United States: Likely Freight Rail Strike

A potential nationwide freight rail strike is looming, threatening to cripple economy of the United States ahead of the holiday shopping season and November’s midterm elections.  

Roughly 115,000 rail workers could walk off the job as early as September 16, 2022 if they cannot agree to a new contract with railroads.  

That’s the first day workers could legally strike after a White House-appointed panel released collective bargaining recommendations aimed at ending years of contentious negotiations.  

Five of the 13 unions representing rail workers have reached tentative agreements with railroads to enact the Presidential Emergency Board (PEB) recommendations, which call for 24% pay raises, back pay and cash bonuses.

But most of the railroad workers belong to unions that haven’t yet agreed to a deal. It’s also unclear whether workers would vote to ratify PEB recommendations that don’t address their concerns about punishing hours and rigid schedules that make it difficult to take time off for any reason.  

“I would suspect that most railroad workers would love to strike, would love to get back at their employers after years of abuse while they watched the industry make record profits,” said Ron Kaminkow, an organizer at Railroad Workers United, which represents rank-and-file railroaders. 

More than 9 in 10 railroad workers would vote to reject the PEB recommendations and go on strike, according to a recent survey from the organization.  

Still, Kaminkow noted that workers could change their minds when faced with the prospect of years of back pay and the reality that Congress can take away their main source of leverage at any time. 

Federal law gives Congress the power to block or delay a railroad strike. If workers were to walk out, lawmakers could vote to enact the PEB deal or appoint arbitrators to fast-track a new contract, among a range of other options. 

The Association of American Railroads, which estimates that a national rail shutdown would cost the US at least US$2 billion a day, said that lawmakers should vote to implement the PEB recommendations in the event of a strike to instantly reward employees and reduce economic uncertainty. 

Experts say that an extended walkout would devastate industries that rely on freight to transport grain, coal, diesel, steel and motor vehicle parts. Shipping containers would pile up at ports, severely congesting supply chains and sending prices soaring ahead of the holidays.  

“The railroads are actually very critical to the nation’s economy, and also to security. There’s a lot of hazardous stuff that simply can’t go by road,” said Nicholas Little, Director of Dailway education at Michigan State University’s Center for Railway Research and Education.  

While Democrats are closely aligned with labor unions, organizers acknowledge that they likely wouldn’t allow for an extended strike just before the midterm elections. President Joe Biden, who created the PEB in July to help resolve the contract dispute, is laser focused on unclogging supply chains. 

“After the pandemic and supply chain disruptions of the past two years, now is not the time for more uncertainty and disruption,” a White House official told The Hill. “Now is the time for the parties to resolve their differences, before the nation’s economy begins responding to even the prospect of a nationwide rail stoppage.” 

While both unions and railroads say they want to avoid a strike, some see a work stoppage as the only way to win better working conditions.  Over the last six years, the top freight carriers laid off 45,000 employees, or nearly 30% of their combined workforce, according to the Surface Transportation Board. That left trains understaffed when demand picked up, leading to service disruptions and overworked crew members.   

Workers complain that they often cannot secure time off, even for scheduled doctor’s appointments or family events, and are disciplined whenever they miss a day for any reason. They say they don’t receive sufficient notice or rest before starting a days-long shift that could take them hundreds of miles from home.  

“Emotionally, you’re just drained,” Robert Hollifield, an electronics technician, said at a railroad worker town hall hosted by the AFL-CIO’s Transportation Trades Department last month. “Every time the phone rings, you go into a minor panic wondering where you’re going to have to go and how long you’re going to be gone away from your family.” 

Many workers saw this round of negotiations as a key opportunity to revamp those policies and were disappointed when the PEB recommendations largely ignored them. There’s a growing sense of resignation that even if they want to strike, Congress won’t let them.

Congress last acted to end a rail strike 30 years ago. Most of today’s lawmakers and their top aides have never dealt with the issue before and have little knowledge of the process, likely giving industry insiders more influence. 

The Brotherhood of Locomotive Engineers and Trainmen and the International Association of Sheet Metal, Air, Rail and Transportation Workers said in a Labor Day statement that railroads all but hide behind Congress in their efforts to reject workers’ demands. 

“While there are no guarantees for either side as to what Congress might do if they are involved, there is no doubt that the rail carriers expect Congress to intervene to save them from dealing fairly with their employees if there is a job action,” they said.

