Archive for August 2015

Vale appears to be exiting Australian coal market

Part of a new strategic plan for Vale?

Reports are that Vale has sold its Integra coal mine in Australia to Glencore and Bloomfield.
The Integra coal mine complex is located in New South Wales’ Hunter Valley. This coal complex has been on “care and maintenance” for about a year. Vale decided the operation was not economically viable.

Last month Vale month’s sold its Issac Plains met and thermal mines to Stanmore Coal.  Reports were that this transaction was at One Dollar for the project valued at $613 million three years earlier.

Mining.com reports that the divestment of Isaac Plains and the sale of Integra Coal has led to a 7.2% reduction in Vale’s total coal output.

Now, about 65% of the miner’s coal output will be generated by Vale’s Moatize project in Mozambique.

Reported drop on heavy metal steel scrap price in China

Eastern China steel mills have cut ferrous scrap prices.

Source is Singapore (Platts)–27 Aug 2015

Jiangsu Shagang Group, the largest scrap user of China, on Thursday cut its buying price by Yuan 40/mt ($6/mt) in view of a recent drop in rebar prices, a company source said.

After the adjustment, Shagang will pay Yuan 1,330/mt ($208/mt), including 17% value added tax, delivered to Zhangjiagang, Jiangsu province, for heavy melting scrap 6 mm and above.

“With the bearish outlook on domestic steel markets, I think scrap prices are likely to repeat the previous low levels,” said a source from a mill in the region, adding that small induction furnace mills had successively cut their buying prices earlier when rebar prices began to fall.

All of this sends a lower traffic signal for railroad traffic.

Most analysts have failed to predict this rapid a fall in scrap prices that two years ago were in the $360 to $400 approximate range per metric tonne.

China stock drop // So Large That Losses Eclipsed BRICS Peers, Twice

From Bloomberg, Aug 26, 2015

Take the combined size of all stocks traded in Brazil, Russia, India and South Africa, multiply by two, and you’ll get a sense of how much China’s market value has slumped since the meltdown started.

Bloomberg calculates that China alone has accounted for 41 percent of equity declines worldwide since mid-June.

The scale of China’s stock market drop also exceeds the entire size of the Japanese stock market.

What will be the size of its commercial business drop, given such a large scale loss of investor confidence?

in the same period we already see Brazil hit by a recession as calculated by two successive quarters of slower growth and a negative year over year second quarter economic growth of about 2.5%.

How is this all affecting your strategic planning?

To read the entire article, go to http://bloom.bg/1UdNCpu

Hudson River NEC Rail Tunnel at NYC: Engineering report on its Decay // Summer 2015

From Bloomberg, Aug 21, 2015

Politicians got an inspection tour of the North East Corridor (NEC) tunnel under the Hudson River into the city of New York.

Repairs will not be quick.

The structural and damage to the tunnel is likely the result of long term years of use.  The original tunnel wire was fabricated from copper wire encased in lead, paper, cooling oil and rubber.

Recent damage came from flooding and corrosives deposited in  during the 2012 Hurricane Sandy.

Built 105 years ago on riverbed silt, the tunnel tubes rise and sway with the Hudson’s tides, even as trains zoom through at 70 miles an hour. “They shift enough to twist the conduit” say engineers.

For complete repairs and modernization, eacch of the two tubes would have to be closed at least a year for an overhaul.

To read the entire article, go to http://bloom.bg/1Jv3d42

Rail freight data shows ten to eleven percent China contraction year over year

21 August report

Not yet widely reported.

State news outlet Xinhua on Tuesday reported that China’s rail freight volume had dropped by nearly 11% (10.9%) on a year-on-year basis during the month of July 2015.

The rail freight handled was 278.9 million tonnes for the month this year.

For the first seven months of 2015, China’s rail freight has dropped by 10.2% to 1.98 billion tonnes compared to the same 7 month period in 2014.

The data was reported by the National Development and Reform Commission.

The NDRC blamed “plunging demand for transportation of major commodities, including coal and metals” for the weak rail traffic numbers.

There was no real growth in rail volume even though China’s official GDP is reported to be growing.
http://www.mining.com/forget-slower-growth-worry-about-chinese-gdp-contraction/

Who gets hurt the worst in this 2015 summer market fall?

One theory is that the stock market harm this time, unlike the crisis in 2007-09, seems to be hitting the emerging-market economies the hardest.

The US economy has proven resilient in the past. It is often consumer led.

