NYT Dealbook : DealBook: The $460 billion space business

DealBook: The $460 billion space business

Legal black holes
Elon Musk, Jeff Bezos and Richard Branson are racing to establish a presence in space. But what rights and obligations come with that?

It’s not clear what the rules are, even as the $460 billion space industry is growing quickly.

Virgin Galactic, the space tourism company founded by Branson, announced on Thursday that it would launch its first commercial spaceflight this month, joining Bezos’ Blue Origin, and Musk’s SpaceX in sending ticketed passengers to space. But travel is just one emerging corner of the industry, which is mostly fueled by U.S. and international government contracts. The sector includes companies in the fields of satellites and communications, solar power, manufacturing, and even mining. One, Orbital Assembly, hopes to open a luxury extraterrestrial hotel by 2025.

Citigroup analysts project that space businesses will reach a trillion dollars in revenue by 2040.

All this activity raises legal questions.

In theory, space belongs to everyone. In 1967, as the United States and the Soviet Union were building up their nuclear arsenals, the United Nations signed a treaty that says no country can claim territory in space. “We didn’t want to bring the Cold War into space,” Michelle Hanlon, co-director of the air and space law program at the University of Mississippi, told DealBook.

Since then, a U.N. space committee has made four more treaties and five sets of principles covering areas like arms control and liability for damage caused by space objects. All are premised on the notion that space “should be devoted to enhancing the well-being of all countries and humankind, with an emphasis on promoting international cooperation.”

That perspective is about to collide with reality, said Curt Blake, a space lawyer at Wilson Sonsini Goodrich & Rosati and the former C.E.O. of a space start-up. “Humans have done such a bad job regulating anything of common good, like the oceans and air,” he said. “Are we going to be better at caring for the moon?”

One upcoming test is a race between China and the United States to get to the poles of the moon to mine water, which could make it possible to produce fuel in space. There is little understanding of what will happen when they both get there.

“Will they live on separate sides or dot their bases?” Hanlon asked. “We don’t know because we have these regulatory gaps.”

Another potential conflict is brewing over 170 million pieces of debris like satellites abandoned in the Earth’s orbit, known as “space trash,” because their accumulation makes exploration more difficult and dangerous. Since nobody owns space, it isn’t always clear whose responsibility it is to clean it up. In September, the Federal Communications Commission adopted rules ordering companies to take down nonfunctioning satellites within five years, down from 25 years.

Lawyers are wrestling with these sorts of issues at gatherings like The Hague Space Diplomacy Symposium this week at the University of Leiden in the Netherlands, which focused on cooperation amid rising geopolitical tensions and competition.

The U.S. government has deliberately left some holes. In 2004, Congress imposed a moratorium on safety regulations for commercial space launches, essentially a free pass, or “learning period,” that is set to expire in October. It has lasted so long because there hasn’t been enough development to base new rules on. In April, a report from the RAND Corporation recommended against extending again, and the Federal Aviation Administration is planning more oversight.

Business leaders caution against creating so much regulation that it pushes innovation offshore while recognizing that we need rules. And futurists naturally have a long and expansive view. Many are concerned that we’ll exploit resources in space before we’re able to “access the infinity of the universe,” as Hanlon put it.

“We just need to hold it together for 200 years,” she said. — Ephrat Livni

WSJ : Mark Zuckerberg Was Early in AI. Now Meta Is Trying to Catch Up.

Mark Zuckerberg Was Early in AI. Now Meta Is Trying to Catch Up.
The CEO considers artificial intelligence critical to long-term growth and is taking more control over efforts. Many Meta AI researchers have departed in the last year.

Meta META -0.29%decrease; red down pointing triangle is doing something Mark Zuckerberg doesn’t like: playing catch up.

A decade ago, the company founder and CEO saw the promise for artificial intelligence and invested large sums of money into its advancement.
He hired one of its early visionaries, Yann LeCun, to lead the charge. Now, just months after OpenAI’s ChatGPT burst into the consumer marketplace, Meta is falling behind in the very same technology.

Meta is now scrambling to refocus its resources to generate usable AI products and features, including its own chatbots, after spending years prioritizing academic discoveries and sharing them freely while struggling to capitalize on their commercial potential.

That’s a tall order as many of Meta’s top AI employees have departed and amid the company’s own sets of layoffs in what Zuckerberg has called a “year of efficiency.” About a third of Meta workers who co-authored published AI research related to large language models—the complex systems that power AI systems like ChatGPT—have left in the last year, according to a Wall Street Journal analysis.

Zuckerberg himself and other top executives have taken more control of the company’s AI strategy. They created a new generative AI group that reports directly to Chief Product Officer Chris Cox, one of the longest-serving and most trusted executives at Meta. The group is training generative AI models—which produce content, such as text, images or audio—intended to be infused into “every single one of our products,” Zuckerberg said.
He has touted Meta’s flagship AI language model, called LLaMA, which — after its code leaked — spurred the emergence of homegrown tools that could one day compete with the products that Google and OpenAI are trying to sell.

If Meta succeeds in commercializing its AI efforts, it could help boost its user engagement, create a better metaverse and make the company more attractive to the young users who are now proving harder for it to attract. If Meta can’t capitalize on this technology fast enough, it runs the risk of losing relevance as competitors, including a fast-growing crop of scrappy AI startups, leap ahead.

In a statement Joelle Pineau, VP of AI Research at Meta said the company is not behind in AI and defended its focus on research and structure, saying it will position Meta for success. Meta’s AI research unit “is one of the world’s leading destinations for AI researchers and open science, and its research output has increased significantly over the last year alone,” said Pineau.
“Our research breakthroughs have provided a tremendous foundation to build on as we bring a new class of generative AI-powered experiences to our family of apps.
We’re proud of the contributions that Meta’s AI researchers, past and present, are making to help shape the future of advanced state-of-the-art AI.”

