Forgot to pay your bills? Don’t worry. So did your electricity provider.

France’s state state energy giant EDF has been fined 1.8 million euros ($2 million) for not paying its bills on time, a record amount that aims to dissuade big businesses from starving small suppliers by putting off payment for as long as possible.

Junior economy minister Agnes Pannier-Runacher said Thursday the government wanted to “hit companies in the wallet” to force a change in their thinking on paying bills, currently treated by many as “a minor administrative issue”.

German industrial giant Siemens AG became the latest casualty of Europe’s economic slowdown, warning a sharp deterioration in some markets hurt quarterly profit and has put financial goals at risk.

The shares dropped as much as 5.9% on Thursday, the most in more than three years, after the region’s largest engineering company reported a disappointing set of results, joining ArcelorMittal, Rheinmetall AG and BMW AG in providing evidence of the gathering storm.

The earnings are a sign that a deepening slump in the global car industry and a more general economic malaise are reaching further into corporate Europe. Until now, Siemens was able to rely on its digital industries division supplying factories with equipment to automate to make up for a protracted slump in the power and gas sector. In the latest quarter, even orders and sales at that unit dropped.

Sweden’s introduction on Thursday of a tax aimed at phasing out the nation’s last remaining coal and gas plants to curb global warming comes with an unintended consequence for some of its biggest cities.

Hiking threefold a levy on fossil fuels used at local power plants will make such facilities unprofitable and utilities from Stockholm Exergi AB to EON SE have said they will halt or cut power production.

The move means that grids in the capital and Malmo won’t be able to hook up new facilities including homes, transport links and factories. While Sweden doesn’t have a shortage of power, there’s not enough cables to ship it to the biggest cities.

“We don’t have a problem with generating enough power in Sweden, we have a problem with getting it to where its needed,” Magnus Hall, chief executive officer of state-owned utility Vattenfall AB, said in an interview. “This law was added with short notice and I am not sure a proper analysis of it was made.”

The tax was introduced in January in a budget deal between the Center Party, Liberals, Social Democrats and the Greens after record long 18 weeks of negotiations. As only one of 73 points hashed out between the political fractions to reach a compromise, time for thorough analysis was probably slim.

By Andy Home

LONDON, July 30 (Reuters) – The alumina market has collapsed over the last three months with both Chinese and Western prices now at their lowest levels in two years.

The action in China has been particularly brutal. Spot prices surged to a six-month high of 3,170 yuan per tonne in May as production in the province of Shanxi was disrupted by environmental closures.

So violent has been the subsequent sell-off to below 2,500 yuan that producers are now voluntarily cutting output to try to support prices.

Since alumina is the key metallic input to the aluminium smelting process, bombed-out alumina prices are bad news for an aluminium market that is itself treading heavy water right now.

The London Metal Exchange (LME) three-month aluminium price is currently trading just above the $1,800 per tonne level after touching an 18 month low of $1,745 in June.

Lower alumina prices serve to lower the aluminium production cost-curve, the break-even point for smelters that helps define the market’s downside.

Global smelter profitability is once again beholden to the gyrations of the alumina price with still little evidence that such volatility is being hedged in either the CME Group’s or LME’s new futures contracts.

THE RETURN OF ALUNORTE

The CME alumina price, tellingly, never reacted to the May spike in the Chinese price but rather kept grinding lower to today’s $305 per tonne, a level last visited in June 2017.

The core driver has been the return of the giant 6.3-million tonne per year capacity Alunorte plant in Brazil.

Alunorte had been operating at half capacity since February 2018 under a court order related to allegations of run-offs from a tailings dam holding the “red mud” generated in the refining process.

Operator Hydro was given clearance to resume full output in May this year and Alunorte was already running at 80-85% capacity in June, the company said in its Q2 results. That should rise to 85-95% in the fourth quarter.

Alunorte’s return closes a supply gap in the Western market which had to be filled by Chinese exports, an unusual occurrence in the alumina market.

Chinese exports mushroomed to 1.5 million tonnes last year from just 56,000 tonnes in 2017.

The tide has since turned. Exports have dropped off sharply and the country has returned to being a net importer since January.

The extra supply is no longer needed thanks to the return of Alunorte, the continuing ramp-up of new capacity by Emirates Global Aluminium and stagnant aluminium production.

Metal output outside of China was down by 0.6% in the first half of 2019, according to the International Aluminium Institute.

