Friday, 31 October 2008
RAND Lobbies Pentagon: Start War To Save U.S. Economy
According to reports out of top Chinese mainstream news outlets, the RAND Corporation recently presented a shocking proposal to the Pentagon in which it lobbied for a war to be started with a major foreign power in an attempt to stimulate the American economy and prevent a recession.
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RAND Lobbies Pentagon: Start War To Save U.S. Economy
Paul Joseph Watson & Yihan Dai
Prison Planet.com
30 October 2008
According to reports out of top Chinese mainstream news outlets, the RAND Corporation recently presented a shocking proposal to the Pentagon in which it lobbied for a war to be started with a major foreign power in an attempt to stimulate the American economy and prevent a recession.
A fierce debate has now ensued in China about who that foreign power may be, with China itself as well as Russia and even Japan suspected to be the targets of aggression.
The reports cite French media news sources as having uncovered the proposal, in which RAND suggested that the $700 billion dollars that has been earmarked to bailout Wall Street and failing banks instead be used to finance a new war which would in turn re-invigorate the flagging stock markets.
The RAND Corporation is a notoriously powerful NGO with deep ties to the U.S. military-industrial complex as well as interlocking connections with the Ford, Rockefeller, and Carnegie foundations.
Current directors of RAND include Frank Charles Carlucci III, former Defense Secretary and Deputy Director of the CIA, Ronald L. Olson, Council on Foreign Relations luminary and former Secretary of Labor, and Carl Bildt, top Bilderberg member and former Swedish Prime Minister.
Carlucci was chairman of the Carlyle Group from 1989-2005 and oversaw gargantuan profits the defense contractor made in the aftermath of 9/11 following the invasion of Afghanistan. The Carlyle Group has also received investment money from the Bin Laden family.
Reportedly, the RAND proposal brazenly urged that a new war could be launched to benefit the economy, but stressed that the target country would have to be a major influential power, and not a smaller country on the scale of Afghanistan or Iraq.
The reports have prompted a surge of public debate and tension in China about the possibility that a new global conflict is on the horizon.
China’s biggest media outlet, Sohu.com, speculated that the target of the new war would probably be China or Russia, but that it could also be Iran or another middle eastern country. Japan was also mentioned as a potential target for the reason that Japan holds the most U.S. debt.
North Korea was considered as a target but ruled out because the scale of such a war would not be large enough for RAND’s requirements.
The reported RAND proposal dovetails with recent comments made by Joe Biden, Colin Powell, Madeleine Albright and others, concerning the “guarantee” that Barack Obama will face a major “international crisis” soon after taking office.
It also arrives following a warning from Michael Bayer, chairman of a key Pentagon advisory panel, who echoed the statement that the next administration will face an international crisis within months of taking office.
One would hope that good people, or at least sane people who don’t wish to start a global nuclear war, will oppose the RAND proposal, such as top the military generals who threatened to quit if Bush ordered an attack on Iran. Admiral William Fallon, the head of US Central Command, quit in March last year as a result of his opposition to Bush administration policy on Iran.
Translations from Chinese provided by Yihan Dai.
Mittal fatigue
By Peter Marsh
Oct 30 2008
LONDON — Lakshmi Mittal next week faces the biggest test of his career. The Indian metals magnate will try to convince investors that his vision of the steel industry still has merit, in spite of the battering the sector has received amid the global financial crisis.
When he presents the third-quarter results of ArcelorMittal on Wednesday, speaking to analysts and investors in telephone conversations from his company's imposing headquarters in the centre of Luxembourg, Mr Mittal will do his best to put a brave face on a 72 per cent decline in the share price of the world's biggest steelmaker over the past four months.
Slides in the market value of most large steel businesses have exceeded the falls incurred at many of the industrial companies that are their biggest customers. Since late June, steel shares have underperformed the Datastream composite index of all quoted companies worldwide by 52 per cent.
Investors have suddenly become frightened that they had pushed up steel company valuations far too much in the previous five years - a stellar time during which Mr Mittal made a series of dramatic acquisitions and emerged as easily the biggest influence on the sector.
In his response to the setbacks, Mr Mittal is expected to outline new production cuts on top of those ArcelorMittal has made in the past month. He is also thought likely to announce some trimming of its ambitious $35bn (£21bn, €27bn) expansion plan over the next eight years, while also pointing to growth opportunities for the industry even in the midst of the current gloom.
