Archive for Emerging Markets

Is price signaling subject to future anti-trust prosecution risk?

These news reports about iron ore present an open economic question as some mining companies use the news media to signal “Market Supply” changes to their competitors.

Might come back to haunt them later in when attorney generals in the EU, the US, or China consider the tangled web of supply and demand.

The Future accusation could be that they are signaling their competitors as to supply based pricing shifts. Eventually may result in a massive due diligence regulatory hunt for irregularities.

The claim will be that suppliers used the new releases to signal a collusion to economically try and drive prices up by collectively reducing supplies.

Here is a current “supply change” news report as an example circulating this week.

As for rail companies, the signaled message continues to project much lower resources traffic like iron ore and met coal than is probably in your current strategic rail traffic plans.

See: http://m.miningweekly.com/article/metals-investors-look-for-miners-to-cut-supplies-to-lift-prices-2015-07-03

A few points reported include these commodity alerts.

On April 30, Brazil’s Vale, the world’s top iron-ore producer, said it was considering reducing forecast iron-ore production by up to 30 million tonnes over the next two years. Rio Tinto is the second-biggest producer of the raw material for making steel.

Among base metals, the main focus will be on aluminium and zinc, analysts said. “Aluminium tops the list in terms of potential and much needed production cuts in the Western world”

“Top producer Rusal of Russia said in April it might idle 200 000 tonnes of capacity.”

“US group Alcoa said the month before it was reviewing 500 000 tonnes of smelting capacity.” “On Tuesday, Alcoa said it would permanently close its Pocos de Caldas smelter in Brazil, which has capacity of just below 100 000 tonnes per year.”

South Africa Consumer Confidence Index Slumps to 14-Year Low

From Bloomberg, Jul 2, 2015

Consumer confidence in South Africa dropped to the lowest level in 14 years in the three months through June. The consumer confidence index slumped to minus 15 in the second quarter from minus four in the first three months of the year according to FirstRand Ltd.’s First National Bank unit.

The sub-index sentiment on the economy’s outlook hit the lowest level since the 1992-93 recession.

Will investors continue to support aggressive mining and rail projects in such a statistical environment?

What is the Strategic Plan B for infrastructure when confidence drops?

“Business as Usual” is now a bit riskier.

Who will step up and lead the change?

Is the current maket demand driven Transnet Rail set of commercial assumptions still valid?  If not, how do leaders change to meet the new competitive reality? Who has such an experience to help adapt to the new railway commercial market changes?

To read the entire article, go to http://bloom.bg/1KuWF3C

IS ANYONE PAYING ATTENTION as Chinese Stocks drop these past 3 weeks?

July 2, 2015

Everyone seems fixated about Greece’s future in the euro zone.

Pat the same time, overlooking the economic consequences of a stock market slump on the other side of the world.  CHINESE equities have dropped more than 20% — yet it is causing barely a ripple in global markets!

To read the entire article, go to http://bloom.bg/1em9W1S

China has seen a a 3-week plunge in Chinese equities. Some calculate a massive $2.4 Trillion loss in China market value.  That is calculated as the equivalent of about 10 times Greece’s gross domestic product last year.

How much longer must Chinese stocks continue dropping at this steep pace before the economic shock fears shift away from Greece?

Which economic indicator means more to emerging nation resources and transport infrastructure plans?  Hands down, it would probably be the China drop.

Will Chinese equities recover? Will China’s government step in with a recovery program?

If a bubble burst, how will the global economies react to a China crisis versus all of the attention on Greece?

What is your opinion? Jim

Bloomberg reports negative China steel growth.

From Bloomberg, Jun 18, 2015

“Chinese steelmakers are deepening the first production cuts in a quarter century”…

As manufacturing steel production drops, there are economic signs to look for.

Possible “dumping” of finished steel.

Stockpiling of Chinese imported iron ore and coke.

More investor uncertainty about emerging nation blueprints for new mines, ports, and railways.

To read the entire Bloomberg news report, go to http://bloom.bg/1GTU0PI

Crude steel output will shrink as much as 2 percent this year, according to the China Iron & Steel Association. That is the first contraction since at least 1990.

