2023 OCTOBER ISSUE
MARKET REPORT
SHORT READ PART 2
Contents:
Everything About Deep-Sea Mining
Car Batteries
Carbon Pricing
Walmart is Using Artificial Intelligence to Negotiate Purchasing Contracts
Made in the United States of America
Written by : Andrew Sia
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From the Desk of the Publisher
In this article we wrote about environmental which extended to various subjects like the deep-sea mining looking for minerals to produce the batteries; we talk about car batteries and their players who are concentrating in the Asian countries; carbon pricing is for giving the incentive to those countries who have managed to control their emissions; the using of AI to do contract and pricing negotiation (which has nothing to do with the environment that we have been discussing); and lastly the manufacturing in the U.S. taking the advantage of the Inflation Reduction Act, and that part of it emphasizes electric vehicle and producing of the batteries in the U.S.
These are all very valid matters although the using of AI by Walmart for their procurement is something very new and also very challenging. Like what I said in the last paragraph that I am waiting to see the day when the bot-to-bot negotiation will take place. I am starting also to wonder what the bot can’t do?
Everything About Deep-Sea Mining
The deepest part of the Pacific Ocean has rested for millennia without disturb. But now, its seabed is explored for mining minerals for the use of batteries. It is the process of retrieving minerals from the ocean floor at depths of 200 to 6,500 meters. The International Seabed Authority is the UN-backed regulator, has to consider the world’s commercial deep-sea mining application to cope with the need.
While several European countries are carrying out their applications cautiously, China has already started their exploration work and vessels are sent out to explore the ocean floor.
Environmentalists are showing their concerns and are sending out warning to countries to seek balance from moving away from fossil fuels against the endangering of marine ecosystems.
The demand for electric vehicles and grid batteries means the demand for minerals will increase by fourfold by 2040. Increase of the terrestrial mining to that extent would means the depending on China and would entail a huge environmental cost.
Offshore mining would involve using vacuuming up the individual polymetallic nodules which contain copper, cobalt, nickel and manganese and transport them through the 4 km-long flexible hoses to offshore vessels. This type of distraction on land would mean the large scale of deforestation, forced labor from the aborigines and community displacement.
The International Seabed Authority was created in 1982 to ensure minerals extraction from international waters benefits mankind. It is operated by a rotating council on behalf of 167 countries plus EU. Unfortunately the U.S. has never joined.
Right now Norway, China and India favor deep-sea extraction and India is already exploring options in the nodule-rich Indian Ocean that can be self-sufficient for their need in nickel and cobalt. France and UK both have the exploration licenses as issued by ISA and they are observing.
We have to know that deep-sea is the common heritage of mankind, known also as our last frontier, and if we are not careful, we can wipe out deep sea habitats and those rare species.
Its former employees blamed the company for developing the cars in the speed that doesn’t allow the cars to go through testing.
VinFast planned for a plant in North Carolina and already set up 13 showrooms in prestige locations in California to compete with Tesla. But its product is not ready yet.
Car Batteries
Solvay, is a chemical and pharmaceutical company founded in 1863, with its headquarters in Brussels, Belgium. It is the supplier of specialized chemicals for batteries for EV use. Its new generation lithium batteries using fluorinated polymers for hybrid vehicles to reduce the carbon emissions.
BHP, is an Australian multinational mining and metals company with its headquarters in Melbourne, Australia, is a global miner. It is setting to be the big beneficiaries of the EV revolution. The revolution in EU and the U.S. looking to ban the new petroleum and diesel vehicles is giving them the upper hand in dealing with batteries.
These mined minerals need to be processed into battery-graded chemicals, and this industry is dominated by China. This is causing a geopolitical concern and the looking for alternative sources for processing capabilities have started.
The battery producers are currently all in Asia with China’s CATL being the global leader. Korean’s LG Energy Solution and SK with Samsung SDI is following, and Japan’s Panasonic is also in the game.
China has a booming domestic EV market and their unit sales of pure battery vehicles and plug-in hybrids have jumped from 2019’s 1.2 million vehicles to 6.9 million last year. For the first half of this year, it still managed to sell 4 million EVs while European sales of 2.6 million EVs in 2022 and fewer than 1 million in the U.S.
U.S. began in 2022 the Inflation Reduction Act which offered billions of dollars in subsidies for companies producing batteries free from any Chinese components.
It is remaining as an open debate whether the car makers should product their batteries. We have seen car companies pouring money into it but Tesla, the undisputed market leader in fully electric vehicles is buying batteries from CATL for its most popular models.
Carbon Pricing
It is a price put on carbon pollution as a means to bring down emissions and encourage investment towards cleaner options. We noticed carbon emissions cause global warming and global warming leads to heat waves and droughts that damage agricultural crops, forest fire, and dried up of rivers and tributaries. It also caused flooding and rising of sea level. These are all related to carbon emissions one way or another.
