Aurelia Butler

HELSINKI (Reuters) -A subsea gas pipeline and a telecommunications cable connecting Finland and Estonia under the Baltic Sea have been damaged in what may have been a deliberate act, the Finnish government said on Tuesday.NATO Secretary General Jens Stoltenberg said NATO was sharing its information over the damage and stands ready to support the allies concerned. Finland joined the military alliance in April, while Estonia has been a member since 2004. The Balticconnector gas pipeline was shut early on Sunday on concerns that gas was leaking from a hole in the 77-km (48-mile) pipeline. Finnish operator Gasgrid said it could take months or more to repair.”It is likely that damage to both the gas pipeline and the communication cable is the result of outside activity. The cause of the damage is not yet clear, the investigation continues in cooperation between Finland and Estonia,” Finnish President Sauli Niinisto said in a statement on Tuesday.Finnish Prime Minister Petteri Orpo said the damage to the pipeline was “worrying”, but that Finland’s energy supply remained stable and that the damage to the telecommunications cable did not affect Finland’s overall connectivity.”It is too early to draw conclusions on who or what caused the damage,” Orpo told a press conference.Gas accounts for 5% of Finland’s energy supply, he added.Finnish telecommunications operator Elisa, which operates the damaged cable, told Reuters the distance from the cable to the Balticconnector pipeline was “significant”, but declined to comment on the exact length between them.The damage to the gas pipeline was believed to have taken place in Finnish waters, while the telecoms cable breach was in Estonian waters, Finnish authorities said.Prior to the war in Ukraine, some of the gas transported by the Balticconnector came via pipeline from neighbouring Russia, but Finland has since year stopped importing Russian pipeline gas.Norwegian seismology institute Norsar said on Tuesday it had identified “a probable explosion” close to the location of the pipeline in the Baltic Sea at around the time of the outage early on Sunday, but said there was significant uncertainty in the data and that more analysis was required.The indication of an explosion came from data collected at seismic stations along the Finnish coast, Norsar said.DELIBERATE OR ACCIDENTAL?A spokesperson for the Finnish defence forces said it did currently not see any military threat against Finland.The Finnish bureau of investigation has initiated an investigation into the external damage to the pipeline.”We are still verifying if the damage is caused deliberately or accidentally,” the bureau said, though it added that the size of the damage was such that it indicated deliberate action.Causing this kind of damage to the pipeline requires “special knowledge”, the Finnish national bureau of investigation said.”This act could not have been done by an ordinary person,” Detective Inspector Timo Kilpelainen told reporters.The Balticconnector runs to a depth of 100 metres (328 feet) at its deepest point, according to operator Gasgrid.European gas prices rose on Tuesday afternoon following the news, with the benchmark front-month Dutch contract touching 49.75 euros ($52.72) a megawatt hour (MWh) according to LSEG data, its highest level for six months. Prices were already up on Tuesday due to fears over tensions in the Middle East but expectations that outside activity caused the pipeline damage pushed prices in the nervous market higher.The Finnish government said repairs would take months, and that the cost of gas in Finland could slightly increase over the winter as a result of the leak but that electricity prices would likely not be affected significantly.”The fall in pipeline pressure was quite fast, which would indicate it’s not a minor breach. But the cause of it remains unclear,” said a Baltic energy official with knowledge of the situation, who spoke to Reuters on condition of anonymity.The pipeline between Inkoo in Finland and Paldiski in Estonia crosses the Gulf of Finland, an arm of the Baltic Sea that stretches eastwards into Russian waters and ends at the port of St Petersburg.NORD STREAMIn 2022, the larger Nord Stream gas pipelines which cross the Baltic Sea between Russia and Germany were damaged by explosions that authorities have said were deliberate acts of sabotage.The Nord Stream blasts were of a much greater magnitude than the signals from Sunday’s data indicated, Norsar said.The Balticconnector pipeline opened in December 2019 to help integrate gas markets in the region, giving Finland and the Baltic nations of Estonia, Latvia and Lithuania more flexibility of supply.Elering and Gasgrid have both said they did not anticipate shortages of gas even if the pipeline were to remain inoperable during winter.Lithuanian gas system operator Amber Grid said Latvia’s Incukalns gas storage has switched from storing gas to pumping it out immediately after the Balticconnector damage, in order to supply Estonia.Finland last year leased a floating storage and regasification unit (FSRU) to receive liquefied natural gas (LNG), replacing supplies from Russia which were cut in the wake of Moscow’s invasion of Ukraine.Much of Finland’s LNG imports come from the United States, LSEG data shows.Situated at Inkoo, the Exemplar FSRU vessel has supplied gas to Estonia via the Balticconnector.”(It’s) not a big deal for Estonia and Latvia because a lot of their gas is stored in Latvian storage, but Finns will not be able to get their gas from Latvian storage,” said a source with direct knowledge of Baltic gas supplies.Finland has a second LNG import terminal in Hamina, and “the continuity of gas supply is secured in the coming winter season,” national operator Gasgrid said in a statement.($1 = 0.9437 euros) More

