TPT September 2018

G LOBA L MARKE T P L AC E

› Tsvetana Paraskova of the consulting firm Divergente LLC (Flint, Michigan) reported on Oilprice.com (13 July) that Russia is getting ready to invest $50bn in Iran’s oil and gas industry as the two countries continue to seek closer ties. This comes, she noted, just as the US is looking to cut as much Iranian crude oil exports from the market as possible. Citing an account in Financial Times (FT), Ms Paraskova reported Ali Akbar Velayati, Iranian senior adviser for international, as saying that a Russian oil company had already signed an agreement with Iran worth $4bn, a deal that “[would] be implemented soon.” Russian energy giants Rosneft and Gazprom have also started talks with the oil ministry of Iran for deals potentially worth up to $10bn, the Iranian official said, while a Russian government official confirmed to the FT Russia’s $50bn investment plans. Separately on 13 July, Russia’s energy minister Alexander Novak was reported as saying that Russia was mulling a deal with Iran under which Moscow would provide goods to Tehran in exchange for oil. › In an earlier article on Oilprice.com by Ms Paraskova, (“This Is How Much US Households Lose as Gas Prices Rise,” 2 July), she observed that US gasoline prices are at a four-year high this year as a result of the price of oil – which had reached a three-and-a-half-year high in previous weeks. The increased pump prices are eating into the disposable income of the average American household, which will have $440 less to spend on other goods and services in 2018. The higher spending on gas could wipe out one-third of the gains from the recently enacted tax cuts, with low- and middle-income families feeling the pinch much more than higher-income earners, according to Standard & Poors Global economists Beth Bovino and Satyam Panday. “This would be tantamount to a tax increase for American households,” the economists wrote in a recent report, quoted by Bloomberg . “This is especially true for middle- to low-income Americans.” “The income tax cut is virtually compensating [the higher- income households] least hurt by the oil-price change, which may result in even larger inequality,” according to the S&P economists. › As to US economic growth, however, Federal Reserve economists say that the less oil-dependent overall economy will mitigate the broader effect of higher gasoline prices. Steel Its transformation repor ted as ‘firmly on track,’ British Steel announces a major manufacturing investment After technical problems weighed on its profits last year, British Steel has announced the biggest single investment “for a decade” in its manufacturing facilities.

As reported by Michael Pooler in the Financial Times (18 September), the company, which operates the Scunthorpe steelworks in North Lincolnshire, England, is committing $65mn to an upgrade of the wire rod mill at the site. Mr Pooler noted that British Steel has been implementing a turnaround plan in the two years since its formation, when the investment firm Greybull Capital paid one pound sterling for Tata’s lossmaking European long products division and renamed it in honour of the former titan of UK industry. Earnings jumped 45 per cent to $89mn in the company’s 2018 financial year, while revenue increased 17 per cent to $1.8bn. However, excluded from that EBITDA figure was the one-off item of $62mn deriving from a blast furnace chill, for which the company is pursuing an insurance claim. (EBITDA is essentially net income with interest, taxes, depreciation and amortisation added back to it. By excluding the effects of financing and accounting decisions, it is considered a useful tool for analysing and comparing profitability among companies and industries.) Even so, British Steel’s executive chairman Roland Junck said that the transformation was “firmly on track” and that, without the blast furnace setback, the company would have exceeded its Year Two target. During the first quarter of this year, its EBITDA hit $27.5mn. “Increased raw material costs and fluctuating steel prices continue to be a challenge,” Mr Junck acknowledged to the FT. “It’s important [that] safeguarding action is taken to prevent the dumping of cheap steel into Europe following the imposition of steel tariffs by the US.” In addition to the new wire rod line, scheduled to be commissioned in the autumn of 2019, British Steel said it had committed a further $52.5mn in capital expenditures for this financial year. Mr Pooler reported that, to help fund the investments, the company said it has secured $118mn in financing from White Oak Asset Finance, a unit of a US credit fund. › Paul McBean, a trade union leader at Scunthorpe, told the FT: “While we still have a long way to go, investments of this scale – and the ongoing commitment to capital expenditure – demonstrate the great optimism flowing through this company.” British Steel’s growth ambitions are reflected in the expansion of its workforce, with the 1,000 new employees recruited over the past two years bringing the total to 5,000. Workers are receiving a “staggered” 4 per cent pay rise, said the company, which also operates manufacturing sites in France and the Netherlands. Elsewhere in steel . . . › As reported on 13 July by RaeAnn Christensen on the Salt Lake City–based TV channel KUTV, a planned state prison in Utah already having cost nearly $700mn is likely to cost millions more because of the steel tariffs put in place by the Trump administration. The “rough estimate” of the total

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SEPTEMBER 2018