Articles in Category: Environment

Santa Inc Saved From Bankruptcy

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Reports last week that Santa Inc is having its loans called in by Global Bank have been confirmed by a company spokesman. Speaking to MetalMiner Mr S.T. Nick said, “We were fine while we operated on a purely voluntary basis, our costs were low and we received a small annual revenue share from the postal service for all the business we generated for them which was sufficient to cover our overheads. But since we were brought out by the private equity firm Flipem Capital we have been so loaded up with debt to fund expansion in Asia we have found we cannot sustain cash flow commitments, particularly as our clients are sending in requests by e-mail instead of letters, cutting our traditional revenue stream.

A spokesman for Global Bank, main creditors to the firm, was more critical, “Santa Inc is operating a flawed business model; they buy all these raw materials, and take on staff to make products but then give it all away. We told them you have to start charging a market price or you will go bust, advised Aloysius Fortescue-Smyth head of Corporate Finance in the firm’s London office. “We commend their admirable work ethic, delivering millions of presents around the world in one night has made them a potential take-over target for certain major courier companies. An option the bank’s M&A department is rumored to be working on with various interested parties.

Mr Nick went on to say all was not lost, the firm approached world renowned metals consultants Aptium Global and although outside of their normal sphere were given what may prove life saving advice. Aptium recommended the firm leverage its client base to lobby EU decision makers in Brussels; it is a well known fact that Santa Inc’s clients have their own unique method of pressuring parents that makes then an extremely effective lobby group. As a result, the firm has just been granted free carbon credits due to the methane their transport system generates which Santa Inc has been able to sell on the open market creating a new revenue stream. So lucrative is this arrangement that the firm is not only expected to shortly pay down its loans but is investing in manure digesters for its Reindeer herds that will generate electricity. Excess power will be sold back in to the grid at subsidized rates further supporting future revenue streams.

“If it wasn’t for Aptium we would be facing foreclosure said a gnome recently transferred into corporate communications for Santa Inc “the bank had already listed our assets for disposal. In fact the corporate deer stalking event was scheduled for next weekend, Rudolf will be relieved.

–Stuart Burns

The Cost of Renewables in Germany

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Cleantech German style inevitably involves a substantial amount of government subsidy and as a result investments are made and markets created that would not happen if traditional economics were in play. In a town in north-eastern Germany, 20 giant airtight tanks are filled with corn silage, tons of chopped up stems, grains and leaves, which is fermented at 96.8 degrees Fahrenheit for 10 weeks. The process, which yields bio-gas that contains methane, is apparently the same as what happens in a cow’s intestines says the plant owner in this article. Once the plant is up and running, farmers from a surrounding 3 mile radius will supply it with organic matter. Roughly 1,250 tons a day will be processed at the plant, producing methane that is pumped into a pipeline running directly beneath the plant grounds. The company expects to produce 46 million cubic meters of gas a year, enough for 50,000 households. Although the plant has venture capital money behind it, it wouldn’t have happened without government subsidy in terms of the price paid for the bio-gas produced.

In fact, German citizens have paid dearly for this part of their green dream. Electricity customers have paid $10 billion for solar modules that were installed between 2000 and 2008, and that’s just the beginning. A German economic research institute RWI-Essen estimates that the government will spend an additional $42 billion to promote solar power in the next 20 years, the balance of the country’s solar energy subsidy program.

Compared to the cost, the rewards from all this tax payers money are modest, raising questions about how much politicians should be trusted with making these decisions. Solar-generated electricity covers only 0.6% of demand in Germany. Subsidizing solar is neither good for the climate nor does it help employment in Germany, says the RWI. The Renewable Energy Act (EEG) has merely artificially stimulated demand for solar energy. “The EEG may be well-intentioned, but it’s highly inefficient from an economic standpoint” they say.

The law, enacted in 2000, allows operators of solar powered systems to collect a fixed payment of up to 43 cents per kilowatt hour that they feed into the grid, at prices guaranteed for 20 years. By comparison, the producer price of electricity is approximately 5 cents per kilowatt hour. In addition, photo-voltaic is by far the most expensive method of reducing carbon emissions. It costs more than $1000 to reduce CO2 emissions by one ton, for wind energy that cost is reduced to about $145 per ton. It would be more worthwhile to improve the efficiency of brown coal power plants, for example. According to a study by the consulting firm McKinsey, that would cost less than $30 per ton. In other words, the money that is spent to save one ton of CO2 with solar power could be used to save up to 30 tons in coal-fired power plants.

