MARKET REPORT
SHORT READ PART 2
2022 JANUARY ISSUE
Written by : Andrew Sia
Contents:
Some Positive News About the Plastic Bottles
Miners are in the Hot Seat When Talk About Reducing the Carbon Emissions
South Africa’s Challenge to Quit Coal
Skepticism in this Time During the Pandemic with Those German-Speaking Countries
The Way to Get Around the Chip Shortage
China’s Challenge With its Reliance on Coal
Port Congestion is Creating Problems for Exports from the US
African Climate Foundation
Dirty Vehicles
The Latest on Omicron
Covid Vaccines Completed Its First Year
The Great Resignation and Other Challenge
Vaccination Campaign in the US
The Empty Containers Continue to Swamp the Ports of Los Angeles
China Tech Companies’ Challenges
France Latest Development in Fintech
SenseTime Blew Its Cover Before Its IPO
Some Positive News About the Plastic Bottles – WSJ, November 11, 2021
Spot prices for the recycled PET flakes that are made from plastic-bottles have almost doubled in Europe since the beginning of the year. Prices are also increased in the US.
The cost of food-grade recycled PET was around 64 cents before the pandemic, and it is now $1.00 per pound according to the National Association for PET Container Resources (NAPCOR).
Household brands like Nestlé, the world’s biggest food company, and the world-renowned beverage company, Coca-Cola, have all voluntary set targets to reduce the amount of virgin plastic and go for recycled plastic. Nestlé has set to cut its use by one-third by 2025, and Coca-Cola wants to use at least 50% recycled materials by the end of the decade.
Plastic bottles have been recycled for the use of carpets and takeaway food cartons for years. The fashion industry hasn’t yet found the way to use for garments like the recycled polyester, and it can be the way to market as the new sustainable garment collections.
Already the European Union would require companies to use 25% recycled content in the new PET drink bottles and also other food packaging materials. Right now it is still in a very low percentages.
In the US, states like California and Washington have passed mandatory recycle contents for certain types of plastic packaging. Recycled PET is actually more expensive than the virgin PET around 18 months ago and right now it is 20% premium as the demand increases.
Currently the infrastructure to recycle plastic waste in the US is less developed than in EU. It is averaged around 30% versus 64% in according to the Independent Commodity Intelligence Services.
The big plastic manufacturers are thinking into the future as they will need to offer the recycled PET at a higher premium to offset the lower demand for the virgin material. Indorama Ventures, the biggest producer of PET plans to recycle 50 billion PET bottles per year starting 2025. This Bangkok-based company has seen its share price increased by 70% over the past 12 months.
The industry is moving forward with the carbon footprint being reduced by doing the recycling and in addition to this, the environmental benefit for the cleaner oceans will become feasible.
Miners are in the Hot Seat When Talk About Reducing the Carbon Emissions – WSJ, November 11, 2021
Mining companies are being pressurized by environmental activists and some investors to set targets to reduce carbon emissions linked to the use of their crude products. Miners actually have no control, especially over the largest buyers, especially China, who is the buyers of the mined commodities and after they have received them they would add their process to them.
This conversation has been brought up for the steelmaking, which is responsible for 7% of the world-wide carbon dioxide emissions from energy consumptions. Iron ore mining companies like Tinto PLC and BHP Group Ltd., in Australia are making most of their earnings from selling iron ores to steel producers. Rio Tinto recently committed to spend $7.5 billion to reduce emissions from its own operation by 50% for this decade. The miner’s plan is to tackle Scope 3 emissions which is mostly the pollution mostly caused by its customers when they process their commodities but this is very vague and hard to put into practice.
The World Steel Association whose members represented about 85% of global steel production, said the industry is committed to reduce its carbon emissions, but will need the breakthrough technologies. We know that with iron ore and the metallurgical coal, we can produce steel for apartment buildings, bridges and other major infrastructure. And the emissions come from the steelmakers who turn the iron ore into steel.
