Walmart's 'Made in USA' push exposes strains of manufacturing rebirth

When Walmart pledged last year to buy an extra $250 billion in U.S.-made goods over the next decade, it appeared to be just what was needed to help move America's putative manufacturing renaissance from rhetoric to reality.

But suppliers trying to reshore production as part of the initiative by the world's largest retailer are running into practical problems as they try to restart long-idled corners of U.S. manufacturing.

Companies that make the leap have to grapple with a host of challenges, including a shallow pool of component suppliers, an inexperienced workforce, and other shortcomings that developed during the country's long industrial decline.

"A lot of the tribal knowledge and skill sets are gone because the humans who used to do that work have either retired or died," says H. Kim Kelley, the CEO of Hampton Products International, a privately held maker of locks, lighting and other household hardware. The Foothill Ranch, California-based company began selling products made in Asia to Walmart in the 1990s and is now supplying it with some U.S.-made products.

Trying to rebuild that manufacturing capability, while making products that meet Walmart's standards, can require companies to “start from scratch,” Kelley says.

Cindi Marsiglio, the Walmart vice president overseeing the U.S. sourcing push, says the retailer and its existing suppliers have 150 active reshoring projects in various stages of development. For all too many, she says, finding U.S.-made component parts has emerged as a vexing problem.

Hampton, which also makes tow straps, tie-downs and bungee cords for the automotive market, had a hard time locating a U.S. maker of lightweight but strong polyester yarn. Marsiglio says other suppliers complain of difficulty finding small motors, as well as plastic injection molding equipment and computerized cut-and-sew tools.

The issue is so widespread that Walmart is making it the focus of a two-day summit it is hosting in August in Denver. At a similar summit held in Orlando last year, Walmart focused on connecting suppliers with economic development officers from states hoping to lure the new factories.

The retailer says it is especially interested in having factory owners with excess capacity attend the August event - even those that aren't interested in supplying Walmart directly. The hope is that they can become contract manufacturers to Walmart suppliers looking to produce in the United States.

On July 8, it is also inviting hundreds of potential vendors to an "open call" to pitch U.S.-made products to the retailer in Bentonville, Arkansas, where it is based.


SHUT PLANTS

Walmart's critics say the company bears some responsibility for the diminished capability of U.S. manufacturers. For years, its relentless insistence that suppliers cut costs prompted companies to shut domestic plants and shift production to low-wage countries.

Now, the retailer is asking companies to come back home - though they need little prompting. The forces pulling production back to the United States are powerful and real and include lower domestic energy prices, increasingly competitive wage rates, the benefits of greater automation, and a renewed appreciation for the value of being able to respond quickly to shifting U.S. customer demands.

Still, starting up a manufacturing operation is a complex undertaking, especially for vendors like Hampton and Redman & Associates, an Arkansas-based toymaker.

Last year, Redman sold 1.1 million battery-powered ride-on toys, such as large toy cars, in the United States - every one of them made in Chinese contract plants. By 2016, the privately held company plans to be producing about 600,000 of those toys each year out of a brand-new company-owned and run plant in the U.S.

Mel Redman, the company's CEO and chairman, says the transition has required the company to reverse engineer everything its Chinese contractors were doing - an exercise that wasn't easy given his executive team's background in retail.

“We didn’t know much about manufacturing – we didn’t know anything about it really,” he says.


SHIPPING COSTS

Walmart declines to say how many products it has introduced as a result of the 18-month-old Made in USA initiative. But the company says consumers can now buy everything from U.S.-made flat-screen TVs, light bulbs and towels and curtains in its stores and on its website.

The flat-screen TVs, made in Winnsboro, South Carolina by Element Electronics, may be the campaign’s biggest surprise to date.

Founded in 2007, Element had until this year made all its TVs in Asia - but it was unable to get them on Walmart's shelves because there was nothing that differentiated them from rivals' products, says CEO Mike O'Shaughnessy.

“So we began to think about what we could do differently. Well, one of the things we could do differently is to make our TVs at home,” he says.

Element built a small test plant in Michigan that began producing flat-screen TVs shortly before Walmart announced the Made in USA push in January 2013. The announcement prompted the company to fast-track its expansion. Today, Element’s 315,000-square-foot plant in South Carolina has six assembly lines making 32- and 40-inch TVs that are now available in all of Walmart's more than 4,000 U.S. stores.

The switch has led to significant savings in ocean freight charges and customs duties on finished goods - though like so many companies involved in the initiative Element has had difficulty finding domestic suppliers. "We import the vast majority of our parts," says O'Shaughnessy. "Longer term, the more success we have procuring our parts domestically, the better off we expect to be."

Although Walmart has given itself 10 years to meet its $250 billion goal, Marsiglio says the retailer hopes to meet the target ahead of schedule. She says the point of the "open call" next month is to simplify a product pitching process that can challenge even long-time suppliers.

But while the door is open, the bar is high and Walmart will require any applicants to open their financial books as part of the screening process.

Given Walmart’s reputation as a tough negotiator with suppliers, the disclosure of sensitive financial information to the retailer requires a leap of faith. But Element's O'Shaughnessy said his company had no misgivings about opening its books. Walmart needs to know it can rely on its vendors, he said.

“What does it cost to produce product? What does it cost to move product? Every one of the variables that make up the cost of the product we (shared) with Walmart,” he says.

Source:  Reuters

Euro zone economy stutters as ECB gears up for action

Price cuts by euro zone firms failed to prevent business growth from losing momentum in May, all but sealing the case for looser monetary policy a day before the European Central Bank meets.

Markit's Composite Purchasing Managers' Index (PMI) showed that while output across the bloc remained solid in May the pace of growth eased - despite output prices falling for the 26th straight month.

"Today's PMIs remain consistent with some recovery in the euro zone," said Annalisa Piazza at Newedge Strategy.

"That said, we rule out that the picture of moderate recovery will be an obstacle for the ECB to justify further accommodation this week."

ECB policymakers have flagged a move at Thursday's meeting. Sources told Reuters last month the bank was preparing a package of policy options, including cuts in all its interest rates and targeted measures aimed at boosting lending to small and mid-sized businesses.

Annual euro zone inflation, which the ECB prefers to be just under 2 percent, fell unexpectedly in May to just 0.5 percent, increasing the risks of deflation and making a policy response on Thursday a virtual certainty. 

