mcalindenresearchpartners.com

Daily Intelligence Briefing

Thursday, July 11, 2019

Identifying Change-Driven Investment Themes - Five sections, explained here.

I. Today's Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

Rising Costs, Falling Revenues Could Tip More Coal Companies into Bankruptcy →

Bankruptcies, higher costs of capital and rising insurance premiums could become the new normal for coal companies as more financial companies abandon the sector and the world’s biggest energy consumers shift away from fossil fuels. Read more +

II. Updates of Themes on MRP's Radar

Follow-up analysis of key market drivers monitored by MRP.

Cryptocurrencies: Facebook’s digital currency has put China’s central bank on high alert

Fed: Powell tells market a rate cut is coming in July, now it’s just a question of how big

PBOC: Fed easing could prompt first China rate cut in four years

TCMB: Erdoğan says central bank will adhere to decisions after chief fired

Payments: India’s government has removed digital payment fees for merchants

Plastics: Big Oil Plans to Unleash a Wave of Plastic From the Gulf Coast

3DP LONG: Astronauts could heal themselves with 3D-printed skin and bones grown from their own cells

Autos SHORT: Gloom in China's Car Market to Persist

Autos SHORT: India passenger vehicle sales slump 17% in June, sparking job cut fears

Autos SHORT: Emissions rules, EV shift will spur car engine mergers and acquisitions

EVs: Tesla finally makes CHAdeMO adapter compatible with Model 3, giving access to 3rd party charging networks

Oil: A Red Flag For Oil? China’s Crude Consumption Is Faltering

Stocks: The Hottest IPOs in 2019: What if You had Invested $1,000 When They Went Public

III. Joe Mac's Viewpoint

Founder Joe McAlinden’s big-picture analyses of macro issues. More about him here.

June 28, 2019: A Review of MRP's Change-Driven Themes →

June 7, 2019: India's "Watchman" Keeps His Post →

April 25, 2019: The Facts Changed (For Now) →

March 29, 2019: Time for Gold →

IV. Active Thematic Ideas

MRP's active long and short themes, with an archive of follow-up reports.

See Them Here →

V. Macroeconomic Indicators

Key data releases relevant to MRP's Active Thematic Ideas.

See Them Here →

TODAY’S MARKET INSIGHT

Rising Costs, Falling Revenues Could Tip More Coal Companies into Bankruptcy

Bankruptcies, higher costs of capital and rising insurance premiums could become the new normal for coal companies as more financial companies abandon the sector and the world’s biggest energy consumers shift away from fossil fuels.

Rising Costs Ahead

Banks, insurance companies, institutional investors and even utilities are abandoning coal in droves. Over 100 major global financial institutions have introduced policies restricting coal lending or excluding coal securities from their portfolios. These 100+ institutions include 40% of the top 40 global banks and at least 20 globally significant insurers with more than $6 trillion of investments – 20% of the industry’s global assets.


Recognizing that the future costs of climate change will fall on them, insurance giants like Swiss Re, Zurich, AXA, Allianz, Dai-ichi Life, and Chubb, have started to restrict underwriting for new coal-related projects and to phase out existing coverage for mining and utility companies that get more than 30% of their revenue from coal. Their rationale is that, by backing away from coal and other fossil fuels that may be contributing to climate change, insurers could ultimately save themselves money in the future. Global insurance losses from extreme weather and natural disasters in 2017 and 2018 reached $219 billion, a record for a two-year period. It therefore is in their interest to force businesses to switch out of fossil fuels if those businesses want to remain insured.


Along the same lines, Norway’s $1 trillion sovereign wealth fund decided to divest itself of the securities of companies that get more than 30% of their business from coal, and is taking steps to impose a 10-gigawatt cap on its coal-fired power generation holdings. Joining a growing list of investors, BNP Paribas Asset Management recently announced that it too will exclude thermal-coal miners and coal-fired power generators from its portfolios, noting that “Divesting from coal is therefore the rational thing to do from a portfolio perspective in order to avoid the risk of stranded assets”.


