25/04/2016 Asia Business Report


25/04/2016

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Strong as steel. Iron ore prices have hit 15 month highs. So will

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they last or will they rust? It's three years since the Raynor Plaza

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tragedy in Bangladesh. We find out if anything's changed in the garment

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industry. Hello and welcome to this Monday edition of Asia Business

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Report. Investors will be keeping a close eye on iron ore prices which

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have surged more than 50% since the beginning of the year after a

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protracted slump cracked down on prices from the highs of $200 a ton

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five years ago. It looks like command from China's steel industry

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is on the rise. Prices have been boosted by supply disruptions in

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Australia and Brazil. But will the rebound last? We found out from the

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industry. Recently the iron ore price has hit, as you mention, the

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15 month high against, about $70. I was in China last week and even the

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Chinese market is finding it fascinating in a way, most are

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saying it is hard to sustain because looking at China's steel demand as

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well as iron ore demand, it's not as good as last year. People here are

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very confused. At the same time, how come the prices have been rising?

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They are fascinated by this, speaking to your sources, and indeed

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a lot of iron ore producers, even the likes of BHP Billiton, think

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this surge in prices will last. Why is that? Nowadays we can see a

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closer coalition between iron or prices related to Chinese steel

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prices. We will be looking at the prices in the physical market. Last

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week, towards the end of last week, prices hit a new high as well. That

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led to the $70. We know China is a major steel producer, they want to

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curtail production, that doesn't bode well for the industry but at

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the moment you are seeing production disruptions, leading to rising

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prices. That's true. I would say the production disruptions stems from

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the steel side as well as the iron northside. You might think it is

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strange but at the same time, -- iron ore side. You are trying to

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curtail the production and that would be a boost to the prices as

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well from both sides. Where do you see prices heading? It's very hard

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to say but I would say this year the volatility will be more than last

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year. Anything could happen. Because we did see the $70 number. Because

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of the volatility it is hard to predict nowadays.

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Bangladesh has marked the third anniversary of the Rana Plaza

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disaster when a garment factory collapsed in 2013, killing more than

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1100. In the aftermath, the focus was trying to improve safety

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standards so that a tragedy like this wouldn't happen again. We found

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out how the industry has changed since then.

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Almost all of the exporting garment factories have gone through a

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standardised safety inspection, for building, structural integrity and

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the like. All of them have now got an inspection report indicating what

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changes need to be made to fix the safety issues.

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The standard that is applied here in Bangladesh is essentially based on

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Bangladesh National Building Core, but also following international

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good practices, it's a combination of best practices. We are hearing

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that the Bangladesh garment industry is heading towards a good standard.

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When the renovation is complete I think this will place Bangladesh in

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a very good place with competitive advantage. Safety has received a lot

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of attention in Bangladesh and it has seen improvements. But we also

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want to see more action with labour rights, making sure they are

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protected. We have seen a lot of workers in the last few years

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improving workers' rights as well as worker safety, that is a major

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priority for us. We have spoken to the president of

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the American Chambers of Commerce in Hong Kong. He travelled to the

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tragedy after it happened and since then he has been looking at the

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industry across the region and we found out if it had changed. The

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engagement by Bangladesh by international businesses, which has

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always been very strong, has intensified substantially imprecise

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areas where the tragedy gave rise to concern. Certainly on structural

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safety and training, safety training of all sorts, fire safety in

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particular, which has always been in place in the foreign investment

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factories. The Rana Plaza disaster made it very clear that of the 5000

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factories that are in the manufacturing of garments in

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Bangladesh, they all had to take a much closer look at the way they

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operate. You say things have changed but many critics said progress has

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been incredibly slow. The international coalition is set up

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after the disaster said a lot of the changes they have been trying to

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implement are well behind schedule. Why? That is an accurate observation

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first of all. A great number of factories have been investigated for

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structural safety but that takes extra time. That is not widespread

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to the international standards and hasn't been available in

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Bangladesh. There's a lot of training involved, which isn't a two

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weekend exercise obviously. Getting enough people to do the proper

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inspections and procedures is one thing. The other thing, foreign

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investor factories are less than half of that 5000, maybe 2000

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factories. Much more progress being made there even more than before.

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Then you need to train out and build out that explored these to the

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Bangladesh government manufacturing and exporters Association. That

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export. They have a wide range of expertise and they need a strong

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will to make changes -- export. It's a government issue, it is an

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institutional one as well as a company one.

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The Indian government has revoked the passport of the flamboyant

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businessman and lawmaker Vijay Mali. He fled abroad last month

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following pressure from Indian banks to repay $1.3 billion in debts owed

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by his failed company Kingfisher airlines. Some reports have traced

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him to the UK. India is now seeking legal advice on whether he can be

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extradited to face charges of money-laundering and financial

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irregularities. Some of the companies considered forbidden in

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Islamic finance where investors need to be Shariah compliant or meet a

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code of law found in the Koran. It's a growing industry but can it

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navigate investments that might fall into a grey area, like hotels. We

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found out. Welcome to the Holiday Inn Express

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in Singapore. To most it looks like just another hotel but its owner has

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used it in a landmark Islamic finance deal worth $260 million. I

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sat down with the bank are behind the transaction and asked how it is

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unique. When you talk about hotels and you think about the facilities

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that go with the hotel, they would serve pork and alcohol. That's a

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no-no in Islamic finance. In this case we were able to analyse whether

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the income stream which is the threshold in terms of share to the

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total income of the hotel. We were able to find out it is not. The

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Islamic finance industry is expected to be worth more than $3 trillion by

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2020. Saudi Arabia is the market leader, followed by Malaysia with

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Indonesia in seventh. But Islamic finance still only accounts for less

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than 1% of all global financial assets. So why the lack of

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appetite? I suppose because conventional banking is so sure. Why

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would you want to do something different? This transaction could be

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a good idea. The industry has yet to take off particularly in secular

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countries. But given this latest deal, hopefully there will be more

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opportunities for the industry to become mainstream.

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Let's look at the markets now because Japan's Nikkei is just a tad

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lower, this is due to profit-taking after we saw that four-day rally

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last week. Caution setting in ahead of the Bank of Japan's Central Bank

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meeting this week to decide policy. There was a suggestion they could

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inject more stimulus. Australia is shut for Anzac Day. Trade doesn't

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start again until tomorrow and the Hang Seng is open in a bit. That's

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it for this edition of Asia Business Report. Thanks for watching.

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