Zuckerberg on Friday announced an AI model called Voicebox that can read aloud text prompts in a manner of different ways or correct audio recordings with the help of text prompts to remove background noise, like the bark of a dog. Meta didn’t say when the research project will become available to the public.

This article is based on interviews with more than a dozen current and former Meta employees, reviews of LinkedIn and social-media profiles and startup news announcements.

Zuckerberg and other executives have called AI a third leg to Meta’s stool, believing it essential to the company’s long-term growth and relevance, alongside global connectivity and virtual and augmented reality. Lagging behind in AI threatens to make Meta appear stodgy and slow, instead of the nimble, aggressive upstart that coined the phrase “move fast and break things” and set the pace of innovation in Silicon Valley.

In May, the White House didn’t invite Meta to a summit of AI leaders, billed as a meeting of “companies at the forefront of AI innovation.”

Meta has taken sharp turns before at moments when it has appeared behind, such as when it transitioned Facebook from a desktop to a mobile-first ads business or in 2016, when it launched its Stories feature on Instagram to lure people away from Snapchat, which had introduced a similar feature a decade ago.

Meta faces other strategic, political and financial challenges.
Its longtime heavy focus on original research in Meta’s AI division disincentivized work on generative AI, the systems like ChatGPT that produce humanlike text and media. Executives misstepped in designing the hardware required to run such AI programs, which it is now trying to correct. Years of scrutiny into the company’s handling of user data and human-rights violations has made some executives indecisive and wary of launching new AI products for consumers.

Meta began investing in AI in 2013. Zuckerberg and then-CTO Mike Schroepfer personally sought to recruit one of the leading minds in AI to lead a new research division to advance the technology. They found their lieutenant in LeCun, a New York University professor whose breakthrough work in the field was renowned.

LeCun, deeply rooted in academia and fundamental research, was instrumental in creating a culture that reflected his priorities: hiring scientists over engineers and emphasizing academic outputs, such as research papers, over product development for the company’s end users. The strategy made Meta’s fundamental AI research lab highly attractive to top talent over the years, but challenged the company’s ability to commercialize its advancements, people familiar with the matter said.

It also encouraged a diffuse, bottoms-up approach to research direction and resource allocation. Researchers drove their own agendas, pursuing independent projects in different directions rather than toward a cohesive companywide strategy, the people said. Meta divvied up hardware into small pools across each project: Some researchers, given more computer chips than they needed, would tie them up in unnecessary tasks to avoid relinquishing them, some of the people said.

Meanwhile, Meta was slow to equip its data centers with the most powerful computer chips needed for AI development. Even as the company acquired more of these chips, it didn’t have a good system for getting them into the hands of engineers and researchers. At times thousands of pieces of coveted and expensive hardware sat around unused, some of the people said.

Meta is in the process of overhauling its data centers, which could have contributed to the logjams. As of May, Meta’s latest supercomputer for AI projects has 16,000 such chips, a company blog post said.

As large language models began to show increasingly impressive capabilities in 2020, tension mounted within Meta’s AI research division between those who urged the company to invest seriously in the industry’s new direction, and those, including LeCun, who believed such models are fads that lack scientific value, people familiar with the matter said. LeCun’s strong opposition toward large language models (he believes they don’t get AI closer to human-level intelligence), both internally and publicly, made it difficult for researchers with opposing views to amass the support and vast resources needed for those kinds of projects, some of the people said.

Some Meta researchers pressed forward anyway with fewer resources, using around 1,000 chips to produce a large language model in 2022 known as OPT, or Open Pretrained Transformer, and around 2,000 chips to produce Meta’s flagship model called LLaMA in 2023. The industry standard, by contrast, is 5,000 to 10,000 chips. Meta initially allowed a limited group of outside researchers access to LLaMA before it leaked online, sparking a burst of innovation that executives cite as a prime example of Meta’s goal to share its AI technology.

Meta has since lost numerous AI researchers who worked on these and other key generative AI projects in the last year, many citing burnout or a lack of confidence in Meta to keep up with competitors. Six of the 14 authors listed on the research paper for LLaMA, have left or announced they will be departing, according to their LinkedIn profiles and people familiar with the matter. Eight of the 19 co-authors on the paper for OPT have left as well.

The departures have accelerated following OpenAI’s release of ChatGPT in November of last year. Some have been lured by AI startup fever, which has fueled staffing changes at Silicon Valley companies across the board, including at Google. As of March, the number of job listings on LinkedIn mentioning GPT is up 79% year-over-year, the professional social network told The Wall Street Journal.

A Meta spokesman said the company has continued to recruit and brought in new AI talent.

After ChatGPT’s debut, Zuckerberg and Cox joined Chief Technology Officer Andrew Bosworth in overseeing all of the company’s AI-related efforts. The three executives are now spending hours a week on AI, participating in meetings and approving AI projects.

The new generative AI group is focused exclusively on building usable products and tools instead of on scientific research. It received over 2,000 internal applications and has rapidly amassed hundreds of people from different teams. Hardware resources have shifted over from the AI research division and are being used to train new generative AI models, people familiar with the work said.

In March, Zuckerberg said that “advancing AI and building it into every one of our products” was the company’s single largest investment.
Speaking at Meta’s annual shareholder meeting in May, Zuckerberg said the company also hopes to extend the technology to the metaverse as well.

At a town hall meeting with employees earlier this month, Zuckerberg announced a number of generative AI products that the company is currently working on, the Meta spokesman said.
The initiatives include AI agents for Messenger and WhatsApp, AI stickers that users can generate from text prompts and share in their chats and a photo generation feature that will allow Instagram users to modify their own photos using text prompts and then share them in Instagram Stories.

