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metal-buying-risky-business-metal-minerLast week, Lisa Reisman (CEO, Azul Partners; Executive Editor, MetalMiner) sat down with Ron Wilson (CPO, Wilbur Curtis) and Bill DeMartino (General Manager, North American Operations, riskmethods) to discuss how metal-buying organizations are staying smart on risk. It made for a engaging conversation around risk management processes and strategy, and provided manufacturers of all sizes with a comprehensive risk management go-forward plan.

Although the live event experienced some unforeseen technical difficulties, MetalMiner is pleased to present the clean recording of Reisman’s discussion with Wilson and DeMartino. You can view the presentation by clicking the link below:

Amid political instability, Brazil is attempting to work its way out of its economic recession. readytogo/Adobe Stock

Brazil is struggling with corruption, particularly among the ranks of the elites, according to the Financial Times.

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Just a year after Brazil’s Congress impeached former President Dilma Rousseff, her replacement, 76-year-old Michel Temer, is hanging on to power by a thread following revelations last month that he had engaged in secret talks about bribes with Joesley Batista, the former chairman of meat packing firm JBS. Temer is the least popular president ever, according to a separate FT article, but business leaders and economic analysts say the Brazilian economy desperately needs his reforms if it is to pull itself out of a two-year recession (the worst on record).

Source: Financial Times

A meager bounce in the first quarter offered scant comfort, coming as it did on the back of a record soy bean harvest, up 13.4% and pushing the agricultural sector into positive territory.

Economy Stuck In Recession

The broader economy, however, remains mired in recession.

Interest rates are still at 10.4% to protect against runaway inflation last year. Imports and exports are down 21% in the first quarter of this year compared to the same quarter in 2015, the FT reports.

Although markets have recovered their shock following the exposure of Temer’s apparent acceptance of high-level bribery, Jimena Blanco, head of Latin America research at Verisk Maplecroft, a risk consultancy, is quoted by the FT as saying, “The government is hanging from a thin thread.”

Ripple effects of the Brazilian economy’s struggles

In a more isolationist America, some may ask: Should we care? Brazil’s problems are Brazil’s — it may be the largest economy in South America, but it is still a long way away, some might say.

Well, yes, we should care, despite all the U.S. talk about retrenchment. The U.S. economy is still highly reliant on global trade. Brazil is America’s 10th-largest export market, fitting between France and Taiwan in dollars earned.

Brazil is also an important geopolitical stabilizer for the South American region. While no one is talking of defaults, the prospect of the recession extending indefinitely raises debt servicing, currency and social stability issues.

Temer may not be the best prospect for open and honest government. At the moment, he may be the least bad option.

Free Download: The May 2017 MMI Report

It is something of an unholy alliance, but Russia and Saudi Arabia are becoming ever closer allies in a graphic example of realpolitik.

The two would probably be implacable enemies if their contrarian positions in Syria were any gauge – Russia closely aligned with Iran in their support of Bashar al Assad, yet Iran is Saudi Arabia’s public enemy number one and only major rival in the Middle East.

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But economics trumps almost all, and the two’s interests are certainly aligned in trying to reverse the damage done by Saudi Arabia’s failed bid to squeeze U.S. shale drillers out of the market and the corresponding glut of supply forcing prices to painfully low levels – painful at least for oil producers.

As the FT observed in quoting RBC Capital Markets as saying, “Saudi Arabia and Russia are essentially now co-pilots of this operation (of restricting output to boost prices) and they’ve made it clear there will be no going back to chasing market share.” The article goes on to quote: “It’s a huge change from two years ago when Russia would not co-operate with OPEC and even questioned its relevance in the age of shale.”

The two agreed last week to not only extend but deepen production cuts for a further nine months into 2018.

But not all agree with the International Energy Agency’s prediction that the cuts will be enough to balance supply and demand later this year.

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Before we head into the weekend, let’s revisit some of the stories and analysis here at MetalMiner this week.

