Archive for September 2015

China Trainmaker CRRC Plans to Double Overseas Sales in the next 5 Years

From Bloomberg makret analysis on Sep 10, 2015. —

New York’s aging subway system is an irresistible draw for Yu Weiping, vice president of CRRC Corp.

New York’s aging subway system is one of multiple US transit systems that are an irresistible market draw for Yu Weiping, vice president of CRRC Corp.. I

CRRC has a market strategy that hopes to double overseas contracted sales to as much as $15 billion in the next five years.  It has been targeting emerging markets in Africa, Latin America and Southeast Asia — often with sales pitches from Premier Li Keqiang– as it seeks to project influence in developing economies.

Mr Yu said he spends two-thirds of his time annually abroad looking for deals, as CRRC seeks to go global.

For now, the Springfield Massachusetts new assembly plant for transit rail sets is a showcase for the targeted company’s U.S. expansion.

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

Signs that China may try to enter foreign rail markets by buying local established rail company vendors

From Bloomberg, Sep 9, 2015

Bombardier rejected an offer by Beijing Infrastructure Investment for 60 percent to 100 percent of Bombardier Transportation, Reuters reported earlier.

Reuters cited an Aug. 14 letter outlining the bid.

Louis Veronneau, vice president for mergers & acquisitions, rejected the proposal…

The approach was made by Beijing Infrastructure.

This type of acquisition would make Chinese sales into North American and European markets easier. But after an acquisition, much of the building content work could shift to China while still using the bought vendor brand name.

Montreal-based Bombardier is as an alternative planning an initial public offering of the rail unit during the fourth quarter of this year.

It is trying to reduce debt swelled by the development of the CSeries jet.

In July, Bombardier also denied a report that it was in merger discussions with Siemens AG over the unit.

Beijing Infrastructure’s reported offer gives Bombardier Transportation an enterprise value of $6 billion to $7 billion…    …a “reasonable valuation range” for the unit in an eventual IPO according to Canaccord Genuity analysts David Tyerman and Tao Ding says a Bloomberg report.

The Chinese meanwhile are exploring other opportunities to acquire North American rail companies.

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

SOURCE COMPETITION // Example from the North Sea

Falling oil prices could lead to the closure of 140 fields in the North Sea over the next five years.

Falling global prices and geographic and product source competition are the reasons.

Many North Sea operators are accelerate plans for decommissioning the ocean drilling rigs.

Wood MacKenzie, a consultant, says that the decommissioning of the fields could go ahead even if oil prices return to $85 per barrel, from their current price of around $49.

The impact of some European countries from job and related tax revenue losses will be staggering.

The report comes after Oil and Gas UK said that 65,000 jobs had been lost in the North Sea since the slump in oil prices began last November. The trade body has warned that with so few new projects gaining approval, capital investment is expected to drop from £14.8bn last year to between £2bn and £4bn in each of the next three years.

Decommissioning is already underway in more ageing fields in the North Sea. Royal Dutch Shell is planning the decommissioning of the Brent field. Four Brent platforms – Alpha, Bravo, Charlie and Delta – have generated £20bn of tax revenue since they were brought into production in 1976.

For the complete news report in the Telegraph, log onto: http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11853279/Clock-ticking-for-North-Sea-oil-as-low-prices-threaten-closure-of-140-fields.html

Mongolia Ovoot mine – A long Shot? Or Now Better Odds? //The Australian

“We were out there with a stranded asset and now we’re the centrepiece of an international rail corridor — it couldn’t have gone any better,” Mr McSweeney told The Australian. He is the Aspire executive chairman. He voices a strong positive outlook that with recent ministerial agreements that there is now a stronger guarantee of rail financing to service the otherwise isolated northern mine.

as of early September, what do you think as a possible investor?

There are plenty of long-term rail corridor high level ministerial agreement rail corridors around the globe… … most of which lack commercially attractive financing. They are often described as a “wish list” of new projects.

A broad gauge line between Russia and Vienna is one of many such grand designs that are unfunded. Adding capacity to the existing single track un-signaled Russia-China 1,100 km long UBTZ rail line is another now more than a half decade long delayed “wish lists” of freight projects. These and other examples refortify the economic logic that “Political support is not the same as monetary investment”.

At capital costs of $2.5 million to $4 million a kilometer (over relatively flat rural terrain), these proposed rail projects generally require as much as 20 to 30 million net tons of bulk cargo annual movement in order to earn sufficient operating profit to pay off the railroad construction debt and interest capital costs.

Passenger trains? They generally around the world don’t cover their annual operating costs from passenger revenues and almost never cover their share of allocated capital debt and interest payments. Talking about adding passenger capability is only adding costs — not profits.

When finally available for this suggested Mongolian – Russian project, a detailed independent operational and market feasibility report should provide clearer due diligence evidence of these rail corridor prospects. Without that independent assessment, it is prudent for investors to beware.

