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Retail Management Scenario in India - PowerPoint

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Retail Management Scenario in India - PowerPoint Powered By Docstoc
					                        Issues Faced By
                        Exporters

                         Presented by:
                         Peter Bunce
                         General Manager - India
                         Noble Cotton
                         20.12.08




Hands-on Supply Chain Management
                             Content


                             1. Global Scenario


                             2. Indian Scenario




    Hands-on Supply Chain Management
2
                         Issues Faced By
                         Exporters

                         1.Global Scenario




Hands-on Supply Chain Management
    Global Scenario - Overview

     Severe reduction in cotton demand, bearish market
     Global recession -poor US/Europe retail demand
     Credit crunch/financial meltdown
     Poor mill margins leading to industry rationalisation
     Market volatility – mills/trade reluctant to carry inventory
     Narrow futures spreads – merchants reluctant to carry
     Industry rationalisation – mills/trade (Weil/Reinhart)
     Contractual defaults – ICA flooded with arbitration cases
     Government intervention
     Widespread pessimism


                            Hands-on Supply Chain Management
4
    Global Scenario - Demand
                                       China Imports

      250,000

      200,000

      150,000
                                                                                   MT
      100,000

       50,000

          -
                May'08   June08   July08   Aug'08    Sept'08     Oct'08   Nov'08


     Imports lowest in 4 years
     Quota restrictions
     Funding – high funding costs and reserve ratio

                                      Hands-on Supply Chain Management
5
      Global Scenario - China

    Business is getting tough in China;
     Contractual defaults – merchant provisions in the millions
     Consumption cut 30% to 7.5MMT, Production 7.7MMT, Imports ?
     State Reserve 1.27MMT, expecting 2.7MMT (160 Lac Indian
       bales).
     Quota ends 31st Dec’08. First batch 8.94 Lac MT may not be
       released until March/April 2009.
     CIQ registration required for shippers
     AQSIQ tough rules, quality match contract, <3% weight loss,
       contamination etc. Classified A,B,C and published.


                             Hands-on Supply Chain Management
6
    Global Scenario – Government Intervention

    Governments Purchasing
     Uzbek – Gov’t sold 40k MT out of 1MMT (October)
     Turkmenistan – Gov’t holds all 300k MT
     China – Gov’t purchased 1.27MMT. Possible 2.7MMT
     US - 4.5 million bales in loan & 860k bales cert stock
     India – MSP purchases so far 380 Lac bales. Possible ??

    It’s becoming increasingly difficult for private traders to predict
        and especially compete with taxpayer-funded Government
        entities.


                            Hands-on Supply Chain Management
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    Global Scenario – Price Volatility




     ICE/NYBOT Highs of 91 (Synthetic 110), Low 36.70
     Futures detached from physical prices
     Merchants lost hundreds of millions in 1 week!
                        Hands-on Supply Chain Management
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    Global Scenario – Price Volatility
    ICE/NYBOT 30 Day Volatility 2008




     Unprecedented high volatility in Feb/Mar and S/O/N/D


                         Hands-on Supply Chain Management
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        Global Scenario – Price Volatility
ICE/NYBOT 30 Day Volatility
        2006                    2007                             2008




                              Hands-on Supply Chain Management
 10
     Global Scenario – Mill/Retailer Margins




                       Hands-on Supply Chain Management
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      Global Scenario – Merchants

     The overall effect of the global issues on merchants means;
      Merchants (and mills) won’t carry large inventory due to credit
        restrictions, carry cost & the volatile market
      Merchants unlikely to extend credit to counterparties
      The industry will insist on safer trading terms and restrict forward
        sales/purchases to manage defaults
      Won’t take positions due to Government unpredictability
      Overall reduction in volumes and margins
      Further Industry rationalisation
      But things WILL improve


                              Hands-on Supply Chain Management
12
                         Issues Faced By
                         Exporters

                         2. Indian Scenario




Hands-on Supply Chain Management
        Indian Scenario – Noble Background

      India 5% of Noble Groups US$30 Billion turnover - Growing
      Vice Chairman Harindarpal “Harry” Banga is Indian
      16 offices, 3 crushing plants
      70% of our 5000 strong global Fleet Management crew
        trained in India
      Coking Coal 500,000MT, Grain & Edible Oil 500,000MT
      Largest buyer of Iron Ore
      Chemicals, Carbon Credits, Coffee
      Cotton


