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Few materials matter quite as much as steel and aluminium.

Steel, an alloy of iron and carbon, is the main metallic ingredient in the structures we live in and the bridges we build. If it’s not made of steel it’s made with steel.

Aluminium, on the other hand, is a wonder material we use with wild abandon these days. A light metal we use in planes and trains, in the bodies of electric vehicles and in those high voltage power lines we’ll need so many of to provide electricity in the coming years.

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Prices to rise for planes, trains and automobiles

All of which is to say these metals are the bedrock for much of the world around us. And like most developed economies, the US is far from independent when it comes to these materials. The degree of dependence on other countries varies between them.

According to the US Geological Survey, America’s “net import reliance ratio” for aluminium is close to 50%, implying it is deeply dependent on imports to satisfy demand among its companies. The degree of dependence is considerably lower for steel – only a little over 10%.

At least part of the idea behind tariffs is to bring some production back to the US, but imposing them will have consequences.

Molten aluminium is poured on the day of the completion of a 330 million pound deal to buy Britain's last remaining Aluminium smelter in Fort William Lochaber Scotland, Britain December 19, 2016.
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Molten aluminium. Pic: Reuters

What kinds of consequences? Well, at its simplest, tariffs push up prices. This is, when you think about it, blindingly obvious. A tariff is a tax on a good entering the country. So if aluminium and steel are going up in price then that means, all else equal, that the cost of making everything from aircraft wings to steel rivets also goes up. That in turn means consumers end up paying the price – and if a company can’t make ends meet in the face of these tariffs, it means job losses – possibly within the very industrial sectors the president wants to protect.

Donald Trump stands on stage with steelworkers as he speaks at a campaign rally in Pennsylvania. Pic: AP
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Donald Trump stands on stage with steelworkers as he speaks at a campaign rally in Pennsylvania during the US election. Pic: AP

So says the economic theory. But in practice, economics isn’t everything. There are countless examples throughout history of countries defying economic logic in search of other goals. Perhaps they want to improve their national self-reliance in a given product; perhaps they want to ensure certain jobs in cherished areas or industries are protected. But nothing comes for free, and even if Donald Trump‘s tariffs succeed in persuading domestic producers to smelt more aluminium or steel, such things don’t happen overnight. In the short run, it’s hard to see how these tariffs wouldn’t be significantly inflationary.

Donald Trump spoke to reporters on Air Force One: Reuters
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Donald Trump on Air Force One: Reuters

There’s a deeper issue here, which comes back (as so many of Mr Trump’s economic measures do) to China. Both the steel and aluminium markets have faced enormous influxes of cheap Chinese metals in recent years – to the extent that in recent months those Chinese imports have actually been cheaper than the cost of production in Europe.

To some extent, that’s a consequence of high European energy costs, but it’s partly down to the fact that China subsidises its producers more than most other countries around the world. Indeed, of all the products in the world, few have had as many cases lodged at the World Trade Organisation as steel.

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Donald Trump shakes hands with China's President Xi Jinping during a meeting on the sidelines of the G-20 summit in 2019. Pic: AP
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Donald Trump shakes hands with China’s President Xi Jinping in 2019 – as in his first term, many of his policies focus on China. Pic: AP

But while it’s worth being aware of these dynamics, which are pushing cheap steel into many markets, it’s also worth noting that the US actually imports far less from China than you might have thought. The vast majority of American aluminium imports, for instance, come from Canada rather than China. Any tariffs on the metal would further undermine the economic relationship between these parts of North America.

Much, of course, now depends on the structure and detail of these tariffs – and the extent to which they’re actually implemented. As with his threatened tariffs on Canada and Mexico, these ones raise as many questions as they answer. That is likely to be the way of things for much of this presidential term.

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Energy price cap: Government costs to raise bills from October

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Energy price cap: Government costs to raise bills from October

A larger than expected hike in the energy price cap from October is largely down to higher costs being imposed by the government.

The typical sum households face paying for gas and electricity when using direct debit is to rise by 2% – or £2.93 per month – to £1,755, the energy watchdog Ofgem announced.

The current price cap is £1,720 a year. A 1% increase had been widely forecast.

The latest bill settlement, covering the final quarter of the year until the next price review takes effect from January, will affect around 20 million households.

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There are 14 million others, such as those on pre-payment meters, who will also see bills rise by a similar level.

Those on fixed deals, which are immune from price cap shifts until such time as the term ends, currently stands at 20 million.

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Wholesale prices – volatile since Russia’s invasion of Ukraine back in February 2022 – have been the main driver of rising bills.

But they are making little contribution to the looming increase.

Ofgem explained that government measures, such as the expansion of the warm home discount announced in June, were mainly responsible.

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Bills must rise to pay for energy transition

The discount is set to add £15 to the average annual bill.

It will provide £150 in support to 2.7 million extra people this year, bringing the total number of beneficiaries to six million.

The balance is made up from money needed to upgrade the power network.

Tim Jarvis, director general of markets at Ofgem, said: “While there is still more to do, we are seeing signs of a healthier market. There are more people on fixed tariffs saving themselves money, switching is rising as options for consumers increase, and we’ve seen increases in customer satisfaction, alongside a reduction in complaints.

“While today’s change is below inflation, we know customers might not be feeling it in their pockets. There are things you can do though – consider a fixed tariff as this could save more than £200 against the new cap. Paying by direct debit or smart pay as you go could also save you money.

“In the longer term, we will continue to see fluctuations in our energy prices until we are insulated from volatile international gas markets. That’s why we continue to work with government and the sector to diversify our energy mix to reduce the reliance on markets we do not control.”

The looming price cap lift will leave bills around the same sort of level they were in October last year but it will take hold at a time when overall inflation is higher.

