WSJ : Why Every Western Automaker Is Visiting This Remote Part of South Africa

Why Every Western Automaker Is Visiting This Remote Part of South Africa
The region is home to the largest refiner outside China of manganese used in EV batteries

MBOMBELA, South Africa—A half-century-old company on the outskirts of South Africa’s Kruger National Park has found itself in a fortuitous spot as Western automakers push to move their electric-vehicle supply chains away from China.

Manganese Metal Co., based in the sleepy town of Mbombela, is the largest of just a handful of refiners of battery-grade manganese located outside China. Used mostly for making steel, manganese is increasingly replacing more expensive and harder-to-source minerals such as cobalt and nickel in the lithium-ion batteries that power electric cars, smartphones and laptops.

South Africa is the world’s No. 1 producer of manganese ore, but China refines more than 90% of battery-grade manganese. That dominance has stoked concerns among Western governments—including the U.S.—about their dependence on Beijing as they work to decarbonize their transport and energy systems.

Closely held MMC receives ore mined in the Kalahari Desert at its sprawling refinery. The small black stones are milled into a powder before being dissolved in acid and purified by a mix of chemicals. The purified manganese solution is then fed into tanks, where electricity is used to get it to stick onto plates. The manganese is then stripped from the plates, washed and dried before it is packaged for shipment.

Currently, more than half of the manganese metal refined at MMC is exported to Japan, where some of it is used by Panasonic—which supplies batteries for Tesla cars—and other battery-component makers. About a third goes to the U.S. and around 10% to Europe, according to the company.

MMC’s chief executive, Louis Nel, says his company has been visited by virtually every major Western battery and auto manufacturer over the past two years, as they seek to string together new supply chains that bypass China.

“We have been inundated by people looking for refined manganese,” Nel said, adding that MMC is in talks on potential supply deals with several Western companies. “I’ve signed more [nondisclosure agreements] in the last 12 months than the last 20 years,” he said.

The sudden attention is a big change for MMC, which Australian mining giant BHP sold to a consortium of South African investors in 2010—a time when few Western companies worried about the regulatory and logistical risks that are increasingly associated with China today.

Demand for manganese used in rechargeable batteries, which currently accounts for just 1% of global manganese use, is expected to grow sixfold over the next 20 years, according to energy consulting firm Wood Mackenzie, largely thanks to electric vehicles. That trend has put manufacturers at risk of a supply crunch, as well as rising prices.

“The bottleneck is with refining capacity,” said Teboho Sebetlela, research manager for steel-alloy markets at Wood Mackenzie in London. There are plans for about 20 new battery-grade manganese refineries globally, 13 of them outside of China, he said.

MMC, says Sebetlela, has a leg up on non-Chinese refineries that are still raising funds or under construction. MMC has “an understanding of what’s needed,” he said. “They already do it.”

Nel says he expects around 26% of MMC’s refined manganese metal to go to the battery industry this year, up from 8% in 2015. Much of the rest goes into the production of specialty steels and aluminum, which also require high-grade refined manganese.

Carmakers are generally tight-lipped about their supply chains, industry experts say, especially as many are still in the process of deciding which parts of batteries to make on their own, sometimes through joint ventures, and which to source from traditional component makers.

In July, Chrysler parent Stellantis invested $15 million in Australian-listed Element 25, a manganese miner. A month earlier, General Motors agreed to provide Element 25 with an $85 million loan to partially fund the construction of a new battery-grade manganese refinery in Louisiana that will process ore from Australia.

Other high-purity manganese refining plants are planned in the Czech Republic, Botswana and Mexico, among other countries, but most of those projects are years from their first production.

Since 2018, Washington has placed tariffs on hundreds of billions of dollars’ worth of Chinese goods as part of a wider effort to reduce American dependence on China. That shift was accelerated by the Covid-19 pandemic, which interrupted the flow of goods, especially from China, and snarled global transportation networks.

Western companies are also increasingly worried about the reputational risks of working with Chinese suppliers amid reports of forced labor and large-scale environmental damage.

