Archive for Economic Recession

Morgan Stanley’s “coined” Fragile Five Now looks like “The Troubled 10” as currencies drop in value

In a special report, Bloomberg points out that regardless of which economic list you use, Brazil has taken the worst currency hit with the real down more than 24% against the dollar this year and almost 34% since 2013.

South Africa has also taken a huge currency hit.

The bad news is that there is not much hope for a recovery lead by a Chinese trade based recovery plan. And the expected increase in the U.S. currency rate will likewise hurt.

(See Bloomberg, Aug 16, 2015)

Citigroup G-10 Currency Strategy Head Steven Englander discusses China and emerging markets. Forget the “Fragile Five.” These days, strategists at Morgan Stanley are worried about what could be called the “Troubled Ten.” To read the entire article, go to http://bloom.bg/1PtkTMm

Once considered a core economic strength, now dependent commodities trading ties make these nation’s susceptible to a slowdown in the world’s second-biggest economy. China.

Missing from the list but also hit hard with recent currency devaluation for other reasons is Russia.

Since the economic geo-politic phrase was coined in 2013… the Brazilian real, together with Turkey’s lira, South Africa’s rand, the Indian rupee and Indonesian rupiah, have suffered as rising global interest rates make it more difficult for the countries to finance their current-account deficits.”

How do you see this correcting?

Emerging Markets were a long term “dog’. // Many new rail projects now “suspect”

Too little emerging market due diligence…

There is an excellent market recap analysis by Bloomberg — on Aug 5, 2015

Emerging markets and the BRICS nations were to be the darlings of investors as growth became slower in the developed world.

Massive new and expanded Railways and ports were to be built around the promoted high growth prospects.

Warnings that the prospects might not be as rosy as predicted were shrugged off. Too often it seems due diligence was overlooked. Now those high prospects require a Strategic Plan B.

“Today, after heady runs and abrupt reversals, most of the BRICs — as well as most emerging nations — look like big-time losers say many of those interviewed by Bloomberg.

The history of emerging markets is a history of booms and busts, but the immediate future may hold something more prosaic: a malaise.

Investors today confront what could turn out to be a lost decade of returns, with four or five more meager years ahead.

It was only 14 years ago Wall Street fell in love with the BRICs, the tidy acronym for four (5 with South Africa) large emerging economies that, to many, looked like sure winners. …

The MSCI Emerging Markets Index nearly quadrupled between 2002 and 2010 .

But now in 2015 that pattern looks to some like it was an anomaly.

“Very few emerging markets historically have ever been able to make it to the developed countries,” said Sharma, head of emerging markets at Morgan Stanley Investment Management Inc. “This is a return to normalcy.”

Currency Rout… “All told, developing-nation currencies have fallen to their lowest levels since 1999, and bonds denominated in those currencies have wiped out five years’ worth of gains.”

“Since 2009, the MSCI index has fallen 10 percent while developed markets have soared about 50 percent” reports Bloomberg.

Looking ahead, 14 of 23 major emerging-market currencies are forecast to decline against the dollar by the end of June 2016, according to data compiled by Bloomberg.

Forecast earnings for companies in the MSCI index have fallen to their lowest since the end of 2009.

Plans for massive new resource hauling freight railroads are ‘on hold across Africa and in Asia and Australia.

To read the entire article, please go to http://bloom.bg/1SPNlh1 Jim Blaze

Trouble in Steel Town as World’s Mills Face Glut, Sinking Prices

From Bloomberg, Jul 29, 2015

There’s trouble in steel town. Global finished steel prices are in retreat as China’s mills put more products on the boat for export.

The average U.S. price of hot-rolled coil, used in everything from buildings to automobiles, dropped by 33% to $456 a ton in the second quarter, according to The Steel Index.

In China, steel rebar sank to the lowest level since 2003 this month.

Scrap prices are also falling.

To read the entire article, go to http://bloom.bg/1Sf0Ypz

A few data points:

“Chinese steel is flowing into the North Asian markets,” Naoto Umehara, executive vice president of Kobe Steel Ltd., told reporters in Tokyo. “That’s pushing down hot-rolled coil, a typical example of general commercial steel products, and that’s also pushing down the overall market prices. In that sense, the damage is big.”

