As exports struggle, Israel’s economy faces slower growth

supermarket employee in Israel

By Steven Scheer

JERUSALEM (Reuters) – For decades, Israel’s high growth was driven by exports of oranges, diamonds, pharmaceuticals and software, but the picture is changing due to weak global demand and a strong shekel.

Consumer spending is now a critical growth driver. Businesses fear factories and jobs are at risk if exports, which have declined 10 percentage points over the past decade, fall further.

“We are exporting 80 percent less than our peak” a decade ago, said Joseph Ben-Dor, chief executive of Ben-Dor Fruits & Nurseries on the Jordan River in northern Israel.

Ben-Dor, whose family started the business in 1888, said his main market is Europe, particularly Britain where his largest customers for plums and other fruits are Tesco, Marks & Spencer, Morrisons and Waitrose. He largely blames a strong shekel, rising water, labor and other costs, and government obstacles for lower sales abroad.

Diamond exports, 25-30 percent of Israel’s industrial exports, have slid 30 percent in the past few years, mainly on slower global demand, said Yoram Dvash, president of the Israel Diamond Exchange. Exports to China, a key market, have plunged 70 percent in the last 18 months.

Citing weak global growth that has hurt exports, Israel’s Finance Ministry on Wednesday lowered its economic growth forecast for 2016 to 2.5 percent from 2.8 percent and trimmed estimates through 2019.

The Bank of Israel last month cut its growth estimate from 2.8 percent to 2.4 percent for 2016 and 2.9 percent in 2017.

When exports are hot, Israel’s economy tends to grow between 4 and 5 percent a year. With flat or declining exports in 2014, 2015 and probably again this year, growth is closer to 2.5 percent, well below the average of 4.5 percent from 2004-2011.

“If the trend continues we can witness sustained private consumption growth but we will shift to a lower growth rate,” Nathan Sussman, head of research at the Bank of Israel, said. “Growth will likely be in the 2.5 to 3 percent range if it stays this way.”

With the population growing 2 percent a year, that amounts to per capita growth of just 0.5-1 percent.

NO MAGIC PILL

Ten years ago, net exports accounted for 41 percent of output. Now the ratio is 31 percent. While that tops the 13 percent in the United States and 27 percent for Europe, the decline has strained the economy.

“We need to target growth of 4 to 5 percent so if you want to reach that, you need to turn on the engine of exports,” said Shraga Brosh, president of Israel’s Manufacturers’ Association.

Brosh said the government needed to invest more in research and development and encourage small- and medium-sized factories to become more efficient through tax incentives.

Ohad Cohen, head of the Foreign Trade Administration in the Economy Ministry, said there was only so much the government could do. “We don’t have any magic pill,” he said.

Still, the ministry supports exporters with insurance guarantees and in opening new markets. In recent years, it has doubled the number of offices in Asia to 16. Asia now accounts for 22 percent of Israel’s exports, compared with 31 percent for Europe and 25 percent for the United States.

Israel plans to invest in penetrating markets in Africa and Latin America, Cohen said.

Exports excluding diamonds and start-ups are forecast to fall 1.5 percent this year after a similar decline in 2015. Much of the weakness has come from Europe, in part because the euro has lost 15 percent against the shekel since late 2014.

Another issue is that three companies – Intel, Israel Chemicals (ICL) and Teva Pharmaceutical Industries – control nearly half of industrial exports. For various reasons they have trimmed output.

Intel is shifting production to a new chip plant in Israel, while falling demand and prices for potash have weighed on ICL. Teva said its exports are “characterized with monthly and seasonal fluctuations” but are not falling on an annual basis.

Concerned by sluggish exports, the central bank continues to buy dollars to try to prevent further shekel strength. It has bought about $70 billion of foreign currency since 2008, but the shekel has not weakened enough to spur an export recovery.

(Editing by Janet Lawrence)

Iran-Saudi row threatens any OPEC deal

A gas flare on an oil production platform in the Soroush oil fields is seen alongside an Iranian flag in the Gulf

By Alex Lawler and Rania El Gamal

LONDON/DUBAI (Reuters) – OPEC’s thorniest dilemma of the past year – at least from a purely oil standpoint – is about to disappear.

Less than six months after the lifting of Western sanctions, Iran is close to regaining normal oil export volumes, adding extra barrels to the market in an unexpectedly smooth way and helped by supply disruptions from Canada to Nigeria.