Zuckerberg also shared some internal-only generative AI tools geared toward employees, including one called Metamate, a productivity assistant that pulls information from internal sources to perform tasks at employees’ request. Metamate was recently rolled out to a large group of employees as part of a trial run, the Meta spokesman said.

“In the last year, we’ve seen some really incredible breakthroughs—qualitative breakthroughs—on generative AI,” Zuckerberg said at the town hall.

Meta still faces broad challenges. The company’s increasingly low tolerance for risk following seven years of intense government and media scrutiny for its user-privacy practices has created friction about how and when to introduce AI products, people familiar with the matter said.

In the past, Meta has had to consider its public reputation when developing and releasing large language models, which can be prone to churning out incorrect answers or offensive remarks.

Several years ago, AI researchers were working on a chatbot code-named Tamagobot, based on an early version of a large-language-model system, according to people familiar with the matter. The team was impressed by its performance, but concluded that it wasn’t worth launching while the company was facing intense criticism for allowing misinformation to flourish on its platform during the 2016 presidential election, one of the people said.

The concern around public scrutiny was also on display when Meta released its BlenderBot 3 chatbot in August 2022. Within a week of launching, BlenderBot 3 was panned for making false statements, offensive remarks and racist comments. The system also called Zuckerberg “creepy and manipulative.”

The Meta spokesman said the project was still left up for over a year until the conclusion of the research, and the company maintained an open and transparent approach through its life cycle. Meta has released and seen through many other projects that demonstrate the company’s willingness to take risks, he added.

But the scenario played out again in November 2022 when the company released Galactica, a science-focused large language model. The system was shut down by Meta within three days of its release after it was hit with a wave of criticism by scientists due to its incorrect and biased answers.

Two weeks later, OpenAI released ChatGPT.

CrunchBAse : The Week’s 10 Biggest Funding Rounds: Madhive Tops In Very Slow Wee

The Week’s 10 Biggest Funding Rounds: Madhive Tops In Very Slow Week

This week in venture can be described in two simple words — slow and quiet. Only one company saw a nine-figure round — and that oddly was an advertising startup. Aside from that, rounds were on the smaller side, with it taking only $25 million to make this list. The “June Gloom” seemed to hit VC this week.

1. Madhive, $300M, adtech: Advertising software companies rarely make it this high on the list, but that fact didn’t stop Madhive. The New York-based firm raised $300 million from Goldman Sachs Asset Management, which valued the company at $1 billion, per Axios. The deal gives Goldman a minority stake in the company. Launched in 2015 at Otter TV, Madhive sells its CTV (connected TV) advertising software platform to local TV companies that sell CTV ads.
The company already has $100 million, per the Axios report.

2. Tomorrow.io, $87M, environmental consulting: Climate changes and weather-related issues continue to dominate the news. Tomorrow.io is hoping to let people know of those problems earlier, and locked up an $87 million Series E led by Activate Capital to that end. The company has built a weather intelligence and climate adaptation platform — which includes a weather and climate generative AI tool nicknamed “Gale” — and just launched its R2 weather satellite. The Boston-based startup is hoping to help businesses and governments solve their weather- and climate-related challenges.
Founded in 2016, the company has raised $271 million, per Crunchbase.

3. FZ Sports, $74M, sports: Miami-based FZ Sports locked up a $74 million round from a handful of investors this week, including 777 Partners and MEP Capital.
The round is a mix of debt and equity capital; however, the exact makeup was not disclosed.
The sports media and technology startup — which operates 1190 Sports, Fanatiz and Nunchee – manages the international broadcasting rights for leagues in Latin America, including the Brasileirão, Liga Argentina de Futbol and recently added Liga1 Peru. Soccer is the world’s most popular game, and there is no doubt a rabid following for many of the top leagues in Latin America.

4. Primer Technologies, $69M, defense: Late last year we all saw the potential interest in defense tech as Costa Mesa, California-based Anduril locked up a Series E worth nearly $1.5 billion that values the company at $8.5 billion. This week, Primer locked up a round that is smaller but still significant. The San Francisco-based company specializing in AI-powered data analysis announced a $69 million “first close” of its Series D. The new cash will be used to accelerate the development of AI solutions for the government and commercial customers. Primer’s government offerings focus on software for intelligence gathering and analysis through natural language processing. The funding was led by Addition — which also was in the news this week.
Founded in 2015, Primer has raised $237 million, per Crunchbase.

5. Octave, $52M, health care: San Francisco-based behavioral health care startup Octave closed a $52 million Series C round led by Cigna Ventures, Novo Holdings and Avidity Partners as it looks to expand its in-network therapy services nationally. The company has both in-person and virtual clinics, and offers personalized care plans for individuals, couples and families that often is covered through insurance.
Founded in 2018, the company has raised $86 million, per Crunchbase.

6. CubicPV, $33M, solar: Bedford, Massachusetts-based solar manufacturing startup CubicPV announced it has received $33 million in the first tranche of a $100 million investment led by SCG Cleanergy. Founded in 2021, the company has raised $58 million.

7. CloudZero, $32M, cloud: Boston-based cloud cost intelligence platform CloudZero closed a $32 million Series B led by Innovius Capital and Threshold Ventures.
Founded in 2016, the company has now raised $48 million, per Crunchbase.

8. Theradaptive, $26M, biotech: Frederick, Maryland-based Theradaptive, a biopharmaceutical company focusing on targeted regenerative therapeutics, closed a $26 million Series A. The company did not release investors. Founded in 2016, this is the company’s first disclosed outside raise, per Crunchbase.