“We are diversifying the sourcing of our raw materials and are constantly screening the market for all battery materials, including prospectively manganese,” said Pia Droldner, a spokeswoman for Mercedes-Benz. Droldner said MMC isn’t currently a supplier.

MMC’s metal is far more expensive than China’s—two to three times as much—largely because of high costs of production linked to stricter labor and environmental regulations and higher electricity costs in South Africa. But Nel says it is a premium its customers are willing to pay to avoid buying manganese from China and because of the consistent quality and bespoke solutions it offers, including extremely small quantities and specific-sized containers.

MMC refines its manganese using sulfur dioxide, which it says requires more electricity than processing the mineral with selenium dioxide, the preferred process at Chinese refiners. But there are more health risks associated with selenium, high intake of which, according to the U.S. National Institutes of Health, can cause nervous-system problems as well as kidney and heart failure.

In the U.S., MMC’s manganese is more competitive thanks to the African Growth and Opportunity Act, which provides duty-free market access for some products including refined manganese from participating countries in sub-Saharan Africa.

MMC is in the midst of a 500 million South African rand expansion, an outlay equivalent to $27 million that will allow it to produce 5,000 tons of high-purity manganese sulfate, in addition to the 28,000 tons of 99.9% pure manganese metal it currently produces. The company doesn’t publish its finances.

The manganese sulfate requires less electricity in the refining process but can require more steps depending on the quality of the ore, analysts say. Battery-component makers can later dissolve it in water, rather than sulfuric acid, making it easier to process and more environmentally friendly.

That new production is expected to come online in 2026, when MMC also has plans to begin construction on a new plant capable of putting out 30,000 tons a year.

In parts of the MMC plant where dust particles are prevalent because of the milling of ore, eye protection and dust masks are required. The company is in the process of closing down its landfill site. Instead, it has started turning waste left from processing ore into bricks that can be used for paving or building.

Those policies add to the cost of MMC’s manganese, says Bernard Swanepoel, chairman of the board at MMC and former chief executive at Harmony Gold, one of the world’s biggest gold miners.

“You will have to pay an appropriate price to get a second source of manganese that you aren’t embarrassed by,” he said. “We can only be ready to supply.”

FT : China struggles to disperse cheap loans to businesses in economic slowdown

China struggles to disperse cheap loans to businesses in economic slowdown
Banks’ credit fears and companies’ reluctance to take on debt undercut targeted stimulus strategy

Chinese authorities have struggled to disperse $740bn in cheap loans to businesses, as banks raise concerns about credit risk and companies are loath to take on more debt in a slowing economy.

The targeted lending programme has been a critical part of Beijing’s stimulus effort since the coronavirus pandemic and as authorities have tried to kick-start a sagging economy this year. But commercial banks have found it difficult to identify eligible borrowers in the industries prioritised by the government.

Official data shows half of the 14 People’s Bank of China loan programmes, which range in focus from nursing homes to distressed real estate developers, have deployed less than 50 per cent of their quota since they began in 2020. The remaining programmes, or “structural monetary policy instruments”, have disbursed between 62 and 87 per cent of their lending quotas.

The slow take-up underscores the challenges faced by Chinese policymakers to revive the country’s ailing economy, battered by a real estate meltdown and a lack of private sector confidence.

“China’s [financial regulators] are quite aware of the fact that using these targeted measures goes against their attempts to commercialise the banking system and stop interfering in credit allocation,” said Eswar Prasad, an economics professor at Cornell University and the former head of the IMF’s China division.

“But I think they have decided that targeted credit allocation may be the lesser of two evils, with a larger evil being broad monetary stimulus that could raise all sorts of medium-term financial and other risks.”

China already had a long history of wielding targeted loans to achieve policy goals. But authorities increasingly relied on the strategy to support the economy following the outbreak of Covid-19, with the PBoC rolling out more than a dozen short-term, low- or zero-interest lending programmes worth more than Rmb5.3tn ($744n).

