David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Extreme pollution forces China to shut down hundreds of coal, steel operations

    This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section:

    The country’s state planner said that after inspecting more than 4,600 coal mines it decided to revoke safety certificates for 28 of them and shut another 286 operations for not complying with environmental and safety regulations.

    The National Development and Reform Commission (NDRC) also ordered two steel firms to close permanently, 29 companies to suspend output and another 23 to reduce production, it said in the statement.

    China will also set up a no-coal zone in cities around Beijing in 2017 to try reducing the capital's hazardous smog levels. As an additional measure, the government will ban factories and households in 18 districts and towns of the Hebei province from both burning coal and building new power generators powered by petroleum coke, Xinhua News Agency reported.

    A study by Chinese and American researchers published last month blamed burning coal as the cause of premature death for about 366,000 people in 2013.


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    "One Belt, One Road"- An Economic Roadmap

    Thanks to a subscriber for this report from the Economist Intelligence Unit focusing on Africa which may be of interest. Here is a section:

    According to the World Bank’s Private Participation in Infrastructure Projects Database and InfraPPP, Kenya and Tanzania have awarded 12 PPP infrastructure projects since 2011. These represent investments of more than US$1.3bn (see Africa table 1). All projects relate to electricity generation, mobile-phone networks and roadway construction. As the power networks of the African countries individually profiled in this report still demonstrate high infrastructure risk with their domestic power networks, demand for continued energy sector enhancements is likely to persist until more such projects come online. 

    Among projects in various stages of pre-development with confirmed investment values, the largest directly concerning any of the African countries profiled here is the US$7.6bn Dar es Salaam-Rwanda-Burundi Railway, which involves Tanzania (see Africa table 2). For single country projects, Zimbabwe’s US$2.3bn Southern Energy Power Project is being planned around multiple financial contributors including US$1.3bn in debt and US$105m in equity from Chinese sources. Officials in Kenya at present are seeking to address their country’s deficiencies in transportation and energy with two big-ticket projects. The first and most prominent is the US$2.3bn extension of the Standard Gauge Railway connecting the capital, Nairobi, to Malaba, on the border with Uganda, and Kisumu, on the edge of Lake Victoria. The other is a US$2.2bn, 1 gigawatt solar energy programme. Dar es Salaam, Tanzania’s commercial capital, will further benefit from US$2bn in transportation improvements going towards the city’s bus system 

    Another 57 identified infrastructure projects are at stages of pre-development or partial completion. Most (nearly 90%) target transportation, water and waste, social and health, energy and telecom needs in Kenya. Tanzania’s projects mainly target port facilities in Dar es Salaam and other commercial centres.


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    In U-Turn, Saudis Choose Higher Prices Over Free Oil Markets

    Here is a section of this topical article from Bloomberg:

    Saudi Arabia has ended its flirtation with free oil markets.

    It took the kingdom’s new oil minister, Khalid Al-Falih, just six months to blink, ending the country’s two-year policy of pump-at-will. 

    The decision at this week’s meeting of the Organization of Petroleum Exporting Countries in Algiers to cut production was necessitated by Saudi Arabia’s tattered finances. The kingdom has the highest budget deficit among the world’s 20 biggest economies, may delay its first international bond issue and now faces fresh legal uncertainty after the U.S. Congress voted Wednesday to allow Americans to sue the country for its involvement in 9/11.

    The decision at this week’s meeting of the Organization of Petroleum Exporting Countries in Algiers to cut production was necessitated by Saudi Arabia’s tattered finances. The kingdom has the highest budget deficit among the world’s 20 biggest economies, may delay its first international bond issue and now faces fresh legal uncertainty after the U.S. Congress voted Wednesday to allow Americans to sue the country for its involvement in 9/11.


    For all the justifications, the last two years haven’t panned out as Riyadh thought they would. At home, the kingdom has burned through more than $150 billion of foreign-exchange reserves, government contractors have gone unpaid, and this week the king announced unprecedented pay cuts for civil servants.

    Saudi Arabia will suffer a fiscal deficit equal to 13.5 percent of gross domestic product this year, the International Monetary Fund estimates. When it comes to economic growth, Saudi Arabia is slowing sharply to about 1 percent this year while Iran, its nearby rival, is accelerating toward 4 percent.

