Tag Archives: Production facilities

Economic impact of virus widens as Ericsson exits trade show

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More than a month after the outbreak of China’s deadly virus, the economic damage is being felt by more businesses and is threatening the outlook for the global economy

BEIJING —
More than a month after the outbreak of China’s deadly virus, the economic damage is being felt by more businesses and is threatening the outlook for the global economy.

In a report Friday, the Federal Reserve warned that the virus represents an international risk.

“The recent emergence of the coronavirus,” the Fed said in a semiannual report on monetary policy, “could lead to disruptions in China that spill over to the rest of the global economy.”

Economists note that the longer the outbreak and the lockdown of Wuhan and other Chinese cities last, the worse the damage will likely be for a global economy that depends on supply chains that link China with trading partners around the world. The viral outbreak has thrown the travel industry into chaos, threatening billions in losses and keeping millions of would-be travelers at home.

The Trump administration acknowledged Friday that the virus may delay some of the purchases of U.S. goods China is supposed to make under an interim trade deal with the United States. But Larry Kudlow, President Donald Trump’s top economic adviser, said that President Xi Jinping had assured Trump that China would meet the purchase target.

“Because of their conditions, there may be some delays,” Kudlow told reporters.

Here is a look at some major developments with the virus causing disruptions across global businesses:

TECH: Ericsson, one of the main suppliers of wireless networks and a rival to China’s Huawei, is pulling out of the Mobile World Congress in Barcelona, Spain, this month. The Swedish company said that because the show draws thousands of visitors, “even if the risk is low, the company cannot guarantee the health and safety of its employees and visitors.” The organizers said Ericsson’s decision will hurt the event but they do not plan to cancel it. Huawei recently said this week it would still attend.

AUTOMAKERS: Japanese automaker Nissan Motor Co. said Friday that sales in China in January by the company and its local partners fell 11.8% from a year earlier to 118,143 vehicles due to the virus outbreak and the extension of the Lunar New Year holiday. Nissan said earlier it was considering reopening most of its factories in China on Monday but would wait until at least Feb. 14 for facilities in and around Wuhan, the city at the center of the outbreak. Toyota said it was keeping its factories in China closed for an extra week, through Feb. 16, and will decided then whether to resume production. Toyota Motor Corp. has 12 plants in China, including four vehicle assembly plants. Honda Motor Co. said its three auto-assembly plants in Wuhan would stay closed through Feb. 13.

RETAILING: Japanese clothing retailer Uniqlo Co. said it has closed 350 stores, or about half, of its 750 stores in China, to comply with shutdowns of public transportation and closures of malls. Parent company Fast Retailing says about 20% of its sales come from China. British firm Burberry, which gets about 40% of its revenue from China, says the impact has been significant. It shut 24 of 64 stores in China, and told the FT footfall had dropped as much as 80%. The impact in Hong Kong is bigger than from the protests, which had halved sales there in the last quarter.

COSMETICS: L’Oreal joined the growing list of beauty product brands expressing concern over the potential blow to sales due to travel restrictions that are vastly reducing demand from travels shopping at duty free shops. The company said it expected a “temporary impact” on Asia’s beauty market, but that past experience suggests that “after a period of disturbance, consumption resumes stronger than before.”

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AP Writer Kevin Freking contributed to this report.

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Hyundai halts Korea output as China outbreak fallout spreads

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WASHINGTON —
Hyundai Motors is suspending production in South Korea, a sign that the economic fallout from China’s viral outbreak is spreading.

For other companies bracing for losses from coronavirus, the damage has so far been delayed, thanks to a stroke of timing: The outbreak hit just when Chinese factories and many businesses were closed anyway to let workers travel home for the week-long Lunar New Year holiday .

But the respite won’t last.

If much of industrial China remains on lockdown for the next few weeks, a very real possibility, Western retailers, auto companies and manufacturers that depend on Chinese imports will start to run out of the goods they depend on.

