5th March 2000

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Code of conduct for Primary Dealers

The primary dealer association is in the process of formulating a code of conduct for the industry.

The code of conduct would stipulate the dealers obligations, market ethics, market practices and market regulations, the President of the Primary Dealer Association, Ajith Devasurendra said.

The Association together with Central Bank hired a team of consultants to draft the code, which is expected to be completed during the course of this year.

Devasurendra also welcomed Central Bank's initiative of setting up dedicated primary dealers, under the Local Treasury Bills (Primary Dealers) Regulations No: 1 of 2000.

Seven primary dealers commenced operations from March 1. They include, Ceybank Securities (Pvt) Ltd., Commercial Bank Primary Dealer Ltd., HNB Securities (Pvt) Ltd., Seylan Bank Asset Management Ltd., Sampath Surakum Ltd., NSB Fund Management Company Ltd., and MB Financial Services Ltd.

Three other dealers (Vanik Securities Ltd., People's Securities Ltd., and Ceylinco-Shriram) who got the nod, have been given time to set up their companies.

The Association hopes to broadbase the market with active participation in both primary and secondary markets to create much needed liquidity to the government securities market.

With active primary dealer trading, a much needed short/long term yield curve would be established which will be of importance to the issuers of debt and to portfolio managers and other investors, making government securities a benchmark for the capital markets, Vice President, Dula Weeratunge said.

The concept of primary dealers was first introduced in 1992 with 18 dealers. The number of dealers dropped to 17 in 1994 and later increased to 22 thereafter. In 1997, five dealers were suspended while two others were included, which brought the total up to 18 dealers. Central Bank's latest move leaves out foreign banks and a few non banking financial institutions.

Mind your business

by Business Bug
Export to stay in power

The blues are keen on staying in office for six more years and they now realise they would have to come up with a better performance with the economy which has been the traditional forte of the greens.

With this in mind, top economic brains were being picked for ideas- such as the garment factories programme- that would yield both economic dividends as well as political rewards.The one idea that is being considered seriously is to set up an export promotion zone in each province, we hear.

When giants go to court

Consumer protection groups are a new breed in this country, but they are being activated, thanks to the callous manner in which the partly state-owned telecommunication service is treating subscribers.

The latest affront is a directive to subscribers to visit their offices and collect their directories- the book which they received by post all these years.

If one recalls the recent past, last year too there was a fuss about the directories being split into two and subscribers howling in protest. Now, at least one consumer group is preparing to contest the telecom giant in court.

Go digital

The mobile phone industry in this country is now a three-cornered race with the fourth competitor being an also ran.Now the competition has intensified with the networks offering different digital services in a bid to woo subscribers.

If projections go according to schedule, all three major networks will all go digital before the end of the year, they say.

Tea Update


Local tea industry officials fear losing whatever exports there is left to the eastern and southern African nations following a pledge by COMESA members to establish a 'zero duty' trade area by October 31, 2000.

The 21 Heads of State representing COMESA, at the last meeting pledged to create the free trade zone on a purely reciprocal basis.

In the absence of a negative and positive list, officials assume that all commodities/products would come under the 'zero duty' FTA, while non COMESA members will continue to pay a 30 per cent customs duty on exports to the region.

It is also understood that COMESA has obtained a formal mandate from the World Trade Organisation (WTO).

Sri Lanka tea has already lost a substantial share of the Egyptian market to Kenya due to the declining tariff. Since 1997 alone, the exports to Egypt have declined from 10,800 tons to 7,595 tons last year. Officials last year forecast a decline in tea exports to Egypt this year, but now feel that Egypt would soon be a negligible market.

The Common Market for Eastern and Southern Africa (COMESA) was formed in 1989. Today, 21 nations have joined COMESA and represent a market of 380 million people with foreign trade amounting to US$ 62 billion and growing fast.

Local auctions

In local auctions last week, the Colombo Tea Traders Association relaxed the rules governing cataloguer of teas in order to clear the backlog of un-cleared teas. Hence, Asia Siyaka believe that there is likely to be a drop in quantities on offer therefore in the following catalogues.

However, the auctions itself saw a few positive gains as most varieties in the 2 million kilo of low growns on offer was picked up at higher prices then the pervious sale.

In addition, the better varieties continued to fetch a premium price over their poorer counterparts.

Export figures for January too were very positive as the FOB value per kilo achieved for the month was 6 per cent higher YoY, or a Rs. 438 million YoY.