Coal miners and coal-fired power station operations will likely face higher costs of capital and higher insurance costs in the future as a result of these divestments. The insurance sector alone controls enormous sums of money through investments and is critical to getting fossil fuel projects approved and financed.


Falling Global Coal Consumption

As if that weren’t enough, the world’s biggest energy consumers are ditching coal-based energy production at an accelerating pace. The United States has retired nearly 40% of its coal fleet since 2010, and the United Kingdom, where the coal revolution began more than 100 years ago, plans to close all its coal plants by 2025. The same theme is unfolding across Western and Nordic Europe. Altogether, coal demand in the US and Europe is poised to drop by more than 2% each year, as those economies shut down coal plants in favor of natural gas and renewable energy.


Then, of course, there’s China, where the government’s clean air policies present major headwinds for the fossil fuel in coming years. While coal will remain a huge source of China’s power generation for some time, the world’s largest consumer and producer of the commodity is shuttering older mines and has even banned new coal-fired power stations in parts of the country in order to tackle a serious air pollution problem. As such, the nation’s coal consumption is poised to fall by about half a percent each year through 2023, according to the International Energy Agency (IEA). BloombergNEF estimates that China’s consumption of the fuel will peak in seven years. That peak coal moment could occur even sooner thanks to new ultra-high voltage transmission lines that are expected to dramatically cut Chinese coal usage.


Elsewhere in Asia, coal remains the go-to fuel due to its abundance and relative affordability in those markets. Analysts anticipate increased demand in India and Southeast Asian nations like Indonesia, Vietnam, Philippines and Malaysia that are trying to quickly scale up their power generation. Still, coal’s global decline is inevitable. The IEA has forecast that coal will provide 25% of the world’s energy by 2023, down from 27% in 2017, as cleaner-burning energy sources continuing to eat into coal’s share of the global energy mix.


Spate of US Bankruptcies

Companies are already feeling the heat from lower coal prices and rising costs. At least four major coal companies have declared bankruptcy in the United Sate since October: Revelation Energy LLC and its affiliate Blackjewel LLC, the nation's sixth-top coal producing company in 2017, just filed for bankruptcy this month; Last month, it was Cambrian Coal LLC that went bankrupt; The month before that it was Cloud Peak Energy, a company that accounted for 7.4% of total US coal production in 2017. And, back in October, Westmorland Coal Co., America’s 9th largest coal company went bust.


Altogether, eight US coal companies have gone under since President Trump’s November 2016 election and despite his efforts to save the industry. There is no indication that things will get better. Coal’s share of the US electricity mix plunged from 48% in 2008 to 27% in 2018 and is projected to fall farther to 22% by next year, according to the Department of Energy.


Australian coal miners are also at risk. China is one of Australia’s biggest customers for coal exports, so China moving away from coal-based energy production will surely hurt some of those miners.


For your reference, here are some other reports MRP has written on this subject:

Investors can gain exposure to coal companies via the VanEck Vectors Coal ETF (KOL). Since our last coal report dated October 11, 2018, KOL has declined 14% while SPY has risen 8%.

Coal Spot Prices vs Coal Stocks vs S&P 500

Source material for today's market insight...

Coal

First major U.S. insurance company moves away from coal


Chubb Ltd., the nation’s largest commercial insurance company, announced it will move away from insuring and investing in coal. It becomes the first major U.S. insurance company to take such action, joining more than a dozen European and Australian insurers that have already adopted similar policies.


Chubb will no longer underwrite the construction of new coal-fired power plants, according to the policy. It will also stop investing in companies that generate more than 30 percent of their revenues from coal mining or production, as well as phase out existing coverage for mining and utility companies that exceed the 30 percent threshold.


Much of the future costs of climate change will fall on insurance providers. Global insurance losses from extreme weather and natural disasters in 2017 and 2018 reached $219 billion, a record for a two-year period, according to a recent report by Swiss Re Group, a reinsurance company based in Switzerland. Swiss Re announced last year that it will no longer insure businesses with more than 30 percent thermal coal exposure, a move it said supports a global transition to a low-carbon economy.


