Archive for Railways

One expert sees possible Iron Ore Price drop into $30s range — This Year

From Bloomberg, Jul 8, 2015, 7:00 pm

The iron ore rout isn’t done yet… …”the raw material will extend declines into the $30s a metric ton this year”, according to Andy Xie, an independent economist…

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

Steel demand in China is shrinking while iron ore supplies are still rising, says Xie, a former Asia-Pacific chief economist at Morgan Stanley. “China’s steel production is actually declining, that’s the reality,” Xie said…

“All the high-cost guys have to shut down for this market to stop falling. It’s not going to stabilize because Chinese demand is coming back, that’s not going to happen in the foreseeable future.” —————

This is another bad sign for mine and rail projects on the books to be built to add more ore and met coal supply that won’t be needed for quite a while.

Are you doing your due diligence strategic plan reviews?

Emerging nation curse? Too long to EXECUTE economic growth program loans

Story headline reads: China’s infrastructure for minerals’ deal gets reality – check in DRC Congo.

 

When it was signed in 2007, the China’s $6-billion ‘minerals for infrastructure’ deal in Congo brought hopes of prosperity from export trade. But it did not happen.

Eight years on, as Sicomines prepares to produce its first copper after long delays, the main lesson from the giant project is that investing in one of Africa’s most chaotic countries is a messy and frustrating business, no matter who you are.

Sicomines was meant to have an immediate economic impact. The government claims that the China deal has produced at least $800-million in infrastructure investment. But that is way below the potential.

CHINA AID as Cash for resources

Chinese firms Sinohydro Corp and China Railway Group Limited are building roads and hospitals in exchange for a 68% stake in the Sicomines copper and cobalt mine…

China’s state-run Exim Bank and smaller Chinese banks are coughing up a reported $3-billion for infrastructure plus a further $3-billion to develop Sicomines.

LOANS — not grants

All of the loans are to be repaid with mining profits. HOWEVER, production from the mine has been delayed and targets scaled back. …”the project has underscored the deterrents to investment, from crippling power shortages to asphyxiating bureaucracy and corruption” says Johanna Malm, a researcher at Roskilde University in Denmark and expert on the contract.

The DRC Congo is an impoverished country that ranks 184th of 189 countries on the World Bank’s “Ease of doing business” index, and second from bottom in the UN Human Development Index. The southeastern province of Katanga is the focus of the copper industry. It receives only about half the electric power it needs from the national grid. Therefore, the mine companies need to generate their own power.

Economic cost of the BLOWN OPPORTUNITY

In 2013, the Africa Progress Panel reported that Congo had missed out on at least $1.36-billion in revenues between 2010 and 2012 by selling state mining assets below their value. Add to that the revenue lost because they could not produce and export as planned. Seems to be the definition of an emerging nation curse. ————–

For the full story as written by the author, go to: http://www.miningweekly.com/article/chinas-infrastructure-for-minerals-deal-gets-reality-check-in-drc-2015-07-08

Confused by crude oil by rail tank car choices? Contact STARS for practical solutions

There is a great deal of confusion about the technical choices facing shippers as to what to do with their tank car fleet.

The basic choices are to 1) buy all new tank cars at prices probably north of $130,000 each?  Which means writing off maybe as much as $90,000 in the value of each existing tank car?

Or 2), modify with safety appliances the existing tank cars with perhaps 30 years economic life left on them at a cost upwards of $40,000 each?

The regulators like the FRA and the NTSB or the STB can not help you.  They draft and issue safety rules.  They give you no economic or technical help in making the choice of “how to execute”.

There is, however, a specialized independant company composed of experienced former railway tank car professionals and FRA inspectors that you can turn to for help.

STARS

This Maryland based consultancy called STARS can give you the technical help that regulators can’t.

The company’s formal name is “Specialty Transportation and Regulatory Services”.  The President,Wendy Buckley, and her skilled staff has already found ways to help both crude oil and chemical hazmat shippers execute safety improvements in ways that represent a significant return on investment for their fees.

I have interacted directly with STARS and found their client business cases to be exceptional examples of “value delivered.”

Contact me if you need a specific reference.

Or contact STARS directly at their web site www.STARSConsulting.org.

 

 

 

 

 

BRICS Hail $100 Billion Reserves Pool! Realistic? Or a fools assumption?

The BRICS group of nations represent more than a fifth of the global economy.

The news sources issued by their public relations people are tonight talking up closer financial ties.

They are off to a summit in Russia on the subject.

A grand concept? But who will write the checks?

Most of the BRICS actually qualify for World Bank aid for a reason.

Is the new BRICS institution going to “borrow from Peter to pay Paul, so to speak.