South Korea’s Posco, the world’s fifth-largest producer, reported a slump in profit earlier this month and announced plans to cut staff and refocus on its main business. Its stock traded this week at the lowest in a decade.

U.S. Steel said that the net loss widened to $1.79 a share in the second quarter compared with 12 cents a year earlier. Its steel SALES fell to $2.9 billion from $4.4 billion. Stock in U.S. Steel is 36% lower over the past 12 months.

DUMPING?

Steel exports from China surged 28 percent to 52.4 million tons in the first half, according to customs data. Overseas sales from China have risen to extraordinary levels, according to Credit Suisse Group AG.

All of this are more signs of a reduction in the value of scrap steel and proposed new mine and rail projects around the world.

South Africa steel industry critical financial condition in collapsing global market

South Africa

With commercial assertions of possible steel finished product dumping, (as Chinese steel production at home exceeds the domestic market demand by customers), another South African steel company faces a financial crisis.

Too many assets on the Balance Sheet.

Too many employees given the business decline these past two years.

South Africa’s 2nd largest steelmaker Evraz Highveld Steel and Vanadium confirmed that it had temporarily ceased steel production at its steelworks. The company cited “working capital constraints and reduced domestic demand…” It also cited a “significant” increase in steel imports from China.

From raw resources like iron ore and met coal to scrap metal to charge steel furnaces, the global picture of the FOREST is that we can see a lot if the TREES “burning”.

LOCAL JOB IMPACT

Evraz Highveld Steel and Vanadium has issued a proposed restructuring notice in terms of South African laws Section that could see the country’s second-largest steelmaker potentially cutting half of its workforce.

RESPONSE

The local labor organization are demanding discussion to how to fix the global market locally. Their leadership appears to be in self denial. Transnet’s grand 7 year market development plan now approaching year four of execution also appears to be unadjusted to these global market shifts and local South African customer changing logistics service demand of the rail and ports future services.

Sooner or later, Transnet will have to adjust. If not, it may over invest in unproductive added assets. What do you think?

For more news coverage, I encourage you to log onto the following links http://www.engineeringnews.co.za/article/evraz-highveld-moves-to-cut-half-its-workforce-2015-07-21/rep_id:3182 And http://www.engineeringnews.co.za/article/cash-hungry-steelmaker-evraz-highveld-halts-operations-2015-07-20

Anglo may cut one third of its jobs as steel industry market demand drops prices

What has taken senior iron ore – steel industry leadership so long to adjust their strategic plans? What are rail and port companies that provide logistics services to Anglo doing to resize their transport service assets?

From Reuters sources http://www.iol.co.za/business/companies/anglo-to-shed-50-000-jobs-1.1890299#.VbJDREr3arV

Headline reads: Anglo to shed 50 000 jobs (over the long term) July 24 2015

Reporter is Silvia Antonioli

Anglo American, the fifth-biggest diversified global mining group by stock market capitalization, announced on Friday that it will move towards the elimination of as much as one-third of its work force. This appears to be a belated recognition of the strategic lower market steel demands and the consequences on iron ore prices in the face of an over supply of resources like iron ore.

It also admits it “might put up more assets for sale”…

It’s Board appears to finally reacting after the accelerating slump in metals prices that seen its stock shares decline to a 13-year low.”

MIGHT GET WORSE

The company posted a steep fall in first-half profit after a rout in prices of metals from platinum to iron ore. The company said “the next six months could be even worse.” “Quite frankly we didn’t expect the commodity price rout to be so dramatic… … CEO Mark Cutifani said during a presentation to market analysts. In the short term, management says it “would cut about 6 000 of its almost 13 000 office-based and other non-production job roles globally”…

If market conditions soured further the company would consider putting up for sale more of its underperforming assets than currently planned, Cutifani said.