This is a very sticky problem as it is involving the miners, the power plants and the steel plants. In a short period of time, there can’t be any solutions but we have to keep working on them.
South Africa’s Challenge to Quit Coal – WSJ, November 12, 2021
South Africa is about to complete its Kusile Power Station, with a capacity of 4,800-megawatt is expected to become fully operated in 2025. This will be the second largest coal-fired power station in the Southern Hemisphere which cost $20 billion to build. It is off the highway connection eMalahleni to Johannesburg. There is another near-identical sister power station, Medupi Power Station, located close to South Africa’s border with Botswana and financed in part through a loan of $3.75 billion from the World Bank. Both power stations have a lifespan of 50 years.
These power plants are planned to lift the population out of poverty. Coal energy is inexpensive and reliable energy source for developing countries. Currently it is responsible for 40% of electricity generation worldwide and it has nearly doubled since the turn of the century. Emerging countries like China, India, Indonesia and Vietnam are depending on this as an energy solution.
South Africa is one of the world’s top 10 coal producers and spent an equivalent of 6% of its annual gross domestic product on the two coal-fired power plants as foresaid, but it will come in operation in the coming years. South Africa is also the most coal-dependent country in the Group of 20 major economies.
It is also suffering some of the most extreme effects of climate change. The average temperature in South Africa are 1.7 degrees Celsius higher, compare with 0.9 degree globally. Severe droughts, that happened in Cape Town three years ago, heat waves and flooding are happening frequently.
Not only that, Greenpeace and other environmental group brought out the fact that the area surrounding the Mpumalanga Highveld, the inland plateau surrounding eMalahleni, is suffering the highest air pollution on Earth. Every year more than 2,000 South Africans die prematurely from illness caused by air pollution from the coal industry.
But the region’s mining pits and the smokestacks have long held the promise of a better future for its people. The unemployment rate is still high at 34.4% but the household incomes here are 25% above the nation’s average. Nearly one in four of the workforce depend directly or indirectly on the coal industry.
In South Africa, some three million households are not connected to the electricity grid. In the past ten years, the country has been without electricity and sometimes it can leave cities like Johannesburg and Cape Town without electricity for more than seven hours a day.
Its country’s Mineral Resources and Energy Minister, Gwede Mantashe, has warned that abandoning coal would be an “economy suicide” for South Africa. The climate and energy plans still foresee the construction of new coal plants to replace old ones.
Although at the COP26, the developed countries have pledged $8.5 billion for South Africa to work on the renewable energy to replace the coal energy. On the global basis, to reach the net-zero emissions by 2050 will require the retirement of the coal power and replace it with gas power and solar energy. This will require skillful labor who can retrofit the coal plant with electricity generate by renewable energy. It will also require to rebuild the transmission and distribution lines to make them compatible.
For the poor country to kick this habit is not an easy one.
Skepticism in This Time During the Pandemic with Those German-Speaking Countries – FT, November 12, 2021
What is happening with the German-speaking countries is the high level of hesitancy among adults of all age groups have increased the scrutiny of the factors driving vaccine skepticism in German-speaking countries—Germany, Australia, Belgium and Luxembourg. It is also an official language in Switzerland and Liechtenstein.
In Germany, resistance to the vaccine can be seen in the affluent southern states—Bavaria and Baden-Württemberg and the eastern region of Saxony. The Bavarian prime minister, Markus Söder, openly admitted that aside of the coronavirus, there is also the vaccine skepticism which is especially spread by the far-right political party, Alternative for Germany (AfD). The country has 14 million people who are eligible for vaccination but have so far decided not to. The polling gave indications that 80% of the Germans don’t want to take the vaccine as they need to weight the risks and the benefits first. And 41% considered the vaccination to be unnecessary.
In Switzerland, the vaccine uptake in the German-speaking in the eastern region is often lower than the French-speaking in the western region and the Italian-speaking in the southern-region.
