Washington initiatives inimical to PHCP interests
BY MORRIS R. BESCHLOSS
PVF and economic analyst emeritus
It may have been sheer coincidence, but holding the PHCP industry’s premier convention, the American Supply Association, in the lair of the government bureaucrats put the major problems facing recession recovery into sharp perspective.
When focusing on the PVF sector specifically, the concerns become even more intense. While legislation working its way through Congress (universal healthcare, cap-and-trade, global climatological restraint, card check) is inimical to the interests of the preponderance of the PHCP industry’s comprising small businesses in general, sub-sectors that drive pipe, valves, fittings are met with downright hostility by today’s dominant governmental power structure.
Although much of the current PVF sector’s business falloff from last year’s peak can be attributed to the global recession, the Obama Administration’s divergence from fossil fuel development, in favor of long-term reliance on renewable energy (wind, solar, geothermal) will inhibit the production of the massive reserves of coal, oil and natural gas reserves available in the U.S. The disproportionate commitment to climatological improvement, which is not shared by China and India, will leave the U.S. even more dependent on foreign oil once the world economy returns to full recovery mode.
Based on the strong reaction to my “Viewpoint” editorial from dozens of industry manufacturers and distributors, it’s becoming increasingly apparent that a large segment of our industry, comprised by small and medium-sized businesses, believe that the cap-and-trade energy proposal, already approved by the House of Representatives, would strike a critical blow against industry businesses. Equally repugnant to the overwhelming number of our contacts is the nebulous healthcare initiative, due for a showdown before the end of the year.
Most of our respondents voiced various degrees of concern over the impact of this legislation on their ability to function profitably. Nobody believes the President’s pledge that a new universal healthcare program will not add substantial costs to their bottom lines.
Almost all have had to cut their inventories drastically, and some expect to prune their workforces even further in the months ahead. None I’ve talked to in my anecdotal surveys indicated any intention to add to their workforce in the foreseeable future.
It’s becoming increasingly apparent that a potential double-digit unemployment rate will act as a deterrent to economic recovery for some time to come. This is a concern that is facing every aspect of America’s growing potential workforce.
However, the late summer turnaround in manufacturing and the need to replenish inventories to keep up with maintenance replacement demand has picked up the post-Labor Day activities within those companies I’ve talked to.
Both manufacturers and distributors have been referring to a moderate uptick during recent weeks. Further generating demand for PVF industry products is the export sector, which is also being benefited by the weakness of the dollar. This is also making goods of American manufacture more competitive.
Also emphasized in my surveys was the easing in the availability of commercial paper and access to short-term loans, as part of credit improvement generally.
However, capital expansion seems to have reached a low point in both manufacturing and distribution. At the same time, local and regional banks are still leery about lending to new prospects. But they are much more amenable to short-term low-cost loans to creditworthy clients.
In summation, the outlook from now to year’s end looks fair to middling. Long-term, all eyes are focused on Washington and the restraint Congress will show in passing major deficit-increasing legislation.
Biofuel boom has gone bust
While the U.S. is bracing for the legislative onslaught of a welter of budget breaking government programs, let’s not forget the abysmal failure of the government subsidized biofuel initiatives of yesteryear.
This ostensible reduction in America’s dependence on foreign oil was hatched by the Bush Administration, in league with 30 Midwest Senators (including then-Sen. Barack Obama (D-Ill.) to convert feed corn into a fuel additive. This legislation was supported by heavy subsidies and mandated usage that was amplified by a followup energy bill to force even more of this derivative into America’s gas tanks.
This chicanery was so transparent that a leading executive within one of the nation’s leading corn-based production companies, laughingly called it the “agri-business relief act.”
It’s no surprise that little has been said or written about the disastrous results of this multi-multi-billion “energy substitute” four years after its launch.
Two-thirds of bio-diesel production capacity now sits unused. Major manufacturers of ethanol are on the verge of bankruptcy and would be totally out of business were it not for the continued influx of huge government subsidies, on top of billions of U.S. dollars for agriculture as a whole. The next generation of biofuels (corn husks, saw grass and other non-food derivatives) have been abandoned for lack of investment interest.
It’s easy to blame the crash of oil prices, overcapacity and the credit crunch for this disaster, but it would be no exaggeration to label this phoney attempt to boost corn production a total calamity, buttressed by taxpayer billions.
Since the U.S. government is not responsible for bottom line profitability or stockholder transparency, let’s hope that millions of taxpayers will continue to have their voices heard on current expenditure bills with the only leverage at their disposal - the ability to flock to the polls at election time.
Brazil oil bonanza grows ever bigger
There’s hardly a day goes by that doesn’t report a major new oil find off the coast of Latin America’s dominant nation — Brazil.
Out of the eight gigantic, multi-billion oil finds discovered in the last five years, six have been discovered in the offshore Santos Basin off the coast of Brazil. All but one are owned, majority-held and/or managed by state-controlled Petrobras, the South American super state’s energy consortium.
But like the recently discovered Tiber field found in the Gulf of Mexico and owned by British Petroleum, these reserves are deep under water, up to a depth of 35,000 feet.
Although such finds add to the desperately needed reserves for the years ahead, the cost of eventual extraction could be astronomical. Unlike the relatively cheap drilling and recovery methods of on-land drilling, getting down to these giant pools could eventually necessitate prices in excess of the $147-per-barrel of oil reached in July 2008.
This is an eventuality the U.S. may have to face in the not-too-distant future, especially as government policy has discouraged conventional drilling in the lower 48 states, in spite of the huge available potential.
For those who believe in the fantasy of replacing oil for transportation, and such other uses as derivatives like plastics and myriad other uses with renewable energy, the reality of high-cost oil will happen sooner than they expect. That’s why the Chinese are buying all the discounted oil they can lay their hands on now.
With Mexico’s offshore oil reserves cratering, the Canadian tar sands converters negotiating with the Chinese, and Venezuela diverting shipments away from the U.S. as fast as commercially feasible, the Administration’s anti-fossil fuel policy will come back to haunt this country before Obama leaves office; even if he does so at the end of his present term.
To stay up to date with my twice-daily blogging, be sure to log on to my hyperlink at www.theworldreport.org and then click on ‘Morrie’s page,” announced in the middle of the World Report website. Your recommendation for my blog, as well as the individual columns will be much appreciated.
Morris R. Beschoss, a 54-year veteran of the pipe, valve and fitting industry, is PVF and economic analyst emeritus for The Wholesaler.