MARKET REPORT
SHORT READ PART 2
2022 JULY QUARTERLY ISSUE
Written by : Andrew Sia
At this time the world has more problems that it can handle and all the troubles started from the Covid-19 in 2020. We are in our second year now and it has caused disruption with our supply chain as lockdowns of different countries have cut off the supply we have built over the years through the globalization.
This year we have seen the war started by Russia on its neighbor Ukraine has created the global geopolitical tensions. It further created disruption on supply of the energy, mineral supplies and agricultural products.
On one hand we have the global pandemic, and on the other hand we have concerns over the war in the northern part of Europe which can extend over Europe and may even expand over Asia.
The world has entered into a period of the Great Uncertainty.
Contents:
The Bitter Grief of Sri Lanka
Demand for Cobalt
Challenge for Wheat Harvest at This Time
Finland and Sweden Are Pushed to Join the NATO
New York City is Facing its Fifth Wave of Covid
World Economic Forum in Davos During Week of May 22, 2022
QUAD Leaders Meeting in Tokyo 2022 on May 24
President Biden’s Dilemma
Postwar Reconstruction of Ukraine
Finland’s Move to Join NATO
The Bitter Grief of Sri Lanka – New York Times, May 18, 2022
Ranil Wickremesingh took the role as country’s prime minister only last week. It is the sixth time to become the prime minister for the country and this time he is 73 years old. Mahinha Rajapaksa resigned on May 9, with he and the family members were whisked to a naval base as the mobs tried to storm his official residence.
The country is out of fuel and “No Petrol” signs were put up at the gas stations. Even the gas has been out and that leaves the nationwide population trying to prepare the meals for the families.
The new prime minister, Ranil, revealed to the people as economic crisis which is even worse they can imagine. He went on the national TV and told them the country has not even $5 million to import gasoline. The tankers remain anchored offshore and make the gasoline out of reach to Sri Lanka.
It was already years that warnings of the ruling Rajapaksa family was mismanaging the country. It has now brought the country’s economy to collapse. The country had kept on borrowing to feed a bloated system—a large military, an ego-driven leadership with huge construction projects without any economic logic.
After many weeks of protests, all the Rajapaksa family members were ousted from the government. It took Gotabaya Rajapaksa, the president, and his brother Mahinda Rajapaksa, the prime minister to fled to the safety inside the naval base.
During Easter of 2019 home-grown Islamists who took over three churches and three luxury hotels ended up with the terrorist attacks on Easter resulted 250 deaths. It wiped out the tourism business from arrivals of 244,000 per month to 38,000 the month after. Tourism is a big source of foreign exchange and since then the country was trying to rebuild it. The pandemic followed during the end of the year wiped out all hopes for the recovery.
Gotabaya Rajapaksa was known for an iron-fisted approach for security. He was head of the ministry of defense a decade ago and he has brought an end to a 26-year year of civil war. He became president from 2005 to 2015 and brought in his elder brother, Mahinda Rajapaksa, as prime minister. He took control over the appointment of ministers, judges and the heads of various nominally independent commissions, and many of the top jobs went to the family member.
Series of mistakes in running the country and concealed them from the public, Rajapaksa pretended that things were under control. The defend of the rupee and service the country’s foreign debts which run at 44% of the country’s GDP, they have exhausted the foreign reserves.
They put on a ban of the imported fertilizers and dressed it up as a boost to organic farming. The crop yield plunged and brought the export of agricultural products down.
The latest war in Ukraine pushing up the prices of imported oil and food, with the dwindling of the foreign exchange, the country has to fact the discontent of its own people. Also at this time Gotabaya Rajapaksa has no longer the credibility to negotiate with the IMF for fresh loan. With its foreign reserve of $50 million, it is too little to cover even a day’s imports. We have to remember that it was $7.5 billion in 2019, and today Sri Lanka can’t ever service its foreign debts, the country is totally broke.
The new prime minister, Ranil Wickremesingh, is sitting on the hot seat. He is asking help from allied countries, seeking funds from IMF, but everything can be months away.
Ranil Wickremesingh brought the bad news to the people on the second day of the Buddhist Vesak festival, and this time it has dimmed the festival and the country has found itself in turmoil.
Demand for Cobalt
Almost three-quarters of the world’s mined cobalt supply are coming from the Democratic Republic of Congo, and the production is dominated by Chinese companies and London-based Glencore. The Cobalt Institute shows that the DRC produced 118,000 tons of cobalt in 2021, and the next largest miner from Australia, at 5,600 tons.
