Industry News

China has embraced the high speed train (trains that travel at over 250 km/hr) far more enthusiastically than any other country. The current 7,531 km (4680 miles) of high speed track is already more than the rest of the world put together, according to the FT, and under current plans the central government has authorized a high-speed network that will reach 16,000 km by 2020 at a cost of some Rmb 4 trillion ($600 billion) during the next five-year plan alone. The FT reports this figure is expected to account for more than half of all global railway spending during that period, according to World Bank estimates. Even as part of the current stimulus plan, the network is expected to reach 13,000 km by 2012.

But critics are beginning to be heard even within China. One article points out that bullet train services, such as the 1,000 km Wuhan to Guangzhou connection that opened this year, are operating at less than half their full capacity and will never make enough money to repay the large bank loans used to build them. A report submitted by the China Academy of Science to the State Council, urged a rethink of the emphasis on (among other massive infrastructure investments) the bullet train expansion program. One of the concerns expressed in the report is the unsustainable level of debt and that the breakneck expansion has not been properly thought out, leaving airports, bus services, subways and highways not connected depriving the investment of efficiency gains even before the massive debt burden is taken into account.

Does this massive investment in cutting-edge rail technology represent a major opportunity for western rail firms? As an FT article points out, in 2002 China invested nearly $5.4 billion in the segment of the high-speed market in which foreign companies compete carriages, signaling equipment and other high-tech track components and foreign companies captured about 70 percent of that. Today China invests as much as $23 billion in the segment, of which foreign companies account for only 15-20 percent, earning roughly the same as eight years ago, according to industry figures. As a result of a highly successful drive to force foreign companies to transfer technology in exchange for access to earlier projects, China now builds Japanese and European trains in all but name.

But back to the economics. As other countries look on with envy at the shiny new trains, academics — even in China — ask, does it make economic sense? The article quotes Zhao Jian, a professor at Beijing Jiaotong University who favors conventional rail rather than high-speed projects. “This high-speed program is a political project with little economic value, he says. “The government just wants to have the biggest and fastest train set in the world. The railway ministry accounts for as much as 10 percent of all outstanding debt in the country, according to World Bank estimates. Chinese analysts say the proportion of railway construction funded by debt has increased from under 50 percent in 2005 to more than 70 percent last year. That would be fine if the economics were sound and the traffic was sure to generate enough revenue to pay it back. But Mr. Zhao is not so sure. “This is a real debt crisis building up for the government and it is going to break at some point, he said. It sounds not a little like the great American railway building boom of the 1800s, but in this case it will doubtless be Beijing that eventually steps in to pick up the tab, not bond holders.

–Stuart Burns

A new Commerce Department report last Friday shed light on potential good news for the US economy and its trade deficit, showing that overall US exports increased while imports were down. As MetalMiner continues to digest the report, we’re also beginning to investigate the implications of the KORUS Trade Agreement between the US and South Korea on the metals industry.

According to the report and corresponding fact sheet, U.S. exports of goods and services increased by 3.2 percent in October 2010 to $158.7 billion since September 2010, while imports decreased 0.5 percent to $197.4 billion over the same period. This means the monthly U.S. goods and services trade deficit decreased by 13.2 percent to $38.7 billion when compared to September 2010. Industrial materials and supplies were primary drivers for both the increases in exports and decreases in imports.

Putting a spotlight on the KORUS agreement, manufactured goods made up 81 percent of U.S. merchandise exports to Korea in 2009. Semiconductors and other electronic components were the largest manufactured export category, with $3.0 billion, or 10 percent of total U.S. shipments of merchandise. Aerospace products and parts accounted for $2.0 billion, while industrial machinery accounted for $1.3 billion.

After the most recent agreement between the Obama administration and the South Koreans on Dec. 6, critics in both countries were unhappy, citing concerns for their respective manufacturing sectors. The United Steelworkers union and the United States Business and Industry Council said the U.S.-Korea Free Trade Agreement would benefit South Korea’s interests at the expense of U.S. manufacturing, as reported in a Crain’s publication. “The final agreement will result in increased access to the U.S. market for Korean producers with insufficient assurance that the closed South Korean market will sufficiently open up to our auto exports and other manufactured goods, the USW union is quoted as saying. On the other end, South Korea’s Democratic Party also denounced the deal as humiliating and treacherous, preventing “South Korea’s access to the US auto market, which should be a key pillar of the FTA, reported by The Business Times.

Please check back in this week, as we continue looking into how metal buyers and sellers perceive the trade situation between the US and Korea, and how reductions of tariffs on both sides help or hurt their respective bottom lines.

