Put your strategic capital in partner with Zinc as its use increases in Asia

Zinc consumption in Asia is on the rise and two major sectors — galvanised steel and batteries — are in no mood to calm down at present, pointing towards a further rise in the use of the metal.

According to reports, the consumption during January-September 2007 on a y-o-y amounted to 4,505,000 tonnes in Asia, an increase of 4.67 per cent as compared with 4,304,000 tonnes in the corresponding period last year.

The strong demand has come at a time when its average price was $3,452 a tonne on the London Metal Exchange (LME) during the period under review, as compared with $ 2,965 a tonne in the same period in 2006. Zinc currently trades at about $2,320 a tonne on LME (see Zinc News ).

Market experts said the weakness in prices will continue in 2008, too, as the global refined. Zinc metal production is expected to increase 7.8 per cent to 12.2 million tonnes in the year and (see Zinc News).

Hindustan Zinc will increase production with the commencement of its 170,000-tonne zinc smelter operations.

Your strategic capital portfolio in partner with emerging markets and iron ore

China, the largest steel maker in the world, will increase iron-ore imports as output is peaking at mines in the country, bolstering prices that have tripled in five years. What is going to be crucial in driving the international demand for iron ore is what happens to domestic production in China. Already this year there have seen signs of the Chinese exhausting their potential to grow. It is inevitable over the next few years that production will start to peak and fall off.

BHP Billiton, Rio Tinto and Vale do Rio Doce, who supply 75 percent of the iron ore in the world, are planning to expand existing mines and dig new ones with prices tipped to rise as much as 50 percent next year, according to Goldman Sachs JBWere.
The booming Chinese economy is on course to exceed $3 trillion as early as this year, tripling in the space of a decade.

The country is importing more materials including iron ore, crude oil, zinc, copper and aluminum, driving up prices for the commodities.
Annual demand for iron ore in China may rise to more than 1 billion tons, from about 713 million tons this year, as demand for steel continues to rise, Lennon said.

Some sources believe that the domestic market in China will fall by several hundred million tons over the next 10 years, that will then lead to an accelerated requirement for imports of iron ore.

Chinese domestic iron-ore production doubled over the past three to four years to about 330 million metric tons this year.

Investment in new mines has declined and the grade of iron being produced from existing mines has dropped, he said.

Demand for the ore will reach 829.5 million metric tons next year as the nation adds steel making capacity, Lian Minjie, the general manager of Sinosteel's mining unit, said Nov. 15.
Demand will reach 958.1 million tons in 2010, with 10 percent growth in 2008 and 5 percent growth in 2009.

China, which produces one third of the steel in the world, may add 100 million tons of steel capacity by 2010. The government has called on local mills, including Anshan Iron & Steel and Panzhihua Iron & Steel, to produce more iron ore locally.

Contract iron-ore prices, which are set for 12-month periods, have risen for the past five years on increased demand from China, and may gain 50 percent next year, Macquarie said last month. The price could rise more than 50 percent due to recent gains on the spot market, Goldman Sachs JBWere analysts said Nov. 21.

The price of iron ore arriving at Beilun, where the largest steel maker in China receives shipments, rose 4.2 percent last week to 1,500 yuan, or $203, a metric ton, the highest since the data began being collated by Bloomberg in June 2006.
Prices will rise substantially next year, Rio's Sam Walsh, the chief executive officer of Rio's iron-ore unit, said Monday in London, where the company is based.
Tom Albanese, Rio's chief executive officer, approved the construction of two new iron-ore mines in Australia this week, and increased the company's global output target to 600 million tons at a cost of $26 billion.

That is more than four times the 2006 output of 133 million tons of the ore.
BHP, bidding $128 billion to take over Rio in the biggest mining merger in the world, has approved a $2.2 billion expansion to increase iron-ore output in Western Australia by 20 percent to 155 million tons as early as 2010. The third-largest iron ore producer in the world started a preliminary study to almost double output to 300 million tons (see Iron&Steel News)
Vale plans to spend $10 billion on an iron-ore project in the Amazon to help meet surging
Chinese demand for steel.

China is scouring the globe to secure supplies of raw materials to feed demand for goods like autos and appliances. Baosteel, the biggest steel maker in the nation, plans to buy rivals to triple production capacity by 2012.

Strategic capital and portfolios partnering the world of private equity

What is a private equity fund?

A private equity fund is a pool of capital invested in companies that are not typically publicly traded. The investors in a private equity fund agree to make contributions of capital over a specified time period. The manager of the fund calls on the investors’ commitment as the funds are needed.

There are a number of strategies that private equity funds use. They may be involved in leveraged buyouts or management buyouts of existing, mature companies. They may provide venture capital financing to start-up companies, or to companies that have not yet had an initial public offering. They may provide mezzanine or subordinated debt financing, either when the owners of a company want to limit dilution of ownership, or when a company is in financial difficulty.

Individual private equity funds sometimes focus on a specific industry, such as life sciences, but often broaden their scope to several industry specialisations. Generally, they require a minimum investor commitment of US$5 million to US$10 million.

What are the benefits and pitfalls of private equity funds?

Private equity funds have historically provided a greater return on investment than investments in public companies. In addition, returns are not highly correlated to the stock market, so they provide useful diversification.While returns are not guaranteed, the 20-year average is currently about 14% to 15% per year. In the early years, however, an investment return is likely to appear negative while cash contributions are made to the private companies before they achieve measurable results.

The main drawback is the length of commitment. Investors who choose a private equity fund should be prepared for a commitment of 10 to 12 years. The commitment is irrevocable: there is no organised secondary market for private equity funds and there are no withdrawal windows.

What type of investor should consider private equity funds? Private equity funds are suitable for patient investors who understand the investment’s long-term nature and who can afford to let their capital develop over a few years without seeing any initial return on investment. Whether it is an appropriate investment depends on the individual investor’s tolerance for risk and level of investable assets.

One of the best ways to reduce investment risk in this category is through a “fund of funds” approach. A fund of private equity funds invests in 10 or more private equity funds in different industries, creating a more diversified portfolio. In addition, it provides the investor with professional fund management, including access to investment data that may be unavailable to individual investors. It is also a more affordable way to properly diversify an investment in private equity funds.

What role should private equity funds play in an investor’s portfolio?

Investors should always focus on their overall investment goals and should consider how a private equity fund will interact with the other investments in their portfolio. It’s important to recognise that an investment in private equity funds will be the longest-term portion of an investment portfolio.Private equity funds typically represent 5% to 10% of a wealthy investor’