Rio Tinto and BHP could see Asian grip loosened
A report by two European think-tanks has suggested that mining giants Rio Tinto and BHP Billiton could see their current grip on the supply of iron ore to Asian regions significantly loosened as global freight costs become less volatile.
Along with Vale, they currently comprise the world's three biggest miners, controlling around 65 percent of the world's seaborne iron ore market.
A review of the global commodities supply chain concluded that the major resource houses can influence the price of iron ore by fixing production of the mineral each period based on their knowledge of competitor’s mining capacities.
However, the report on the state of global commodity markets by two think-tanks, the Centre for European Policy Studies and the European Capital Markets Institute, warned that the companies’ control of Asian-iron ore supply could be threatened by changes in the global freight industry.
It describes the current status-quo, where these miners are so big that they have what is known as a ''first-mover advantage'' in the regions in which they operate. This advantage is gained when companies control enough of the resources as to be almost unchallengeable. The Asian oligopoly refers to the fact that the region’s mining industry is controlled by so few companies, decreasing competition and therefore driving up costs.
The report continues: ''(An) oligopolistic setting is often influenced by external factors, such as freight industry capacity and easier (cheaper) connectivity between regional areas.” Freight costs heavily influence the seaborne iron ore price and can expose the market to unprecedented volatile patterns.
Smaller players in the iron ore industry will however welcome the conclusion that ''recent changes with the increase in capacity of the freight industry have stabilised costs of freight for some time and ensure easy connectivity at the global level.”
They will also note with some positivity that lower costs “may increase the accessibility of new regional areas to the global market and reduce space for an oligopolistic setting as marginal costs become less predictable.''
The overall theory is that stable freight costs will allow smaller producers to agree to non-profitable prices to win contracts in Asia, which could move the market away from its oligopolistic state.
The same report meanwhile also describes how global investment banks including Goldman Sachs and JP Morgan have netted billions by running a network of global commodity warehouses linked to the London Metal Exchange (LME).
It suggests that the price of aluminium stored in a network of LME-linked warehouses in the United States has been artificially inflated by unnecessary delays in getting the metal out.
The New York Times recently criticised Goldman Sachs for exploiting the LME’s industry pricing regulations by ''shuffling aluminium among the 27 warehouses it controls in the Detroit area.'' The article claimed that Goldman gains millions of US dollars by charging customers to store the metal for longer than necessary.
The report from the European think-tanks says the practice could restrict access to an important hedging tool for global market participants and increase the cost of aluminium for final users, and “could ultimately end up affecting the price formation of LME aluminium cash contract as a global benchmark price.”
Elon Musk's Boring Co. planning wider tunnels for freight
Elon Musk’s drilling outfit The Boring Company could be shifting its focus towards subterranean freight and logistics solutions, according to reports.
A Boring Co. pitch deck seen and shared by Bloomberg depicts plans to construct wider tunnels designed to accommodate shipping containers.
Founded by Tesla CEO Musk in 2016, the company initially stated its mission was to offer safer, faster point-to-point transport for people, particularly in cities plagued by traffic congestion. It also planned longer tunnels to ferry passengers between popular destinations across the US.
The Boring Co. completed its first commercial project earlier this year in April. The 1.7m tunnel system is designed to move professionals between convention centres in Las Vegas using Tesla EVs. It says the Las Vegas Convention Centre Loop can cut travel time between venues from 45 minutes to just two.
Boring Co.'s new freight tunnels
The Boring Co.'s new tunnel designs would allow freight to be transported on purpose built platforms, labelled as “battery-powered freight carriers”. The document shows that, though the containers could technically fit within its current 12-foot tunnels, wider tunnels would be more efficient. Designs for a new tunnel, 21 feet in diameter, show that they can comfortably accommodate two containers side-by-side, with a one-foot gap between them.
The Boring Co.’s new drilling machine, dubbed Prufrock, can tunnel at a rate of one mile per week, which is six times faster than its previous machine, and is designed to ‘porpoise’ - mimicking the marine animal by ‘diving’ below ground and reemerging once the tunnel is complete.
Tesla’s supply chain woes
Tesla is facing its own supply chain and logistic issues. The EV manufacturer has raised the price of its vehicles, with CEO Musk confirming the incremental hike was a result of “major supply chain pressure”. Musk replied to a disgruntled Twitter user, confused as to why prices were rising while features were being removed from the cars, saying the “raw materials especially” were a big issue.
Car manufacturing continues to be one of the industries hit hardest by a global shortage in semiconductor chips. While China’s chip manufacturing levels hit an all-time high in May, and the US is proposing a 25% tax credit for chip manufacturers, demand still outstrips supply. Automakers including Volkswagen and Audi have again said they expect reduced vehicle output in the next quarter due to a lack of semiconductors, with more factory downtime likely.
Top Image credit: The Boring Company / @boringcompany