Moreover, the Forbes report said Russia maintained the number one buyer of Ceylon tea, while Turkey ousted the UAE for second place with two million kilos.

A disappointing, factor in the export statistics was the declining quantities of placated tea exports. However, tea in bags gained significantly YoY. Instant tea also saw a significant gain YoY along with tea imported and re-exported.


India has not conformed its participation at the Tea Association of South Asia (TASA) meeting hosted by Pakistan at the end of the month.

The decision to let Pakistan host the meeting was made following its boycott of the first meeting held last year in India. Officials fear that India is also trying to boycott the meeting.

Officials say it is important that all South Asian tea producing and consuming nations attend the meeting for it to be successful.

Tetley Tea

The inventor of tea bags was taken over recently creating the largest cross border take over of an international brand by an Indian firm.

Industry analysts say that this might be the beginning of a series of take-overs and mergers to come.

However, though it may seem a coincidence, two months ago when the Tetley-Tata deal was evident, Unilever departed from its earlier stance of not to indulge in costly tea garden acquisition and consummated a Rs. 175 million deal for the acquisition of seven estates plus Rossell Industries Ltd with Y.K. Modi and two offshore outfits.

The BBC reported tea industry observers saying that Unilever swung into action to strengthen their presence in tea production on getting indications of Tata succeeding in the bid and thereby enhancing their presence in the world tea business.

Observers had said to the BBC that Unilever will be on the look out for acquisitions of more tea gardens and tea outfits particularly those with a sizeable market. Infact, tea industry sources claim knowledge of preliminary talks between Unilever and an outfit with 16-17 Assam estates.

Plantation Companies fourth quarter performance

Plantation     Turnover     % change     Profit (Rs Mn)     Under     cultivation     Holding Company
                    (Rs Mn)            QoQ     1999     1998         Tea        Rubber
Agalawatte     162.8             2.8         5.9         -14.4      19.5         63.5    Mackwoods Plantation Balangoda      387.6            41.6      69.4         -17.1      60.7         21.6     Distieleries Company
Bogawantalawa 451.4        -12.2     55.1         -24.2      40.7         46.5         Metropolitan
Hapugastena  281.3            23.6         1.0         -2.1       55.7       15.2     Plantation Ins.& Mgt co. Horana          187.8             7.6         4.5         -13.0      45.9        44.8     Ceyexxe Plantation
Kelani Valley  340.6          15.8       40.4            6.1       43.9        45.0      DPL Plantations
Kotagala         260.0         11.7       21.2            6.2        30.4        63.6    Lankem Tea Rubber
Madulsima      198.6         36.3        48.6         -17.1       78.8         0.0      Stassens Exports
Maskeliya        353.2        13.2        66.6          50.8        80.2        0.0     RPK Management
Namunukula     321.1        31.7        22.6        -11.2        36.0      36.0      RPK Management
Udapussellawa 189.6        31.8          5.9        -14.4        78.7        4.7   Plantation Ins. & Mgt co. Watawala        380.5        47.2        91.4          11.2        53.0       24.1     Tata Group of Co.

Plantation companies made a phenomenal turnaround in the last quarter as tea prices at the auctions picked up on the back of a global production shortfall. Analysts forecast positive growth in this quarter hoping the tea prices would continue its present trend and rubber prices would also gain significantly. (Source : Sasianet, NDBS Stock Brokers, Jardine Fleming Stock Brokers)

Market Report - Bourse droops as foreigners sell out ...

The Colombo bourse drooped under foreign selling pressure on blue chip counters. Foreigners opted out of these counters at a discount.. Net foreign outflows for the week were Rs. 101.8 mn. However other small markets including Philippines, Indonesia and Thailand have performed poorly this year with an exodus of foreigners.

The All Share Price Index fell 2.2 per cent to close at 535.9 and the Milanka Price Index lost 2.8 to register 875.4. Average daily turnover was Rs. 69.9 mn.

Corporate results released during the week included DFCC Bank whose profits after tax dipped 32 per cent YOY to Rs. 325 mn. Sampath Bank's profit after tax for the financial year ending 1999 fell 29 per cent YOY to Rs. 268 mn. Meanwhile Tokyo Cement's profit after tax increased 5.7 per cent YOY to Rs. 202 mn for the nine months ended 31 st December 1999.