Read the full article from grist +


Coal

Coal States’ Futile Bids To Prop Up a Dying Industry Coal States’ Futile Bids To Prop Up a Dying Industry


Wyoming produces more coal by far than any other state: more than 317 million tons in 2017, according to the federal Energy Information Administration. Earlier this year, an internal study by Rocky Mountain Power, the state’s largest electricity supplier, found that closing four money-losing coal-fired power plants and replacing them with renewable energy bought on the open market could save ratepayers in Wyoming and neighboring states more than $248 million. In response, the state legislature passed a bill to force any utility that plans to close a coal plant to try first to sell it to a new operator.


Last month, West Virginia reduced the coal severance tax from 5 percent to 3 percent, and gave coal companies a tax rebate for buying equipment to expand their mines.


Last year, Kentucky lawmakers adopted legislation to prohibit federally certified radiologists from diagnosing black lung disease using X-rays. Legislation was filed the same year that a federally certified physician found the “biggest cluster ever” of black lung disease in central Appalachia.


Utah passed legislation last year that appropriated $1.65 million to file suit against California for its policies reducing greenhouse gas emissions, which make it more expensive for California utilities to purchase energy from Utah’s coal plants.


Read the full article from EWG +


Coal

Chinese Thermal Coal Demand Set To Fall With Launch Of New Power Transmission Line


A new ultra-high voltage transmission line launched this week in China is expected to dramatically cut demand for thermal coal.


The new transmission line, with a voltage of 1,100 Kilovolts (kV), is designed to transmit 66 billion kilowatt-hours (kWh) each year. The transmission line is part of a larger plan to reduce coal reliance in the east of the country. New coal-fired power stations have been banned in the east of the country due to the massive air pollution problems suffered there.


However, the transmission line is expected to reduce Chinese coal usage by about 30 million megatonnes per year. S&P Global Platts expects that the new transmission line will not only affect China’s demand for imported thermal coal but will also place pressure on domestic coal prices.


These ultra-high voltage transmission lines are also expected to be able to transfer high levels of renewable energy generated in the west of the country to provinces in the east and central region of China. The country’s National Energy Administration approved 12 of these new transmission lines last September, which are aimed at specifically transferring renewable electricity.


Read the full article from Clean Technica +


Coal

Chinese expert warns Australia against investing in new coal mines


A Chinese renewable energy expert has warned Australia against investing in new coal mines because her country, one of Australia's biggest coal customers, is moving rapidly away from coal-based energy production. When asked if Australia should be nervous about China’s shift away from coal, Joint US China Collaboration on Clean Energy chair Peggy Liu gave the example of BETA tape, fax machines and compact disc drives. “My children who are now 14 and 16 asked me when they were about eight years old, ‘Mum, what is a fax machine?',” she said.

 

Australian thermal coal prices have dropped this year as China officials slowed customs clearance. Renewable energy use in China hit 38.3 per cent of the countries total installed power capacity, up 7 percentage points from 2015.


Australia is one of the world’s largest coal exporters has a range of markets for its coal aside from China, including Japan (34 per cent), South Korea (15 per cent) and India (14 per cent).


Read the full article from the Sydney Morning Herald +


Coal

An Indian Billionaire Doubles Down on Controversial Coal Mine


Gautam Adani, the Indian billionaire behind the controversial Carmichael coal mine in Australia, took aim at two major faults opponents have flung at the development: that the mine’s low-quality coal won’t earn enough money to justify his $2 billion investment, and that the world must abandon the fuel in favor of renewable energy to avoid catastrophic climate change.


Adani bought the resource in Australia’s Galilee Basin in 2010 as Indian companies rushed for overseas energy supplies amid forecasts of booming demand. But as coal prices fizzled through the first half of the decade, Carmichael’s output -- closer to lower-quality Indonesian coal than the high-value varieties Australia is known for -- is seen unable to fetch a price strong enough to be profitable.