Recent acquisitions through which Lakshmi Mittal built up his empire:
2003
Polskie Huty Stali (Poland), US$1 billion
2004
International Steel Group (US), US$4.5 billion
2005
Hunan Valin* (China), US$338 million
Kryvorizhstal (Ukraine), US$4.8 billion
2006
Arcelor (Luxembourg), €26.9 billion
Sicartsa (Mexico), US$1.4 billion
2007
China Oriental* (China), US$647 million
2008
Macarthur Coal* (Australia), US$606 million
Erdemir* (Turkey), US$869 million
Sources: Dealogic, FT data
* Minority stake
But what of the broader outlook? Michael Shillaker, analyst at Credit Suisse, says: "There is an almost complete lack of visibility about steel companies' likely earnings over the next year ... It's as though the industry has fallen into a black hole." The chief executive of a large US steelmaker says the stream of negative economic and financial news in September and October has hit the industry "like a bomb".
Fears about an economic slowdown in China, which has sustained the steel industry during the boom years, plus a sudden reduction in world steel demand in September from sectors such as construction and vehicles, were also behind the rapid build-up in negative investor sentiment. That came after a year or so in which the steel business weathered fairly well the perturbations affecting other sectors, largely due to signs that demand for steel from emerging regions had been holding up.
Inevitably, one of the biggest losers from the change in sentiment of recent weeks has been Mr Mittal himself. Since the chairman and chief executive of ArcelorMittal also owns 45 per cent of its stock, the value of his personal shareholding has fallen since late June from $66bn to $16bn.
The changed perceptions about the steel business come after several years in which its image as one of the world's worst performing industries - which it had for three decades until about 2001 - appeared to be on the point of being jettisoned for good. Until then almost no one, with Mr Mittal being a big exception, believed the steel business was capable of making returns on a par with other globally spread sectors such as chemicals or engineering.
But then began a series of big mergers in the steel industry - led by Mr Mittal - that gave steel companies the market power to push through price increases. Sustained demand for steel from an expanding world economy, helped by a surge in consumption from China, which now both produces and uses almost 40 per cent of the world's steel, helped to lock in the higher prices. It meant steel companies started turning in profits that they could only have dreamt of a decade earlier.
The high point for Mr Mittal (pictured below) came just over two years ago when he pulled off the industry's biggest ever merger by combining Mittal Steel, his then flagship company, with Arcelor, its main rival, at a cost of nearly €27bn. ArcelorMittal, the resulting business, now accounts for nearly 10 per cent of world steel production, three times more than Nippon Steel of Japan, its closest competitor.
Until little more than a month ago, most executives in the industry were taking their lead from the Indian billionaire and staying unruffled. Speaking on October 6, Mr Mittal said he believed global steel demand could expand in 2009 by a sprightly 4-4.5 per cent after a 5 per cent increase in 2008 - so long as the problems in banking did not spin further out of control.
But this sanguine statement was followed by a run of poor financial and economic news that appears to have pushed many of the businesses that buy steel, in sectors including construction, cars and white goods, into a state of near paralysis. As a result, global steel production in September fell by 3.2 per cent, the biggest year-on-year fall since March 1999.
The steel industry has annual sales of about $1,000bn, making it one of the world's biggest production businesses - the use of steel in construction and manufacturing dwarfs that of all other metals. The impact of the drop in demand is being felt not just by steel producers but many companies that sell equipment to the industry. "In the past month, orders and inquiries have all but come to a halt," says Brian Lunn, managing director of UK-based Bronx Engineering, which makes inspection systems for steel mills.
What happens now? James Moss, a partner at First River, a US steel consultancy, has tried to answer this by analysing the three periods in the past 50 years during which global steel production suffered large falls. The first came in 1974-75, the second was 1979-82 and the third 1989-92. In these periods, the respective cumulative declines in production were 9 per cent, 14 per cent and 8 per cent. The consequences were widespread company collapses and tens of thousands of job losses.
But there are several reasons why the impact on the steel industry appears unlikely to be so bad this time around, say analysts. Mr Moss points out that the world economy is now much more dependent on growth from emerging regions such as east Asia and south America. Such areas of the world are likely to support the sector a lot better than in the previous periods, even if overall world economic growth rates will almost certainly slow.
During the earlier times of steel industry contraction, global growth in gross domestic product was only 1-2 per cent a year. However, in the next few years, even if the aftermath of the crisis lingers, annual world economic growth, helped by the developing regions, should be more like 3-4 per cent, Mr Moss says.
Also, the steel industry appears in a much better position than in the past to cope with a protracted period of decreased demand. In 2002, the industry had an estimated 200m tonnes of excess capacity, arising from plants that had been kept open even though there was not enough demand for the product. Today the figure is closer to 50m tonnes, according to Mr Shillaker of Credit Suisse. This is out of 1.3bn tonnes produced last year worldwide.
Even in China, which has many small and inefficient mills, 150 blast furnaces have shut in recent months because they were not making money, according to Zhang Xiaogang, chairman of Anshan Steel, one of China's biggest steel producers, who is also chairman of the China Iron and Steel Association. The relative lack of overcapacity should make it easier for the steel industry as a whole to stop prices falling precipitously.