In order to meet deadlines for summer goods, retail experts say that Chinese factories would need to start ramping up production by March 15. If Chinese factories were instead to remain idle through May 1, it would likely cripple retailers’ crucial back-to-school and fall seasons.

“There’s complete uncertainty,’’ said Steve Pasierb, CEO of the Toy Industry Association. “This could be huge if it goes on for months.’’

Wuhan, the Chinese city where the outbreak hit hardest, is a center of automotive production. It’s been closed off, along with neighboring cities, isolating more than 50 million people and bringing factories to a standstill.

So far, U.S. automakers haven’t had to curb production for want of Chinese parts. But David Closs, professor emeritus at Michigan State University’s Department of Supply Chain Management, said the clock is ticking.

“I would say it’s weeks at the most,’’ Closs said. “One to two to three weeks.’’

Hyundai said Tuesday that it was suspending production in South Korea “due to disruptions in the supply of parts resulting from the coronavirus outbreak in China” and that it “was seeking alternative suppliers in other regions.”

The partial shutdown of Wuhan has already harmed the production of TV display panels and raised prices, according to a report by research group IHS Markit. The city has five factories making liquid crystal displays, known as LCDs, and organic light-emitting diodes, known as OLEDs, both of which are used for television and laptop monitors. China accounts for more than half of the global production capacity for making these display panels.

David Hsieh, an analyst at IHS Markit, said in a report that “these factories are facing shortages of both labor and key components as a result of mandates designed to limit the contagion’s spread,” leading suppliers to raise panel prices more aggressively.

Phone-maker Motorola, which has a facility in Wuhan, said that so far, it expects little impact because it has a flexible global supply chain and multiple factories around the world. Its priority has been the welfare of local employees, Motorola, which is owned by the Chinese electronics giant Lenovo, said in a statement.

Apple CEO Tim Cook told analysts last week that the company’s contractors in China had been forced to delay reopening factories that closed for the Lunar New Year holiday. Cook said the company is seeking ways to minimize supply disruptions. Some of its suppliers are in Hubei, the Chinese province at the center of the outbreak. Most of Apple’s iPhones and other devices are made in China.

In the meantime, economists are sharply downgrading the outlook for China’s economy, the world’s second-biggest. Tommy Wu and Louis Kuijs of Oxford Economics have slashed their forecast for Chinese economic growth this year from 6% to 5.4%. They expect most of the damage to be inflicted in the first three months of 2020.

“But a more serious and long-lasting impact cannot be ruled out,’’ they wrote Monday.

Forecasters are contending with unknowns. No one knows how long the outbreak will last, how much damage it will cause or how policymakers will respond to the threat.

“We’re grasping for precedents,’’ said Phil Levy, chief economist at the freight company Flexport who was an economic adviser in the administration of President George W. Bush.

Some look back to the SARS outbreak, which paralyzed the Chinese economy for the first few months of 2003. But the damage from SARS faded quickly: China was booming again by year’s end. And the world economy emerged mostly unscathed.

But times have changed in ways that are not favorable to containing the economic damage. Back then, China was the world’s workshop for cheap goods — toys and sneakers, for instance. Now, China has moved up to sophisticated machine parts and electronics like LCDs. And it accounts for about 16% of global economic output, up significantly from just 4% in 2003.

Levy said he was struck by how U.S. airlines reacted to the coronavirus: They suspended flights between the United States and mainland China for weeks — American airlines through March 27, United through March 28 and Delta until April 30.

The move doesn’t just affect tourists, students and business travelers. Caryn Livingston, editor of Air Cargo World, noted that about half of air cargo has historically been transported in the bellies of passenger aircraft.

“When you see them loading those big 747s, that’s not just your luggage,’’ Levy said. “That can be pallets full of electronics and other things.’’

