Chevron (CVX) -1.06%
CVX may sell refineries as it continues to focus its downstream business on Asia-Pacific markets, according to Chevron executive vice president John Watson. CVX has successfully rationalized other parts of its downstream business by selling markets and lubricant production assets in South America, Africa and Europe that didn’t fit the company’s focus on the Pacific Rim. Chevron owns or has ownership interests in 13 major refineries worldwide, 11 of which, including six U.S. refineries, supply the Asia-Pacific markets.
Dell (DELL) +0.29%
Michael Dell noted that business conditions had stabilized post the dramatic decrease in mid-September, however cautioned that visibility remained limited past the Christmas holidays and IT budget flush. Dell’s made encouraging comments on post-Thanksgiving demand and continued traction in Dell’s retail initiatives.
Dell said the company would “absolutely” choose profit preservation over market share gains in this environment, which was viewed positively by investors. He also stressed that cost reductions are ongoing and that the company won’t count on revenue strength to maintain healthy margins.
Lots of corporate debt being sold this week
Single-A-rated Hewlett-Packard raised $2 billion in the investment-grade corporate-bond market to fund its acquisition of Electronic Data Systems LLC, offering a yield of 6.227% on its five-year bonds.
Single-A-rated Caterpillar sold $1.5 billion of bonds in a three-part offering, with the largest portion – $900 million of 10-year bonds – offering investors a premium of 5.25 percentage points over comparable Treasurys.
Citigroup sold $5.5 billion in bonds guaranteed under the FDIC program until June 2012, which brings their amount raised in the last week to $32.6 billion in U.S. dollar-denominated debt. Because of the government backing, Citi paid only 1.884 percentage points over Treasurys on its $3.75 billion three-year bonds.
GE Capital and Wells Fargo are expected to raise cash via guaranteed bond deals later this week.
Metals and Materials companies are struggling
Freeport McMoRan Copper & Gold, the world’s largest publicly traded copper producer, will reduce output in the next two years and suspend its dividend after a “sharp” decline in prices for the metal. CEO Richard Adkerson explained that the “severity of the decline in prices” will limit the company’s ability to invest in growth projects. Freeport already had suspended share buybacks, cut some high-cost output and delayed projects.
Metal and materials companies are cutting production and reducing spending in light of tumbling commodity prices. Credit Suisse estimates 119 new mining projects will likely be deferred, representing about $193 billion of capital expenditures over the next five to seven years. Companies are clamping down, focusing on cash and delaying their growth programs.
Nearer-term production shutdowns of existing capacity are also increasing. So far, 75 closures have been announced, representing 10% of global seaborne iron ore, 4% of copper, 6% of zinc, 29% of ferrochrome, 10% of nickel and 10% of aluminum. The issue is not just price: demand has virtually stopped and producers have no choice but to curtail production.
For now the market continues to worry about demand, which is down about 10% for copper and 40% for iron ore in the fourth quarter. However, as the rate of decline in demand begins to slow, the market will eventually reopen the case for supply. Once the world gets out of the current credit crisis, it may realize that supply growth is even more constrained now than during the last five-year boom.
Quick Hits
- Harvard sent this letter to its Council of Deans explain that the endowment lost $8 billion in four months. Read more here.
- WSJ.com reports the Port Authority of New York and New Jersey, one of the best known names in the municipal bond market, received no bids Wednesday for $300 million of short-term notes it put out for competitive sale.
- Ford dealers are trying everything to sell cars.
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Peter Lazaroff, Junior Analyst
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