Archive for July, 2011

Pensions recover but weak growth a threat: OECD

Saturday, July 30th, 2011 | Finance News

PARIS (AFP) – Pension funds have recovered from the darkest days of the financial crisis, clawing back more than 80 percent of the value lost in 2008, the OECD said this week.

But sluggish growth in developed countries, and the added drag of debt crises in the eurozone and the United States, pose a threat to the health of funds built up by people contributing to, or drawing from, private pension schemes.

Conditions on sovereign debt markets, and also stock markets, are critically important to pension funds, as to most other sectors of the investment fund industry, because most of their savers' funds are invested in bonds and stocks.

"Having weathered the financial crisis, pension fund asset levels in most countries continued to show strong growth throughout 2010," the Organisation for Economic Cooperation and Development said.

But the outlook for future economic growth in developed economies is "uncertain and sluggish," and pension funds could suffer in the medium term, the OECD said warning that a fall in interest rates would weaken overall fund performance.

In most of the 34 OECD member countries, private pension schemes are an alternative, or an addition to, obligatory basic state pension plans.

Private funds invest the money saved by contributors mainly in sovereign bonds for safety and a steady income and in shares, but also in other assets such as property and to some extent in higher risk sectors such as hedging and derivative instruments

The size of funds can be huge in relation to the economy as a whole and private pensions are major players on world financial markets.

For example, at the end of last year private funds in the Netherlands were worth the equivalent of about twice what the entire Dutch economy produces in a year and in Britain they were worth 86.6 percent of annual national production. On average, in OECD countries, the total value of assets held by pension funds amounts to 79.1 percent of national gross domestic product.

Last year the net return on these investments OECD-wide was 2.7 percent, down from 4.3 percent in 2009, but performance in terms of return on investment varied widely.

Private pension funds in New Zealand outperformed with a return of 10.3 percent and in Poland they achieved a net return of 7.7 percent.

But the return for funds in Greece and Portugal, both hard hit by national debt crises and consequent corrective budget cuts, was heavily negative.

Greek funds generated a negative return of 7.4 percent and Portuguese funds 8.1 percent.

The negative figure for Greece was "due to the collapse of the Athens stock exchange as well as the drop in price of Greek bonds."

In Portugal the explanation lay in "adverse capital market performance".

Pension funds in the OECD invest more than half of all the money flowing in from contributions into government debt bonds, which represent a specific so-called "asset class", usually referring to instruments with a strong credit rating and therefore representing relatively low risk.

This suggested "a conservative stance", the OECD said, as bonds provide a steady and predictable revenue stream.

The greatest losses incurred during the worst of the economic crisis were the result of heavy falls in shares prices, the OECD said.

The OECD said private pension fund schemes were becoming based increasingly on pre-defined contribution levels.

This is as opposed to pensions tied to the salary earned in the last few years of employment irrespective of how the assets have performed.

Increasingly employers were closing such final salary schemes, the OECD said.


Obama, Automakers Agree to Increase 2025 Fuel Economy to 54.5 MPG

Saturday, July 30th, 2011 | Finance News

President Barack Obama announced Friday an agreement with 13 major automakers, which account for over 90 percent of all vehicles sold in the U.S., to begin the next phase of the Obama administration's national vehicle program. Ultimately the agreement will increase the current fuel economy for cars and light-duty trucks to achieve more efficient vehicles.

The goal of the agreement is to increase fuel economy to 54.5 miles per gallon by model year 2025. The major automakers include Ford, GM, Chrysler, BMW, Honda, Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota and Volvo.

The Wall Street Journal reported President Obama made the announcement at the Washington convention center and was joined by top executives of the major car companies. The goal of 54.5 miles per gallon is roughly double what the current level is. The purpose of raising the fuel economy is to encourage automakers to manufacture more hybrids and electric vehicles.

President Obama commented on the importance of making vehicles more efficient and using less gasoline. Obama said, "This agreement on fuel standards represents the single most important step we've ever taken as a nation to reduce our dependence on foreign oil. Most of the companies here today were part of an agreement we reached two years ago to raise the fuel efficiency of their cars over the next five years. We've set an aggressive target and the companies are stepping up to the plate. By 2025, the average fuel economy of their vehicles will nearly double to almost 55 miles per gallon."

The Environmental Protection Agency has also continued to work with automakers, environmental organizations, and state governments to make the fuel economy goals achievable.

EPA Administrator Lisa P. Jackson said, "This is another important step toward saving money for drivers, breaking our dependence on imported oil and cleaning up the air we breathe. American consumers are calling for cleaner cars that won't pollute their air or break their budgets at the gas pump, and our innovative American automakers are responding with plans for some of the most fuel efficient vehicles in our history."

The Obama administration has estimated that the new fuel economy standards will save families $1.7 trillion in fuel costs and $8,000 per vehicle, which including reducing oil consumption by 2.2 million barrels of oil per day by 2025. Similarly, the new fuel economy will help cut carbon dioxide production, which is a major greenhouse gas and climate change culprit, by 6 billion metric tons for the entire span of the program.

Rachel Bogart provides an in-depth look at current environmental issues and local Chicago news stories. As a college student from the Chicago suburbs pursuing two science degrees, she applies her knowledge and passion to both topics to garner further public awareness.


Explosion at Mexican oil refinery kills two

Saturday, July 30th, 2011 | Finance News

MEXICO CITY (Reuters) – An explosion ripped through Mexico's second-largest oil refinery on Saturday, causing a massive fire and killing two workers, though production was not affected, state oil monopoly Pemex said.

The explosion occurred at the 315,000 barrel-per-day Tula refinery in central Mexico while the company was running a trial of its visbreaker, a processing unit used in the distillation of crude oil, a Pemex spokesman said.

One worker was taken to hospital with serious injuries caused by the blaze, which was brought under control within an hour, Pemex said in a statement.

"The accident occurred in a small, very localized area, and so the refining production process was not affected," the statement said. "Operations are continuing normally." Pemex said it is investigating the cause of the accident.

The number of injured could be higher and a helicopter was being used to airlift workers needing medical attention, said Miguel Garcia, emergency services director for Hidalgo state.

Pemex employees were evacuated from the refinery but the fire posed no risk to the surrounding area, Garcia said.

Clouds of black smoke were seen billowing out of the refinery in pictures taken by residents near the blast and posted on the social networking site Twitter.

Mexico imports about 40 percent of its gasoline because of a lack of refining infrastructure in the oil producing nation. The country imported 674,500 barrels per day of fuel in June, according to Pemex data.

There are only six refineries in Mexico and serious accidents in the past have lead to a spike in imports or gasoline and diesel prices.

In September of last year an explosion killed one worker at Pemex's Cadereyta refinery in northern Mexico, Mexico's third largest oil processing facility.

That incident forced Pemex to shut two units and reduce output at the refinery, which can process 275,000 barrels per day, causing U.S. oil product futures to briefly jump.

(Reporting by Cyntia Barrera Diaz and Mica Rosenberg; editing by Anthony Boadle)