Beyond Mathematical Odds X - Reality check

"Looks like everything shortage is back in the menu, boys."

This post belong to the Beyong Mathematical Odds series, I reccomend to read it, to have a big picture perspective from this series.

I remember buying lots of drawing paper in 2021, because reasons, and it just crossed my mind to check it out.

Sri Lanka runs out of paper amid economic crisis; Postpones exams

And I found this funny (for me, not for them clearly) piece, which led me to think “It can’t be just localized to Sir Lanka, the paper market is as global as oil…

Looking for Answers to Paper Shortages

If the early days of 2022 have been any indication, paper shortages and rising distribution costs are challenges that the industry will likely face throughout year. The seeds of the current problems were sown in the years of the pandemic, when sales of print books unexpectedly rose, increasing demand while people were leaving manufacturing jobs in droves that led to labor shortages in the printing and papermaking businesses.

While the paper market has always had cycles, Rojack said this is something different. “The paper business has been consolidating for years and will continue to consolidate,” he said, adding that the pandemic expedited the process.

Noting that book paper accounts for only about 5-7% of total paper market demand (including for catalogs and magazines), Rojack said that, despite an increase in demand by book publishers, overall paper demand has dropped 50% in recent years. To compensate for that drop, many mills converted to other products where they can make money—particularly the growing demand for corrugated boxes and other packaging materials. Giving current trends, Rojack said that the paper crunch for books is likely to get worse before it gets better, and he noted that plants that have spent millions of dollars converting their factories are not going to retool back to paper even if the packaging market becomes saturated—something some experts believe could happen.

Well… fuck. Similar to every other shortage, the state of the market the previous year, followed by lockdowns, then followed by massive demand, and the supply chain woes, kinda broke the system, there are other variables at play, but for sake of simplification, this is the path that lead us to this stage.

If you just do a simple search, you can now find many, many articles talking about the imminent paper shortage. Therefore, if you need paper to work, for pleasure (artists, etc), or for any other reason, as everything, better secure your supplier, or a long term contract now, given the current circumstances in the system, I don’t expect the prices going down in less than 2 to 3 years.

Hackers hit authentication firm Okta, customers 'may have been impacted'

Okta Inc (OKTA.O), whose authentication services are used by companies including Fedex Corp (FDX.N) and Moody's Corp (MCO.N) to provide access to their networks, said on Tuesday that it had been hit by hackers and that some customers may have been affected.

Hybrid war season keeps going, and growing as I previously expected, nothing that this would be an amazing insight, anyone with a working brain could tell, which lead us to.

Microsoft Investigating Claim of Breach by Extortion Gang

The LAPSUS$ group has previously compromised Nvidia and Samsung. Over the weekend the group published a screenshot that appeared to show access to internal Microsoft systems.

The hacking group, which goes by the self-designated name LAPSUS$, has successfully breached a wave of corporations recently. LAPSUS$ sometimes makes unusual ransom demands of its victims, including asking Nvidia to unlock aspects of its graphics cards to make them more suitable for mining cryptocurrency. The group has so far not made any public demands against Microsoft.

This is getting out of hand, the same group who hacked some of the biggest, and most important companies in the world, now apparently hacked Microsoft. I expect other, critical companies, to be hit, what is odd is the consistency this one is hitting companies within a short time frame.

Later addition, between writing this piece, Microsoft confirmed they were hacked by the same group.

The Oil Price Rally Is Bad. The Diesel Crisis Is Far Worse

The diesel shortage isn’t anything new, nor unexpected, and the production of other fuels also rely on diesel. If you have been following this series, you are always of the critical state of the system, and how diesel is important.

And now you know that gas also used to produce and refine the fuel, and the other intricacies of the energy market. If you read the entire series of post, you can tell how much everything connected, in an overly fragile, and reliant chain.

I don’t think a bigger production of crude from some suppliers would help, and neither would bigger refining capacity anywhere (the US has very little of it). Why, because of this.

EU leaders to agree to jointly buy gas, LNG this year

Leaders from European Union countries will agree at a summit this week to jointly purchase gas, liquefied natural gas and hydrogen ahead of next winter, according to a draft of their summit statement.

