Archive for Commodities

Reports shows just how poor Brazil’s transport infrastructure is. // Two decades of progress hope — wasted on things like global soccer get them this

Something to reflect upon from a Bloomberg global news story on Oct 7, 2015

Two decades of promised growth and investment. Much of it wasted.

Now Brazil is forced to compete against nations like Mexico who have far superior road and highway infrastructure that move their supply chains. What a shame. What a mistake. Where was the oversight due diligence during all of those years?

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Gerald Lee, a former airline executive, thinks he can help ease one of Brazil’s most-absurd problems: “How do you ship large quantities of goods fast from the nation’s manufacturing hub when there’s not a single usable highway in or out of town?” Barge it down the Amazon River for a ten day transload supply chain. That is the best he can make out of a bad situation.

What happens is that products like TVs made in deep-in-the-jungle Manaus float down the Amazon River by barge to the Atlantic Ocean port town of Belem. From Belem, the goods go on trucks for pothole-filled delivery runs, many of them to distribution centers in Sao Paulo, about 1,600 miles away — and 10 days later.

MEXICO WINS

That can be more than twice as long in time as an 18-wheeler traveling a similar distance from Mexico City to the U.S. road-and-rail hub of Kansas City, Missouri. Or to even closer Houston.

When people criticize Brazil’s transportation infrastructure for being among the worst in the world, behind even Ethiopia’s, this is what they’re talking about.

Manaus, the nation’s only tax-free zone and home to 40 percent of its computer and electronics manufacturing, is just one of many reasons the World Bank says companies in Brazil spend more on logistics than in the U.S.  Moving many of Brazil’s exports can take twice as long as out of Mexico.

This was going to be fixed. But it never was.

How long will the needed investments take? No one is saying. I professionally would expect about 15 to 20 years.

The funding for long promised roads and railways is uncertain.

Heck, one point two years ago Brazil was promising foreign aid to help build Ethiopia railways. Unbelievable? Fact is often stranger than fiction.

To read the entire article, go to bloom.bg/1hrwCiI

Coal Industry Seeks Unusual Partner in the UN Green Climate Fund for poorer nations’ energy needs

If you cannot beat them, try to join them… …in order to help the poor nations achieve desperately needed energy supply.

Yes, from environmentally harmful coal.

The coal industry, viewed as a key contributor to global warming, is seeking a once-improbable collaborator They are trying to work with a fund set up under United Nations climate negotiations.

With more than 2,000 new coal power stations planned or being built in Asia to Africa, the UN Green Climate Fund should help finance making the plants more efficient, according to Mick Buffier, the chairman of the World Coal Association.

New coal technology can cut climate-warming gases by about a third per unit of power, though it adds about 50 percent to the $315 million cost of a 500-megawatt plant in China, the group said.

The Green Climate Fund is meant to channel climate-related aid from industrial nations to developing countries. Bangladesh alone said it needs $16.5 billion in the 20 years through 2030 to ensure its plants will use so-called “super-critical” clean technology.

At the same time, older funding sources like Citigroup Inc. announced on Monday that it will cut back on financing for coal projects.

To read the entire article, go to bloom.bg/1N1eoA3

Here is how BNSF is growing // with a shift to Stack Trains

Much of the world operates railroads that lack the necessary vertical clearances and the standard 1435mm heavy axle track gauge that allows for double stacking international goods in huge containers.

The World counts containers as 20-foot long boxes. In North America the standard is a whopping 53 feet long box.

Thirty years of big train progress in North America has given the Mexican to Canada rail companies the market ability to sustain self financed rail growth as coal shipments drop in the modern world

What is your railroad doing to adapt?

This story is found in a Bloomberg report.

Railroads are already winning more of this so-called intermodal business here across North America. Rail shipments of containers grew 15 percent over the last decade That offset the traffic losses as other cargoes, such as coal and ores have dropped in some cases by 11 percent to as much as 20 percent in the eastern US coal area.

Intermodal traffic is actually growing on the US railroads by about double GDP and also by about twice the rate of truck over the highway mode. Even with a somewhat slower US economic growth this year— intermodal rail freight is up 2.3 percent in 2015, the Association of American Railroads reports.

But persuading shippers to switch still isn’t always easy to do. It has to be significantly cheaper per trailer or container mile if rail rather than by highway in order for it to be a better transport deal for shippers.