–Taras Berezowsky

The New York Times published a profile of Jeffrey Immelt, GE’s CEO, last Sunday titled “G.E. Goes With What It Knows: Making Stuff, lauding his singular efforts to bring the company back from focusing on its financial divisions, instead putting the emphasis on gasp! actually making and building things.

Yep, you know that when one of the “bluest of blue-chip companies has to get out the media megaphone to announce its “come to Jesus moment realizing that manufacturing, the cornerstone of the past that the company was built on is now the wave of the future something is changing in the air.

Indeed, Steve Lohr, the Times’ veteran business reporter, invokes the term (as well as the feeling of) “change in the profile almost as many times as there are numbers of GE products “drive change, “drive growth and change, “efforts to push large-scale change but, alas, as the saying goes: the more things change, the more they stay the same. The issue here isn’t change at all. A return to manufacturing simply seems imminent, so going back to an old classic shouldn’t feel any different at all.

But, after a decade or more of so many companies getting on the financial services bandwagon, it seemed natural for builders and makers like those at GE to get caught up in the financial world.

“The big buildup of GE Capital occurred during the tenure of Mr. Immelt’s famous predecessor, Jack Welch, Lohr writes. “But while Mr. Immelt, who took over in 2001, spun off the unit’s insurance business, he also bulked up on commercial real estate and other loans. In 2004, G.E. even bought a subprime lender in California, WMC Mortgage, which it shed in 2007 for a $1 billion loss.

We’ve long known that many companies in the metals sphere realize building things is the key to future economic stability look no further than Nucor, whose progressive and extremely effective corporate culture needs no significant overhaul.

Ultimately, it’s good for metals suppliers that CEOs are re-emphasizing manufacturing and exporting, not divesting valuable resources by padding meaningless financial investment. GE is undoubtedly one of the largest metals buying companies in the world, with their hands in so many sectors of global infrastructure aviation, power generation, transportation, oil and gas, water supply, health care, appliances, media the list goes on. Their Commercial Aviation Services arm alone has a fleet of over 1,800 owned and managed aircraft with approximately 245 airlines in over 75 countries, according to their Web site. GE is also America’s largest exporter after Boeing, with commercial and military clients, so their role as buyer/producer/seller of metal products, especially in the aviation sector, is far-reaching.

With someone as “influential as Immelt leading the way as an industrial advocate (as a member of the White House’s Economic Recovery Advisory Board, he has called for a doubling of the country’s manufacturing employment, to 20 percent of the workforce, Lohr writes in the Times article), hopefully manufacturing will thrive in new ways in the next decade as long as we can create and sufficiently sustain increased demand of US exports worldwide. And that’s not simply up to just one company, or one heady, ambitious CEO.

–Taras Berezowsky

The last time Mozambique hosted any battles on its soil, the Bill Clinton era was just getting underway and the grunge band Nirvana was at the height of its popularity. Now that the country’s long civil war is over, a potential new skirmish, albeit of the economic variety, could begin full-force between Rio Tinto and other miners for Mozambique’s hard coking coal.

Rio Tinto, the Australian-based world’s No. 3 mining giant, has been very busy lately. Not long after calling off a potential deal with BHP Billiton to cut costs, Rio made a deal for a joint venture with Chinalco, a.k.a. The Aluminum Corp. of China, to solidify its mineral exploration in the northern and northeastern parts of that country. (The focus will be copper and coking coal.) This came on the heels of “an agreement with Sinosteel Corp. to extend cooperation at the Channar iron ore project in the Pilbara region of Western Australia, according to a recent WSJ article. Now, earlier this week, Rio Tinto is reported to have entered talks to take over Australia’s Riversdale Mining for $3.5 billion.

And that’s where Mozambique comes in. According to several reports, an all-out bidding war for Riversdale may ensue. The company has hard coking-coal projects in Mozambique that “could eventually supply 5% to 10% of the global market for the steel-making material, Sonali Paul reported for Reuters. This is important for Rio, as they are trying to diversify as much as possible with high-quality coking coal becoming increasingly scarcer. They may face bidding competition from Xstrata, Anglo American and Peabody Energy. Rio’s biggest bidding competitor, however, is likely to be Brazil’s Vale, which already owns mines near Riversdale’s in Mozambique.

A recent Mineweb article examines the extent of Vale’s infrastructure investments in Mozambique, and upon reading the laundry list, it’s apparent that they’re the company to beat for future African metal-market share.   Vale exercised an option for a majority share of the Sociedade de Desenvolvimento do Corredor do Norte SA (SDCN), which controls more than 1600 kilometers of railroad in Mozambique and Malawi. This way, Vale ensures that product transport from the Moatize coal project development with nominal production capacity at 11 million metric tons of coal, 80 percent of it metallurgical, when it starts up in the first half of 2011 will be secure and efficient.

