Author Archives: Stuart Burns

Those of us who are just passive investors in the stock market, usually via our pension plans, have no doubt been horrified by the meltdown in stock prices and what feels like the daily destruction of our savings.

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But fear not, as for any of us in there for the long haul, it will no doubt come back gradually over time, however scary it feels in the meantime.

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The initial reaction to the collapse in oil prices this week, initiated by Saudi Arabia’s unilateral declaration that it would open the spigots and flood the market with oil while simultaneously heavily discounting prices, was followed by optimism in some quarters.

That optimism came with the thought that lower oil prices would aid economies struggling with supply chain and worker attendance challenges as a result of the novel coronavirus (Covid-19) pandemic.

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Certainly, lower oil prices will help level balance of payments deficits run by some heavy oil consumers, like India and China. Even Europe, which is a net oil importer, will benefit to varying degrees.

But the size of the price fall will also prove a mixed blessing causing acute pain in other areas, not least among the major players themselves.

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Falling infection rates to the lowest level since January and President Xi Jinping’s visit to Wuhan yesterday suggest all is returning to normal in China.

Some are looking for a V-shaped bounce back and maybe even a softer hit to Q1 GDP growth than previously feared.

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A Reuters poll of Economists reported last week a revised growth forecast for the first quarter, falling to a median of 3.5% this quarter from 6.0% in the fourth quarter of 2019 — optimistically, a full percentage point lower than predicted in their last poll Feb. 14.

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The current plunge in the oil price has less to do with the coronavirus than it does with power politics.

Oil prices crashed by the most in 29 years Sunday night, The Telegraph reported this morning, as Saudi Arabia announced its deal with OPEC+ to limit production was dead in the water. Instead, the kingdom was set to raise output and heavily discount prices.

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The resulting drop is the steepest collapse in oil prices since 1991 and takes the market back to levels last seen in early 2016. A barrel cost almost $70 just two months ago but hit $36 this morning and pushed West Texas Intermediate (WTI) down to $32.

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Manufacturers are increasingly questioning whether their supply chain is likely to be exposed to disruption from the coronavirus outbreak ravaging China.

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Even if your company does not source product directly from China, many companies are still predicting supply chain disruption as the raw materials used by their manufacturing plants — which can be located anywhere in the world — probably originates in China.

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Reuters recently reported on Tesla’s announcement that it is in advanced talks to use batteries from China’s Contemporary Amperex Technology Co Ltd (CATL) that contain no cobalt specifically for use in cars made at Tesla’s Shanghai plant.

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The statement went on to say as a result of using CATL’s lithium-iron-phosphate (LFP) batteries, Tesla would be able to substantially lower the cost of those cars using the alternative battery technology, as cobalt is the most expensive component in traditional nickel-cobalt-aluminum (NCA) and nickel-manganese-cobalt (NMC) batteries.

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Those enamored with charts and those preferring fundamentals are, for once, aligned.

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The gold price hit a 10-year high as markets took fright at the impact of the coronavirus (Covid-19) on supply chains and productivity.

The flight to safe havens took a temporary battering last Friday, as sharp falls on stock markets prompted day trader margin calls and investors liquidated precious metal holdings to meet the costs.

But the horrendous volatility on the stock market is matched only by the horrendous potential damage widespread infection of the virus could potentially cause.

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After 10 months of many false starts and tens of millions of pounds of taxpayers’ money pumped into the company to keep it going, the purchase of British Steel’s U.K. assets at least appears on the verge of completion next week.

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As if the social cost of the coronavirus Covid-19 were not bad enough, some sectors of China’s industrial economy are suffering growing pain despite a supposed return to work last week.

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The property sector, which accounts for about 40% of China’s steel consumption, is stagnant, a Reuters report states, while other steel-consuming industries are likely to be operating far below full capacity.

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As an example of how often there are no easy answers to the most intractable problems, Italy’s Ilva steel plant, as it was known, is an example of many problems and many solutions — none of them without consequences.

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The Taranto plant, situated in Puglia on the heel of Italy’s “boot,” has long been a major source of pollution (specifically, air pollution). Failure to clean up the plant was a major part of previous owner Gruppo Riva’s loss of the plant back in 2014, when the state seized billions of euros in assets from Ilva.

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