Electric vehicles already overtook smartphones and personal computers for the first time in 2021 as the main source of demand for cobalt which is a rare metal used in lithium-ion batteries.
EV consumed 59,000 tons of cobalt in 2021, or 34% of the demand because of the sales of electric and hybrid-vehicles doubled. The mobile phone industry consumed 26,000 tons and 16,000 tons from laptops and tablets.
The total demand for cobalt was 175,000 tons but the mining was able to supply only 160,000 tons. This will create the biggest challenge facing the motor industry as more EVs are made, the potential supply crunches for crucial battery metals—cobalt, lithium and nickel, will happen.
It is already said that by 2026, half of the cobalt production will be taken by the car industry. Currently the world’s largest EV market, China, is using a low-cost lithium-iron phosphate battery and has an inferior range and performance. But the top models in the U.S. and Europe are still dominated by nickel-cobalt chemistries, and this kind of battery is accounted for three-quarters of global EV demand in 2021.
Cobalt Institute sees demand hitting 320,000 tons in the next five years, up from 175,000 tons in 2021 which is almost the double.
Elon Musk also announced that Tesla has targeted to produce 20 million vehicles from the current one million. He is also talking about acquiring a cobalt mine to supply his need. He is creating another controversy according to my observation.
Challenges for Wheat’s Harvest at This Time – New York Times, May 12, 2022
Food security is a paramount focus in according to Xi Jinping. He had called for high alert already in March this year because of the severe weather condition. Not to forget the wheat was a trade issue with the United States during the Trump administration.
In last winter we saw the damage caused by the torrential rains have created uneven growth of wheat crops in China. Its winter wheat harvest next month will be crucial in a world economy that is already struggling with high commodity prices particularly in regions that are depending from crops from Ukraine and Russia. If the harvest is bad this time, it would drive up the food price and would further bring poverty and hunger to the under-developed countries in the world.
So that you know, Russia was accounted for world’s 13.1% of total wheat exports and Ukraine for 8.5%. These two countries are at war and already the price for wheat has been going up nearly 80% since July.
At the beginning of the invasion of Russia, it blockaded Ukraine seaports, one of the most important port is the Odessa in Black Sea, and this disrupted its supply. The United Nations World Food Program called for immediate reopen of Ukraine ports to facilitate shipment.
Energy prices have increased and prompting many fertilizer producers to slow down their production can cause the price increase. Many farmers are forced to use less and this immediate affect the harvests.
With the poor weather, the World Food Program already warned that 44 million people around the world would face starvation.
China was hit by heavy rain which drenched the field and resulted the wheat not to be able to grow their roots. The lockdown of the Covid delayed the arrival of fertilizer. According to China, its harvest would be the worst on record due to the torrential rain in last fall. But the western experts analyzing satellite photos have commented that the harvest of the wheat crop would be 3% smaller than last year.
It further commented that China’s nervousness is stockpiling would create panic through the global supply chain. With the world’s largest foreign currency reserves, China has the ability to buy all its needs from the world market and would push the price of wheat even higher. This would make the poorer countries unaffordable.
Other wheat growing countries like the United States, the drought has hurt the crops in the southern Great Plains. The United States was accounted for 13.1% of the world’s total wheat exports.
In India it has been scorching hot this spring. India is responsible of 3.1% of the world’s total wheat exports.
Those East African countries, such as Somalia, Kenya and Ethiopia, have been heavily depending on Russia and Ukraine for the bulk of their wheat imports. They are suffering this time.
Banning Russia from its export of wheat is not such a brilliant idea at this time due to the war and the weather.
Finland and Sweden Are Pushed to Join the NATO
The invasion of Russia into its neighboring country Ukraine has triggered the Nordic countries—Finland and Sweden to join the NATO. It is expected that their applications will go ahead smoothly in spite of Turkish concerns.
Turkey’s president, Erdogan, pronounced Sweden and Finland as “incubators” for terrorist groups. His grievance was Sweden’s failure to crackdown on members of the Kurdistan Workers’ Party (PKK) that fought the Turkish state since the 1980s. The group is classified as a terrorist organization by Turkey and Sweden, together with the EU and the U.S.
President Erdogan has been known as the unpredictable president who is struggling lately with a troubled economy and his reelection is due before June 2023. He has a record of playing hardball with the west.