Of Brazil, India, Russia, China, and South Africa, only China may have sufficient “reserves” in these troubled times to send money to the others.

Funding trillions of dollars in global rail and port and highway projects from this group “seems to be a streatch”

What do you think?

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

China domestic steel peaking? Might it result in cancelled rail projects? Or steel dumping?

From Bloomberg, Jul 7, 2015

China’s demand for steel has peaked, if the Japanese experience of the 1970s is anything to go by. That could spur more trade conflicts as the nation ships its excess production overseas.

To read the entire article, go to http://bloom.bg/1HLoZ2R

A few key observations:

The current decline in Chinese steel output may signal that the growth period for the commodity has ended in a country where the pace of economic expansion is slowing.

Risaburo Nezu, a senior research adviser at RIETI, a think-tank linked to Japan’s trade ministry, expects a prolonged slump, with an absence of growth in demand likely for the next 10 or 20 years.

“Once a country attains a certain stage of economic development, demand for steel stops growing,” Nezu said last week in an interview. “China is left with excess capacity that’s said to be 300 million tons to 400 million tons, equivalent to three to four times Japanese output.

If true, there are economic consequences from Brazil to Mongolia and South Africa to Japan. This will impact rail and mine and port greenfield projects around the world. Are planners prepared?

The situation in China “could trigger more cases of trade measures among steel suppliers” to protect earnings, said Yoku Ihara, president of Growth & Value Stock Research.

Bloomberg reports that “Steel demand in China will shrink this year and next in the first annual contractions since 1995 according to the World Steel Association in April.

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

“Globally, supply of steel will exceed demand by 657 million tons in 2016 compared to an estimated gap of 645.8 million tons in 2015, according to an estimate compiled by the OECD.

This threatens a glut of drawing board plans for global mines, ports, and rail projects. Most based on very high China growth of the 2003-2012 period.  Now an obsolete assumption.

Can China finance Eurasia Railway One Belt & One Road Strategic Plan?

The mid year 2015 Chinese stock market fundamentals and the overall Chinese structural debt may put a crimp in this debt financing of proposed rail/road foreign projects.

This cited Journal of Commerce report remains extremely optimistic about China’s willingness to write the necessary big foreign investment checks.

Time will tell. Time is always the acid test of any strategy.

Even if financed, these Chinese sponsored rail projects may not see the first trains until well after my death.

But the maps look “cool”.

See the map and JOC story at http://www.joc.com/international-trade-news/investment-floods-china%E2%80%99s-one-belt-one-road-strategy_20150703.html?mgs1=b66dkpfYOY

Alarming Monday economic stock market news out of China on 6 July 2015

The Greek Sunday austerity vote may be “peanuts” compared to the market news impact out of China.

There is an Interesting graphic comparison by Bloomberg between the historical changes in Wall Street during 1929 and China in 2015. (see the Bloomberg graphic)

Perhaps the Chinese government may be more successful in intervening today then was the limited private game plan during 1929.

Clearly, there does appear to be a significant confidence sell off in today’s market. The parallels look interesting but need to be tested by time in the year to come before we will know. Here are some interesting statistics. The two graphic stock price trends are separated by 86 years and 7,300 miles, but Chinese financiers are turning to the same playbook according to Bloomberg that were used by their American counterparts to fight a crash that’s wiping out stock-market fortunes on an unprecedented scale.

Investors in China are hoping it works out a lot better this time around.

IN 1929|

“When five of America’s most-powerful financiers met at the House of Morgan at 23 Wall Street on Oct. 24, 1929, the immediate impact of their plan to pool resources and prop up the market was encouraging: the panic of Black Thursday gave way to a recovery and the New York Times lauded the bankers for putting a floor under share prices.” “The boost to confidence didn’t last long. The 1929 price rout resumed by the following Monday, with the Dow Jones Industrial Average losing 13 percent.

The gauge would go on to drop another 34 percent over the next three weeks, as the attached chart shows.”

IN 2015

How long will the recent support measures in China last?  The measures might have a fleeting impact according to Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong. A group of 21 Chinese brokerages pledged on Saturday to commit 120 billion yuan ($19.3 billion) to a large-cap stock fund, designed to stabilize shares.

This action plan comes on the heels of a three-week rout in the Shanghai Composite Index — the biggest drop since 1992. The brokerage move coincides with a “flurry of other market-boosting measures including a halt to initial public offerings and regulatory moves to discourage short sellers.

 

IPOs Suspended in China as another intervention game plan

Over the weekend, the China government suspended initial public offerings and the central bank said it would provide liquidity for margin trading.

Stemming the loss pattern? These actions come after the Shanghai Composite has tumbled 29 percent in the past three weeks.

That has already erased a whopping $3.2 trillion of value. Yes, TRILLIONS.