If Rio Tinto wins out in this acquisition, they can plant a legitimate foothold in Vale’s proverbial backyard, bolstering their other global deals and gaining a share of Africa’s rich coking coal reserves. With Rio becoming more streamlined (already shedding more than half of its net debt in 2008 following their purchase of Alcan), they just may be able to swing their weight around a bit more nimbly than others.

–Taras Berezowsky

The jury is still out on whether Tata’s Nano has failed, but sales of just 509 cars in November hardly sound like a rip-roaring success when compared to the frenzy reported around its launch. Just a year ago, Tata felt forced to hold a lottery to prioritize initial sales — so heavy was the demand. Against an overall car sales rise of 38 percent on a year ago and Nano sales of 3,065 in October, down from 5,520 in September according to an FT article, Tata managed just 509 in November. In total, the Nano has managed sales of just 70,000 sold since it entered the market in July 2009, according to CarNews.com.

Source: rpmgo.com

The 0.6-liter two-cylinder-equipped Nano is assembled in the western Indian state of Gujarat, where the plant is capable of churning out 250,000 models per year at full capacity. At just 123,360 to 172,360 Indian rupees in India, which is around $2700 to $3800, the Nano was aimed firmly at the motorcycling family looking to move up to the comfort and convenience of four wheels. The Nano’s low-cost innovations include using three lug nuts to secure the wheels instead of four, reduced use of steel, a single wiper blade and side-view mirror, and a trunk that’s only accessible from the inside.

The poor sales are blamed on two factors.

Source: news.nationalpost.com

As we reported back in March of this year, the Nano suffered isolated reports of catching fire, forcing Tata to offer a safety recall (in all but name) to users. This bad press put off buyers and from the late summer onwards, sales dwindled. Possibly more of an issue according to company executives is the disconnect between product and market. As we have said, the Nano is aimed at the poor. Ratan Tata’s vision was to provide safe and comfortable transport for India’s scootering public. Anyone familiar with the country so often sees those families with father, mother and two children all perched precariously on a scooter in sweltering heat or monsoon rains or just dodging through India’s crowded city roads, risking death or injury to two generations. The Nano is aimed squarely at the poor, but this group also finds it nearly impossible to raise finances at affordable levels. Once the initial wave of novelty-seeking or more wealthy poor had placed their orders, new buyers dried up, so Tata is developing in-house financing and may be looking at the success over the years of GM’s GMAC model, to provide finance in support of sales.

How successful they will be remains to be seen. The Nano has its problems, but it is a brave attempt at low-price car manufacturing and Tata deserves credit for going where others feared to tread. At the other end of the range, Tata is making a success of Britain’s luxury mark Jaguar — let’s hope they can pull the same rabbit out the hat with the Nano.

–Stuart Burns

Source: Reuters Insider

RUSAL is sitting pretty these days.

As the world’s largest aluminum maker by output — responsible for about 4 percent of the global aluminum production — the Russian company has a rosy outlook on where prices are going in 2011, mainly due to China’s import needs. (The company already purchased a 33 percent stake in Chinese aluminum trader Shenzen North Investments.) The implications of Russia’s metal industry relations with emerging economies, China and India in particular, are huge.

See what Maxim Sokov, RUSAL’s head of strategy and deputy CEO had to say about it in a recent Reuters Insider interview.

Check out the video here, or click on the image above.

–Taras Berezowsky

Source: National Geographic magazine; Photo by Michael Melford

As I unwrapped the plastic mailer from my December issue of National Geographic magazine, the second-from-last headline on the cover caught my eye. It read: “Alaska’s Choice: Gold or Salmon?

The words “Alaska, “gold and “salmon intrigued me. Alaska, because I consider myself a camping/hiking/all-around outdoors enthusiast and would cherish the chance to explore the state someday. Gold, because we cover it for MetalMiner. Salmon, because, well, it’s delicious. I love to eat it. But it wasn’t until I read the story that I understood the relationship between the three.

Pebble Partnership, a team effort between British Columbia-based Northern Dynasty Minerals and Anglo American, is evaluating the potential for constructing a two-mile-wide open pit mine and a 1,700-foot-deep underground mine just 120 miles north of Bristol Bay in southwest Alaska. The ore body that lies underneath their exploration grounds, just north of Iliamna Lake, “could hold the world’s largest deposit of gold and one of the largest of copper.