 

Do not blame OPEC for high energy prices

Policymakers, lawmakers and insufficient oil and gas sector investments are to be blamed for high energy prices, not OPEC told the producer group's new Secretary General Haitham Al Ghais to Reuters on Thursday.

The lack of investment in the oil and gas sector following a price slump sparked by COVID-19 has significantly reduced OPEC's spare production capacity and limited the group's ability to respond quickly to further potential supply disruption.

The price of Brent crude came close to an all-time high of US$147 a barrel in March, after Russia's ordering of troops into Ukraine exacerbated supply concerns. While prices have since declined, these are still painfully high for consumers and businesses globally.

"Don't blame OPEC, blame your own policymakers and lawmakers, because OPEC and the producing countries have been pushing time and again for investing in oil and gas," Al Ghais, who took office on August 01, said in an online interview.

Oil and gas investment is up 10% from last year but remains well below 2019 levels, the International Energy Agency (IEA) said last month, adding that some of the immediate shortfalls in Russian exports needed to be met by production elsewhere.

The OPEC official also pointed the finger at a lack of investment in the downstream sector, adding that OPEC members had increased refining capacity to balance the decline in Europe and the United States.

"We are not saying that the world will live on fossil fuels forever ... but by saying we're not going to invest in fossil fuels ... you have to move from point A to point B overnight," Al Ghais said.

“OPEC exists to ensure the world gets enough oil, but it's going to be very challenging and very difficult if there is no buy-in into the importance of investing," he said, adding that he hopes investors, financial institutions, policymakers as well globally seriously take this matter and take it into their plans for the future."

Oil has tumbled since March and Brent hit a six-month low below $92 a barrel this week. The slide reflects fears of economic slowdown and masks physical market fundamentals, Al Ghais said as he took a relatively optimistic view on the outlook for 2023 as the world tackles rising inflation.

"There is a lot of fear," he said. "There is a lot of speculation and anxiety, and that's what's predominantly driving the drop in prices."

Whereas in the physical market we see things much differently, demand is still robust. We still feel very bullish on demand and very optimistic on demand for the rest of this year."

"The fears about China are really taken out of proportion in my view," said Al Ghais, who worked in China for four years earlier in his career. "China is a phenomenal place of economic growth still."

The Organization of the Petroleum Exporting Countries, plus Russia and other allies, known as OPEC Plus, has unwound record oil output cuts made in 2020 at the height of the pandemic and in September is raising output by 100,000 barrels per day.

Ahead of the next meeting which OPEC Plus holds on September 05, Al Ghais said it was premature to say what it will decide, although he was positive about the outlook for next year.

"I want to be very clear about it - we could cut production if necessary, we could add production if necessary."

"It all depends on how things unfold. But we are still optimistic, as I said. We do see a slowdown in 2023 in demand growth, but it should not be worse than what we've had historically."

"Yes, I am relatively optimistic," he added of the 2023 outlook. "I think the world is dealing with the economic pressures of inflation in a very good way."

OPEC Plus began to restrain supply in 2017 to tackle a supply glut that built up in 2014-2016 and OPEC is keen to ensure Russia remains part of the OPEC Plus oil production deal after 2022, Al Ghais said.

"We would love to extend the deal with Russia and the other non-OPEC producers," he said.

"This is a long-term relationship that encompasses broader and more comprehensive forms of communication and cooperation between 23 countries. It's not just in terms of production adjustment."

 

Pakistan: What will be SBP decision regarding policy rate?

Monetary Policy Committee (MPC) of State Bank of Pakistan (SBP) is scheduled to meet on August 22, 2022. It has three options: 1) increase, 2) decrease and 3) let unchanged at 15%.

May I request you to first read two of my blogs: Central banks around the world raising interest rates to tame inflation and Get ready for another interest rate hike and then the brief prepared by one of Pakistan’s leading brokerage houses.

Topline Securities says, signs of a slowdown have begun to emerge, with several high frequency growth indicators recording a sharp drop on MoM readings – although some of the same can be attributed to the ongoing monsoon season in the country too.

Nevertheless, sectors posting decline are Cement (61%MoM), Automobile (58%MoM), POL products (26%MoM) have all posted significant drop in sales as per latest data, along with 23%MoM drop in exports during July 2022 as well.