Australia’s Newcastle coal, a benchmark in Asia, would need to trade at $96 a ton, from about $75 now, for Carmichael to break even assuming a 15% rate of return, according to an estimate from Wood Mackenzie on Tuesday. The consultancy revised a $100 a ton estimate from last month.


India’s challenges supplying reliable power to every home have been more about distribution than whether it has enough power plants or coal. The nation already has a surplus of generation capacity, but its money-losing, debt-saddled state utilities struggle to purchase and distribute enough power.


Read the full article from Bloomberg +

You'll find all of our recent Market Insight reports on the MRP website →

ACTIVE THEMATIC IDEAS

Select a theme to see when and why we added it. Also included is a link to all recent Market Insight reports we've written about that theme, allowing you to track its progress.

LONG

Agricultural Commodities

SHORT

Aviation

LONG

Refiners

SHORT

U.S. Pharmaceuticals

SHORT

Airlines

LONG

CRISPR

LONG

Robotics & Automation

LONG

Video Gaming

LONG

3D Printing

SHORT

Autos

LONG

Electric Utilities

LONG

Solar

LONG

Vietnam

MACROECONOMIC INDICATORS

1.

United States: MBA Mortgage Applications Down


Mortgage applications in the United States dropped 2.4 percent in the week ended July 5th 2019, following a 0.1 percent decline in the previous week, data from the Mortgage Bankers Association showed. Refinance applications fell 6.5 percent while applications to purchase a home rose 2.3 percent. The average fixed 30-year mortgage rate went down by 3bps to 4.04 percent.


Click here to access the data +

2.

United States: EIA Crude Oil Stocks Fall Strongly


Stocks of crude oil in the United States decreased by 9.499 million barrels in the week ended July 5th of 2019, following a 1.085 drop in the previous week and well above market expectations of a 3.081 million fall. It was the fourth straight weekly decline in crude oil inventories. Meanwhile, gasoline inventories went down 1.455 million, after a 1.583 million decrease in the prior week and compared market consensus of a 1.301 million decline.


Click here to access the data +

3.

China: Total Vehicle Sales Decline Again


Vehicles sales in China dropped 9.6 percent from a year earlier to 2.06 million units in June 2019, marking the 12th consecutive month of decline. Sales of passenger vehicles fell 7.8 percent to 1.728 million and those of commercial vehicles decreased 17.8 percent to 329,000. On the other hand, sales of new energy vehicles (NEVs) jumped 80 percent to 152,000 units. Considering the first half of the year, vehicles sales fell 12.4 percent while new energy vehicle sales went up 49.6 percent over the same period of 2018.


Click here to access the data +

4.

United Kingdom: UK Trade Gap Narrows to 8-Month Low


The UK trade deficit narrowed to GBP 2.32 billion in May 2019 from a revised GBP 3.72 billion in the previous month. That was the smallest trade deficit since last September. Exports of goods and services from the UK surged 2.4 percent from a month earlier to GBP 54.38 billion. Imports to the UK fell 0.2 percent from a month earlier to GBP 56.71 billion, the second consecutive month of decline, as goods purchases dropped 0.6 percent.


Click here to access the data +

5.

Canada: Bank of Canada Holds Interest Rate at 1.75%


The Bank of Canada held its benchmark interest rate at 1.75 percent on July 10th 2019, as widely expected. It remained the highest rate since December 2008. Policymakers said that the degree of monetary policy accommodation is appropriate and noted that the economy outlook is clouded by ongoing global trade tensions. The Committee added that they will continue to monitor developments in the energy sector and the impact of trade conflicts on the prospects for domestic economic growth and inflation. The Bank Rate and deposit rate were also left unchanged at 2.0 percent and 1.50 percent, respectively.


Click here to access the data +

6.

Brazil: June Inflation Rate at Over 1-Year Low


The annual inflation rate in Brazil decreased to 3.37 percent in June 2019 from 4.66 percent in the previous month but slightly above market consensus of 3.33 percent. It was the lowest inflation rate since May last year, amid a slowdown in cost of food and non-alcoholic beverages, housing and transport. On a monthly basis, consumer prices increased 0.01 percent, easing from a 0.13 percent gain in the prior month but higher than market expectations of a 0.03 percent decline.