In case you don’t know, most of the years the LNG follows a pattern. China, Japan, and other Eastern Asian countries buy everything they can, and the rest goes to other market participants. China and Japan will literally outbid anyone else, until they secure their needs. It didn’t use to be a problem, because the EU had Russia as its main source of gas.

Now this will throw the LNG in a bit of a chaos, because the EU will try to outbid China, and Japan, and poorer nations will get squeezed out, unable to compete. I mentioned this before, now we have a concrete picture.

And now Japan plans to shun Russian gas (10% of their total), and source elsewhere, in the spot market… adding more stress, and upward price pressure to the market.

So, now we don’t have enough crude, not enough diesel, countries that can refine, prefer not selling it. What about coal ?It is about to get (even more) complicated, so bear with me. India produces most of its energy from coal, specially since the last few chaotic months, and as I forecast, the coal market would not have enough supply, for the monumental demand, supply will be short and prices will rise, above what market leaders expect, they expect up to 5%, I expect up to 10% if no unforeseen circumstances arise.

Not a matter of just supply, demand, and economics, but also logistics.

Coal Buyers in India Are Paying 300% Premiums to Secure Fuel

• Prices have surged in recent Coal India auctions: sources

• Customers paid Coal India Ltd. an average premium of more than 340% above baseline prices in two sales this month, according to people familiar with the results, who requested anonymity as they are not permitted to speak publicly. That compares to premiums of about 100% in auctions in January. 

It is about to get (even more) complicated, so bear with me. India produces most of its energy from coal, specially since the last few chaotic months, and as I forecast, the coal market would not have enough supply, for the monumental demand, supply will be short and prices will rise, above wha market leaders expect, they expect up to 5%, I expect up to 10% if no unforseen circumstances arise.

Not a matter of just supply, demand, and economics, but also logistics.

"Indian Railways has admitted that it is exhausted and has no more spare capacity," a senior government official said. "It has said it can improve its capacity each month with the addition of new rakes supplied by BHEL. Overall situation remains critical."

China-Europe Rail Routes Become Supply Chain’s Latest Problem

• Auto, electronics makers seek to shun train freight via Russia

• More containers threaten to swamp already congested ports

More than a million containers set to ride 6,000-plus miles of railway linking Western Europe to Eastern China via Russia are now having to find new routes by sea, adding to costs and threatening to worsen the global supply chain chaos

If you are following either my Twitter page, or my Substack for 4 weeks, you already got the picture on why this is disastrous. Not a point raised only by me, but this is an emotional decision by Europe, and European companies. Maersk now decide to complete leave Russia, and sell all of its assets, the winner in all of these events is China, and has been for a while.

With this decision, you can expect longer delivery times, freight going higher, as if China Covid 0 woes were not enough, more stress in a system that is close to cascade failure. Unlike some of the other aspects of all of this, there isn’t a way around this one, since literal cartels own most of the logistics in the world.

Europe Can’t Rely on Key Exporter Australia for Coal, Miner Says

• Most supply is tied up in existing contracts: New Hope CEO

• Market seeing strong demand and output remains constrained

Producers of power-station coal in Australia, the second-biggest exporter, have only limited capacity to send cargoes to Europe to help replace Russian fuel, according to a Brisbane-based miner.

Vietnam is already experiencing coal shortages too.

Why would this be a big problem, besides fueling higher energy prices, and inflation ? Well, everything else. India wanted to pick up the slack of other countries, and become one of the big steel exporters.

Lockdowns and Inspections Disrupt China’s Plans to Ramp Up Coal

China’s coal production is facing disruptions because of Covid-19 lockdowns and environmental inspections, undermining Beijing’s plans to significantly ramp up output of the fossil fuel.

A temporary lockdown imposed on Tangshan, an industry-heavy city in northern Hebei province, is creating logistical problems for delivering fuel to factories. At the same time, major coal areas are facing constraints from month-long environmental checks starting from this week, with several miners cancelling night shifts to ease up on full-capacity operations. 

