Articles in Category: Public Policy

Almost no one seems to think this is a good idea, but the British people have gone and Brexited the European Union anyway.

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Britain has voted by a narrow majority 51.8/48.2 to leave the EU. What happens now is anyone’s guess. We are in uncharted territory, even those leading the charge for a Leave vote seem somewhat perplexed by the outcome and have been busy backtracking on promises and commitments made during the campaign about what they could deliver.

New Leadership

David Cameron, Britain’s prime minister, has announced he will step down before the conference season in October to make way for a new leader of the party’s choosing. The automatic assumption is this will be Boris Johnson with Michael Gove as Chancellor, but the party is deeply divided and a lot could happen between now and the Fall.

Screen Shot 2016-06-24 at 10.42.36

Source: BBC

In the meantime, the markets have taken the decision badly. The FTSE 250 — which is considered a close barometer of the UK economy — fell by 12.3% before paring losses back to 7.1%, while the pound tumbled to $1.30, before recovering slightly to $1.36 against the dollar. Read more

The Indian government has been taking a number of steps to tackle the serious issue of inflow of cheap steel products from China and other nations.

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Recently it issued quality control rules that required registration for the manufacture, import and sale of 16 steel products. One of the outcomes of this order was that it would weed out defective and substandard stainless steel used in utensils and kitchen appliances.

The quality control order was issued by the steel ministry in consultation with the Bureau of Indian Standards (BIS), making it compulsory to hold a BIS certificate. The certificates apply to low-grade stainless steel plates, sheets and strips, especially those used for utensils as well as for low nickel austenitic stainless steel sheet and strips used in kitchen appliances and utensils.

The latest Quality Control Order is applicable to some 25 grades of stainless steel. Incidentally, the QCO mainly covers three Indian Standards including IS 5522, IS 15997 and IS 6911. Grades covered by these three standards are: IS 5522 – 304, 302 & 430; IS 15997 – N1 (Min 1% Nickel), N2 (Min 1.5% Nickel) & N3 (Min 4% Nickel); IS 6911 – 405, 430, 410, 420S1, 420S2, 420S3, 431, 440, 201, 201A, 202, 301, 302, 304S1, 304S2, 309, 310, 316, 316L, 316Ti, 321 & 347.

The order was to be implemented by the producer, domestic or foreign, and not the end user.

Well-Received Order

The order placated a section of domestic steelmakers who were clamoring for a stop to cheap imports. In March, after some intense lobbying by steel players, the Indian government extended safeguard duties on a range of steel products by another two years to protect local steelmakers from cheap imports.

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The move was welcomed by the Indian Stainless Steel Development Association (ISSDA), a trade body representing the stainless steel industry. ISSDA also pointed out that the order will have a minimum impact on the stainless steel utensils market since it does not cover stainless steel containing less than 1% nickel.

ISSDA President N.C. Mathur said the order would ensure competitiveness and growth of India’s manufacturing sector.

Huge inventory levels and increased production are not helping India’s iron ore mining sector.

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According to a recent report by credit rating agency ICRA, India’s iron ore prices are not likely to recover in the near future. On the other hand, steel companies would benefit from this development in the short term. They were likely to enjoy “better profitability” due to improved steel prices in the current year, supported by imposition of minimum import price (MIP) by the government.

Production Up, Prices Down

India’s iron ore production in 2015-16 was at 155 million metric tons, registering an annual growth rate of 23%, ICRA said in a statement. Much of the incremental production in iron ore was because of stepped up mining in the Indian state of Odisha. In the current fiscal, ICRA said, India’s iron ore output could be somewhere in the range of 170-175 mmt.

The Federation of Indian Mineral Industries (FIMI), on the other hand, was of the view though that the Indian iron ore export mining industry needed tax relief to compete internationally after an absence of approximately four years when mining was largely banned in many Indian states.

Speaking at an iron ore conference in Singapore recently, R.K. Sharma, Secretary-general of FIMI said it would “challenging” to restart some of the mines after they have been shuttered for four years.

According to ICRA Corporate Sector Ratings Senior VP Jayanta Roy, because of the substantial iron ore inventory levels at existing mines and the fact that India’s iron ore production was slated to increase further, domestic iron ore prices are unlikely to recover meaningfully in the near term, which benefits local steel mills.

Post minimum-import-price, Indian hot-rolled coil (HRC) prices have seen a sharp increase of about 25% from the lows reached in February 2016, according to ICRA’s quarterly research report on the steel industry. Industry players saw additional gains due to an increase in sales volumes, as imports were likely to reduce in the current year.

