TPT July 2009

G lobal M arketplace

Turkey, whose cooperation is essential for the pipeline but which was brought only slowly to acquiesce in the transit rules hammered out by the participants. Turkey now allows that it is prepared to go ahead on the project. But President Abdullah Gul has made it clear that he expects to see some parallel progress on Turkey’s stalled bid for membership of the European Union. Kazakhstan, Turkmenistan, and Uzbekistan declined to sign the agreement, presumably out of deference to Russia, which views Nabucco as a potential geopolitical challenge. The recent decline in energy prices has weakened the Russian position somewhat, creating an opportunity that the Western partnership was poised to seize. If it materialises, the Nabucco pipeline could move some 31 billion cubic metres of natural gas annually, or up to 5% of consumption in the countries of the European Union. The cost of infrastructure has been estimated at $12.2 billion, but that is not the sole challenge. Other steady and reliable sources of natural gas must be secured, beyond Azerbaijan; and the likeliest of these — Iran and Iraq — are problematic, to say the least. • As reported by the Moscow-based daily Kommersant on 27 May, work is to begin this September on an Iran-Pakistan pipeline, with completion also projected for 2014. According to the newspaper, the Russian gas monopoly Gazprom is promoting the project on grounds that the diversion of Iranian gas to markets in South Asia would eliminate a source of competition with Russia as a supplier of gas to Europe. Steel demand will stabilise in the latter part of 2009, leading to a mild recovery in 2010, the World Steel Association predicted in April. As befits the world’s biggest steel consumer, China has committed $586 million to spurring domestic demand. Worldwide, individual producers are employing various interim strategies of their own. Both sets of initiatives — national and corporate — presume a recovering market. The companies recognize something else: the imperative to be in the best possible state of health when that market opens up. Rebecca Keenan, writing from Melbourne on bloomberg.net (5 May), noted that steel makers from Europe’s ArcelorMittal to Australia’s OneSteel Ltd have taken advantage of a global stocks rally to sell shares this year, strengthening finances as they cut output and conserve cash. One such is Melbourne-based BlueScope Steel Ltd (formerly BHP Steel), an integrated producer with operations in Australia, New Zealand, Asia-Pacific, and North America. Although global market conditions remain “challenging,” BlueScope said in May that the decline in domestic sales volumes that was seen toward the end of 2008 had levelled out. The producer planned to raise as much as A$1.4 billion (US$1 billion) from its second share sale in three months. Its offer to existing stockholders was at a 40% discount to the last traded price. “There is plenty of money around and they are taking advantage of that,” the head of Australian equities at a brokerage house in Sydney told Bloomberg . BlueScope also said it might delay restarting the Number 5 blast furnace at Port Kembla after a major reline was completed in June. Steel Profile in preparedness: BlueScope Steel Ltd (Australian)

Automotive Connoisseurship not consolidation: BMW bucks an industry trend

The German luxury auto maker BMW is taking a contrarian approach to the challenges of the market. While Fiat and Chrysler join forces, BMW is going it alone, confident that premium cars from an independent producer hold perennial appeal for individualists with deep pockets. “Do people want to differentiate themselves from each other?” The question was posed by Friedrich Eichiner, BMW’s chief financial officer, during an interview with the International Herald Tribune at the Munich headquarters of the company. Mr Eichiner answered himself: “I think so. That wish is there and it is enduring.” The Tribune ’s Carter Dougherty pointed out that Mr Eichiner’s “instinct” is up against some bracing realities in a period of austerity and greater personal savings — especially in the United States. (“BMW Puts a Premium on Independence,” 7 May) The Tribune noted that Fiat’s chief executive Sergio Marchionne believes the successful car maker of the future will need to sell at least 5.5 million vehicles a year — far more than the 1.4 million BMW sold in 2008. In the view of the auto industry’s “man of the moment,” only that volume of sales will support development of the technology required to meet increasingly rigorous standards for fuel efficiency and emissions control. Accordingly, the Fiat chief pursued a merger with bankrupt Chrysler, and may also pick up the European operations of General Motors. Mr Dougherty noted that, to many industry executives, “It is time for the premium manufacturers to consider similar moves, combining high-margin cars with economies of scale.” • But, to Mr Eichiner and other BMWexecutives, that business model ignores a major problem of large-scale operations: the punishing fixed costs of factories and workers that become a burden at less than full-bore production. The company chooses instead to rest its hopes in a smaller operation geared to discerning and affluent car buyers in Europe and the United States. Said Mr Eichiner, “Size does not protect you from anything.” Pipelines The European Union moves closer to a start date for Nabucco, but Russia intends to fight its corner An energy agreement signed 8 May by the European Union and Turkey aims to speed up the start date on construction of the 2,000- mile Nabucco pipeline, which would bring natural gas from the Caspian Sea to Europe while bypassing Russian territory. A prime consideration is the reduction of dependency on Russia, currently the supplier of some 20% of Europe’s fuel needs. The EU hopes to be pumping first gas through Nabucco by 2014. The agreement, signed by the leaders of Azerbaijan, Georgia, Egypt, and Turkey at a summit meeting in Prague, had hinged on

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