MEXICO CITY (Reuters) – The U.S. Department of Labor said on Tuesday it is disappointed by the closure of VU Manufacturing’s facility in the northern Mexican city of Piedras Negras, which it said failed to adhere to a labor rights remediation plan under a regional trade pact.VU Manufacturing, a small car upholstery factory, came under scrutiny for alleged violations twice under the 2020 United States-Mexico-Canada Agreement (USMCA), which has tougher rules than its predecessor, NAFTA, regarding protecting the right of workers to form unions. The case marks the first time the U.S. has rebuked a company for failing to meet its commitments following a USMCA labor probe, in contrast to 13 other workplaces that have also come under review in Mexico.In March, the U.S. and Mexico pledged to oversee VU Manufacturing carry out a series of commitments to remain neutral in union affairs and allow workers to freely organize.”Unfortunately, the company undermined the majority union’s ability to represent workers in collective bargaining negotiations and their right to strike,” said Thea Lee, U.S. deputy undersecretary of labor for international affairs, in a statement.”We note with disappointment VU’s decision to close its facility without adhering to the agreed course of remediation.”VU Manufacturing, an unlisted company based in Michigan, did not immediately respond to a request for comment. Lee said U.S. officials had anticipated that “employers would not choose compliance in every instance,” but that other USMCA complaints have largely benefited workers. The Department of Labor urged Mexico to prevent retaliation against former VU workers as they seek new jobs, and to ensure VU makes timely payments to dismissed workers. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Suppliers to Taiwan’s world-leading semiconductor manufacturing industry are plotting an entry into Europe as the construction of the first advanced chip factories on the continent in decades reshapes its supply chains.“We are planning investments in Germany, and the European market is going to be ours,” said Vincent Liu, president and chief executive of LCY Group, a supplier of cleaning agents and solvents to Taiwan Semiconductor Manufacturing Co, the world’s largest contract chipmaker.Three other Taiwanese chemicals suppliers to TSMC also said they were considering investments in Europe.Their plans illustrate the structural changes triggered by government efforts around the world to reshore chip manufacturing and protect supply chains of critical technology from geopolitical tension and other disruptions.Liu said European chipmakers’ manufacturing processes had become inefficient and their supply chains atrophied because of their reliance for many years on mature technology.“Companies like Infineon are not using quality chemicals because their suppliers’ capacity is decades old,” he said. “They have no awareness of how much state of the art chemicals could help them raise their yield rates.”Global chipmakers are scrambling to build up capacity in Europe, taking advantage of subsidies under the European Chips Act, which seeks to mobilise €43bn in investment for the industry and respond to similar state support in the US and China.TSMC is planning to build a fabrication plant worth more than €10bn in Dresden, Germany, in partnership with European chipmakers Infineon and NXP and auto supplier Bosch. It is scheduled to start production in 2027.Intel has committed to investing €30bn in two cutting-edge semiconductor fabs in Magdeburg, north-west of Dresden, and multinational contract chipmaker GlobalFoundries and European chip company STMicroelectronics are planning a €5.7bn fab in France.But according to industry experts, Europe lacks the supply chain to support such dramatic increases in capacity.“Europe was capacity-wise not growing for more than a decade,” said an executive at a European petrochemical company, adding that all chipmakers on the continent used mature technology with transistor gates 28 nanometres wide or older. The most advanced chips under production measure 10nm or smaller.