Click here to access the data +

MARKET INSIGHT UPDATES: SUMMARIES

Markets

Cryptocurrencies

Facebook’s digital currency has put China’s central bank on high alert


The PBOC is paying “high attention” to Libra, according to Wang Xin, director of the bank’s research bureau. Speaking at an academic conference at the University of Peking, Wang expressed concern over how Libra might affect the world’s financial system if it takes off.


One thing China wants to know is what role the US dollar will play in the basket of fiat currencies that will supposedly back Libra coins. If it is most closely associated with the dollar, Wang said, “there would be in essence one boss, that is the US dollar and the United States. If so, it would bring a series of economic, financial, and even international political consequences.”


If Libra takes off, we might see central banks across the world issue their own digital currencies to compete, and it wouldn’t be surprising to see China out in front. China’s central bank was one of the first central banks to begin studying digital currencies, back in 2014.


Read the full article from MIT Technology Review+

Monetary Policy

Fed

Powell tells market a rate cut is coming in July, now it’s just a question of how big


Fed Chairman Jerome Powell reaffirmed that the Fed is worried about the economy and would act as “appropriate” to sustain the economic expansion — a signal to markets the Fed is prepared to cut interest rates.


Powell said overall growth seems to have moderated in the second quarter, and in recent weeks the outlook has not improved. “Crosscurrents have reemerged,” he said in his testimony, noting that investments slowed down “notably” from trade tensions and a global slowdown.


During his testimony to Congress, Powell also said the recent strong jobs report did not change the Fed’s view of whether it should cut interest rates. He said he would not describe the jobs market as hot, when asked about it.


The fed funds futures market has been pricing in a 25 basis point, or quarter-percentage point cut to the fed funds target rate range, now at 2.25 to 2.50%. Ralph Axel, senior U.S. rate strategist at Bank of America Merrill Lynch said the market began to price a 58% chance of a 50 basis point cut, after Powell’s prepared comments were released.


Read the full article from CNBC+


PBOC

Fed easing could prompt first China rate cut in four years


China’s central bank could cut its benchmark policy rate for the first time in four years if the U.S. Federal Reserve delivers a widely expected cut in late July. It would not be the first time the PBOC has followed the Fed’s lead. In 2017 and 2018, the bank raised short-term money rates hours after U.S. hikes, although in more modest and symbolic moves of 5 to 10 basis points.


A very forceful easing signal could pressure China’s yuan currency and encourage capital outflows, while adding to a mountain of debt leftover from past credit binges, analysts say. The PBOC reportedly told banks recently to stop cutting mortgage rates, amid persistent worries about a property bubble.


The PBOC has aggressively slashed the amount of cash that banks must hold as reserves six times since early 2018, and is widely expected to continue lowering those requirements. In recent weeks it has also stepped up cash injections to calm market nerves after regulators seized a troubled bank, which sparked worries of financial contagion.


On Tuesday, the benchmark overnight repo rate for banks plummeted to 0.70%, the lowest since data became available in 2003, and below the interest rate offered by the central bank on commercial banks’ excess reserves, which now stands at 0.72%.


Read the full article from Reuters+


TCMB

Erdoğan says central bank will adhere to decisions after chief fired


Turkey’s central bank will adhere to government decisions from now on, instead of the other way round, President Erdoğan signaled after sacking the bank’s chief at the weekend for failing to lower interest rates.


The government used to have to adhere to the central bank’s decisions on monetary policy, Erdoğan said. But now the president has new powers, he added, referring to his right to hire and fire policymakers by presidential decree, a power he awarded himself last summer. He is known as an opponent of interest rates, saying higher rates cause inflation. The central bank delayed rate hikes during a currency crisis last year due to government pressure.


