China's supply-side reform -- cutting overcapacity, deleveraging, and reducing housing inventories -- sounds painful, but growth will be seen in the long run, Xinhua reported, citing an investment bank's report on January 12.

The direct negative impact on GDP of cutting overcapacity in five key industries will be 0.3 to 0.4%, while tax cuts, also a key measure of supply-side reform, will boost GDP by 0.4%,
China International Capital Corporation (CICC), a Chinese investment bank, was quoted as saying.

The estimate was based on the assumption that the five industries, namely iron and steel, coal mining, cement, ship building, and aluminum and flat glass, will reduce 10% of their production capacity annually over the next three years.

In the short-term, tax cuts will raise private investment and stimulate consumption, thus giving GDP growth a 0.4% boost if fiscal deficits rise to 3% in 2016, CICC said.

CICC earlier said overcapacity cuts will slightly push up the unemployment rate, but considering the number of people that will be re-employed, the impact is very limited.

Credit risks will also rise as the implicit guarantee by the government to cover non-performing companies' debt will be withdrawn, but in the long run, supply-side reforms will help achieve market-based pricing of credit risks and encourage the flow of funds to more efficient industries, according to the report.

http://en.sxcoal.com/0/139347/DataShow.html

Layoffs in industries plagued by overcapacity are expected to reach 3 million in the next one or two years, according to a Chinese investment bank.

However, this figure will only lead to a "marginal increase" in unemployment, the bank predicts.

The estimate from China International Capital Corp is based on the assumption that the five industries mired in overcapacity will shed 30 percent of their capacity.

As a result, 3 million jobs would be cut from the 10 million currently available in the coal, steel, electrolytic aluminum, cement and glass industries.

However, real job losses are expected to be much lower. During the 1997-98 downturn, 21 million workers at struggling State-owned enter-prises were sacked. Of these, 13 million found new jobs, more than 1 million were transferred internally, while a third lost their jobs.

If that ratio was applied today, one-third, or 1 million, would lose their jobs, according to the bank's estimate.

Liu Liu and Liang Hong, authors of the report, said: "China's unemployment rate has remained steady in recent years - despite the downturn - at 5.1 percent. The 1 million job losses would only be the equivalent of 0.3 percent of the entire urban employment."

The report comes as Beijing prepares to tackle increased unemployment by shedding excess capacity-a top priority for this year.

Yang Weimin, deputy director of the Office of the Central Leading Group on Financial and Economic Affairs, said if so-called zombie firms were allowed to continue operating through hefty subsidies, profitable companies would be "dragged to their deaths".

"The right approach is to tackle zombie companies resolutely. Only when excess capacity is shed, can price falls be stopped and good companies see hope," Yang said.

While declaring its resolve to tackle the problem, Beijing has vowed repeatedly to minimize the social pain.

At a meeting of top leaders in December, local governments were told to turn to mergers and acquisitions and to avoid bankruptcy and liquidation when dealing with firms that are unviable.

Li Pumin, spokesman for the National Development and Reform Commission, pledged on Tuesday to put social policies in place to ensure against layoffs.

A special fund will be set up at central government level to reward local governments that succeed in cutting overcapacity. The money will be used chiefly as compensation for layoffs

http://en.chinamining.com.cn/News/2016-01-14/1452738260d74967.html

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A decade of sanctions imposed on Iran’s nuclear program may come to an end by Monday, unlocking billions of dollars in frozen accounts and paving the way for a surge in oil exports from the Islamic Republic.

The International Atomic Energy Agency is expected to report on Friday that Iran has fulfilled its commitments under July’s nuclear accord with world powers, Iran’s Deputy Foreign Minister Abbas Araghchi said in Tehran. That would enable a joint announcement by Sunday implementing the deal and lifting sanctions, he said.

Iran’s foreign ministry on Tuesday sent its director of political and international affairs, Hamid Baeedinejad, to Vienna, where the IAEA is based.

The end to nuclear-related sanctions will mean that the Iranian economy is open for funds to flood in, with Iran set to get immediate access to as much as $50 billion of cash frozen in overseas accounts, according to U.S. Treasury estimates. Crude exports are expected to rise by half-a-million barrels a day within weeks.

While Iran says it will need $100 billion to rebuild its energy industry and another $29 billion for mining and steel, foreign investors are expected to return only gradually as they wait to make sure the nuclear deal holds. Diplomats left escape clauses if the accord is violated. Should the deal fail, sanctions could be reimposed just as Iran’s nuclear work could return to unchecked development.

“Iran has granted the International Atomic Energy Agency unprecedented access to make sure it is doing all the things it said it would do in this deal,” U.K. Prime Minister David Cameron said in Parliament in London on Wednesday. “We should enter into it with a very heavy heart, a very clear eye and a very hard head in making sure this country does everything it said it would.”

Friday would be the earliest date that IAEA inspectors could verify Iran has removed nuclear equipment and material from atomic sites, two diplomats with direct knowledge of the process said earlier on Wednesday. The IAEA press office declined to comment.

The comments about the deal’s implementation came only hours after 10 U.S. sailors were released by Iranian authorities after their boats drifted into Iran’s territorial waters. Even as U.S. President Barack Obama on Tuesday night praised the nuclear deal foraverting a war with Iran, the Persian Gulf incident underscores lingering tensions in the relationship.