Source: aifma.org

The problem: The massive watershed, made up of countless rivers and tributaries that funnel into Bristol Bay, is home to the largest spawning run of sockeye salmon in the world, not to mention one of the biggest king salmon runs. (Incidentally, the west end of the bay is home to Sarah and Todd Palin’s family fishing operation, and the namesake of their eldest daughter; Ina Bouker, one of the Palins’ “family members, according to a recent episode of “Sarah Palin’s Alaska, is pictured kissing a salmon in the NatGeo article.)

So, what we have in the NatGeo story is a classic iteration of the “environment vs. industry narrative. Locals don’t want one of the richest salmon fisheries to be tainted with acid mine drainage, among other potential threats; Pebble’s prospectors want to assure them this won’t happen, while making sure such a rich deposit doesn’t go uncovered. But, for MetalMiner purposes (I’ll save my personal treehugger response for another time and place!), let’s focus on exactly what Pebble Partnership is sitting on.

According to data available on Pebble’s Web site, the prospected mine is home to 80.6 billion pounds of copper and 107.4  million ounces of gold. There are also 5.6 billion pounds of molybdenum. In addition, the company detected significant amounts of silver, rhenium and palladium. These deposits lie underneath 180 or so square miles of land, on which Pebble holds the leases.

The company estimated the mines’ total value, at today’s prices, to be between $100-500 billion. By comparison, the estimated annual value of the Bristol Bay salmon fishery is $120 million, according to the article. If the mine were to produce metals for 25 years, and assuming the annual value of the fisheries remained the same, salmon fishing would rake in only $3 billion in the same time span.

That’s not to say Pebble discounts the economic and environmental impact of the salmon fisheries. John Shively, Pebble’s CEO, arrived in Alaska 40 years ago as a VISTA volunteer and used to be commissioner of Alaska’s Department of Natural Resources. He says the mine would provide 2,000 construction jobs and 800 to 1,000 operating jobs, and wants more than half of the operating positions to be filled by locals, according to the article. Shively also says that Pebble is taking steps in its proposals to ensure no net loss, and create a permanent power source for the residents of the Bristol Bay region.

The partnership has already thrust itself into community involvement and infrastructure building. They created the $5 million Pebble Fund to create “a sustainable future for the Bristol Bay fisheries and the native Alaskans who live and work in the area.

Pebble doesn’t expect to finalize a preliminary development plan and application for permits until 2011; construction likely wouldn’t even happen until 2017. But when it does, Pebble’s find should help US gold and copper production grow considerably.

–Taras Berezowsky

Ariba, a major spend management firm, made a move today to broaden its reach in the mining industry by acquiring Quadrem, a leader in supply-chain management that focuses on the minerals and mining business.

Source: www.ariba.com

Our sister publication, Spend Matters, explores how the scale of Ariba’s reach will change after the deal is closed.

Now the largest global business commerce network, Ariba-Quadrem will be able to overcome Ariba’s past challenges to penetrate the mining market (“Quadrem brings immediate access and up-sell potential into: Alcoa, Anglo American, BHP Billiton, Nestlé, Vale and Rio Tinto and others,” writes Jason Busch.)

Specific deal considerations and details are outlined here.

Ariba will also now have greater leverage in emerging markets, where mineral and metal mining are increasingly important. Quadrem’s business reaches into Latin America, EMEA and Asia Pacific, whereas Ariba has had “weaker penetration in these markets from a volume perspective.”

Ultimately, Spend Matters offers an exclusive, big-picture analysis on deal that could will make waves in the procurement world. How do we think it relates to metals and mining?

Lisa Reisman, editor of MetalMiner, weighs in. “Indirect procurement network connectivity in the mining, minerals and metals world is not the primary focus of procurement and supply chain operations,” she said. “What gave rise to the use of Quadrem’s network business was the need for a shared service for something procurement heads did not want to waste a minute thinking about. More strategic procurement issues for mining, minerals and metals customers include: services procurement (including contingent workers in mines), labor management, capital equipment procurement, service parts and spares procurement (remember the tire issue and shortage from 2008?), MRO strategies and fulfillment for mining facilities (for example, safety supplies, mining supplies, etc.). BPO is also a rising area of interest here.”

–Taras Berezowsky

You may well have seen some press on Google’s robot cars, but it wasn’t until I came across a perceptive analysis by Aaron Saenz on the Singularityhub that I took the trouble to read what all the fuss was about. No, this isn’t a metal post. Still reading? OK then, like me, maybe you like the slightly geeky idea of robot cars, not that I (or Aaron Saenz, for that matter) think we are going to see them anytime soon. Google has been running a covert operation with a team of 15 world-class engineers and seven Priuses that have clocked up the 140,000 miles of driverless miles. Well, not completely driverless: California state highway laws require a driver in control and indeed that’s what they did, monitored the robotic automation software ready to grab back the controls if it proved necessary. How often did it prove necessary, you will ask? How many accidents did the robots cause? Well, none is the answer, apart from being rear ended by a human driver. The robots performed fault free, but — and this is a big but — they did have a lead car mapping the route for them, so arguably one could say they had human input of a type.

