TWS: Oct. 25, 2021

Graph of the Week | Economics

Frosty Trade Relations Bring Steamy Coal Prices

Though winter is just around the corner, a clash of rising electricity demand and a shortage of coal have left policymakers with a burn. A resulting slowdown in electricity generation has led to countless factories across the nation reporting power outages in recent weeks.

Amidst a trade spat, China cut off Australian coal imports in late 2020, which used to be the nation’s single largest source of coal. While China hoped to make up the difference with imports from Indonesia, Mongolia, Russia, and domestically, these supplies have all fallen short of satisfying China’s massive appetite for coal. The shortage has sent coal prices sky high, making it difficult for power plants to keep lights on.

In response, China’s top economic planner, the National Development and Reform Commission, announced this week that it’s cooperating with coal-producing firms to increase output to 12 million tons a day. The announcement provided some quick relief – thermal coal futures fell in overnight trading, ending a surge that has seen the price of some coal futures more than triple.

Bottom line: An increase in domestic coal supply should provide short-term relief to the national shortage. However, the visible hand of the government will only go so far, and just the brief period of outages has already done serious damage to global supply chains. Going forward, China will need to find more sustainable supplies of coal imports to prevent future shortages – which could either find Beijing looking to new markets or paring back trade restrictions with its former trade partner Down Under.

Industry | Technology

An Acquisition, Eh?

Contemporary Amperex Technology (CATL), the Chinese battery maker that supplies Tesla, recently tapped into “The Great White North” in a big way. In a deal worth US$297 million, the firm acquired Millennial Lithium, a Canadian mining company that controls more than 20,000 hectares of lithium-rich land in Argentina.

CATL has been a key driver of the switch to electric vehicles in recent years. Tesla, for instance, signed a partnership with the company earlier this year to secure a steady flow of lithium-ion batteries until 2025, and it has also sold to BMW and other big players over the past few years.

The firm has also been busy in securing its own supply of lithium and ramping up production:

  • Earlier this year, the firm upped its stake in the Canadian miner Neo Lithium to 8%.
  • In August, CATL announced its plans for a US$9 billion private placement funding round to expand operations.

Bottom line: Despite its slow start to 2021, China’s EV market is closing the year out in blazing fashion. EV demand has been recovering across the board for the nation’s biggest producers; in fact, Tesla just recorded its best month ever in China in September as it shipped out 56,000 vehicles. All this demand for EVs simply means more demand for lithium-ion batteries – and an even bigger payday for the companies making them.

Curious about China’s EV industry? Read more about it in TCG’s inhouse article, here.


An Olympic Effort To Make the Best Out of a Bad Situation

All eyes are on the fast-approaching Beijing Winter Olympics, but sports aficionados aren’t the only ones watching.

Months before the games begin, the Beijing 2022 Winter Olympics have already become embroiled in controversy. Calls to boycott the event over concerns of China’s human rights records have grown stronger, and companies have found themselves caught in the middle as political advocates around the world keep a sharp eye on how brands choose to market the event.

Foreign companies looking to remain competitive within the world’s largest consumer market have found themselves caught in a classic Catch 22. On one side of the hemisphere, companies are aware of how sponsorship campaigns will trigger ire from wary Western advocates that are calling for political and commercial boycotts against China and its activity in Xinjiang, Tibet, and Hong Kong. On the other side, an increasingly nationalistic audience of Chinese consumers are also staying vigilant against anti-China sentiment from foreign brands.

Despite the concerns, global brands like Airbnb, Allianz, Bridgestone, Coca-Cola, Intel, Samsung, Visa, and others have weighed the risk and committed to major roles in marketing the Olympic Games in China.

Bottom line: The true risk as a Western company operating in China comes at two levels. It will take political, operational, and cultural savviness as a global company to maneuver the shifting tides of Western-Chinese relations; after all, the risk of consumer boycotts increases with each passing day. Over the longer term, the risk of being displaced in both markets will also grow as companies find themselves unable to fully align themselves with Chinese and Western consumer values that continue to polarize at opposite ends of the spectrum.

Business | Trade

US-China Business Relations From the Perspective of the American Heartland

Is it too late to invest in China? Have tariffs and political tensions brought an end to the opportunities for US business in China? These are the questions that have kept business leaders awake at night since the onset of the US-China trade war in 2018.

In this article, we interview Pat McAloon, director of the Greater Columbus Chinese Chamber of Commerce, and Colin Renk, director of the America China Society of Indiana, to understand the current state of affairs on the ground in the American heartland.

Learn more about the outlook for the future US-China trade environment in the Midwest in our latest China Insights article:

Full Article

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