Straits Trading diversifies into property and hospitality services

Amid the sluggish outlook for industrial metals, at least one producer is hedging its bets.

Straits Trading – whose tin producing unit contributes 85 percent of its revenue – has been diversifying into property and hospitality services.

Executive Chairman Chew Gek Khim spoke exclusively to Channel NewsAsia.

By 2015, Chew Gek Khim hopes Straits Trading will be Asia’s answer to Berkshire Hathaway, the diverse US holding company headed by billionaire investor, Warren Buffett

She said: “Against this backdrop, I think it’s difficult to speak with certainty when we will actually achieve all that the 2015 target is in front of us. We would still like to achieve it, whether we actually can depends on the market.”

Ms Chew has been in charge of the 124-year-old firm since 2008, and has been driving its transformation and it appears to be bearing fruit.

The company managed to turn losses of S$31.3 million in Q3 2010 into a S$19 million third quarter profit this year.

Ms Chew added: “For now I daresay we’re still undergoing transformation. It has not reached the point where we are satisfied and we can say, okay, lets go on to something new.”

It was out of necessity that Straits Trading had to transform.

Its operating environment was changing, with tin reserves and production from its base in Malaysia declining.

China became the world’s largest tin producer and importer, consuming almost half of the world’s output.

Nicholas Naidu, Manager, Base Metals, Phillip Futures, said: “From the earlier 2000 to 2005, China was not really involved in the market, but when they came in, boom, everything started to move. For example like tin, when they were doing the destocking earlier this year, price of tin came down to $17,000, and after which they stopped because Chinese internal prices were higher than the LME prices.”

Demand for tin and other industrial metals took a beating in the financial crisis of 2008 and never quite recovered.

Tin is currently trading at around US$20,000 a tonne, down 40 percent from its record in April and the market may weaken further with many economists predicting a recession in Europe.

Copper prices are 20 percent off their record highs early this year while aluminium is trading at a 30 percent discount to its record price in 2008.

Still the slowdown has prompted central banks in China and elsewhere to ease policy, and that may spark revival in demand for metals next year.

China recently surprised by slashing its reserve ratio requirement for banks, while six major central banks cut interest rates for US dollar swaps.

Dominic Schnider, Head of Commodity Research, UBS Wealth Management, said: “There is definitely a highlight with the fact that Chinese authorities start to cut reserve requirement rate for all the banks. This is an indication that monetary conditions are likely to ease in the coming months. I think that’s a great situation to see demand picking up from China but we’ll be rather cautious. I would say weak start, really strong finish towards the end of the year.

Analysts say investors can consider adding industrial metals like tin, copper and aluminium to their portfolios in the next one to three months.

This is because prices are near or below production cost, and a rebound next year is likely, barring a protracted recession.

Source : Channel NewsAsia – 12 Dec 2011

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