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The MIP is scheduled to expire in the second quarter of the India’s fiscal year (April 1 to March 31), but according to analysts, the present level of international prices and the extension of a safeguard duty by the Indian Government to March 2018, could continue to boost prices and prospects for Indian steel producers.

Drilling in the North Sea started in the ’60s but really took off after the 1971 oil crisis as higher oil prices supported massive investment in deep offshore drilling technologies and infrastructure required to exploit what was, at the time, one of the most challenging environments in the world for extracting oil and natural gas.

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The city of Aberdeen flourished as the beachhead for this campaign and for 50 yeas it has grown and matured as a world class center of excellence in support services and facilities developing technologies and competencies that have been applied in deep-water offshore environments like the Gulf of Mexico, the South Atlantic and in the Arctic ever since.

But the collapse of the oil price, high taxation and dwindling reserves have hastened the end of a region whose days were always numbered by the finite nature of the resource.

Source Financial Times

Source: Financial Times

Yet as oil majors ponder the timing of closing and decommissioning offshore oil rigs, the challenges are yet again driving innovation and technologies that will be of benefit in decades to come around the world for those companies active in the work. Read more

The emerging markets of Southeast Asia differ markedly from other parts of the world in more ways than the admirable fact all the countries in the region exhibit robustly dynamic economies.

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Unlike the Middle East, Africa and large parts of the former Soviet Union, many parts of Southeast Asia enjoy a relatively free press, at least outside China. Interestingly, there is a range of political models from fully fledged democracies such as India to single communist party systems such as China but broadly speaking they all exhibit social stability, relative religious tolerance and, to varying degrees, respect for property rights and the law.

Emerging Economies

The Arab Spring left huge Muslim populations in Asia largely untouched even as it set the Middle East alight. Taken as a whole, these are hugely positive events and no doubt have contributed and will continue to contribute to above average growth, the creation of a growing middle class and domestic stability.

Maybe because of this stability, we worry little about the wider picture and mostly focus on GDP figures, PMI numbers and consumption data. The reality is, though, we could also be overanalyzing such issues. China is not going to have a recession, nor are the other economies of Southeast Asia. Large, and in most cases still growing, populations coupled with the above advantages will see to that. So what else should concern us?

When those more obvious qualities are stripped away, underneath is a region still riven with nationalism of a much more aggressive kind than found in more developed parts of the world and more akin to other less successful emerging markets.

Like Southeast Asia Europe suffered terribly from two world wars, yet both its population and its politicians hold a much more conciliatory and forgiving view of their old adversaries. Indeed, the European Union was founded in large part on a universal desire to avoid ever having such conflict again and nation states have sacrificed a lot in terms of independence and, arguably, prosperity to achieve the current state of mutual respect.

The rise of minority nationalist parties in Europe suggests that strains still exist and politicians ignore them at their peril but they are highly unlikely to result in another European war like WWII. But, in Southeast Asia, the same length of time has passed yet nationalist sentiments exist much closer to the surface and are actively fanned by politicians from time to time if they deem it suits them.

There is little or no admission of past guilt, no sense of contrition or forgiveness for the events of WWII in the region. Distrust is, therefore, rife and angers flair other territorial and trade issues that are frequently seen through the lens of that historical perspective.

Supply Chain Dependence

One has to hope that the integrated nature of Southeast Asia’s economies and interdependence of supply chains, finance and cross-border trade would act as a restraint in the event of flashpoints over issues like the Senkaku/Diaoyu islands in the East China sea — China’s extension of its territory by concreting over coral atolls in order to create new Chinese islands — instability in North Korea’s totalitarian regime and maybe the longest running issue, China’s claims on Taiwan.

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Particularly as after Iraq, Afghanistan and Libya it would seem Donald Trump does speak for a majority of U.S. society who would sooner countries sorted out their own problems, rather than rely on Uncle Sam’s protection. In a near future where the U.S. is less willing to speak quietly and carry a big stick, flashpoints have more potential to escalate than before.

We can see how Saudi Arabia has stepped into Yemen when they could see the U.S. would not, expect more of that in the years to come, regional players taking on the role that would historically have been fulfilled by the U.S. In Asia, the balance of risk is still on the side of common sense, shared interests and mutual gain trumping nationalistic pride, but then they said exactly the same about Europe before World War I.

The Supreme Court sided with a company that wants to appeal a Clean Water Act determination claiming private land is “waters of the U.S.” and Iran has found shipping partners to bring its oil to international markets.

SCOTUS Rules Against Clean Water Act

The Supreme Court recently ruled against the Obama administration in a case regarding water pollution permits.