According to WHO data quoted in the article, 1.2 million lives are lost every year in car traffic accidents, and what the project has proved is that robotic cars could contribute to reducing that appalling loss of life. Not in all seriousness by taking over completely, but by small incremental improvements in vehicle safety as the technologies are gradually introduced into mainstream vehicles. Technologies like sensing systems that automatically apply the brakes when they detect a slowing or stopped vehicle ahead, and systems to warn us when children are playing in an area we are driving through or that speed limits have changed. As Aaron rightly points out, when robots are ready to drive for us, there will still be accidents.  Who will answer for the loss of life or cost of damage in those situations? The company that designs the robot’s software, the car manufacturer who installed it, or the driver who believed that they didn’t need to pay attention because their car was driving itself? Just think of the millions Toyota’s sticky throttle has cost the company.

So 100% automated robotic cars are a product for the far future, minimum ten years down the line. The changes needed are as much social and legal as technological. But the technologies will still be perfected, long before we are ready to rely on them in totality; as the author perceptively (and optimistically) points out, we should all benefit in terms of improved safety in the interim by the gradual adoption of robotic cars in the name of driver safety measures. Now where’s that old DVD of “i, Robot” got to¦.?

–Stuart Burns

The simultaneous development by three separate companies of commercially viable domestic stirling heat engines appears on the face of it to be just commercial competition spurring technological development; capitalism at its best, one might say. But the fact from an environmental point of view, that these are all potentially game changing domestic appliances, makes them that much more interesting. The stirling engine first patented in 1816 by Reverend Robert Stirling (in the style of the day) who was both a clergyman and an inventor. Born in 1790 and after studying to be an engineer at Glasgow University, he became a clergyman in Kilmarnock, Scotland. 200 years later and the world is still trying to bring his invention of using expanding and cooling gases to drive a rotating coil and hence generate electricity to some form of widespread commercial application.

This sounds like a green or environmental technology story, and would in itself make interesting reading as such, but our interest is more in the way the three competing companies went about developing their manufacturing philosophy. As a Financial Times article explains, the rival production methods are test cases for the differing approaches towards global manufacturing networks being tried out in fields as diverse as cars and computers.

One company is owned by a New Zealand firm, but manufactures close to its European market from a single factory in Spain. Another is a British engineering firm that carries out R&D in the UK, but off-shores a crucial production element to low-cost China. Meanwhile the third, based in the Netherlands, also outsources manufacturing, but this time to high-tech Japan.

Whisper Tech of New Zealand has partnered with a manufacturing group in Spain because they feel manufacturing a new technology product close to the market in which it is being used will reduce risk and increase early acceptance. They don’t mention labor rates in Spain or the possibility of EU funding for underdeveloped regions, but these may also have been a factor. Their product has reached commercial launch and is being promoted for both the more obvious off-grid applications but also for on-grid, no doubt exploiting European feed-in tariffs that allow users to claim back electricity returned to the grid at highly favorable rates.

Microgen, the British-based firm, has produced a solely domestic heating and power generation appliance but with certain key components they don’t say which, or how large a percentage of the finished product made in China. Recognizing that cost could be a significant hurdle to widespread adoption, Baxi, Microgen’s parent, said “We think that our use of the lower costs that China promises should give us the ability to bring down prices and make the products more affordable.

The third contender Enatec micro-cogen also makes a single piston stirling engine, but instead of looking to produce close to its European customer base or access low-cost Chinese manufacturing sources, the firm has sought to overcome the technological and development hurdles by partnering with a US firm Infinia, the engine designer, and a high tech Japanese firm Rinnai for manufacturing, believing technical excellence will give them the edge in what is still an evolving technology.

It is too early to tell which of these firms’ approach will prove in the long run to be the most savvy. Figures are not available for like-for-like comparisons of sales as all firms produce a number of products of which the stirling engines are but one. Nevertheless, as manufacturers in the post-crisis world re-assess the viability of the pre-crisis “move all manufacturing to China model struggle with lower volumes, or ponder the effect of a gradually strengthening Chinese currency, the different approaches of these three firms may strike a cord. If anything good has come out of the financial crisis, it is the return of some manufacturing activities back closer to the markets in which the products are being used. As these firms’ decisions show, cost is not always the sole arbiter.

–Stuart Burns

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