It illustrates the unusual challenge of valuing a company without obvious public competitors - and how far Wall Street will go to justify a premium valuation. SpaceX filed for a U.S. IPO in secret, according to a report last week. As previously reported, the company will hold an analyst's day on April 21. SpaceX's potential $1.75 trillion valuation is expensive by most traditional measures. This includes comparisons with the earnings and revenues multiples of firms that are often used as references for its business. Boeing and Lockheed Martin's joint venture United Launch Alliance, which competes with SpaceX for launch services, are the peers in space. AT&T, Verizon and other internet service providers would be the peers in this case.
Financial backers of SpaceX, which is on track to raise 75 billion dollars in an IPO in this year, argue that comparisons with established firms in legacy industries miss the point. They say SpaceX and Musk's other companies are positioned to benefit from long-term "secular economic shifts" at a time where few competitors have the ability to do so.
Musk's companies are known to command high multiples, in part due to?investors betting on him personally. Tesla is the most obvious example. And SpaceX investors anticipate that this dynamic will carry through into any public offering.
SpaceX CFO Bret Johnson told IPO banks on a recent conference call that it was "pretty exciting" to be able to sell into the "largest total addressable market" in human history - a $370 billion potential space business. According to the sources, Bret Johnsen estimated the market potential for Starlink's internet service as $1.6 trillion.
SpaceX has not responded to a comment request.
RETHINKING COMPARABLES
The fierce debate about the price of SpaceX's massive IPO is centered on finding the right comparables. Bankers and investors are struggling to determine the value of the company, despite the fact that there are few or no closely comparable public counterparts.
Investors and bankers often sort comparables by industry, based on the assumption that this is a good way to measure financial risk and opportunity. Many investors believe that companies need not be in the same sector to be comparable. They say it is more important for them to compare cash flow, growth and risk profiles. According to this approach, a better comparison is made with companies that are selling into AI data-center buildsout. These companies have been famously rewarded by rising share prices and high multiples.
Jay Bala said that the?calculus for smaller funds is different. AIP in Toronto manages assets of?approximately $100 million, with a significant portion concentrated in SpaceX. "I am piggybacking the biggest funds in the universe. Due diligence has been carried out in great detail. "I'm not going second-guess the world's biggest investors," he said. He admitted that it was difficult to get detailed financial information on SpaceX. "You only can get so much." Sometimes it's difficult to get numbers.
STARLINK VERSUS STAR TELECOMS
Starlink, or what SpaceX refers to as its "connectivity business", is compared with legacy telecom companies. However, some investors claim that these comparisons have been skewed due to aging infrastructure, saturated markets in the United States, and years of modest revenue growth.
I wouldn't consider AT&T or Verizon to be very relevant for the Starlink economic model, even though both companies are in the business to provide communication, said a senior executive from one of SpaceX’s largest institutional investors, who spoke on the condition of anonymity because the work was confidential.
Palantir is a better choice for SpaceX investors because of its high returns on capital invested, good margins, and asset-light structure. These qualities, say fans, justify the high multiples that the stock commands, and indicate greater opportunities in the future.
Palantir, a well-known stock in the market that trades at 43 times revenue expectations and 75 times earnings, is known for being one of the most expensive stocks. Skeptics claim that these levels are unsustainable. However, SpaceX supporters say that they are achievable if backed up by exceptional financial performance.
According to PitchBook, Palantir, with a market cap of $1.75 trillion would still be cheaper than SpaceX on these measures, as it would trade at 110x revenue estimates for 2025.
"Investors should size positions with the understanding that they are paying a platform premium today for infrastructure-monopoly economics tomorrow," PitchBook analyst Franco Granda said in a note ?last month.
ROCKET MANUFACTURING COMPARISONS
SpaceX investors argue that for the rocket manufacturing part of the business, the firm's achievements - such as the fact it built a reusable system, drove down unit costs drastically and expanded into a market where the demand for launch capability continues to grow - demand valuations much higher than those at Lockheed. Lockheed traded recently for around 20 times the expected earnings for next year. Boeing's high multiples reflect the fact that it is a?turnaround story.
They instead turn to industrial names like GE Vernova or Vertiv whose stock has soared due to AI data-center expenditure, arguing that SpaceX launch operations should be re-rated to "picks-and-shovels" in the data-center era.
These preferred comps are not very similar to SpaceX. GE Vernova traded at around 30x expected cash flow, and four times revenue last year.
Vertiv, a company that sells cooling and power equipment for data centres, was recently traded at 19 times the expected operating profit, and 6 times sales last year.
MESSY PRICES AND RATIONALIZATION
Investors and bankers say that SpaceX is difficult to price due to the unique nature of its space operations and AI businesses, which are difficult to value in an early stage.
Aswath?Damodaran, finance professor and valuation expert at New York University Stern School of Business, said: "Pricing will always be messy." "Nobody has the capacity to launch satellites at such a low price and in such large numbers as they do. That's their biggest advantage."
He says that the current price is a reflection of investors' justifications for purchasing the shares, rather than traditional metrics. They're hoping that there is enough momentum and mood behind SpaceX and, when it goes public in the future, this will drive the stock price up.
"They have already decided that SpaceX will be a good buy," Damodaran stated. "Now they are looking for a way to justify this, and the pricing is that exposed rationalization."
(source: Reuters)