Erdogan sees Sweden as the main problem and wants Sweden to lift the arms embargoes that together with the west imposed in 2019 when he ordered his military to attack PPK in Syria. Erdogan has been pressing for the extradite 30 people accused of terrorism charges in Turkey.
Finland is a Nordic country in Northern Europe. It shares land borders with Sweden to its northwest, Norway to the north and Russia to the east. The border length with Russia is 830 miles long. It has a population of 5.5 million.
The following was a comic drawn on the Russia Victory Day Parade on May 9, 2022. My interpretation was that the Russians have lost a lot of tanks and armor vehicles and the use of the hearses could have been another alternative.
New York City is Facing its Fifth Wave of Covid
The warning is out. Rising cases and hospitalization have been counted. The city is on “high covid alert”. The covid was at first driven by the BA.2 subvariant Omicron. But now a new variant, BA.2.12.1 which is more transmissible than its predecessor and made up roughly 73% of the new cases across New York, New Jersey and Puerto Rico as of mid-May.
We are seeing more than 4,000 cases a day, but these official figures undercount those people who have taken the at-home tests. Otherwise the numbers can become many times higher.
With the tests that are widely available, and the organized system for distributing the antivirals, we have also found a lot of people in New York are wearing facemasks.
Mayor Eric Adams will not introduce new restrictions unless the hospital system is in danger of overwhelmed.
Broadway theatres have extended mask policy for audiences until June 30.
World Economic Forum in Davos During Week of May 22, 2022
One of the accusations of the war in Ukraine was brought out by crises in food, fuel and finance worsened the situation in the poorer countries into financial default. These three interrelated crises came into the meeting of the World Economic Forum in Davos making it one of the gloomier annual gatherings in its fifty years. This year it was held from Sunday, May 22 to Thursday, May 26.
Already high inflation and interest rate can push 70 countries into default, and Sri Lanka is the first Asian victim who has defaulted on its debt. This is driving the country into collapse as the protestors have turned violent.
Egypt, the world’s largest wheat importer is facing the shortage of wheat and the high price due to the shipment from Ukraine is blocked in its Black Sea ports.
Not only wheat, but also corn, soybeans and oil have all reach their record high prices. For instance, wheat price surged more than 50% this year at close to $12 a bushel. Corn and soybeans have risen at 32% and 26% respectively. Benchmark Brent crude prices have climbed 46% to $114 per barrel. This has led the prices of gasoline, diesel to its record high. Its natural-gas prices have more than double.
Inflation pushed the interest rates of the central banks in both the U.S. and Europe that are hurting the low-income families.
At this time Russia is still bombarding grain warehouse in Ukraine, blockading Ukraine’s shipment fully loaded with wheat and sunflower seeds. The shipments for the fertilizer are blocked from Russia and Belarus as well. All these have intensified the crisis and Russia is using this as its weapon but it has openly dismissed calls for an agreement to ease the situation which can also ease its export of commodities.
Ukraine official said 4,600 civilians found dead in the war and an additional 2,500-3,000 soldiers since the war started in February 24.
QUAD Leaders Meeting in Tokyo 2022 on May 24
At the summit a launch of new initiative for continuous collaboration in the maritime domain, space, climate change, health and cyber security. The summit was attended by Australian Prime Minister Anthony Albanese, U.S. President Joe Biden, India Prime Minister Narendra Modi and Japan Prime Minister Fumio Kishida.
This summit was looking to put China on notice on its expansion in its military and economic influence in the region. And on May 23, Monday, Biden said in Washington that the U.S. would be ready to intervene military to defend Taiwan if China would start its invade into Taiwan.
Earlier on it was found that China has built ties with Solomon Islands, one of the Pacific nations, and other island nations including Vanuatu, Samoa, Tonga and Kiribati were mentioned.
Quad is looking to provide more support with countries in the region including aid to deepen the defense and maritime cooperation.
Japan’s Ministry of Defense reported on May 24 that six Chinese and Russian strategic bombers flew near Japan, which was an apparent bid to warn against the Quad summit. Fighter aircraft of the Japan Air Self-Defense Force scrambled in response to the flight and no aircraft violate Japanese airspace.
This exercise had shown that Russia would stand with China in the East and South China Sea and China’s support earlier on for Russia’s invasion in Ukraine.
