As discussed previously, there is a shake-up underway in the U.S. mobile provider market. Japan's Softbank taking a 70% majority position in Sprint Nextel (NYSE: S) is just step one in its plan to shake the complacency out of the two leaders in the industry domestically, Verizon Communications (NYSE: VZ) and AT&T (NYSE: T).
Another part of Softbank's plan was revealed recently when Sprint resumed majority control of Clearwire (Nasdaq: CLWR). It bought a 4.5% stake in Clearwire from Eagle River Holdings LLC, the investment vehicle of Clearwire founder, Craig McCaw. This additional stake gave Sprint a 50.8% controlling interest in Clearwire.
With Clearwire's stock falling upon announcement of this transaction, it was clear that its shareholders were disappointed that Sprint did not launch a full takeover offer for the company. At the moment, Sprint with its own heavy debt burden - $4 billion due next year – does not want to consolidate Clearwire onto its balance sheet with Clearwire's $2.9 billion of debt due in 2015.
But shareholders should be patient. It is highly likely that once the Softbank–Sprint deal is finalized, a full takeover of Clearwire will be at the top of the agenda. Sprint's current arrangements give it full access to Clearwire's wireless spectrum through only 2014.
Softbank's Agenda
Why will Clearwire be at the top of Softbank's agenda? Because without it, Sprint will always be a very distant third in terms of spectrum behind both Verizon and AT&T. With it, according to the Financial Times, Sprint will control more spectrum in the 100 largest U.S. wireless markets than Verizon and AT&T combined! With the advent of data-eating smartphones and tablets, spectrum is needed in order to build networks that are both fast and reliable.
In addition, Clearwire uses a form of 4G LTE technology, TDD-LTE, which is different than Sprint's version. However, it is the same technology that Softbank has used very successfully in Japan for years. Sprint does say phones which work on its network will also work on Clearwire's planned 4G network.
Both Verizon and AT&T are well aware of the potential that a Sprint-Clearwire combination, backed by Softbank's financial muscle and acumen, has. They do not favor having a strong new competitor in the market they now control. That is why AT&T already is raising objections to the deal. It has called on regulators to scrutinize Softbank's plan for the U.S. mobile market very closely.
There is one possible hiccup, from a technology standpoint, to Softbank's plan. Clearwire's spectrum is in a higher frequency range than the more desired lower frequency ranges owned by Verizon and AT&T. Higher frequencies do not penetrate obstacles such as buildings as well or travel as far. This means that in urban settings more cell towers may have to be built. Softbank can finance such an undertaking. . .but it may actually be harder getting local approvals to build additional towers in certain locations across the country.
The Future
What's next in this telecoms soap opera? AT&T and Verizon know how Softbank came from a very distant third in the Japanese market to today rival the big two players in that market. They see that Softbank has a bold vision for the U.S. market as well. Look for both to push U.S. regulators very hard to block the deal. In the spirit of competition and for the benefit of consumers, hopefully that does not happen and a strong, viable third mobile provider is allowed to happen.
This article originally appeared on the Motley Fool Blog Network. Please read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
Tuesday, October 30, 2012
Tuesday, October 23, 2012
Steel Industry Slowdown to Persist
The global steel market is huge, valued at about $850 billion by analysts. That is not surprising considering that steel is one of the world's most widely traded commodities, with a myriad of uses. But right now, the industry is going through a rough patch. Unfortunately for investors in steel and iron ore stocks, it looks like the tough times will extend for another few years.
For investors interested in the industry, they can easily track the steel and iron ore industries through an exchange traded fund, the Market Vectors Steel ETF (NYSEMKT: SLX). Its portfolio consists entirely of steel and iron ore producing companies. Fully 60% of the fund's holdings are international stocks. The ETF is down about a third in value in the past two years.
Just several days ago, the World Steel Association (the industry's main body) lowered its forecast for global steel consumption growth this year to 2.1%, from its previous estimate of 3.6%. Last year, global steel demand was rather decent, growing at a 6.2% rate. The Association pointed to several reasons for the slowdown. These factors include slower economic growth in emerging markets, especially China, and the debt crisis in Europe.