9. (tied) FIA Tech, $25M, financial services: New York-based FIA Tech, a provider of financial and legal agreements and brokerage services, closed a $25.4 million round led by six existing shareholders: Bank of America, Barclays, Citi, Goldman Sachs, JP Morgan and Wells Fargo. Founded in 2008, FIA Tech has raised almost $70 million, per the company.

9. (tied) Paro, $25M, fintech: Chicago-based Paro, which provides on-demand bookkeeping, raised a $25 million Series C led by Top Tier Capital Partners.
Founded in 2025, Paro has raised $67 million to date, per the company.

Big global deals
The biggest round of the week was Madhive’s, but another pretty large round occurred in Europe.

  • London-based Beacon Therapeutics, which is looking to treat blinding retinal illnesses and restore and enhance eyesight, raised a $123 million Series A.

FT : Italy set to limit shareholder rights of Chinese owner in Pirelli

Italy set to limit shareholder rights of Chinese owner in Pirelli
Data-collecting tech in tyres deemed of national security importance as governance dispute with Sinochem hots up

Italy has approved measures to limit the shareholder rights of the Chinese chemical group Sinochem in Pirelli, the Milan-listed tyremaker and set out a wider range of sectors that the government judges to be of national security importance.

The decision is a rare intervention in an eight-year-old Chinese investment that had, so far, not been considered a strategic national asset. In 2015, a previous Chinese state-owned chemicals group had bought a majority stake in Pirelli, considered a crown jewel of Italian industry, for $7.7bn.

Prime minister Giorgia Meloni’s office said in a statement on Friday that the latest measures, passed under the country’s “golden power” foreign investment screening mechanism, were “aimed at creating a network of measures to safeguard Pirelli’s independence and its management”.

The FT revealed this month that Pirelli chief executive Marco Tronchetti Provera had lobbied Rome to intervene in the company’s shareholding arrangements, warning of the greater control that the Chinese government was taking in Pirelli’s business and governance decisions.

Tronchetti Provera, who has a minority stake in Pirelli, has been fighting with his Chinese partners over day-to-day management for the past few years. He has unsuccessfully tried to persuade them to sell part of their stake. Frictions within the company have also emerged over his pay, which in 2022 was €20.5mn.

Rome’s restrictions, which involve limits to accessing and sharing information between Pirelli and Sinochem and a four-fifths majority for some “strategic” board decisions, were aimed at protecting “strategically relevant information and the company’s knowhow”, Meloni’s office said.

The decision comes as the Italian government attempts the difficult balance of aligning itself more closely with the EU and US on foreign policy and re-evaluating its relationship with China, while at the same time not antagonising Beijing.

Meloni’s government is also considering an exit from Beijing’s flagship overseas investment project, the Belt and Road Initiative. Italy was the only European nation to join the BRI in 2019.

Last month, leaders from the US, EU and Japan united behind the idea of “de-risking” from China, speaking of a need to protect “certain advanced technologies that could be used to threaten our national security”.

The scope of what counts as assets of national security importance has been expanded in Italy and the EU since 2019, leading to an increase in applications filed under Italy’s screening mechanism, from 8 in 2014 to 496 in 2021.

Meloni’s office said a specific technology that allowed for the geolocation and collection of drivers’ information through a microchip installed on the tyres was critical and of national strategic importance.

“The misuse of such technology can cause a variety of risks for customers and national security,” the office said.

FT : Climate graphic of the week: first days of June bring record heat

Climate graphic of the week: first days of June bring record heat
Oceans remain at record levels for the second month


Global surface air temperatures crossed the key 1.5C warming threshold temporarily at the start of June, as the world’s oceans hit record-high temperatures for two months running. 

If the trend continues, the level of global warming since the pre-industrial era presents a stark indicator of worsening climate change.

Scientists at the Copernicus Climate Change Service said the first 11 days of June had been the hottest on record for this time of year, and that the 1.5C warming threshold had been temporarily crossed.

The threshold was first exceeded during December 2015, and crossed “repeatedly” in 2016 and 2020. This year is the first time it has been breached in June.

The findings “should be a stern warning sign that we are heading into very warm uncharted territory”, said Melissa Lazenby, a lecturer in climate change at the University of Sussex in the UK.

The Paris Agreement commits countries to limiting long-term warming to 1.5C above pre-industrial levels, ideally.
Long-term warming is already at least at 1.1C. 

Global ocean temperatures, meanwhile, reached their highest levels on record for April and May, according to the US National Oceanic and Atmospheric Administration. Above normal sea-surface temperatures had “recently expanded across the central and eastern equatorial Pacific”, it said


Thomas Smith, a professor in environmental geography at the London School of Economics, noted that the top few metres of the ocean stored enormous amounts of energy, and warned that hotter water temperatures meant a very large amount would be transferred to the atmosphere.

Scientists this month declared the return of El Niño, the weather phenomenon that is associated with warming across the Pacific Ocean. But they said the recent record heat was not necessarily a direct result, since its effects were typically felt after it had been active for some time.

“There tends to be a lag,” said Rocky Bilotta, a climatologist at NOAA.
El Niño was likely to have “more influence on the 2024 season of global temperatures rather than currently in 2023.
But that doesn't necessarily mean that we’re not already seeing an effect,” he said.


The LSE’s Smith said the unusually warm Atlantic and Indian oceans meant that “this El Niño may not be like others” as the warming effect takes hold over the Pacific Ocean.

“The unprecedented situation presents a challenge for those forecasting weather conditions in the months that lie ahead,” he said.

NOAA said there was a more than 90 per cent chance that El Niño would persist into 2024.

That has fuelled concerns about unprecedented heat this year and next.
2022 was the fifth warmest year on record despite the cooling effects of the La Niña weather phenomenon — El Niño’s opposite — that was present for three consecutive years.
“With the emerging El Niño there is a possibility that the average surface global temperature for the whole of this year or next could exceed 1.5C for a single year,” said Albert Klein Tank, director of the UK Met Office Hadley Centre for Climate Science and Services.