Meanwhile back to the bio-gas plant, natural gas from Russia currently costs less than 3 cents per kilowatt hour, while bio-gas is only profitable at prices of 8.5 cents or higher. This is one of few positive arguments for a universal carbon trading system; at least it would allow the market to direct where investment in alternative energy sources was made instead of micro managing politicians making arbitrary decisions. The problem in Europe is all the worse because polluters have been given their credits for free and so the system is not, nor will it, work effectively for many years to come.

–Stuart Burns

Yes I know the whole point of this design is that there is very little metal in it but we couldn’t resist a short update on Sir Richard Branson’s Virgin Galactic Space Craft. While the mother ship White Knight has been under tests for a year now the combined mother ship and space craft have just been presented to the press at a ceremony in the Mojave Desert according to this release.

SS2 and VMS Eve in hangar 3

The ship’s unique design is a two part craft – the spaceship itself is attached to a bigger mother ship, called the White Knight but nicknamed Eve after Branson’s mother (well if you are a billionaire I guess you can indulge in such things), which carries the smaller craft up to an altitude of 50,000 feet, before the rockets kick in and the spaceship jets up to 340,000 feet, around 65 miles, at a speed of 2500 miles per hour. Eve is powered by four Pratt and Whitney PW308A engines and the centrally slung spaceship SS2 is powered by rockets, at 50,000 ft+ the air is getting too thin for turbines. After a flight above the suborbital atmosphere, the craft’s wings fold up 90 degrees and it becomes a glider, gently coasting back down to earth.

The Virgin Galactic program is hoped to be ready for launch late 2011, and will take off from a special Space Port being built in New Mexico by acclaimed architect Norman Foster’s firm. Virgin has been clever in adopting a low cost airline approach where the airports pay the airline to bring in flights and generate traffic. Virgin has talked New Mexico into building the Space Port for them in return for the kudos of hosting the US base. A European space port has not been decided on yet.

Made of carbon composite, a lighter material than metal, the ship is more fuel efficient than current space vehicles, with a carbon footprint reputed to be equivalent to one business class ticket from London to New York, compared to the current Space Shuttle carbon count which is equal to the energy output of New York City for five days! Whatever the fuel efficiency you have to admit Branson has style. There are already several hundred paid up “astronauts for which read passengers, who have put down some $200k each for the one and a half hour flight.

–Stuart Burns

Besides perhaps the health care debate, no single policy issue has created as much controversy as the EPA’s recent Ëœendangerment’ declaration that greenhouse gas emissions cause people harm. And as my colleague Stuart posted last week, “whatever one may think of the whole concept of carbon trading and  however flawed one believes existing trading systems are and believe me this site has frequently criticized both the fact remains that carbon trading is almost certainly here to stay and will have a major impact on business and our personal lives in the decade to come.

Stuart didn’t touch the hot potato of whether the science supports the argument behind the case for global warming (or if the best way to address it involves carbon cap and trade or just a plain old carbon tax or curbing emissions via the Clean Air Act or some other scientific means making its way around such as injecting sulfur dioxide into the stratosphere which by the way, a very prominent metals subject matter expert who has posted on MetalMiner subscribes to but for which we are not yet at liberty to discuss). We’ll steer clear of that one as well but the science behind global warming and the trail of hacked emails suggesting the science may not sit on as strong a foundation as some would like us to believe may very well turn out to be what will ultimately undermine the EPA’s ability to regulate greenhouse gases. In addition, the fact that the EPA made the ruling, whereas Congress failed to act, may place the entire issue squarely on President Obama and his administration. And therein lies the rub – Congress, instead of tackling this controversial issue, can punt it to the EPA and leave the implementation of the ruling to the lawyers (you can be sure there will be lawsuits) as well as the burden of proof to the EPA (the EPA has to prove greenhouse gases are harmful to human health). And that’s where those ugly leaked emails can get a little tricky for the EPA.

Prior to the EPA’s ruling last Monday, organizations like the American Iron and Steel Institute, “has made it known it wants to make sure energy-intensive imports such as steel bear the same climate-related costs as domestic products.”  If the EPA sets policy, as opposed to Congress, the AISI concerns become very real. The EPA could only regulate domestic producers. A unilateral solution will have a devastating impact on US manufacturing. Consider the following:

  • A piece on manufacturer Quality Float Works a company that makes metal float balls used on flagpoles, weather vanes, plumbing and industrial devices raises concerns about how a middle market manufacturer will compete globally
  • Nucor has not made a decision on where to put a new plant (it is deciding between Louisiana and Brazil) pending the outcome of climate change legislation, Copenhagen etc.
  • Here is a list of a few of the trade associations who have come out against the EPA endangerment finding:
  • So here is my prediction: Congress will do nothing on carbon cap and trade because now it no longer needs to do anything. According to this Forbes article, “Around March, look for the EPA to finalize its ruling for the auto sector (editor’s note: to federally regulate automotive emissions). It will also put the finishing touches on its decision to tailor greenhouse gas regulation under the Clean Air Act. What happens then? Lawsuits.