That is why I recommend, at the start of every post, for you to go read other posts, especially older ones, mapping the complexity inside the system is rather long, and you can lose yourself.

As you are going to read below, part of the current mess inside many markets, and some commodities was set off by China not being able to secure enough fuel to keep prices stable, and the market got into such a state, factories just closed themselves because of costs, and in some places by government mandate.

They will secure their coal, in one way or the other, but the problem is, from where, and how if other countries are struggling too ? Looks like the start of another cascade.

Steel Is the Other Big Commodity Shock from the War in Ukraine

The world is fixated on the war’s impact on global energy markets. The surge in oil prices have dominated the headlines. But alongside oil, steel is a foundation of the modern economy. The ubiquitous commodity underpins the world as we know it, a key material in everything from skyscrapers and cars to washing machines and railways.

Now Russia’s invasion threatens to turn steel into a luxury commodity. Prices have surged, and the rally will be felt everywhere, adding to global inflationary pressures. 

One reason for the price spike is the sheer size of the Russian and Ukrainian steel industries. Russia is the world’s third biggest steel exporter, behind only China and Japan, while Ukraine is the eighth largest. 

Although steel is associated with huge blast furnaces like the ones destroyed in Mariupol, in Europe about 40% of the metal comes instead from so-called electric arc furnaces or mini-mills. Rather than iron and coal, the mini-mills use huge amounts of electricity to melt iron scrap into fresh steel. Mini-mills are more environmentally friendly, but their Achilles heel is power consumption. And right now, Europe is short of energy.

With the war sending gas prices higher, European short-term power prices have also surged, peaking earlier this month above 500 euros per megawatt hour, or about ten times higher than before the crisis. The price jump forced many mini-mills from Spain to Germany to shut down or reduce output, running at full capacity only at night when electricity is cheaper.

I have covered the coming steel shortage for weeks, and in my Twitter for over a year. Most shortage are multifactored, this one wouldn’t be different. First the slowdown from the global lockdowns, then the opening up, then lockdowns in China, followed by energy woes in China again, followed by China curbing the export of Magnesium to secure their own supplies (and because of the energy woes), affecting the whole global market.

Magnesium is used in both the manufacturing of steel, and aluminum, among many other essestial itens, and we are still experiencing global shortages. And now, per the article above, intensifying something that was already bad.

The steel shortage is severe enough as of now, that construction, and engineering companies have to wait, sometimes, close to one year to get the supply they need, and the prices changes to fast, and projects can’t account for the inflation, shortages, etc. I have covered the coming steel shortage for weeks, and in my Twitter for over a year. Most shortage are multi factored, this one wouldn’t be different. First the slowdown from the global lockdowns, then the opening up, then lockdowns in China, followed by energy woes in China again, followed by China curbing the export of Magnesium to secure their own supplies (and because of the energy woes), affecting the whole global market.

Magnesium is used in both the manufacturing of steel, and aluminum, among many other essential items, and we are still experiencing global shortages. And now, per the article above, intensifying something that was already bad.

The steel shortage is severe enough as of now, that construction, and engineering companies have to wait, sometimes, close to one year to get the supply they need, and the prices changes fast, and projects can’t account for the inflation, shortages, etc. At this point, the steel shortage will last at the very least 2 years, if not more.

If you own a company that relies on, or produces steel, you should reevaluate your supplier’s supply chain, and try to make it local, if local companies can allocate the quantity, otherwise the continuous disruption of the system will keep severely affecting your business. In case you own a bigger company, or is an industry owner, secure long term contracts, but I would steel find new supplier outside the usual ones.

The US is already moving to do it, making a deal with UK, and should do the same with Brazil, if not, they will be pushing Brazil further to ally itself with China. Given the current level of genius in the administration, I wouldn’t be surprised if their choices resulted in a monumetal mess.

Since we are talking about energy, costs, and gas.