Chinese Steel Industry Slowing
China is a huge player in the global steel market as it is both the world's biggest consumer of steel, as well as its largest producer. Many prominent international bodies including the Asian Development Bank and the World Bank have lowered their outlook for economic growth in China over the past few weeks. Even China bulls agree that Chinese economic growth is slowing the torrid double-digit pace of years past to the 6%-7% range.
The World Steel Association trimmed its forecast of Chinese steel demand this year from 4% to only 2.5%. In 2011, demand grew at a 6.4% rate. Data from China backs up the Association's forecast. Chinese steel industry profits have collapsed by 96% in the first half of 2012 compared to a year ago, according to the China Iron and Steel Association. CISA went on to describe the industry's current state as a “disaster zone”.
Weak conditions in China led the World Steel Association to predict that steel demand for all the emerging markets would only grow by 3% in 2013. Quite a slowdown from the 10% annual rate experienced over the last decade.
The news from China and elsewhere in Asia cannot be good news for a company like South Korea's POSCO ADR (NYSE: PKX). It is the world's third largest steelmaker and has a large presence throughout Asia. It is still expanding rapidly in emerging markets such as China, where the industry is in that 'disaster zone'. The company just opened an auto steel processing plant in northeastern China, for example. Its stock is down about a third in the past two years.
Eurozone Woes
At least steel demand is still growing in the developing world. Quite another story in Europe where many of the economies are expected to contract this year.
The World Steel Association now expects steel demand in Europe this year to fall by 6%. This is a sharp downward revision from its previous forecast of only a 1.2% decline. The drop-off in demand can only hurt further the European steelmakers. Many of them have already cut production and closed some facilities to reduce the chronic overcapacity in Europe's steel industry.
When one thinks of the European steel industry, one name should pop up immediately – the world's largest steelmaker, ArcelorMittal ADR (NYSE: MT). The woes of the steel industry, particularly in Europe, have pushed this once $100 a share stock down to where it is today, about $15 a share. A potential credit downgrade by Moody's and others hover over this company.
Further Fallout
In addition to the steelmakers themselves, another group will also be impacted negatively by the global steel industry's problems. That group is the companies which produce iron ore, a key component in steel making.
Prominent among the iron ore producers (and the two largest positions in SLX) are Rio Tinto PLC ADR (NYSE: RIO) and Vale S.A. ADR (NYSE: VALE), the world's biggest producer and exporter of iron ore. The problem for these firms is that their management is acting as if the economies in China, Europe and elsewhere are not slowing. The four major global iron ore producers, as projected by JPMorgan, will conservatively have 8% annual growth in iron ore production capacity. So it looks like there will be increasing supply and decreasing demand for iron ore – not good for prices and profits.
The bottom line for investors? Avoid the entire steel and iron ore sectors completely. Only re-enter them if and when global economic growth picks up steam. Look to China and other emerging economies for a clue as to when that will happen. This article originally appeared on the Motley Fool Blog Network. Make sure to read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
For investors interested in the industry, they can easily track the steel and iron ore industries through an exchange traded fund, the Market Vectors Steel ETF (NYSEMKT: SLX). Its portfolio consists entirely of steel and iron ore producing companies. Fully 60% of the fund's holdings are international stocks. The ETF is down about a third in value in the past two years.
Just several days ago, the World Steel Association (the industry's main body) lowered its forecast for global steel consumption growth this year to 2.1%, from its previous estimate of 3.6%. Last year, global steel demand was rather decent, growing at a 6.2% rate. The Association pointed to several reasons for the slowdown. These factors include slower economic growth in emerging markets, especially China, and the debt crisis in Europe.
Chinese Steel Industry Slowing
China is a huge player in the global steel market as it is both the world's biggest consumer of steel, as well as its largest producer. Many prominent international bodies including the Asian Development Bank and the World Bank have lowered their outlook for economic growth in China over the past few weeks. Even China bulls agree that Chinese economic growth is slowing the torrid double-digit pace of years past to the 6%-7% range.
The World Steel Association trimmed its forecast of Chinese steel demand this year from 4% to only 2.5%. In 2011, demand grew at a 6.4% rate. Data from China backs up the Association's forecast. Chinese steel industry profits have collapsed by 96% in the first half of 2012 compared to a year ago, according to the China Iron and Steel Association. CISA went on to describe the industry's current state as a “disaster zone”.
