MARKET REPORT
SHORT READ PART 1
2022 OCTOBER QUARTERLY ISSUE
Written by : Andrew Sia
The world is circling on the global economy being held hostage by the invasion of Russia in Europe. This has led to inflation of all kinds—oil, food, and the most threatening is the shortage of natural gas and take for instance Germany is buying more than half of its natural gas from Russia. And for the whole Europe, Russia supplied about 40% of Europe’s natural gas before the war.
It also affected the under developing countries for their repayment of the debts and one by one they have fallen into defaults. This has increased the burden of the IMF and also the World Bank who will be out there to rescue them.
Contents:
The Advancement of 3-D Printing – New York Times, July 4, 2022 (done)
Inflation in Europe is Driven By Energy Prices – New York Times, July 2, 2022 (done)
Labor Market in Europe – FT, July 1, 2022 (done)
Zambia Loan Default Trigger Alert Over China as the Creditor
Global Food Crisis as Triggered by the War in Ukraine
Russia is Financed by China and India While the Western Powers Are Sanctioning
Russia is Using the Nord Stream 1 to Blackmail Germany for Gas Supply
Germany Posted Trade Deficit First Time in More Than Three Decades
Solar Industry’s Dilemma in the U.S.
The Advancement of 3-D Printing – New York Times, July 4, 2022
3-D printing stretched back to the 1980s, the technology, with the help pf breakthrough and the economic and investors, has created a commercial surge in recent time. 3-D printing is an additive manufacturing created by layer-upon-layer of the parts of titanium and other materials, each as thin as a human hair, up to 20,000 layers being “printed.”
This additive technology is used to make specialized parts—fuel nozzles for jet engines, spinal implants, soles for high-end running shoes, dental implants, and during the time of Covid-19—face shields and ventilator parts. It is known as the high-tech digital manufacturing process. It will make American manufacturers great again
Now this is made possible in a 3-D foundry in Devens, Mass., about 40 miles northwest of Bostin, by VulcanForms, a startup that came out from Massachusetts Institute of Technology with $355 million it raised from the venture funding. It has a workforce of 360, coming from General Electric and Pratt & Whitney and tech companies like Google and Autodesk. These bigger corporations have promised to help the small and medium-size American manufacturers for this technology.
This will help the American manufacturers to look for internal support and can move away from China’s dominance on metal casting and metalwork.
Already the Biden administration is looking to 3-D printing to help to lead a resurgence of American manufacturing and the additive technology will be one of the foundations of modern manufacturing in the 21st century. Companies like GE Aviation, Honeywell, Siemens Energy, Raytheon and Lockheed Martin are expanding into this field.
Additive manufacturing also helps to reduce waste in casting, forging and traditional manufacturing. For metal parts, it can cut down cost by 90% and reduce energy by 50%.
VulcanForms has engaged a fresh approach for the 3-F printing that uses an array of many more laser beams than those existing systems. It uses innovations in laser optics, sensors and software to choreograph the intricate dance of laser beams.
VulcanForms has no intention to sell its machines but to be a supplier to customers who want to have custom-made parts. Its machine stand 20 feet high, weight 60,000 pounds, each deploys 150 laser beams. It hums with a low electronic hum just sounds like a data center.
Inflation in Europe is Driven By Energy Prices – New York Times, July 2, 2022
Here is a glimpse of inflation in different countries as driven by record energy prices.
Spain – For the first time since 1985, inflation has reached 10%, the highest in the eurozone, high price of the energy is the main reason followed by the food price. The government in Madrid has passed a €9 billion relief package, including subsidies for transportation and an 80% reduction in taxes on energy.
Germany – Its inflation dipped to 8.2% from the 8.7% the month before. The government introduced a monthly pass of €9 and reduced the high tax on energy.
Ireland – Its inflation rose to 9.6% because of the increase of energy cost.
Slovakia – The inflation has increased to 12.5% because of its dependence on nearly 90% of its natural gas and two-third of its oil from Russia. The increase is due to the sourcing from other countries. The disrupted global supply chains have hurt its auto production, which is the country’s most important industry.
