Archive for Intelligence gathering

Interesting leadership observations offered to the railroad industry

Those who were at the keynote Railway Interchange 2015 address by retired Navy SEAL Robert O’Neill heard this leadership message.

Mr O’Neill held the crowd’s attention with his humor and stories of war, including headline making raids that resulted in the rescue of Captain Richard Phillips in April 2009…

His message to attendees about the topic of success & leadership was one that translates from the theater of war to the operations of an office or a railroad:

Never quit. That is his personal mantra.

O’Neill touched on several main points when developing a “never quit” attitude. 1) developing people skills, 2) knowing the difference between over planning versus being prepared, and 3) removing emotion from the decision-making process.

His advice — to keep moving forward through challenges

To recognize that all stress is self-induced

To recognize that failure is a great learning tool.

He also noted that keeping a sense of humor helps.

Lessons there for all of us

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 Strategic Planners to to rethink their now outdated assumptions from supporting logistics projects in diverse places like Mozambique, Botswana, Mongolia, Brazil, and even in the Canadian/Alaska Yukon region.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

“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

Multiple business news sources report what appears to be much slower China Economic Growth.

Aug 20th to Aug 21st 2015

Not very transparent, the Official Chinese government economic growth reports are now being even more widely questioned.

Data from reputable private (independent) forecasting groups suggest that instead of a government source of about 6.8% to 7% range in China GDP growth this year, the real numbers might be closer to 5%. — and in the worse case assumption by a few news observers as low as 2%.

These numbers are way below the heady days of near 14% growth that fueled the Chinese market demand commodities during the boom years.

Bloomberg reported that a private estimate of Chinese manufacturing fell to the lowest level in more than six years… The preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics was at 47.1 for August. Numbers below 50 indicate contraction.

============ Markets around the world are reacting in the midst of Chinese economic uncertainty. The U.S. Stock markets were down significantly the past two days. And as just one other metric, the measured slump in the South African stock market and the rand currency as seen the lowest level this week in almost 14 years.

This market uncertainty is going to affect a lot of proposed railway freight projects around the world.

Within 48 hours of this type of alert news reporting on China’s manufacturing slowdown, the US stock market fell by another 3.2% on Friday the 21st (~530 points).

A coincidence?

Courts and government finally okay. But no one seems to be buying the Goa iron-ore

Often, by the time governments, courts, and investors get ready to sell off assets or commodities in a dispute, as in India, the markets are not buying. Without willing buyers, there is “no sale”

This example is from India. While iron-ore mining in the western Indian province of Goa is now finally poised to resume mining within a month, there are no takers for the raw material. That is code meaning “no buyers”.

The result is more stockpiling of the old inventories and a space crunch for any new mine production that the government and courts say can now go ahead.

According to a Goa government official, of the total 15-million tonnes of old iron-ore fines inventory occupying stockyards and India ports, only six-million tonnes have been liquidated AFTER SEVEN ROUNDS of AUCTIONS to sell it. The government is still pushing hard to auction another one-million tonnes of iron-ore before mining operations up country can resume next month.

Citing an example, an official said that as the seventh round of auctions concluded last week, only 50,000 metric tonnes was sold against an offer of one-million tonnes. Under the circumstances, the government is facing an uphill task in liquidating nine-million tonnes of old stocks and the department of mines can do very little to make space for new mined iron ore that will arrive soon. The resumption of mining in Goa was expected to be led by Vedanta Resources, which was readying to get production from its Codli mines under way, starting around mid-October.

To read more; go to http://www.miningweekly.com/article/lack-of-takers-for-goa-iron-ore-clogs-all-stockyards-2015 Sent from my iPad

Bloomberg Commodities Index hits a year 2002 low

The Bloomberg Commodity Index, a basket of 22 raw materials including crude and gold is trading at a 2002 low.

It has slumped 14 percent this year.

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

Clearly more bad news for global rail to port new projects.

Sent from my iPhone

How To Get The Best Scrap Metal Prices // Tips from Scrap Metal Junkie

There is a great deal of price variance when you abandon rail track and want to determine the salvage value as relay materials and / or as scrap materials.