CHINESE BOOM AND BUST

Chinese alumina prices have boomed and bust in the space of just three months.

Environmental closures in May, triggered by a “red mud” leak at Xinfa Group’s Jiaokou alumina refinery in Shanxi, spooked the local supply chain.

Any impact from those closures, however, has been fleeting. National output dipped appreciably in May but has since bounced back to 6.41 million tonnes in June, the highest monthly run-rate since May 2017.

Cumulative alumina output rose by 3% in the first half of the year and with China’s own aluminium production also flat-lining this year, analysts at Morgan Stanley calculate a 200,000-300,000 tonne surplus in the country. (“Stopping alumina’s slide”, July 29, 2019).

Previous fears of a supply shortfall have been rapidly dialled back and spot prices are now at a level where higher-cost producers in northern regions are suffering “serious losses”, according to Antaike, the research arm of the China Nonferrous Metals Industry Association.

Producers have announced a collective temporary curtailment of 1.5 million tonnes, Antaike says.

As ever with such coordinated announcements by Chinese producers, there’s an element of window-dressing previously scheduled maintenance work, but the real significance is what it says about the margin pain occasioned by falling prices.

Higher-cost producers have in the past been able collectively to support prices around $300 per tonne but with alumina’s own input costs falling, it remains to be seen how disciplined supply will be this time around.

There is growing speculation among analysts that China’s alumina sector is heading for the same sort of structural reform treatment already imposed on the smelter segment of the production chain.

That might be a source of long-term support to the alumina price but for now it’s down to whether Chinese producers can curtail output sufficiently to balance the domestic market.

RIDING THE ROLLER COASTER

Alumina has been on a high-tempo, high-volatilty price trajectory over the last couple of years.

It was above $600 per tonne as recently as September 2018 before crashing to its current producer pain levels.

The price of alumina was once linked to that of aluminium. Producers embraced spot trading several years ago, arguing that alumina supply-demand fundamentals were different from those of the metallic product.

They have turned out to be right, although not perhaps in the way they imagined. Alumina has turned out to be a much more volatile package of drivers than aluminium.

What’s curious is that all this volatility hasn’t inspired much interest in using the paper market to hedge price risk.

The LME’s newly-launched alumina contract didn’t trade at all through June. CME’s contract, which started trading in 2016, has seen only sporadic volumes since inception. Activity this year has almost totally dried up with just 240 contracts traded in January-June.

The Shanghai Futures Exchange (ShFE) is undeterred and has promised its own contract later this year.

It’s possible that last year’s high prices actively deterred producer hedging interest but with the outlook increasingly bearish, that might change.

Morgan Stanley sees “near term price support around $300 per tonne, with risk to the downside”.

However, given the excitement of the last two years, you wouldn’t bet against a few more spins of what Antaike calls the alumina “roller coaster”.

($1 = 6.8876 yuan)

EU Commission threatened Rome with disciplinary steps; 2019 deficit could be 2% of GDP or lower, officials say; league economics chief says 1.8% is possible; coalition still undecided how to use savings emerging Reuters Rome Italian coalition officials say the country’s public accounts are throwing up positive surprises this year, strengthening Rome’s hand as it tries to ward off a possible Euro-pean Union disciplinary procedure. Recent data suggest the deficit this year will not only be below the European Commission’s forecast of 2.5% of gross domestic product (GDP) but could even be below the 2.04% agreed with Brussels in December, two senior coalition members said. However, it remains to be seen how far the anti-austerity government will actually slash its current 2.4% target, because some in the 5-Star Movement, one of the two ruling coalition parties, want the savings that are emerging to be quickly spent on new expansionary measures.

The other ruling party, the League, is a push- ing for deep tax cuts, but only from 2020. It is also not certain that an unexpectedly low 2019 deficit would be enough to convince Brussels that Italy’s finances are on a sustainable path. But the latest data at least give Rome fresh arguments — something that looked impossible a few months ago. The Commission on Wednesday paved the way to disciplinary steps against Italy, complaining that its debt had risen in 2018 instead of falling and would continue to do so. It said Rome had also not reined in its annual budget deficit as promised in 2018 and would continue to run excessive deficits this year and next. A disciplinary procedure, which could eventually end in fines, had already been averted at the last moment in December when Italy cut its original 2.4% deficit target for this year to 2.04%, with the agreement of the Commission. In April, Italy restored the original 2.4% target because of a slump in growth, while the Commission forecast 2.5%.