Shippers decide. Not politicians. At least in the US markets.

It is strictly a matter of economics. While it might be cheaper by ton-mile to send freight by rail, it generally takes just a bit longer in time and a bit more in distance rather than by straight trucking from origin to destination.

There is also a cost of transferring containers onto the trains and then back to trucks for final delivery.

All of this geography of intermodal makes it difficult to compete with direct trucking on trips of less than about 600 miles here in North America. That is confirmed in an interview with Larry Gross, a partner at FTR Transportation Intelligence. Trucks are more punctual and flexible. They generally will always be quicker than by a truck to rail to truck intermodal substitute.

For more about the successful private BNSF rail investment report, log onto:    www.bloomberg.com/news/articles/2015-10-07/buffett-bets-on-rail-superhighway-to-beat-trucks-as-coal-fades

Mind numbing, jaw bone breaking numbers

A Bloomberg commodities index that tracks returns from 22 raw materials has fallen 50 percent since a 2011 high

Down BY HALF!

Not by a crummy 3% to 5% . Or even Ten percent

By a jaw breaking 50% range.

Who is getting fired for these numbing numbers? Where was the due diligence? ————

What did your strategic plan assume?

To read the entire Bloomberg report, go to bloom.bg/1MKPHrc

Another Bridge Too Far Rail Scheme? // Europe into N. Am. Via Russia!

siberiantimes.com/business/investment/news/n0160-plans-for-new-transport-route-unveiled-to-link-pacific-with-atlantic/

We may have missed this probable last great rail plan proposed earlier this year.  But it is still on the Internet for all to read.

// Plans for new transport route unveiled to link Pacific with Atlantic

By The Siberian Times reporter23 March 2015

“New cities and industries could be created from construction of high-speed railway and motorway routes spanning whole of country”reads the story line.

At a meeting of the Russian Academy of Science, the head of the Russian Railways Vladimir Yakunin presented the idea for the Trans-Eurasian belt Development (TEPR).  That was back in th Spring.

Politicians fostered the concept  “as a powerful and versatile transportation corridor that would join up to other networks and reach from the Atlantic to the Pacific, via the heart of Siberia and the Far East.”

Me?  I think it is a really bad idea.

The suggested plan has zero published economic feasibility supporting it. Just a lot of political leaders and academics. No shippers are clamoring to use the route? Why pay for the suggested long land route rail services where super sized container ships are far cheaper?

It reads like “Just another great plan, wrapped In golden chain” so to speak.

And it’s lead RZD rail supporter is no longer in that promoting job as the summer ends.

The admitted rough capital cost estimate from supporters is in the TRILLIONS of dollars.  Yet back in the spring, without documentation, Mr Yakunin of RZD insisted to reporters that the economic returns would outweigh these investments.

Viktor Sadovnichy, rector of the Moscow State University, said the network would help the Far East and Siberia feel more in touch with the rest of the world.

Or is the entire scheme simply economic nonsense?

So far, no one is advancing the cash to build it. It is just another wish list railroad idea. Investors should beware.

Amtrak’s blue ribbon Chicago report // Incredable $800 billion annual harm estimate. // What is a logical economic estimate?

Sometimes news headlines are so absurd. Is this a misprint or a economist’s big error?

A Blue Ribbon Panel convened by Amtrak is recommending co-located train dispatchers, improved operating practices, and capital improvement projects to help relieve rail gridlock in and around Chicago.

www.railwayage.com/index.php/passenger/intercity/blue-ribbon-panel-how-to-unclog-chicago.html?channel=492&Itemid=502   This is one reporting source.

The claim according to multiple sources is that improvements are needed to prevent an estimated $800 billion in nationwide economic impacts resulting from the annual congestion.

BILLIONS?     8 HUNDRED BILLIONS?

That has to be a misprint. Or a colossal economic miscalculation.

THINK ABOUT IT

$800 billion is the capital cost to build about 130 or more Panama Canals

That is about nine to nine times the market value of the Union Pacific Rail company.

Or about 40 times the annual operating expenses of the very large BNSF railroad.

Is no one looking at these relatively easy economic comparisons?

