The winter storm in the west did some damage to homes and businesses but the good news is it is over and things are getting back to normal. The steel industry remains hot and the production lost to the winter storm will prolong the shortages. Supply chain and consumer demand patterns are stressing logistics companies and freight rates of all types are getting more expensive. Gasoline prices are on an uphill trend. Steel imports are showing the beginnings of a volume increase that might continue for many months. The auto industry is trying to navigate the global microchip shortage which might throttle vehicle production for the balance of this year before they get caught up.
-Bill Feier, Manager of World Sourcing
– Texas’s largest and oldest electric power cooperative on Monday filed for bankruptcy protection in federal court in Houston, citing a disputed $1.8 billion bill from the state’s grid operator. Brazos Electric Power Cooperative Inc is one of dozens of electricity providers facing enormous charges stemming from a severe cold snap last month. The fallout threatens utilities and power marketers who collectively face billions of dollars in blackout-related charges, executives said. The state’s grid operator, Electric Reliability Council of Texas (ERCOT), on Friday said $2.1 billion in initial bills went unpaid, underscoring the financial stress on utilities and power marketers. More providers likely will reject the bills in coming days, executives said. ERCOT triggered the squeeze when it pushed up spot-market rates to $9,000 per megawatt hour (mwh) over more than four days and levied huge fees for services. The service fees were 500 times the usual rate, according to industry executives.
+ Construction Spending jumped 1.7% in January. Private and public construction projects gained equally.
+ The ISM Manufacturing Index jumped to 60.8 in February, driven by gains in new orders, production, employment, backlogs, exports, and prices.
– Overwhelmed U.S. ports, elevated freight costs and accidents that sent goods plunging to the bottom of the ocean are causing headaches for U.S. retailers. From appliance makers to shoe brands and fitness equipment manufacturers, corporations of all sizes are reporting logistics struggles, especially on trans-Pacific trade routes. Although they haven’t yet translated into widespread sticker shock for consumers, the ongoing shipping issues threaten to disrupt inventories if they persist much longer. Outside of the usual shipping headaches, Tapestry Inc. brand Kate Spade had the misfortune of being involved in two separate cargo ship incidents where containers full of goods went overboard in rough seas. CEO Joanne Crevoiserat said earlier this month that the losses will impact the brand’s spring deliveries. Mike George, CEO of QVC and HSN owner Qurate Retail Inc., said he’s lost at least one big batch of vacuum cleaners to the ocean floor. All those inbound products are clogging the nation’s biggest ports, from Savannah, Georgia, on the East Coast to Los Angeles — the biggest gateway for trade with Asia. The number of container ships waiting to enter the neighboring ports of L.A. and Long Beach stood at 27 late Thursday, with an average wait of more than a week. Parked in San Francisco Bay were about a dozen container vessels waiting to berth at the Port of Oakland, according to satellite tracking. According to a paper published by Julianne Dunn, an economic analyst at the Federal Reserve Bank of Cleveland, “it is likely that supply chain disruptions will continue to evolve for the foreseeable future.” In the meantime, some companies are paying premiums to send goods by air, substituting products on shelves and trying to renegotiate arrangements with shippers. Steven Madden is shipping some goods by air but is “judicious” about the move, CEO Edward Rosenfeld said, because the cost of air freight is also up over 100% compared with a year ago. There’s been little relief recently on ocean freight, either. The Drewry Hong Kong-Los Angeles container-rate benchmark of spot rates has held steady over the past six weeks, averaging just over $5,900 per 40-foot container — more than quadruple the level of a year ago.
– A cargo traffic jam on the world’s roads, seas and air corridors could easily continue into next year, continuing to increase shipping costs, according to the head of one of the biggest U.S. freight brokers.