Carbon pricing can help to shift the burden for the damage as aforesaid back to those who are responsible for it. Carbon pricing will give the economic equivalent for those who can make their own decisions the incentive to reduce them. It is used to set up the goal for the players to accomplish and move on with clean technology and market innovation, together using clean energy and low-carbon emissions and work for economic growth.
Economists have first thought of putting a price on carbon, it is a mechanism introduced by the Europeans in 2005. It is for the market to identify the cheapest unit of greenhouse gas to cut and this can allow the society to fight the climate change at the lowest cost. It is to put a price on carbon emissions in order to incentivize individuals, businesses, and governments to reduce their carbon footprint.
There are two primary approaches to carbon pricing: carbon taxes and cap-and-trade system.
Carbon Tax:
It is a straight forward approach where tax is levied on the carbon content of fossil fuels—coal, oil and natural gas—which is based on per metric ton of carbon dioxide or an equivalent greenhouse gas emitted when the fuels are burned. This tax rate can vary and may increase over time, encouraging businesses and individuals to reduce their carbon emissions. The revenue generated from carbon tax can be used to invest in clean energy, funding climate adaption measures or return to citizens through rebates or dividends.
Cap-and-Trade System:
It is also known as emission trading. It involved a cap on the total allowable greenhouse gas emissions. It then distributed to cover those utilities—power plants and industrial facilities—and specified how much they can emit. If they emit below their allocated allowance, they can sell their surplus allowances to those who exceed their limits. It creates a market for carbon trading and it also establishes a price for carbon emissions. This encourages innovation and emissions reductions as there is a financial incentive to reduce their emissions.
According to IMF, there are 49 countries who have carbon pricing schemes and another 23 are considering to join them. We have seen earlier on in 2023, 23% of the global emissions were covered by a carbon price. This is up from just 5% in 2010.
On October 1, the EU launched a policy known as “carbon border adjustment mechanism” (CBAM) and by 2026 it will levy a carbon price on all the bloc’s import, and by doing this the European companies will have a strong incentive to push their suppliers from all over the world to go green.
Countries are coming up with their plans and we have seen Indonesia, the world’s ninth-largest polluter with 62 million tons of carbon dioxide equivalent a year, has launched its first carbon market. An emissions-trading scheme was introduced in February this year, which requires large coal-fired plants to buy permits for emissions above a threshold. We have to know that half of its energy consumption is coming from coal.
In April, Japan launched a voluntary national market for carbon offsets which will work alongside with an existing cap-and-trade policy in Tokyo. The participants accounting for 40% of the country’s pollution, and will have to disclose and set emissions targets. Over time, the scheme will become stricter and auctions of carbon allowances for the energy industry will begin in 2033.
Vietnam is also working on an emission-trading scheme to be established in 2028. Emissions above a threshold will need to offset by buying credits.
In September, China’s National Climate Strategy Center announced its emissions-trading scheme. It will move from the carbon intensity of coal power plants to focus on both their intensity and total emissions. The scheme will link to a carbon-credit market that will allow power plants to meet obligations by purchasing credits from renewable plants.
EU’s current carbon price is €90 per ton, and this is the double of China’s even if their intension is to phase out coal. For China, this has failed to create an incentive to go for sustainable energy. Not to say that its emissions-trading scheme is full of fraud that would need to rectified.
Australia revived its original carbon price in 2014 and since July industrial facilities that account for 28% of the country’s emissions have to reduce by 4.9%. For those who failed, must buy offsets which trade at a price around $20 a ton.
EU’s program is perhaps the most advanced and in their CBAM’s pilot phase, they are already asking importers of aluminum, cement, fertilizer, hydrogen, iron and steel to report those “embodied emission” and this is referring to those emissions generated through production and transportation. From 2026 onward, importers will have to pay a levy equivalent to the differences between those emissions in the EU scheme and at the carbon price paid by the exporters in their domestic countries. Previously importers were taking advantage and source material from abroad to avoid the carbon tax.
In the U.S., the lack of carbon trading is still the case. President Biden has proposed a rule that all businesses selling to the federal government must disclose their emissions and also have the plan to reduce them. Many large firms have set voluntary net-zero targets as part of their marketing strategy.
This is a long way to go and there are many things to consider and eventually to include in order that the carbon emissions can be reduced to the minimum.
Walmart is Using Artificial Intelligence to Negotiate Purchasing Contracts
ChatGPT is already dazzling the general public for the use of artificial intelligence. It is said to be able to write a Hollywood script, and there is nothing that it can’t do. We have read that Walmart hired Pactum AI Inc., a Mountain View, California-based software company to automate a software that will allow them to conduct automate vendor negotiations. Basically it tells the software its budgets and needs, then the AI, instead of the procurement team, would communicate with the vendor list for negotiation and finalizing the purchase order.