Industrial producer prices, a proxy for consumer prices, fell as expected both on the month and on a year ago in April, Eurostat also said on Wednesday.

In Britain, which does not use the euro, the services industry expanded faster than expected in May, and hiring notched a 17-year high, adding to a debate at the Bank of England about how soon it should raise rates. 
The BoE is widely expected to be the first major central bank to begin hiking interest rates from a record low of 0.5 percent - although not until next year.

"Record low interest rates are no longer necessary. The (UK) economy is growing rapidly and, if anything, is picking up pace," said Christian Schulz at Berenberg.


DIFFERENT ROADS

Just as Britain's recovery seems to be progressing at a faster rate than that of the neighbouring euro zone economy, parallel divergences have emerged within the currency union.

The bloc's growth was once again supported by Germany and pointed to euro zone GDP expanding 0.4-0.5 percent this quarter. But French business activity slipped back into contraction after just two months of growth.

Similarly, accelerating growth in the service industry was offset by an easing in manufacturing.

The Composite PMI, widely seen as a good gauge of growth, dipped to 53.5 in May, shy of a flash reading of 53.9 and below April's final 54.0. But it held above the 50 mark dividing growth from contraction for the 11th month running.

The slowdown in growth came despite firms again cutting prices. The output price index nudged up to 48.8 from 48.7 but has held below the break-even mark since April 2012.

"The overall rate of growth is just not strong enough to allow firms to push through price hikes. This is perhaps the final nail in the coffin for hopes of a robust recovery without stimulus," said Chris Williamson, chief economist at Markit.

The index for the euro zone's vast service industry rose to a near three-year high of 53.2 in May from 53.1 in April as new business came in at its fastest pace since mid-2011, with the related subindex rising to 52.8 from 52.3.

First quarter GDP growth was confirmed at just 0.2 percent earlier on Wednesday, leaving currency and bond markets little moved as they await the ECB's decision on Thursday. 
Source: Reuters
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U.S. Weekly Petroleum Report

Source: U.S. Energy Information Administration

Fed may shun global risk rules banks spent billions to meet. "They are flawed and can be gamed"

The Federal Reserve may scrap international measures aimed at assessing bank health in favor of imposing its own rules, frustrating bankers who have spent billions of dollars retooling their books to meet global standards.

Fed officials are concerned that parts of a key tool that regulators have developed to measure banks' riskiness—known as

"Basel III capital rules" -- are flawed and can be gamed by the companies.

Under Basel, banks can determine how much debt they can take on by using their own models and computer systems to calculate how risky their assets are, among other methods. The higher the risk, the less money banks can borrow and lend, in turn cutting income banks can earn. In other words, the Basel rules give banks a chance to monkey with their risk models to boost profit.

In a May speech, Fed Governor Daniel Tarullo condemned the latitude that Basel III gives banks to use their own models. While he was expressing his own views, a source familiar with the matter told Reuters that Tarullo's opinion is held by other governors.

Instead of the Basel rules, Tarullo promoted the use of the Fed's own yardstick of bank health, a test of how bank assets would perform during market turmoil or an economic slump. That process, which the Fed has developed separately from the Basel regulations, is known as the "stress test."

"As a practical matter, it is our binding capital standard," said John Dugan, former U.S. Comptroller of the Currency and now a partner at the law firm of Covington & Burling in Washington.

The Fed's decision to emphasize a different process for evaluating risk is maddening to banks, who complain that the Fed's tests are opaque. The regulator fears that banks would find ways to cheat the tests if they knew too much about the methodology, so it gives them little detail about it. Every year, the Fed can also change the stressful situations it tests for.

Wall Street says it's getting mixed signals about Basel III from the Fed. Tarullo's remarks come less than three months after U.S. regulators gave the green light to eight big U.S. banks to use their own risk models. [ID:nL2N0LQ1M7]

One senior bank executive who refused to be named complained that the regulator wants "a private playbook" which it can redesign every year. Another called the stress test process

"arbitrary and scary."

The world's biggest banks have probably spent billions of dollars in recent years building computer models, hiring staff and selling assets to comply with Basel III, analysts said. An executive at a major bank told Reuters last year that his firm had spent $500 million on models and systems alone.

Without more detail about the Fed's rules, banks must hold more capital, possibly constraining their lending and global growth, bankers said. Wells Fargo & Co , the fourth-largest U.S. bank, said at a recent conference that it is holding more capital in large part because of the Fed's stress test.

Many regulators have little patience with these complaints. In the run-up to the financial crisis, banks succumbed to the temptation to boost earnings by borrowing more money to fund their assets. If a bank has too much debt, even slight declines in the value of its assets can put it out of business, a lesson that Lehman Brothers Holdings Inc learned the hard way.

The Fed and other regulators are charged with maintaining the health of the financial system, not maximizing bank profits.

Regulators may have reason to be alarmed about the way banks are measuring asset risk. Last year, the Basel Committee, which is refining the current generation of Basel rules, said it found wide variance in how banks assessed the riskiness of hypothetical portfolios of loans and trading assets. A Barclays Capital survey in 2012 found that half of investors distrust banks' assessments of the riskiness of their assets.

Banks rarely confess to changing their risk models to reduce their capital requirements, but evidence of its happening came to light last year, when a U.S. Senate subcommittee released e-mails in which JPMorgan Chase & Co executives discussed how they were changing their models to reduce the apparent riskiness of their assets.

Policing banks' models is labor intensive, and regulators are finding their staff and resources stretched. Even the head of the Basel Committee acknowledged in March that adjusting assets for risk poses difficulties for regulators.

"The message I would like to leave you with today is that there is one (a problem), and we plan to do something about it," said Basel Committee Chairman Stefan Ingves in a speech in New York.

The Federal Reserve is not inclined to wait to fix rules that global regulators have been discussing and refining for a decade. The central bank has added its own rules to a separate part of the Basel capital requirements, known as the leverage ratios, which do not consider the riskiness of assets.

Tarullo's harsh criticism of the Basel risk measures came in a May 8 speech.

Referring to bank models for calculating asset risk, called the "internal-ratings-based approach," he said, the "combined complexity and opacity of risk weights generated by each banking organization for purposes of its regulatory capital requirement create manifold risks of gaming, mistake, and monitoring difficulty."

Later, he said, "in light of all that has happened in the last decade, I see little reason to maintain the requirements of the IRB approach for our largest banks."