    And that’s my second prediction.

    –Lisa Reisman

    The loss of 1,700 jobs is always a tragedy although in the steel industry unfortunately not an unusual story. Nor did Tata’s Corus come in for a huge amount of blame when they announced this week that they were closing the three million ton per year merchant bar plant at Teesside in the UK after four long term clients failed to honor their commitments to take product from the plant earlier in the year. Corus tried manfully to keep the plant going, losing some $130m over the intervening 7 months since the original announcement was made regarding the contracts, according to Bloomberg.

    But there is another story doing the rounds following an article in the Times that detailed the windfall $1bn benefit ArcelorMittal are said to have secured from the European Union after intense lobbying by them and their trade body Eurofer. Arcelor have been granted the rights to 20.8 million surplus carbon emission allowances given to it free by the EU. With the carbon price at over $21, they are worth about $440 million. But, with additional surplus allowances up to 2012 and an increased carbon price expected to rise to over $45 – the company could have gained assets worth around $1.6 billion.

    The next largest beneficiary of this largesse is none other than Corus, with ThyssenKrupp coming in third. The story suggests Corus stands to gain at the current carbon prices $165m and, with an increased carbon price and its additional allowances, the asset value of its cap and trade holdings could amount to over $600m. But that may not be the end of it. Closure of the plant will deliver further “savings” of over 6m tons of carbon dioxide, worth an additional $130 million per annum at current rates but around $330 million at expected market levels.

    Meanwhile, producers like Arcelor and Corus are keen to build new production facilities in developing countries like India. New facilities are not only lower cost but under the UN’s Clean Development Mechanism the producer is paid up to $50 a ton for each ton of carbon dioxide “saved” by building a new plant, while the company which owns them also gets paid $50 for each ton of carbon dioxide not produced in its European plant, for which read Redcar.

    I am sure this was not the intention of the European Union when it first dreamed up the Cap and Trade scheme, but like most politically driven initiatives, once the politicians have nailed their colors to the mast they stubbornly refuse to change course or admit they could be wrong. One can’t blame Corus. If the above scenario is correct they are merely responding to the business environment the politicos in Brussels have created.

    –Stuart Burns

    As many a consultant might say, the best way to rid oneself of high material cost is to not design it in, in the first place! Though MetalMiner frequently looks at the range of metals categories from a strategic sourcing perspective, it would behoove us not to discuss various metal product innovations particularly when they have (or claim to have) the ability to reduce costs. Last week, Carpenter Technology announced a new material, PremoMetâ„¢ Alloy that claims could serve as an alternative material to cobalt-containing steel alloys.

    Judging by cobalt prices for the past year, identifying lower cost alternatives might make good business sense:

    Courtesy of MetalPrices.com

    The target applications for these materials include power train components in heavy-duty diesel engines (including on-highway over the road trucks), off-road (construction type vehicles) and large marine engines. The new EPA determination that greenhouse gas emissions causes people harm probably helps some of the buying communities as weight reduction and engine efficiency improvements help reduce such emissions. According to Mike Wilkes, Market Manager, Automotive at Carpenter, “Manufacturers will therefore need to specify higher strength metals for their light-weighting projects in order to achieve lighter weight. The lighter components will need to maintain performance requirements. Mike suggested life-cycle costs can be reduced by purchasing less material per part. In addition, the substitute material should allow for longer engine life and lower fuel consumption.

    All of those arguments sound good on paper. But how do purchasing organizations reconcile the fact that specifying proprietary alloys and products can result in higher prices over the longer term? Simple, according to Carpenter enter into a long term supply agreements to allay concerns.

    If you are a metal producer and have a new product on the market, drop us a line. We’d like to hear about it at lreisman(at)aptiumglobal (dot) com.

    –Lisa Reisman

    Whatever one may think of the whole concept of carbon trading and  however flawed one believes existing trading systems are and believe me this site has frequently criticized both the fact remains that carbon trading is almost certainly here to stay and will have a major impact on business and our personal lives in the decade to come.