Moreover, the industrial sector has been struggling due to: 1) restrictions on imports including plant & machinery; 2) higher interest rates amid record inflation; 3) soaring fuel and power cost; 4) squeeze on margins; 5) volatile Rupee and 6) flattish or falling demand for their products as purchasing power diminishes due to higher taxes and record surge in headline inflation.

The brokerage house believes hiking interest rates would have limited effect on curbing headline inflation, which is being largely driven by supply-side factors including higher fuel and energy prices, with lagged effect on core inflation.

The pressure on Rupee has subsided significantly with Pakistan inching closer to the next IMF disbursement  as well as enhanced monitoring of exchange operations by the SBP.

The SBP and the Ministry of Finance have also assured that Pakistan’s gross financing needs will be more than fully met for FY23. Support from friendly countries: 1) China—roll over of US$4.3 billion in deposits and commercial loans; and 2) Saudi Arabia—renewal of US$3 billion deposit, with the possibility of extending KSA’s SDR’s to Pakistan, have also boosted confidence in the Rupee.

The yields in the primary market have remained almost unchanged since the last MPC was announcement in July 2022. However, secondary market yields have increased in line with the movement in the policy rate since the last MPC announcement, and do not seem to reflect expectations of another rate hike for now.   

 

Oil prices being manipulated by western media

This morning I picked up this news item from Reuters. It covers some of the usual mantras i.e. deal with Iran, inventory data, supply disruptions. I am forced to infer that ‘media drives oil prices’ and the sponsors are famous seven sisters, who have now reduced to ‘big four’ after the successive mergers. 

They love to keep prices high to maximize their profits. Since many of them are of ‘US Origin’, I have reasons to believe that they enjoy the support of the US administration.

Crude oil prices pulled back slightly on Tuesday on the latest progress in last-ditch talks to revive the 2015 Iran nuclear accord, which would clear the way to boost its crude exports in a tight market.

Brent futures fell 14 cents to US$96.51 a barrel at 0404 GMT, paring a 1.8% gain from the previous session. US West Texas Intermediate (WTI) futures declined 16 cents to US$90.60 a barrel, after climbing 2% in the earlier session.

"The specter of a US-Iran nuclear deal continues to hover over the market," ANZ Research analysts said in a note.

The European Union late on Monday put forward a "final" text to revive the 2015 Iran nuclear deal, awaiting approvals from Washington and Tehran. A senior EU official said a final decision on the proposal was expected within "very, very few weeks".

"While the details around the timing of the resumption of Iran's oil exports remain uncertain even if the accord is revived, there is certainly scope for Iran to increase oil exports relatively quickly," Commonwealth Bank analyst Vivek Dhar said in a note.

He said Iran could boost its oil exports by 1 million to 1.5 million barrels per day, or up to 1.5% of global supply, in six months.

"A revival of the 2015 nuclear accord will likely see oil prices fall sharply given that markets probably don't believe a deal will be reached," Dhar said.

However, signs that demand may not be dented as much as feared are keeping a floor under the market for now, following stronger-than-expected trade data from China on the weekend and the surprising acceleration in US jobs growth in July.

The oil market has remained under pressure recently over global recession fears, with Brent prices suffering their biggest weekly drop last week.

China, the world's largest crude oil importer, brought in 8.79 million barrels per day of crude in July, 9.5% lower from a year earlier but up from June's import volumes, according to China's customs data.

Traders will also be watching out for weekly US oil inventory data, first from the American Petroleum Institute on Tuesday and then the Energy Information Administration on Wednesday.

Five analysts polled by Reuters expect crude stockpiles fell by around 400,000 barrels and gasoline stockpiles declined also by about 400,000 barrels in the week to August 5, while distillate inventories, which include diesel and jet fuel, were unchanged.

Russia and Ukraine agree to allow food shipments out of the Black Sea

Russia and Ukraine agreed to a deal Friday to open Ukrainian ports on the Black Sea, releasing stalled grain shipments into world markets to help alleviate an ongoing food crisis and bring down global prices.

The deal between the two countries was mediated through Turkey, which helped to broker the agreement under the auspices of the United Nations. The ongoing war between Russia and Ukraine has led to a de facto blockade of Black Sea ports that have been unable to export agricultural goods like fertilizer and grain.

United Nations Secretary-General Antonio Guterres, speaking at the signing ceremony in Istanbul, hailed the deal as a “beacon of relief in a world that needs it more than ever.”