Fed staffers interviewed by Reuters said Tarullo's tone and timing were surprising, given the amount of energy that both U.S. regulators and the banks have put into adopting the third generation of Basel rules, which must be fully implemented by the beginning of 2019.

"They've invested so much time and effort into that process, and it's an international agreed-upon standard, so to say to scrap it – it's a pretty bold statement," said an employee at a regional Federal Reserve bank who did not want to be identified.

Federal Reserve spokeswoman Barbara Hagenbaugh declined to comment.


CRISIS AFTERMATH

Regulators have been working on the third set of Basel rules for a decade, but the effort gained extra momentum after the financial crisis, when investors and depositors feared that banks had too much debt and too little equity, or capital, funding their assets.

Capital represents a cushion that banks have against their assets losing value during times of stress—maintaining enough of a buffer is critical to preventing runs on banks during crises. When investors and depositors lost faith in banks, governments and central banks globally had to pump trillions of dollars into the financial system to bail out lenders.

The Fed developed the stress tests in 2009 in part to restore trust in the financial system. Investors unsure about bank-asset values took comfort that regulators were checking that banks would be solvent during a crisis.

These tests, combined with the Fed's decisions about whether banks can afford to buy back more shares and increase their dividends, have become increasingly important to the regulator, sources said.

The European Central Bank, which will become the continent's bank supervisor before the end of the year, is also developing its own stress tests known as the asset quality review.

Banks including Citigroup Inc and Bank of America Corp have been embarrassed to have had capital plans rejected by the Fed. Their failures have encouraged others to be more cautious managing their capital, analysts said.

John McDonald of Bernstein Research in New York recently estimated that changes in the Fed's grading methods this year canceled out some $60 billion of excess capital at three big banks, Citigroup, Bank of America and JPMorgan Chase & Co.

Changing complexities of the Fed's testing "could have negative implications for the way banks are run," according to McDonald.

Three senior Wall Street executives complained to Reuters about the Fed's shifts towards its own tests, though none would be named for fear of insulting their regulator.

A former Fed staffer who now works in the industry said Tarullo is wrong to be so confident in the Fed's own models, which have been changing year-to-year and haven't been tested in another crisis. In the most recent round of stress tests, the Fed discovered flaws in its models that it said were minor.

It had to adjust its calculations and release revised numbers the next day. Even if one bank's model is not the best, the person said, models from the top 150 banks in aggregate are likely better than a single model from one regulator.

A consequence of banks not knowing how the models will work, the person said, is that banks will be more reluctant to take chances lending and investing. "You are really tamping down potential growth in the economy," the person said.

Source: Reuters

U.S. The private sector added 179,000 jobs in May

 Private-sector hiring in May hit the slowest pace in four months as service providers decreased their rate of hiring, according to data released Wednesday morning.

Employers in the private sector added 179,000 jobs in May — the fewest new positions since January — down from 215,000 in April, Automatic Data Processing Inc. reported. Economists polled by Dow Jones Newswires had expected a May gain of 210,000 private-sector jobs, compared with an originally estimated increase of 220,000 jobs in April.

“The job market has yet to break out from the pace of growth that has prevailed over the last three years,” said Mark Zandi, chief economist of Moody’s Analytics, which prepares the report using data from ADP.

However, longer-term trends look more promising, as May’s private-sector hiring was up from a gain of 163,000 jobs in the year-earlier period. And the three-month moving average, which smoothes out some monthly volatility, shows that private-sector employers added an average of 198,000 jobs per month over the quarter through May, up from 153,000 during the year-earlier period.

Details of ADP’s report show that private-sector service providers added 150,000 jobs in May, down from an increase of 194,000 in April. Meanwhile, goods producers added 29,000 jobs in May, up from 21,000 in April. By company size, small businesses added 82,000 private-sector jobs in May, medium businesses added 61,000 and large businesses added 37,000.

Economists use ADP’s data to get a feeling for the U.S. Labor Department’s employment report, which will be released Friday and covers government jobs in addition to the private sector. Economists polled by MarketWatch expect the government’s report to show that nonfarm employment rose by 210,000 jobs in May, compared with a gain of 288,000 jobs in April.

A variety of labor-market data signal that the country’s jobs environment is continuing to heal, though at a slower pace than economists would like. Weekly claims forunemployment-insurance benefits are near the lowest levels since the recession ended. And workers see greater career opportunities, though many remain cautious over quitting .

Source: Marketwatch

The simple news reader app that’s taking China by storm just netted $100 million funding from Sequoia Capital

The developer of Chinese news reader app Today’s Headlines (今日头条) today announced it has secured US$100 million in funding. Netease reports Sequoia Capital led the investment in Beijing-based ByteDance. The news aggregator launched in August 2012 and now has more than 90 million registered users. This is ByteDance’s third round of funding after a US$5 million series A round and an undisclosed series B round led by DST. Today’s Headlines is about as simple and straightforward as a newsreader app can get. It doesn’t focus on RSS like western counterparts, and instead relies on the user following specific people, topics, and news sources. As the name suggests, the goal is to let users skim through headlines quickly and efficiently. Clicking on a headline lets users read the full text, or they can choose to have the article read to them using the built-in voice-to-text function included with most smartphones (requires installation of a supplementary app, however).

The app also supports user comments, and you can track what friends are saying in real time. Today’s Headlines has occupied the number one spot in the news category on China’s Apple App Store for 15 consecutive months. Users spend a cumulative 350 million minutes per day on it, and they share to social networks 600,000 times daily.

The app monetizes through display ads, and it also has a coupon section where users can check out the latest deals on apps, movie tickets, electronics, travel, and more.