The Baltics Estonia has an annual inflation rate of 22%, the highest in the eurozone. Its neighboring countries, Lithuania for 20.5% and Latvia for 19%. They have the lack of energy sources and have depended on Russia. To replace from the spot market resulted the exorbitant prices.
Labor Market in Europe – FT, July 1, 2022
Data from the eurozone showed unemployment has fallen to a record low in May, which was 6.6%, a fall from 6.7% a month before. Economists expected it to remain at 6.8%.
Germany’s unemployment has unexpectedly rose for the first time in 15 months as about 700,000 refugees have moved from Ukraine there. Bundesbank statistics showed joblessness climbed to 5.3%, up from 5% in May.
The number of registered jobless people rose more than 100,000 in June. But the labor market as a whole is stable.
Zambia Loan Default Trigger Alert Over China as the Creditor – FT, June 30, 2022
Earlier on we reported that Zambia was the first country during the pandemic to default and it was in 2020 they missed payment for $17 billion in foreign debts. Among all the creditors, China is the biggest one, with an estimate of $6 billion in loans.
Zambia brought this up to the IMF for a rescue package, although China is not the member of the Paris Club, they have agreed to a debt relief to allow Zambia to go ahead.
Zambia has already received $1.4 billion as the bailout from IMF, but it is believed that it will take for longer with China.
In the recent years, China is known as the biggest bilateral lender to low-income countries and every negotiation is carried out behind closed doors. More developing countries have shifted to China and to its private sector for borrowing, The lenders include the China International Development Cooperation Agency, Eximbank of China and China Development Bank and the loans were made under widely varying terms. With the $1 trillion Belt and Road Initiative, China is the most significant lender in this century. It has the leverage to delay or potentially prevent the common framework from proceeding. Usually they would be willing to extend maturities but reluctant to grant any reduction in the amount of money they are owed. In another word that they don’t accept any haircut.
With Sri Lanka at the verge of default, and Pakistan can be the next to go, other countries that are heavily indebted to Beijing are holding their breath on proceedings with Zambia now.
Global Food Crisis as Triggered by the War in Ukraine – New York Times, June 28, 2022
When Russia invaded Ukraine, the United States and Europe rushed over and sanctioned Russia to stop revenues to fund the war. Soon they have found that this policy has the dual effects on the rising energy cost and created inflation to food, especially to those most vulnerable emerging countries around the world.
President Vladimir Putin has embraced and even exacerbated the crisis by blocking exports of food and grain from the region and using the shortage as leverage to ask the sanctions to be rolled back.
It is already known that the region’s critical role in the food supply chain, Russia, Ukraine and Belarus, combined export about 30% of the world’s wheat and 75% of its sunflower oil.
World Bank has announced that nearly half of the people in low-income countries are facing food shortage and a severe risk of malnutrition and deepening hunger and even famine in some areas. According to the Food and Agricultural Organization of the United Nations, food prices in May were up 30% from a year ago.
Soaring fertilizer prices, together with the global energy prices, make it more expensive and to produce and transport food around the world. Shortage of fertilizers will cause the lower harvest and further reduced the food production. It will also affect the staple crops like corn, wheat and rice and this will be devastated to billions of people in Asia and South America.
Already countries like Indonesia, India and Malaysia have restricted their exports of cooking oil, wheat and even chicken and reserve them for their home countries. More countries are enforcing food export because of the high food cost.
The situation will get worse with regard to food security later during the year and policymakers in Europe and the U.S. particularly within those in the G7, that this is the sabotage of Russia. Already the sanctions are crafted in such a way that they will minimize food inflation. In the U.S., the Treasury Department has exempted several sanctions to allow food to continue to flow.
EU has banned the majority of Russian oil imports, and also ban on maritime insurers of Russian cargo ships. But this has affected the ships that are carrying food as agricultural products and fertilizers are needed in the food chain. The free world’s commitment to humanitarian and related activities that can benefit the people around the world has backfired because of the sanction.
Even cutting major Russian banks off the international SWIFT has blocked the ability of those African countries to purchase Russian food and fertilizer.
With the latest pledge of $12 billion from the World Bank to support new projects for the farmers to help to ease food shortage will be too late.