Recovery in the emerging markets may be harder. They are likely more dependent on China as resource buyers for their comeback. Even China does not yet have a consumer discretionary income available market.

What is your opinion? Sent from my iPhone on Friday the 21st of August

Are high speed rail projects a good or bad deal? // Or mainly poorly researched investments?

Here is a short excerpt about rail project due diligence from the files of The Economist. They published this investor alert back in 2012. I am recirculating it in case you missed it.

The theory is that …”new-build rail projects are horribly likely to come in way over budget and to be used much less than expected.”

Their researchers discovered a 2009 paper by Bent Flyvbjerg of Oxford’s Saïd Business School entitled “Survival of the Unfittest: Why the worst infrastructure gets built—and what we can do about it”. That paper presents data on predicted and actual costs and ridership for 58 rail projects around the world.

On average, these rail project costs ended up 50% above predictions, and the ridership usage was 50% under.

Due diligence!

What due diligence?

For many of these complex rail projects—for example the much delayed Brazil bullet train — require precision engineering. The Channel Tunnel linking Britain and the European mainland, and the Great Belt Rail Tunnel linking two Danish islands were this type of complex project. Both of these ended up costing around double the initial budget.

AND… initial revenues did not hit the promised targets suggests the research.

In the case of the Channel Tunnel, the due diligence overlooked the competitive response. The English Channel ferry operators reduced their unit costs by modernizing their boat fleets and won the initial price wars.

The poor revenue oversight might reflect the use of too many engineers for the initial competition due diligence and too few economists.

http://www.economist.com/blogs/americasview/2012/08/high-speed-rail-brazil

Multiple business news sources report what appears to be much slower China Economic Growth.

Aug 20th to Aug 21st 2015

Not very transparent, the Official Chinese government economic growth reports are now being even more widely questioned.

Data from reputable private (independent) forecasting groups suggest that instead of a government source of about 6.8% to 7% range in China GDP growth this year, the real numbers might be closer to 5%. — and in the worse case assumption by a few news observers as low as 2%.

These numbers are way below the heady days of near 14% growth that fueled the Chinese market demand commodities during the boom years.

Bloomberg reported that a private estimate of Chinese manufacturing fell to the lowest level in more than six years… The preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics was at 47.1 for August. Numbers below 50 indicate contraction.

============ Markets around the world are reacting in the midst of Chinese economic uncertainty. The U.S. Stock markets were down significantly the past two days. And as just one other metric, the measured slump in the South African stock market and the rand currency as seen the lowest level this week in almost 14 years.

This market uncertainty is going to affect a lot of proposed railway freight projects around the world.

Within 48 hours of this type of alert news reporting on China’s manufacturing slowdown, the US stock market fell by another 3.2% on Friday the 21st (~530 points).

A coincidence?

Courts and government finally okay. But no one seems to be buying the Goa iron-ore

Often, by the time governments, courts, and investors get ready to sell off assets or commodities in a dispute, as in India, the markets are not buying. Without willing buyers, there is “no sale”

This example is from India. While iron-ore mining in the western Indian province of Goa is now finally poised to resume mining within a month, there are no takers for the raw material. That is code meaning “no buyers”.

The result is more stockpiling of the old inventories and a space crunch for any new mine production that the government and courts say can now go ahead.

According to a Goa government official, of the total 15-million tonnes of old iron-ore fines inventory occupying stockyards and India ports, only six-million tonnes have been liquidated AFTER SEVEN ROUNDS of AUCTIONS to sell it. The government is still pushing hard to auction another one-million tonnes of iron-ore before mining operations up country can resume next month.

Citing an example, an official said that as the seventh round of auctions concluded last week, only 50,000 metric tonnes was sold against an offer of one-million tonnes. Under the circumstances, the government is facing an uphill task in liquidating nine-million tonnes of old stocks and the department of mines can do very little to make space for new mined iron ore that will arrive soon. The resumption of mining in Goa was expected to be led by Vedanta Resources, which was readying to get production from its Codli mines under way, starting around mid-October.

To read more; go to http://www.miningweekly.com/article/lack-of-takers-for-goa-iron-ore-clogs-all-stockyards-2015 Sent from my iPad

Bloomberg Commodities Index hits a year 2002 low

The Bloomberg Commodity Index, a basket of 22 raw materials including crude and gold is trading at a 2002 low.

It has slumped 14 percent this year.

To read the entire article, go to http://bloom.bg/1TRmDVF

Clearly more bad news for global rail to port new projects.

Sent from my iPhone