Source: TECHINASIA

Mana.bo wants to shake up the $10 billion Japanese cram school industry with online tutoring

Tokyo-based online education startup Mana.bo is aiming to disrupt Japan’s deeply entrenched juku (cram school) market by moving lessons online. The company founder and CEO, Katsuhito Mihashi, was a juku tutor for more than six years. In that time, he taught around 1,000 students – many of whom were struggling to receive help outside of the classroom. “Some would send me attachments with math equations, and I would try to help them via email,” Mihashi told Tech in Asia. “In other cases, they would call me to ask for an explanation of a difficult physics problem. We were at a loss about what to do when dealing with students who want to understand a question without being physically in front of the teacher, and to fill that gap, I created Mana.bo.” Students simply take a photo of a problem and send it to available tutors, who receive a notification on their mobile device. Tutors check the problem and let the student know they’re available to help. Once the student selects a tutor, they can can then initiate a voice or text chat with a virtual whiteboard. Handwriting strokes appear on the student’s smartphone, tablet, or PC screen in real time. Disrupting a $10 billion industry The service, which primarily targets junior high school and high school students preparing for Japan’s rigorous entrance exams, provides a cost-effective alternative to brick-and-mortar cram schools. Unsatisfied with the quality of education at regular schools and under pressure to ensure their children can pass entrance examinations – standard practice for Japanese high schools and universities – Japanese parents have helped make juku a US$10 billion industry. Monthly fees for traditional juku can range from $500 to $1,000 – roughly 10 percent of a family’s household budget. Mana.bo, on the other hand, will offer a comparable online service for only $100 to $200 per month. “Entering the C2C market was difficult because parents were skeptical about a web-based tutoring service as opposed to a traditional juku,” says Mihashi. “In the long run, however, parents will accept these technologies. Parents can’t really see their child’s progress at a juku, unless they actually sit in on each lesson. We can provide session data to parents and inform them about strengths and weaknesses directly.”

Without brand power, Mana.bo was no match for the long-established juku industry. To build a name for itself, the startup partnered with Benesse, one of Japan’s largest correspondence education and textbook providers. As of April 1, Mana.bo is available exclusively to Benesse clients – but the company plans to offer direct services in the future.

“If we can get just a small number of traditional juku students to shift into our service, decrease the reliance on those kinds of businesses, then we have a great chance of breaking into the market,” says Mana.bo finance director Koichi Tsunoda. See: Startup gets $5.8 million to make elearning fun, expands to Southeast Asia Mihashi gives two reasons for why now is the time to enter the online juku playing field: First is the rising popularity of tablets. Students who are studying math and physics, especially, need a lot of space to write an equation. Second, the edutech market is a US$1 billion market in Japan and a US$100 billion market globally. In Japan, that figure will increase to US$1.5 billion by the end of the year. In addition, VC investment has grown by four times in the past four years, to US$400 million last year. One domestic VC has already taken note. Mana.bo received US$374,000 in seed funding from CyberAgent Ventures last year. Mihashi declined to share the amount that Benesse paid for its current partnership.

Who can be a tutor? Most Japanese cram schools hire certified teachers or undergrads from the country’s most respected universities to work as tutors. Mana.bo, which expects to serve one million students in the future, will require about 100,000 tutors – so the company is looking to break the mold of the typical juku sensei. “Tutors don’t necessarily have to be from the top-notch schools,” Mihashi says. “A housewife who studied engineering in college could make some money on the side by helping students. There are a lot of potential tutors that don’t necessarily have to be qualified as career teachers.” The company is also working on what it calls a “mass equation analysis engine” to save lessons for future use. Mihashi explains that writing an equation on the virtual whiteboard turns it into a digital one. This technology will allow Mana.bo tutors to reuse tutoring information for future lessons – further lessening the need for certified teachers: This way we don’t have to throw out all of the tutoring data every time a student asks a question. We can store it on our database and keep them as an asset, for example, recommending a past tutoring session that was effective to new students based on their demographics – what they’re studying for and where they’re going to school. This will save our tutoring resources and provide more solutions to clients. Mana.bo currently employs five full-time staff members and an undisclosed number of tutors. The core team will grow to 16 by the end of the year.

Source:  TECHINASIA

Apple Wants The Link Between Your Devices To Be You, Not A Shared Wi-Fi Network

Apple has made some changes to its core inter-device sharing protocols in iOS 8, including AirPlay and AirDrop. AirDrop, the simple file sharing mechanism introduced in OS X Lion and iOS 7, now works between Macs and iOS devices; and AirPlay, the video and audio streaming protocol that plays back music and movies from iPhone, Macs, etc. on Apple TV and approved accessories, will apparently work without requiring a shared network once the update hits.

This is part of a larger effort to make devices work together without making end users have to worry about what transit technologies are involved. The new Continuity features in both iOS 8 and OS X 10.10 Yosemite serve a similar purpose and operate on similar principles. Apple uses a combination of shared network, proximity signals and iCloud account identification to make those work, but the point is that in use, these underlying elements are mostly invisible to users; to borrow the old Apple maxim, “it just works.”

We’ve become used to the necessity of a shared network as the backdrop for tasks across devices: The local network as an analogy for ‘home’ is almost taken for granted at this point, as is its role as the interstitial material tying together our growing web of connected devices.

The problem is, it’s increasingly an outdated metaphor – users want sharing that extends beyond their network. The nexus point of a web of personal gadgets sensibly should be the person who owns them, too, and not the crutch of a single access point to bring them together. Apple’s multiple approaches to greater gadget interoperability still use the local network where it makes sense, but it doesn’t use it exclusively. This is about the right transit tech for the right moment, and it prefaces a future where we don’t care how our devices are connected, and instead just take for granted that they are when and where we need them to be.

Source: TechCrunch

Rusal sees Chinese aluminium cuts, further spike in premiums

 Loss-making Chinese aluminium producers are expected to cut 3.5 million tonnes of output this year, helping to tighten supply and sending premiums for physical metal to fresh record peaks, a Rusal executive said on Monday.

Deputy Chief Executive Oleg Mukhamedshin of the Russian producer forecast in a telephone interview that a shortage of available physical metal would push up premiums as much as 50 percent.

"Taking into account the expected deficit and due to expected production cuts, we think the premium can easily reach a new record high well above $500. In the third quarter we can see new records, even $600 would not be out of the question."

Premiums for immediate delivery of metal, a levy on top of the cash price on the London Metal Exchange have already hit records in Europe and Japan of about $400 a tonne this year.
Even though there are millions of tonnes of inventories, the bulk of them are not available to the market because they are tied up in backlogs at warehouses or in financing deals.

Queues of up to two years to access metal at LME-registered warehouses prompted complaints by industrial consumers and led the LME last year to launch a series of reforms aimed at reducing the backlogs and boosting transparency.

A key LME reform to cut queues to a maximum of 50 days, however, was halted after Rusal won a court decision in March because consultations were "unfair and unlawful". Rusal was worried the reforms would weigh on prices

Mukhamedshin declined to comment on moves by the LME to appeal against the ruling.


CHINESE CUTS

Capacity cuts in China, the world biggest producer and consumer of aluminium, would be driven by higher material costs following a ban on unprocessed ore exports by Indonesia and by Chinese banks unhappy with outstanding loans, Mukhamedshin said.

"We expect more production cuts," he said. "The banks are very unhappy with the situation and cannot continue to roll over these bad loans."

Rusal, one of the world's biggest aluminium producers, estimates that China has already cut 2.1 million tonnes of production so far and will cut another 1.5 million tonnes before the end of the year, out of total annualised output of around 27 million tonnes.

This would lead to a largely balanced market in China and a deficit in the rest of the world of about 1.4 million tonnes this year, he said.

A glut of output in China was behind a 50 percent surge in total aluminium stocks there to an estimated 3 million tonnes earlier this year, sparking a sell-off in Shanghai futures to record lows, he added.

At the current aluminium price of around 13,300 yuan on the Shanghai Futures Exchange about 60-70 percent of Chinese capacity is loss-making, Mukhamedshin said.

The Chinese government is also pressuring loss-making and polluting companies to close capacity as part of its reform programme.

Another factor weighing on Chinese aluminium producers is a ban in January by Indonesia of unprocessed ore exports, which has boosted the cost of raw material bauxite by about $20 per tonne to $70-$85, he added.

"You can also see the increasing cash cost of production in China, which is partially driven by the Indonesian export ban."


The Indonesian ban has sent nickel prices soaring by about 40 percent this year, but the impact on aluminium was not expected to be as strong as on nickel, Goldman Sachs analyst Max Layton said in a note this week.

Bauxite accounts for a smaller proportion of aluminium output costs and there are numerous alternative suppliers, Layton said.

Source: Reuters

IMF's Cristine Lagarde: Economic Inclusion and Financial Integrity

 Economic Inclusion and Financial Integrity—an Address to the Conference on Inclusive Capitalism 

Excepts of speech By Christine Lagarde

Managing Director, International Monetary Fund

London, May 27, 2014

"So is “inclusive capitalism” an oxymoron? Or is it the response to Marx’s dire prediction that will lead to capitalism’s survival and regeneration—to make it truly the engine for shared prosperity?

If so, what would the attributes of inclusive capitalism be? Trust, opportunity, rewards for all within a market economy—allowing everyone’s talents to flourish. Certainly, that is the vision.

Most recently, however, capitalism has been characterized by “excess”—in risk-taking, leverage, opacity, complexity, and compensation. It led to massive destruction of value. It has also been associated with high unemployment, rising social tensions, and growing political disillusion – all of this happening in the wake of the Great Recession.

One of the main casualties has been trust—in leaders, in institutions, in the free-market system itself. The most recent poll conducted by the Edelman Trust Barometer, for example, showed that less than a fifth of those surveyed believed that governments or business leaders would tell the truth on an important issue.

This is a wakeup call. Trust is the lifeblood of the modern business economy. Yet, in a world that is more networked than ever, trust is harder to earn and easier to lose. Or as the Belgians say, “la confiance part à cheval et revient à pied” (“confidence leaves on a horse and comes back on foot”).

So the big question is: how can we restore and sustain trust?

First and foremost, by making sure that growth is more inclusive and that the rules of the game lead to a level playing field—favoring the many, not just the few; prizing broad participation over narrow patronage.

By making capitalism more inclusive, we make capitalism more effective, and possibly more sustainable. But if inclusive capitalism is not an oxymoron, it is not intuitive either, and it is more of a constant quest than a definitive destination.

I will talk about two dimensions of this quest—more inclusion in economic growth, and more integrity in the financial system.

Inclusion in economic growth

Let me begin with economic inclusion. One of the leading economic stories of our time is rising income inequality, and the dark shadow it casts across the global economy.

The facts are familiar. Since 1980, the richest 1 percent increased their share of income in 24 out of 26 countries for which we have data.

In the US, the share of income taken home by the top one percent more than doubled since the 1980s, returning to where it was on the eve of the Great Depression. In the UK, France, and Germany, the share of private capital in national income is now back to levels last seen almost a century ago.

The 85 richest people in the world, who could fit into a single London double-decker, control as much wealth as the poorest half of the global population– that is 3.5 billion people.

Many would argue, however, that we should ultimately care about equality of opportunity, not equality of outcome. The problem is that opportunities are not equal. Money will always buy better-quality education and health care, for example. But due to current levels of inequality, too many people in too many countries have only the most basic access to these services, if at all. The evidence also shows that social mobility is more stunted in less equal societies.

Fundamentally, excessive inequality makes capitalism less inclusive. It hinders people from participating fully and developing their potential.

Disparity also brings division. The principles of solidarity and reciprocity that bind societies together are more likely to erode in excessively unequal societies. History also teaches us that democracy begins to fray at the edges once political battles separate the haves against the have-nots.

A greater concentration of wealth could—if unchecked—even undermine the principles of meritocracy and democracy. It could undermine the principle of equal rights proclaimed in the 1948 Universal Declaration of Human Rights.

It is therefore not surprising that IMF research—which looked at 173 countries over the last 50 years—found that more unequal countries tend to have lower and less durable economic growth.

So much for the diagnosis—what can be done about it? We have done some recent work on this as well. We focused on the fiscal policy dimension—which is part of the IMF’s core business. We found that, in general, fiscal policies have a good record of reducing social disparities—for example, transfers and income taxes have been able to reduce inequality by about a third, on average, among the advanced economies.

But it is a complex issue and policy choices need to be made carefully. Fiscal discipline is often the first victim on the political battlefield, and we obviously want to choose measures that do the most good and the least harm.

Some potentially beneficial options can include making income tax systems more progressive without being excessive; making greater use of property taxes; expanding access to education and health; and relying more on active labor market programs and in-work social benefits.

But we must recognize that reducing inequality is not easy. Redistributive policies always produce winners and losers. Yet if we want capitalism to do its job—enabling as many people as possible to participate and benefit from the economy—then it needs to be more inclusive. That means addressing extreme income disparity.

Shortfall in Middle East oil investment could push up prices -IEA

A potential shortfall in investment in production in the Middle East could create a $15 increase in the oil price by 2025, the energy arm of the Organisation for Economic Cooperation and Development (OECD) said.

The world will need to invest $40 trillion in energy supply and $8 trillion on energy efficiency by 2035 to meet growing demand and falling output from mature sources of energy, the International Energy Agency (IEA) said in a report

A large proportion of the investment to increase output will need to come from the Middle East as a rise in non-OPEC production such as U.S. shale oil starts to lose steam in the mid-2020s.

But the IEA was wary about the outlook for investment in the region due to factors including security concerns and government spending priorities outside the energy sector.

"If investment doesn't pick up as needed, we will have much more volatile oil markets, and in the 2020s we will have higher oil prices," Maria van der Hoeven, IEA executive director, told reporters at the launch of the report.

Furthermore, the report said, if the world is to keep the rise in the average global temperature below 2 degrees Celsius, a total of $53 trillion will need to be spent, more of that amount on energy efficiency and less on fossil fuels.


INVESTMENT DOUBLED

In 2013, investment in energy production was over $1.6 trillion, more than double the level in 2000 in real terms, and spending on improvements in energy efficiency was $130 billion, the IEA said.

Investment in renewable sources of energy rose to a peak of $300 billion in 2011 from $60 billion in 2000 but has since fallen to $250 billion for 2013.

More than four times this level, or $1.1 trillion per year, was spent on the extraction and transport of fossil fuels, oil refining and the construction of fossil fuel-fired power stations, the report said.

Of the $40 trillion that will need to be spent by 2035, less than half will be spent on meeting growth in demand.

"About 80 percent of all oil investments are made to compensate for the decline in existing fields, so it means that oil investments have little to do with oil demand growth and much more to do with the decline of existing oil fields," Fatih Birol, the IEA's chief economist, told reporters.


GAS SURGES, POWER STRUGGLES

Of the total investment in upstream oil and gas spending of more than $850 billion per year by 2035, gas will account for most of the increase. Over $700 billion is expected to be invested in the liquefied natural gas (LNG) sector alone by 2035.

The IEA warned that more gas might not lead to much lower prices.

"The expectation that a surge in new LNG supplies will totally transform gas markets needs to be tempered by recognition of the high capital cost of LNG infrastructure, with transportation typically accounting for at least half of the cost of gas delivered over long distances," the report said.

For Europe's power markets, the IEA warned that a shortfall of investment could threaten reliability of electricity supplies.

"The investment required to maintain the reliability of Europe's electricity system is unlikely to materialise with the current design of power markets," the report said, adding that wholesale prices were around 20 percent too low to make investment attractive.

"Europe requires more than $2 trillion in power sector investment to 2035 ... If this situation persists, the reliability of European electricity supply will be put at risk," the IEA said.

Van der Hoeven highlighted more fundamental problems in some developing economies.

"Even if all the projected investment comes in on time, almost 1 billion people will be left without access to energy in 2035," she told Reuters.

Source: Reuters

U.S. carbon plan to lift natgas demand - just don't ask how much

There is no question that landmark U.S. measures to slash carbon emissions from power plants over the next 15 years will boost demand for natural gas, an abundant, cleaner-burning alternative to coal.

Yet far from adding a bullish new dimension to the U.S. natural gas market, the rules the Environmental Protection Agency (EPA) proposed this week have only added to the gaping uncertainty traders face in the coming decade, with factors as such as liquefied natural gas (LNG) exports and increased industrial usage in flux.

At one extreme, the new rules could boost demand by as much as 10 billion cubic feet (Bcf) per day by 2020, equivalent to a 14 percent increase from today, according to America's Natural Gas Alliance (ANGA), a Washington-based trade group.

"Natural gas is going to have to play a big role in the solution because it is the cheapest way in which to get emission reductions in the power sector," said Erica Bowman, ANGA's chief economist. Gas plants emit about half the CO2 emissions of coal plants, she says.

Barclays, meanwhile, sees only "marginal upside risk" to its forecast that power demand for natural gas will rise by less than 2 Bcf per day through 2025. The forecast increase is low because many coal-fired power plants are already closing due to previous EPA rules curbing mercury pollution, Barclays says.

The difficulty in predicting how the curbs will affect natural gas are partly a result of the EPA's pledge to allow states "flexibility" in how they implement the Clean Power Plan, which requires the U.S. power sector to reduce carbon dioxide emissions by 30 percent from 2005 levels by 2030. [ID:nL1N0OJ0FC]

Rather than set hard targets for individual plants, the EPA will give states until the summer of 2016 to come up with plans to meet their specific goals, with alternatives ranging from solar arrays, to efficiency schemes, to carbon trading systems to nuclear power.

Individual states would be eligible for an extension until June 2017 to come up with their implementation plans, and states participating in multi-state plans would be eligible for an extension until June 2018.

The final impact for gas will be heavily dependent on how states choose to implement the rule, said Prajit Ghosh, a senior adviser for North America power at consultant Wood Mackenzie.

"Some states might choose to weight their plan toward energy efficiency savings and less on coal-to-gas switching," said Ghosh, who sees about 3 Bcf per day demand growth as a likely outcome of the EPA plan.

Forward gas prices showed little reaction to Monday's announcement of the plan, given that the mandated reduction in CO2 was in line with industry expectations. Average natural gas prices for 2020 were little changed at just below $5 per million British thermal units (mmBtu), versus $4.30 for 2015 .


EXPORTS TOO

An expected implementation timetable of 2017 or beyond means increased gas use by power generators will coincide with rising demand for exports through LNG terminals and pipeline exports to Mexico, along with new demand from chemical and industrial plants, mostly along the U.S. Gulf Coast.

That confluence of events may intensify the short-term impact of the rules, with states striving to meet an interim 2020 target of curbing emissions by 25 percent.

The power sector is already halfway toward meeting that goal: Cheap, plentiful gas supplies and lower power demand have reduced emissions since 2005, and the industry is "on the trajectory" to meet the EPA's announced carbon targets, said Brandon Blossman, managing director of coal and power research at Tudor, Pickering, Holt & Co, an investment banking firm.

Still, the retirement of existing coal-fired plants will likely boost gas consumption in the power sector by 5-6 bcf per day by 2020, lifting benchmark Henry Hub gas prices by 60-70 cents, said Peter Abt, managing director of Black & Veatch's management consulting division.

"Most of that impact will come sooner, rather than later," said Abt. After 2020, Abt said the need for additional gas may drop significantly, to an additional 0.5 bcf per day. "They just won't run the coal plants; they'll replace them with gas," he said.