Switzerland is preparing for the November 28 referendum that will give the federal government the emergency power over the pandemic. Its populist Swiss People’s party, which is also the country’s largest party, is openly campaigning against the government. According to the poll, 51% of its supporters are unvaccinated.
In the province of Upper Austria, where there is another region of vaccine skepticism, with a population of 1.5 million, has more new cases for the coronavirus. Its far-right populist, the Freedom party, voiced out the evil of the vaccine. Some 37% of the adults under the age of 35 are unvaccinated.
But the country has made it mandatory for the country to be vaccinated as of November 22 and the country will be lockdown for two weeks to stop the wide spread of the virus.
The Way to Get Around the Chip Shortage – WSJ, November 15, 2021
Manufacturers are struggling to find the supply of the chips and now they are trying to redesign products and focus on older, lower-tech models. As the shortage will last into next year and instead of using several components to control the different features, it will use a centralized, integrated board with a single processor for control.
The semiconductor shortage has weighted on car production this year and it is extending to other sectors. Without designing the products would affect the availability of the cars and the electrical appliances in the showroom.
China’s Challenge With its Reliance on Coal – WSJ, November 15, 2021
During the last days of the COP26, we found that China and India use the language of “phase down” for the use of coal and not “phase out” of the coal as the compromise in the eyes of the 200 countries who attended the summit. This was followed by the joint Sino-US declaration on climate cooperation. The new commitments also give new hope but we have not to forget that they are very challenging for China to deliver going down the road.
China’s climate task is tough because of two reasons: first as the factory of the world, especially when it comes to the heavy industry, it has been built on a far more reliance to carbon-intensive than the US, Japan and the European Union. And unlike the US, it doesn’t have an alternative of a vibrant natural gas industry. To phase out coal will mean to depend largely on importing natural gas, continue to invest heavily on renewable energies and building more nuclear plants.
For the importing of the natural gas, China has to rely on pipelines through unstable neighborhoods, such as Central Asia, or via the sea-route, where China’s relationship with the geopolitical rivals and the world’s pre-eminent naval powers are rapidly deteriorating.
For the renewables in 2015, China is at the same par with the US, both produced around the same amount of wind and solar energy, about 225,000 gigawatt-hours, according to the International Energy Agency’s data.
By 2020, the US output had roughly doubled. But China’s gargantuan investments in renewable power and grid capacity were more than triple to 741,000 gigawatt-hours. China is way ahead now.
Nonetheless, China’s energy demand has grown so tremendously and the nation hasn’t been able to replace coal. The increase of the use of coal has increased China’s emissions. Not only that, coal mining is a big employer, and their investment for the coal-fired powerplants have made them heavily indebted, its power grids are not enough to handle China’s power demand. China is in a very vulnerable position and it is not that it doesn’t know its problems, but it is difficult to solve.
China has a geopolitical situation to solve first, then it can solve its environmental and economic ones. Unless China can make peace with the US, this problem is not going to disappear.
Port Congestion is Creating Problems for Exports from the US – New York Times, November 15, 2021
The dairy products are exported to the South East Asia and Mexico and are used to make candies, baby formula and other foods. According to the National Milk Producers Federation, the US diary industry has lost $1 billion in the first half of the year in terms of higher shipping costs, the loss of export business and price deterioration. And getting export out of the country is actually more difficult than getting imports into the country.
Agriculture is about one-tenth of the American’s export and it is roughly 20% of what the US farmers and Ranchers produce is destined for export. The industry depends on a supply chain consisting of refrigerated trucks, railcars, cargo ships and warehouses that move the fresh products around the globe.
American farmers have benefited from trade deals with China that required to purchase agricultural products. The strong global demand and the soaring commodity prices have lifted the value by more than 20% over last year. The problems with the supply chain have caused the loss of business but on the other hand they have to deal with the rising costs of the materials like fertilizers, air filters, pallets and packaging.
