- CBN to Sell $500m FX Forwards to Meet Manufacturers’ Pent-up Demand
Desirous of ensuring that manufacturers get the required foreign exchange (FX) for the importation of critical raw materials as well as meeting the pent-up demand for the greenback, the Central Bank of Nigeria (CBN) will tomorrow sell $500 million through FX forwards to banks, for onward sales to their customers.
The move, which is also aimed at boosting economic activities in the country, would cater to some of the FX demand of manufacturers that want to import plants and machinery, raw materials and agriculture equipment.
A top official of the CBN, who disclosed this yesterday, said banks were notified last week and given till noon today to send the list of FX requests from their customers in the manufacturing sector.
“The FX forwards are specifically targeted at the manufacturing sector,” the source said in a telephone chat.
In fulfillment of its pledge to continue to support critical sectors of the economy, the CBN about a fortnight ago allocated $314 million to banks to sell to their customers in the manufacturing, aviation and some other critical sectors of the economy through Special Secondary Market Intervention Retail Sales (SMIS).
The central bank also last week settled $270.6 million in notional value of the matured October 26, 2016 futures instrument.
In line with the trend since the introduction of the OTC FX futures, the central bank issued a new 12-month tenor instrument (October 25, 2017) worth $1 billion at N258.50/US$1.00 to replace the maturing instrument.
Commenting on the availability of FX to manufacturers yesterday, the Chairman of Sosaco Nigeria Limited, the makers of the popular Gino tomato paste brand, Mr. Francis Ogboro told THISDAY that there was a significant improvement in dollar supply in the country, pointing at the recent policies by the CBN.
Ogboro, who noted that although the FX situation was still far from what manufacturers in the country would want, he admitted that the situation had improved considerably from what obtained a few months ago.
“We are encouraged by the recent improvement in FX supply. It has improved from the stagnant situation that used to be the case in the past. One of my companies just succeeded in procuring FX from the 90-day auction and that took a lot of pressure off our operation and has helped us to keep our machines running and our people employed.
“The CBN policy, which mandates the allocation of 60 per cent of available FX to manufacturers, I believe, has helped to improve the situation.
“While we ask for more efforts to be made by the CBN and the federal government, we want to state that we are happy with the improvement we have noticed so far,” he said.
Also, the Group Managing Director of Flour Mills of Nigeria Plc, Mr. Paul Gbadebo, while stating that the intervention by the CBN on its directive to banks to give 60 per cent of FX allocations to manufacturers had not really come to fruition, he added: “However, in the last one week, the CBN has been making interventions which although have been helpful, have not covered much. It has not even taken care of our backlog of Letters of Credit (LCs).
“We are however just hopeful. CBN has done two interventions in the last one week which has helped but if it can continue, then we may begin to climb out of the huge deficit and try to make a head way.”
On its part, the Manufacturers Association of Nigeria (MAN) yesterday blamed the commercial banks for the poor allocation of FX to its members.
The President of MAN, Dr. Jacobs Udemba, said that banks were not cooperating with the CBN to ensure that it achieves its objective.
The CBN, last August, directed commercial banks and other authorised dealers in the FX market to ensure that they channelled 60 per cent of the total FX purchases from all sources (interbank inclusive) to end users strictly for the importation of raw materials, plants and machinery.
The central bank had said it took the decision following its review of returns on the disbursement of FX and observed that a negligible proportion of FX sales were being channelled towards the importation of raw materials for the manufacturing sector.
But the MAN president said that banks had not been adhering to the directive, adding that as a result of this, some of its members have remained frustrated.
“The fact is that FX is scarce and there is not enough to go round. The central bank has shown commendable commitment to ensuring manufacturers get FX for their business activities and the recent policy of the Bank which mandates that 60 per cent of the total FX should be allocated to the manufacturers is clear evidence of the commitment of the CBN to local manufacturers.
“But the money deposit banks don’t seem to be cooperating to make the policy achieve its goal.
