Aurelia Butler

America’s largest retailers are weathering the country’s supply chain storm while smaller rivals struggle to secure sufficient supplies, according to earnings announcements and survey data which point to a widening rift between the biggest store owners and the rest. Walmart, Home Depot, Lowe’s and Target all reassured investors in recent days that they were starting their peak season with strong inventory levels. Most of the “big box” chains commented that their size, deep vendor relationships and strong balance sheets were helping them gain market share, albeit at a cost to profit margins. But smaller brands painted a more challenging picture of inventories not recovering to pre-pandemic levels. Kohl’s, the $9bn department store chain, said that “extended transit times” had left its inventory levels at the end of the third quarter 25 per cent below where they stood at the same point in 2019, with particular shortages in women’s clothing. Macy’s inventory was more than 15 per cent below the levels of two years ago. The surging recovery in demand since last year’s Covid-19 lockdowns has strained all importers, as rocketing ocean freight costs, port logjams and shortages of materials, truckers and warehouse space lead to unprecedented supply chain challenges. But the deepest-pocketed retailers, such as Walmart and Costco, have been able to charter their own vessels and air freight in-demand products to secure deliveries. “It’s kind of the haves and the have nots,” said Jennifer Bisceglie, CEO of Interos, a supply chain consultancy: “The bigger retailers are the ones who have. They had the ability to reach deep into their coffers and start airfreighting produce forward. The have-nots are the small shops, the SMEs that are beholden to their local markets.”The largest chains could also count on key suppliers giving them priority, she added: “If I was selling to Walmart, wouldn’t I want them to remember that I was good to them in the 2021 holiday season?”“The retailers that are in most trouble are medium-sized retailers that aspire to compete against larger retailers with a similar product mix,” said Henry Jin, a Miami University associate professor. “These are the retailers that have neither the financial resources and relational clout with third-party logistics companies to take greater control over their inbound logistics nor a geographically diversified supply base,” he added.Investors have not punished smaller retailers’ stocks en masse but import-dependent apparel companies have been hit particularly hard by delayed shipments, said Nick Mazing, director of research for Sentieo, the financial data group. Brands including Steve Madden, Carter’s and Decker’s had all reported steep increases in “inventory in transit” in their latest earnings statements, he noted.Independent retailers are feeling greater pressure, according to Alignable, a network for small business owners whose polling shows small stores struggling with surging inflation and a shortage of supplies.

Its latest survey showed that 40 per cent of small US retailers expected to be unable to pay their rent for November, up 7 percentage points from October, and more than a quarter said they were in danger of closing for good in the fourth quarter. The large retailers’ efforts to get around supply chain blockages have eaten into their profitability, with shares in Target slipping this week after it warned that higher costs were weighing on its gross margins TJX said its “vast vendor universe”, the largest in the off-price retail sector, had allowed it to stay well stocked but added that its freight costs would rise by 80 to 90 basis points between the third and fourth quarters as it paid “significantly higher market rates” to secure inventory.Smaller retailers which went into the pandemic with thinner margins have less of a cushion, said Simon Freakley, chief executive of consultants AlixPartners. “There are very limited options” for smaller companies, he said: “Your only real options are to build your regional and local supply chains, which you can’t do quickly. If you’re a business that’s already struggling, that puts more pressure on your margins, which makes you more vulnerable.”That would lead to “more distress” at the smaller end of the retail sector, he predicted, after a period in which low interest rates and government support have sustained companies that had been struggling before Covid-19 hit.“As inflation starts to tick up and borrowing costs start to tick up you’ll see a bunch of companies that were not in great shape fall away or be bought,” he said. James Gellert of Rapid Ratings said his group’s assessments of retailers’ financial health showed that bifurcation was already happening. While its ratings for the largest chains had already rebounded to 2019 levels or beyond, “the smaller companies have degraded at a faster pace”. For many individual store owners, the challenges are immediate and acute. Katrina Parris, owner of a Harlem gift shop called NiLu, thought she was acting early when she ordered her holiday assortment of ornaments, candles, jewellery and other items back in August.The holiday shopping rush after Thanksgiving at the end of November is usually her “time to shine”, she said, and the moment when her sales for the year typically peak. This year, however, she has received only half of what she ordered and has no guarantee that the other half will arrive in time. Bob Amster, principal at Retail Technology Group, an industry consultancy, said the supply chain crisis could leave small stores in need of more support from Washington. “Unless there is an intervention by the administration,” he said, “many of them will actually suffer and possibly close.” More

