Joe Biden, Oil Trader of the Year 2022?

♠ Posted by Emmanuel in at 12/20/2022 10:36:00 AM

Of all people, Joe's got the magic touch with petroleum?

The endless number of foiled speculators attests to the difficulty of realizing the old adage about how to make money--buy low, sell high. Let's face it: ever-changing markets often result in us doing quite the opposite, and not making money in the process. Now, whenever we are asked to think about who are the least savvy market participants, we often identify governments--or more specifically, government officials. Not being keen market watchers with limited skin in the game--it's taxpayer money they are officially dealing with, not theirs--this sentiment is understandable. 

Well lo and behold: Quartz is now touting President Joe Biden's timely release from the US Strategic Petroleum Reserve (SPR) as the "oil trade of the year." In retrospect, his release at the near-top of the oil market a few months ago helped ease oil prices. Now that oil prices have come down quite a bit, the SPR is now being refilled. Yes, Biden is buying low after selling high:

Instead, it appears the US government made the oil trade of the year: Releasing 180 million barrels of crude from the Strategic Petroleum Reserve between March and the end of this year in an effort to blunt the effect of rising prices, the US government appears to have made about $4 billion, as prices have fallen dramatically over the course of the year.

Selling when crude oil prices were high, the US captured billions in value. By one widely-used measure, the price of crude oil in Texas peaked at about $124 a barrel in March, and the average price during the SPR sales period was about $96; today that oil costs just $73 per barrel. 

These are paper profits, to be sure: The US is still aiming to refill the reserve, and prices may rise as it does so. On Dec. 16, the Department of Energy put out a request to purchase 3 million new barrels of crude, after releasing about 200 million barrels in 2022. There are currently about 382 million barrels still in reserve.

His genial manner has caused Joe Biden to be underestimated throughout his life. Can he now be called a market player as well in his eighth decade? T. Boone Pickens, eat your heart out.

Apple iPad, Soon Made in Vietnam

♠ Posted by Emmanuel in , at 6/01/2022 01:44:00 PM

 China's epic recurring COVID-19 shutdowns have frustrated multinational corporations aiming for predictability in their supply chains. Sure, China still benefits from having globally-renowned tech clusters. However, having your production capabilities curtailed again and again due to a handful of (relatively mild) COVID-19 cases doesn't encourage foreign firms, as you would expect.

Not so long ago, I covered Vietnam's emergence as a major assembly hub for South Korea's Samsung [1, 2]. In the years since, it's developed a reputation as a reliable production center for MNCs. It was perhaps inevitable that Apple, frustrated like many others with the PRC's lockdown shenanigans, would look to set up shop elsewhere. Voila! Apple is coming to Vietnam:

For the first time ever Apple is moving some iPad production out of China and shifting it to Vietnam after strict COVID lockdowns in and around Shanghai led to months of supply chain disruptions, Nikkei Asia has learned.

The U.S. company has also asked multiple component suppliers to build up their inventories to guard against future shortages and supply snags, sources said.

China's BYD, one of the leading iPad assemblers, has helped Apple build production lines in Vietnam and could soon start to produce a small number of the iconic tablets there, people with knowledge of the matter said.

To be sure, Apple already makes its wireless earphones in Vietnam. It makes business sense: experiment first with some components, and then shift further assembly work if things go well:

The iPad will become the second major line of Apple products made in the Southeast Asian country, following the AirPods earbud series. The move highlights not only Apple's continuous efforts to diversify its supply chain but also the growing importance of Vietnam to the company.

Also keep in mind that Vietnam is still mostly an assembly hub--stick socket A into socket B sort of mundane work. Many of the components for the "Vietnam-made" iPad will still come from, you guessed it, China. Hence, Apple wants to bolster supplier capabilities in parts of China that have a lower likelihood of being shut down based on the historical record:

To further guard against supply chain disruptions, Apple has also asked suppliers to build up additional supplies of components such as printed circuit boards and mechanical and electronics parts, especially those made in and around Shanghai, where COVID-related restrictions led to shortages and logistic delays. In addition, the company has asked suppliers to move quickly to secure supplies of some chips, especially power-related ones, for the upcoming iPhones.

In particular, Apple is asking suppliers outside of the lockdown-affected areas to help build up a couple of months' worth of component supplies to ensure supply continuity over the next few months. The requests apply to all of Apple's product lines -- iPhones, iPads, AirPods and MacBooks -- sources said.

The next step in Vietnam's development is therefore obvious: to move from assembly to manufacturing components as well following in China's footsteps before it became lockdown land.

Supply Chain Woes: Hainanese Chicken Rice

♠ Posted by Emmanuel in ,, at 6/01/2022 01:02:00 PM

I've been watching Channel News Asia as of late, and a news item that struck me was the Malaysian ban on chicken exports starting this June. It's very much a supply chain issue: as the price (and hence availability) of chicken feed--comprised of grains and soybeans--has increased significantly, Malaysian chicken production has been reduced. Understandably, Malaysia is keen on having sufficient food for its populace before exporting it in this day and age of inflation and shortages. Unfortunately, neighboring Singapore has been negatively affected by Malaysia's impending chicken export ban. 

