All Saints' Day Links

• Similarly, our soda ash business has endured some unforeseen operational challenges through the first three quarters of the year. While we reasonably expected some ongoing start-up related challenges with bringing the Granger expansion on-line, we did not foresee the unexpected operational challenges at our Westvaco facility, and thus are missing more than 300,000 tons from our original forecasted total sales volumes for the full year. In addition, the near-term macro conditions for soda ash prices have become quite challenging over the last several months. For example, while soda ash export prices were up sequentially from the second quarter to the third quarter, soda ash prices for export in the fourth quarter are weaker than the third quarter. To partially mitigate some of this near-term weakness, our soda ash leadership team is proactively examining ways to further improve our operational efficiencies and reduce costs across the entire Alkali business. Genesis Alkali is America’s largest and lowest cost producer of natural soda ash, and we are committed to maintaining those relative positions and are preparing to take the necessary steps to ensure just that. [Genesis Energy, L.P.]
• Technically Recoverable Shale Oil and Shale Gas Resources estimates that shale resources considered in conjunction with EIA's own assessment of resources within the United States indicate technically recoverable resources of 345 billion barrels of world shale oil resources and 7,299 trillion cubic feet of world shale gas resources (see Table 1). While the current report considers more shale formations than were assessed in the prior version of this assessment, it still does not assess many prospective shale formations, such as those underlying the large oil fields located in the Middle East and the Caspian region. Currently, only the United States and Canada are producing shale oil and shale gas in commercial quantities. Unlike an earlier EIA-sponsored study that focused exclusively on natural gas, the new world shale assessment includes shale oil, which has recently been produced in significant volumes in the United States. In addition, more and better geologic information has become available for shale formations located outside the United States, in part because the earlier report stimulated new work on shale resources in many countries (e.g., Algeria, Argentina, and Mexico). These shale oil and shale gas resource estimates are highly uncertain and will remain so until they are extensively tested with production wells. This report's methodology for estimating the shale resources outside the United States is based on the geology and resource recovery rates of similar shale formations in the United States (referred to as analogs) that have produced shale oil and shale gas from thousands of producing wells. [Energy Information Administration]
• Prior to the start of iron mining on the Lake Superior iron ranges, US iron mining was done close to the iron furnaces. The large size of the Lake Superior deposits, and the access to cheap Great Lakes water transportation, enabled iron mining on a massive scale, located far from the iron furnaces. The Lake Superior iron ores, however, are located far from coal deposits, and the greater tonnage of coal required in steelmaking favored the location of furnaces closer to the coal mines. Favorable locations for steelworks using Lake Superior ore included Great Lakes ports such as Chicago, Cleveland, and Gary, as well as cities close to coal and with good water transportation, such as Pittsburgh. Although Lake Superior provides cheap shipping most of the year, from ports such as Duluth and Marquette, shipping by water halts in the winter months, and most ore is stockpiled until shipping resumes in the spring. [Iron mining in the United States]
• Any problem with highly cyclical companies with a profit margin swing--you get booms and busts in demand--let's use steel--the price goes from $200 a ton to $600 ton and now you hear it is a “new” world. China had huge demand, there will be shortages of material. It ignores 1000 years of human behavior. You build a lot of steel plants. You can't ignore the supply side issue. What sets the price is the amount of supply (and the number of plants built). When supply comes on, it comes on in huge amounts. There is a sudden shift in supply. The electricity market had a supply problem: Calpine had huge (high) ROEs, power plants will never be built due to environmental issues. So Calpine gets valued at 2 times the replacement costs of a power plant. So they have $1 billion in power plants but they are valued at 2 times. So what should Calpine's business strategy be? In one year they added 20% to supply. It is rare to find a sustained commodity peak because the supply side—the increase in supply in response to high prices. The law of supply & demand is immutable.
  Home builders have a history of poor returns on equity and now all of a sudden they are having spectacular returns on equity. Last week I visited a home-builder. What I heard was in 2004 they built 37,000 homes and their plan for 2006 is to build 60,000 homes. They acquired all the land and infrastructure. When you ask, what about a downturn? Their response is that you do not have to worry about a downturn because the little guy will suffer. When you ask the regional guy what he will do, he says that you cut the prices quickly and move the inventory. Don't worry we will take it out on the contractors. The whole purpose of price cycles is to change behavior. The market can't absorb the new supply. It is not just them, but all their competitors who replicate the same strategy. It will happen (the cycle turns) but I don't know when it will happen--next year or the following year, but it will happen. [Richard Pzena]