Russian President Vladimir Putin has successfully taken the world as hostage this time with his war in Ukraine. The world will need very good leaders who know how to negotiate and guide us through this crisis among many other crisis.
Russia is Financed by China and India While the Western Powers Are Sanctioning – New York Times, June 25, 2022
China is overtly supporting Russia’s invasion in Ukraine, and India proclaimed itself as neutral, but both have undercut the U.S. and European’s effort to isolate Russia. Both of them have purchased large amount of Russian crude and benefitted from cheap oil that have brought them economic and political advantages.
China is using the excuse for its national security while India is exporting refined products from crude after turning them into gasoline and diesel. The two countries, with an enormous domestic market, have secured their supply and can dictate the oil price, both eased their critical situation during the time of the turmoil.
Russia is nearly five months into the war with Ukraine, its crude oil exports are down only very slightly because of the sales to China and India. Both countries have been buying at a discount of 30% to the global benchmark price while the world is buffeted by rising inflation. Despite the discount, Russia’s oil revenues are growing as prices of the oil have climbed to more than $100 per barrel.
China is the world’s largest oil importer and it is largely depending on the Middle East and Russia for supplies. This time it is more convenient for China to focus on the supply from Russia where they can balance its economical and geopolitical interests. It helps to stay with its transportation route that can be more secure and cannot be blocked by the U.S. China and Russia were already working in this pattern when Russia took over Crimea in 2014 when the West imposed sanctions on Russia. By then they had already reached an agreement for the natural gas supply.
When China mentioned the reason of national security when they have to buy oil from Russia this time is also due to the same reason. China kept everything very low-key and China’s state-controlled media have been silent on Russian oil.
India’s switch to Russian oil has been swift and significant. Before the Ukrainian war, Russian oil was only 1% for India. It was 33,000 barrels per day last year and grew to 600,000 barrels in March. In June it increased to 1.15 million barrels per day. It is going to overtake Iraq as its primary source, although it is still going to be one million barrels per day.
India has come under the criticism from the Western world but it defended its strategy by saying the Western sanctions on Iran and isolation policies toward Venezuela had left India with fewer options.
India has a robust refinery capacity of 5 million barrels per day. It has stopped buying from Mexico, reduced from Nigeria, Saudi Arabia and the U.S.
With the Russian oil supplying into Asia and it is replacing Saudi and the Middle East countries, it has brought competitions among members of the Organization of the Petroleum Exporting Countries.
What is going to happen in the coming months would be very interesting.
Russia is Using the Nord Stream 1 to Blackmail Germany for Gas Supply
Russian state-owned energy company Gazprom has told its European customer that due to “extraordinary” circumstances, it can’t and won’t keep shipping natural gas to Europe from Russia. But back in February when the Russian military invaded Ukraine, we were concerned about the potential tensions linked to the Nord Stream 1 natural gas pipeline that runs from Russia to Germany. There were worries about supplies being shut off back then.
Now five months have passes, the war keeps dragging and civilian casualties keep on rising. Russia is trying to leverage against Ukraine’s European allies as Europe’s energy and energy crisis looks like it is running out of control.
It is known that natural gas accounts for 25% of Europe’s energy. Take Germany for instance, natural gas is the country’s second-most-important energy source after crude oil. And about 95% of its natural gas is imported.
Meantime, Gazprom claimed the Nord Stream 1 pipeline that runs under the Baltic Sea from Russia to Germany has suffered from a faulty turbine that has to be shut for routine maintenance. How true is it is very doubtful. Even there is a contract, Gazprom argued that it would not be responsible for the supply.
This has left the Germans to ask themselves if their foreign policy with Russia was properly applied for the last thirty-five years by their German politicians. If you asked Gerhard Schröder, who is the Russian energy lobbyist who is not going to apologize for the act of Vladimir Putin. The last we heard that he is still the chairman of the shareholder committee of Nord Stream, and he also serves as the head of the supervisory board of Nord Stream 2 which was shut before the war.
But Frank-Walter Steinmeier and Sigmar Gabriel admitted their “error” in dealings with Russia.
Putin is known for repression of civil society and murders of political opponents in Russia. He carefully constructed a network of dependency on Russian gas supply. On the other hand he stationed those intermediate-range missiles in Kaliningrad. His assaulted on Chechnya, war with Georgia in 2008, annexation of Crimea in 2014, eight years of war in Donbas. The list can go on …..