Targeted lending differs from broad western-style monetary easing, according to the central bank, by channelling cheap credit into strategic areas to boost the economy without stoking inflation.

However, the strategy has only partially paid off, with some newer programmes suffering even lower adoption rates.

Three targeted lending facilities launched in January to allocate as much as Rmb230bn to social housing companies, distressed real estate developers and private companies were not exhausted by the end of September. Two funds backed by the PBoC to funnel Rmb240bn into stalled property projects and affordable nursing homes have deployed only Rmb7.2bn since beginning in June.

Another state-backed loan programme for logistics, launched at the end of last year, has dispersed less than half of its Rmb100bn quota.

Four bankers said they were reluctant to participate in the programmes, which focus on industries with considerable credit risks. Nursing homes, for example, typically rent buildings and land, and so have no collateral to offer lenders.

“I would have received bank loans a long time ago if I had owned the land,” said Xu Liang, an owner of a nursing home in the northern Hebei province. Xu applied for a loan in August but was turned down over insufficient collateral. 

Demand for credit is also weak. Official data shows a Rmb40bn PBoC-backed fund for small business loans has dispensed only Rmb22bn since its launch in March.

“Business owners are scared of increasing leverage because of the huge economic uncertainty,” said an official at Zhongyuan Bank.

Despite the weak uptake, Beijing is pushing on with the programme. The central bank’s monetary policy department said targeted lending had helped “effectively . . . revitalise the economy” and “boost new growth engines”, according to state media.

But even China’s officials are not convinced.

“China’s economic regulators are obsessed with the idea of targeted monetary policy even though there is a lot of debate on whether it really works,” said an adviser to the central bank.

Even with authorities’ encouragement and the central bank’s backing, banks are not ready to relax their lending criteria.

“We make lending decisions based on whether borrowers can repay the loan rather than how low our cost of funds can be,” said an executive at China Construction Bank, one of the country’s largest banks. “We cannot promote public interest at the expense of our own.”

FT : Tequila sunset? Demand slowdown poses dilemma for agave growers

Tequila sunset? Demand slowdown poses dilemma for agave growers
Spirits makers seek to secure supply of base ingredient as Mexican farmers consider new crops

In the highlands of Jalisco, Mexico’s largest tequila-producing region, some growers of agave, the spirit’s base ingredient, are fearful of committing to another seven-year planting cycle after a significant drop in price for the cactus-like crop.

Spirits makers have struggled for years to secure enough agave as tequila demand surged to record highs in North America. Consumption soared even higher during the coronavirus pandemic when locked-down consumers splashed out on higher-end tipples, and again during the ensuing recovery when they burnt through their savings.

But over the past six months supply has caught up with demand. Agave crops that were panic-planted as thirst for tequila mounted are coming to maturity just as growth in the US has started to moderate.

“The biggest risk we see is that ‘agaveros’ will come out of planting for the next five years ahead,” said Dave Ingram, chief supply chain officer at Bacardi, which makes Patron, Cazadores and Corzo tequila.

“They will look at today’s price and ask if they should plant something else that is going to give a short-term higher return than agave,” he added.

The price of agave has dropped from highs of 31 pesos ($1.83) per kilo six months ago to as low as 10-15 pesos a kilo now, according to industry experts. Sales growth of premium and super premium tequila in the US, meanwhile, has slowed from highs of 25 to 45 per cent in the first half of last year to 5 per cent growth in the same period this year, according to drinks research provider IWSR.

“As soon as there were signs of the US tequila market slowing down growth, there was a lot of speculation among agave growers,” said José Luis Hermoso, research director for Central and South America at IWSR.

“Large brands were not buying any more, so everyone was waiting . . . for the price to come down. It was inevitable in a way.”

In the US, international drinks giants Diageo and Bacardi dominate the industry alongside Mexican spirits group Becle, which makes Jose Cuervo and 1800.