Former Governor Murat Çetinkaya raised the bank’s benchmark lending rate by 625 basis points to 24 percent in September to support the lira, which had dropped to a record low. Turkey’s economy entered a recession in the second half of last year but grew again on a quarterly basis in the first three months of 2019. Meanwhile inflation has slowed to 15.7 percent in June from 25.2 percent in October, a 15-year high. Central bank policymakers are next due to meet on interest rates on July 25.


Read the full article from Ahval+

Finance

Payments

India’s government has removed digital payment fees for merchants


Indian retailers with payments volume of at least Rs 50 crore ($7.3 million) a year will no longer have to pay banks a fee of close to 2% on electronic payments. Meanwhile, the government is also reportedly requiring licensed retailers to be able to accept QR code payments and transactions through the country's Unified Payments Interface (UPI), which enables users to send and receive bank-based payments from their smartphones


The elimination of fees on digital payments and mandate for in-store acceptance of such transactions incentivizes merchants to take them. Getting rid of the fee improves the margins for digital transactions, as they will cost merchants less, while the costs of card transactions — to which the fee doesn't apply — will remain unchanged.


India's digital payments market is projected to be worth $1 trillion by 2023.


Read the full article from Business Insider+

Manufacturing & Logistics

Plastics

Big Oil Plans to Unleash a Wave of Plastic From the Gulf Coast


The world’s biggest oil and chemical companies are about to unleash a tidal wave of plastic raw materials by the mid-2020s, tapping cheap shale gas to meet growing demand from makers of everything from toys to plumbing to consumer goods.


Exxon Mobil Corp., Dow Inc., France’s Total SA, South Africa’s Sasol Ltd. and Saudi Basic Industries Corp. have built or announced at least $40 billion in new petrochemical facilities in Texas and Louisiana. The investments in Gulf of Mexico coastal factories come amid a consumer backlash against plastic bags and straws for their environmental impact. In the U.S. alone, New York City, Seattle, Oakland and Miami Beach all have either banned straws or have pending proposals to do so. Boston, Chicago, Los Angeles and San Francisco prohibit plastic bags, while several other cities imposed fees for using plastic bags at grocery stores.


In spite of this, some forecasters still see plastic demand growing quicker than oil, which is under threat from renewable energy and electric vehicles.


Read the full article from Bloomberg+

Technology

3DP

Astronauts could heal themselves with 3D-printed skin and bones grown from their own cells


Researchers from Dresden Technical University (TUD) have developed a 3D bioprinting method for use in space, creating new skin and bone tissue out of resources that might be available to astronauts.


There are two main hurdles to this idea: first, it might be hard to source these "bio-inks" in space, and secondly, liquid inks won't always stay where they're needed in micro-gravity.


To solve the first problem, the TUD team suggested that the astronauts themselves could be a source of bioinks. Plasma from the blood could be used to make the skin cells, while stem cells could be turned into bone. The second problem, micro-gravity, was tackled by changing the viscosity of the plasma-derived bio-ink, which is normally quite fluid. The researchers added methylcellulose and alginate to the mix, which increases the viscosity of the ink and keeps it from running everywhere. These ingredients can be sourced from plants and algae, which astronauts on long trips would likely have on hand.


"In the case of burns, for instance, brand new skin could be bioprinted instead of being grafted from elsewhere on the astronaut's body, doing secondary damage that may not heal easily in the orbital environment,” says Nieves Cubo, a team member on the project. "Or in the case of bone fractures – rendered more likely by the weightlessness of space, coupled with the partial 0.38 Earth gravity of Mars – replacement bone could be inserted into injured areas


Read the full article from New Atlas+

Transportation

Autos

Gloom in China's Car Market to Persist


The historic slump in China’s car demand is set to persist, with dealers showing no signs of boosting orders from manufacturers as economic woes and stricter emissions rules keep consumers away.


Wholesale deliveries of passenger vehicles fell 7.8% to 1.73 million units in June and have now slid for 12 consecutive months, the China Association of Automobile Manufacturers said Wednesday.