The performance of corporate earnings was lower than last year on a cumulative basis but a reversal of the downward trend has been observed in the fourth quarter of 1999, Head of research, NDBS Stock Brokers, Chanaka Wickramasuriya said. "I t is still to be seen whether this trend will continue. Based on corporate performance share prices have weakened. A further weakening will provide good buying opportunities providing the reversal in trend continues," he said.

"Prices came down due to external factors such as foreign sales," Head of Research CDIC Sasoon Cumberbatch, Diluk Desinghe said. "John Keells Holdings is an extremely good buy at Rs.140 and the plantations and diversified sectors are good buys," he said.

"The lack of technological stocks which have attracted foreign interest in markets such as India has proved a disadvantage to Sri Lanka," Head of Research, Jardine Fleming HNB Securities, Amal Sanderatne said.

However with the economy on a rebound as indicated by 1999 GDP growth we maintain our year end index target of 700, he said.

Canadian immigration law firm opens office in Colombo

Rosenblatt Associates, one of the top Canadian immigration law firms, has opened a representative office in Colombo. The firm will provide professional services to Sri Lankans wishing to migrate to Canada for permanent residence, for temporary work, to carry out business or to complete their studies at a Canadian university, a press release says.

Rosenblatt Associates offers a free initial consultation and a free assessment to evaluate qualification for immigration. This free evaluation is Rosenblatt Associates' professional opinion of migration.

Although the firm offers quality legal services and information resource materials, their legal fees are by no means the most expensive. The firm has a unique approach to determining legal fees, considering the financial circumstances of each client to offer affordable and flexible payment terms.

Navigation Maritime Colombo bags the best agent award

Navigation Maritime Colombo (Pvt) Ltd., the Agents of Hanjin Shipping of Seoul, Korea, was recently selected as the Best Shipping Agent, Europe Sector, 1999, by the Institute of Chartered Shipbrokers, Colombo Branch. The Institute of Chartered Shipbrokers was formed in the United Kingdom in 1911 and had received the Royal Charter in 1920. Sri Lanka had obtained its membership in 1988.

The Chief Guest at the award ceremony was M.H.M. Ashraff, Minister of Port Development, Rehabilitation and Reconstruction. Among the other distinguished guests were Mr. M.N. Junaid, Secretary to the Ministry of Port Development, Rehabilitation and Reconstruction, Mr. Bandula Dissanayake, Chairman of the Institute of Chartered Shipbrokers, Colombo Branch, and Prof. Lakshman R. Watawala, Guest Speaker and leading shipping personalities and award winners.

Navigation Maritime Colombo was appointed as Agents of Hanjin Shipping only five years ago, and during this short time the company has focused their attention in improving their level of customer service. Hanjin Shipping of South Korea, one of the mega carriers of the world, has also focused their attention on improving the level of customer service around the world.

Hanjin Shipping, since its inception in 1977, has grown rapidly with dedication and inspiration, and service to their valued customers by identifying their individual needs. Hanjin Shipping is now privileged in serving the entire world with a vast fleet of container ships, break-bulk ships and tankers.

Hanjin Shipping was one of the first shipping lines in the world to have achieved ISO 9002 certification, and consequent to their vision, a majority of their agents worldwide, including Navigation Maritime Colombo, also achieved ISO 9002 certification.

Navigation Maritime Colombo is proud to have received the Best Agents award for Customer Service to Europe Sector for 1999 with less than five years of operation as Agents for Hanjin Shipping. The Institute of Chartered Shipbrokers has selected Navigation Maritime Colombo for this award after an extensive survey among the importers and exporters of this country. Incidentally, Navigation Maritime Colombo was the market leader to Europe in 1999.

Navigation Maritime Colombo intends to further improve not only its customer services, but also other areas such as operations, logistics, transhipment and marketing.

Colombo is on target to double air cargo tonnage

Sri Lanka's Bandaranaike International Airport is on course to double its number of cargo movements by 2010.

The statement is made in a 1999-2004 development plan, drawn up by the country's Civil Aviation Ministry.

The prediction has been based on the fact that cargo handled at the airport has grown 13 percent year-on-year in the last decade.

In 1983, tonnage amounted to 22,328 tonnes, jumping to 96,134 tonnes by 1997.

The government's intention is to develop Colombo as a major regional hub and has therefore decided to implement its stage two upgrading programme, which is divided into two phases.

The initial phase, costing at US $100m, is funded by the Japanese government while the second phase will receive investment from the airport authority, national government and from the private sector, in the form of a BOT contract.