Moody’s Downgrade of China: Something to Worry About?

Earlier this week, our Stuart Burns wrote about credit rating agency Moody’s and its downgrade of China’s credit status by one level (from Aa3 to A1). Credit downgrades are handed down all the time — but what do they mean, exactly? And, specifically, what does it mean for the Chinese economy and its growth?

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Ford Motor Company has bet the farm on electric and driverless cars, to borrow a phrase from an article this week.

The appointment of Ford’s new boss, Jim Hackett — who previously headed Ford’s Smart Mobility subsidiary from March 2016 but prior to that, was boss of Steelcase, a business furniture company — illustrates more graphically than words that Ford has read the runes for the internal combustion engine and the current automotive business model, and decided it needs a radical shake-up in its thinking and approach.

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A rethink of where the industry is going over the next 10 years has prompted not just the hiring of this talented outsider, but also, earlier this year, Ford’s $1 billion investment in Argo AI, an artificial intelligence company that, it is hoped, will produce the software needed for a new generation of self-driving cars.

Self-driving cars, though, are dependent not just on developing new technologies but a host of legal, insurance policy and regulatory changes that will take time to evolve.

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“Moody’s downgrades China,” proclaims many a recent headline, while the accompanying article warns that a credit explosion will continue even as growth slows. Sounds serious, doesn’t it? Should we be concerned?

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Ratings agency downgrades are nothing new. The U.S. had a downgrade earlier in this decade, as had the U.K. and many other countries. Life goes on, and even for countries with large external borrowings, costs rarely rise by much — if at all.

There are exceptions, of course. Just think of Greece and many of the Southern European states whose borrowing costs rocketed. But the cause was not only downgrades. In the case of those countries, there had been a profound and sudden loss of market confidence in their ability to service their debt. And therein lies one of the issues for China.

Although China’s economy-wide debt is already 256% of GDP and rising, much of it is funded internally. It is not reliant on overseas investors, and as such is easier for the Bank of China to manage. According to a report in The Telegraph, China’s government debt-to-GDP ratio is expected to rise only gradually to 45% by the end of the decade, which is in line with similar countries rated at an “A” investment grade.

The downgrade has so far been confined to Moody’s, which dropped China’s rating by one notch from Aa3 to A1, keeping it apparently within investment grade territory. Moody’s pressed Beijing to accelerate supply-side reforms as the country faces challenges in the years ahead of an aging population, slowing productivity growth and the legacy of excessive state led investment.

Growth is predicted to slow to 5% from current 6.7% levels by the end of this decade. But while that is “poor” for China, it is still exceptional for any other country of comparable size. Read more

On this Memorial Day 2017, we at MetalMiner would like to take the opportunity to look back at what matters, starting with the reason for the holiday itself.

We salute the brave men and women across all armed forces for their service and sacrifice, which is more important today than ever. In the wake of the Manchester bombing, it’s only right to take a moment and honor those who risk all to fight for freedom from fear.

14ktgold/Adobe Stock

Memorial Day Roundup – The Year That’s Been So Far

What else matters on this Memorial Day?

The first five months of 2017 have been interesting ones, in which we’ve seen these three MetalMiner stories perform the best — spoiler alert, aluminum is the frontrunner for Metal of the Year so far:

We Launched MetalMiner Benchmark

Here’s the deal, folks.

Gamechanger, amirite?

ISM 2017 Happened

A contingent of our company, representing our sister site Spend Matters, descended upon the annual Institute for Supply Management (ISM) conference in Orlando, Fla., the premier event for purchasing/procurement and supply chain professionals.

Here’s a highlight, from our colleague-in-attendance Pierre Mitchell:

A “great session was the Q&A with ISM CEO Tom Derry, Hans Melotte (ex-Johnson & Johnson CPO who is now CPO at Starbucks) and Kris Pinnow (CPO at B/E Aerospace). I asked Tom about the ISM economic forecast showing slightly higher U.S. growth rates in manufacturing compared to non-manufacturing, and he said that it’s likely a combination of nearshoring, automation, foreign investment in the U.S. and manufacturing for exports. Here, Tom aptly said that ‘a company’s supply chain follows demand – and that’s [U.S. government] administration agnostic.'”