A survey found that 22% of export sales for agricultural products were being lost as a result of transportation problems. Part of the problem is that the shipping companies are able to charge more to import goods from Asia to the US than vice versa. The shipping companies don’t like to wait for a less lucrative load departing from the West Coast. As a result, more than 80% of the 434,000 containers in 20-foot from Asia to the West Coast soared to $18,730 in November. This is 17-times what it cost to make the reverse trip. As a result, more than 80% of the 434,000 containers export out of the Port of Los Angeles in September were empty. This was up from two-third in September 2020 and September 2019. This impacted the US export tremendously.
Also the truck drivers are able to make more than hauling agricultural products.
The infrastructure bill the Congress passed on November 5 is to repair the supply chain and investing of $17 billion in American ports. This includes funding the improvements for railroads, roads and waterways. The provision for the pop-up container yards outside the Port of Savannah in Georgia will help to ease the congestion.
It was in September that the US Department of Agriculture announced to dispense $500 million to help farmers to deal with the transportation challenge and the rising of the raw material costs. Farmers are happy for the long-term infrastructure investments but they remain concern over their more immediate losses.
African Climate Foundation – Middle East News Agency, November 12, 2021
It is a new, strategic and regranting foundation that took part in the Twenty-Six Conference of the Parties (COP26) and South Africa took the initiative for trying to build a low-carbo climate-resilient economy. It is looking to ensure decent work for all, social inclusion and eradication of poverty.
It was announced that the next US climate change conference COP27 will take place in Egypt. Egypt will use its means to host this in Africa as reported by the Middle East News Agency (MENA).
Dirty Vehicles – New York Times, November 5, 2021
The United States and other wealthy nations are moving from combustion engine cars fueled by fossil fuel toward battery operated cars. This is part of the improvements for the cleaner environment. But the biggest question that has left behind for answering is where are those combustion engine cars going to end up with?
Already in Nairobi, Kenya, the United Nations have set up the sustainable mobility unit to check on those unregulated used cars being shipped from the United States, Europe and Japan for poorer countries in Africa, Latin America, and Asia. Many cars have not met the standard for their emissions and the safety standards in their host countries.
Analysis for 146 countries have shown that two-thirds of those countries have weak to very weak policies for regulating the import of used cars, vans and minibuses that are threatening not only the environment, but also the health and safety.
From 2015 to 2018, about 80% of the 14 million used vehicles exported worldwide were ended in low- and middle-income countries.
Meantime, Korea has been added as one of the major exporters of used cars and the share of four largest exporters was about 49% from the European Union, 26% from Japan, 18% from the United States and 7% from Korea.
This is a tricky matter to handle as if for the developed countries to switch to electric vehicles and ignoring where the used cars will be ended up with, will only continue our climate problem as the “dirty” vehicles are still remaining.
The Latest on Omicron – FT, December 8, 2021
From the hospital administration of Covid-19 positive patients in South Africa, we have read the report as the following:
Although the number of the positive patients are increasing at five times the rate of the latest growth period during the Delta explosion, the infections in this early stage are among younger people who are less likely to get seriously ill.
Only 8% of the Covid-19 positive patients are being treated in intensive care units, this is down from 23% during the Delta wave. And only 2% are on ventilators, down from 11%.
This is again due to the fact that the infections are caught by younger people.
Covid Vaccines Completed Its First Year – Bloomberg, December 8, 2021
One year ago a woman who was then 90 years old, became the first person in the world to receive Pfizer’s Covid vaccine. This marked a turning point in the pandemic, also giving the hope for us to ride out of this pandemic.
Today, after 8 billion doses, the impact is clear. The vaccines, not just from Pfizer, but also from Moderna, AstraZeneca, Johnson & Johnson and others, have slashed hospitalizations and deaths from countries they have been rolled out.
In Europe alone, research showed that they have saved about half a million of lives among people age 60 and above.