Hainanese chicken rice is Singapore's signature dish--a staple food in that wealthy Asian nation. Having little domestic chicken production, Singapore is reliant on imports from countries like Malaysia. Given its limited sources, Singaporeans now have to cope with this shortage. Let's begin with constraints on the supply end in Malaysia: 

Malaysia, itself facing soaring prices, has decided to halt chicken exports until local production and costs stabilise. Prices have been capped since February at 8.90 ringgit ($2.03) per bird and a subsidy of 729.43 million ringgit ($166 million) has been set aside for poultry farmers.

Chicken feed typically consists of grain and soybean, which Malaysia imports. But the government is having to consider alternatives amid a global feed shortage. Lower quality feed means the birds are not growing as fast as usual, slowing down the entire supply chain, said poultry farmer Syaizul Abdullah Syamil Zulkaffly.

In turn, Singaporean food stalls have been feeling the pinch. To be sure, there are other sources of chicken such as Brazil. The problem, however, is that Brazil is much farther away than nearby Malaysia, necessitating freezing of chickens to the detriment of freshness and taste:

Singapore, although among the wealthiest countries in Asia, has a heavily urbanised land area of just 730 square km (280 square miles) and relies largely on imported food, energy and other goods. Nearly all of its chicken is imported: 34% from Malaysia, 49% from Brazil and 12% from the United States, according to data from Singapore Food Agency (SFA).

A plate of simple poached chicken and white rice cooked in broth served with a side of greens is a dish beloved by the country's 5.5 million people, and is usually widely available for about S$4 ($2.92) at eateries known as hawker centres.

Singapore being a wealthy country with more refined tastes, some restaurateurs would rather serve something else rather than frozen Brazilian chicken:

Some vendors have said they will stop selling chicken altogether and instead find alternative dishes – bad news for fans of Singapore’s much-loved dish of poached chicken, served with rice cooked in stock, and chilli dip.

The owner of the popular eatery Tian Tian Hainanese Chicken Rice told the Singaporean outlet The Straits Times that it would stop serving chicken dishes if it could not get fresh supplies. Its founder, Foo Kui Lian, said they would instead “bring back dishes like fried tofu, fried pork chop and prawn salad, but we will not use frozen chicken”.

The Singapore Food Agency has encouraged the public to use frozen chicken, which is imported from countries such as Brazil, or to try alternative meat or fish, and to refrain from buying more than they need.

Singapore's situation has been likened to McDonalds without burgers, but the analogy is not quite correct in that they do have chicken--albeit of the frozen variety. Still, it's another timely illustration of food shortages you encounter nowadays due to supply chain disruptions occurring worldwide.

Biden's 'FTA-Less' IPEF Asia-Pacific Deal

♠ Posted by Emmanuel in , at 5/28/2022 12:31:00 PM

Japan usually goes along with US economic plans... but how about other Asian countries? 

Before Trump, the Republican Party represented the pro-trade American political party--especially in contrast to the trade union-dependent Democratic Party. Although Democratic presidents like Clinton and Obama promoted free trade agreements, they relied on Republican support to push FTAs through. After Trump, 'free trade' has become a dirty term in American politics regardless of party. So how is President Biden to shore up America's presence in the Asia-Pacific after his predecessor Barack Obama proposed the Trans-Pacific Partnership subsequently abandoned by Donald Trump? The answer is... do away with 'free trade' altogether.

I am not sure what appeal Biden's Indo-Pacific Economic Framework for Prosperity [IPEF] offers to Asian countries absent the usual tariff reductions. The details of IPEF are still very much to be determined based on consultations with the proposed participants. At best, it could represent useful technical assistance to others about making their economies more connected, resilient, clean, and fair. At worst, it could actually worsen trade access--especially to the vast American market--by imposing developed country environmental and labor standards on developing countries.  

At this stage, all we have to go on are the following bullet points:

  • Connected Economy: On trade, we will engage comprehensively with our partners on a wide range of issues. We will pursue high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localization. We will work with our partners to seize opportunities and address concerns in the digital economy, in order to ensure small and medium sized enterprises can benefit from the region’s rapidly growing e-commerce sector, while addressing issues is such as online privacy and discriminatory and unethical use of Artificial Intelligence. We will also seek strong labor and environment standards and corporate accountability provisions that promote a race to the top for workers through trade [my emphasis].
  • Resilient Economy: We will seek first-of-their-kind supply chain commitments that better anticipate and prevent disruptions in supply chains to create a more resilient economy and guard against price spikes that increase costs for American families. We intend to do this by establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts.
  • Clean Economy: We will seek first-of-their-kind commitments on clean energy, decarbonization, and infrastructure that promote good-paying jobs. We will pursue concrete, high-ambition targets that will accelerate efforts to tackle the climate crisis, including in the areas of renewable energy, carbon removal, energy efficiency standards, and new measures to combat methane emissions. 
  • Fair Economy: We will seek commitments to enact and enforce effective tax, anti-money laundering, and anti-bribery regimes that are in line with our existing multilateral obligations to promote a fair economy. These will include provisions on the exchange of tax information, criminalization of bribery in accordance with UN standards, and effective implementation of beneficial ownership recommendations to strengthen our efforts to crack down on corruption.

Right now, IPEF is still nebulous enough to be vaporware. For others, there is a possibility that IPEF is largely downside (a grab bag of broadly protectionist US priorities) without upside (enhanced market access especially through lower tariffs).