“The ecosystem and quality output of electronic grade chemical manufacturing assets is not geared at all to supplying advanced technology nodes such as those targeted by TSMC in Dresden or Intel in Magdeburg,” the person added.TSMC chief executive Mark Liu in June said gaps in Europe’s chip supply ecosystem were one of the “things we are most worried about” but added the German government had promised to help address the problem.GlobalFoundries said chip companies in Europe were concerned about ensuring the necessary supplies for manufacturing. “There’s a big push to have more bulk materials readily available,” the company said. Sulphuric acid, which chipmakers need in huge quantities for cleaning and etching, has to be sourced from Asia because there is not enough available in Europe at the right quality, the person added, while isopropyl alcohol, needed for wafer cleaning during chip production, was often in short supply. The technology in European fabs works with relatively low-grade IPA. Ineos, Europe’s leading supplier, has two IPA factories in the German towns of Herne and Moers, which were built in 1959 and 1936, respectively.After decades of concentration of cutting-edge chipmaking in east Asia, LCY and Japan’s Tokuyama are the only companies making the chemical for the most advanced semiconductors. Tokuyama said it might consider Europe as a potential market in 10 to 20 years, but Asia was its only focus in the near term. LCY’s Liu visited Germany two weeks ago to lobby for government support for chip supply chain companies. He said Infineon and other European chipmakers had in the past lacked incentives to modernise manufacturing processes because they generated most of their profits from designing chips. TSMC, on the other hand, specialises in producing chips from others’ designs and was therefore singularly focused on reducing defect rates to raise profitability.“Once TSMC goes in, they will show them, and they will start understanding what big a difference this makes,” Liu said.The European chemicals executive said the loss of advanced supply capabilities applied to almost all materials and chemicals in the semiconductor value chain for Europe. “Europe today is a net importing region for key electronic grade chemicals. Changing this to become competitive is a long-lasting and expensive challenge requiring a lot of capital expenditure in Europe.” Infineon did not respond to a question about the effect of TSMC’s Dresden fab on its manufacturing efficiency or supply chain. Ineos said it was active in the development of ultra-high-purity chemicals and “has continued to reinvest in its production facilities at Herne and Moers to serve current and future customer demands in the semiconductor industry both domestically and globally”.Additional reporting by Guy Chazan in Berlin and Kana Inagaki in Tokyo More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The EU has axed the shipping industry’s exemption from competition laws, in a blow to shipowners whose profits have long been bolstered by their ability to share vessels.The European Commission said on Tuesday that the exemption, which for years has enabled shipping lines to place containers on each other’s ships, no longer appeared “fit for its purpose” and will not be renewed when it expires next April.While the decision does not in itself end co-operation between shipping groups, it has the potential to upend the business of global trade, which has become increasingly dominated by a handful of container shipping companies which control most of the market through so-called alliances.The move is also the latest sign of a clampdown on the shipping industry, which thanks to its international nature has historically proven difficult to regulate. It comes at a critical time for container carriers, whose earnings have plunged following a period of bumper profits during the Covid-19 pandemic, when an online shopping boom combined with lock jams at ports caused demand to outstrip supply.“It really is a big deal,” said Mike Garratt, director at MDS Transmodal, a shipping consultancy whose research informed the commission’s decision. “[There were] nine companies who almost seemed to be beyond the law, [controlling] most of the value of world trade. [This] has dramatic implications for the deep sea shipping sector.”The world’s nine largest container shipping lines, several of whom have grown through acquisitions of smaller rivals, have formed three separate alliances over the past decade, allowing them to control supply and put a floor under the cost of shipping during years of low earnings.But when freight rates rose to record highs during the pandemic, profits soared, infuriating customers who faced severe delays importing and exporting goods through congested ports. During the three years to 2022, container shipping groups made as much money as they had during the previous six decades combined, according to consultancy Drewry. The commission, which received submissions from 33 shipping customers, said that the capacity shortages recently faced by these businesses had “reignited the debate” over the industry’s so-called Consortia Block Exemption Regulation (CBER). Once subject to EU antitrust rules, shipping companies will have to review the legitimacy of their co-operation agreements, deals the European Commission has the power to break up and fine.