Monday 09/05/22

1. In BIG PICTURE NEWS, US imposes more Russia sanctions, Trafigura invests in UK lithium, US refiners reap the benefit of high pump prices and the US faces electricity shortages
2. In CONSUMER & RETAIL NEWS, households continue to face major challenges, Scottish Power calls for action on energy bills and we look at whether we’ve fallen out of love with online shopping
3. In M&A NEWS, Morrisons goes for McColl’s and West End landlords look to merge
4. AND FINALLY, I bring you some anti-hack hacks and an amazing “toy”…

So the US turns the screws on Russia, Trafigura gets excited, US refiners are loving expensive oil but the US faces power shortages…

US hits Gazprombank executives with sanctions for first time (Financial Times, Felicia Schwartz, Sam Fleming, Marton Dunai and George Parker) shows that the US yesterday imposed more sanctions on Russia as it blacklisted more financial execs from Gazprombank and Sberbank and further restricted the provision of accountancy and consultancy services (although, again, law firms are still OK). Re the proposed EU oil ban, EU ambassadors meeting yesterday still couldn’t agree (mainly because Hungary is objecting, and for the ban to come in it has to be agreed by all 27 member states). As things stand, the majority of countries would have to ban Russian oil within six months whereas Hungary and Slovakia would have until the end of 2024 and the Czech Republic would have until June 2024. Discussions are ongoing.

Commodity trader Trafigura backs UK lithium refinery project (Financial Times, Neil Hume) heralds an interesting development as Trafigura, one of the world’s biggest metal traders, announced that it would invest in a UK start-up, called Green Lithium, that plans build a refinery in the UK. * SO WHAT? * At the moment, Trafigura reckons that over 90% of the world’s battery grade lithium comes from China, which also refines most other key battery materials, including cobalt and nickel, and that there are no commercial refineries in Europe despite there being a number of planned gigafactories to make batteries. At the moment, most lithium used in EV batteries comes from Chile, Argentina and Australia – but it’s then processed in China. Green Lithium’s plant isn’t 100% signed off yet, but if/when it does get the green light, it reckons that the project will result in 1,000 construction jobs and 200 jobs once it starts production.

Meanwhile, Rocketing prices at the pump fuel surge in profits at US refiners (Financial Times, Justin Jacobs) shows that America’s oil refiners are experiencing booming profits due to rising shortages of diesel, petrol and jet fuel. Refining activity is approaching capacity thanks to burgeoning post-pandemic bounceback and pump prices are going up as a result. * SO WHAT? * It looks like such prices are going to continue for months, which is bad for consumers but great for companies like CVR Energy, PBF Energy, Phillips 66 and Valero. Fuel inventories are running down at pace (diesel inventories in the US are at their lowest level since 2006) and this could accelerate over the summer as more people travel.

Then in Electricity shortage warnings grow across US (Wall Street Journal, Katherine Blunt) we see that electricity grid operators are saying that power-generating capacity may struggle to continue to keep pace with demand – and that could result in rolling blackouts in peak weather conditions. Grid operators in California, the Midwest and Texas have all warned of a shortfall in supplies or are already experiencing it. This is being made worse by traditional power plants being retired faster than they can be replaced by renewables capacity as well as the relative lack of battery storage capacity needed to smooth out the volatility of renewables-generated supply. * SO WHAT? * Many countries are experiencing similar problems as everyone tries – at the same time – to move away from reliance on fossil fuels. I suspect that many industries are going to have to at least think of contingency plans regarding power usage because the transition period between “traditional” power supply and supply from renewables is unlikely to be seamless!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Consumers continue to face challenges and are perhaps falling out of love with online shopping…

