Crude Oil Falls as Equities Tumble on U.S. Recession Concerns

(Bloomberg) -- Crude oil fell to a one-month low as stock markets tumbled in Asia and Europe on concern the U.S. will lead a global economic slowdown.

Oil, down more than 11 percent from its $100.09 a barrel record on Jan. 3, led a decline across commodities markets as gold and copper also fell. The MSCI World Index, a measure of global stock prices, slipped 1.6 percent today. Slower growth may cut demand for energy and metals.

``The market is concerned about a recession,'' Thina Saltvedt, an analyst at Nordea Bank AB in Oslo, said today in a telephone interview. ``You will see an effect on demand in the first half of the year.''

Crude oil for February delivery declined as much as $1.90, or 2.1 percent, to $88.67 a barrel in electronic trading on the New York Mercantile Exchange. That's the lowest since Dec. 12. It was at $88.85 at 1:46 p.m . London time. The contract expires tomorrow.

The more active March contract fell $1.49, or 1.7 percent, to $88.43 a barrel at 1:50 p.m. London time. There will be no settlement prices today as the exchange's floor trading session is closed for the Martin Luther King Day holiday.

``Oil prices have lost ground this morning as Asian stock markets plunge lower,'' said Robert Laughlin, a senior broker at MF Global Ltd. in London.

Brent crude for March settlement fell as much as $1.68, or 1.9 percent, to $87.55 a barrel on the ICE Futures Europe exchange. The contract traded at $87.96 in London at 1:51 p.m. local time.

OPEC Waits

OPEC, the producer of more than 40 percent of the world's oil, hasn't yet made a decision on whether to raise output at its Feb. 1 meeting, the United Arab Emirates oil minister told reporters in Abu Dhabi today.

``We are going to meet in February and we will have so many options available,'' Minister Mohammed al-Hamli said. ``We will explore all options. There is a disconnect between the fundamentals and the price.''

Prices advanced earlier after Qatar's Oil Minister Abdullah bin Hamad al-Attiyah said yesterday there is no need for the Organization of Petroleum Exporting Countries to raise output when it meets Feb. 1.

OPEC is ``reluctant to open its taps too wide, especially with a weakening U.S. economic outlook,'' the London-based Centre for Global Energy Studies said in a monthly report today. ``Ministers might veer in the opposite direction and cut production.''

Mexico, the third-largest supplier of crude to the U.S. in 2006, stopped shipments yesterday morning after strong winds and heavy rains shut terminals.

 

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Vale in Xstrata Talks, Says No `Concrete Results'

(Bloomberg) -- Cia. Vale do Rio Doce, the world's largest iron-ore producer, confirmed it's in talks with Xstrata Plc.

No ``concrete results'' have been reached, Vale said today in a statement. The Rio de Janeiro-based company said it's also studying other possible acquisitions. Vale is prepared to bid as much as $90 billion in cash and stock to buy Zug, Switzerland- based Xstrata, Valor Economico newspaper reported today.

Chief Executive Officer Roger Agnelli, who wants Vale to overtake BHP as the world's biggest mining company, is already spending $59 billion over five years to expand in Canada, Mozambique, Australia and China. Rio Tinto Group rejected a takeover bid by BHP last month that threatens to match Vale's iron-ore output.

BHP's three-for-one share offer for Rio added ``momentum'' to mining mergers, and Xstrata is ``perfectly positioned'' to benefit, Xstrata Chief Executive Officer Mick Davis said Dec. 6. Davis has developed the company's copper and nickel mining capacity through acquisitions including the $16.2 billion purchase of Canada's Falconbridge Ltd. in 2006.

Vale is also expanding into nickel, coal, copper and fertilizers. The company bought Canadian nickel producer Inco Ltd. for $17.4 billion in 2006 to become the second-largest producer of the stainless-steel ingredient. Vale has operations adjacent to Xstrata in Canada's Sudbury basin and on the French- controlled Pacific island of New Caledonia.

 

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U.K. to Back Northern Rock Debt in Plan to Spur Sale

(Bloomberg) -- The U.K. government, struggling to find a buyer for Northern Rock Plc, said it will guarantee a sale of bonds backed by the bank's home loans and gave bidders two weeks to come forward with proposals.

The mortgages, consumer loans and some investment-grade securities of the Newcastle, England-based bank would be packaged as debt and sold to investors, the Treasury said today. Bids based on the new funding plan must be submitted by Feb. 4.