“[Shipping] has undergone significant structural changes, such as carriers’ consolidation, global alliances and vertical integration, resulting in new market conditions, which became apparent during the coronavirus pandemic,” said Didier Reynders, the EU competition commissioner. “A dedicated block exemption for shipping lines is no longer adapted to those new market conditions.”Co-operation between shipowners has been exempted from EU competition rules through different regulations since 1986. The CBER, adopted in 2009 and renewed twice since, has guaranteed the legitimacy of consortiums involving companies whose combined market share does not exceed 30 per cent. The announcement this year that the world’s two largest container shipping groups, Mediterranean Shipping Company and AP Møller-Maersk, had decided to end their vessel-sharing alliance had prompted speculation over the future of such agreements. But the move was seen as a consequence of the two companies’ diverging strategies and others have since called for the alliances to continue.The commission’s decision has been resisted by the shipping industry, which also faces growing pressure in the US, where President Joe Biden last year promised to “crack down on ocean carriers whose price hikes have hurt American families”.John Butler, president of the World Shipping Council, said the lobby group disagreed “with the logic behind the decision”.The WSC highlighted that the commission’s decision does not outlaw co-operation between shipping groups. Instead, such agreements between shipping lines operating to and from the EU will have to be assessed under antitrust regulations.But Butler warned that “the shift to general EU antitrust rules will create a period of uncertainty as carriers adjust to the new legal structure”. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Bank of England may need to further increase interest rates as it grapples with higher inflation than the UK’s G7 peers, the IMF predicted, as it set out an outlook that will provide a painful backdrop to the election expected next year. Pierre-Olivier Gourinchas, IMF chief economist, said in a press conference on Tuesday that rates may need to rise another quarter-point above the current 5.25 per cent, as he warned of “quite persistent” levels of inflation.Headline consumer price inflation will stand at 7.7 per cent this year in the UK before dropping sharply to 3.7 per cent in 2024, according to the IMF’s latest World Economic Outlook.This would exceed inflation readings in other G7 countries, including Germany, which is predicted to have the second-highest rate in the group next year at 3.5 per cent.The forecasts, if borne out, will make for a tough backdrop for the UK government as it seeks to demonstrate the country is putting the cost of living crisis behind it before the general election expected next year. Jeremy Hunt, the UK chancellor, said: “The IMF have upgraded growth for this year and downgraded it for next — but longer term they say our growth will be higher than France, Germany or Italy.“To get there we need to deal with inflation and do more to unlock growth — which I will be focusing on in the upcoming Autumn Statement,” Hunt added. Elsewhere, inflation in the US will fall from 4.1 per cent this year to 2.8 per cent next year, the IMF said.The rapid rate of UK inflation comes despite a sharp slowdown in growth both this year and next. Gross domestic product is predicted to rise just 0.5 per cent this year and 0.6 per cent next, below the pace of more than 4 per cent recorded for 2022. UK output this year will remain in positive territory, however, unlike Germany where GDP is forecast to fall by 0.5 per cent before recovering by 0.9 per cent in 2024. The UK, Gourinchas said, is facing a “low growth performance”. The stubbornly high rate of inflation “is going to require monetary policy to remain tight for a little while longer, into next year”.However, he played down IMF forecasts that showed the BoE would need to lift rates to 6 per cent, saying fund staff had pared back that estimate to 5.5 per cent following more recent analysis. Rishi Sunak, prime minister, has vowed to halve inflation by the end of the year to 5.4 per cent as one of five key pledges.At the Conservative party conference last week, Sunak attempted to present himself as a change candidate who would energise the country, as he pointed to revised GDP figures that showed the UK was no longer the weakest performer in the G7 following the Covid-19 pandemic. The IMF said it had not yet been able to incorporate the revised GDP figures from the Office for National Statistics into its assessment of the UK economy. The BoE left rates unchanged at 5.25 per cent in September, a day after inflation came in below forecast for August at 6.7 per cent. It was the first pause after 14 consecutive rate rises since December 2021. The move fuelled speculation that the bank is done lifting interest rates, but the IMF warned in its outlook that central banks could not afford to relax in their battle against rising prices.“With global core inflation still high and declining slowly, central banks should generally maintain a tight stance and avoid prematurely easing monetary policy,” the IMF said. “At the same time, there are fewer cases in which sizeable interest rate hikes are warranted, with increasing differentiation across countries’ policy needs for ensuring price stability.”This story has been amended to reflect that the IMF predicts the BoE may need to raise interest rates again More