Tequila represented approximately half of US spirits growth in 2022, winning share from the likes of vodka, whisky and cognac. Diageo, in particular, has benefited from the tequila wave, with the spirit contributing more than half its US growth over the past six years, according to analysis by Jefferies.

Bacardi buys 70 per cent of the agave for its tequila brands on five- to seven-year contracts. The group has 1.5mn tonnes from 30,000 hectares worth of agave contracted with roughly 28 partners.

“The main thing we’re doing right now is making sure that people are still confident about the industry for the long term,” said Ingram, adding that while there was a softening in demand in the US, there was a big opportunity in the rest of the world.

Diageo’s CFO said in a recent investor call that it had a “mixed model” to how it procures agave: the spirits maker owns its own crops, contracts with farmers to grow on its behalf, and buys agave on the spot market.

As the supply of agave stabilises, manufacturers will have more capacity to allocate stock for markets besides the US. But some in the industry doubt that tequila can resonate in other markets like it has in North America, where the eating and drinking culture has heavy Hispanic influence.

“European consumers are well behind US consumers because there was no need to develop these markets,” said Hermoso. “Any percentage the US doesn’t grow is a lot of tequila to be sold elsewhere. Whether that demand exists in Europe is yet to be seen.”

Demand in the US has been driven by high-end tequila, for which consumers developed a taste after steadily trading up from the kind of tequila they ordered as shots during college to pricier and pricier “sipping” varieties.

Europeans have yet to be taken on this “laddering” journey, said Hermoso, or to develop the flavour nuances of different tequilas. Until they have, he said, the demand will never match that of the US.


The slowdown in tequila demand has led to a fundamental shift in agave market dynamics.

Hermoso said there was no official commodity price for agave, and that the power to negotiate the price had shifted from growers to tequila producers as supply stabilised and drinks groups moved to secure their own crops with an integrated supply chain.

Growers “don’t have collective bargaining power”, said Hermoso. “Bigger players have gone in and secured larger tracts of land to secure their own supply. That has a big impact on availability.”

Aligning the supply and demand for agave has always been one of the industry’s big challenges, according to Martin Muñoz, technical commissioner at Mexican industry body Consejo Regulador del Tequila.

The first crisis came between 1997 and 2001 when prices shot up to 16 pesos per kilogramme before dropping to 1 peso per kg between 2006 and 2008.

Muñoz said no one had a “crystal ball” to know where the price would go. The regulator is now trying to promote long-term contracts, cut out intermediaries — known as “coyotes” — and working to prevent growers abandoning their crop, or even worse outcomes.

“When there is oversupply of raw materials . . . eventually there can be protests or social conflict,” he said, adding that today’s price fall had not reached the point of difficulty yet.

The CRT said it had not seen cases of crops being abandoned in its register, which growers for tequila are required to update.

However, David Suro-Piñera, owner of small-batch producer Siembra Spirits, said he was in the highlands of Jalisco last month and already noticed some agave fields not being cared for properly.

“This is only three months into this dramatic decrease in prices. I can’t imagine what it’s going to be in a year.”