“To the representations of the Russian Federation and Ukraine, you have overcome obstacles and put aside differences to pave the way for an initiative that will serve the common interests of all. Promoting the welfare of humanity has been the driving force of these talks,” he said.

The deal will open a passage for significant volumes of commercial food export from the ports of Odessa, Chernomorsk and Yuzhne, Guterres said. Russian Foreign Minister Sergei Lavrov has said that naval mines in Ukrainian ports had been an issue for exports in the past.

“The shipment of grain and food stocks into all markets will help bridge the global food supply gap and reduce pressure for high prices,” Guterres added.

Turkish President Recep Erdogan said at the ceremony the agreement would help to ease pressure on global food prices.

“We are also helping with controlling food inflation, which has become a global problem,” Erdogan said.

Speaking to reporters later Friday, White House national security spokesman John Kirby said that the United States welcomes the development but said officials would be watching it closely, noting that Russia will need to actually comply with the agreement in order for it to be effective.  

Kirby described the Biden administration as both hopeful and “clear-eyed” about the deal.  

“If it’s fully implemented and complied with it will have an impact, but it’s just too soon to know,” Kirby said.

Other international leaders hailed the agreement.

“Putin’s barbaric invasion of Ukraine has meant some of the poorest and most vulnerable people in the world are at risk of having nothing to eat. It is vital that Ukrainian grain reaches international food markets, and we applaud Turkey and the UN Secretary General for their efforts to broker this agreement,” United Kingdom Foreign Secretary Liz Truss said in a statement from the UK foreign ministry.

Global food prices are up more than 23% since last year, according to the United Nations Food and Agriculture Organization (FAO), though they have been ticking down since May. In the US, food prices are up more than 10% annually.

Global prices for grains have fallen more than 4% since a recent high in May but are still more than 27% higher than they were a year ago, according to the FAO. Wheat prices are nearly 50% higher than they were last year.

A logistical coordination center will also be set up as part of the agreement to monitor its implementation, Guterres said.

Sheer hypocrisy of United States

Imposes sanction on sale of Russian energy products but no restrictions on buying fertilizer 

A tanker carrying a liquid fertilizer product from Russia is about to arrive in the United States, sources and vessel tracking data shows.

It is worth noting that President Joe Biden administration has not blacklisted Russian agricultural commodities, including fertilizers, in the aftermath of the Ukraine invasion.

Still, many Western banks and traders have steered clear of Russian supplies for fear of running afoul of rapidly changing rules.

Russia and Ukraine are major exporters of fertilizer, key to keeping corn, soy, rice and wheat yields high. Farmers have scaled back fertilizer use due to high prices, and cut the amount of land they plan to cultivate.

Washington sanctioned Russian crude, refined products, coal and liquefied natural gas (LNG).

The Liberia-flagged tanker Johnny Ranger was scheduled to arrive in New Orleans on Monday carrying about 39,000 tons of urea ammonium nitrate solution, a fertilizer produced by combining urea, nitric acid and ammonia, the sources and Refinitiv Eikon data showed. The vessel loaded last month at St. Petersburg, according to Eikon data.

Details on the seller and buyer were not immediately available. The US Treasury Department and the US Customs and Border Protection agency declined to comment.

A State Department spokesperson said the United States has never sanctioned food or agricultural goods from Russia. "Unlike the Russian government, we have no interest in weaponizing food to create humanitarian crises at the expense of vulnerable populations."

US non-food sanctions will remain in place until Russian President Vladimir Putin stops the war in Ukraine.

In 2021, the United States imported US$262.6 million worth of urea ammonium nitrate fertilizers from Russia, according to the Commerce Department.

This week, the US International Trade Commission revoked hefty anti-dumping and anti-subsidy duties on urea ammonium nitrate fertilizers from Russia in an effort to ease fertilizer shortages and price increases.

Fertilizer cargo from Russia heads to US as many worry about food shortages

In recent days, there are widespread worries that sky-high global fertilizer prices could lead to food shortages.

 

Getting food out of Ukraine a daunting task

European leaders are desperately trying to figure out how to get food grain out of Ukraine. Russia last week said it would open maritime corridors to unblock ports such as Odesa on the Black Sea if sanctions against the country were lifted.

Politicians are looking at everything from naval escorts to shifting whatever’s possible overland to the Baltic. Officials at ports, logistics companies and in the agriculture industry interviewed across the region say they are scouring maps for solutions like diverting road transport and reviving rail links such as the one connecting Galati.