A recent up tick in raw material costs for steel and a collapse in steel prices has pushed the Bloomberg Intelligence China Steel Profitability Index to the lowest in almost seven years.

To understand more about the prospects for adding more to the supply side of global trade, we need to know even more about the market demand side.  As China’s growth slows…    …so too will the need for more and more imported resources from greenfield projects.

So which greenfield projects will still be needed?

More evidence — This from PwC — of the global resource mine slowdown

Management consultants PwC have published another report about global trends in the mining industry.

Mine 2015 examines the 40 largest mining companies in the world.

Here are some tidbits.  Those 40 companies as a group are market valued today at about $800 billion. That represents a halving of their value calculated four years ago.

The report has the interesting name “The gloves are off”.

Pone take away is the mining Shareholders are literally “ticked off” about the estimated $27 billion in corporate write offs because of poor investment decisions made by overly aggressive managers between 2006 and 2013.

Under pressure from shareholders, many of the top 40 companies cut capital spending 20% in 2014. Many of the so called greenfield projects are the ones taking the biggest hit. The company exploration budgets have been particularly cut.

Over the last 2 years, “the majors cut back their exploration spending by more than half to about $4.9 billion in 2014. The drop was from about $6.3 billion spent in 2013 and $12 billion spent in 2012. This is consistent with trends reported by multiple otyerbnewscsources.

The report makes note that the so called junior miners in this list of 40 has witnessed the worst in terms of their ability as a market group to raise greenfield exploration capital.

Obviously, many of the supporting rail and port projects have also been hurt, suspended, or dropped.

Contact PwC for more details.

Technically wrong images often tease readers of marketing publications

BEAUTIFUL PICTURES send the wrong message as to what will be delivered.  The writers could change that and send a really powerful “this is possible message” if they focused on the engineering specifications.


Better news reporting can make a difference.  I urge them to improve on an otherwise good publication.

The April 2015 issue of CBTL-WATCH AFRICA is a very well laid out and professionally scoped marketing tool for the ocean carrier. It presents colorful to look at and generally well written subject themes for the various geographic sections of its Africa maritime business.

The authors put the best face forward in describing the announced railway modernization projects in this one April issue. The photo cover of the marketing document is beautiful.

Unfortunately, almost none of the modern railway operation pictured in that cover — or later in a page dedicated to Zambia –DRC modernized service — will occur under the current African rail plans.

A due diligence investigative report would quickly note that the image of the massive and highly efficient doublestacked container trains in the photos CANNOT OPERATE on the currently proposed rail lines in the story. In fact, from an engineering and economics technical view, NOT A SINGLE AFRICAN PROPOSED FREIGHT RAILWAY WILL BE ABLE TO OFFER DOUBLESTACK CONTAINER FREIGHT SERVICE using their current proposed engineering guidelines.

WHY NOT?

Because the tracks and infrastructure bridges of these new railways WITH DOUBLESTACK CAPABILITIES would have to support 1) 33 to 35 metric ton axle loads, 2) trains lengths of about 2,500 to 3,400 meters, and 3) vertical clearances above the top of the rail head in the 6.1 to 6.2 meter range (if a diesel electric locomotive operation) and in the range of 6.8+meters if an electrified line.

Neither the reporters on these stories or the ministers doing the technical planning are focused on these fundamental yet missing design standards.

The result is sort of like announcing a new international airport plan, but the runways and terminal ramps will not accommodate modern B-777 or A380 aircraft. In aviation, that would get you fired.

I am hoping that a future issue of this otherwise great news magazine will correct these mistakes. Please, at least do not tease the audience with a picture image that technically will not happen. Unless someone changes the engineering design.

If the authors can use this technical rail intelligence in future issues, perhaps they can influence modernization changes to the plans. Such engineering change would truly benefit their African customers. Because doublestack trains are about 35% to 45% more efficient than the current African rail plans will allow.