The last chancellor, Angela Merkel who reigned for 16 years between 2005 and 2021, would have her legend tarnished if she didn’t come out and do something. Germany has been using a kind of appeasement knowing that Vladimir Putin wants to revenge for what Europe was doing to the Soviet Union during the Cold War that resulted the breakup from its smaller states. No one knows the time-table and also to the extent Putin will take. Now he has shown the world his fangs.
With the threat from Russia’s energy cutoff, Germany and other European countries have to make contingency plans, including to bring back old, dirty coal plants.
Coal price is up 176% in the past year and more than 30% higher than in the past three months. The energy prices are already driving Europe’s record-high inflation.
Germany Posted Trade Deficit First Time in More Than Three Decades – WSJ, July 5, 2022
It is the impact of the war in Ukraine, Europe’s largest economy, who relied on manufacturing and export, has suffered from trade deficit. Its exports fell by 0.5% from April, while its import rose by 2.7%. As a result, the industrial powerful had a trade deficit of €1 billion in May. In April it posted a surplus of €3.1 billion and €13.4 billion in May 2021.
It was also the first time that the import exceeded the export since 1991, shortly after the unification of Germany.
This turnaround in Germany’s trade balance is partly driven by surging energy prices. The increase in price can’t offset with the Germany’s exports to Russia fell sharply as the result of the sanction imposed by Western governments. Over the five months, German imports from Russia were up 54.5% from the same period last year, and its exports to the country were down by 29.8%.
German’s import from China were up 35% from January in May, and exports to China remained unchanged.
With the U.S., its exports were up by more than 20%. The German companies turned to the U.S. for exports.
But the outlook for its exports appears to be weak due to the slowdown of the global economy and the fear of recession in the U.S. and Europe grow. A survey showed the export orders fell in June for a fourth-consecutive month.
Solar Industry’s Dilemma in the U.S. – WSJ, May 25, 2022
The U.S. invented the silicon solar panels, and in the 1970s the chip companies learned to do with the cost-sensitive chips, the first thing was to automate them, and then put them in low-cost countries. At that time the factories were built in the Philippines.
When the Chinese solar industry came to master the technology, they created multiple generations of automated solar-cell lines that eventually drove the price of utility-grade solar panels down to a record-low 27 cents per watt by 2020. That resulted five of the six U.S, solar wafer manufacturing plants operating in 2009 shut down by 2013. What followed by the U.S. Commerce Department was to levy punitive tariffs.
It will be unpractical to bring them back, whether they are government subsidized or not, as they can only pay the workers $2 per hour even when the production lines are automated.
Today, China’s solar industry evolved from high-purity sand mines in Mongolia to mega-factories that produced 30 billion silicon solar cells for $1.05 each in 2021. China also build massive glass and aluminum plants to produce the window-sized, antireflective tempered glass panels with aluminum frames.
It is already reported by Clean Energy Associates that for every $0.35 per watt the American consumer paid in 2021 for Chinese solar panels, the U.S. solar industry collects another $2.30 per watt to mount them on houses. This included to convert the unsecured DC current to grid-legal AC current, and hook them to the sophisticated Network Operation Centers that monitor the performance of millions of American solar systems.
The U.S. residential solar industry took the 87% of American residential solar revenue in 2021 by creating the value-added solar technology and service jobs that replaced those minimum-wage factory solar jobs. But the U.S. Commerce Department applied the tariffs from 25% on Chinese solar panels to 250% in 2018.
Currently in 2021, it opened a new investigation to determine if the Chinese are circumventing the 2012 tariffs. This will threaten 100,000 jobs of those local installers of the 230,000 American jobs in according to the Solar Energy Industry Association survey.
The American homeowners are already paying $2.65 per watt on average to install a residential solar system today. Compare with the fully installed residential solar system in Europe, which is $1.50, and $1.25 in Australia and $1 in India.
So that we know, the federal government pays a tax credit of 26% of the price of a new solar system installed by the U.S. residential customers.
I have to quote for what President Ronald Reagan once said, “The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help.