Weak conditions in China led the World Steel Association to predict that steel demand for all the emerging markets would only grow by 3% in 2013. Quite a slowdown from the 10% annual rate experienced over the last decade.
The news from China and elsewhere in Asia cannot be good news for a company like South Korea's POSCO ADR (NYSE: PKX). It is the world's third largest steelmaker and has a large presence throughout Asia. It is still expanding rapidly in emerging markets such as China, where the industry is in that 'disaster zone'. The company just opened an auto steel processing plant in northeastern China, for example. Its stock is down about a third in the past two years.
Eurozone Woes
At least steel demand is still growing in the developing world. Quite another story in Europe where many of the economies are expected to contract this year.
The World Steel Association now expects steel demand in Europe this year to fall by 6%. This is a sharp downward revision from its previous forecast of only a 1.2% decline. The drop-off in demand can only hurt further the European steelmakers. Many of them have already cut production and closed some facilities to reduce the chronic overcapacity in Europe's steel industry.
When one thinks of the European steel industry, one name should pop up immediately – the world's largest steelmaker, ArcelorMittal ADR (NYSE: MT). The woes of the steel industry, particularly in Europe, have pushed this once $100 a share stock down to where it is today, about $15 a share. A potential credit downgrade by Moody's and others hover over this company.
Further Fallout
In addition to the steelmakers themselves, another group will also be impacted negatively by the global steel industry's problems. That group is the companies which produce iron ore, a key component in steel making.
Prominent among the iron ore producers (and the two largest positions in SLX) are Rio Tinto PLC ADR (NYSE: RIO) and Vale S.A. ADR (NYSE: VALE), the world's biggest producer and exporter of iron ore. The problem for these firms is that their management is acting as if the economies in China, Europe and elsewhere are not slowing. The four major global iron ore producers, as projected by JPMorgan, will conservatively have 8% annual growth in iron ore production capacity. So it looks like there will be increasing supply and decreasing demand for iron ore – not good for prices and profits.
The bottom line for investors? Avoid the entire steel and iron ore sectors completely. Only re-enter them if and when global economic growth picks up steam. Look to China and other emerging economies for a clue as to when that will happen. This article originally appeared on the Motley Fool Blog Network. Make sure to read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
Thursday, October 18, 2012
Uranium Bulls May Have to Wait a Few Years
One industry which has certainly seen better days is the uranium mining industry. Not long ago – 2007 to be exact – the price of uranium soared to a record high at $136 a pound. Sky-high oil prices had many in the market convinced at the time that oil-generated power would likely be replaced by nuclear power globally.
But just several years later, uranium today is trading at a 2-year low of $45.75 a pound. Sentiment continues to be extremely negative toward uranium and nuclear power in general following the Fukushima disaster in Japan in 2011.
Fukushima has been a disaster for shareholders in both individual uranium stocks and ETFs focused on uranium mining companies too. One hard hit uranium firm is the world's largest producer of uranium, Canada's Cameco Corporation (NYSE: CCJ). The company accounts for 16 percent of the world's uranium production and is backed by about 435 million pounds of proven and probable uranium reserves. Its stock is down to less than a third of its value at the peak in 2007.
One ETF affected by uranium's woes is the Global X Uranium ETF (NYSEMKT: URA). Its portfolio is devoted entirely to uranium mining stocks. Its price is down about two-thirds from early 2011 levels. A second ETF greatly affected by the decline in uranium prices is the Market Vectors Uranium + Nuclear Energy ETF (NYSEMKT: NLR). Its portfolio has about 30% invested into uranium miners with another roughly 42% invested into industrial firms involved in the nuclear industry. Its price is also down by about two-thirds, over the past five years.
Is there any hope for the uranium industry? Industry executives do believe that several years down the road will be a better time for the companies involved in uranium mining as supplies are squeezed while demand picks up.
One hoped for source of demand is not surprising at all – China. The country is expected to announce an end to its 1-year moratorium on new reactor approvals. But it remains to be seen whether China, with its new leadership team coming in, will want to make such a decision so soon. The Chinese government has stated previously that it wants to boost its share of nuclear power generation from the present 2% to 5% by 2020.
Other emerging countries including South Korea, Russia and India will also have new nuclear reactors come online by 2020. Overall, the industry expects 95 net new nuclear reactors to be operational by 2021, with 60 of these currently bring constructed.