The current mine projections may be either true or false. I suggest that investors consider the entire opportunity and risk profile.

As one example, Russia RZD has very high capital rail rehabilitation and domestic rail requirements previously announced as strategic initiatives. Where in priority of RZD rail company cash flow do these Mongolian corridor capital needs fall compared to competing RZD domestic Russian rail corridors?

For added background, see: http://m.theaustralian.com.au/business/mining-energy/aspires-ovoot-mine-to-benefit-from-china-russia-trade-corridor/story-e6frg9df-1227516860479

Signs of crude oil by rail market US share changes out towards 2017 // Forecast Volatility

This from a selective assessment from a Bismarck Tribune news report. //

As of the end of June 2015, the most recent figures available, shipments of Bakken crude oil from North Dakota via rail and pipeline were essentially equal: 47 percent by rail, 46 percent by pipeline. The rail shipments market share have gone down substantially since the peak in late 2014 says Justin Kringstad, director of the North Dakota Pipeline Authority.

The ability to make an economic forecast of oil by rail volume has demonstrated a MARKET VOLATILITY of about 25% within a half year period in 2015.

Expectations by various experts of future crude oil by rail may have to be tempered.

The data shows that the estimated rail export volumes of crude by rail leaving North Dakota peaked around 850,000 barrels per day at the end of 2014.

By June of 2015, the ND oil origin shipments by rail had dropped nearly 25% to around 640,000 barrels in the past 6-months.

Regardless of current 2015 market trends, the top year for future oil by rail out of North Dakota “might be” the year 2017. Given the global price of energy factors, it is difficult to predict. What do you think?

For more, see: http://bismarcktribune.com/news/state-and-regional/oil-shipments-by-rail-drop-as-pipeline-shipments-increase/article_6a02aa9b-55c0-5a28-8743-f2bc8b670e85.html

Commerce between Russia & China Strained as Economies Falter? Report from the New York Times

Russia’s turn towards China for big time long term commercial energy exports to China as a diversification from European gas sales is not being executed as fast as was expected by Russia. Is it the economic slowdown in China that is slowing things down? Or does China consider Russia to be a less reliable commercial,supplier?

Or some other reason?

This NY Times report gives interesting due diligence perspective.

The big proposed Russian export to Chia energy deals may not be the only victim of the economic slowdowns and commercial tension. A fast rail link that China had said it would build to Beijing from Moscow is in doubt because China  is apparently insisting that Russia pay for it. The nearly 500-mile first leg, between Moscow and Kazan, was scheduled to open before the 2018 World Cup in Russia. But work has yet to start.

One source told reporters that it is unlikely to start soon. “The Russians won’t have the money to pay for it, and the Chinese are not going to do it for free.”

What is your perspective?

Log onto this NY Times site for the full news analysis. http://www.nytimes.com/2015/09/04/world/asia/friendship-between-putin-and-xi-becomes-strained-as-economies-falter.html?ribbon-ad-idx=3&rref=business/international&module=Ribbon&version=context®ion=Header&action=click&contentCollection=International%20Business&pgtype=article

“The Battleship of the Future” was projected in Popular Mechanics issue from 1940 just before aircraft carrier tactics proved otherwise

Just because it’s published as cutting edge does not mean it is correct.  Sometimes such technical articles miss the evidence that the technology may already be approaching obsolescence.

The battleship was in about a year or so going to prove its obsolescence at Pearl Harbor  as WW-2 approached.

The message?

Make sure your railroad freight plans are not also obsolete with small freight train technology.

For more about this interesting history lesson, log onto http://m.imgur.com/r/WarshipPorn/QimZw6O

Best business ally of the U S freight railroads? Maybe it is the U.S. Congresd

Once we in the USA had a world class interstate and primary national roadway system. Now we as citizen stakeholders  can’t seem to get even basic financing from the Congress to keep it maintained.

Deferred maintenance of highway bridges and road pavement — once a trait of the northeast US railroads like Penn Central — are now a hallmark of the national gas tax financed road system.

Plenty of funding is politically for the new “Mexico border fence” infrastructure. But zero for expanding the highway system that actually handles close to 80% of the nation’s interstate freight by value, and about 50% of the ton-miles.

// Maybe it is time to send most of Congress back to school for a course in Economics 101.  As stakeholders in the outcome, we need 51% of the House and about 60% of the Senate to take & pass the economics course.

In the meantime, the only significant national capacity addition to the US freight network is from the private rail freight companies and some pipeline companies. And a few new toll road concessions.

Once investing in transport infrastructure was at about a 3% to 4% annual clip. We now have fallen in this past decade to probably about 1% to 1.5% rate. To maintain our overall world class transport freight efficiency, those anemic investment rates “are not going to get the job done.”

And that is the way things look in mid year 2015. Do you disagree?