But the development will do little to repair dialogue, let alone help clinch a production deal, when OPEC meets next week amid rising political tensions between arch-rivals Iran and oil superpower Saudi Arabia, OPEC sources and delegates say.

Earlier this year, Tehran refused to join an initiative to boost prices by freezing output but signaled it would be part of a future effort once its production had recovered sufficiently. OPEC has no supply limit, having at its last meeting in December scrapped its production target.

According to International Energy Agency (IEA) figures, Iran’s output has reached levels seen before the imposition of sanctions over its nuclear program. Tehran says it is not yet there.

But while Iran may be more willing now to talk, an increase in oil prices has reduced the urgency of propping up the market, OPEC delegates say. Oil has risen toward a more producer-friendly $50 from a 12-year low near $27 in January.

“I don’t think OPEC will decide anything,” a delegate from a major Middle East producer said. “The market is recovering because of supply disruptions and demand recovery.”

A senior OPEC delegate, asked whether the group would make any changes to output policy at its June 2 meeting, said: “Nothing. The freeze is finished.”

Within OPEC, Iran has long pushed for measures to support oil prices. That position puts it at odds with Saudi Arabia, the driving force behind OPEC’s landmark November 2014 refusal to cut supply in order to boost the market.

Sources familiar with Iranian oil policy see no sign of any change of approach by Riyadh under new Saudi Energy Minister Khalid al-Falih – who is seen as a believer in reform and low oil prices.

“It really depends on those countries within OPEC with a high level of production,” one such source said. “It does not seem that Saudi Arabia will be ready to cooperate with other members.”

 

HIGHER EXPORTS

Iran has managed to increase oil exports significantly in 2016 after the lifting of sanctions in January.

It notched up output of 3.56 million barrels of oil per day in April, the IEA said, a level last reached in November 2011 before sanctions were tightened.

Saudi Arabia produced a near-record-high 10.26 million barrels per day in April and has kept output relatively steady over the past year, its submissions to OPEC show.

Iran, according to delegates from other OPEC members, is unlikely to restrain supplies, given that it believes Saudi Arabia should cut back itself to make room for Iranian oil.

“Iran won’t support any freeze or cut,” said a non-Iranian OPEC delegate. “But Iran may put pressure on Saudi Arabia that they hold the responsibility.”

Saudi thinking, however, has moved on from the days when Riyadh cut or increased output unilaterally. Talks in Doha on the proposed output freeze by OPEC and non-OPEC producers fell through after Saudi insisted that Iran participate.

Indeed, differences between Saudi Arabia and Iran, which helped found the Organization of the Petroleum Exporting Countries 56 years ago, over OPEC policy have made cooperation harder – to say nothing of more fundamental disagreements.

For more than a decade after oil crashed to $10 in 1997, the two set aside rivalries to manage the market and support prices, although they fell into opposing OPEC camps with Iran wanting high prices and Saudi more moderate.

Now, the Sunni-Shia conflicts setting Saudi Arabia and Iran at each other’s throats, particularly in Syria and Yemen, make the relationship between the two even more fraught.

The two disagree over OPEC’s future direction. Earlier in May, OPEC failed to decide on a long-term strategy as Saudi Arabia objected to Iran’s proposal that the exporter group aim for “effective production management”.

With that backdrop, ministers may be advised to keep expectations low, an OPEC watcher said.

“The only aspiration OPEC should have for its 2 June meeting is simply not to repeat the chaos of the Doha process,” said Paul Horsnell, analyst at Standard Chartered.

“A straightforward meeting with no binding commitments and, most importantly, no overt arguments would be the best outcome for ministers.”

(Reporting by Alex Lawler and Rania El Gamal; Editing by Dale Hudson)

U.S. crude hits six-month high after IEA sees tighter supply

A natural gas flare on an oil well pad burns as the sun sets outside Watford City,

By Sarah McFarlane

LONDON (Reuters) – U.S. oil prices hit a six-month high on Thursday, supported by data from the International Energy Agency (IEA) showing tightening supply, in addition to a surprise drop in U.S. crude inventories.

West Texas Intermediate (WTI) U.S. crude futures <CLc1> were 58 cents higher at $46.81 at 1213 GMT, having earlier peaked at $46.92, their highest since Nov. 4.