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    The Era of Robots: Thousands of Builders to Lose Jobs as Machines Take Over, Says Construction Boss.

    Skyscrapers in the City of London could soon be built by robots rather than by people, according to the boss of one of the UK’s biggest construction firms.

    The result would be huge productivity gains as more work could be done by fewer people – but also mass layoffs as traditionally labour-intensive construction projects hire fewer and fewer staff.

    “We’re moving into the era of the robots,” said Alison Carnwath, the chairman of Land Securities, the £8.2bn FTSE 100 construction company.

    Speaking at the Institute of Directors’ annual convention, the veteran businesswoman said the pace of technological change has taken her by surprise.

    “Five years ago I’d have smiled wryly if somebody had said to me that robots would be able to put up buildings in the City of London – I tell you we’re not that far off, and that has huge implications,” she said.

    The adoption of robotics and other new technologies could give parts of the economy a radical boost, as economists and politicians have sought ways to boost productivity, which is key to increasing wages and prosperity.

    Those improvements in living standards may not be distributed evenly, however, as redundant building workers may struggle to find work elsewhere.

    “Businesses are focusing on [productivity], they want to reengineer how their people can work, they recognise that technology is upon us and is going to destroy thousands of jobs,” said Ms Carnwath, who has been on Land Securities’ board since 2004 and has been chairman since 2008.

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    Goodbye EU, Goodbye Austerity Britain

    The era of so-called austerity economics was characterised by modest increases in overall public spending, some unpleasant individual cuts to welfare and huge increases in tax revenues. The rise and rise of our gross and net contributions to the EU aggravated the balance of payments deficit and forced us to borrow more money to meet the demands of Brussels. The sooner we are out of the EU, the sooner we can cancel the contributions. The need for large tax revenues sometimes encouraged the imposition of high taxes that damaged growth and hit jobs. Sometimes raising the rates acutely reduced the tax take. Higher stamp duties hit the property market, while income tax from the rich went up when the rate was brought down a bit.

    Leaving the EU is a sovereign decision by a newly sovereign people. It is not something to negotiate with Germany. Offer to continue tariff-free trade, send them the letter and then leave. It should not take two years and does not need to. The rest of the EU are likely to want to carry on with tariff-free trade as they have more to lose from tariffs than us. All services are tariff-free whatever happens, under world rules.

    Of course, after we leave we need to continue payments to farmers, universities and others who did get a bit of our EU money back, though most of it did not come home. We can now spend it on our own priorities. But we should not simply use the savings to cut the deficit. We need to get that down by promoting growth. Growth slashes the gap between spending and tax revenues by cutting the need for benefit top-ups as people get jobs and pay rises while boosting the tax revenues as people earn and spend more.

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    American Exposure to the European Financial Crisis

    Thanks to a subscriber for this report from Geopolitical Futures which may be of interest to subscribers. Here is a section:

    The locus of the 2008 financial crisis was in the United States, and rapid decision making was possible, even if the decisions made were controversial—then and now. The locus of the crisis we are describing will be in Europe, and the greater American exposure to Europe, the greater American pressure will be on Europe to act decisively. Since Europe seems incapable of rapid decision making, this could create a collision with the United States. 

    Ultimately, the US is not appreciably exposed directly to the Italian banking crisis. However, the US is deeply exposed to other major Western European countries, particularly France and Germany. The Italian crisis will have deep ramifications, especially for these two countries, and that in turn means that, indirectly, the US economy will feel significant effects from the overall crisis. Looming over it all is the question of derivatives, a question that is all the more ominous because its answer is ambiguous at best. Indirect evidence suggests that this is worse than what the official numbers say, but not so severe as to put the US directly in the path of the coming storm.

    In our view, the US will be something of an on-looker this time. While the US will certainly feel the effects of a deeper crisis in Europe, European uncertainty in its response will not create a subsequent political crisis between the US and the EU. Still, the possibility should be borne in mind, depending in large part on how hard the American financial system is hit. Even minor pain and anxiety could cause the US to find the European approach intolerable. Financial crises of this magnitude are not solved by markets but by political systems, which are sensitive to these crises in very different ways than the financial system. 