Walmart is one of the world’s largest retail chains, operating thousands of stores globally. In the U.S. they have 11,000 stores in various formats and locations, such as:
Walmart Supercenters: It is their largest store format that typically combine general merchandise with a full grocery store. General merchandise would include electronics, clothing, home goods and more.
Walmart Discount Stores: They are smaller than supercenters. These stores primarily offer general merchandise and with a smaller selection of grocery items.
Walmart Neighborhood Markets: These are smaller grocery stores often located in urban or densely populated areas.
Sam’s Club: It is a membership-based warehouse club with locations primarily in the U.S. and some international locations.
International stores: Walmart operates stores in various countries around the world under different banners, such as Asda in the U.K. and Seiyu in Japan.
Because of its extensive operations, typically it has to carry several hundred thousand of items in its stores. And as of January 31, 2023, Walmart’s total revenue amounted to approximately $611 billion worldwide.
If you look at the magnitude of the Walmart, to adopt AI in its vendor negotiation is perhaps the future to go. If we consider the comment as made by the National Research Institute for Mathematics and Computer Science in the Netherlands, negotiating using AI instead of relying on a skill which has been known as human only, is just as capable.
With Walmart’s 100,000 total suppliers, start to use AI in their operations in the U.S., Canada, South Africa and Chile is just the beginning. It will also extend to its supply chain as well for the better grasp of the business.
Artificial intelligence is not only used for negotiation, but also for savings and determine the margin. It is found that the software provider, Pactum, said that suppliers cede profit in some of these negotiation and get concessions for better payment terms and longer contract in return. And three out of four suppliers said that they prefer negotiating with the AI than through a negotiator.
We shall look forward to the bot-to-bot negotiations one day. I don’t know the kind of world anymore.
Made in the United States of America
It is boosted by the Biden’s administration with the multiple acts, and one of the most significant acts is the one known as the Inflation Reduction Act. The U.S. began in 2022 the Inflation Reduction Act (IRA) which start to offer $80 billions of dollars in subsidies over the ten-year period for companies aiming for the promotion of the production and adoption of clean energy. We are also talking about tax credits and other incentives to push for the building of chip factories and plants to turn out EVs, batteries and components.
For the EV industry, we have seen companies from South Korea, Hyundai Motor Co., who has a project of $7.6 billion for electric-vehicle and battery project in Savannah, Georgia. Hyundai will partner with LG Energy Solution Ltd and will support a total of 20,000 jobs, and will also bring in 5,000 more from the auto-suppliers and several thousands more at relating businesses that will serve its Hyundai Metaplant. But this will drain the local labor supply, water supply and will need a massive wastewater treatment facility.
Workers would need to bring from other states and rezoning farmland near the factory site for construction of manufacturing facility, warehouse, multifamily residential complexes will need to align with Hyundai’s plan.
Same for another South Korean company, Kia, although they were in West Point, Georgia, a town of 3,700 inhabitants. Its first U.S. factory was built in 2009. The developers didn’t develop any housing there and that has caused at least 10,000 people drive to Kia plant daily.
Honda Motor Co., opened a motorcycle plant in Fayette County, Ohio in 1979. Today it has a total of five facilities, and its long presence there helped it to secure $156 million in state incentives for the new battery plant, with tens of millions for water and transportation upgrades, plus $237 million in grants from Ohio’s private economic development entity.
Just in Columbus, the state authorities promised to Intel Corp. for $2.1 billion to turn the area into a giant hub for the manufacturer of semiconductors.
But Honda and its subsidiaries employ about 8,000 in Union County and have increased the population steadily from 29,400 in 1979 to almost 67,000 in these days. And the companies employ almost 40% of the workers there.
EV startup, Rivian Automotive Inc., has invested $5 billion in a factory 45 miles east of Atlanta. It will employ 7,500 workers by 2028. It will create multiplier effect of auto suppliers and other businesses to join.
Across the U.S. construction of manufacturing facilities reaching $198 billion on a 12 months basis ended August.
U.S. is lagging behind in adopting the EVs. Fully electric vehicles and plug-in hybrids made up a little less than 9% of all passenger cars sold in the first half of 2023 compared with China’s 27%. The demand is now being pushed after the introduction of federal tax credits on as much as $7,500 on purchases or leases of new EVs. This is part of the Inflation Reduction Act.
Biden administration showed commitments of $139 billion in EVs and batteries and $231 billion. In semiconductors and electronics which is under the CHIPS for America Act.
We have not to forget that the National Association of Manufacturing is looking for 800,000 more labors to be hired in order to bring the manufacturing home.