Global land and ocean temperatures were the third warmest on record for the March to May period, and there was a 99.5 per cent chance that 2023 would be a “top 10” hottest-ever year, said NOAA. 


About a quarter of the contiguous US is in a state of drought, while ferocious wildfires have ripped across vast tracts of Canada and unusually hot conditions are also being felt in countries including the UK and China.

A warmer atmosphere can hold more moisture, making heavier storms more likely.

But hotter conditions can also pull more moisture out of the ground into the atmosphere, increasing the risk of droughts and wildfires.

Barron's : Buy This Copper Stock. Shares Could Soar 50%.

Buy This Copper Stock. Shares Could Soar 50%.

Copper prices are getting ready to run—and Freeport-McMoRan FCX –0.47% stock is the way to play it.

The industrial metal got off to a slow start in 2023, and so did Freeport (ticker: FCX). With the possibility of a U.S. recession dominating the conversation in the U.S. and China’s reopening running out of steam, copper prices fell 4% through the first five months of the year. That weighed on Freeport, which gets three-quarters of its sales from copper, dragging shares down 9.6% over the same period.

But things are starting to look up for Freeport.
The Phoenix-based company already has the strongest balance sheet of any copper miner, a strong management team, and the ability to return capital to shareholders.
And it will benefit from the
long-term adoption of electric vehicles
and other forms of alternative energy.
Now, copper prices are starting to tick higher amid signs of economic resilience, and if they continue to, so will Freeport stock.
“You could be in the early innings of a long-term copper cycle,” says Vertical Research Partners analyst Mike Dudas, who has a $57 price target on Freeport, up 42% from Wednesday’s $40.06 close. “In that environment, the stock should have some upside.”

Let’s get one thing straight: As copper goes, so goes Freeport stock.
The metal more than doubled from the $2.11-per-pound low in the early days of Covid-19 to its record high of $4.93, hit in March 2022, when sanctions imposed on Russia after its invasion of Ukraine restricted its supply.

Freeport’s stock rose more than 800% during the same period because miners have a lot of fixed costs that remain the same no matter how much copper is sold. Of course, the reverse is also true, so when copper prices fall, as they have since early last year, Freeport stock falls, too.

Copper, though, looks resilient.
That starts with China, the world’s largest copper consumer.
While the country’s reopening has been disappointing thus far—its real gross domestic product is expected to grow 5.6% this year from 3% last year—its policy makers are taking steps to boost demand, with the People’s Bank of China cutting its seven-day reverse repurchase rate, its equivalent of the federal-funds rate, to 1.9%, from 2%, this past Tuesday. If China’s economy responds, copper should get a boost.

There are also signs that U.S. demand could be on the verge of a recovery.
After peaking in March 2021 and declining for the better part of two years, the Institute for Supply Management’s manufacturing purchasing managers’ index is finally starting to improve, though it remains below 50, the level that indicates a contraction. Seaport Global Securities macro strategist Victor Cossel notes that the manufacturing PMI PM +0.17% ’s order-to-inventories ratio has started to improve, as well, a sign that the overall index should continue to rise. Historically, improvements in that metric coincide with a bottoming in copper prices.

Copper prices are behaving as if that is the case. They have found support near $3.60 a metric ton several times in the past year and have rallied to $3.83. That’s still 22% below their record high. If the U.S. and China economies continue to improve, copper should make a run at that level—and carry Freeport with it.

“We continue to expect cyclical copper demand recoveries aided by early [economic] cycle expansion,” writes Dudas.

There are long-term drivers for copper, as well.
Electric vehicles, for instance, require at least three times more copper than internal-combustion vehicles.
As consumers continue to adopt electric vehicles, that factor alone could help push global copper demand to just over 28 million metric tons by 2030, according to the International Energy Agency. Supply could have trouble catching up to that demand, with a potential shortfall of six million metric tons by that year, according to McKinsey.

If everything goes right, copper could hit $5 by next year, says Matthew Tuttle, chief investment officer at Tuttle Capital Management, which owns Freeport stock. If copper only gets back to its 2023 peak, shares would hit $47, Tuttle says.

Freeport’s profits would get a big boost if copper prices continue to rise.
Right now, analysts expect earnings per share to come in at about $1.92 in 2023, from $2.44 last year, even as sales rise to $23.5 billion from $22.8 billion last year.
Don’t expect earnings estimates to go much lower—the consensus has already dropped 39% from its peak in July 2022—but they could go higher. Copper at $5 would bring earnings before interest, tax, depreciation, and amortization, or Ebitda, to over $12 billion, the company said on its latest earnings call, more than 11% above analyst estimates for $10.8 billion in 2024.

“If copper is moving higher, generally that pushes estimates higher,” says RBC Capital Markets analyst Sam Crittenden, who has a $50 price target on the stock, reflecting a 25% upside.

Freeport also has the balance sheet to weather lower copper prices, if it comes to that.
It has $2.7 billion in net debt versus $9.6 billion in Ebitda this year, for a net-debt-to-Ebitda ratio of 0.28, better than rival
Southern Copper SCCO +0.38% ’s (SCCO) 0.78. It also has a variable dividend yield of 1.5%, with the payments rising or falling based on earnings, cash needs, and other factors.

“Investors continue to debate the near-term trajectory for copper prices, but those more positively inclined and looking for medium-/longer-term copper exposure continue to favor Freeport, given the balance sheet strength, consistent operational execution track record, and favorable capital returns policy,” writes Goldman Sachs analyst Emily Chieng.

Buy Freeport for higher copper prices today—and tomorrow.