Anglo employs 151,000 staff worldwide. I

N ITS PR NEWS RELEASES the company puts a best “spin” on the current financial results as it is about half way through its three year strategic change previously announced to investors. The economic interpretation from the analysts meeting is that they are going to have to move much faster in making changes and/or make bigger changes

REPORTED RESULTS:

Anglo American Interim Results for 2015 include the following cited on the Internet. “Improved operational performance and accelerated cost and capex reductions to mitigate price weakness” says the company in its financial reporting. Group underlying EBIT of $1.9 billion, a 36% decrease due to sharply weaker commodity prices ($1.9 billion underlying EBIT impact), Partially offset by weaker producer country currencies and cost reductions ($0.6 billion underlying EBIT benefit), Commodity price-driven impairments of $3.5 billion after tax, including $2.9 billion at Minas-Rio

FUTURE LOOKING PROJECTIONS include: $1.5 billion of operating and indirect cost reductions and productivity gains targeted in H2 2015 and 2016 (operating costs $800 million, productivity gains $400 million, indirect costs $300 million) Additional company capital expenditure reductions of up to $1.0 billion by end 2016 $1.6 billion of “disposal proceeds” delivered in July 2015

Another bad sign for the South African steel industry and future rail related traffic as AMSA reports

The South African Steel Industry is hit hard by he global slowdown in the market DEMAND for steel.

Reports today from multiple sources say for example that South Africa’s largest steel producer ArcelorMittal South Africa (AMSA) is giving notice that it is weighing the partial or full closure of its Vereeniging Works, in southern Gauteng. The Vereeniging mill is perhaps South Africa’s oldest steel plant — going back to 1911 as the Union Steel Corporation of South Africa.

Some market sources suggest that ArcelorMittal may soon make a trading statement indicating that the company might report a large loss per share in the half year to June 30. One source, Mining Weekly, has its reporters suggesting that it could be as much as “1,400% worse than the 2c/share loss incurred during the corresponding period last year.” Other South African steel companies like Highveld Steel and Vanadium are also reporting depressed commercial results.

This marks a continuing pattern of global declining prospects for ore, met coal, and scrap plus lower future business revenues for the railroads and ports that handle the steel related inputs and outputs.

Are the transporters changing their strategic plans or hoping their customers’ business patterns will suddenly change?

Go here for more reported details: http://m.miningweekly.com/article/poor-citizen-amsa-promises-to-mend-ways-as-it-seeks-support-to-save-vereeniging-and-company-2015-07-23

CAT sees continuing slow economic market growth as of mid year 2015

Caterpillar continues to grapple with a slowdown in demand from mining companies.

On Thursday the Peoria, Illinois-based company reported lower second-quarter sales and profit.

It reported that it doesn’t see “sustained signs of improvement” in some important markets.

Its shares fell the most in almost six months.

What is your growth forecast?

A railway freight traffic rally? // Not with this 13 year record drop in Commodity Prices

Published by Bloomberg, Jul 20, 2015

Oil has been reeling for about a year; now gold is getting slammed—

Commodities are at a 13-year low.

How will this affect your strategic plans?

To read the entire article, go to http://bloom.bg/1MDRHk3

The Bloomberg Commodities Index dropped to a 13-year low Monday…

That is weaker than after the banking meltdown of 2008 and the euro-zone crisis of 2012.

From wheat, to copper, to natural gas, little has escaped the rout.

If your waiting to start your new commodities based railway, it is time to review your strategic assumptions..

China May Tip World Into Recession suggests a report by Morgan Stanley in Bloomberg

From Bloomberg, Jul 13, 2015

Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession.

True or False?  Do we have sufficient evidence of this argument?

To read the entire article, go to http://bloom.bg/1Gi6POT

The China stimulated recession is the prediction from Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2 percent.

That 2 percent is a threshold he views as equivalent to a world recession.

If true, it would be the first global slump over the past 50 year without the U.S. economy also contracting.

China accounted for 38 percent of the global growth last year, up from 23 percent in 2010, according to Morgan Stanley.

China is the world’s largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa.

China’s economic slowdown will thus have an enormous global impact from mines to railways and to ports.

China May Tip World Into Recession // True or False?

Possibly correct.

Time will tell.

The bold  prediction is by Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2 percent, a threshold he views as equivalent to a world recession.

If true, it would be the first global slump over the past 50 year without the U.S. economy contracting.

“The next global recession will be made by China,” Sharma, who manages more than $25 billion, said in an interview at Bloomberg’s headquarters

“Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy.” China accounted for 38 percent of the global growth last year, up from 23 percent in 2010, according to Morgan Stanley.

China is the world’s largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa.