Friday 15/10/21

1. In MACRO, OIL & ENERGY NEWS, China’s producer prices shoot up, shalers face higher costs and energy companies get sneaky with direct debits
2. In SUPPLY CHAIN NEWS, Biden’s 24/7 approach has flaws, butchers are given visas, supply chain woes broaden and warehouse space is at a premium
3. In IPO NEWS, tech start-ups pile up, PureGym has a wobble and US banks rake it in
4. In MISCELLANEOUS NEWS, LinkedIn shuts down in China and Boots puts in a solid performance
5. AND FINALLY, I bring you a heart-warming act of kindness…

So producer prices rise in China, shale producers face higher costs and energy companies hike direct debits…

Factory gate price rise in China worst for 25 years (The Times, Gurpreet Narwan) cites the latest figures from China’s National Bureau of Statistics which show that producer prices shot up by a chunky 10.7% in the year to September, the biggest jump since records began in 1996. This was above market expectations and was driven mainly by rising coal prices. Interestingly, from the consumer point of view, rising energy costs have actually been offset by falling food prices – something particularly pronounced with pork prices, which have fallen by 44.9% in the year to September due to oversupply. * SO WHAT? * Given that China is the world’s biggest exporter, a hike in producer prices will lead to higher costs for buyers around the world and the key is whether these costs are passed on to the end consumer. Chinese energy companies will be allowed to increase their prices by 20% soon – the state-enforced price cap that has helped manufacturers so far will lapse – and so energy intensive industries in particular will be feeling even more pain. Some say that Chinese manufacturers are more likely to pass these cost increases on to foreign business partners than domestic ones, but I guess we’ll just have to see.

Inflation drives up drillers’ costs in US shale oil patch (Financial Times, Justin Jacobs and Derek Brower) shows that supply problems and labour shortages in the US are pushing up shale oil production costs. Steel prices, higher wages and increased prices to hire drilling rigs are all

adding up – which means that the price that oil needs to be at in order for shale oil producers to be profitable could rise from $50 a barrel to $55 a barrel next year, according to a Artem Abramov, head of shale research at Rystad Energy. * SO WHAT? * With oil prices currently hovering around $80 a barrel, will a battered shale production industry feel confident enough to up production? Moody’s, the debt rating agency, reckons that oil prices will range from $50 to $70 a barrel but TBH, predictions like this are pretty useless 🤣 and guessing what the oil prices is going to be in the next few months, let alone the next few years, is a mug’s game. “Experts” are often wrong and I wouldn’t class Moody’s as an expert as such. IMO it’s like trying to guess the weather, but obviously you have to base your predictions on something. Mind you, I would have thought that oil prices will stay strong for quite some time yet as there does appear to be robust underlying demand.

Then in Energy firms accused of ramping up direct debits (Daily Telegraph, Rachel Millard) we see that Citizens Advice is seeking action from Ofgem, the energy watchdog, after an increasing number of calls from customers being hit by unexpectedly big increases in their direct debits over the last few weeks. As things stand at the moment, suppliers base direct debits on an estimate of how much energy a consumer uses over the year and they often adjust make payment adjustments afterwards. * SO WHAT? * This could escalate into a big problem if it’s found that energy companies are hiking up prices via the back door because suddenly having a few hundred quid whacked onto your bill is no fun for anyone – especially where pretty much everywhere you look consumers are facing higher costs.

We look at why Biden’s 24/7 plan might not work, overseas butchers get drafted in, Ikea and the rest have problems and warehouse space is at a premium…

The flaws behind Biden’s open-all-hours ports strategy (Financial Times, Claire Jones) is a really interesting article, bearing in mind what I was saying yesterday, because it argues that the extension in hours won’t solve the supply chain crisis on its own because there are other logjams in the supply chain. Workers in the Port of Los Angeles have been working far longer hours than they usually would already, but there are still problems like a shortage of truck drivers, railway workers and storage space. * SO WHAT? * The interesting conclusion here is that this is a problem of our own making because supply chains up until now have been almost too efficient and that our expectations of convenience have got us to this point. The conclusion is that we all need to buy less “stuff”, but with pressure coming from all sides on household budgets, this may well happen – but AFTER Christmas (in my opinion). I think that many of us see Christmas as a beacon of light within touching distance and the fact that we had it snatched away from us last minute in 2020 is likely to galvanise our resolve and keep us buying stuff anyway (even if we do dip into debt). The New Year, however, could be a different story…

Meanwhile, back home, UK to grant visas for 800 foreign butchers to prevent mass pig cull (Financial Times, Jim Pickard and Peter Foster) highlights a move by the government to allow a limited number of foreign butchers to work in Britain on seasonal visas. This action is being taken to head off warnings by British farmers that 10,000 pigs may have to be destroyed every week because of shortages of slaughterhouse workers leading to the overcrowding of pigs on farms. The government will also

start a state-funded “private storage aid” scheme for pig carcasses to be stored until they can be butchered. * SO WHAT? * Like the recent climbdown regarding overseas truck drivers working in the UK, this is just a drop in the ocean given that, according to the chief exec of the British Meat Processors Association, there is a need for 12,000-15,000 skilled workers! I guess that this is at least a move in the right direction that could ease some of the difficulties right now.