Barron's : How a Trade Deal With Europe Could Help Save Brazil’s Amazon Rainfore

How a Trade Deal With Europe Could Help Save Brazil’s Amazon Rainforest

There’s one good reason the rest of the world should care about Brazil, aside from it being the giant of Latin America with 215 million citizens. That would be the Amazon rainforest, whose role as a carbon sink makes a critical check on global warming.

Brazilian President Luiz Inácio Lula da Silva cut Amazon deforestation by 80% during previous terms, 2004-12.
Jair Bolsonaro reversed this progress with a vengeance from 2018-22.
Four-fifths of the (mostly illegally) cleared land is used for cattle ranching, says Erika Berenguer, a Brazilian researcher at Oxford’s Ecosystems Lab.
The returning Lula, as the 77-year-old leader is known, lately unveiled a new plan for stopping Amazon deforestation by 2030. That could pay off by unsticking a stalled trade agreement between the European Union and Mercosur, a five-nation South American bloc dominated by Brazil. Resistance within Brazil looks much stronger than in the 2000s, though.

Environmentalists give high marks to Lula’s blueprint, which leans heavily on improved satellite monitoring and updated digital land registries. “The plan is very robust, with instruments that didn’t exist in 2004” says Carlos Rittl, former head of Brazil’s Climate Observatory.

Lula also faces opposition that did not exist then. The nine states of the Amazon region voted solidly for Bolsonaro, whom Lula beat by less than two percentage points last October. Their 28 million residents favor development and jobs over conservation, says Creomar de Souza, founder of Dharma Political Risk and Strategy in Brasília. “The right has successfully painted environmentalism as the enemy of the people,” he says.

A bigger threat may come from the national Congress, where Lula’s leftist PT party is heavily outnumbered. “This is the most conservative Congress we have ever had,” Berenguer says.

Deputies passed two laws on the eve of Lula’s Amazon announcement, removing the environment ministry’s oversight of land registration, and raising the bar for carving out protected indigenous territories.

Lula has weapons to fight back, aside from a formidable federal police force. The most potent is a rich subsidized credit stream flowing to farmers through state banks. His earlier administrations cut off this largess from areas with uncontrolled deforestation. This one could too. “The federal government has lots of instruments to convince states to be more positive on the Amazon package,” de Souza comments.

Lula could still use backup from abroad. European Commission President Ursula von der Leyen offered just that on a visit to Brazil this week. With Brasilia’s Amazon policy back on track, the EU-Mercosur deal could be wrapped up this year, she predicted.

That would boost Lula’s political capital, not least among the agricultural interests who oppose him in the Amazon but would benefit most from much lower EU tariffs.

Von der Leyen’s word is hardly law, however, for the 27 EU member states who have to ratify any trade pact. France and Austria are leading the foot-draggers on a Mercosur accord, ostensibly on environmental grounds. Their domestic beef industries may not be coincidental, says Eoin Drea, senior researcher at the Wilfried Martens Centre for European Studies. “There’s a lot of rhetoric on the Amazon, but also big doses of protectionism,” he says.

Lula flies to Paris on June 22, with a good shot at nudging French President Emmanuel Macron toward Yes on EU-Mercosur, Drea thinks. Politics on both sides of the Atlantic still leave the campaign to save the Amazon all too fragile, like the great forest itself.

Barron's : How the World’s Most Popular Shopping App Is Quietly Upending Retail

How the World’s Most Popular Shopping App Is Quietly Upending Retail
The controversial China-founded retailer is growing into a global titan. Analysts say that many Western competitors are ignoring the app—at their peril.

Lindsay Firko used to be a regular big-box customer, rarely making it out of her local Target TGT -2.92% without multiple shopping bags. But ever since the 28-year-old downloaded the app from online retailer Shein, her shopping sprees have changed.

Rather than strolling the aisles of her local Pittsburgh retailers, Firko now spends hours scrolling Shein. Every few months, she piles her virtual cart with a bounty of items at spit-take prices: trendy pants, skirts, and tops at $3 or $6 apiece, household and beauty items like a $2 bath mat or a $5 soap dispenser, and the occasional just-couldn’t-pass-it up treat like a curly wig for her Jack Russell mix, Bailey. With more than a million products to choose from, she says her virtual cart often tops $250, even with the single-digit price tags.

“Walmart, Target, stores like that—I barely go into them now,” says Firko.

That’s the kind of sentiment that should send shivers down the spines of U.S. retailers. Shein, pronounced “shee-in,” may be the most ambitious company you’ve never heard of.
Shein, which was founded in China and later moved its headquarters to Singapore, was the most downloaded shopping app in the world last year (it was No. 2 in the U.S. after Amazon.com AMZN -1.27%‘s [ticker: AMZN] app, according to Apptopia).
The retailer took off during the pandemic-era e-commerce boom, rising to global prominence on the back of Gen Z’s taste for the $4 shirts and $6 dresses, which it’s able to churn out with its norm-breaking supply-chain model. Along the way, it picked up backing from some of the biggest names in venture capital, including Tiger Global and Sequoia Capital China, and a valuation of roughly $66 billion, dwarfing fast-fashion and affordable-apparel companies such as H&M (HNNMY; $24 billion market cap) and Gap (GPS; $3.4 billion).

But that appears to have been only Phase 1. There have been repeated reports of plans for a U.S. initial public offering, on which Shein declined to comment, and the company is putting down roots in the States, hiring U.S.-based employees and investing in distribution facilities. At the same time, it’s taking its supply chain global, announcing plans to partner with hundreds of factories in Brazil, India, and Turkey. And Shein is growing its offerings, expanding beyond the cheap apparel that made its name into categories like home goods and beauty, and opening its platform to third-party sellers à la Amazon with its “Shein Marketplace.”

