Economy

Armada Corporate Intelligence Identifies Global & Domestic Risks

June 3, 2014

Steel Market Update has been following the Armada Corporate Intelligence economists since we first heard Dr. Chris Kuehl present at a conference we attended earlier this year. We were so impressed with both Dr. Kuehl’s (pronounced Keel) presentation skills and their newsletter that we invited Dr. Kuehl to be a keynote speaker at this year’s SMU Steel Summit Conference to be held on September 3 & 4 in Atlanta.

Armada is a company that looks at the big economic picture and identifies areas of risk that companies need to consider when looking at their business forecasts.

This week Armada published its latest Global Economic Security Estimate. The report gives a snapshot of the biggest trends currently affecting global business, both in the short and long term. The following gives an abbreviated summary of the most significant trends Armada is tracking.

Asia/India/Japan

Armada notes that early PMI indices from Markit show slowing economic and manufacturing activity in Asian markets. In contrast, the US growth is outpacing other markets as it plays “catch-up” after a rough winter and hurries to get merchandise into the US before the International Longshore and Warehouse Union (ILWU) contract negotiation deadline at the end of June.

India needs a GDP of 8 percent for economic stability and job growth but the manufacturing sector is struggling after a fall into contraction at the end of March. A volatile rupee and offshore investment led to a sluggish first quarter for India. Armada says the Q1 slowdown of American production consumption from emerging markets like India, hampers GDP growth in those markets.

Japan’s recent sales tax increase led to a 3.2 percent y/y jump in prices in April. Armada says that although the tax revenue may boost government spending, economic stability would be better served by inflation at the “private corporate and individual consumer level.” Prices are getting higher for those doing business in Japan.

China geopolitical tension

Armada reports, “US companies are already being impacted by the geopolitical tension between the US and China.” Part of this is due to American support of Southeast Asia countries that are in disputes with China in the South China Sea. The US took political action on five Chinese officials who are accused of spying on U.S. companies prompting China to stop purchasing technology from IBM and Cisco. Such trade actions can cause disruption to supply chains and potential sales, says Armada.

Changing Distribution Patterns for Supply Chains

The ILWU contract negotiations are underway and if an agreement is not reached by June 30, the potential for a work stoppage looms. Shipments of products destined for the U.S. are beginning to be diverted to Mexico and Canada and a strike could create a bottleneck like that which was seen during the 2012 strike.

In the long term, the Panama Canal expansion will create changes in US distribution patterns that will impact trucking, rail and maritime carriers who will experience load balance issues. Armada suggests there is potential for increased capacity shortages, higher transportation costs and supply chain stock-out issues. It is likely to be a “major economic factor for the US and anyone reliant upon a supply chain.”

Australian commodities

Iron ore from Australia is piling up at China ports despite a rise in the China manufacturing PMI. Normally, strong manufacturing and construction cycles create lower ore inventories than currently being seen. Iron ore spot prices are also at a low not seen since September 2012. Armada questions data coming from China and how healthy the Chinese market actually is.

Baltic Dry Index

According to Armada, the Baltic Dry Index is an excellent gauge of early-stage manufacturing activity on a global basis. The BDI fell to 943 points last week from 1,412 points during the last Global Economics Estimate in April. Sluggish order activity for commodities is a reflection of weaker Asian volume demand and a signal that the global economic environment is not that strong right now. “We think the BDI is currently in-sync with the global economy. Look at how responsive and accurately it predicted the global market sell-off in January,” writes Armada in the report.

Dr. Christopher Keuhl (photo above), managing director of Armada Corporate Intelligence and one of its co-founders, will be joining us at the Steel Market Update Steel Summit Conference, September 3 & 4 at the Georgia International Convention Center (GICC). Dr. Kuehl will provide his keen insight on global economics and the current and potential risks we are facing. We, along with Dr. Kuehl, hope to see you in Atlanta.