Retail, food and defence firms predict further damage (The Guardian, Jasper Jolly) is a really useful summary of a number of firms who have been suffering from supply chain problems. The world’s biggest furniture retailer, Ikea, said that stock shortages could continue for up to another year, British defence technology company Qinetiq warned of a one-off writedown in profit guidance because of supply chain issues, homewares retailer Dunelm said that it faced an uncertain outlook although near term it will do OK because of decent buffer stocks, Poundland said it would have to seek out cost savings in order to stave off price rises that would have to be instigated because of rising shipping costs and Domino’s Pizza Group said it was facing labour shortages – and then announced a big hiring drive going into Christmas. Supply chains are affecting pretty much everyone!

Mind you, Warehouse space harder to find after online boom (The Times, Tom Howard) contends that warehouse space is becoming increasingly rare in the UK as a boom in online shopping has meant more bigger distribution hubs. According to CBRE, the vacancy rate in September was a mere 1.53% – the lowest ever! This time last year, the vacancy rate was about 5% – and I would say that even that was tight because of the twin drivers of Brexit-related stockpiling and the boom in online spending. * SO WHAT? * Things are so bad now that many companies are willing to pay 20% above the asking price in order to secure space and it seems that we can’t build new warehouse capacity fast enough!

Tech start-ups pile up, PureGym might have to have a rethink and US banks continue to rake it in…

Tech start-ups surpass $500bn from US public listings (Financial Times, Miles Kruppa) highlights the massive wave of US public listings, what with 93 coming through between July and September – the highest for any quarter this year, according to data from Pitchbook. This is going to give venture capital firms and their investors massive gains and America’s big banks beat expectations (The Times, Callum Jones) shows that the likes of Morgan Stanley, Citigroup and Bank of America have benefited massively from advising companies on deals. As things stand, the pipeline is looking good and the fees don’t look like drying up any time soon! * SO WHAT? * It’s interesting to see this frenzy continue – but I wonder how long it is going to last for given growing supply chain issues and pressures on

household budgets. At some point, I think that companies are going have to spend less time on M&A activity and more time looking at their own core businesses. Having said that, this might provide more opportunities for private equity firms with truckloads of cash and who don’t have to worry about “little” things like logistics.

Meanwhile, PureGym struggles to get stock market float off ground (The Times, Dominic Walsh) shows that Britain’s biggest gym operator may have to consider alternative ways of raising money as volatile markets may make a traditional IPO less attractive at the moment. * SO WHAT? * Although the company has not formally announced an intention to float it has been widely mooted but the pulling of recently scheduled IPOs from Marley and Fruugo have obviously spooked other would-be flotation candidates. If PureGym does get cold feet, it may well go down the route of raising money from private equity.

LinkedIn admits defeat and Boots powers on…

LinkedIn closes down China site (Financial Times, Eleanor Olcott and Demetri Sevastopulo) shows that LinkedIn has given up on social networking in China and will replace it with a new job-board service called “InJobs”. Chinese users will not be able to share posts or news articles. * SO WHAT? * This marks the exit of the last major US social media company from China, but it isn’t much of a surprise given that it had been brought in front of the country’s internet regulator in March and ordered to alter its content. President Biden was supportive of LinkedIn’s move.

Then in Boots does the legwork in global profits rise (The Times, Callum Jones) we see that sales at its retail stores rose by 15% in the latest quarter and did it by offering new healthcare services, investing in its website and broadening its beauty range of products. The results were announced by Boots’ American owner, Walgreens Boots Alliance, which is one of the world’s biggest pharmaceutical operators. * SO WHAT? * Nice work – and it’s good to hear good news from a company that seemed to really eke its way through lockdown. Having said that, I think that there is – and will be – a LOT of competition in beauty both offline and online so it’ll be interesting to see how Boots fares in this competitive environment.

…in other news…

I thought I’d leave you today with something that might restore your faith in humanity in Mum ‘lost for words’ by Morrison worker’s act of kindness after food shortages (The Mirror, Rosaleen Fenton). I didn’t well up. There was just something in my eye. Honest. It’s nice to know there are some decent people out there 👍!