The health crisis coincides with an especially difficult time for China’s factories. A 19-month trade war with the United States — in which the Trump administration imposed tariffs on $360 billion of Chinese imports — has already led U.S.-based multinational corporations to look for alternatives to Chinese suppliers. Many are moving to Vietnam or other low-wage countries to dodge President Donald Trump’s taxes on Chinese-made goods.

The Trump administration and Beijing last month reached an interim trade deal. China agreed to step up purchases of U.S. imports by $200 billion this year and next. But Trump’s top economic adviser, Larry Kudlow, told Fox Business Network on Tuesday that the viral outbreak means that the expected “export boom from that trade deal will take longer.”

The coronavirus, along with fears that U.S.-China tensions over trade and geopolitics will persist, gives them one more reason to reduce their reliance on China. Among multinational firms, there is “increasing unease that China is starting to become quite risky,’’ said Johan Gott, an independent consultant who specializes in political risks for businesses.

But it isn’t easy to completely abandon China, where specialized suppliers cluster in manufacturing centers and make it convenient for factories to obtain parts when they need them.

Basic Fun, a toy company based in Boca Raton, Florida, has sought suppliers in Vietnam and India with no luck yet. Its CEO, Jay Foreman, said he is hoping that the factories in China will resume production by early April, which he considers the best-case scenario. But he fears that any more delays could mean that the factories don’t start to ramp up production until after May 1.

The stakes are high. Basic Fun gets about 90% of its toys from China. And Foreman has been contending with the trade war and disruptive protests in Hong Kong.

The coronavirus, he said, is “just a continuation of sitting on the knife’s edge … sleeping on the bed of nails from tariffs to the riots in Hong Kong and the virus. We just can’t get a break.”

——

D’Innocenzio reported from New York. AP Business Writers Tom Krisher in Detroit, David Koenig in Dallas and Matt O’Brien in Providence, Rhode Island, contributed to this report.

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Talks set to hold on however no deal but in UAW strike vs GM

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Talks are set to renew Tuesday after a pause in a single day, however there was no finish to the strike in opposition to Normal Motors.

Brian Rothenberg, spokesman for the UAW, mentioned Tuesday “They’re speaking, they’ve made progress, we’ll see how lengthy it takes.”

The walkout by upward of 49,000 United Auto Staff members has dropped at a standstill greater than 50 factories and elements warehouses within the union’s first strike in opposition to the No. 1 U.S. automaker in over a decade.

Staff left factories and shaped picket strains shortly after midnight Monday within the dispute over a brand new four-year contract. The union’s high negotiator mentioned in a letter to the corporate that the strike might have been averted had the corporate made its newest supply sooner.

The letter dated Sunday means that the corporate and union are usually not as far aside because the rhetoric main as much as the strike had indicated. Negotiations continued Monday in Detroit after breaking off through the weekend.

However Rothenberg mentioned the 2 sides have come to phrases on solely 2% of the contract.

“We have 98% to go,” he mentioned Monday.

GM on Monday cancelled the employees’ company-sponsored medical insurance, Rothenberg mentioned, however the UAW had insurance policies in place and is protecting putting employees.

GM mentioned that beneath the UAW contract, duty for medical insurance shifts from the corporate to the union if there’s a strike.

“We perceive strikes are tough and disruptive to households,” mentioned Daniel Flores, GM spokesman. “Whereas on strike, some advantages shift to being funded by the union’s strike fund, and on this case hourly workers are eligible for union-paid COBRA so their well being care advantages can proceed.”

Requested about the potential of federal mediation, President Donald Trump, mentioned it is doable if the corporate and union need it.

“Hopefully they will be capable of work out the GM strike rapidly,” Trump mentioned Monday earlier than leaving the White Home for New Mexico. “Hopefully, they will work it out rapidly and solidly.”

Wall Avenue didn’t like seeing the union picketers. GM shares closed Monday down greater than 4% to $37.21. In premarket buying and selling Tuesday, shares added 11 cents.