“The domestic freight markets are extremely dislocated and the global air-freight and ocean markets have tremendous amounts of constraints around them,” said Bob Biesterfeld, chief executive officer of C.H. Robinson Worldwide Inc. “We could be standing up a pretty strong freight market throughout 2021, if not into 2022.” That promises a windfall for truckers, air-freight companies and maritime shipping lines. Retailers, manufacturers and anyone else who pays to get goods across the globe will get pinched. The crunch developed as people who were barred by the Covid-19 pandemic from going to movies, concerts and restaurants spent their money on flour and treadmills instead. The effect was magnified in countries where citizens received government relief. Shortages of trucks and drivers, in some cases because of enhanced unemployment benefits, contributed to supply-chain bottlenecks. So, too, has the reduction in airline flights, which typically carry some freight. And the seaborne freight industry is tapped out. The Port of Los Angeles, the busiest in the U.S., is operating above what is considered full capacity in a normal market.
– The huge public deficits that have piled up as governments bail out their pandemic-hit economies are prompting the first rethink of a four-decade decline in corporate tax rates worldwide. Britain may be first to see the tide turn soon. Finance minister Rishi Sunak is expected to announce a small increase in corporate levies in his budget announcement to help pay for the hit from COVID-19. At 19%, Britain’s corporate tax rate is among the lowest of the 37 countries in the Organization for Economic Cooperation and Development (OECD) group, whose average is 23%. Countries around the world have been competing to lower the tax burden on companies in the decades following the free market Reagan and Thatcher revolutions of the 1980s against big government and in favor of business. The Biden administration is eager to reverse a tax cut under Donald Trump, who in his first year in office cut federal tax on U.S. companies’ profits to 21% from 35%. U.S. Deputy Treasury secretary nominee Wally Adeyemo said at his confirmation hearing last month that higher corporate tax rates would help fund strategic industry investments. Such debates come as nearly 140 governments are negotiating to agree by mid-year a global minimum corporate tax rate, which participants say could end up being around the current Irish rate of 12.5%.
– Gas prices continue to increase, with the national average up nine cents on the week to $2.72. That is a 30 cent increase from the beginning of February, 28 cents more than a year ago and the most expensive daily national average since August 2019. The latest price jumps are a direct result of February’s winter storm that took 26 U.S. refineries offline and pushed refinery utilization from an average of about 83% down to a low of 68%.
– Greenland, the world’s biggest island has huge resources of metals known as ‘rare earths,’ used to create compact, super-strong magnets which help power equipment such as wind turbines, electric vehicles, combat aircraft and weapons systems. Processing them is difficult and dirty – so much so that the United States, which used to dominate production, surrendered that position to China about 20 years ago. Two Australia-based mining companies – one seeking funding in the United States, the other part-owned by a Chinese state-backed firm – are racing for approval to dig into what the U.S. Geological Survey (USGS) calls the world’s biggest undeveloped deposits of rare earth metals. The contest underscores the polluting side of clean energy, as well as how hard it is for the West to break free of China in production of a vital resource. Rare earth metals have many uses, and last year China produced about 90% of them. Each Greenland mine would cost about $500 million to develop, the companies say. Both plan to send mined material away for final processing, an activity that is heavily concentrated in China. The only rare earth mine now operating in the United States – Mountain Pass in California – is partly owned by a Chinese state-backed company that currently sends material mined in the U.S. to China for processing. The Greenland sites are less than 10 miles from each other at the southern tip of the island, near a UNESCO World Heritage Site. Debate on them has triggered a political crisis in the capital of Nuuk, forcing a general election on the island of 56,000, due in April. Many Greenlanders, while concerned about pollution, feel mining is key to develop their fragile economy. In a 2013 poll, just over half said they want raw materials to become the country’s main source of income. Greenland’s rare earth metals are also a chance for America and Europe to regain control of a strategic resource. The island’s potential as a source of the raw materials needed for renewable energy technologies gained momentum in 2010, when China threatened to cut off its supply of rare earth metals to Japan, and tightened quotas to international buyers. Greenland’s position near the eastern flank of the United States makes it a sensitive location. Former President Donald Trump offered to buy the island in 2019, and he was not the first U.S. president to do so: In 1946 Harry S. Truman offered Denmark $100 million for it. A defense treaty between Denmark and the United States dating back to 1951 gives the U.S. military almost unlimited rights there, and Greenland houses the northernmost U.S. military base. Friedbert Pflüger, a senior fellow at the Atlantic Council think tank, says the revenues generated by a major mine could give its owner leverage over policies in Greenland, and a strong Chinese presence there may pose strategic threats.