                             Hands-on Supply Chain Management
14
     Indian Scenario - Overview

     Many issues the same as International market;
      Severe reduction in cotton demand, bearish market
      Global recession -poor US/Europe retail demand
      Credit crunch/financial meltdown - India
      Poor mill margins
      Market volatility – mills/trade reluctant to carry inventory
      Contractual defaults
      Government intervention



                             Hands-on Supply Chain Management
15
     Indian Scenario – Government Intervention

     Legislation;
      Sept’08 MSP Revision
      July’08 Contract Registration
      July’08 Abolish Customs Duty on Raw Cotton
      June’08 Removal of Export Duty Drawback
      FMC de-listed futures trading on wheat, rice, soy oil,
        rubber etc
     While most changes have good intentions, this changing
       environment breeds opportunistic business and
       discourages investment. This has long term negative
       implications.

                            Hands-on Supply Chain Management
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     Indian Scenario – Government Intervention

     Effects of high MSP
      CCI & NAFED/ MH Fed hold over 50% of crop. Could
        increase.
      Indian prices kept artificially high compared to International
        levels. Indian not competitive….yet. (slide)
      Domestic trade/ginners volume diminished significantly
      Distorted market signals – nobody willing to carry




                            Hands-on Supply Chain Management
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       Indian Scenario
      India
                            China Imports - October
      Tanzania
      Uganda
      Mali
      Uzbekistan
      Turkey
      Turkmenistan
      Cameroon
      Benin
      Burkina Faso
      South Africa
      Chad
      Syria
      Mexico
      Egypt
      Zimbabwe
      Zambia
      Brazil
      Australia
      United States   0     20000          40000            60000   80000   100000

      World                                          MT



     India slipped to 20th place


                              Hands-on Supply Chain Management
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     Indian Scenario
                                 December Cumulative Exports - India

                      3,000,000
                      2,500,000
                      2,000,000
          170kg Bales 1,500,000
                      1,000,000
                                                                                                  Exports
                        500,000
                            -
                                     2008- 2007- 2006-       2005- 2004- 2003- 2002-
                                      09    08    07          06    05    04    03
                                                          Crop Year

     *Source: Monthly Statistics of Foreign Trade of India, DCGI&S, Kolkata and the Office of Textile
         Commissioner, Mumbai

      Comparable to 2003/04 when YTD exports totaled 12 Lac
      Timing



                                          Hands-on Supply Chain Management
19
     Indian Scenario

                               Cumulative US Exports
       14,000,000

       12,000,000

       10,000,000

        8,000,000

        6,000,000

        4,000,000

        2,000,000

               0

                               06/07   07/08   08/09




     High MSP has restricted trade making India less competitive.
        Let’s just hope that it encourages farmers to grow more
        cotton for India to be competitive in the long-term.

                           Hands-on Supply Chain Management
20
       Indian Scenario

     Finance
      Interest rates 15% vs International rate 8%
      RBI restrictions – FX, control etc - sometimes a positive
     Weight Loss
      Amongst highest of the major producing countries
      2007/08 Average >1.1%, High 5%
     Intensive Logistics
      Large distances, average infrastructure (road/rail/ports),
        customs regulations
      Poor warehouses, lack of FF systems, control etc = insurance
        difficulties

                              Hands-on Supply Chain Management
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        Indian Scenario

     Quality Control
      Comparatively difficult to manage quality & contamination
      Reputation damage, China AQSIQ rating
      Indian cotton can’t reach full price potential (2-3c below WAF, US)
     Fragmented Industry
      Millions of farmers and thousands of ginners, spinning mills,
        traders, agents etc.
      Each state, district and taluka has differences in quality, language,
        culture and trading practices.
      Difficult to implement change/improvements (quality, agronomy,
        weight loss, contamination etc)


                                Hands-on Supply Chain Management
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      “When you know the country it gives you an edge over
     the competition who don’t know it or don’t know how to
                           handle it”

              Harindarpal “Harry” Banga, Vice Chairman, Noble Group




                             Hands-on Supply Chain Management
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     Hands-on Supply Chain Management
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