Commercial rail freight service NOT possible with almost all of current African rail plans

Commercial rail freight service NOT possible with almost all of current African rail plans

TRUCK KILLER RAIL TECHNOLOGY conintues to elude Eruope-Asia planners - Jim Blaze

Stunning graph shows drop in China’s rate of economic growth as of year 2014 versus ten year average

Sometimes one graph says a great deal.  This is one of those graphs.  If the numbers have been plotted correctly, it shows the significant change in former super cycle growth of China’s economy.

The due diligence questions is, what will the next five to ten years be like.  and how will it affect global resource and rail/mine/port projects on the drawing board?

Which will prosper under a much lower growth scenario?

Those with the lowest production cost per unit will have the best chance of success if the super cycle has cooled.

For more log onto story line by Frik Els; June 12, 2015    …” signs of China’s steel, iron, coal industry growth collapsing”.

At:   http://www.mining.com/charts-chinas-steel-iron-coal-industry-growth-collapsing/

 

Stunning graph shows collapse of China super 10 year growth rates by year 2014

Kenya announces plan to buy land for standard gauge railway

A recirculated news report originally by Reuters points out the land acquisition economic issues as Kenya seeks to build a huge multi billion dollar Chinese loan funded standard 1435mm gauge rail netwok

Land Acquisition Issues   —  http://m.engineeringnews.co.za/article/kenya-announces-plan-to-buy-land-for-standard-gauge-railway-2015-06-11/rep_id:3182

Kenya says it will pay 4.4-billion shillings ($45-million) to acquire land for its standard gauge railway network.  The $13.8 billion rail project, will eventually link Kenya’s Indian Ocean Mombasa port to the capital Nairobi, then on to Uganda.

However, land acquisition is still a construction roadblock.  Kenya’s National Land Commission is overseeing the compensation, involving up to 1,500 local land owners with land along the railway path.  They need to receive compensation to vacate their properties.

Not everyone is satisfied. On Tuesday, some land owners held protests to say they were being offered too little. “They are offering me only 28 000 shillings ($288.51) for my two-room house, which they will demolish. How do I build another one elsewhere with that little cash?” Peter Ashimosi, one of the protesters, told Reuters.

China Rail may lose more than 100 million tons of domestic iron ore business

Multiple sources report that as much as 200 million tons of annual Chinese domestically mined iron ore might now be closed as the global prices paid are too low to support that local business.

One source is Vale’s Chief Executive Officer Murilo Ferreira. He made the market shift assessment at a conference in Rio de Janeiro.

Some of that iron ore is moved by rail, and some by water or by truck to China’s steel mills. No one has released numbers yet as to the possible business loss impact on the Chinese rail freight network.

The sourcing difference will likely come to China via ocean ships from Australia and Brazil as the two currents lowest priced suppliers.

Incremental gains will come from Africa and other marginal mines to ports rail links that have a good cost “to source and deliver” price scenario while the delivered price paid at China coastal ports is less than $100 a ton.

What is your estimate of the impact on China Rail traffic?

Even Peabody Energy is not immune to the global price fall in coal — and as its traffic drops so will rail traffic

From Wyoming to Mongolia, giant Peabody finds its market and financial position totally unlike back in the good old times of 2006. A new reality has hit hard for even this global giant. Nes reports say it is laying off about 250 corporate office positions.

http://trib.com/business/energy/updated-peabody-energy-to-lay-off-close-gillette-office/article_ccf4825e-c4df-5726-a93f-5567655a2e0d.html

A few highlights are:

Peabody Energy is the largest private coal company in the world.

It announced Monday it is cutting 250 corporate positions…

The layoffs amount to roughly 25 percent of the St. Louis-based company’s corporate and regional support positions.

Roughly 20 employees will be laid off in Gillette, Wyoming where Peabody employs 50 people at its regional office.

“… today’s announcement represents another necessary step to drive the company lower on the cost curve,” said Peabody CEO Greg Kellow.

The company is headquartered in St. Louis It has global investments including in Australia, China, and In Mongolia to name a few locations.

As it loses coal business, so do the railroads that serve its mines and customers.