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The nation’s highest court ruled unanimously that a landowner can appeal through the federal court system a determination from the Army Corps of Engineers that a water body is subject to federal jurisdiction and permit requirements under the Clean Water Act.
The court’s eight justices agreed in Army Corps of Engineers v. Hawkes Co. Inc. that the Corps’ final “jurisdictional determination” regarding a peat mining company’s wetlands is a “final agency action,” so the company can challenge it like any regulation. The case is likely to have consequences for the federal government’s entire enforcement of the Clean Water Act, the main law regarding pollution control.

Iranian Oil Coming to Market Faster Than Expected

More than 25 European and Asian-owned supertankers are shipping Iranian oil, data seen by Reuters shows, allowing Tehran to ramp up exports much faster than analysts had expected following the lifting of sanctions in January.

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Iran was struggling as recently as April to find partners to ship its oil, but after an agreement on a temporary insurance fix more than a third of Iran’s crude shipments are now being handled by foreign vessels.

I don’t know if any of you have been following the Sky Atlantic series “Billions” — it may be screened here in the U.K. later than the U.S. and is already history stateside — but after the first two episodes it is following an intriguing if well-worn path of the demon hedge fund manager pitted against the flawed but public-serving attorney general. Echoes of the big short and other films demonizing hedge funds come to mind, but it’s well done all the same.

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This is not all Hollywood, or wherever Sky films its TV series, though. In the real world, we are seeing the impact of unbridled and largely unregulated hedge funds manipulating the market and our purchase costs, our cash flow, and, ultimately, our profitability every day. Read more

An interesting article in the Financial Times recently reviewed the acquisition by China Molybdenum of the Tenke copper-cobalt mine in the Democratic Republic of Congo from Freeport-McMoRan.

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As the FT points out the purchase at a price of $2.65 billion is the largest single private investment in the DRC’s history and will be the largest purchase of copper assets since China’s purchase of Glencore’s Las Bambas mine in Peru for $6 billion in 2014.

Cobalt Control

The article examines the risks not to the copper market but to the co-product produced at Tenke, cobalt. The article focuses on risks to the cobalt supply chain of China gaining a dominant position in the global chain for this increasingly critical metal. Read more

There are seven suitors in the ring for the United Kingdom assets of Tata Steel, but is the Indian steelmaker possibly rethinking selling the unit off and planning to keeping the business?

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A report in the Guardian quotes “sources close to Tata Steel” has claimed that Tata, even as it was going through the motions of the sale process, “was evaluating” the performance of its U.K. operations and the package of financial support that the U.K. government offered.

This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can't find a buyer. Even as steel prices increased last week. Source: Adobe Stock/Petert2

This steel plant at Port Talbot in South Wales, U.K., might stay in Tata’s hands if the owner can work out a similar pension fix to what other suitors are offering. Source: Adobe Stock/Petert2

Hit by cheap Chinese steel imports, as elsewhere in the world, in addition to supply glut, Britain’s steel industry has been in the doldrums for some time now. In March this year, Tata Steel announced that it wanted to sell its remaining plants in the country, putting over 11,000 jobs at risk. Read more

This week, we asked if cheap Chinese steel imports are really that bad for the U.S.? After all, if Beijing and China’s regional governments are subsidizing steel production exported to the U.S. to the tune of 522% for cold-rolled and 451% for corrosion-resistant, aren’t U.S. manufacturers gaining a huge cost advantage on the finished products they ship back to the People’s Republic? Or even sell domestically?

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U.S. Producers certainly don’t see it that way. Neither do steel producers in most of the developed world, save China. 12 Steel associations from the Americas and Europe released another strongly worded letter to governments around the world, lamenting Chinese overproduction. Just look at those tariffs! The steel associations really mean business this time!

Nice job on the ditch, USA! I’m China, I’m here to fill it back in. Source: Adobe Stock/Kara.

China, of course, doesn’t see it this way at all and has previously said, through its Ministry of Commerce, that its steel industry is merely “export competitive.” It’s certainly a novel defense, but it would also be the equivalent of Tom Brady saying his footballs are only “deflation competitive” without dealing with why they are so. Or Russia saying Crimea is “annexation competitive” without saying why it should stop being a part of Ukraine and start becoming a part of the federation.

What is Protectionism?

Still, U.S. regulators like the Commerce Department and the International Trade Administration may want to tone down their heavy anti-dumping and countervailing duties decisions as 522% and 451% is an awful lot of anti-dumping and countervailing duties and the extreme outlier positions that Commerce has staked out could garner sympathy for China in front of a future World Trade Organization court. Read more