“The Americans cannot have trade relations with us, and so be it,” Araghchi said, adding that Iran understands that non-nuclear sanctions targeting terrorism and ballistic missile programs will remain in place. “Iran and U.S. relations will stay where they are -- the intention of this deal hasn’t been about trust-building.”

It was precisely because of that lack of trust between Iran and six world powers -- China, France, Germany, Russia, the U.K. and U.S. -- that negotiations to reach a deal took more than two years. In the end, Iran agreed to eliminate virtually all of its enriched uranium and dramatically reduce its nuclear capacity. In exchange, it will receive sweeping sanctions relief that reconnects its banks to the international financial system and allows oil and gas producers to boost exports.

http://www.bloomberg.com/news/articles/2016-01-13/iran-sanctions-seen-lifted-by-monday-as-nuclear-deal-implemented

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"New realities" including the possibility that oil prices will remain low for a prolonged period will force Russia to take hard decisions about government spending, its finance minister said on Wednesday.

Anton Siluanov warned the country's budget would only balance at an oil price of $82 per barrel, well in excess of the $50 per barrel assumption used for this year's calculations, let alone the $30 per barrel near which oil is currently trading. Some forecasters have predicted crude, Russia's major export and main source of revenues, could fall to $20 per barrel or lower.

Although he said oil prices could start to recover in the second half of the year, Siluanov told the annual Gaidar Forum in Moscow that the 2016 budget should be revised according to a lower assumed average oil price of $40 per barrel.

"Our task is to adapt our budget to the new realities," Siluanov said. "Our budget will be balanced when the price is $82 per barrel so there are still a lot of decisions to be made when it comes to budget policy."

Speaking at the same conference, Prime Minister Dmitry Medvedev also said the country needed to steel itself for tough times. "One needs to prepare for the worst scenario," he said.

Medvedev said the budget would need to be revised if oil prices fell further. But he also said the situation was manageable given Russia's existing cash reserves.

Russia's central bank outlined a "risk scenario" last month under which oil prices would stay at around $35 for three years.

Siluanov said last year's budget deficit was around 2.6 percent of gross domestic product, slightly lower than forecast, but warned that did not mean Russia had adapted to an era of cheap oil.

This year's budget envisages a deficit of 3 percent of GDP, assuming the oil price averages $50 per barrel.

Siluanov said the first steps towards adjusting spending had been taken, after the government ordered ministries to find 10 percent cuts in "non-protected items" of expenditure.

Officials earlier told Reuters that the planned cuts had been approved by the government last month, but would exclude areas such as public sector pay and pensions.

The finance ministry, which typically emphasises the need for fiscal caution, is likely to face resistance to spending cuts from other government departments as it did last year.

Economy Minister Alexei Ulyukayev also warned that Russia needed to brace for a long period of low commodity prices.

"I am convinced that the period of low commodity prices will be protracted," he told the forum.

"One needs to fear that there will be (an oil price) of $20 or $15. By the logic of markets the bigger the fall today, the larger the rebound tomorrow, and this isn't the biggest risk.

"The biggest risk is that there will be low prices for a long time -- that is for years, for decades," Ulyukayev said.

http://www.reuters.com/article/russia-budget-idUSL8N14X17U20160113

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South32 Ltd., the aluminum, coal and manganese producer spun out of BHP Billiton Ltd. last year, is considering bidding for Anglo American Plc’s $1 billion niobium and phosphate business in Brazil, according to three people familiar with the situation.

South32 sent out requests to investment banks as it seeks to hire an adviser to assist in the bidding process, the people said, asking not to be identified because the information is confidential. Goldman Sachs Group Inc. and Morgan Stanley are managing the sale for Anglo, the people said.

First-round bids are due by the middle of next month, and Anglo is seeking to complete the sale in one transaction, rather than split the niobium and phosphate assets, they said. Large North American fertilizer companies are also likely to participate in the auction, two of the people said. Anglo confirmed last month that it would work to sell the business this year.

South32 was created last year in the mining sector’s biggest spinoff in about a decade as BHP narrowed its focus to copper, coal, iron ore and oil. Shares of Perth, Australia-based South32 plunged 56 percent in Sydney trading since listing in May.

A spokeswoman said the company doesn’t comment on market speculation. South32 has a strong balance sheet and will look at acquisition opportunities, Chief Executive Officer Graham Kerr said in August.

“Our primary focus is on optimizing the performance of our existing operations and maximizing the value of those assets,” the company said in an e-mailed statement.

The assets are among several that Anglo is trying to sell as it seeks to raise $4 billion to cope with the collapse in commodities. The London-based miner already generated about $2 billion by offloading its tarmac business, two copper mines in Chile and platinum assets in South Africa.

Anglo is set to become the world’s second-largest producer of niobium, a material used in high-temperature alloys for jet engines and lightweight steel for cars, when it completes the ramp up of its $325 million Boa Vista Fresh Rock plant in Brazil’s Goias state by mid-2016.

It produced 2,934 metric tons of niobium in the first half of 2015, and the business contributed $35 million to earnings before interest, taxes, depreciation and amortization. The phosphates unit had output of 513,000 tons with Ebitda of $52 million.

http://www.bloomberg.com/news/articles/2016-01-13/bhp-spinoff-south32-said-interested-in-1-billion-anglo-sale