There may indeed be economic net benefits to support more Chicago CREATE joint public/private economic benefits. But this inflationary statement is not the way to make “the pitch.” ==============================

The panel that oversaw the study was chosen by Amtrak President and CEO Joe Boardman. It reported its findings with two university and policy groups on Oct. 1, 2015 in Chicago.

The panel released a study it commissioned from Frost & Sullivan and MSY Analytics which shows that the massive delays to passenger and freight rail traffic in the Chicago Gateway create an economic vulnerability of up to $799 billion every year…

As an economist, I find that number unjustifiable. And I cannot find the published documentation to support it.

If you assumed a half billion to maybe one billion annual economic harm, that might be believable.

What do you think?

Stunning graphs on resource capital project spending is a “wake up call” for planners

From mines around the world to the dependent rail and port projects, the changing global economics commodity cycle suggests a downer “Bear” market for projects that add to global capacity and output.

This down cycle could last from a short 2 to 3 years OR AS LONG AS 7 or more years. Strategic Planners to to rethink their now outdated assumptions from supporting logistics projects in diverse places like Mozambique, Botswana, Mongolia, Brazil, and even in the Canadian/Alaska Yukon region.

What ever capital plans for building the supporting ports and railways they had developed by big engineering companies — the underlying due diligence economic assumptions are now likely “under water” so to speak.

Billions and billions of proposed dollars in drawing board completed project engineering can no longer pass an economic feasibility test for recovery of he rail project capital P&I.

Instead these industry planners should brace themselves for at least another two years of shrinking budgets and outlays. The earliest signs of a “subdued” resource recovery might not be until early in 2018 say some experts.

But even this prediction might be too bullish. Why? Because metal prices have already fallen 12% further than they did during the bear market in the 1990s. In that bear market, capex only recovered to its pre-crash (1997) level after seven years (2004),” according to Mark Fellows.

Mark Fellows, director of consulting for a mining research firm reports that “while sustaining capital expenditure is down 13% since the peak in 2012, capital expenditure on new developments has been even harder hit.” “Spending on brownfield expansions is down 25% while greenfield project expenditure has plummeted by nearly one third” on a global basis.

Mr Fellows concludes this by comparing the current 2013-2015 downturn to the previous bear market in mining which ran from 1997 to 2002. He therefore argues that the current witnesses global capex cutbacks are far from over.

The report is published by SNL Metals and Mining. DOLLARS OF PROJECT EXPANSION PLANS AT RISK

The report finds that total capital spending across all mining companies has declined by around $70 billion since the 2012 peak to just over $150 billion forecast for this year. As one business case example, the project investment at BHP Billiton this year will be $10 billion below its 2013 peak. The world’s number one miner only has four projects in the works, two of which are almost complete, compared to 18 mine and infrastructure developments just two years ago.

In a Mining.com press story by Frik Els on 21 September 2015 titled: “This is the scariest mining chart you’ll see today”, the investor alert numbers are brought out visually.

This is another piece of economic trend evidence in my blog’s strategic theme of changing times for traffic that feeds the dreams of massive new rail freight projects.

“a Bridge Too Far” analysis?

Only the strongest as low cost per ton-kilometer cost new rail projects might be competitive.

Too many rail projects on the drawing boards are simply under designed as to the necessary competitive productivity to prosper as investment grade scenarios. Trains would be too small because they often lack big train technology design features of the most successful resource rail carriers. Axle loads too small. Train lengths too short. Clearances too shallow. Net to tare wagon rates are too low

Too many are now ill advised rail schemes. “Schemes” in North American business language generally means a buyer beware concept plan”.

In Africa alone, I estimate that as many as two thirds of “announced” rail line freight projects may be too risky to build as currently designed around old market demand and old post World War-2 rail engineering standards. That could mean as much as $25 to $34 billion of “schemes” seriously require a second due diligence look just in Africa.

Africa is not alone. The billions in proposed rail engineering in the Canadian Yukon/Alaska region also need serious market demand re-examination. If not by the project sponsors, then certainly by the investors they will approach. Brazil, Mongolia, Swaziland, Senegal — all of their rail design and expected market traffic assumptions need serious review for their current planning.

For more, log onto Mining.com

Chart Sources: SNL Metals & Mining

Greenfield cap ex spending chart

Bear market recovery projection for commodities chart

Coal as energy for US electric power continues drop // Once 50% — now 40%

 

The U.S. Energy Information Administration (EIA) agency reports in September 2015 that the number of new coal mines opening each year dropped to its lowest point in at least a decade.