Prime Minister Giuseppe Conte surprised observers when he said on Wednesday, in response to the Commission, that a deficit of 2.1% was possible. But now, senior officials in the government of the right-wing League and the anti-establishment 5-Star say it could be even lower. Claudio Borghi, the League’s economics chief, told Reuters 1.8% was possible if current trends continue. The main reason for the surprise trend is that two flagship government measures — an early retirement option and a new means-tested welfare benefit — are proving less popular, and therefore less costly than expected. Taken together, it now looks as if the combined cost of the two policies will be €4bn ($3.4bn) less than was set aside in the 2019 budget, Borghi said.

This estimate was confirmed by a government member closely involved in economic policy, who asked not to be named. Borghi said tax amnesties allowing people to settle disputes with the authorities by paying a limited sum had yielded more than expected, as had measures against tax evasion. Among these, the requirement from January this year that a copy of virtually all transactions must be transmitted electronically to the taxman produced squeals of protest from companies but has bolstered sales tax revenues. State coffers have also been swelled by out-of-court settlements with several large multinationals accused of tax evasion, the largest of them a €1.3bn deal with Kering, the holding company of fashion house Gucci.

A senior Treasury official declined to confirm Borghi’s 1.8% 2019 deficit projection but said it now looked “possible” that the deficit would be 2% or lower. Public finance data so far this year has been encouraging. The central government deficit for the first four months was just €1.5bn above last year’s equivalent figure — below the trend projected in Rome’s 2019 Stability Programme, which forecasts that the full-year deficit would rise by €16bn. Tax revenues through April were up 1.0% year-on-year despite a stagnant economy, compared with an official full-year target of 0.6% growth. In addition, dividend payments by the central bank and state-owned enterprises will also exceed the projections in the Stability Programme by more than 0.1% of GDP, the Treasury said in documents sent to Brussels this month.