>>> Weekend Papers Summary

Weekend Papers Summary

FINANCIAL TIMES
-The US stock market has seen its strongest annual performance in two years, with the S&P 500 index rising 24% in 2023. This performance was driven by investors anticipating that central banks will cut interest rates rapidly next year. The MSCI World Index also saw a 22% increase for the year. The shift in interest rate expectations was driven by faster-than-expected inflation in western economies.
-In 2023, the tech industry saw the launch of OpenAI's ChatGPT, which enabled computers to generate text or images with human-like abilities. This led to a race to integrate generative AI into everyday products and services. Microsoft CEO Satya Nadella and Google CEO Sundar Pichai praised the technology, predicting its importance surpassing fire or electricity. Erik Brynjolfsson predicts that generative AI's impact on working practices could lead to a productivity boom across the global economy.
-US states Colorado and Maine have disqualified Donald Trump from participating in the upcoming presidential election. However, Trump's prospects are limited as he is expected to appear on the ballot in early voting states like Iowa and New Hampshire. The Supreme Court may overturn these challenges, but the moves serve as a reminder of Trump's unprecedented efforts to deny Biden's victory and fuel the January 6 assault on legislature seats.
-China has appointed former navy chief Dong Jun as its new defence minister, four months after his predecessor disappeared from public view. The appointment could help smooth engagement between Beijing and Washington on defense matters. The appointment comes as President Xi Jinping tightens control over China's armed forces amid a crackdown on alleged corruption among senior government officials.
-South Africa has accused Israel of violating international laws on genocide in its military operations in Gaza, arguing that Israel has failed to prevent genocide and is committing genocide against Palestinians. The South African application to the UN's International Court of Justice seeks an immediate halt to Israeli military operations and calls for early hearings in the new year.
-Samsung, Motorola, Huawei, and Honor are all betting on foldable phones to revive the mobile market, despite their lackluster success. Foldable phones, which open like a book or compact mirror, only account for 1% of all smartphones sold globally. Samsung has doubled its investment in marketing, with estimates suggesting they may surpass a third of all smartphones costing more than $600 by 2027. Other manufacturers, including Motorola, Huawei, and Honor, are also hoping foldable phones will help revive the market.
-Big tech companies have outspent venture capital groups in generative AI start-ups this year, with Microsoft, Google, and Amazon reportedly raising two-thirds of the $27B raised by AI companies in 2023. This surge in investment, which exploded after OpenAI's ChatGPT launch, demonstrates the dominance of Silicon Valley groups in the industry. The rise of generative AI systems has also attracted top Silicon Valley investors, but VCs have been forced to slow down spending due to higher interest rates and falling valuations.
-The US Securities and Exchange Commission (SEC) has proposed that funds must hold enough "highly liquid securities" to cope with 10% of their assets losing in a day, using a method called "swing pricing". The proposal was prompted by market turbulence during the Covid-19 pandemic, highlighting the need for stricter rules to protect buy-and-hold investors from losses. However, industry groups argue that the proposal would reduce overall returns and force funds holding loans and less liquid assets to close down completely. The SEC has held 16 meetings with investors, providers, and lobbyists since September, and received over 3,000 comment letters, mostly in opposition.
-Iran has executed three men and one woman on Friday, accused of co-operating with Israel's intelligence services. The executions come after an air strike killed a senior Iranian commander, Razi Mousavi, in Syria. Iranian officials blamed Israel for the assassination and reserved the right to respond in kind. Israel and Iran have been engaged in an increasingly overt shadow war across the Middle East, with Syria becoming a constant battleground. Damascus International Airport was hit by alleged Israeli air strikes, after only recently resuming operations following prior attacks.
-Statkraft, Europe's largest renewable energy producer, is investing €700 million to upgrade its hydropower dams to withstand heavier rains, highlighting the risks of climate change on energy security and companies' finances. The Norwegian state-owned company plans to strengthen over 70 dams over the next five to 10 years, focusing on "climate change resilience and energy security in practice." The upgrades will include the 130 megawatt Trollheim hydropower plant in southern Norway, the 106MW Høyanger plant in the west, and the 500MW Rana plant in the north.
-Spain's new economy minister is Carlos Cuerpo, former head of the treasury and key negotiator in EU fiscal rules. Cuerpo will replace Nadia Calviño, who leaves to head the European Investment Bank. Spain's economy is stronger than many EU peers but faces a crunch year with tough debt reduction rules. Cuerpo is described as a young professional with proven competence.