The task is complicated by a dearth of truck drivers and the fact that the Soviets used a wider track gauge than the European standard. That has caused up to 30 days of delays at borders for existing routes, the EU said, as cargo needs to be transferred onto compatible rolling stock and customs infrastructure gets overwhelmed.

Ports in Romania and Poland, meanwhile, are backed up with traffic or already at capacity while there are shortages of specialized personnel to handle the surge in demand. Even with Ukrainian exports at a fraction of what they were, trade officials warn that bottlenecks will get worse as the rest of Europe starts harvesting its wheat next month.

“The scale of the problem is enormous,” Taras Kachka, Ukraine’s Deputy Minister of Economic Development, told a conference. “In the last 15 years, we developed our infrastructure in a way that it cannot be simply replaced by another destination, another port.”

Ukraine is a major wheat, corn and barley supplier and tops global sunflower-oil sales. Future crops will undoubtedly shrink due to the war, but it still has 20 million tons of backlogged grain from last year. 

Ukraine is expanding export capacity at its western border and simplifying trade arrangements with the EU. European Commission President Ursula von der Leyen said on May 24 the EU was working to get what’s stuck in Ukraine to global markets by opening “solidarity lanes” to European ports as well as financing different modes of transportation. Ukraine’s ambassador to Warsaw expects Poland to be the conduit for 80% of Ukrainian grain.

But people on the ground say that’s easier said than done when you look at the map, particularly the rail network.

In Slovakia, the main traffic operator transported 18,000 tons of corn from Ukraine last month across 12 trains, and private freight companies are also involved. The issue is that cargoes from Ukraine’s broad-gauge wagons need to be reloaded onto standard Europe size ones or the container section transferred onto different wheels. 

Poland has a 400-kilometer broad-gauge railway linking Ukraine with its industrial southwest region of Silesia. It’s been used mainly for steel products, and in recent weeks to carry refugees. State railway network operator PLK SA has started investing in boosting capacity, reversing its earlier focus on connections as far as China via Belarus.

In April, Poland and Ukraine also agreed to create a joint cargo company and simplify border rules. But with routes to Poland’s Baltic ports already busy and a shortage of wagons, there are doubts over whether Poland can boost volumes of Ukrainian grain much above 2 million tons a month anytime soon. That compares with the 5 to 6 million tons typically dispatched monthly via its Black Sea ports, said Roman Slaston, Director General of the Ukrainian Agribusiness Club industry group.

Romania is keen to upgrade Galati to ease congestion at Constanta on the Black Sea. Galati is connected by the broad-gauge railway that’s compatible with the Ukrainian system and may facilitate the quicker rerouting of grains. The government wants to fast-track the construction of the missing section of 4.6 kilometers and the work will take three months, Prime Minister Nicolae Ciuca said last month.

Yet it’s still unclear who will do it, according to TTS, which has spent two months testing logistic options via railway or trucks. The route involves three countries and three different railway operators. Romania’s transport minister said he hopes to find a company to build the missing portion of track this week and may visit Galati with his Ukrainian counterpart.

“Ukraine was exporting 20 million tons of metals per year and even more grains only on water, so to think that it would be possible to completely replace these capacities is a dream,” said Petru Stefanut, TTS’s CEO. “What we’re all trying to do, is to help them as much as we can. But we can’t compare what they had and what they’ve lost.”

TTS has managed to transport about 200,000 tons of grains and metals from Ukraine in the past two months, though Stefanut is confident more will come as routing via the Danube becomes more efficient.

Any increase in supplies is critical after the war in Ukraine sparked growing fears of a food crisis. At the World Economic Forum in Davos, Von der Leyen accused President Vladimir Putin of using “hunger and grain to wield power” as she decried Russia’s bombing of grain warehouses and blockading of Ukrainian ships filled with wheat in the Black Sea. About three-quarters of Ukrainian harvests are typically sold abroad, and it’s a key exporter to Africa, Asia and the Middle East as well as Europe.

Ukraine’s Agriculture Minister expects another 30 to 40 million tons of grain will need to be exported after harvests this summer and fall. While grain can be stored, farmers need to sell it to get funds for planting 2023 supplies, with winter-crops like wheat sown in just a few months.