The task will grow harder if the U.S. economy expands at a faster clip, potentially reigniting electricity demand.

Creating as much as 10 bcf per day of additional gas consumption assumes renewed growth in electric power demand, which has slowed across the nation since 2008, Blossman said.

Just as there is little doubt about increased demand, most analysts are confident that the nation's vast shale resources are more than sufficient to meet the need. Whether the necessary logistics are in place may be a different question.

"It looks like the resource base can handle it," said Jen Snyder, a principal gas analyst at Wood Mackenzie. "The tricky part is making sure the pipeline capacity is there to deliver the gas to markets that need it."

Source: Reuters

Gazprom rating improves with China Deal and Ukraine's first payment, for Fitch Ratings

Source: Press Release from Fitch Ratings

China's Cheetah Mobile Inc. Reports First Quarter 2014 Unaudited Financial Results

2014-06-02 16:01 ET - News Release

1Q14 Total Revenues Up 131.6% YoY and 17.3% QoQ to RMB315.7 Million
1Q14 Online Marketing Services Revenues Up 97.2% YoY and 9.3% QoQ to RMB232.2 Million
1Q14 IVAS Revenues Up 1533.9% YoY and 71.0% QoQ to RMB71.8 million

BEIJING, June 2, 2014 /PRNewswire/ -- Cheetah Mobile Inc. (NYSE: CMCM) ("Cheetah Mobile" or the "Company"), a leading mobile internet company that provides mission critical applications to help make the internet and mobile experience speedier, simpler, and safer for users worldwide, today announced its unaudited financial results for the first quarter ended March 31, 2014. The Company will hold a conference call at 8:00 p.m. Eastern Time on June 2, 2014. Dial-in details are provided at the end of the release.
First Quarter 2014 Highlights

• Total revenues increased by 131.6% year-over-year and 17.3% quarter-over-quarter to RMB315.7 million ($50.8 million) from RMB136.3 million in the prior year period and RMB269.2 million in the prior quarter.
• Online marketing services revenues grew 97.2% year-over-year and 9.3% quarter-over-quarter toRMB232.2 million (US$37.4 million) from RMB117.8 million in the prior year period and RMB212.5 million in the prior quarter.
• Internet value-added services ("IVAS") revenues increased by 1,533.9% year-over-year and 71.0% quarter-over-quarter to RMB71.8 million (US$11.6 million) from RMB4.4 million in the prior year period and RMB42.0 million in the prior quarter.

Key Operating Metrics

• Total mobile user installations globally increased by 44.9% quarter-over-quarter to 502.1 million as of March 31, 2014 from 346.6 million as of the prior quarter end.
• Mobile monthly active users ("Mobile MAUs") increased by 385.6% year-over-year and 33.9% quarter-over-quarter to 222.5 million as of March 2014 from 45.8 million in the prior year period and 166.2 million in the prior quarter.
• Mobile MAUs from overseas markets were 63.0% of total mobile MAUs in March 2014, compared with 53.0% in the prior quarter.
• Monthly active users of Duba.com Personal Start Page increased by 43.0% to 54.3 million in March 2014 from 38.0 million in the prior year period and 46.8 million in the prior quarter.

Mr. Sheng Fu, Cheetah Mobile's Chief Executive Officer, stated, "We are pleased to see an exciting start in 2014 and to report solid operating and financial results for our first quarter of the year. We are also very proud that as of March 2014, we were again the publisher of the #1 mobile application in the Tools category on Google Play worldwide and the #2 internet security software provider in China. Our mobile applications continued to gain popularity worldwide, adding new users at a rapid pace. Mobile MAUs increased 385.6% year-over-year to 222.5 million with approximately 63.0% of mobile MAUs coming from overseas markets, mostly the US and Europe. Looking forward, we plan to further solidify our global market position, and capitalize on the increasingly global and mobile-centric internet market by further growing our mobile user base, deepening our global penetration, enhancing our mobile monetization capability and pursuing strategic investments and acquisitions to expand our product portfolio and global service capabilities."
Mr. Andy Yeung, Cheetah Mobile's Chief Financial Officer, commented, "Despite weak seasonality, we delivered the eighth consecutive quarter of revenue growth, with revenues having grown 17.3% sequentially and 131.6% year-over-year to RMB315.7 million.  In addition to strong top-line growth, in the first quarter, we are also seeing encouraging results in our mobile business. While mobile monetization is still in its early stage, mobile already accounted for 17.0% of our revenues in the quarter, up from 1.6% a year ago and 11.6% in the fourth quarter of 2013. In 2014, we will continue to invest in our mobile business and step-up our efforts to capture exciting growth opportunities in the global mobile internet market."

Brazil's annual inflation rate seen edging up in May

 Brazil's annual inflation rate is seen edging up for May but will remain within the central bank's target range amid slowing economic growth, a Reuters poll showed.

Consumer prices likely rose 6.34 percent in the 12 months through May, up from 6.28 percent in the prior month, according to the median of 24 forecasts. The central bank's target ceiling for inflation is 6.5 percent.

On a monthly basis , the benchmark IPCA index probably rose 0.43 percent, slowing from an increase of 0.67 percent in April, according to the median of 30 forecasts.

The anticipated easing in the monthly inflation rate is mainly due to a smaller rise in food prices, analysts said.

Slowing economic growth has also helped restrain inflationary pressures. The government reported on Friday that the gross domestic product grew 0.2 percent in the first quarter following a 0.4 percent gain in the fourth quarter.

Although inflation remains high, the central bank held rates steady last week for the first time in more than a year to see how the lagged effects of the recent increases would affect prices and economic growth.

The pause followed nine straight interest rate hikes in the year through April which took the bank's benchmark interest rate to 11 percent.

The bank hinted that it could resume rate increases if inflation continues to rise, as economists forecast it will happen by year-end. The median forecast in a weekly central bank survey projects inflation at 6.47 for calendar year 2014.

Stubbornly elevated inflation is a headache for President Dilma Rousseff, who will seek re-election in October. It has also undermined business and consumer confidence, curbing investments and family consumption over the past few months.

Water-saving incentives to avoid rationing in Sao Paulo, Brazil's largest city, also helped curb inflation in May, according to economists with Santander. Cia de Saneamento Básico do Estado de São Paulo SA is offering a discount to clients who reduce their monthly water consumption by at least 20 percent through December. [ID:nL1N0OE2BL]

Brazil's statistics agency IBGE releases its May inflation report on Friday at 9 a.m. local time (1200 GMT).