On the picket line Monday at GM’s transmission plant in Toledo, Ohio, employees who mentioned they’ve been with the corporate for greater than 30 years had been involved for youthful colleagues who’re making much less cash beneath GM’s two-tier wage scale and have fewer advantages.

Paul Kane, from South Lyon, Michigan, a 42-year GM worker, mentioned a lot of what the union is combating for is not going to have an effect on him.

“It is not proper whenever you’re working subsequent to somebody, doing the identical job and so they’re making much more cash,” he mentioned. “They need to be the making the identical as me. They have households to assist.”

Kane mentioned GM employees gave up pay raises and made different concessions to maintain GM afloat throughout its 2009 journey via chapter safety.

“Now it is their flip to pay us again,” he mentioned. “That was the promise they gave.”

UAW Vice President Terry Dittes instructed GM that the corporate’s newest supply may need made it doable to succeed in an settlement if it had come earlier.

“We’re dissatisfied that the corporate waited till simply two hours earlier than the contract expired to make what we regard as its first critical supply,” Dittes wrote within the letter to Scott Sandefur, GM’s vice chairman of labor relations.

There are various necessary objects left within the talks, together with wage will increase, pay for brand spanking new hires, job safety, revenue sharing and therapy of non permanent employees, Dittes wrote.

“We’re prepared to satisfy as regularly, and for so long as it takes, to succeed in an settlement that treats our members pretty,” the letter mentioned.

GM issued an announcement saying it desires to succeed in a deal that builds a powerful future for employees and the enterprise.

The automaker mentioned Sunday that it provided pay raises and $7 billion value of U.S. manufacturing facility investments leading to 5,400 new positions, a minority of which might be stuffed by present workers. GM wouldn’t give a exact quantity. The corporate additionally mentioned it provided increased revenue sharing, “nationally main” well being advantages and an $8,000 cost to every employee upon ratification.

Earlier than the talks broke off, GM provided new merchandise to exchange work at two of 4 U.S. factories that it intends to shut.

The corporate pledged to construct a brand new all-electric pickup truck at a manufacturing facility in Detroit, in accordance with an individual who spoke to The Related Press on situation of anonymity. The individual was not approved to reveal particulars of the negotiations.

The automaker additionally provided to open an electrical automobile battery plant in Lordstown, Ohio, the place it has an enormous manufacturing facility that has already stopped making vehicles and will likely be closed. The brand new manufacturing facility could be along with a proposal to make electrical autos for a corporation known as Workhorse, the individual mentioned.

It is unclear what number of employees the 2 vegetation would make use of. The closures, particularly of the Ohio plant, have turn into points within the 2020 presidential marketing campaign. President Donald Trump has persistently criticized the corporate and demanded that Lordstown be reopened.

Kristin Dziczek, vice chairman of labor and business for the Heart for Automotive Analysis, an business assume tank, mentioned the letter and resumption of contract talks are encouraging indicators. “It makes me assume that each side are in all probability nearer than it may need appeared earlier than,” she mentioned.

However each Dziczek and Artwork Wheaton, an auto business professional on the Employee Institute at Cornell College, say GM overlooked key particulars when it made a part of its supply public, and understanding these particulars might make the strike last more.

“I feel GM type of sabotaged a number of the negotiations by going instantly to the general public,” Wheaton mentioned. “It actually distorts the supply.”

The strike shut down 33 manufacturing vegetation in 9 states throughout the U.S., in addition to 22 parts-distribution warehouses. It is the primary nationwide strike by the union since a two-day walkout in 2007 that had little impression on the corporate.

Staff at Fiat Chrysler and Ford continued working beneath contract extensions. Any settlement reached with GM will function a template for talks with the opposite two corporations.

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Related Press Author John Seewer in Toledo, Ohio, contributed to this report.

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Oil costs bounce as assault on Saudi plant threatens provide

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The lack of 5% of world crude oil output from an assault on Saudi Arabia’s largest oil processing plant pushed crude costs sharply increased on Monday.