The EU has long looked to take a global lead on climate, and its 2030 goal to reduce net greenhouse gas emissions by 55 per is a benchmark for decisive global action.But Brussels has not shown the same boldness in its industrial policy for securing the sustainable upstream metals supply needed to deliver that target. Its ever-growing metals dependencies threaten to derail the development of new clean energy value chains. The International Energy Agency this year warned of a “looming mismatch” between climate ambition and minerals availability. Europe has a long list of serious metal supply challenges on its radar over the next decade unless it quickly and radically changes course.First up is magnesium, of which Europe risks completely running out of supply later this month, leading to an imminent stop to aluminium alloy production. This means Europe will not be able to make its lightweight cars, aerospace components and so much more. The back-story is one of avoidable dependency. Despite Europe having a big magnesium industry until the early 2000s, past industrial policy decisions meant production was lost to more polluting Chinese imports. Fast-forward to today: China has a near-monopoly on global magnesium production, providing 95 per cent of Europe’s supply. Its recent production curbs have led to a rapid halving of magnesium output, creating a global supply crunch. Europe today faces a similar dependence on China for other energy transition metals, such as the rare earths used in electric cars and wind turbines, and the germanium, gallium and indium needed for a restart of solar panel production. It is also powerless to address the major environmental and social impacts from their production.The second metals challenge is looming five years from now, after which Europe risks a supply deficit for lithium and other battery materials. According to Wood Mackenzie, the world in 2030 will need eight times more lithium than today to supply electric vehicle batteries. Yet currently announced global extraction projects only cover about a third of this massive demand. There is no quick fix, because it can take up to 10 years to open a new mine. Unsurprisingly, today’s lithium market is already experiencing shortages, and electric vehicle batteries have become more expensive after years of decline.Europe woke up to this danger last year with the launch of its European Raw Materials Alliance to spark domestic investment and global partnerships. China, however, is at least a decade ahead, holding 80 per cent of the world’s refining capacity for battery metals, and investing more than any other country into securing supply from the world’s mines.

Europe’s third metals challenge is the risk of new dependencies by the end of this decade. Take aluminium. According to the World Bank, the energy transition will need more tonnes of aluminium than any other strategic metal — for lightweight vehicles, electrifying the grid and solar panels. Yet, alarmingly, over the same period, Europe has lost one-third of its primary aluminium production. Today, European producers are battling Chinese overcapacity, high-carbon dumping, and high power prices while at the same time investing heavily in decarbonisation.This May, Brussels introduced anti-dumping duties for semi-finished aluminium products in a belated attempt to equalise the playing field with Chinese competitors. Then, in September, these very same anti-dumping duties were suspended for nine months despite clear evidence of significant injury.Short-term decisions such as this risk repeating past mistakes that have been made at the expense of the region’s upstream industries. Aluminium cannot become Europe’s next magnesium. Nothing less than a massive shift in industrial policy is needed to solve Europe’s growing metals problems, across three areas of action. First, Europe needs to accept that more mining and refining of strategic metals is urgently needed under the right environmental and social conditions. This must be backed up with a clear strategy for sourcing and financing sustainable minerals both at home and abroad. Second, the continent needs to confront its dependence on Chinese monopolies and evaluate alternative paths forward — from supply diversification to reshoring of production — while keeping strong, consistent trade defence instruments to prevent further production leakage. Third, Brussels needs to recognise that the energy transition will massively challenge power-intensive metals producers as they themselves decarbonise. The EU must safeguard its industries from debilitating energy price rises, while delivering affordable carbon-free electricity in the massive volumes required for producing the sustainable metals of Europe’s future. The metals industry is a willing, enabling partner in Europe’s ambitious plans to decarbonise its economy. We now need Brussels to deliver an effective industrial policy that will help us realise that ambition.Guy Thiran is director-general of Europe’s metals association, EurometauxThe Commodities Note is an online commentary on the industry from the Financial Times More

WASHINGTON (Reuters) – The White House said on Thursday that its social spending package, known as the “Build Back Better” Act, would reduce the deficit by $112 billion over the next decade according to a new analysis. The statement came out just after the non-partisan Congressional Budget Office, charged with evaluating the cost of legislation, found that the bill would raise the federal deficit by $367 billion over the next decade. More

TOKYO (Reuters) -Japan is set to compile on Friday a record $490 billion spending package to cushion the economic blow from the COVID-19 pandemic, bucking a global trend towards withdrawing crisis-mode stimulus measures and adding strains to its already tattered finances.Spending has ballooned due to an array of payouts including those criticised for being unrelated to the pandemic, such as cash handouts to households with youth aged 18 or below, and will likely lead to additional bond issuance this year, analysts said.The massive spending would underscore the resolve of Prime Minister Fumio Kishida – once considered as favouring fiscal restraint – to focus on reflating the economy and redistributing wealth to households.In a meeting of government and ruling party executives on Friday, Kishida announced his plan to spend around 56 trillion yen ($490 billion) in the stimulus package, and compile an extra budget by year-end to fund the measures.”The reflationary monetary policy and go-big-or-go-home fiscal policy pioneered by (former Premier) Shinzo Abe is now the orthodoxy,” said James Brady, an analyst at Teneo.”Though Kishida has been known in the past for being somewhat hawkish, he appears set to continue the Abenomics paradigm for several more years.”Bond yields ticked up on Thursday after the Nikkei newspaper reported the new stimulus package will include 55.7 trillion yen worth of spending, much bigger than the 30-40 trillion yen estimated by markets.”Inflating the size may have become the purpose with little discretion made on whether the spending would be effective,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute. “It’s a lot of wasteful spending.”The total package, which includes funds that do not lead to immediate spending, will likely reach 78.9 trillion yen, according to a final version of the draft of the stimulus package obtained by Reuters.The government will compile an extra budget of around 32 trillion yen to fund part of the cost, the draft showed.The government will announce details of the package after it is signed off at a cabinet meeting later on Friday.Japan has lagged other economies in pulling out of pandemic-induced doldrums, forcing policymakers to maintain massive fiscal and monetary support even as other advanced nations dial back crisis-mode policies. ($1 = 114.3200 yen) More