This on line report gives you an idea of that market price volatility.

By playing the market, a seller of rail scrap can get a considerably higher price then just the base line estimate.  Here are some valuable economic lessons from published sources.

What Determines Scrap Metal Prices?

Scrap Metal Prices are a function of multiple market factors. These include, metal type, location, quantity of scrap metal, and the current market sometimes daily changing value for your materials.  In other words, the price you get paid by a scrap yard will depend on precisely what materials you are selling, where you are selling (what side of town, which side of the world, etc), how much scrap metal you are selling (pounds vs tons versus hundreds of tons), and how much the material is worth in the daily changing market at the “spot price”.

Scrap Metal Type:

Scrap metal is broken down into many different types of categories. For example, Copper, Lead, and Stainless Steel are all types of scrap metals that can be sold at a scrap yard, and each of these metals can get further subcategorized into copper wire, lead wheel weighs, or 18-10 grade stainless steel, for example. What is often not obvious to a railroader is that prices are volatile.

Also, a grade can be judged differently by different buyer at the same time. For example, what one scrap yard considers as bare bright scrap copper, or Rail #1 will at another competing scrap yard be considered as copper #1 or Rail #2. Keep this in mind when shopping around for better prices, because the last thing you the seller want is a quote for your materials that might be as much as ~40% reduction in price versus another competing buyer says the scrap metal junker.

Geographical location:

Without making too many generalizations, sellers can assume that scrap metal prices will always be highest in areas where there is the most competition. This means rural areas, areas far away from refineries, areas too far inland, etc will rarely have better pricing then those places where scrap yards can both fight for customers and haggle with refineries or steel plants. Keep this in mind when searching for the best scrap yard.

“Spending 1 more hour round trip and an extra $15 in gas to get to a further scrap yard may make you an additional 15% at the pay out window!”

In a similar competitive action, some sellers are actively selling their scrap metal on eBay!

Quantity of Scrap Metal:

On the surface, it is a simple concept; the more metal volume you have, the more it is worth. But further exploration shows that volume packaging is a tool which can be used to your advantage.

Current Spot Metal Prices:

These would be the prices that newly refined ore and scrap is being sold for. In some markets, steel scrap competes with billets. In general, the more money a steel mill can refine the scrap at because of higher finished steel prices, the more market leverage you the seller have at selling your scrap. This will not always be the case, but it could be. This means that the process to use often is estimating your scrap on hand value is to follow the pattern of changing spot price.

How To Negotiate the Best Scrap Metal Prices?

The easiest way to improve the market value of your scrap metal will be to somehow manipulate any of the 4 different parameters that scrap metal prices depend on to your advantage. Here are three simple techniques to getting better pricing, ordered from easiest to hardest; You will need to use all three to get the absolute best pricing!

Play the quantity: Every scrapper has encountered this scenario: You call up the scrap yard to check on the price of a certain type of metal; their first and only question “How much do you have?” When you buy/sell in bulk, you get better pricing, and the scrap yard is no exception. Try this on for size: instead of selling brass by the bucketful, try the barrel-full! Save up a 55 gallon barrel of brass (it doesn’t need to be full). A semi-full barrel of brass should weigh 1/4 ton – 3/4 ton depending on what type of brass components are in it. Same process works for steel rail scrap materials.

When you call up the scrap yard to ask what they pay for brass, they will be much more receptive to your price requests if they know you will be bringing in a 1/2 ton of brass, and hopefully will be happy to offer you 10% more than what they normally would!  This mentality can be applied to all metals.

Save up your shred metal and sell it by the trailer-full, or even dumpster-full! Or the train load.

Play the market: All things being equal, scrap metal prices will drop slightly in the summer and increase slightly in the winter. This is especially true in areas that have very cold winters that impede recyclers and scrappers from collecting and salvaging. Use this to your advantage! WARNING: this only works in scrap markets where there is not much volatility, meaning the price is not constantly jumping and falling without reason.

Play the scrap yards: Every scrap yard is willing to compete for your business, especially if your business is consistent! (Especially if you are scrapping full time!) It all dependents on how much material you are bringing in, and how consistently you are bringing it in. Start off by becoming a steady customer at a scrap yard that has proven itself to be of a high-caliber. This is the key! The better the scrap yard, the better they treat their customers.