Brent crude futures <LCOc1> were trading at $48.00 per barrel, up 40 cents from their last settlement and near a six-month high of $48.50 hit at the end of April.

“The catalyst for the rally today seems to have been the IEA report where they have said production is going to fall faster and demand is going to rise more strongly than we previously thought,” Tom Pugh, commodities economist at Capital Economics said.

The IEA on Thursday raised its 2016 global oil demand growth forecast to 1.2 million barrels per day (bpd) from its April forecast of 1.16 million.

It also noted that output from Nigeria, Libya and Venezuela is down 450,000 bpd from a year ago.

Analysts said that while the IEA data was helping to support prices, the gradual return of Canadian oil sands output and the expectation that prices are nearing levels that could trigger the return of some U.S. production might cap gains.

“The only thing that could throw a spanner in the works to prevent oil from rallying further would be the (U.S.) production,” said Ole Hansen, head of commodities research at Saxo Bank.

Traders said an expected increase in Canadian oil sands output following disruptions to over 1 million barrels of daily production capacity due to a wildfire was weighing on markets.

The U.S. Energy Information Administration (EIA) said on Wednesday that U.S. crude inventories fell by 3.4 million barrels to 540 million barrels last week, surprising analysts who had expected an increase of 714,000 barrels.

“With (refinery) runs recovering and production dropping, U.S. (crude) stocks should begin drawing steadily from now,” consultancy Energy Aspects said on Thursday.

“We estimate that North American inventories can fall by as much as 12 million barrels across May and June,” it said.

Kuwait’s acting oil minister said that recent price rises were fundamentally justified.

“Based on the decrease in production that has been shown in the last three weeks, I assume fundamentally the price represents the fall of production,” Kuwait’s Anas al-Saleh told Reuters on Thursday.

He also said that the Organization of the Petroleum Exporting Countries (OPEC), of which Kuwait is a member, would not seek price supporting market intervention during its next scheduled meeting on June 2, and instead it would focus on dialogue between its members.

At an April meeting, rivals Saudi Arabia and Iran could not agree on deal terms, triggering criticism that the producers’ cartel had lost its ability to act.

(Additional reporting by Henning Gloystein in Singapore and Osamu Tsukimori in Tokyo; editing by William Hardy and David Evans)

Greece and China Create Small World Market Impact

The rejection of the Greek referendum and a massive stimulus action by China are not hitting all world markets as much as feared except in the area of oil.

U.S. crude oil fell over 7 percent to $52.53 a barrel, the lowest level since April.  Brent crude, the world standard, fell over 6 percent to $56.50.  The markets were hit with pressure from the Greek and Chinese situations plus Iran is preparing to flood the market after sanctions get lifted from a potential nuclear deal.

“Even without Greece, China’s stock market woes and Iran priming to hit the market with more barrels, the demand picture in oil has only been okay while the supply picture has been phenomenal,” said John Kilduff, partner at New York energy hedge fund Again Capital, told CNBC.  “With these number of bearish elements weighing on the market now, the only thing of support has been the seasonal demand in gasoline, and even that will be going away soon.”

American stock markets were down after the Greek “no” vote but not as much as feared by analysts.

The Dow ended the day down 47 points or 0.3%.  The S&P 500 as down 0.4% and Nasdaq was down 0.3%.

“There’s been no panic of any kind,” Paul Hickey, co-founder of Bespoke Investment Group told clients according USA Today. “The market remains faithful that the European Central Bank and other European institutions have done an adequate job firewalling the eurozone against Greece.”

The resignation of the Greek finance minister Monday is believed to have helped mute the impact of the Sunday referendum.

Texas Stores Limit Egg Sales

A chain of grocery stores in Texas is telling their customers they can only purchase a limited amount of eggs because of the bird flu impacting the nation’s egg supply.

H-E-B stores has posted signs saying that customers are limited to three cartons of eggs.  There is no limit on the size of the cartons, just the number of cartons.

The restriction is also in place at H-E-B’s affiliated Central Market stores.

“The avian flu this year has impacted a significant portion of the egg laying population in the United States (over 30 million birds),” company officials said in a statement. “This temporary constriction in the US market has caused an increase in price and shortage in availability of eggs.”

The announcement by H-E-B is on the heels of restaurant chain Whataburger announcing they were reducing their breakfast hours because of the number of egg based dishes on their menu.