World Economic News
Panic Buying of Gold, Platinum, Commodities
Unprecedented developments are taking place right now at the leading commodity exchanges worldwide. On Monday of last week, the Tokyo Commodity Exchange (TOCOM) reported a historic record in daily turnover, as investors rushed into the market to buy precious metals and other commodities like energy. The Monday record of 693,000 contracts was already surpassed the following day, when 737,000 contracts were traded at TOCOM, again the highest-ever volume. But on Wednesday of last week, turnover exploded further to over 1 million contracts.
Gold contracts amounted to 254 tons on Monday, 294.5 tons on Tuesday, and an unprecedented 525 tons on Wednesday. The previous record on daily gold trading (341 tons) was reached on Feb. 7 last year, when markets were fearing an imminent meltdown of at least the Japanese financial system, due to the Japanese banking crisis. Osamu Ikeda, general manager of precious metals at Japan's biggest bullion house, Tanaka Kikinzoku Kogyo, was saying last Wednesday that ordinary Japanese were turning up in droves to buy gold bars and coins.
The spot price of gold, which increased by $8.30 to just below $380 per ounce on Tuesday, shot up another $8 to $388 an ounce in Asian trading on Wednesday. the highest price since September 1996. Measured in yen, the gold price has already reached an 11-year high. Gold for April delivery hit $390.80 at one point in early trading.
India, the world's largest consumer of gold, reported last week a historic record for the gold price measured in rupees. Media report that on top of the panic flight into gold, jewelry shops in India were overwhelmed by customers.
The world platinum market is in turmoil as well. The platinum price increased to a 23-year high of $704 an ounce last Tuesday, 17% more than at the beginning of the year. As the oil price increased sharply in recent months, gas oil futures on Wednesday hit a 26-month high of $280 per ton at the International Petroleum Exchange (IPE) in London. European jet fuel swaps also hit a 25-month high on the same day at the IPE. The outright price for jet fuel has increased from $270 to $320 a ton within the last four weeks.
Warn That British Pensions Face Dire Funding Crisis
In an article entitled "The Pensions Black Hole," the Feb. 2 Sunday Telegraph of London reported that the "pension [systems] of Britain's biggest companies are facing a massive funding crisis. The numbers are mind-boggling." There is a parallel crisis of the British pension systems and life insurance companies. The biggest British companies have inadequately funded their pension plans, and now must put in large sums of money to meet the minimum funding levels required by government accounting standards. Moreover, the assets in the portfolios of the pension plans are heavily weighted toward stocks, and the stock market is collapsing, sharply reducing the value of the portfolios.
Hewitt Bacon & Woodrow, the leading British actuarial firm, released a report showing that the pension deficit of 100 companies that make up British FTSE 100 stock average, "has rocketed from just 10 billion pounds [US$16.5 billion] at the end of ... June [2002], to ... a shocking 100 billion pounds [$US165 billion]," at the start of 2003. Only 10 of Britain's 100 largest companies do not have a pension deficit.
To assess the scope of the problem: BT (formerly British Telephone) has a pension deficit of 8 billion pounds, which is equivalent to 58% of the market capitalization of the company. Royal & SunAlliance, the battered British insurance giant, has a pension deficit equal to 97.5% of its market capitalization. British Energy has a pension deficit "equivalent to a mind-boggling 1,731% of its market value."
The week before last, the Financial Services Authority moved to relax the financial standards of the large British insurance companies, in order to prevent them from collapsing; nonetheless, the funding crisis of the pensions and insurance companies ballooned, and threatens the British financial system.
Japanese Industrial Production Fell Nearly 2% Last Year
Japan's industrial production fell by 1.7% last year, after having declined by 7.5% in 2001, Japan's Ministry of Economy, Trade and Industry has reported. Japan has been unable to halt the process of industrial contraction, despite interest rates of 0%.
At the same time, Japan reported that its "official" unemployment rate rose to 5.5% in December, the highest level since the Japanese government began keeping records in the 1950s. For the entire year 2002, the "official" jobless rate stood at 5.4%, the worst yearly rate in half a century, and up from 5.0% in 2001.
Kra Canal One Step Closer to Realization
After almost 30 years of discussion, the Kra Canal Initiative (KCI), an independent body which began its feasibility study in 1989, has selected a specific route for the Canal, KCI Secretary General Weerapant Musigasarn informed Malaysia's New Straits Times Feb. 6.
"The most viable location for the Canal will be from 16km south of Songkhla on the east coast of southern Thailand, to 12km north of Satun, and 4km north of Taratao island's tip," said Weerapant, former dean of the Prince of Songkhla University's school of engineering.
This route, closer to the border with Malaysia, was selected due to the geological character of the terrain. The narrowest feasible strip near Chumphon is mountainous with solid granite deposits, as opposed to the selected site, which is mostly flat land. However, other obstructions remain. Thai Prime Minister Thaksin Shinawatra said on Feb. 1 that, for the time being, the Government had no plans to cut the Canal, but any feasibility study would contribute to the database for possible future use.
His remarks reflect intense competition among at least four consortia vying for the project.
For more on Asian economies, see ASIA NEWS DIGEST.
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