U.S. crude oil was buying and selling 9% increased whereas Brent crude added greater than 10%. The assault on the Saudi Aramco facility halted output of greater than half of Saudi Arabia’s each day exports.

That is particularly worrying for oil thirsty Asia: China, Japan, South Korea and India are main prospects for Saudi oil.

“The assaults this time posed a severe risk to key worldwide vitality infrastructure, and we specific concern that they undermine the vitality safety of the whole world and stability within the area,” South Korea’s Overseas Ministry stated in a press release.

“We condemn any comparable acts,” it stated.

Oil costs spiked shortly after buying and selling started Monday, with U.S. crude leaping greater than 15% and Brent leaping almost 20%. However the preliminary surge moderated on speak of tapping strategic reserves to climate any shortfalls from the lack of 5.7 million barrels of crude processing capability a day.

U.S. crude had added $4.84 per barrel, or 8.8%, to $59.70 per barrel by mid-afternoon in digital buying and selling on the New York Mercantile Change. Brent picked up $6.02 per barrel, or 10%, to $66.24 per barrel.

Yemen’s Iran-backed Houthi rebels claimed duty for the assault on the Saudi Aramco plant that paralyzed manufacturing of greater than half of Saudi Arabia’s world each day exports and greater than 5% of the world’s each day crude oil manufacturing.

“To take Saudi oil manufacturing down 50%, that is surprising,” stated Jonathan Aronson, a analysis analyst at Cornerstone Macro.

The assault could add to nervousness in regards to the stability of the world’s oil reserves. “Saudi Arabia has been a really dependable provider of oil on this planet,” stated Jim Burkhard, who heads crude oil analysis for IHS Markit. This assault is “including a geopolitical premium again into the value of oil.” Which means oil costs would rise due to worries about extra unrest hurting provide. Greater oil costs have a tendency to harm the financial system as client prices rise.

Asia is the area most weak to massive provide disruptions.

Saudi Arabia gives a few fifth of China’s crude imports, greater than 37% of Japan’s and nearly a 3rd of South Korea’s. Japan is sort of 100% depending on imports for its oil.

The world’s richest international locations have oil reserves of greater than 2 billion barrels, however releasing these to alleviate provide issues may doubtlessly backfire and lead to increased costs available on the market as merchants fear that there’s a downside with tight provide, stated Burkhard.

In keeping with the Joint Group Knowledge Initiative, Saudi Arabia has almost 27 days price of reserves. It holds reserves at residence and in Egypt, Japan and the Netherlands. That may alleviate some issues.

In the meantime work was underneath method to restore manufacturing on the Abquaiq plant. The Wall Avenue Journal reported Sunday that Saudi officers stated a 3rd of crude output can be restored by Monday. Bringing the whole plant again on-line could take weeks. Officers stated they might use different services and current shares to supplant the plant’s manufacturing.

Chris Midgley, world head of analytics for S&P World Platts, estimates costs may surge into the “excessive $70” per barrel vary. It may go even increased if disruptions are extended, however that’s not anticipated, he stated in a analysis word.

The state of affairs is healthier right this moment than it could have been a decade in the past, due to the U.S. vitality growth.

The U.S. has a cushion as a result of it and Canada each produce loads of oil, leaving the U.S. much less reliant on the Center East. However it’s nonetheless a worldwide market. “For those who take oil wherever out of system it impacts everyone,” stated Burkhard.

Nonetheless, even when the plant goes again on-line and there’s no basic change to the world’s provide of oil, costs could transfer increased and keep increased as a result of merchants would construct in a “safety premium,” stated Michael Lynch, president of Strategic Power & Financial Analysis.

It will mirror worries that future assaults may jeopardize world oil provides. And in a world already involved about provide, the influence of one other assault may imply a pointy impact on costs, stated Kevin Ebook, managing director of Clearview Power Companions. “It is nearly like an open season for a giant assault.”