Be sure to introduce yourself to the owner, and always save your scrap yard price tickets! ALL OF THEM! Total up how much metal you bring in per week, per month, per year, etc, and how much material that is for them. Use that as business intelligence to guide your price negotiations.

One way to be aggressive in getting the best price offer is to understand that sellers that bring their business to the scrap yard precut to scrap class measurements can receive a better price.

// If you have any questions about getting better scrap metal prices, or if your scrap metal prices are “fair,” there are experts you can turn to or you can register for a metal recycling forum.

Read more at: > http://www.scrapmetaljunkie.com/993/best-scrap-metal-prices

There are other examples of pricing rail scrap. Interested readers can review more about price of old rail materials by reviewing ICC abandonment cases, rail line subsidy negotiation hearings at the ICC or the STB, or by viewing net liquidation estimates occasionally published by Woodside Consulting or R L Banks as railroad experts.

You can also scan my rail blog to see examples of the trends in the street prices of scrap steel. Scrap steel that might have earned between $350 and $450 a ton in the past four years is now in the price range of $220 to $270.  Hanging onto scrap for a long term price rise in this case could have cost a seller as much as ~ 42% to ~51%.

Examples of how quickly prices like scrap steel can change in a rail project like an abandonment or a subsidized line service asset valuation

It is important to consider market realities when undertaking net liquidation or rail track materials and other rail project economic assessments under ICC/STB regulatory procedures for railways.

Market prices can swing dramatically.  15% range within a week’s time as shown in one exhibit and extreme ranges of 70% monthly.  These are not theories.  These are actual market force occurrences.

The two attached exhibits identify price of materials and scrap changes over two different time periods using two different data sources.  The URL for the sources are noted if you  care to check for more information.

Collecting railroad materials and holding onto them for long term value change and higher price sales can be risky.  Timing of sales for scrap or for possible but limited relay use is an art form.  It may require hedging.

Steel scrap collected in the period after the global recession of 2007-09 and held for higher prices is now in mid year 2015 worth a lot less per ton (or metric ton).

These prices swings are important to railway asset managers from the US to South Africa. — and from Brazil to Mongolia.  The market for scrap rail is global and highly influenced by the risks and opportunities today in the China steel market.

Scrap rails and rail materials along with all forms of scrap steel are also seeing price competition from the sale of unused steel billets that are worth more than the miscellaneous scrap.  When the price ranges are close, the demand for scrap declines.

 

Examples of price volatility in real steel markets j Blaze

Market Timing & Price Volatility of Scrap against

The emerging nation financing organization have been unrealistic in their economic loan assumptions? // True or False?

A Bloomberg report shows that the organizations that finance these huge emerging nation loans have badly miscalculated the economic prospects.

Unrealistic due diligence is a part of the reasons for failures like with Greece.

The organizations that finance should have relied on others for growth projections.

Having the people that write the loan checks make the assumptions is probably a bad idea.

Lesson learned is that they need a Plan B due diligence approach.

What do you think?

For example, in 2010, as Greece signed a bailout deal with the International Monetary Fund, who projected ability to pay and how.  Many of these forecasts of supporting loan growth and the future ability to repay were made by the IMF and the European Commission.

Reports suggest that the projections assumed such things as Greece’s debt-to-GDP ratio would peak below 150 percent of gross domestic product in 2012. Their forecasts also projected that Greek GDP in 2015 would be 8 percent larger than in 2011. T

his optimistic vision of the future was based on underlying assumptions that Greece would go from having the lowest productivity growth in the euro zone to instead having an improvement to becoming among the highest. That means becoming relatively as strong in some metrics as the productivity of Germany!

That’s incredible. Greece probably never had a chance.

Are the new 2015 assumptions going forward any better? Are the same rosy colored economic improvement forecast being made for loans elsewhere from Mongolia to Africa?

To read the entire article, go to http://bloom.bg/1gnRs2x Sent from the Bloomberg iPhone application. Download the free application at http://itunes.apple.com/us/app/bloomberg/id281941097?mt=8

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..