Kees Huizinga, a Dutch farmer who lives in Ukraine and employs 400 people, used to be able to get a 25-ton truckload of his grain to Odesa terminals on the Black Sea and back within a day. Drivers are now spending a week in travel, queues and border checks — at triple the cost — to take deliveries on a new route, unloading just over the border in Romania. From there, it still needs to weave to its final destination. 

The EU has exempted grain imports from requiring veterinary or phytosanitary certificates to ease the transit. But in the three weeks to mid-May, Huizinga had only shipped out 150 tons. Normally, that would load in just a few hours. He worries that once Romania begins its own harvest soon, the logjams could worsen.

For now, the most realistic solution remains Romania, Constanta and the Sulina Canal that links the Black Sea with the Danube. The port’s customs agency has added staff to help handle the increase in shipments, with ships lining up to enter. The Romanian railway company has decluttered its port links and started improvement works, which may result in a 30% to 40% increase of transport capacity as soon as next year, port manager Florin Goidea said.

“We expect much larger quantities to arrive, this is only the beginning,” he said. “This summer will be very crowded. It won’t be easy for us, but we have to find the solutions.”

Africa faces new shocks with food and fuel price hikes

Sub-Saharan African countries find themselves facing another severe and exogenous shock. Russia’s invasion of Ukraine has prompted a surge in food and fuel prices that threatens the region’s economic outlook.

This latest setback could not have come at a worse time—as growth was starting to recover and policymakers were beginning to address the social and economic legacy of COVID-19 pandemic and other development challenges. The effects of the war will be deeply consequential, eroding standards of living and aggravating macroeconomic imbalances.

It is expected that growth will decelerate to 3.8% this year from last year’s better-than-expected 4.5%, according to the latest Regional Economic Outlook by the IMF.

Though the Fund projects annual growth to average 4% over the medium term, it will be too slow to make up for ground lost to the pandemic. Inflation in the region is expected to remain elevated in 2022 and 2023 at 12.2% and 9.6% respectively—the first time since 2008 that regional average inflation will reach such high levels.

There are three main channels through which Russia-Ukraine war is impacting countries—with notable differentiation both across and within countries:

Prices for food, which accounts for about 40% of consumer spending in the region, are rising rapidly. Around 85% of the region’s wheat supplies are imported. Higher fuel and fertilizer prices also affect domestic food production. Together, these factors will disproportionately hurt the poor, especially in urban areas, and will increase food insecurity.

Higher oil prices will boost the import bill for the region’s oil importers by about US$19 billion, worsening trade imbalances and raising transport and other consumer costs. Oil-importing fragile states will be hit hardest, with fiscal balances expected to deteriorate by around 0.8% of gross domestic product compared to the October 2021 forecast—twice that of other oil-importing countries. The region’s eight petroleum exporters, however, benefit from higher crude prices.

The shock is set to make an already delicate fiscal balancing act more difficult, increasing development spending, mobilizing more tax revenues, and containing debt pressures. Fiscal authorities generally aren’t well-positioned for additional shocks after the pandemic. Half of the region’s low-income countries are already in or at high risk of distress. Rising oil prices also represent a direct fiscal cost for countries through fuel subsidies, while inflation will make reducing these subsidies unpopular. Spending pressures will only increase as growth slows, while rising interest rates in advanced economies may make financing more costly and harder to obtain for some governments.

Countries need a careful policy response to address these daunting challenges. Fiscal policy will need to be targeted to avoid adding to debt vulnerabilities. Policymakers should as much as possible use direct transfers to protect the most vulnerable households. Improving access to finance for farmers and small businesses would also help.

Countries that can’t provide targeted transfers can use temporary subsidies or targeted tax reductions, with clear end dates. If well-designed, they can protect households by providing time to adjust to international prices more gradually. To enhance resilience to future crises, it remains important for these countries to develop effective social safety nets. Digital technology, such as mobile money or smart cards, could be used to better target social transfers, as Togo did during the pandemic.

Net commodity-importers, such as Benin, Ethiopia and Malawi, will need to find resources to protect the vulnerable by reprioritizing spending. Net exporters, like Nigeria, are likely to benefit from rising oil prices, but a fiscal gain is only possible if the fuel subsidies they provide are contained. It is important that windfalls are largely directed to strengthen policy buffers, supported by strong fiscal institutions such as a credible medium-term fiscal framework and a strong public financial management system.