A major concern is that “leveraged traders may be liquidating their previous equity bets”.

“Excluding banks, the Shanghai Composite Index was trading at about 31 times trailing earnings.”

On Wall Street in 1929, it was the great banking houses of J.P. Morgan and Guaranty Trust Company that tried to stem the economic tidal wave.

To read the entire article, go to http://bloom.bg/1fe0PSb

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As you have your Monday morning coffee…

Early July 6th and late July 5th news reports indicate that the Hong Kong Exchanges & Clearing Ltd. Had dropped a noticeable 12 percent as of about 1:30 p.m. That would be its biggest decline since October 2008.

A Double Dip recession? Probably.

The Bloomberg Commodity Index fell as much as 1.8 percent to 100.0574, — the biggest intraday loss since May 26th. This gauge is down 4.1 percent this year in tracking declines of base metals and crops.

The MSCI Emerging Markets Index lost 2.5 percent to 940.52 at 1:35 p.m. in Hong Kong. That has wiping out this year’s 2015 advance.

South Korean shares appeared to be headed for the steepest loss since 2012.

Trading houses like Goldman Sachs Group, JPMorgan, Chase & Co. and Bank of America Corp. appear from news reports to have advised their clients to sell shares on the China perceived rallies.

Most reporting in the USA media seems meanwhile to be focuses on the Greece austerity referendum vote rather than these economic events in China.

Clearly, global resource driven railway projects from Mongolia to South Africa and Senegal to Brazil are now even more threatened as to economic feasibility.

Rail Planners may now need to develop Plan C and drop their earlier small Plan B changes as the global economy undergoes another series of “economic body blows”.

It is possible that the market in China may stabilize. But the trend and economic cycles of history are a cause for investor concern. Markets react poorly to circumstances shown in the above reports.

The six year global struggle to come out of the 2007/2008 recession is clearly not yet over. A further three to six year recovery period may be the pattern out towards 2021. Events and data in the coming six to twelve months should tell us all more.

South Africa’s R600 million train blunder reported by fee press

Suggests poor technical due diligence.

Mongolia premier pledges to end Tavan Tolgoi coal mine & railroad delays

From the Financial Times news report comes this upbeat news from Mongolia.

The headline:

Is this just more public relations political hype? Another “junk” rated bond issue to please voters? Is this necessary? Probably a bad idea. Again.

More long delayed plans for the east-west low margin financial feasibility railroad towards Japan? These sound more like a belief in Santa Clause than a sound strategic recovery for the nation.

I would wish more then this for my many Mongolian friends I have worked with.

The good news is that there is a way to make Mongolians strategic winners” if they pull together on tactics and engineering that are sound best practices.

Cheers!

For the FT report, log onto: http://www.ft.com/intl/cms/s/6e7a241a-20c7-11e5-ab0f-6bb9974f25d0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F6e7a241a-20c7-11e5-ab0f-6bb9974f25d0.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=#axzz3erCpC6bE

Here are a few of the reported public relations statements in the news report. ——- Saikhanbileg Chimed indicated that “Mongolia planned to launch another sovereign bond as the country seeks to get “back to business” following two years of slowing growth in gross domestic product, plummeting foreign direct investment and rating agency downgrades of its junk-rated “Chinggis” bonds.”

“Official approval for investors to start work on the Tavan Tolgoi (TT) coking coal mine in the Gobi desert should follow soon after a review of the investor agreement in parliament this month, Mr Saikhanbileg told the Financial Times in an interview.”

Investors in the project include China’s Shenhua Energy and Japan’s Sumitomo Corp. “TT will be unlocked in the very near future,” he said.

HOWEVER—

“Several members of Mongolia’s parliament have raised objections to financial and legal aspects of the TT investor agreement, raising the possibility that the mine… …could suffer a similar fate to that of Oyu Tolgoi, a $5bn copper mine, where an expansion project was unblocked in May only after two years of wrangling. This year, Mongolia resorted to a mobile phone referendum to shore up public support for the project…

The minister still believes in 220km rail line from the mine into China — delayed now for more than three years.

Mr Saikhanbileg also told the FT reporters that he also believes in a second potential rail project that would run east-west about 1,300km to reach coal markets in Japan and the US, a Mr Saikhanbileg said.

BEWARE:

This E-W rail line is a much higher investment risk according to my due diligence research on Mongolia rail options dating back to 2006.

Investors need to carefully reexamine these projects with updated due diligence.  Mongolia needs a real heavy haul big train design to make their expectations a reality.  That means trashing most of their prior rail designs.

It also means a fresh due diligence review of the feasibility options. In particular, it is a bad idea to depend upon a due diligence feasibility report that is prepared by the builders.  They are not exactly Independant.

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.”