+ #1 heavy melt scrap is steady at $360 per ton as well as #1 busheling scrap at $480 per ton.
+ Raw steel production rose to 77.2% of capacity.
– Iron ore FOB Chinese ports is up to $172 per dry metric ton.
– Zinc prices are staying high.
+ Steel imports might be at the start of a trend induced by the steel shortage in the USA.
+ Cleveland-Cliffs posted a profit in the fourth quarter of 2020. The iron ore miner and steelmaker recorded a net profit of $64 million in the fourth quarter of 2020, compared with a net loss of $10 million in the third quarter this year and earnings of $63 million in the year-ago quarter. During the fourth quarter, the company shipped 1.9 million tons of steel from its mills. Of that total, 1.25 million tons came from the AK Steel assets the company acquired in March 2020 and the remainder from the ArcelorMittal facilities acquired in December. The company expects total shipments to surge to approximately 4 million net tons during the first quarter this year. The company now has 10 blast furnaces in its portfolio and is keeping between six and seven in operation. This will allow the company to perform maintenance while keeping enough capacity running to meet demand. The Middletown furnace will be down for a 45-day maintenance outage to do some work inside the furnace, but not a full reline. In order to continue to meet customer demand, they have restarted the smaller Cleveland No. 6 blast furnace to make up for the lost Middletown production. Once Middletown comes back, they will have another maintenance outage at Indiana Harbor No. 7. Cleveland-Cliffs’ new direct-reduction plant in Toledo, Ohio, began operating in November and started producing hot-briquetted iron (HBI) in December and expect the plant to be at its full production level by the second quarter. They are currently making HBI exclusively for their our own internal use, and plan to start to ship product to third-party customers later in March.”
– A drop in fleet sales cut total new-vehicle sales by 3.7% in February when adjusted for selling days. Reporting the same numbers without adjusting for the number of selling days translates to a decrease of 11.1% from February 2020. Additionally, the seasonally adjusted annualized rate or SAAR for total new-vehicle sales is expected to be 16 million units, down 0.9 million units from the year-ago period, according to estimates from J.D. Power and LMC.
– Automakers across the globe are expected to lose billions of dollars in earnings this year due to a shortage of semiconductor chips, a situation that’s expected to worsen as companies battle for supplies of the critical parts. Consulting firm AlixPartners expects the shortage will cut $60.6 billion in revenue from the global automotive industry this year. That conservative estimate includes the entire supply chain — from dealers and automakers to large tier-1 suppliers and their smaller counterparts, according to Dan Hearsch, a managing director in the New York-based firm’s automotive and industrial practice. “All the way up and down the supply chain, everybody is out some portion of money,” he said. “This could be 10% of global demand this year, its impact, which craters the recovery. We don’t think we’re overstating this.” General Motors expects the chip shortage will cut its earnings by $1.5 billion to $2 billion this year. Ford Motor said the situation could lower its earnings by $1 billion to $2.5 billion in 2021. Honda Motor and Nissan Motor combined expect to sell 250,000 fewer cars through March due to the shortage.
+ Samsung Electronics Co Ltd is considering two sites in Arizona and another one in New York in addition to Austin, Texas, for a new $17 billion chip plant, according to documents filed with Texas state officials. The documents dated Feb. 26 also estimated tax abatements concerning the plant will be about $1.48 billion over 20 years from Travis County in Texas and the city of Austin, up from the $805.5 million. The new plant Samsung plans to build would produce “advanced logic devices” for Samsung’s chip contract manufacturing business, and could create 1,800 jobs. Samsung’s U.S. customers for its contract manufacturing chip business include Tesla Inc, Qualcomm Inc and Nvidia.