“Customers are loyal to us because we give them the products they want and the price they love,” says Donald Tang, Shein’s executive vice chairman, in an interview with Barron’s. “The first group of customers were Gen Z girls. Now we’re in men’s products, pet products, shoes, bags, accessories, and beauty products. Customers get married, have pets, they buy houses—we now have home goods, as well.”

Despite that world-eating vision, few retailers are paying attention, experts say. Certainly, U.S. companies object to being grouped together with a start-up that has been the subject of allegations of everything from labor abuses and damaging environmental practices to mishandling customer data and copyright violations. And given the trade war brewing between the U.S. and China, some may be gambling that Shein’s aspirations for the U.S. market will be quashed.

Ignoring the company could be a costly mistake. Just ask the fast-fashion retailers: According to Bloomberg Second Measure, Shein accounted for roughly half of U.S. fast-fashion sales as of November 2022. Now, its expansion plans put it on a collision course with industry giants like Target (TGT), Amazon, and Walmart (WMT). Perhaps most threateningly, Shein’s business model opens the door for more disruption from other entrants with ties to China that are attempting to emulate Shein’s success, including Temu, an online marketplace that launched last September and has since racked up more than 50 million downloads on the Apple AAPL -0.59% and Android app stores.

Make no mistake, says TD Cowen analyst John Kernan of Shein. “This is a formidable competitor, and a very different model than what U.S. traditional retailers are used to.”

For a first-time shopper scrolling Shein, the initial shock is the prices: a pair of kiwi- and lemon-bedecked swim trunks for $6, a glittery one-shouldered women’s jumpsuit for $10, a three-pack of children’s shorts for $6.56. Then there’s the sheer volume. Unlike other retailers, Shein breaks its “new arrivals” section into individual days. On June 2, for instance, the retailer added 2,257 new women’s styles—a tally that doesn’t include whatever men’s, children’s, and home items hit the site that day. Some estimates have put the influx of new designs at about 6,000 to 8,000 a day.

The company attributes its low prices and vast selection to what it refers to as its “on demand” business model. While traditional apparel retailers forecast trends and order items based on what they hope will sell, fast-fashion companies look at what designers and retailers are offering and try to jump on whichever trends are taking off. Shein follows the second model, but with a significant twist. The company says it relies on user activity on its app to determine in real time which products are attracting the most interest and uses that information to quickly iterate on and make more of the most popular designs.

“This is kind of the product of the digital age,” says Sheng Lu, associate professor of fashion and retail studies at the University of Delaware. “It’s a study on how to leverage digital tools and data science to…create new products based on the market trends observed from interacting with consumers.”

To produce a new design, most retailers need to place bulk orders in the tens of thousands per item to meet manufacturers’ minimum requirements. That means, at best, the need to store and distribute that inventory, and, at worst, thousands of unsold pieces that eventually need to be marked down, eating into profits.

The Shein model miniaturizes that approach. The company partners with tens of thousands of small Chinese manufacturers, which allows it to produce thousands of styles in batches of just 100 to 200 items. If a design is popular, Shein can crank up production quickly, often in less than a week. If it bombs, the company is left with just a handful of stinkers. As a result, the company says it maintains low-single-digit inventory levels, well below the industry average.

“We are profitable,” Tang says. “That’s the power of the on-demand model. We have redesigned our supply chain to anchor our on-demand approach and eliminate overproduction. We are asset-light—we have very little unsold inventory, and we lease warehouses.”

This approach keeps overhead low, he notes. “We do not own supply-chain factories. We do not own delivery vehicles or planes…we do not own marketing platforms. We do not own anything at the last mile,” says Tang. The company retails exclusively online and mails goods directly from its warehouses and partner factories in China to consumers in the U.S. and elsewhere. (It doesn’t sell in China itself.) Shein links all of the pieces of its supply chain—from designers to manufacturers to raw material suppliers—with its operational software.

Replicating this type of infrastructure isn’t easy, says Derek Yan, senior investment strategist at KraneShares, a China-focused investment manager. “That speed and flexibility in the production is really phenomenal,” he says. “That’s the core advantage compared to Zara, H&M, and Forever 21.”

Last year, Shein had global revenue of about $23 billion, with earnings of $800 million and just shy of 30% of its business coming from the U.S., according to people familiar with the company.
Its revenue was up about 50% year over year, estimates Coresight Research. That outpaced the sales of the larger fast-fashion pack: Zara parent Inditex saw year-over-year growth of 17.5% in 2022; H&M and ASOS (ASOMY) were up 12.4% and 0.7%, respectively. Boohoo Group (BHOOY) saw a decline of 10.8%.

But the potential impact of Shein’s rise could be much broader. The company’s appeal among middle-class teenagers and young adults threatens to pit it against midtier legacy apparel retailers, or what Neil Saunders, managing director and retail analyst at GlobalData, calls the “murky middle”—the Kohl’s KSS -2.74% (KSS), Gaps, and Macy’s (M) of the world. Shein held about 0.1% of the U.S. apparel market in 2017, according to GlobalData. By 2022, it was 1.6%. A small sliver, but “exceptional growth,” says Saunders.

Still, few in the industry seem to have registered Shein as a threat. “When I ask, ‘Are you worried about competition from Shein?’ almost none of them are,” says Lu, the University of Delaware professor. “They see themselves as very different from Shein.”

Barron’s reached out to 11 brands identified by analysts as potential competitors to Shein. Three declined to comment, and six didn’t respond. One retailer, which agreed to comment if we didn’t use its name, said its business model was different from fast-fashion brands like Shein, from its bricks-and-mortar strategy to its price points, quality, and sustainability initiatives.

