Category Archives: Uncategorized

Nissan to maintain its presence in the UK

Nissan has today announced that it is going to fabricate its new Qashqai model in the UK, as well as produce its X-Trail SUV.

This follows previous concerns that the company would allocate production of its new models to other plants in Europe following the UK vote to leave the EU back in June.

No details yet of any assurances promised to Nissan in particular but good news for the UK automotive industry in any case.

See previous posts here and here for more detail on the UK automotive sector.

UK automotive industry update

An update on the UK automotive industry post-Brexit, which we discussed a few months ago in the article here...

Brexit: Nissan boss meets PM over Sunderland plant fears (BBC)

May assures Nissan of shield against Brexit tariffs (FT)

Nissan to make Sunderland Qashqai decision ‘next month’ (BBC)

In short, Nissan is to make a decision next month on its future UK operations and investments. This follows the meetings this week with the UK government, from which some vague assurances about compensation for potential trade tariffs post-Brexit have emerged.

The decision taken by Nissan next month will have large ramifications for the UK’s automotive industry, given that the company currently produces around 30% of cars in the country.

But while we await the decision, the articles throw up a couple of immediate questions.

Firstly, is any compensation to Nissan even possible? Any reimbursement of imposed tariffs would almost certainly end up in front of the WTO.

Secondly, how long until we hear other UK-based car manufacturers demand compensation as well?

A useful article from The Economist to consider when looking at the big picture of global economics in the long term. And food for thought over what this may mean for global commodity markets.

Shifting demographics have had a profoundly positive effect on the global economic environment since the Second World War. As the article indicates, a booming young population helped to spur inflation, rising real incomes and a greater propensity to take on debt.

That trend began to reverse in Japan during the 1990s and will hit much of the rest of the world in the near future. The current backdrop of low interest rates, low inflation and a diminished propensity to invest is likely to be here to stay.

In a world of sluggish growth, low inflation and stagnant house prices, debts become much harder to pay off…

…as workers age, they are less likely to want to take on debt. And if an ageing workforce means slower growth, companies won’t want to borrow to invest.

To generate growth in our ageing world may require a big improvement in productivity, or a sharp jump in labour-force participation among older workers. To date, the signs on productivity are not encouraging and elderly employment ratios have a lot further to go.

 

An interesting look at diversification in the metals & mining industry from The Economist. In short, diversification is all well and good, as long as that diversification is into good quality assets…

…whereas Rio Tinto has doubled down on iron ore, BHP also invested in oil and gas—in which it has nothing like the same heft—at the height of the shale boom. Their differing strategies are a good test of the merits of diversification.

Paul Gait of Sanford C. Bernstein, a research firm, says that because of BHP’s weak position in oil, it is suffering from the same cost pressures that it is inflicting on its competitors in iron ore. He calls it “nemesis to their hubris. They are in oil what they are attempting to destroy in iron ore.”

Whatever they do, mining companies will now be required to demonstrate that the assets they have are high quality and capable of generating cash even in hard times. The trouble is that as they attempt to focus, as Anglo American is doing, there is no guarantee they will be able to sell their non-core assets for a high price. Acquirers, as one analyst puts it, only want the family silver, not the dross.

Brazil the redeemer

Recently-released financial results from Europe’s stainless steelmakers painted a predictably grim picture. With nickel prices, and thus stainless steel prices, falling, large-volume buyers have had little appetite to restock, instead waiting for a clear bottom in prices. The pernicious effects of deflation in action.

That said, Aperam appears to be outperforming its peers this year. Why is this?

Continue reading Brazil the redeemer

While not directly discussing global metals markets, this superbly-written and informative article from David McWilliams is well worth a read.

It gives a great historical perspective to the problems of economic stagnation that the Western world faces, comparing the deflationary ‘China effect’ of today with that of the ‘Argentina effect’ that occurred during the late 19th century, touching on both the economic and political implications.

Much of what we now term “secular stagnation” derives from the original China effect. The floor of incomes of industrial workers all over the western world is now set in Shanghai rather than Stoke. Countries that respond to this competitive threat by trying to borrow to maintain lifestyles will find themselves choked by low growth and rising debts.

This wider macroeconomic discussion and the reaction of the Western world to it has profound implications for all industries. But for the commodities sector, where price has such overriding importance, the impact will perhaps be most severe.