Food inflation in Arab nations, set off by the Russia Ukraine conflict gets higher and stronger by the day

Ammonia, urea producer Yara halts purchases from sanctions-hit Russian suppliers

• No sourcing from sanction-linked Russian entities

• Eurochem, Uralkali, Uralchem, PhosAgro affected

• Sourcing expected from Trinidad as markets react

Yara had already cut fertilizer production at two European plants because of rising gas prices.

Ammonia and urea production is expected to be at 45% capacity at its Ferrara and Le Havre plants in Italy and France, respectively, the company said March 9. The two plants have a combined annual capacity of 1 million mt ammonia and 900,000 mt urea.

Major market disruption

Russia and Ukraine are both major exporters of ammonia and fertilizers, and Russia's invasion has disrupted global markets.

Yara's move is expected to further disrupt European ammonia markets, which have lost Black Sea exports due to the closure of the Yuzhny port and pipeline amid the war in Ukraine. Yara agreed to an April Baltic contract price at $1,155/mt March 1 with several Russian exporters, including Eurochem, to distribute ammonia to production facilities owned by Yara in Europe. Significant volumes from the Black Sea and Middle East move under the contract.

More, and more effects from both energy prices, direct sanctions against one of the major exporters of fertilizer in the world, and stupid decisions. Throwing money at the problem won’t solve it short term, and I don’t even know how fast you can solve this problem long term with merely money.

Alas, here we have a further signal that the price of fertilizers will continue to be high, or go higher for a short time, while the market adapts, and other countries create strategies to fill the gap. If you read the entire piece, you know other factors come into account, and current flood inflation will continue for at least 12-18 months, which is enough to affect the global economy. Wouldn’t be a concern, if the current American administration wasn’t hellbent into antagonizing China, because they think they are in position to pressure them.

China and Russia, together, account for almost a literal half of the world’s fertilizer. If China decides to stop exporting that alone, it will cripple Western nations for years to come, and set off global famine in most countries.

I suggest you to read this piece, where they comment about how the US is trying to bring back fertilizer production, and the hurdles the country will face (too expensive). China also controls the refining, and manufacturing not only of commodities, but chemicals needed to create other products.

So far, if you go back into this series, or my Substack, you start getting a clear picture. China will buy most of the assets left in Russia, dominate markets even more, and pressure the West into a very hard position.

Gift them Taiwan, or embrace for massive amounts, years of pain.In the interest of continuing my 16-month effort in tracking, and forecasting this monumental disaster, here we are.

In about 12 days we went from roughly 2 million, to 12 million culled animals, because of the avian flu, 5.3 million in Iowa farms alone. This is an exponential growth, and I doubt any measures will be able to contain it, therefore prices for poultry and eggs will be affected as weeks go by.

The other hidden pandemic I have been tracking is the African Swine Fever, after coming back to China, is now back in India, getting rid of ASF is very hard in most countries, specially because there are animal reservoirs now too.

I have already shared my opinions on all these matters, and my forecasts, and they didn’t change. You should start to seriously think about having some non-perishable food stock, for at least a few months, if not by anything, just to hedge against inflation.

The Death Toll Rises To Over 12 Million Chickens And Turkeys In The 2nd Month Of America’s Horrific Bird Flu Pandemic

In the interest of continuing my 16 month effort in tracking, and forecasting this monumnetal disaster, here we are.

In about 12 days we went from roughly 2 milion, to 12 million culled animals, because of the avian flu, 5.3 million in Iowa farms alone. This is a exponential growth, and I doubt any measures will be able to contain it, therefore prices for poultry and eggs will be affected as weeks go by.

The other hidden pademic I have been tracking is the African Swine Fever, after coming back in China, is now back in India, gettin rid of ASF is very hard in most countries, specially because there are animal resevoirs now too.

I have already shared my opinions on all these matters, and my forecasts, and they didn’t change. You should start to seriously think about having some non-perishable food stock, for at least a few months, if not by anything, just to hedge against inflation.

And for the record, the Canadian railway strike came to pass, which will have downstream effects later on (weeks from now). This piece is long enough as it is, so I will leave at this for now. Next one might take more days than usual, not because of lack of news, but I will go back into my entire post history, and write down each, and every single thing I wrote, and analyze.

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