Number of UK households cutting back on meals jumps 57% (Financial Times, Judith Evans) cites a report by the Food Foundation charity which shows that the number of UK households cutting back on food or skipping meals to reduce spending has jumped by 57% from January. So far Rishi Sunak has ignored calls to increase welfare benefits in line with inflation but the Food Foundation is pushing for him to relent on this. UK households resort to ‘buy now pay later’ loans to cover energy bills (Financial Times, Nathalie Thomas) cites Energy Support and Advice UK’s warnings to consumers to treat “buy now, pay later” offers to help with rising energy costs with “extreme caution”. There appears to be an increasing trend for these schemes being offered by companies like Zilch to help people spread the cost of rising utility bills while debt and energy advice groups advocate going direct to energy suppliers to renegotiate repayments. Meanwhile, Scottish Power boss urges Sunak to take swift action on energy bills crisis (The Guardian, Alex Lawson) shows that the chief exec of one of the UK’s biggest energy suppliers is joining the chorus of voices calling for the government to help struggling families ahead of an expected dramatic increase in utility bills due in October, not long after the new consumer energy price cap is announced in August. Keith Anderson says that a solution needs to be finalised in July in order for it to be implemented in time for October. Sunak announced a plan in February this year to give 28million households a £200 discount on their bills in October that they will then have to repay over five years. Anderson reckons that progress has been slow and the amount on offer won’t even touch the sides. * SO WHAT? * I’ve said this before but I think that the government is trying to delay handouts for as long as possible because I suppose that every day nothing happens they are effectively “saving” money. I think it is gambling on better weather from now on to take the edge off consumption but the fact remains that consumers are going to get hit with a tsunami of rising bills. I really think that the government needs to put a plan in place as soon as possible – and it just isn’t going to be for low income households either. Given the news we keep seeing on dual-income households increasingly having to

go to food banks, I would imagine that many middle income families are also going to find things extremely tight at the very least as utility bills rise. I maintain my assumption that any particularly onerous extraneous spending, e.g. on major “long haul” holidays, will tail off at an increasingly rapid pace going into the final quarter of the year.

In terms of consumer trends, Are we falling out of love with buying online (The Times, Ashley Armstrong) is a really interesting article which looks at whether we’ve all got a bit jaded with online shopping over lockdown. Share prices in “lockdown winners” Asos and Boohoo have fallen by around 75% while Ocado has fallen by about 60%! As I was saying last week, Shopify and Etsy experienced a major weakening in their share prices, as did Zalando, and they have also suffered from investors’ disappointment with their less-than stellar outlooks for the rest of the year. The BRC-KPMG retail sales monitor for last month showed that online non-food sales dropped by 29% and made up “just” 38.5% of sales versus 63% of sales being non-food a year ago. * SO WHAT? * I really think that this is a post-lockdown blip. After a couple of years being couped up indoors and having our “outdoor” experience opportunities severely limited, it is unsurprising that we all want to go out more and do the things we weren’t able to do. However, under lockdown, I think that we have also reinforced what we already knew about how useful online shopping and home delivery is. I think that it is time that online apparel retailers in particular redouble their efforts on reducing “returns” and have more tie-ups with physical store chains to provide more delivery and collection options for a relatively low cost. Maybe this could be in the form of having better ways of ensuring something fits properly. In terms of online grocery shopping, I personally think that the stores that DON’T funnel loads of money into rapid delivery will win because this is just throwing good money after bad IMO. I’d say, just let the private equity firms burn their cash (they’ve got tons to burn, after all!). This is why I think that Aldi and Lidl will keep winning – firstly, I think they will benefit from being thought of as the cheap and cheerful option with quality and secondly, they don’t waste their time with building expensive delivery networks (they outsource it). 

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Morrisons aims to swoop for McColl’s and West End landlords aim to get together…

Morrisons seeks to gatecrash McColl’s deal (Daily Telegraph, Gareth Corfield) shows that Morrisons is now at the front of the queue to buy failed convenience store chain McColl’s after pushing in in front of the owners of Asda who had previously looked like the most likely buyers. McColl’s went into administration on Friday and now PwC has taken final offers from both Morrisons and EG Group for consideration. The drama continues to unfold…

Then in West End landlords confirm talks over £3.5bn merger (The Times, Louisa Clarence-Smith) we see that Shaftsbury and Capital & Counties (aka “Capco”), are in talks about an all-share £3.5bn merger that would bring together properties in Covent Garden, Carnaby Street, Soho and Chinatown that would create one of Britain’s biggest listed property companies. After a tumultuous two years, I suspect that the two companies hope that they will be able to get comfort from being part of a much larger entity. I think that this is a decent idea strategically because it can give them more to work with if they felt the need to streamline the property portfolio.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I don’t know about you, but I’ve heard more about the increased incidence of cyber attack attempts during and since lockdown so I thought you might find this useful: Hacking expert shares which social media posts to avoid to keep your data safe (The Mirror, John Bett). And then I saw this on my feed this morning – and it is a “toy” that looks like a lot of fun!