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Food price increases, also partly blamed on government measures such as the national insurance contributions hike imposed on employers, have led the main consumer prices index to a current level of 3.8%.

It is predicted to rise to at least 4% in the coming months, further squeezing household budgets.

Ministers argue that efforts to make the UK less reliant on natural gas, through investment in renewable power sources, will help bring down bills in future.

Energy minister Michael Shanks said: “We know that any price rise is a concern for families. Wholesale gas prices remain 75% above their levels before Russia invaded Ukraine. That is the fossil fuel penalty being paid by families, businesses and our economy.

“That is why the only answer for Britain is this government’s mission to get us off the rollercoaster of fossil fuel prices and onto clean, homegrown power we control, to bring down bills for good.

“At the same time, we are determined to take urgent action to support vulnerable families this winter. That includes expanding the £150 Warm Home Discount to 2.7 million more households and stepping up our overhaul of the energy system to increase protections for customers.”

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Energy price cap: The changing face of your bill as poverty and climate demands grow

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Energy price cap: The changing face of your bill as poverty and climate demands grow

The small increase in domestic energy bills announced today confirms that prices have stabilised since the ruinous spikes that followed Russia’s invasion of Ukraine, but remain 40% higher than before the war – around 20% in real terms – with little chance of falling in the medium-term.

Any increase in the annual cost of gas and electricity is unwelcome. But, at 2%, it is so marginal that in practice many consumers will not notice it unless they pay close attention to their consumption.

Regulator Ofgem uses a notional figure for “typical” annual consumption of gas and electricity to capture the impact of price change, which shows a £34 increase to £1,755.

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At less than £3 a month it’s a small increase that could be wiped out by a warm week in October, doubled by an early cold snap, and only applies to those households that pay a variable rate for their power.

That number is declining as 37% of customers now take advantage of cheaper fixed rate deals that have returned to the market, as well as direct debit payments, options often not available to those struggling most.

Ofgem’s headline number is useful as a guide but what really counts is how much energy you use, and the cap the regulator applies to the underlying unit prices and standing charges.

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Here the maximum chargeable rate for electricity rises from 25.73p per kWh to 26.35p, while the unit cost of gas actually falls, from 6.33p per kWh to 6.26p. Daily standing charges for both increase however, by a total of 7p.

That increase provides an insight into the factors that will determine prices today and in future.

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Energy price cap rises by 2%

The biggest factor remains the international price of wholesale gas. It was what drove prices north of £4,000 a year after the pipelines to Russia were turned off, and has dragged them back down as Norway and liquid natural gas imported from the US, Australia and Qatar filled the gap.

The long-term solution is to replace reliance on gas with renewable and low-carbon sources of energy but shifting the balance comes with an up-front cost shared by all bill payers. So too is the cost of energy poverty that has soared since 2022.

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Bills must rise to pay for energy transition

This price cap includes an increase to cover “balancing costs”. These are fees typically paid to renewable generators to stop producing electricity because the national grid can’t always handle the transfer of power from Scotland, where the bulk is produced, to the south, where the lion’s share is consumed.

There is also an increase to cover the expansion of the Warm Homes Discount, a £150 payment extended to 2.7 million people by the government during the tortuous process of withdrawing and then partially re-instating the winter fuel payment to pensioners.

And while the unit price of gas has actually fallen, the daily standing charge, which covers the cost of maintaining the gas network, has risen by 4p, somewhat counterintuitively because we are using less.

While warmer weather and greater efficiency of homes means consumption has fallen, the cost of maintaining the network remains, and has to be shared across fewer units of gas. Expect that trend to be magnified as gas use declines but remains essential to maintaining electricity supply at short notice on a grid dominated by renewables.

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Thames Water agrees £122m fine payment plan – as future hangs in balance

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Thames Water agrees £122m fine payment plan - as future hangs in balance

Cash-strapped Thames Water has agreed a payment plan with regulators to cover off a record fine that threatened to exacerbate its financial difficulties.

Britain’s biggest supplier was to pay £24.5m of the £122.7m sum by 30 September under the agreement.

Ofwat, which imposed the penalty in May for breaches of its rules over sewage discharges and dividend payments, said the balance would be due once a rescue financing deal was agreed or if it was placed into a special administration regime by the government.

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Sky News revealed earlier this month that Steve Reed, the environment secretary, had signed off on the appointment of FTI Consulting to assist with contingency planning for putting Thames into a special administration regime.

It further meant that FTI was the frontrunner to act as the company’s administrator, should Thames fail to secure its private sector bailout.

Sky’s City editor Mark Kleinman said that the deal on the table, that would see Thames’s lenders injecting about £5bn of new capital and writing off roughly £12bn of value across its capital structure, was potentially dependent on Ofwat’s handling of the water firm’s fines.

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Thames has argued it needs financial space to guarantee its turnaround.

Thames initially had until 20 August to pay the £122.7m sum, but it requested the agreement of a payment plan.

Ofwat’s deal with Thames only kicks the can down the road.

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The regulator said on Wednesday that it had set a “backstop date” of 31 March 2030 for the remaining penalties.

Thames Water said the fines would not be paid for out of customer bills.

It added: “The company continues to work closely with stakeholders to secure a market-led recapitalisation which delivers for customers and the environment as soon as practicable.”

The agreement was announced as the water watchdog prepares to be abolished under government plans to bolster oversight of the industry.

Lynn Parker, senior director of enforcement at Ofwat, said: “This payment plan continues to hold Thames Water to account for their failures but also recognises the ongoing equity raise and recapitalisation process.

“Our focus remains on ensuring that the company takes the right steps to deliver a turnaround in its operational performance and strengthen its financial resilience to the benefit of customers.”

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