To navigate the trade-off between curbing inflation and supporting growth, central banks will need to monitor price developments carefully and raise interest rates if inflation expectations drift up. They must also guard against the financial stability risks posed by higher rates and maintain a credible policy framework underpinned by strong independence and clear communication.

The international community must step up to ease the food security crisis. The IMF’s recent joint statement with the World Bank, the United Nations World Food Program and the World Trade Organization called for emergency food supplies, financial support, including grants, increased agricultural production and unhindered trade, among other measures.

Following through on the commitment by Group of Twenty countries to re-channel US$100 billion of their IMF Special Drawing Rights allocation to vulnerable countries would be a major contribution to the region’s short-term liquidity needs and longer-term development. There are options for re-channeling SDRs, for example through the IMF’s Poverty Reduction and Growth Trust or the newly created Resilience and Sustainability Trust, which has received almost US$40 billion in pledges.

Finally, for some countries, restoring debt sustainability will require debt re-profiling or an outright restructuring of their public debt. To make this a reality, the G20 Common Framework needs to better define its debt restructuring process and timeline, and the enforcement of the comparability of treatment among creditors. Importantly, debt service payments should be suspended until an agreement is reached.

 

Copper price on the rise

Copper prices rose on Monday as a softer USD spurred modest purchases, but gains were capped by concerns over price curbs on industrial metals in top consumer China. Benchmark copper on the London Metal Exchange (LME) was up 0.3% at US$9,916 a ton at 1014 GMT.

However, prices of the metal used widely in the power and construction industries are down 8% since touching a record high of US$10,747.50 a ton earlier this month.

“The USD is giving some support to copper, but overall the mood is negative,” one metals trader said. “Still, the market did need a breather and consolidation.”

China’s market regulators warned industrial metal companies to maintain “normal market order” during talks on the significant gains in metals prices this year.

China’s government also said last week that it would manage “unreasonable” price increases for commodities such as copper, coal, steel and iron ore.

Some concern about supplies on the LME market has narrowed the discount for cash copper over the three-month contract to about US$14 a ton from US$28 last week.

Supporting copper is political uncertainty in Peru and top producer Chile. An overhaul of Chile’s market-orientated constitution is under way and the country is debating whether to increase royalties on miners.

Peru, the No. 2 producer, is heading for a polarized June presidential election. Leading in the polls is a little-known socialist who wants to redistribute mining wealth.

A likely surge in reviewable energy demand, particularly windmills is set to drive a surge in copper demand. It is estimated that the quantity of copper required per wind turbine is staggering at 63,000 pounds.

A week ago, price of the basic metal surged to a record high because of supply chain disruptions. By the end of the week it had cooled off on efforts by China to rein in the commodity market rally.

Now copper price is on the way up again, and this is likely to be a steady trend. The reason for this is renewable energy—and more specifically wind energy. Offshore wind turbines require 8 tons of copper for every megawatt of generation capacity. According to data from the International Energy Agency, “An average turbine of 3.6MW will contain close to 29 tons of copper.”

This upward trend in demand for copper will only intensify in the coming years as the world expands its renewable power generation capacity. It is likely to be supported by the constant threat of a supply disruption like the one in Chile that spurred the latest reversal in copper’s fortunes.

Earlier, copper price rebounded by concerns of supply disruptions in Chile and signs that Chinese demand is picking up.

Workers at BHP Group’s remote operations center in Santiago rejected the company’s final wage offer, with almost 97% of the union’s members opting to strike. Under Chilean labor rules, BHP now has the right to call for five days of government mediation. Meanwhile, demand in top user China is recovering after prices retreated, Jinrui Futures Co. said in a note, pointing to a spike in the domestic spot premium.

Bets on tight supplies and rising use have fueled a year-long rally in copper, which touched an all-time high before gains ebbed. The risk of a strike poses an added threat to output from the top copper-mining country, which already faces a potential giant tax hike. A proposal to tax Chilean copper sales at rates of as high as 75% is rippling all the way to Peru, where the leading presidential candidate wants to impose a similar measure.

“LME metals have started the new week on a firmer footing amid a slew of news stories,” Ed Meir, an analyst at ED&F Man Capital Markets, said in a note. “We are watching copper in particular; we learned that a union representing workers at BHP’s Escondida and Spence mines rejected an offer on a future contract, raising the risk of a strike at these sizable facilities.”