Northern Rock rose as much as 55 percent in London trading on speculation the proposal will revive interest among potential buyers such as Richard Branson's Virgin Group Ltd. Northern Rock sparked the first run on a U.K. bank in a century when it sought aid from the Bank of England in September. Borrowings have since swollen to about 24 billion pounds ($47 billion), hampering a sale and forcing the government to consider nationalization.

``It seems a very reasonable solution for Northern Rock,'' said Simon Maughan, an analyst at MF Global Securities Ltd. in London who has a ``neutral'' rating on the stock. ``The problem comes when the competition cries foul.''

Northern Rock rose 21.75 pence, or 34 percent, to 86.25 pence by 12:35 p.m., valuing the bank at 363 million pounds.

Brown, Darling

U.K. Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling have been accused of ``dithering'' by opposition lawmakers for failing to prevent the run on Northern Rock. The U.K. regulatory framework, designed while Brown was running the Treasury, hampered the central bank's ability to head off the bank run, lawmakers, economists and the Bank of England's governor, Mervyn King, have said.

Brown's government has also been criticized for not making a decision earlier on the future of the bank. Darling will make a statement today on the plan and possibilities for a private sale.

``It's precisely because Gordon Brown and Alistair Darling couldn't make a decision that we are looking at public subsidy for five years to come, with no guarantee the government is going to get its money back,'' George Osborne, who speaks on finance for Britain's Conservative Party, said in an interview on BBC Radio 4's Today program.

Northern Rock, a formerly customer-owned building society whose roots date to 1850, is the U.K.'s third-biggest mortgage lender. The company, which sold shares in 1997, has 76 branches and relied mainly on money markets to finance mortgage lending.

The bank sought the government's help after the U.S. subprime mortgage crash rattled credit markets, choking off its financing. The government guaranteed the bank's customer deposits and will also back the bond sale.

Weighing Options

Northern Rock is weighing private solutions, including a bid by Virgin and a reorganization plan of its own. At the same time, concern has grown the bank may have to be nationalized as bidders struggle to secure financing to repay the Bank of England debt.

Northern Rock welcomed the authorities' preference ``to reach agreement on a private sector solution for the company,'' the bank said in a statement today. The lender said it would work with bidders and the government to develop their proposals and its own standalone plan.

A sale will have to be agreed upon in time to enable a restructuring plan to be submitted for approval to the European Union by March 17, the government said. Pending approval by the EU, the Bank of England's loans would be repaid under the plan, which was devised by Goldman Sachs Group Inc.

 

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Across Asia, food is the new oil as prices surge

(Reuters) - From India to Indonesia, governments across Asia are scrambling for solutions as it dawns on them that sky-high food prices might not fall any time soon.

With food accounting for a third of China's consumer price basket and even more in some other countries, the high prices are a ticking time bomb for the region, where fuel increases periodically touch off sometimes violent protests.

"If the inflation problem gets out of hand, it could have devastating implications for not only economic but also political stability," said Yiping Huang, an economist with Citigroup in Hong Kong.

In Pakistan, where the government has blamed a shortage of flour on smugglers and hoarders, paramilitary troops have begun escorting wheat trucks to deter thieves.

Malaysia briefly rationed cooking oil this month before the government boosted supplies of subsidized oil.

In China, where inflation is at an 11-year high, the government has taxed grain exports to boost local supplies and resorted to command economy-style price controls.

 

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"Help Wanted" highlights skills drain in U.S

(Reuters) - Only half the machines are running at precision parts maker Hamill Manufacturing, nestled in the Allegheny Mountains just east of Pittsburgh, once the booming center of the U.S. steel industry.

But the factory's overcapacity is the result not of a shortage of business -- it has more orders than it can fill, despite a slowing U.S. economy -- but because of a shortage of skilled workers.

"I'd hire 10 machinists right now if I could," said John Dalrymple, president of the company, which makes high-end parts for military helicopters and nuclear submarines. "That's eight to 10 percent of our workforce."

While millions of jobs making everything from textiles to steel have moved to new powerhouses like China in recent years, precision manufacturing remains a crucial niche in the United States, one that is overworked and chronically understaffed.

And, in a bad sign for the United States and its declining economic might, that shortage of skilled workers is likely to get worse as Baby Boomers retire -- with no younger generation of manufacturing workers to take the baton.

"Our workforce is an aging workforce," said Chief Executive Jeff Kelly, whose father founded Hamill nearly 60 years ago. "There isn't a queue of people lining up to come into the industry."

Some 20 percent of small to medium-sized manufacturers -- those with up to 2,000 workers -- cited retaining or training employees as their No. 1 concern, according to a survey by the National Association of Manufacturers. The survey was carried out in 2007 but has not been published yet.

 

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