President Biden’s Dilemma
Biden, the U.S. president was about to put NATO together, Europe together and the whole Western alliance together. He was capable of stretching from Finland, across to Canada and to Japan. He was holding the QUAD summit and met the counterparts from Japan, Australia and India the other day.
But he admitted that at home he may not be able to reunite America.
With the election which is coming in November, I hope that we can see the two political parties, Democrats and Republicans can see things eye-to-eye.
I don’t see and hope that he will seek for the reelection as by then he will be 82 by then. We pray that for both parties we will have younger candidates who can lead the congress, the senates an eventually be the new president for the U.S. 2025.
Postwar Reconstruction of Ukraine
To talk about the rebuilding Ukraine might seem premature given the ongoing fighting across large part of the country. Indeed, the top priority for Ukraine is to get the countries who are on her side to supply with weapons, humanitarian aid and to fund the financial gap that is estimated at $1 billion a month.
Ukrainian economists have started to draw up the list of damages caused by Russian’s invasion, which unfortunately is still ongoing. Calculations of total losses, including growth, investment and economic potential, comes to something between $500 and $600 billion.
The country’s president, Volodymyr Zelensky, went to a meeting in Warsaw in the first week of May and pleaded to the donors conference. Knowing that the funding would be massive, he mentioned about a modern analog to the Marshall Plan which technology, specialists and growth opportunities should be called upon. At the meeting Zelensky also mentioned about becoming the EU membership. This is the part very controversial within the EU members.
The reconstruction is immensely complex and it is already known that hundred billions of dollars would involve, but it will go far more beyond simply rebuilding bridges and municipal buildings, the country would need to enter into reform. How the Ukrainian states can free themselves from the corruption of the oligarchs, and form a genuinely close relationship with the EU have yet to see their willingness. In another word, the fighting against corruption and align Ukraine with European Union’s legal standards.
The U.S. has always stood out for the support as promised. A package of $33 billion has been asked from the Congress, and this is on top of the $14 billion that was approved last month. Officials in Brussels are already discussing ways of raising funds that would exceed the amount from the U.S.
Von der Leyen, President of the 7th Commission of the European Union, brought out the €800 billion NextGenerationEu borrowing program which was created to help recover from the pandemic, would be used as relief to Ukraine.
The EU and its allies are also actively looking at how to make Russia to contribute to remedy the damage the invasion has created. The U.S. and EU are finding angles of seeing Russian assets to pay.
Hopefully that this time corruption in Ukraine can be ceased, and democracy can bring favorable competition and growth for a country that was once rich in agricultures and natural resources.
Not to forget that in 1946 Poland lost a total of 84% for the buildings and 72% of homes. It was a huge undertaking to rebuild, and for those who went back to pick up their lived and moved forward again.
Finland’s Move to Join NATO
For decades, Finland and its nonalignment-defense policy and this time the deal is a blow to Russian President Vladimir Putin’s ambition to divide and weaken the Western alliance. It must have been uneasy for Norway to share the border of 830 miles long with Russia. And this time the war with Ukraine, whom Russia would have expected to be over in three/four days, has been dragged more than three months. It has also made Finland and Sweden, for decades been the two major Nordic holdouts among Western nations outside the NATO alliance.
The two countries have come to the agreement that NATO membership would strengthen their countries’ security.
- NATO began in 1949 with 12 countries as its founding, namely, Belgium, Canada, Denmark, France, Iceland, Italy, Luxembourg, the Netherlands, Norway, Portugal, the United Kingdom, and the United States.
- Additional nations, Greece, and Turkey, joined in 1952.
- West Germany joined in 1955., and Spain in 1982.
- Three former Warsaw Pact countries, Hungary, the Czech Republic and Poland joined in 1999.
- Seven countries within the Vilnius Group—Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia joined in 2004.
- The remaining three countries from the Vilnius Group—Albania and Croatia in 2009, and North Macedonia in 2020.
- Montenegro joined in 2017.
This made the total of 30 states in the NATO today, out of these states, 14 of them joined after the end of the Cold War.
Both Finland and Sweden already have advanced militaries, well-trained forces and developed arm industries.
Finland meets NATO’s target to spend 2% of its GDP on defense, and has Europe’s largest artillery force with about 1,500 pieces.
Sweden has plan to raise its spending on defense. It is one of the few countries in the world who produces advanced fighter planes and submarines.
Their decisions have caught Russia by surprise and its wrong intelligence gave Kremlin that the war with Ukraine would not take too long as its armies are corrupted.