THE VOICE OF BUSINESS IN NORTHERN MINDANAO

Thursday, September 30, 2010

Morning Brief: 30 September 2010

Meralco consumers may see drop in power bills

CONSUMERS OF power distributor Manila Electric Co. may expect their power bills to further decline in October.

The cost of electricity that Meralco sources from independent power producers (IPPs) continued to drop, the distribution utility explained.

IPP power rates fell by an average of 12 centavos per kilowatt-hour, with Quezon Power Philippines Ltd. (QPPL) registering the biggest reduction of almost 26 centavos per kWh.

The rates of Meralco’s two other IPPs—the 1,000-megawatt Sta. Rita and the 500-MW San Lorenzo natural gas-fired power plants—also decreased by 9 and 6.5 centavos per kWh, respectively.

The reduced rates are expected to spur a drop in generation charges, which currently accounts for about 60 percent of a customer’s average monthly power bill. This charge goes directly to the distribution utility’s power suppliers and not to Meralco.

The reduction in IPP rates is largely due to the higher capacity factor of all three IPPs, resulting in lower fixed cost per kWh. Capacity factor, or dispatch, refers to the capacity of these facilities to provide electricity, Meralco said in a statement.

For the supply month of September, the capacity factor of QPPL, Sta. Rita and San Lorenzo reached 96.7 percent, 92.3 percent and 96 percent, respectively.

Meralco stressed that if the IPP plants’ dispatch levels would go any higher, or yield higher electricity output, a further drop in power rates could be expected. The IPPs have consistently been the distribution utility’s cheapest source of power in the past four months.

Aside from the IPPs, Meralco also sources electricity from the National Power Corp. (Napocor) and the wholesale electricity spot market (WESM).


ASEAN-5 growth seen easing in 2011

THE ASEAN-5 economies -- which includes the Philippines -- will likely see this year’s strong growth moderate in 2011 as the effects of stimulus measures recede, a Standard & Poor’s subsidiary said.

Writing in a "guest opinion," analysts from Mumbai-based CRISIL Ltd. said the Philippine economy -- which grew by 7.9% in the first half -- would likely end 2010 up 4.8-5.3%, easing to 4.2-4.7% the following year.

The forecasts compare to the government’s targets of 5-6% for this year and 7-8% for 2011, and are also among the lowest compared to the outlooks for neighboring Indonesia, Malaysia, Thailand and Vietnam.

ASEAN-5 growth, CRISIL said, has been stronger than expected, buoyed by a mix of policy actions. The speed of the recovery from the global downturn, however, varies from country to country and Vietnam and Malaysia were seen as leading the ASEAN-5 pack.

Vietnam is expected to end 2010 with 6.3-6.8% growth, followed by Malaysia with 6.0-6.5%; Indonesia, 5.7-6.2%; Thailand, 5.5-6.0%; and the Philippines, 4.8-5.3%.

"In 2010, we expect average first-half growth for the ASEAN-5 to reach 7.9%, before dropping back to about 4.8% for the second half," the report’s authors said. "The weaker second-half outlook is due to the waning impact of inventory restocking off a weak base, fiscal stimulus withdrawal and monetary policy tightening."

"The Philippines remains the laggard of the group as private demand is yet to gain a stronghold. Broadly, we expect the impressive recovery of first-half 2010 to wane somewhat by year-end and further moderate in 2011 as the effects of fiscal and monetary stimulus withdrawal set in," they said.

CRISIL’s ASEAN-5 growth forecasts for 2011 are as follows: Vietnam, 6.7-7.2%; Indonesia, 5.8-6.3%; Malaysia, 4.8-5.3%; the Philippines, 4.2-4.7%; and Thailand, 3.8-4.3%.

National Economic and Development Authority Deputy Director-General Augusto B. Santos rejected the S&P unit’s 2011 outlook, saying the government’ 7.0-8.0% target was achievable via the public-private partnership (PPP) program.

"PPP will start by first quarter next year. Definitely it will affect our growth," Mr. Santos said in a telephone interview.

Some P128 billion worth of PPP projects will be up for tender next year out of an estimated P740 billion worth set for implementation over the next six years.

Victor A. Abola, an economist from the University of Asia and the Pacific, agreed with Mr. Santos, saying : "They (the opinion writers) are not considering the investments that will come next year because of PPP. And those are not coming from the US, it’s coming from the East Asia."


U.S. Stocks Retreat on Concern Over Europe Debt, Bank Profits

U.S. stocks fell, trimming the best September rally for the Standard & Poor’s 500 Index since 1939, amid concern that Europe’s debt crisis will worsen and the profit outlook for banks and retailers is deteriorating.

JPMorgan Chase & Co. and Wells Fargo & Co. declined more than 1.1 percent, pacing losses in financial companies. Urban Outfitters Inc. slumped 8.4 percent as Hennes & Mauritz AB, Europe’s second-largest clothing retailer, said third-quarter profitability missed analysts’ estimates. Benchmark indexes fluctuated earlier as energy stocks rallied on higher oil prices and Hewlett-Packard Co. advanced 2.2 percent after its earnings forecast topped estimates.

The S&P 500 fell 0.3 percent to 1,144.73 at 4 p.m. in New York. The Dow Jones Industrial Average declined 22.86 points, or 0.2 percent, to 10,835.28.


Treasuries Fall as Federal Reserve Officials Question Quantitative Easing


Treasuries dropped, pushing the yield on the 10-year note higher for the first time in three days, as Federal Reserve policy makers cast doubt on an increase in debt purchases by the central bank.

Bonds fell as Philadelphia Fed President Charles Plosser said he opposes more monetary expansion to support the economy in part because he sees “little risk” of deflation. Boston Fed President Eric Rosengren said further large-scale purchases of securities would depend on the outlook and incoming data.

“The Fed speakers today are more balanced,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “They don’t have enough information yet. They need to see more data. It’s still a question mark.”

The yield on the benchmark 10-year note rose 4 basis points, or 0.04 percentage point, to 2.51 percent at 5:24 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in August 2020 dropped 10/32, or $3.13 per $1,000 face amount, to 101 1/32.

The 2-year note yield increased 1 basis point to 0.44 percent, compared with the record low of 0.41 percent reached on Sept. 22. The 10-year note yield dropped earlier today to 2.45 percent, near the lowest since Aug. 25.


Crude Oil Advances to Seven-Week High as Fuel Supplies Drop Unexpectedly

Crude oil rose to a seven-week high after a U.S. government report showed unexpected declines in supplies of gasoline and distillate fuel as refiners cut operating rates to the lowest level since April.

Oil gained 2.2 percent as total petroleum supplies fell the most since March and gasoline demand increased by the largest amount since February. A Chinese purchasing managers’ index showed manufacturing accelerated for a second month in the world’s fastest-growing oil-consuming country.

“Not only are things looking better in the U.S., but we’re also seeing emerging markets such as China continue to heat up,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “This is a bullish force in the market.”

Crude for November delivery rose $1.68 to settle at $77.86 a barrel on the New York Mercantile Exchange, the highest closing price since Aug. 11. The price ranged from $75.60 to $78.13.


Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher

(632) 858-3001

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