State of the Future 2007; Cartel Capitalism

The UN has released its “State of the Future 2007” report. Some highlights:

On corruption:
-Annual worldwide income from organized crime “could be well over $2 trillion,” of which counterfeiting accounts for about $520 billion and the drug trade another $320 billion.

-Contrary to self-congratulation about “transparency” in “the industrial democracies,” the report finds that “the vast majority of bribes are paid to people in richer countries,” where the political process is “vulnerable to vast amounts of money.” Hunt Oil, anyone? How about the EU Parliament and the U.S. Congress in general?

On inequality:
-Of the 6.6 billion people on earth, the richest 2% have over 50% of the wealth, while the poorest 50% have 1% of the wealth. The income of the richest 225 billionaires is equal to that of 40% of the world’s population, or 2.7 billion people.

On climate change and natural disasters:
-The number of people affected by natural disasters has tripled over the past decade to 2 billion, with an average of 211 million people being affected each year. “This is approximately five times the number of people thought to have been affected by conflict over the past decade.”

-The number of environmental refugees is “estimated to reach 50 million by 2010 and 200 million by 2050.”

In other news, the Brazilian mining monopoly CVRD has been forced to slow production by protests from the Movement of Landless Rural Workers, increasing word iron ore prices. Two statistics are relevant to this story. One: 5% of Brazilian landowners hold 70% of the arable land in the country. Two: CVRD and Australian behemoths BHP Billiton and Rio Tinto dominate the world iron industry, accounting for no less than 70% of global iron ore exports between the three of them. This kind of wealth concentration, in land and in mineral resources, creates all kinds of contradictions, in this case an ironic one. According to the following article from the Australian corporate press, the supply disruption has only served to “stoke an already hot spot market for iron ore and strengthen the hand of producers at upcoming pricing talks with Chinese and Japanese steelmills.” The article is worth reading, because it shows how the mythical “free market” actually works in practice: oligopolies form cartels and generate artificial “supply shocks” to jack up prices when it serves their interest, or glut markets to slash prices when that does the trick.

The Australian Business
Iron giants face shortages, derailments and peasant riots
Andrew Trounson October 19, 2007

Iron ore giants Rio Tinto and BHP Billiton might be battling infrastructure bottlenecks and train derailments as they race to ramp up production, but at least their trains aren't being stopped by angry, landless peasants. In Brazil, rival iron ore giant CVRD has had its major Carajas railroad cut by about 200 peasants who have invaded the tracks and thrown stones at trains as they agitate for agrarian reforms. The protesters are part of the Movement of Landless Rural Workers whose slogan is “in defence of agrarian reform and against imperialism.” CVRD is now seeking to have police remove the protesters as soon as possible. But on the flipside, any production delays will only stoke an already hot spot market for iron ore and strengthen the hand of producers at upcoming pricing talks with Chinese and Japanese steelmills. Price negotiators will be circling each other at the Japan-Australia business conference in Tokyo with BHP Iron Ore boss Ian Ashby and Rio's head of iron ore marketing, Sam Walsh, both expected to be in attendance. Macquarie Equities is forecasting a global shortfall in seaborne iron ore exports this year of about 30 million tonnes, compared with the industry's original expectations. It noted CVRD's operations had already been hit by rain delays and maintenance shutdowns that will likely see it ship, at the most, 287 million tonnes in 2007 -- down from CVRD's target of 300 million tonnes. Rio has stockpiled about 4.6 million tonnes of iron ore at its West Australian operations as it battles bottlenecks. ``This represents some $US230 million ($257 million) of iron ore that is currently not in the market, which can only strengthen the market tightness, and bodes well for a strong contract price increase, particularly as we are on the eve of the contract negotiation season,'' JP Morgan said in a research note yesterday. The stock build is the result of a car dumper at Cape Lambert port being shut for maintenance for 14 days, and Rio's move to restructure its stockpiles for its new Pilbara blend iron ore. Rio disappointed the market on Wednesday with lower-than-expected production numbers in the wake of two train derailments, and the market focus is now on BHP Billiton's quarterly numbers, due out on Tuesday. But earnings downgrades on Rio were minimal at around just 1 to 2 per cent, given continued strength in commodity prices. A key positive was that Rio remained on track with its planned iron ore expansions. ``This puts Rio in a good position to benefit from a buoyant iron ore market, although the cost pressures look set to continue,'' ABN AMRO said. Rio shares yesterday bounced back, gaining $2.83, or 2.6 per cent, to $112.83. Macquarie Bank is forecasting a massive 50 per cent rise in benchmark iron ore prices for the coming year, compared with consensus expectations for a still hefty 25-35 per cent rise.