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    Beyond Algiers

    Thanks to a subscriber for this report from Goldman Sachs which was issued on the 27th, ahead of the OPEC meeting. Here is a section: 

    Nonetheless, our 4Q16 oil supply-demand balance is weaker than previously expected given upside surprises to 3Q production and greater clarity on new project delivery into year-end. This leaves us expecting a global surplus of 400 kb/d in 4Q16 vs. a 300 kb/d draw previously. Importantly, this forecast only assumes a limited additional increase in Libya/Nigeria production of 90 kb/d vs. current estimated output. As a result, we are lowering our 4Q16 forecast to $43/bbl from $50/bbl previously. While a potential deal could support prices in the short term, we find that the potential for less disruptions and still relatively high net long speculative positioning leave risks skewed to the downside into year-end. Importantly, given the uncertainty on forward supply-demand balances, we reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals.

    Despite a weaker 4Q16, our 2017 outlook is unchanged with demand and supply projected to remain in balance. We expect demand growth to remain resilient while greater than previously expected production declines in US/Mexico/Venezuela/ Brazil/China are offset by greater visibility in the large 2017 new project ramp up in Canada/Russia/Kazakhstan/North Sea. While our price forecast remains unchanged at $52/bbl on average for next year with a 1H17 expected trading range of $45- $50/bbl, we continue to view low cost and disrupted supply as determining the path of an eventual price recovery with our forecasts conservative on both. As we wait for headlines from Algiers, it is worth pointing out that Iran, Iraq and Venezuela have each guided over the past month to a 250 kb/d rise in production next year.

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    D-Wave Systems previews 2000-qubit quantum processor

    This press release from D-Wave Systems may be of interest to subscribers. Here is a section:

    “As the only company to have developed and commercialized a scalable quantum computer, we’re continuing our record of rapid increases in the power of our systems, now up to 2000 qubits.  Our growing user base provides real world experience that helps us design features and capabilities that provide quantifiable benefits,” said Jeremy Hilton, senior vice president, Systems at D-Wave. “A good example of this is giving users the ability to tune the quantum algorithm to improve application performance."

    “Our focus is on delivering quantum technology for customers in the real world,” said Vern Brownell, D-Wave’s CEO. “As we scale our processors, we’re adding features and capabilities that give users new ways to solve problems. These new features can enable machine learning applications that we believe are not available on classical systems. We are also developing software tools and training the first generation of quantum programmers, which will push forward the development of practical commercial applications for quantum systems.

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    OPEC Agrees to First Oil Output Cut in Eight Years

    OPEC agreed to a preliminary deal that will cut production for the first time in eight years. Oil prices gained more than 6 percent as Saudi Arabia and Iran surprised traders who expected a continuation of the pump-at-will policy the group adopted in 2014.

    The group agreed to drop production to a range of 32.5 to 33 million barrels per day, said Iran’s Oil Minister Bijan Namdar Zanganeh, following a meeting in Algiers. While some members of OPEC will have to cut output, Iran won’t have to freeze production, he said. Many of the details remain to be worked out and the group won’t decide on targets for each country until its next meeting at the end of November.

    The lower end of the production target equates to a nearly 750,000 barrels-a-day drop from what OPEC said it pumped in August.

    The deal will reverberate beyond the Organization of Petroleum Exporting Countries. It will brighten the prospects for the energy industry, from giants like Exxon Mobil Corp. to small U.S. shale firms, and boost the economies of oil-rich countries such as Russia and Saudi Arabia. For consumers, however, it will mean higher prices at the pump.

    "The cut is clearly bullish," said Mike Wittner, head of oil-market research at Societe Generale SA in New York. "What’s much more important is that the Saudis appear to be returning to a period of market management."

    The agreement also signals a new phase in relations between Saudi Arabia and Iran, which have clashed on oil policy since 2014 and are backing opposite sides in civil wars in Syria and Yemen. The deal indicates that Riyadh and Tehran, with the mediation of Russia, Algeria and Qatar, were able to overcome the differences that sunk another proposal to cap production earlier this year.

    Brent crude surged as much as 6.5 percent to $48.96 a barrel in London. The shares of Exxon Mobil, the world’s largest publicly listed oil company, climbed 4.2 percent, the biggest one-day increase since February.


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