For more on the conference highlights, head over to Spend Matters.

We Bid Adieu to Jeffrey Yoders

jeff yoders chicago cubs 1060 project

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What with news of the terrorist massacre in Manchester reverberating around the world, while President Donald Trump first snuggles up to the Saudis and then to the Israelis — it is hardly surprising that news of yet a fourth Greek bailout has failed to make much headway in the headlines.

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News that the International Monetary Fund (IMF) is working on a compromise with Greece’s creditors that would smooth the way for a €7 billion ($7.8 billion) disbursement of rescue cash all sounds rather calming and reassuring. But rest assured Greece is in danger of yet another default this summer as it seeks to get its hands on the latest tranche of an €86 billion rescue package to meet debt obligations this July.

According to an article in The Telegraph, Greece’s debt currently stands at nearly 180% of gross domestic product. The Greek economy fell back into recession in the first quarter of 2017, and it is an economy that is still some 27% smaller than in 2008, crushed under the EU-IMF austerity program.

According to the Associated Press, the IMF has argued that the Eurozone forecasts underpinning the Greek bailout are too rosy and that the country as a result should get substantial debt relief so it can start growing on a sustainable basis. The Greek economy has spent more time in recession than growth since the financial crisis.

The Eurozone, on the other hand, has so far ruled out any debt write-off, saying it would rather extend Greece’s repayment periods or reduce the interest rates on its loans after the bailout next year. Germany and the Netherlands are keen to avoid debt relief, probably because they do not want to set a precedent that others such as Italy could turn to later to solve their own problems. Read more

AdobeStock/FenrisWolf

It’s a story of two democratic countries and the policies they pursue vis-à-vis energy.

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So while the U.S. under President Donald Trump is kind of trying to revive its coal industry, far away India is doing the opposite – embracing clean energy with a vengeance and relying on it for much of its energy needs.

That’s one of the many reasons why India has also managed to beat the U.S. to the number two position in the renewable energy investment index released recently by UK-based accountancy firm Ernst & Young. China has continued to remain on top of this list, while the U.S. is now third. This is an annual ranking of the top 40 renewable energy markets in the world.

Those who prepared the report said that industry-friendly policies laid down by the Indian government, along with increasingly attractive economics, had changed the entire climate of the renewable energy sector of India.

Under Trump, the U.S. is seeing a shift in its energy policy. The president has issued orders to roll back many of the previous administration’s climate change policies, revive the U.S. coal industry and review the Clean Power Plan. Compare this to India’s neighbor China, which has announced that it would be spending $363 billion on developing renewable power capacity by 2020. Read more

The U.S. dollar got a boost after the presidential election as markets were encouraged by prospects of lower taxes, fiscal stimulus and deregulation that would accelerate growth of the American economy.

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But this month, the dollar has fallen sharply, hitting a seven-month low. A weaker dollar gave some relief to depressing commodity markets.

Commodity index (in black) rises as Dollar index (in green) falls. Source: MetalMiner analysis of stockcharts.com

Why then is the dollar losing its luster now?

First, the dollar had steadily risen for three consecutive months. It’s not uncommon to see profit-taking after such an increase. But there are also some fundamental reasons behind this sell-off.

Selling intensified after the recent political turmoil around President Donald Trump as investors worry over political stability in the U.S. Investors also worry that under these political turbulences, the Trump administration will struggle to implement the pro-growth initiatives that markets had taken for granted. Finally, the euro appreciated against the dollar as political risks in Europe eased following the French elections.

Can This Decline Be Reversed?

US Dollar Index could bounce back up soon. Source: MetalMiner analysis of stockcharts.com data

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