It is that component of uncertainty that may roil markets.

The assault on its oil infrastructure could lead on Saudi Arabia to launch a army strike on Iran in retaliation, Ebook stated. Nations attacking one another’s oil services and fields is a “prescription for a excessive oil value,” he stated.

Ebook argues the assault on Saudi Arabia is driving residence the repercussions of the unraveling of the Iran nuclear deal after President Donald Trump pulled the U.S. out in 2018, imposing harsh sanctions on Iran, together with its oil business.

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Enterprise Author Elaine Kurtenbach in Bangkok contributed.

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Oil costs surge as assault on Saudi facility disrupts output

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An assault on a vital Saudi Arabia oil plant pushed crude costs sharply larger Monday, although its longer-term influence is determined by how lengthy manufacturing is disrupted and what this weekend’s assault presages for the long run.

U.S. crude oil jumped $5.61 per barrel, or 10.2%, to $60.46 per barrel in digital buying and selling on the New York Mercantile Alternate. Brent crude, the worldwide commonplace, surged $7.84 per barrel, or 13%, to $68.06 per barrel.

Yemen’s Iran-backed Houthi rebels claimed accountability for the assault on the Saudi Aramco facility, Saudi Arabia’s largest oil processing plant. It halted manufacturing of 5.7 million barrels of crude a day, greater than half of Saudi Arabia’s world every day exports and greater than 5% of the world’s every day crude oil manufacturing. Most output goes to Asia.

“To take Saudi oil manufacturing down 50%, that is surprising,” mentioned Jonathan Aronson, a analysis analyst at Cornerstone Macro.

The assault could add to anxiousness concerning the stability of the world’s oil reserves. “Saudi Arabia has been a really dependable provider of oil on the planet,” mentioned Jim Burkhard, who heads crude oil analysis for IHS Markit. This assault is “including a geopolitical premium again into the worth of oil.” Which means oil costs would rise due to worries about extra unrest hurting provide. Increased oil costs have a tendency to harm the financial system as shopper prices rise.

Work is below technique to restore manufacturing on the Abquaiq plant. The Wall Avenue Journal reported Sunday that Saudi officers mentioned a 3rd of crude output will likely be restored Monday, however bringing the whole plant again on-line could take weeks. Officers mentioned they’d use different amenities and present shares to supplant the plant’s manufacturing.

The world’s richest international locations have oil reserves of greater than 2 billion barrels, however releasing these to alleviate provide considerations might probably backfire and end in larger costs available on the market as merchants fear that there’s a drawback with tight provide, he mentioned.

Whereas the U.S. has a cushion as a result of it and Canada each produce loads, leaving the U.S. much less reliant on oil from the Center East, it is nonetheless a world market. “In case you take oil anyplace out of system it impacts everyone,” mentioned Burkhard.

Nonetheless, the state of affairs is healthier at this time than it will have been a decade in the past, previous to the U.S. vitality growth.

If the plant goes again on-line and there’s no elementary change to the world’s provide of oil, costs could transfer larger and keep larger as a result of merchants would construct in a “safety premium,” mentioned Michael Lynch, president of Strategic Vitality & Financial Analysis.

There could be worries that the worldwide oil provide is extra insecure and that extra assaults could also be coming. And in a world already involved about provide, the influence of one other assault might imply a pointy impact on costs, mentioned Kevin Ebook, managing director of Clearview Vitality Companions. “It is virtually like an open season for an enormous assault.”

There may be additionally potential for the assault on Saudi Arabia’s oil infrastructure to result in a army strike on Iran in retaliation, Ebook mentioned. International locations attacking one another’s oil amenities and fields is a “prescription for a excessive oil value.” He argues that the assault on Saudi Arabia will assist world markets lastly acknowledge the repercussions of the unraveling of the Iran nuclear deal, from which President Donald Trump withdrew the U.S. in 2018, imposeing harsh sanctions on Iran, together with its oil trade.

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