An investment in the improvement of the air cargo facilities at the airport will feature heavily in the upgrading programme, which aims to substantially raise its throughput to 221,400 tonnes by 2004 and subsequently to 450,000 tonnes/year once the second phase is fully implemented. A spokesman claimed that the additional throughput will be achieved by speeding up the whole cargo handling process bringing it up to international standards.

Expert casts doubt on code

Theories as to why fires involving hydrated calcium hypochlorite (HCH) are now on the rise centre on the latest 25th revision of the IMDG Code.

The revision relaxed previous packaging restrictions, meaning that a maximum of 180 kg of HCH could be carried in a single-fibre drum.

A number of dangerous-cargo specialists believe larger packages are more prone to self-heating with consequent fire and explosion risks. Dr. Robin Holleyhead, a leading investigator of ship fires and explosions with consulting scientists Dr JH Burgoyne and Partners, says he is still looking into the properties of HCH but it is clear that the temperature at which a runaway reaction is likely is much lower than recommended by the IMDG Code.

Holleyhead says it is possible that some change in the manufacturing method or nature of the material is now making it a greater risk but that it is also evident that temperatures in a boxship hold can easily reach the upper 30°C range, especially in tropical waters.

Burgoyne's first warning of the risks of HCH came last summer and prompted P&I club advice that the chemical may constitute a greater hazard than realised.

Trade Wind

Drewry predicts terminal expansion

After years of stable development and growth, the northern European container terminal market is going through a dramatic period of change, characterised by changing ownership, consolidation, mergers, and joint ventures with ocean carriers.

In the past year, Hutchison Port Holdings has purchased Thamesport, and put in a bid for 51% of ECT in Rotterdam - if successful, the company will end up controlling 30% of the region's current deep sea container handling capacity; Eurokai and BLG have announced a merger in Germany; ECT and Maersk have agreed a joint venture terminal in Rotterdam; and a similar joint venture arrangement has been agreed between BLG, Sea-Land and Maersk in Bremerhaven, and between Hessenatie and Mediterranean Shipping Company in Antwerp.

So where is all of this leading, and what lies ahead for those ports either in need of modernisation or currently running out of capacity?

Drewry Shipping Consultants, in their latest report called 'Northern European Ports', attempts to provide the answers.

Supply and demand are analysed in great detail, including the factors which are most likely to influence future demand. The incidence of transhipment is an interesting feature here.

Total demand in northern Europe during 1997 is given as 24.6 million TEU, representing an increase of 7.8% over 1996. Transhipment cargo, including deep sea and intra-European traffic, accounted for 25% of this. The report looks at the cost of transhipping some of this cargo. Demand for overall terminal capacity is expected to increase by 13.2 million TEU between 1996 and 2005.

Given the fact that almost a quarter of deep sea terminal capacity in northern Europe still remains in the hands of smaller stevedores, an interesting conclusion here is that some of this could well be 'up for grabs' in the near future.

Containerisation International

At the melting point...

By Shafraz Farook

Bicycle parts, basins and metal beds were among other metal objects in the heap of scrap that dominated one end of the factory, setting the background to the fireworks that awaited us at the Biyagama steel factory. A clap of thunder greeted us as we approached the enclave that housed the only arc furnace in the country and my colleague said that we might be in for rain. The continuous roar was deafening as we got closer, but the sky was clear.

That's when Mr Milroy Fonseka, Project Director of HIAT Steel company overheard our conversation and said that the noise was not god's wrath but the noise of the arc furnace in operation. He with the aid of his colleagues painstakingly explained the process of making steel with scrap metals in an industry which is now over saturated.

Two Indian steel factories with a production capacity of 80,000 metric tons per annum have been approved by the BOI adding to the competition.

The fourteen factories share among themselves a production capacity of 361,600 metric tons per annum to supply of 180,000 metric tons per annum market at present. Officials said that though some of these companies began as BOI factories most of its produce was sold locally.

In contrast, the local steel industry grew only marginally, taking a beating from the fabricated metal product exports.

Even with high growth forecasts for the industry, officials said that Sri Lanka would not need such a supply capacity for at least another five years. They said that "the entry into a saturated market would be foolhardy if not for the advantages of BOI concessions and the 100 per cent equity value loans given by the local development banks to these companies."

In addition, officials said that with duty concessions and tax holidays BOI companies were at a distinct advantage over local producers.

Moreover, the electricity dependent industry feels that a tariff rebalancing in favour of the industries is necessary.