While retail sales of cars rose in June -- the first increase in a year -- the gains were helped by heavy discounting by dealers clearing inventory that had built up during the year, another industry group said earlier in the week. Sales are set to recover somewhat in the second half, but not enough to avoid a full-year decline. The China Association of Automobile Manufacturers (CAAM) is forecasting “negative growth” in China’s passenger-car sales for the full year, and researcher LMC Automotive last month predicted a 5% decline.


Read the full article from Bloomberg+

Autos

India passenger vehicle sales slump 17% in June, sparking job cut fears


Passenger vehicles sales in India slumped 17% in June, underscoring a deepening slowdown that sparks concerns about production cuts and layoffs.


The slowdown in sales prompted many automakers, including Maruti Suzuki India, the nation's biggest, to slash production in recent months. Reflecting the weak consumer spending, India's economy expanded at the slowest pace in four years during January-March.


Last month, Maruti posted a 14% slump in sales in June, its fifth straight monthly decline. The Suzuki Motor unit's overall sales last year barely grew 4.7%, forcing the company to cut production by 21%. Mahindra and Mahindra reported a 6% decline in June sales while Tata Motors, India's largest automaker by revenue, saw domestic sales of its passenger vehicles slump 27%.


The industry got a jolt last week, when the federal budget proposed raising duties on auto parts and slapped additional taxes on fuel. Prior to the budget, the Society of Indian Automobile Manufacturers (SIAM) had requested the government to lower the goods and services tax on car purchases to 18% from the current 28% to stimulate demand. Instead, the government sought the GST Council to cut the tax rates on electric vehicles to 5% from 12% and offered tax incentives for buyers of EVs. Still, SIAM expects sales of passenger vehicle to grow 3%-5% in the current financial year, which started on April 1.


Read the full article from Nikkei Asian Review+

Autos

Emissions rules, EV shift will spur car engine mergers and acquisitions


The auto industry has all but stopped developing next-generation combustion engines as limited resources are directed towards building electric and self-driving cars. However, electric vehicles are still a niche product, accounting for only 1.26 million — or 1.5 percent — of the 86 million cars sold worldwide last year, and analysts forecast it will be the middle of the next decade before a tipping point comes when electric cars overtake combustion-engined variants.


That means there will still be demand for emissions-compliant combustion engines and so manufacturers and suppliers able to offer that are likely to see valuations recover, said Reinhard Kuehn, co-head of European Automotive at Deutsche Bank.


Volkswagen is now warning its suppliers to prepare industry-wide solutions for winding down combustion-engine manufacturing as it ramps up mass production of electric vehicles. Volkswagen, one of the largest manufacturers of petrol and diesel engines, has said it will develop its final generation of combustion engines by 2026, while U.S. rival Ford last month said it would close two engine factories in Europe. "The profit pool of companies with combustion engine-related technology – once the envy of the industry – is shrinking with the rise of electric vehicles and the digitisation of the industry," Goldman Sachs managing director Axel Hoefer said.


"It makes no sense to have factories running at only 40% capacity," Stefan Sommer, Volkswagen's procurement head, told Reuters. "The autoindustry is obliged to develop structures to consolidate combustion engine assets, to decide where to bundle certain activities."


Read the full article from AutoBlog+

EVs

Tesla finally makes CHAdeMO adapter compatible with Model 3, giving access to 3rd party charging networks


After a few false starts, Tesla has now finally officially released an update to make the CHAdeMO adapter compatible with Model 3 – giving owners access to DC fast-charging stations of third-party charging networks for the first time.


In Europe, the company was using the Type 2 connector, but Tesla switched to a CCS plug for Model 3. CCS is now the most popular fast-charging standard although some other automakers still use the CHAdeMO connectors.


Most public fast-charging stations have CCS and CHAdeMO connectors and while Tesla released a CHAdeMO adapter in North America for Model S and Model X owners to access those stations, the company never made it compatible with Model 3 two years after starting production. Electrek


Read the full article from Electrek+

Commodities

Oil

A Red Flag For Oil? China’s Crude Consumption Is Faltering


Signs are pointing to a slowdown in China’s economic growth, while stockpiling—at high levels so far this year—could decelerate later in 2019 if oil prices rise to a level Beijing considers too high to build inventories at the current pace.


