Archive for Steel

More evidence of Mounting Risks to Keep Africa Growing

Still largely a very poor region, Africa faces economic hurdles is its hopes for growth

A Bloomberg report on 2 June shows evidence that African nations are facing mounting risks as they seek to extend two decades of stellar economic growth.

Stellar but uneven.

To read the entire Bloomberg report, go to http://bloom.bg/1RHYdJ

 

Here are some important points for my associates in the African rail industry.

In May The International Monetary Fund lowered its 2015 growth outlook for sub-Saharan Africa by 1.25 percentage points to 4.5%

Based on multiple sources of evidence, economic growth in both Nigeria and South Africa is clearly slowing. “Sustaining Africa’s growth is going to prove increasingly challenging,” says Peter Attard Montalto (an economist at Nomura International Plc in London) in a conversation with Bloomberg reporters. Montalto points out that “competition for trade and investment within the continent is increasing. All countries will need to step up their game.”

THE NEED TO STEP UP THEIR GAME

Are the key government leaders, policy makers and company executives from companies meeting at this week’s World Economic Forum in Cape Town paying attention?

The forum will discuss growth in the context of a continent where 72% of the Sub Saharan population still lives in or at the brink of poverty (UN data). In numbers, that is a staggering 585,000,000 estimated souls.

IF (actually very likely) global commodity prices remain low or worse even decline further — then the African governments will have to go increasingly to a Plan B government budget cut approach. Most are not use to that tactic.

On the positive side, There is still selective growth in Africa.

Ernst & Young released a report to the public this week that shows Africa attracted $128 billion in foreign direct investment during 2014. That marked an increase year over year. However, the number of projects dropped by 8.4%.

On the negative side, a large number of mine and rail and port projects are on hold. Many indefinitely. My readers and clients have discussed this pattern before. Tonight’s report is just another confirmation of the pattern.

Where and on What?

E&Y found that 44% of the investment went to projects in the real estate, hospitality and construction industries 25% went for oil, natural gas and coal 9 of the world’s 15 fastest-growing economies are in Africa

SLOWING INVESTOR CONFIDENCE

EY surveyed more than 500 business executives in 30 countries Growth could slow they felt because of a combination of factors

Those identified include: 1) Africa’s political instability, 2) Corruption 3) Poor security 4) Lack of infrastructure including transport and electricity These plus a scarcity of skilled labor are the biggest deterrents to investors.

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What will come out of this week’s forum?

What leaders will leave with a sense of urgency and change?

Stay tuned and we can discuss later when more facts emerge.

Sent from Jim’s iPad

More than 60% of megaprojects mines face cost overruns –. LIKELY for rail also

WHERE IS THE DUE DILIGENCE on these ambitious project feasibility cost estimates?

This was a timely report on the internet business news

A 60% rate of large project cost over runs reported from a after the fact due diligence review.

What executives were “watching out for the investors’ interests”?

Where was the pre-project due diligence review?

As exuberance over China “go-go” growth cools down now to more realistic levels, some formerly free wheeling mine executives are probably going to be reassigned or worse.

Likely a similar fate awaits many project rail planners.

The cited EY study below is not focused on the supporting railway projects. But this significant mining failure implies similar rail project cost over run impacts from Mongolia to South Africa and from Mali to India.

Mongolia’s rail plan execution failure out of the Gobi Desert TT fields is probably a close parallel to this report’s conclusions. Almost now a decade in only partial construction, the Mongolian project is a similar “failure to execute” on time and on budget. But here, the blames rests on government rather than executives.

MASSIVE MISS IN ESTIMATING THE TRUE PROJECT COSTS

How can so many screw up so badly?

COSTS as identified in the EY evidence were on average 60% or more over the initial predictions.

Who did the original diligence checking?

Where was the investor/banking over sight?

60% is what most of us who are economist refer to as the conceptual level accuracy of costs. That is terrible for an actual post project delivery audit..

60% is a flunking grade if judged logically.

60% suggests that there was never a serious project feasibility assessment of the market and economics.

Will this lesson learned be used by project leaders going forward now that feasibility may be even more difficult if the resources super cycle is behind us?

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The report title is: ‘Opportunities to Enhance Capital Productivity’

Here are a few highlights.

1) EY found that “an average budget overrun of 62% was reported on the 108 megaprojects investigated.”

2) “The projects considered were at various stages across the investment and project delivery life-cycle.”

3) “The projects were geographically diverse and related to the development of copper, iron-ore, gold, coal, nickel and other commodities.”

4) Cumulatively, “the projects represented global investment of $367-billion.”

5) “An estimated 50% of projects were reporting schedule delays even after remedial acceleration initiatives had been applied.”

The study spokesperson at EY is its global mining and metals advisory leader Paul Mitchell.

Mine company leaders now admit to their shareholders that with the good old high growth China days behind them… … the project managers need to be much more precise with their due diligence in order to achieve the promised investment margins. There is now a lot less room for error.

The report cites that total capital expenditure for the subject projects examined “have dropped from $142-billion in 2012 to an estimated $96-billion this year”.

For more details, please go to the Mining Weekly report from an Earnst Young special study at: http://www.miningweekly.com/article/more-than-two-thirds-of-megaprojects-face-cost-overruns-ey-report-2015-05-21

How would you score the report card based on the E&Y report?

Sent from Jim’s iPad

ArcelorMittal today sees a global steel glut

Here is more market evidence that marginal mine and railway & new port projects based on selling to China and other steel markets are still stalled.

Could be for as much as 1,000 or so days in some places (that is the day after day code term for about three years. Sounds a lot longer when you think about waking up so many times still hoping for a markets return.

The URL is http://www.mining.com/arcelormittal-cuts-profit-expectations-for-2015-amid-steel-glut/

Key alerts by ArcelorMittal include the following: in the European market, “ArcelorMittal sees steel demand growing much as 2.5%, but it is not as optimistic when it comes to the rest of the world.” ArcelorMittal lowered its expectations for growth in global steel use to 0.5% to 1%this year from its previous business forecast of perhaps 1.5% to 2%. It expects U.S. demand to contract as much as 3% this year. And the company projects that Chinese sales might expand as little as 0.5%. A HALF PERCENT! The U.S. slower growth expectation likely reflects in part “dumping” by certain foreign companies. Perhaps? Sent from my iPad Jim