LONDON (Reuters) – Turkey’s lira suffered one of its worst days in three years on Thursday after the central bank defied warnings of a full-blown currency meltdown and rocketing inflation, and slashed interest rates by 100 basis points.The country’s President Tayyip Erdogan takes the unorthodox view that lower rates are the only way to curb inflation. Not only has he seemingly got his way this time, but his central bank chief hinted at another cut next month.Economists warn Turkey now risks even higher inflation – 30% potentially – and full currency meltdown unless the course changes and rates are raised.Below are a series of charts explaining what’s behind the lira’s woes.1. SLUMP, JUMP AND SLUMP AGAINTurkey, the largest economy in the Middle East and the 20th biggest in the world, has been hit by two sharp contractions in as many years and its currency has shed two-thirds of its value since mid-2018.The lira enjoyed some respite in 2020 — it rallied more than 20% between November 2020 and February 2021 — after a change of finance minister and central bank governor restored some confidence.But Erdogan ousted that governor in March and investors say any remaining credibility has been lost as the new chief delivers a series of rate cuts. Graphic: Turkey’s lira https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkwmdrpx/lira%20decade.PNG 2. RUNNING LOW ON AMMUNITIONThe central banks’ reserves have risen this year thanks to an infusion of IMF money, but analysts say they are actually still in negative territory due to various funding arrangements with the country’s local banks. Turkey’s net FX reserves stood at $28.61 billion as of Nov. 12. That’s up significantly from the sub-$10 billion levels of April.However, the bank’s outstanding swap transactions stand at $43.44 billion, which means reserves are technically $15 billion in the red. Graphic: Turkey’s currency reserves https://fingfx.thomsonreuters.com/gfx/mkt/zgvomklljvd/Pasted%20image%201637254041981.png 3. CRISIS IN THE BALANCETurkey also runs a current account deficit, though smaller than in previous years. The central bank chief has said addressing the deficit is key to tackling price stability.Looser monetary policy though in the context of an economy already operating above its pre-COVID trend risks causes imbalances to build and could sow the seeds of another balance of payments crisis, warns Capital Economics. Graphic: Turkey’s balance of payments https://fingfx.thomsonreuters.com/gfx/mkt/dwpkreyywvm/Pasted%20image%201637257931363.png 4. IS ANOTHER CUT COMING?Thursday’s cut leaves interest rates at 15% and roughly 500 basis points below October’s inflation near 20% reading.In 2018 when the lira was in free fall, the central bank yanked up interest rates to 24%, or about seven percentage points above where inflation was at the time, before the currency stabilised.”Noting the risks for further cuts, we keep our view that continued market pressures will discourage further easing,” JPMorgan (NYSE:JPM) said after Thursday’s policy meeting. Graphic: Turkey rates and inflation https://fingfx.thomsonreuters.com/gfx/mkt/mypmnkyymvr/turkey%20rates%202.PNG 5. NOT SO APPEALINGTurkey’s government and its companies need to refinance a combined $174.5 billion next year, according to ratings firm Fitch. But Turkey’s real yields — adjusted for inflation — are negative and below peers, making them less appealing for overseas investors. “We have had this issue (absence of central bank credibility) for a long time, but what we are looking at is the fallout elsewhere – how it effects the ability of the banks and corporates to meet their financing requirements,” one of Fitch’s top sovereign analysts, Paul Gamble, said. Graphic: EM real yields https://fingfx.thomsonreuters.com/gfx/mkt/znvnekmmkpl/turkey%20real.PNG 6. HOUSEHOLDS HURTThe International Monetary Fund forecasts Turkey’s economy will grow 9% this year as it recovers from the pandemic.But for households and consumers it’s a different story. With inflation likely to be heading towards 30% thanks to the plummeting their spending power is being eroded fast. Graphic: Turkey economic confidence https://fingfx.thomsonreuters.com/gfx/mkt/zdpxonggrvx/turkey%20confidence.PNG 7. IN THE BANKTurks and businesses in the country tend to convert their lira into dollars and euros, especially during times of strife. It has not moved much of late. Dollarization of the domestic deposit base is hovering above 60%. The real crisis would come if Turks starts pulling their money of the banks en masse. Graphic: Forex held by Turkish local individuals and institutions https://fingfx.thomsonreuters.com/gfx/mkt/akvezmxlapr/forex%20held%20turkish.PNG More