Officials also fear cheap Indian products entering the market with the Indo-Sri Lankan Free Trade Agreement. They said that with the high cost of labour, GST and NSL in addition to other expenditure would make it impossible for local products to sell profitabaly.

Officials feel that local producers too should be given at least some of the concessions extented to BOI companies.

Inspite of competition the three local producers have steeled themselves competition and are even investing more in state of the art machinery to improve their plants to international standards.

Heavy industries play a secondary role in our economy largely dependant on agro based and light industry.

But they have their place in local industry and the Sunday Times Business presents an inside of this heavy metal industry.


Steel is an alloy of iron and carbon in which the carbon content ranges upto 2 percent (with a higher carbon content, the material is defined as cast iron). By far the most widely used material for building the world's infrastructure and industries, it is used to fabricate everything from sewing needles to oil tankers. In addition, it provides the raw material to make the tools required to make other metal tools.

The electric arc furnace

The electric arc furnace (EAF) is one of the two modern ways of making steel. Generally used to produce special quality steels (steels alloyed with other metals) and some ordinary (non-alloy) quality steel - the lighter long products such as those used for reinforcing concrete.

Unlike the basic oxygen route, the EAF does not use hot metal. It is charged with "cold" material. This is normally steel scrap (recycled goods made from steel which have reached the end of their useful life).

Steel scrap (or other ferrous material) is first tipped into the EAF from an overhead crane. A lid is then swung into position over the furnace. This lid contains electrodes that are lowered into the furnace. An electric current is passed through the electrodes to form an arc. The heat generated by this arc melts the scrap. The electricity needed for this process is estimated to be around 10,000 amps of electrodes.

During the melting process, other metals (Ferro-alloys) are added to the steel to give it the required chemical composition. As with the basic oxygen process, oxygen is blown into the furnace to purify the steel.

After samples have been taken to check the chemical composition of the steel, the furnace is tilted to allow the molten steel to be poured into a ladle, and taken to the continuous caster.

The electric arc furnace in the Hiat factory can makes 60 tonnes in each melt, which takes around three hours.

Continuous Casting

After the scrap has been melted it is transported in the ladle to a continuous casting machine.

In the continuous casting machine, the molten steel is poured into a reservoir at the top of the machine. It passes at a controlled rate into a water-cooled mould where the outer shell of the steel becomes solidified.

The steel is drawn down into a series of rolls and water sprays, which ensure that it is both rolled into shape and fully solidified at the same time. At the end of the machine, it is straightened and cut to the required length.

Fully formed billets emerge from the end of this continuous process.

This process is believed to be both highly energy-efficient and produces a better quality product than other methods.

The billets are then transported to the hot rolling mill for rolling into steel products, which can be used by manufacturing industry.

Hot Rolling

At the rolling mills, the billets are first heated in a re-heat furnace until they are red hot. Then the heated billets go first to a roughing stand. A stand is a collection of steel rolls on which pressure can be applied to squeeze the hot steel passing through them, and arranged so as to form the steel into the required shape. The large semi-finished product is often passed backwards and forwards through it several times. Each pass gradually changes the shape and dimension of the steel closer to that of the required finish. (In this case, rolled into concrete reinforcement bars.) These bars are then twisted by hand (soon to be mechanised) to create the resistance and ridges that would eventually be the critical factor in holding the concrete.

The Company

HIAT Steel is the only steel mill in the country to make its own billets (one meter square steel bars-considered a raw material) which recently was awarded an SLS certification, for the production of concrete reinforcement bars.

Other companies import the required billets. However, according to Mr. Fonseka only Ceylon Heavy Industry Corporation (CHICO) is able to import quality billets. He said that quality billets was always sold in large quantities which only CHICO did and the rest of them order minor quantities, which are not up to the standard. In addition, CHICO is the only other company to have obtained the SLS standard for its steel.

Mr. Fonseka said that their next step was to obtain the ISO 9002 certification. For this, many new innovative features have been introduced into this mill to make it an efficient and eco-friendly factory in addition to other improvements.

Fact File

No of companies : 16 (two will commence production in end 2000 early 2001) - producing : 02 (Melbourne Metals Pvt Ltd will commence own billet production soon) - BOI approved : 03 - 100 % local investment : 03- % foreign investment in ind.: 59.81 % Total capacity : 361,600 metric tons per annum (without the two new factories) Estimated total demand : 180,000 metric tons per annum

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