The total number of operating coal mines in the U.S. has hit its lowest point since all the way back to 1923.

US coal producers opened 103 new mines in 2013. At the same time at least 270 operations were either halted or shut down in 2013 according to the agency.

The 2013 production by the fewer the operating mines (just over 1,000 mines) dropped to less than 1 billion short tons.

The total coal production in the United States has shrunk about 15% since 2008.

“The commodity, which once fired half of the country’s power now accounts for just under 40% of it.”

Over the long run, the Energy Department projects that percentage will drop towards about one-third (34%) within the next 25 years.

“Coal is clearly trending down as market share as thermal power plants turn to natural gas and some displacement by renewables like wind and solar power.”

 

Caterpillar projections to investors. // Looks gloomy market wise

Caterpillar is reorganizing only four years after making its biggest acquisition ever, spending $7.5 billion on Bucyrus International Inc.

The company faces what it says is the first four-year sales decline in its 90-year history.

In a Bloomberg report: Caterpillar `Bites the Bullet’ as Oil Rout Compounds Mining Pain the metrics are presented.

The last time Caterpillar Inc. cut thousands of jobs, a mining slowdown was to blame. Now the main culprit is oil, as slumping prices batter drillers.

The investigative reporter Sonja Elmquist wrote on Sep 24, 2015 that the world’s most valuable machinery producer by market cap announced a plan to cut as many as 10,000 jobs, or 9 percent of its workforce, through 2018 as the effects of crude’s collapse ripple through the industry.

The measures — including the second reduction in sales guidance in two months — represent the biggest round of cuts since 2013, when the company reduced its headcount by 13,000 as sales to metal producers declined along with prices.

According to Bloomberg Intelligence. “They’ve finally opened up the manila envelope that says ‘doomsday’ on it and they’re executing the plan that they hoped they would never have to execute,” Sameer Rathod, a San Francisco-based analyst at Macquarie, said by telephone.

No one is sure yet as to the shape of the long term market recovery timeline.

The company will cut as many as 5,000 workers this year and another 5,000 by 2018. It reduced a 2015 revenue projection by $1 billion and said sales are expected to drop 5 percent next (2016)…

SHARES WAY DOWN    —

Caterpillar at the time of the announcement fell about 6.3 percent to a five-year low of $65.80.  The stock has lost 28 percent this year, the biggest annual drop since 2008.

As a comparison, the MSCI Emerging Markets Index has fallen 18 percent in 2015 while the Dow is down 9.8 percent.

The company’s consolidation plan may affect more than 20 plants…

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

Update on Ethiopia’s Light Rail System as it starts operating // Sept 2015

Multiple reports confirm the start of light rail service in the capital of Ethiopia on 20 September 2015.  The start of service on Line #1 is actually relatively close to the promised service date.  Funding approved in 2011 assumed a two year construction timeline.

The 16.9 km north-south Line 1 line links Minelik Square with Kality and has 23 stations. A 17.4 km east-west line from Ayat to Tor Hailoch is also due to open soon. The two routes share a 2.7 km section between Lideta and Stadium.

This light rail service which includes elevated sections and tunnels, runs from Addis Ababa’s main industrial area on its southern fringe, through the trading district of Merkato to the historic center of Piazza.

I had a chance to review the affidavit Addis Ababa light rail construction process in the capital back in the summer of 2013.  Project construction and the logistics handling of imported rail materials was well organized by the Chinese company.  The track ballast section and some early rail laying were substantial as to the engineering design and initial construction delivery of product in the field.

One of the tunnel projects was a huge physical undertaking.  Well done when I inspected it.  No question that the Chinese companies can build rail projects very well according to plans.

PLANTING THE C”AN DO” FLAG IN FRONT OF AFRICAN RAIL PLANNERS

The east-west light rail line skirts the African Union’s headquarters.  This location marks a great advertising opportunity of the Chinese capabilities with this line placement in front of the African wide headquarters.

Both light rail lines are built by China Railway Engineering Corporation (CREC).

CNR Changchun (now part of CRRC Corporation) has supplied a fleet of 41 low-floor vehicles, which have a maximum speed of 70km/h.