Should European countries want the euro to replace the dollar as the world’s dominant reserve currency, the Sino-US trade war may offer a window of opportunity.
The souring of ties between the world’s two largest economies will indicate the extent to which China can switch some of its giant reserve holdings to another hard currency and also point to the limitations the eurozone faces in providing a viable alternative.
In the post-World War Two era, no asset has ever fully matched US government bonds for size, liquidity and credit quality.
It is the closest any global security has come to being perceived as a cash-like, risk-free asset with over $16tn worth of paper in circulation.
Yet, a year into a bitter tariff war, there are some signs of Beijing’s discomfort at being both the United States’ biggest trade adversary and one of its biggest creditors.
Recent data showed China sold more US Treasuries in March than it has in any month over the past 2-1/2 years.
If that proves to be more than a one-month quirk, speculation will rise about where it is diverting those reserves, and the eurozone — the world’s biggest trading bloc — tops the list of likely spots.
On size alone, eurozone government bonds appear to provide a credible landing pad: outstanding securities are almost two-thirds of the overall Treasury market.
There are signs already of greater Chinese interest in Europe — bankers attribute record Asian demand for recent Spanish, French and Belgian debt sales to Beijing.
And China has stepped up buying debt from Europe’s quasi-sovereign entities, bankers told Reuters, in particular the European Stability Mechanism (ESM) a eurozone-guaranteed AAA/A1-rated bailout fund.
Asian investors snapped up 33% of the ESM’s recent 2bn-euro 10-year bond, data from International Financing Review shows.
Asian takeup for ESM’s euro issues last year was 4%-5%. But for Chinese reserve managers to shift hundreds of billions of dollars from Treasuries to Europe’s single currency, the euro bloc needs to address key shortcomings.
“I find it hard to square the circle how such a huge Treasury holding can be diversified away, given the landscape we are in,” said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers.
“In the eurozone there is not a big risk-free market…Twenty years down the line it may be different.”
For Ahmed, the main issue is that credit risk in the bloc is not uniform.
The 19 members each run their own fiscal policies, budget rules are too loosely policed to ensure adherence, and euro exit remains a theoretical possibility.
So wealthier members such as Germany remain net savers that run balanced budgets or even surpluses, while others, mostly in southern Europe, are dogged by high debt.
The resulting mix of credit and political risks make it harder to see the aggregate eurozone bond market as a true mirror of the US Treasury universe.
Ross Hutchison, a fund manager at Aberdeen Standard Investments, says it boils down to the fact the United States “has a federal nature that the euro area hasn’t got yet”. Additionally, distortions stemming from years of bond buying stimulus by the European Central Bank mean available euro government bonds are far fewer than may appear.
While euro government debt outstanding is around $9.5tn, the ECB is estimated to hold roughly a quarter.
And the kind of “safe” securities that reserve managers seek are even scarcer — AAA-rated debt from Germany, the Netherlands and Luxembourg totals around $2.5tn, less if ECB holdings are discounted.
Debt from slightly lower-rated France, Belgium and Austria would add another $3tn.
Italy on the other hand has the bloc’s biggest government bond market, worth $2.3tn.
But its poor debt-to-GDP ratio, sluggish economy and populist policies make its bonds riskier and its credit rating is a notch or two above junk.
So in times of stress, investors clamour for German bonds, while in Italy, yields spike, threatening to undermine local banks that hold these securities.
Italian 10-year yields are at 2.5%, versus Germany’s minus 0.22%. Such risks have chipped away at the euro’s fortunes as a reserve currency — International Monetary Fund data shows it comprises 20% of global central bank holdings, from 26% in 2009.
The decline is linked to the 2011 Greek debt crisis that then ravaged Spain, Italy, Portugal and Ireland, highlighting risks of default by a member state and redenomination of euro debt into a new currency.
European officials are keen to counter the dollar’s hegemony, and at a conference last month they debated ways to win the euro a “stronger international role”. But they made no mention of the one measure that could resolve the issue at a stroke — joint debt issuance via common eurozone bonds.
Such securities would pool the bloc’s risks, and offer safer securities than those from most individual nations.
Olli Rehn, Bank of Finland governor and an ECB governing council member, said last week a safe asset would help enhance the euro’s international role, offering hope the issue will be on the agenda of the new European Commission later this year.
A common bond “would be more significant than the creation of another TLTRO in boosting demand for euros globally and reserve managers would be part of that story,” said David Owen, chief European economist at Jefferies.
He was referring to the ECB’s cheap multi-year loans.
“Maybe there will be more focus on pushing forward this agenda and taking advantage of the US and China having this trade spat,” Owen added.
Others, however, note that wealthier states oppose any common bond programme, fearing they will end up footing the bill.
Also, across Europe populist and anti-establishment movements are on the rise, with the agenda of slowing integration and returning power to national capitals.
Such groups grabbed a greater share of the vote in EU parliamentary elections last month, albeit less than expected.
“If anything, the trend is towards decentralisation of power,” Ahmed said.

Bank of England officials will probably keep policy on hold next week as they acknowledge that the economic outlook has worsened materially since May.

All but one of the 24 economists surveyed by Bloomberg predict a unanimous vote to maintain the benchmark rate at 0.75%. The risk of a no-deal departure from the European Union under new Prime Minister Boris Johnson and an increasingly gloomy global outlook suggest that policy makers will be cautious.

Officials have scaled back their rate-hike rhetoric and investors are increasingly pricing in rate cuts as the risk of a disorderly Brexit grows.

But with a falling pound and stronger wage growth threatening to fuel inflation, officials potentially face a dilemma. Governor Mark Carney is expected to address the trade-off between growth and prices after the BOE publishes its quarterly Inflation Report, alongside the monetary-policy decision, at noon on Thursday.

Economists are virtually unanimous in predicting the BOE will cut its 2019 growth forecast, with around half predicting a downgrade to the following two years. Officials are also widely expected to hike their inflation projections.

Policy makers have softened their language about the possibility of interest-rate increases. Michael Saunders, who led the charge for the BOE’s last two rate hikes, has suggested he’s in no rush to begin another push, telling Bloomberg the economy right now is “clearly not overheating.”

Chief Economist Andy Haldane, also considered among the more hawkish members of the Monetary Policy Committee, said in a speech this week that the case for keeping policy unchanged is strong and the group should proceed with caution on any loosening.

Carney has also warned that damage to the global economy from rising protectionism could be significant and require a major policy response.

While one economist sees a dissenter on the nine-member rate setting committee calling for an immediate cut, most recent comments point to unanimity.

Officials may try to address the discrepancy between their official forecasts and market expectations. Carney has said they will explore “how best to illustrate” the market “sensitivities.”
Source: Bloomberg