    The global carbon trading market is at a cross roads this month. If the US can be persuaded to join the system at the Copenhagen Climate Change Conference the market would explode in terms of projects subsidized and credits traded over the next five years. The United Nations Clean Development Mechanism (CDM) program is in tatters, widely criticized on all sides it is under funded, under staffed, slow, complicated and seen by many as ineffective. Indeed reform of the system will almost certainly be one of the US demands if they are to get on-board.

    The world market in greenhouse gases has grown from nothing in 2005, when the Kyoto protocol came into effect, to about $125bn last year, despite the financial crisis, according to Point Carbon, quoted in an FT article. If the US were to participate in carbon trading, which it does not because it has not ratified the Kyoto protocol, the analyst firm estimates the total value of the market would rapidly rise by several hundred billion dollars, and could reach $3,000bn by 2020.

    The UN’s  CDM carbon trading program faces two major problems. The first is the absence of the US, the largest per capita emitter of carbon, and the other is structural. The CDM cannot cope now with the number and complexity of project applications. If the US joined they would be swamped. As it is the system has come under widespread criticism for granting credits to projects, particularly in China and India that would have gone ahead anyway and should not be qualifying for carbon subsidies. This is the concept of “additionality that says any project should only qualify for subsidy if it would not otherwise be taking place, or put another way it is an additional opportunity for carbon reduction. But millions in subsidies have flowed to Chinese wind-farms that would almost certainly have happened anyway. To the UN’s credit, they have recently put a moratorium on subsidy for new Chinese wind farm projects while they review the criteria.

    The worry is the UN is looking at ways to resolve the current problems in typical politicians ways by removing per project revue to setting wide benchmarks that cover industries or even countries and then award credits based on how well industries or countries do against a benchmark. The opportunity for falsification of results and fudge sound like they would become rife.

    Meanwhile, major corporations are in Copenhagen trying to influence governments thinking on carbon trading and the impact regulation could have on business. Coming back to our opening comments, regardless of our view in various ways the outcome of this week will impact us all in the years to come.

    –Stuart Burns

    There’s nothing at MetalMiner we like more than to bring you news of new developments, products or innovations particularly if they further the use of metals. So it was a pleasure to catch up with an old friend of mine Igor Malyshev this week.

    Russia has come a long way from the first days I did business there in the early 90’s when the answer to a slow paying customer in the depths of one Siberian winter was we lock him in Gregors garage, in the morning he pays cash! gulp. Well as you can imagine, I always paid my bills on time. Igor fortunately never had to lock me in his garage or anyone else’s for that matter and for a number of years we very successfully cooperated in the sale of Rusal’s semi finished products in Asia. Since then, Igor has moved on to another Russian mill Kamensk Uralsky Metallurgical Works (Kumz) and is again doing wonders developing their sales. But here his challenge was greater. Read more

    If you caught the first part of our series on green innovations in the metals industry, you’ll know that the MetalMiner staff is excited about following the growth and development of green metals. We love hearing about eco-friendly improvements and new practices in the metals industry. The men and women behind GreenAlloys share this excitement for going green, and they decided to take a step to make metals recycling and low-lead products more prominent in our society. Earlier this week, I had the opportunity to talk to Al Barbour, president and CEO of Concast Metals Products Co., the company responsible for GreenAlloys. If you want to be a progressive company or manufacturer today, you need to look at what the end customer wants, he says of his eco-friendly metals company, touted as the next generation of environmentally-friendly alloys and materials. The view of society is moving in this direction, this green direction. This is a trend that will remain long-term. Read more

    Metal Bulletin recently reported the predictions of V. Mahadevan, president of the Indian Institute of Foundrymen. Within three years, he said, India could replace Japan as the third largest producer in the world of castings. The expansion is driven by the demands of the rapidly developing Indian auto industry — not just demands for domestic cars like the new Nano, but also demands to support India’s plan to become a regional hub for auto components and assembly.

    As a long admirer of Bharat Forge’s focus on developing world-class heavy forgings capabilities, I can certainly believe that there are many more firms in the market for engine and drive chain components, and they could likely face successful results. Bharat Forge have been major suppliers to Mercedes Benz, Ford, GM and a host of other international names for many years ” and, I should add in the interests of full disclosure, a good customer of mine.

    When browsing the IPO lists on the Mumbai stock market during 2007, anyone could notice that company after company was over-subscribed as they came to market. And what did they all have in common? They were castings manufacturers.

    Read more

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