“The CBN came up with this well-intentioned policy that mandates that 60 per cent of available foreign exchange be given to manufacturers but the banks are not cooperating. They are not implementing this policy.
“The CBN also recently set aside $300 million for the agriculture, manufacturing and the aviation sectors. This also goes to show the commitment of the central bank.
“But for all these to work and lead to the attainment of intended objective, the money banks must cooperate,” Udemba maintained.
Silver Joins Haven Assets That Pullback on Dollar Strength
Silver Pulls Back on Dollar Strength
Silver pulled back on Friday after Donald Trump-led administration announced it was working on a new stimulus package to ease economic burden of the American people.
The United States dollar gained as investors jumped on it to hedge against US-China trade tensions.
Silver that has risen to almost eight years high of $29.84 on Thursday but pulled back after the US government announced its plan on a new stimulus package.
The haven asset, like Gold, pulled back to $27.97 on Friday during the New York trading session.
“While there are no early chart clues to suggest the gold and silver markets are close to major tops, both are now getting short-term overbought, technically, and are due for downside corrections in the uptrends,” Kitco Metals senior analyst Jim Wyckoff said in a note.
“And remember that with the higher volatility and bigger daily price gains seen at present, there will also be bigger downside corrections when they come.”
Gold Pullback on Dollar Strength on Friday
Gold Pauses its Bullish Runon Dollar Strength
Gold pulled back from its record rally on Friday after the US dollar received a boost from the new stimulus.
The world’s safe-haven asset pulled back from $2074 per ounce it traded on Thursday to $2030 on Friday during the New York trading session.
“We’ll see some pullback (in gold) from these levels with USD bottoming for a while and maybe even see some strength in the USD in the near term, which will reverse these gains but not entirely,” said Spencer Campbell, director at SE Asia Consulting Pte Ltd. “People will be looking to re-enter the market on any pullbacks in precious metals as the medium to longer term views are significantly higher.”
Gold rose to an all-time high of $2074 on Thursday after rising over 35 percent on the back of the COVID-19 pandemic. However, economic uncertainties due to the second wave of COVID-19 continues to support gold rally and expected to continue until a concrete solution or vaccine is discovered.
“There are mixed signals that the economy is recovering and some of the signs of recovery are relatively superficial as they show aggregate figures and not how medium and small enterprises continue to suffer,” said Jeffrey Christian, managing partner of CPM Group.
“We have a very long way to go before we see a proper economic recovery.”
Finances of International Oil Companies Suffered in the Second Quarter
Finances of IOCs Plunged Amid COVID-19 Pandemic in the Second Quarter
Global leading oil companies suffered substantial losses in the second quarter, according to their various financial statements published in recent weeks.
On Thursday, Royal Dutch Shell posted $18.9 billion loss in the second quarter of 2020, far below the profit of $3.5 billion posted in the same quarter of 2019.
This, the company attributed to the plunge in global oil prices in 2020 due to the COVID-19 pandemic. Shell warned that oil demand remained uncertain, adding that it had cut its exploration plans for this year from about 77 wells to just 22.
This was after the price of Brent crude oil plunged to $15 per barrel during the peak of COVID-19 pandemic while the price of West Texas Intermediate crude oil dipped to -$37 per barrel, the lowest on record.
Also, the company said it has reduced its capital expenditure for the year from the initial $25 billion to $20 billion amid a plunge in revenue and demand for the commodity.
Similarly, ExxonMobil reported a $1.1 billion loss, its biggest decline on record. The oil company also announced it would be lowing spending by 30 percent in 2020 to about $23 billion.
Among the various oil companies posting negative financial statements for the quarter was Chevron Corporation, the company reported $8.3 billion decline in the second quarter of the year. The lowest ever posted by the oil giant in almost three decades.
Chevron, therefore, warned that the havoc caused by COVID-19 pandemic in the energy sector might continue to weigh on earnings.
“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman and Chief Executive Officer, Michael Wirth, said.
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