Another factor helping the industry, says Michelle Applebaum, a Chicago-based consultant, is the near threefold rise in steel prices seen in the past five years. This has given steel companies a greater ability to cut production on a temporary basis rather than undertaking expensive plant shutdowns.
"In the past, about 80 per cent of the cost of producing a tonne of steel was covered by fixed costs connected to depreciation and investment charges and 20 per cent by variable costs. Now the position is more like the other way around," Ms Applebaum says. "This means the economics of steel production are today much more geared towards steelmakers being able to cut manufacturing output relatively easily, and on a short-term basis, so as to balance production with the requirement of the market. By doing this, the steel companies have a direct way to limit the fall in steel prices."
For this reason, Ms Applebaum and other commentators expect the big steelmakers to continue with their recent efforts to reduce production, normally by cutting output a little at a number of plants rather than through outright plant closures and redundancies. ArcelorMittal has already led the way, cutting production in much of its global network of plants by as much as 15 per cent year-on-year in the current quarter. The company's action has been followed by others, notably Severstal, Russia's biggest steelmaker, as well as US Steel, America's largest producer, and Corus, the European steelmaking arm of India's Tata group.
Others including Nippon Steel and JFE, also of Japan, could follow suit in the coming weeks. As a result, global steel production could in the first quarter of next year be falling at an annual rate of 20 per cent, many in the industry believe, which could be roughly in line with overall reductions in demand.
What of prices? According to Meps, a UK steel consultancy, the global average is likely to fall to $821 a tonne by January, from a high of $1,117 in July this year. On the basis that steel demand starts to pick up later in 2009, prices could start to edge up again, presaging a much better period of financial health for the world's steel makers. Meps is forecasting that world steel production - roughly equating with demand - should rise 4.2 per cent this year and 2.5 per cent next year.
While this is a much slower rate than the 7.5 per cent increase in 2007, it is a long way short of catastrophic. Somewhat gloomier, however, is World Steel Dynamics, a US consultancy, which is pencilling in falls in steel consumption this year and next of 2.6 per cent and 1 per cent respectively, followed by a 11.1 per cent surge in demand in 2010.
When Mr Mittal talks to investors and analysts next week, he is likely to come in for tough questioning about how much he will cut production in the next few months. He will also be asked to explain the status of the company's expansion programme, in particular two big plants being planned for India, which look likely to be scaled back.
Whatever he says, the past month is bound to have removed a certain amount of gloss from Mr Mittal's reputation - and made investors think rather harder than before about the value of his company's shares.
RECESSION RESISTANCE: SPECIAL WAYS TO STAY ROBUST IN A DOWNTURN
Not everyone in the steel industry is suffering panic attacks as share prices in the sector come under assault from nervous investors. Executives of some steelmakers - particularly the businesses that make higher-value, high-specification grades of the metal - say they see decent growth opportunities even in the current economic gloom.
Olof Faxander is chief executive of SSAB, a Swedish maker of specialised steels used in applications such as high-strength parts for construction equipment. He says the company's concentration on niche products makes it less sensitive to a poor economic climate. "Even if growth in steel consumption as a whole declines, the motivating forces for a substitution from simpler steel to more advanced high-strength steel remain," Mr Faxander says.
An example is Hardox, a special type of steel made by SSAB that is used, for example, to make parts of tipper trucks. By using Hardox rather than ordinary steel, the overall weight of such a vehicle can be cut by 3.4 tonnes, Mr Faxander says. "As a result, a truck of this sort will not only use less fuel but cut emissions of carbon dioxide by 2.7 tonnes a year. As the world becomes more interested in cutting down on energy use and C02 output, then I envisage a big demand for this type of steel."
Karl-Ulrich Köhler, chairman of the steel division of ThyssenKrupp, the big German steelmaker, also opts for a positive view. "Yes, the economic situation has deteriorated and steel industry customers are cutting back on orders. Yet the people I talk to about future trends [in steel consumption] are still talking about growth," he says. "I don't hear people talking about no growth."
Wolfgang Leese, chief executive of Salzgitter, another large German producer, says his focus on making types of steel for which competition is limited - such as pipes for the oil and gas industry - will protect it from the worst repercussions of a slowdown. "Because of a backlog of orders for this kind of pipe, for products of this sort, we are sold out for 2009," Mr Leese says.
But all these executives know they will come in for far tougher questioning from investors than a few months ago about how they see their businesses evolving. For all the upbeat nature of the industry leaders' talk, shareholders are likely to be much more sceptical that the speciality end of the steel sector will be immune from tough times ahead.
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