The headline number of China’s crude oil imports suggests that first-half imports jumped by 8.8 percent from the same period last year, or by around 800,000 bpd, according to estimates from Reuters’ Clyde Russell. Earlier this year, data compiled by Wells Fargo Securities showed that China’s diesel demand slumped by 14 percent in March and 19 percent in April, to the lowest levels in a decade.


Crude oil supply in China—including imports and domestic production—minus refinery runs, suggests that between January and May, China put 1.21 million bpd into either commercial or strategic storage, compared to 850,000 bpd put into storage in the same period last year, according to Russell’s calculations. China doesn’t provide figures about storage, so this is only an estimate, but this estimate suggests that China accelerated stockpiling this year, with 45 percent of the crude import growth heading to storage. Add to this increased exports of fuels, and China’s actual crude oil consumption growth may have been just 340,000 bpd in H1 2019, Russell argues .


Apart from wobbling economy, China’s crude oil demand, and possibly imports, could be dragged down in the short term by refiners curtailing refinery runs in the third quarter as massive refinery start-ups and slowing domestic fuel demand have created a fuel glut in the country, hurting refining margins. According to JLC International, Sinopec ZRC will cut daily crude consumption by 2.17 percent, while Tianjin Petrochemical is set to reduce its daily crude runs by 5.12 percent in July.


Read the full article from OilPrice.com+

Endnote

Stocks

The Hottest IPOs in 2019: What if You had Invested $1,000 When They Went Public


2019 is set to be the year of the “unicorn stampede,” with billion-dollar companies, many of them in tech, going public. But how do these “unicorn” stocks perform past their first day? For this article, we look at the performance of thirteen “unicorn” initial public offerings (IPOs). Our viz starts with a $1,000 investment in each unicorn’s IPO. By comparing the opening IPO stock price with the price listed on Yahoo Finance as of June 25, 2019, we find what the $1,000 investment would be worth today.


Read the full article from HowMuch+

ONLINE RESEARCH PORTAL

MRP’s Research Portal includes an archive of current and past Market Insights, Active Thematic Ideas, and Joe Mac’s Viewpoints. You can also search for all of our coverage on any sector or industry either by selecting Research Sectors or by entering a keyword such as “oil”, “housing” or “inflation” into the search bar at the top right of the page.


If you're having trouble signing in, or have any questions, send an email to hugh@mcalindenresearch.com.

ABOUT THE DIBS AND MCALINDEN RESEARCH PARTNERS


McAlinden Research Partners (MRP) publishes daily and other periodic reports on the economy and the markets.


MRP focuses on identifying change in the global economy and offering an investment thesis whenever an opportunity arises that has not yet been recognized by the market. The DIBs are MRP's compilation of articles and data from multiple sources on subjects reflecting change that have potential investment implications for an industry or group of securities. We share these with our clients who may already have or may be considering exposure in the industries affected. The subjects change daily and constitute an excellent update on featured topics.

The information provided in this Report is not to be reproduced or distributed to any other persons. This report has been prepared solely for informational purposes and is not an offer to buy/sell/endorse or a solicitation of an offer to buy/sell/endorse Interests or any other security or instrument or to participate in any trading or investment strategy. No representation or warranty (express or implied) is made or can be given with respect to the sequence, accuracy, completeness, or timeliness of the information in this Report. Unless otherwise noted, all information is sourced from public data.


McAlinden Research Partners is a division of Catalpa Capital Advisors, LLC (CCA), a Registered Investment Advisor. References to specific securities, asset classes and financial markets discussed herein are for illustrative purposes only and should not be interpreted as recommendations to purchase or sell such securities. CCA, MRP, employees and direct affiliates of the firm may or may not own any of the securities mentioned in the report at the time of publication.

FOR MORE INFORMATION


Rob Davis

Managing Director


(646) 964-6152


rob@mcalindenresearch.com

FIND US AT


mcalindenresearchpartners.com