But the virus is far from being eliminated. Total cases have been increased by four-fold, vast part of the world haven’t gain access to vaccines and mutated variants keep emerging. This continue to bring new waves of infections, the return of lockdowns for countries and restrictions on travel.
Vaccination is important but wearing masks, taking tests, avoid big gatherings are to be observed.
Already 8.23 billion doses have been administered across 184 countries, and this is about 36.5 million doses per day. Although 107 doses have been given to 100 people around the world, considering the world’s population is at 7.7 billion, the distribution is still lopsided. Countries with the highest incomes are being vaccinated more than 10 times faster than those with the lowest.
The Great Resignation and Other Challenges – Bloomberg, December 8, 2021
Around the world, millions of people are rethinking how they work and live, and how to better balance the two. The pandemic has taken the toll as increase in feelings of burnout and a deterioration in mental health in many countries. And we have found this pressure has been building in developed countries for decades as incomes have stagnated, job security has become precarious, costs of housing and education have soared, and fewer young people are able to build a financially stable life.
The result is the Great Resignation has the US workers quitting their jobs in recorded numbers. It is more than 24 million already from April to September this year. Many are staying away from the labor force. Developed countries like Germany and Japan are seeing the same trend.
It is a phenomenon among those who are younger than 40. Generations like the Millennials and Gen-Z tend to marry, buy house and have children later than their forebears.
In China there is the “lie-flat” movement which jump-started by a social media post and it is also about opting out. It is a counter-reaction against a system—a demanding “996” work schedule 9:00 am to 9:00 pm, a six-day working week is common in industries like technology.
The country’s economy doubled in size over the past decade, but not everyone is reaping the benefits. In big cities the rising cost of living is outstripping wage growth.
The Great Resignation of the West and the “lie-flat” phenomenon just coincide with one another and we can see how the economy has become overheated and it is also becoming unsustainable, both in the environmental sense and also in a mental sense.
Vaccination Campaign in the US – Bloomberg, December 8, 2021
So far, 236 million American citizens have received at least one dose of a vaccine, Pfizer and BioNTech, Moderna or Johnson & Johnson, and this represent 91.7% of the adult population. At least 200 million have taken one shot. As the supply of shots is plentiful, the US has shipped out vaccines to those least vaccinated countries.
More than 473 million doses have been administered, or 143 shots for 100 people. The latest vaccination rate is about 1,674,936 doses per day, and this includes 423,548 people getting their first shot. At this pace, it will take four weeks until 75% of the population to have received at least one dose.
The total cases in the US have reached 50 million and the total deaths are 813,820 and the mortality rate is 1.61%.
The new cases for the New York State is 9,546 which is the second highest among all states. Michigan has been the number one state. New Jersey is 4,258 cases.
The Empty Containers Continue to Swamp the Ports of Los Angeles – WSJ, November 27, 2021
The Port of Los Angeles handled 6.9 million import containers between January and August of this year. It is an increase of 23% compared with the same period in 2019. The ports handle 6 million empty containers during the first ten months of the year, about 20% more empty boxes in all of 2019.
Shipping lines are trying to recover empty containers as a priority because they want to return them across the Pacific Ocean and take advantage of high freight rates for exports from Asia.
With exports on vessels already full, there isn’t enough space for empty boxes that are then piled into stacks waiting for transport and loading onto outbound shipments.
With containers lifted from vessels each month, delivered to warehouses to offload their contents and return them into terminals, that are already so full, that truckdrivers have to have a long wait. Many truckers are stuck with empty containers sitting atop the trailers. They have to unload the empty containers before they can take a new container.
With the imports and the exports, the gridlock has formed and it is a complicate effort to unwind this congestion at the ports of Los Angeles and Long Beach. Some even said that it will take the whole year of 2022 to unwind this situation.
China Tech Companies’ Challenges – FT, December 9, 2021
China is going to restrict how its start-ups to raise funds from foreign investors. It is enforcing its strict capital controls and protect sensitive data from its local companies. It is drafting a blacklist to target new companies in sensitive areas using “variable interest entities” to structure their Chinese businesses.