DEAL FINANCING TERMS

China is financing 85% of the $US 475 million project. It is a loan. Not a grant.

The government agreed to borrow the funds in June 2011 from the Export-Import Bank of China.  The to be paid back rate was at the 6-month Libor interest rate plus 2.6 percent and a grace period of three years.  This from Ethiopian Finance Ministry data.

State-owned contractor China Railway Engineering Corp. was the recipient of the export financing.

The financing of the remaining 15% is arranged from other sources by the Ethiopian government.

ON-GOING MAINTENANCE

The 39-station network will be maintained by CREC and Shenzhen Metro Group under a $US 116m five-year contract.

The Ethiopian client for the continuing rail service is the Ethiopian Railway Corporation (ERC).  The ERC rail company is a government corporation with a very small staff.

TRAIN OPERATIONS

The first three to five years of light rail train operation will also be by the Chinese and not the ERC.

At one point back in 2013 the Ethiopians sent out a global request for a  consultant team to build up the Ethiopian internal organization into becoming a world class operating management team.  Then they could take on train operations management themselves.  But that internal skill building process so far appears to not have happened.

Instead of internal managers inside the  Ethiopian Railways Corp, the light rail service will be run day to day by Shenzhen Metro Group.  For at least five years.

LIGHT RAIL TRAFFIC FORECAST

The light rail total system may eventually carry 60,000 passengers an hour, according to project manager Behailu Sintayehu.

Passenger FARES will be subsidized

The maximum one-way fare on the network is about $US 0.29 to $0.30 (cents).

The light rail line operating costs is projected to be about 1.5 billion birr a year to run. Fare box revenues will not cover all of that annual operating cost.

“The government is subsidizing this transportation system. This is not for commercial purpose, it’s for the public” said a local official source to reporters.

Sources also reported that the subsidy to allow such low passenger fares will in the long term have to come out of “expected” freight operating profits from the not yet completed new standard gauge international railroad line.

This cross subsidy practice might be a logical strategy if trucking companies subsidized the passenger buses on highways But they do not.  In the long term of daily rail to truck competition, this creates an advantage for truckers.  It is incredible how state planners historically are blind to this integrated transportation fact of competition economics.  The Ethiopians are no exception to such economic flaws in policy thinking. As the become better trained in economics, this may change their thinking.

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MORE INTEL about this light rail system

THE LONG DISTANCE LINE

The freight and intercity passenger train new railway construction underway will connect the Ethiopia capital city with the port of neighboring Djibouti.

Service there may begin sometime in 2016 say current reports from Bloomberg.

Trains on this inter-nation line might also be operated by a Chinese contractor instead of by the local Ethiopia rail organization.  Too early to tell yet. There is no published report on the success or timeline of building such skills inside the Ethiopian Rail Corp organization.

The long distance line will be standard gauge (1435mm) track.  But not 33 metric ton or doublestack container train capable.

The Ethiopians have settled for a lesser freight train capacity that they received from the Chinese builders rather than adopting the North American commercial and engineering big train technology standards — and having the Chinese contract companies modify their engineering build to standards. The result will give the Ethiopian rail company a rail freight haulage capability equivalent to a 40 to 50 year old post WW-2 North American operating performance. This means missing their chance to become the best of class within the African world of freight railroads.

POWER SUPPLY

Electric power to supply these light rail and intercity train sets in a more dependable manner is to come from the Chinese financed Gibe III hydropower dam’s reservoir set for operation in 2016.  The reservoir has started filling, with its 1,870 megawatts capable of almost doubling Ethiopia’s generating capacity. This will presumably allow for a dependable service day to day performance using straight electric locomotives rather then modern diesel-electric locomotives.

MISSED DOUBLESTACK CONTAINER OPPORTUNITY

With electric power from overhead wires catenary systems, the overhead clearance for doublestack container trains could be restricted.  This overhead wire electric system as currently designed as to height above the top of the rails is another rail marketing (commercial business competition) flaw that could have improved.  How? By increasing the wire height to more than 6.7 meters above the top of the rail.  That would allow doublestacking container trains to have a far superior cost per container advantage in direct competition with highway trucking.  In the US that rail rate advantage can be as large as 50 cents to $1.40 per container moved kilometer.

These simple manmade engineering design changes would have given the resulting rail line a superior economic advantage against long haul trucking.