Different or not, consumer spending is finite, and every dollar spent at Shein is one less going to legacy retailers, says Brian Ehrig, a partner and retail analyst at Kearney. That’s often overlooked, he says, because many competitors underestimate the purchasing power of Shein shoppers. The average Shein order value in the U.S. was about $70 this April, compared with $93 for Zara, $52 for Walmart, and $46 for Amazon, according to data aggregator Measurable.ai.

Another common misconception is that Shein caters solely to low-income consumers, Ehrig says. To place an order from Shein, you need a debit or credit card, something that less-affluent shoppers have historically struggled to access.

“If you were to walk into any deep-discount store, you’re gonna see a lot of people paying cash,” Ehrig says. “Shein is actually serving a little bit more—I’m not going to say affluent, but a customer who has access to credit, which is not the bottom 20% of the economy.”

As Shein expands into home and beauty, it threatens to creep into territory claimed by big-box retailers such as Target and Walmart, as well as e-commerce companies such as Amazon. An Amazon spokesperson says that it considers Shein a partner, noting that the company sells some products on Amazon’s marketplace. The spokesperson adds that Amazon’s marketplace model sets the company apart from others.

But that particular moat may not last. In April, Shein launched a third-party marketplace in Brazil, which it plans to roll out in the U.S. and other countries. The marketplace will allow Shein to add local sellers, reducing shipping times and letting it sell bulkier items.

For the past three years, there have been periodic reports that Shein is planning to go public in the U.S.; the latest was that the company is now raising funds for a U.S. listing in the second half of 2023. The capital injection of an IPO would help Shein continue to evolve its business and make it an even more formidable competitor to U.S. retailers, says Brendan Ahern, chief investment officer at KraneShares.

Shein declined to comment on any IPO plans, but it’s clear that it’s moving to increase its U.S. presence.
The company opened its first U.S. distribution center last year and plans to open two more by 2025 to speed up its shipping times, which can be as long as two weeks for standard shipping from China. The company is engaging with the American press in a way that it shied away from in previous years, and has ramped up its hiring in the U.S., including bringing Tang on in 2022. Before joining Shein, Tang helmed a media conglomerate and helped broker a series of high-profile deals, including Dalian Wanda’s takeover of AMC Entertainment in 2012 and Bear Stearns’ foray into the Chinese market back in the early 2000s.

“The U.S. is one of the most important markets and one of the biggest markets that we have, so we pay an extraordinary amount of attention to it,” Tang says.

Despite those efforts, the path to becoming part of the U.S. retail fabric is far from clear. A drumbeat of investigations into the company’s carbon footprint, alleged mistreatment of workers, and accusations of stealing others’ designs have turned off some shoppers.

“If Shein doesn’t reconcile these problems, I’ll probably end up shopping more on Amazon and doing more discount hunting,” says Brejaé Chamberlain, a 21-year-old hairstylist from Chicago.

Chamberlain used to place a Shein order at least once a month and was often paid by the company to review products on her TikTok account, but says she’s now rethinking the partnership. Three other Shein shoppers who spoke with Barron’s say they were also considering buying less from the company—though none have yet done so.

But the bigger threat for Shein may be brewing in Washington. As TikTok has illustrated, companies with Chinese ties—especially those capable of gathering significant data about their users—are in the middle of the growing tension between the U.S. and China. Shein is already drawing congressional ire: After an April hearing in which experts testified that some Shein garments contained cotton from China’s Xinjiang Uyghur Autonomous Region, a group of legislators sent a letter to the Securities and Exchange Commission asking that any IPO be put on hold until it can be verified that the retailer isn’t using forced labor by China’s minority Uyghur population. And just this week, a bipartisan group of lawmakers introduced two bills that would change the rule that allows companies like Shein to avoid paying duties when shipping packages valued at less than $800 dollars from China to the U.S

Also driving the backlash against the company is Shut Down Shein, a lobbying group that says Shein is able to sell products at such a low cost only because it is employing unfair labor practices and skirting billions in dollars in tariffs.

“Their business model is anti-competitive.… Other international companies that want to do business with America are not doing those things, and they are following the law, so we are fighting for a level playing field,” says Chapin Fay, executive director of the group. Shut Down Shein itself may be evidence that, behind the scenes, U.S. retailers are indeed concerned. Fay declined to disclose which organizations are funding the group, saying only that it’s a coalition of American brands and human-rights organizations.

Shein disputes the allegations and says that its low prices are a result of its streamlined inventory and supply-chain management. Tang says the company makes its manufacturers sign a code of conduct, implements yearly internal audits, and uses proprietary technology to trace the origin of the products’ materials.

No matter how the battles in Washington play out, Shein has opened the door for disruptive international retailers to hurl themselves into the U.S. market.
Take Temu, an online marketplace launched by PDD Holdings in September.
Like Shein, Temu sells a mind-boggling array of cheap products that are shipped directly from Chinese manufacturers.
Temu has been the most downloaded app on Apple’s app store for much of 2023—and in May, it surpassed Shein in U.S. consumer spending, according to Bloomberg Second Measure.

In a brief for the April congressional hearing, U.S.-China Economic and Security Review Commission policy analyst Nicholas Kaufman reported that, since 2019, more than 10 Chinese retail start-ups have copied the Shein model, all with the intention of selling to Western markets. “Their rapid proliferation raises concerns that they will rely on controversial practices similar to those of Shein and Temu to undercut competitors and gain a foothold in the U.S.,” he wrote.

“China is very Darwinistic—only the strong survive,” says Ahern, the KraneShares CIO. “If you’ve survived it, you can survive a lot. You’re at the top of the heap.”

Shein has emerged as the first Chinese-born retailer to break big globally, but whether it can reach “top of the heap” status on the world stage is still uncertain. What is clear though, is that the company has the potential to become an apex predator, and it’s time for competitors to start watching their backs.