The most interesting aspect of the years ahead for the uranium industry, however, comes from the supply side. There are a number of factors which may serve to support prices in the long run. One such factor is the expiration of long-term contracts in 2016-17. These agreements account for the majority of sales agreements between the uranium miners and utility companies.
A very big factor will be the expiration in 2013 of a treaty between Russia and the U.S. that supplies uranium from decommissioned nuclear weapons. This uranium from Russia currently accounts for approximately 16% of total demand and supplies half of utilities' needs for uranium in the U.S.
Another big factor in the coming years will be diminished supplies due to cutbacks in mining activities. The cutbacks are thanks to current low prices for uranium. Cameco, for example, noted recently it needed a uranium price of $62 a pound in order to proceed with development of one of its new uranium assets. BHP Billiton Limited ADR (NYSE: BHP) said in August that it would halt its $20 billion Olympic Dam copper-uranium project in South Australia. The company also recently sold another of its uranium mines, Yeelirrie, in western Australia.
All of these factors on the supply demand do point to perhaps a brighter future in the years ahead for the uranium industry. It may not be time yet to turn out the lights on the uranium miners as a long-term investment.
This article originally appeared on the Motley Fool Blog Network. Please be sure to read all my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
But just several years later, uranium today is trading at a 2-year low of $45.75 a pound. Sentiment continues to be extremely negative toward uranium and nuclear power in general following the Fukushima disaster in Japan in 2011.
Fukushima has been a disaster for shareholders in both individual uranium stocks and ETFs focused on uranium mining companies too. One hard hit uranium firm is the world's largest producer of uranium, Canada's Cameco Corporation (NYSE: CCJ). The company accounts for 16 percent of the world's uranium production and is backed by about 435 million pounds of proven and probable uranium reserves. Its stock is down to less than a third of its value at the peak in 2007.
One ETF affected by uranium's woes is the Global X Uranium ETF (NYSEMKT: URA). Its portfolio is devoted entirely to uranium mining stocks. Its price is down about two-thirds from early 2011 levels. A second ETF greatly affected by the decline in uranium prices is the Market Vectors Uranium + Nuclear Energy ETF (NYSEMKT: NLR). Its portfolio has about 30% invested into uranium miners with another roughly 42% invested into industrial firms involved in the nuclear industry. Its price is also down by about two-thirds, over the past five years.
Is there any hope for the uranium industry? Industry executives do believe that several years down the road will be a better time for the companies involved in uranium mining as supplies are squeezed while demand picks up.
One hoped for source of demand is not surprising at all – China. The country is expected to announce an end to its 1-year moratorium on new reactor approvals. But it remains to be seen whether China, with its new leadership team coming in, will want to make such a decision so soon. The Chinese government has stated previously that it wants to boost its share of nuclear power generation from the present 2% to 5% by 2020.
Other emerging countries including South Korea, Russia and India will also have new nuclear reactors come online by 2020. Overall, the industry expects 95 net new nuclear reactors to be operational by 2021, with 60 of these currently bring constructed.
The most interesting aspect of the years ahead for the uranium industry, however, comes from the supply side. There are a number of factors which may serve to support prices in the long run. One such factor is the expiration of long-term contracts in 2016-17. These agreements account for the majority of sales agreements between the uranium miners and utility companies.
A very big factor will be the expiration in 2013 of a treaty between Russia and the U.S. that supplies uranium from decommissioned nuclear weapons. This uranium from Russia currently accounts for approximately 16% of total demand and supplies half of utilities' needs for uranium in the U.S.
Another big factor in the coming years will be diminished supplies due to cutbacks in mining activities. The cutbacks are thanks to current low prices for uranium. Cameco, for example, noted recently it needed a uranium price of $62 a pound in order to proceed with development of one of its new uranium assets. BHP Billiton Limited ADR (NYSE: BHP) said in August that it would halt its $20 billion Olympic Dam copper-uranium project in South Australia. The company also recently sold another of its uranium mines, Yeelirrie, in western Australia.
All of these factors on the supply demand do point to perhaps a brighter future in the years ahead for the uranium industry. It may not be time yet to turn out the lights on the uranium miners as a long-term investment.
This article originally appeared on the Motley Fool Blog Network. Please be sure to read all my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.
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