The individual analysts' forecasts in the Reuters poll ranged for 0.33 percent to 0.49 percent for the consumer price gain in May.

Estimates for inflation in the 12-month period through May ranged from 6.24 percent to 6.40 percent.

Source: Reuters

U.S. Department of Commerce : Full Report on Manufacturers* Shipments, Inventories and Orders for April 2014

Add caption

U.S. factory orders climb 0.7% in April

 Orders for goods produced in U.S. factories rose 0.7% in April, the Commerce Department said Tuesday. Economists surveyed by MarketWatch had expected orders to rise 0.6%. Factory orders climbed by a revised 1.5% in March, compared with a prior estimate of 0.9%. Orders for durable goods -- products meant to last at least three years -- rose 0.6% in April. Orders for nondurable goods increased 0.7%. 

Source: Marketwatch

With euro zone inflation disappearing, ECB poised to act

- Euro zone inflation fell unexpectedly in May, all-but sealing the case for the European Central Bank to act this week with a batch of measures to stimulate the economy and keep it from the clutches of deflation.

Annual consumer inflation in the 18 countries sharing the euro fell to 0.5 percent in May from 0.7 percent in April, the EU's statistics office Eurostat said on Tuesday. Economists polled by Reuters had expected inflation to remain steady.

ECB policymakers have flagged a policy move for their meeting on Thursday and the bank's president, Mario Draghi, said last week the ECB was equipped to get inflation back to its target - just below 2 percent. [ID:nL6N0OD4AG]

The weak May inflation reading - back at levels last seen in March, which was the lowest level since November 2009 - bolsters the case for action and will undermine any resistance hawkish members of the Governing Council might put up.

"The ECB hardly needs any more reason to deliver a major package of stimulative measures at its June policy meeting on Thursday to counter the risk of prolonged very low inflation turning into deflation," said Howard Archer, chief European economist at consultancy IHS Global Insight.

Sources told Reuters last month that the ECB was preparing a package of policy options for its Thursday's meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms (SMEs).

The weak May price rises cemented expectations that the ECB will now deliver a package of measures to stimulate the economy, though U.S.-style quantitative easing (QE) - or money printing to buy assets - remains some way off.

"The numbers only add pressure on the ECB to spice up its easing package further this Thursday," said Jan von Gerich, strategist at Nordea.

Tuesday's reading came after a low number from Germany. [ID:nL6N0OJ2V6]

Inflation in the 9.5 trillion euro economy is stuck in the ECB's 'danger zone' of below 1 percent, a sign of the fragile recovery. The ECB says it stands ready to use all tools available to fend off deflation risks and aid the economy.

"The ECB has consistently underestimated the deflationary forces threatening Europe and now is the time for unconventional monetary policy," said Dominic Rossi, global chief investment officer at Fidelity Worldwide Investment.


MILLIONS JOBLESS

Core inflation, excluding energy, food, alcohol and tobacco, fell to 0.7 percent in May from 1.0 percent in April. Energy prices were flat on the year, showing no decline for the first time in five months.

Global financial markets have been buoyed by the odds of cheaper money in the bloc and could react sharply if the ECB does not deliver on Thursday. [ID:nL6N0OF36G]

The euro rebounded against the dollar after the inflation data was released, suggesting the markets have already priced in expectations of incoming monetary policy easing by the ECB.

In a sign of the slow economic recovery, a separate Eurostat data release showed the bloc's unemployment dipped marginally to 11.7 percent in April from 11.8 percent, but still near the record high of 12 percent registered a year ago.

Some 18.75 million of people are without jobs in the euro zone - 76,000 less than in March, the Eurostat data showed.

Joblessness has been stuck at almost 19 million people for the last four months and shows the human impact of the worst financial crisis in a generation, but it also varies widely across the euro zone.

The European Commission, the EU executive, said the April unemployment data was a positive sign, but there were many tough challenges ahead on the road towards a significant improvement.

"The EU finally has to turn a vicious circle into a virtuous one, where more people can work, earn, spend and thereby create demand for other people's work too," Laszlo Andor, the EU's commissioner for employment said in a statement.

"By shifting taxation away from low-paid labour, hiring can be made easier and household incomes can be boosted," he added.

Source: Reuters

Brent slips towards $108 as weak refining demand bites

Brent crude oil futures slipped towards $108 a barrel on Tuesday, reflecting weak European refining demand, but reasonable Chinese manufacturing data helped keep a floor under prices.

Brent futures for July were down 34 cents at $108.49 a barrel by 1206 GMT. U.S. crude was down 4 cents at $102.43 a barrel.

"I think technically Brent has broken to the downside and that it will trend lower gradually," said Christopher Bellew, an oil broker at Jefferies Bache in London. "However, the market is pretty well-balanced fundamentally and geopolitical risk is still with us, so I do not envisage prices going below $105."

Ole Hansen, senior commodity strategist at Saxo Bank, agreed the risk was to the downside with speculative net long positions near record highs for U.S. and Brent crude. Some liquidation would push prices lower.

"There is quite a significant overhang of longs in the market that could be flushed out," he said. "But that's not a concern as long as we stay above $100."

Nevertheless, the futures market is beginning to reflect weakness in the physical market, where price levels dipped to two-year lows last week. [CRU/E] This was driven by weak demand in Europe, as refiners are suffering from poor margins and have begun cutting runs.

"Logistical bottlenecks, long lead times in planning, pockets of regional demand strength and expectations that someone else will blink first have all delayed run cuts in Europe, but we are at the juncture now when cuts are ensuing," analysts at Energy Aspects said in a note.


AMPLE SUPPLY

At the same time, supply of the four crudes that underpin the Brent futures contract is seen as ample, with very little moving outside northwest Europe at present.

Energy Aspects forecasts Brent could fall towards $107 a barrel once refiners in northwest Europe cut runs. Mediterranean refiners have already embarked on voluntary run cuts, it said.

Some reasonable numbers from China's factory and services sector helped keep a floor under oil prices, with their best showings in months.  The final HSBC/Markit purchasing managers' index (PMI) rose to 49.4 in May, a four-month high.

"The market received a little bit of a boost from those Chinese numbers – it paints a picture of continued slow recovery and stabilisation," said Hansen. "This should support oil demand growth in China."

Source:  Reuters