NEW YORK TIMES
-Where Was the Israeli Military on Oct. 7? A Times investigation found that troops were disorganized, relied on social media to choose targets and had no battle plan for a massive Hamas invasion.
-Displaced Gazans in the south face Israeli attacks they sought to escape. Many residents feel that no place is safe after an airstrike hit an area of southern Gaza where Israel had ordered people to seek shelter.
-How the Supreme Court May Rule on Donald Trump’s Presidential Run. The legal issues are novel and tangled, experts said, and the justices may be wary of knocking a leading presidential candidate off the ballot.
-Maine Law ‘required that i act’ to disqualify trump, secretary of state says. Barring former President Trump from the primary ballot was a hard but necessary call said Shenna Bellows, Maine’s secretary of state.
-How the Russian government silences wartime dissent. A law making it illegal to discredit Russia’s army has ensnared thousands of Russians for even mild acts or statements against the war.
-‘There’s no other job’: the colonial roots of Philippine poverty. Decades after independence, the Philippines lacks the kind of factory economy that has lifted up other Asian nations, tying millions to farm work.
-On the Philippine island of Mindanao, people in rural areas struggle to feed themselves in the same way as their ancestors.
-NYC officials reassure revelers ahead of New Year ’s Eve festivities. Protests and high tensions have been gripping the city, but officials said there were “no specific credible threats” related to the Times Square ball drop.
-The US is on track for a record drop in homicides, and many more crimes are in decline, according to the FBI
-A move by Mayor Eric Adams meant to slow the surge of new arrivals being sent to New York from Texas encountered logistical hurdles within 24 hours.
-Judge blocks Iowa’s ban on school library books that depict sex acts. Authors and activists said the Republican-backed law infringed on free speech. The judge said the ban imposed a “puritanical ‘pall of orthodoxy’ over school libraries.”
-Donald Trump’s former fixer Michael Cohen had sought an early end to court supervision after his 2018 campaign finance conviction. He enlisted the help of Google Bard.
-Ohio governor Mike DeWine (R) blocks bill banning transition care for minors. The governor vetoed the measure despite his party’s move to mobilize cultural conservatives around transgender issues.

NY POST
- California will offer free health care to all undocumented immigrants who qualify for its government-run Medi-Cal health insurance program, despite facing a $68 billion deficit. The state has expanded access to the program since 2015, covering undocumented children and adults aged 19-25 and over 50. The program will cover 700,000 undocumented immigrants.
-US prosecutors have decided against a second trial against Sam Bankman-Fried, who was convicted of stealing from FTX customers. The strong public interest in a prompt resolution outweighed the benefits of a second trial, as Bankman-Fried's scheduled March 2024 sentencing is expected to include forfeiture and restitution orders.

FT : Flooding forces Eurostar to scrap cross-channel journeys

Flooding forces Eurostar to scrap cross-channel journeys
Latest travel disruption comes after French workers went on strike before Christmas

Thousands of travellers faced severe disruption on Saturday after Eurostar cancelled all rail services linking the UK with continental Europe because of flooding. 

The cross-channel train operator said it had scrapped journeys from London to Paris, Brussels and Amsterdam after two tunnels running under the Thames flooded on the high-speed line linking the UK capital and the south coast of England. 

Eurostar apologised to passengers on Saturday and said it was “monitoring the situation” as infrastructure owner Network Rail worked to fix the damage. 

Passengers on both sides of the Channel took to social media to complain that their New Year’s Eve plans had been thrown into chaos, with some stranded travellers giving up and checking into hotels for the night.  

UK domestic train company Southeastern also cancelled high-speed services that run through the same tunnels. 

Steve White, managing director of Southeastern, said in a message posted on social media company X that a “huge effort is under way . . . to establish the source of the water and increase capacity to remove it”. 

White posted pictures showing water pouring into one of the tunnels and submerged tracks. 

HS1, a private company with a concession to own and operate the tracks from London to the Channel Tunnel, said the flooding in the tunnels was “unprecedented”. 

Eurostar passengers also suffered delays in the run-up to Christmas after a strike by French workers disrupted services on December 21. 

The latest travel turmoil capped a miserable festive period across the UK rail network, as engineering works and poor weather combined to cause disruption across several operators. 

Passengers travelling on New Year’s Eve in the UK have been urged to check with their train operator before setting off because of engineering works, warnings of further disruption from the weather and staff shortages.