Variable interest entity (VIE) is a term used by the Financial Accounting Standards Board to refer to a legal entity with certain characteristics such that a public company with a financial interest in the entity is subject to certain financial report requirements.
More than a third of US-listed companies use VIEs. But those restrictions would probably hit China’s data-intensive sectors and that can cause national security concerns.
In case China is going to restrict on their investments in those start-ups in Silicon Valleys, this is going to be a blow on the US investors, knowing that those Chinese tech companies are known for lucrative returns. To underwrite them for IPO is also a very profitable business.
Threats from both countries, China’s crackdowns and US delisting threats, the foreign venture capital pour more, actually about $24 billion in the third quarter into backing the Chinese start-ups. As a result, total investment this year is significantly more than last year.
Actually any existing companies using the VIE structure are expecting to get exemption. However, it was five months ago when Beijing rolled out new regulations banning the after-school tutoring and those US-listed China education groups using VIEs were collapsed without warning.
China would want to be self-efficient in big data and AI companies and set to triple revenues for its local tech companies to reach ¥3 trillion, or $471 billion. But without foreign investment, it will be hard to achieve.
The Chinese tech companies are looking for listing in Hong Kong, but the recent SenseTime, an AI group, is to shrink its planned listing from $1 billion to $767 million.
It is a double blow, first by the US blacklisting, and the Beijing’s own restrictions to protect its sensitive data, its technology growth will have to slow down in the long run.
France Latest Development in Fintech – FT, December 13, 2021
Ten years ago France suffered from chronical bureaucratic syndrome resulted the homegrown talents, Eventbrite and Datadog, founded their companies in the US. We know that Eventbrite is an American management and ticketing website and its service allows users to browse, create and promote local events. And Datadog is a monitoring and security platform for cloud applications, and it brings end-to-end traces, metrics, and logs to make applications, infrastructure and third-party services entirely observable and it is aimed to ensure customers to get their best user experience.
But today, after French President, Emmanuel Macron said that France should have 25 unicorns by 2025, and it is nine now. It was only two years ago when Macron vowed for this and none of these 22 private companies were valued over $1 billion as fintech. Although with its challenging environment and competitive scene, for start-ups that can have a market-product that can fit are often competitive enough on a European scale. And France started to attract foreign capital in investment in those unicorns. The latest is the Lydia who has attracted investors like China’s Tencent and the US-based venture capital firm Accel.
Lydia is France’s fifth unicorn to be launched this year. It is now the second-most downloaded fintech app in France. It allows 5.5 million customers to bank, invest and to send money to each other.
This year, France raised $2.8 billion in funding fintech, it has over taken Sweden’s third position. Macron’s government unveiled a pandemic stimulus plan for the digital sector which is worth $7 billion. This fintech has created over 25,000 jobs and most are actively hiring.
With fintech like Lydia, it opens the potential for the fiscal reform and the bettering of relationship between the tech scene and national administrations. When we come to know that Europe has 5,073 banks, digital banking is opening up the room even in a crowed pan-European market.
SenseTime Blew Its Cover Before Its IPO – FT, November 13, 2021
China AI company, SenseTime, has been placed on a US investment blacklist because of its Chinese military-industrial background. It is part of the human-rights sanctions on its abuse against Muslim Uyghurs in China’s western Xinjiang province and on countries links to China, Myanmar, North Korea and Bangladesh.
Washington’s action came on the date when SenseTime was about to price its shares in Hong Kong ahead of its IPO scheduled on December 17. Its valuation was up to $17 billion.
In fact it was already in October 2019 the US Commerce Department placed SenseTime together with Megvii, iFlytek and Yitu on its entity list.
Washington accused SenseTime to have developed facial recognition program that can read the target’s ethnicity, particularly in its ability to identify the Uyghurs.