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UK announces measures to limit rising energy costs for businesses

British businesses are “breathing a sigh of relief” after the government announced a long-awaited scheme to help companies with spiraling energy costs—but many are warning the measures do not go far enough.

Newly appointed Prime Minister Liz Truss’s government announced Wednesday that it was introducing an “Energy Bill Relief Scheme” to help non-domestic energy customers—including businesses, non-profits and public institutions like hospitals—cope with rising prices.

However, Truss, who formerly worked for oil giant Shell, has ruled out seeking any funding from energy companies to help alleviate the crisis.

Speaking in parliament earlier this month, she rejected the idea of implementing an emergency windfall tax on energy corporations, many of which have reported record profits amid the crisis.

“I am against a windfall tax,” she said. “I believe it is the wrong thing to be putting companies off investing in the United Kingdom.”

The policy is popular among the public, however, with two-thirds of Brits saying there should be a windfall tax on oil and gas firms. Dan Alchin, director of regulation at Energy UK, said in a statement on Wednesday that is trade association, which represents over 100 firms in the energy sector, welcomed the government’s announcement.

Coupled with a similar support package being rolled out to help support households, helping Britons pay their energy bills this winter is expected to cost the U.K. government around £25 billion ($28 billion).

Here’s how Truss’ scheme would work.

How Truss wants to help this winter

Eligible organizations under the scheme will receive an automatic government-funded discount on their energy bills between October and March.

Businesses will receive a discounted price per unit of energy, with the government setting a “supported wholesale price” of £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas.

Those prices are less than half the wholesale prices anticipated this winter, the government said on Wednesday, although respected market analysis firm Cornwall Insight said they represented a 45% discount to closing wholesale energy prices as at the end of last week.

Organizations on fixed price contracts agreed after April 1, as well as those signing new fixed price contracts or those on flexible price tariffs, will be eligible for the government-backed energy discount from October 1.

Prior to the government’s announcement on Wednesday, thousands of British businesses warned they would likely collapse if energy costs continued to climb. While many small businesses have welcomed the new scheme, a number of business owners have criticized the government for acting too late and failing to implement longer-term protections.

David Beard, CEO of Lendingexpert.co.uk, said Wednesday that although businesses up and down Britain were “breathing a sigh of relief” following the news, many business owners were eager for longer term support plans when it came to energy bills.

“This scheme might save thousands of companies that would otherwise have seen their bills double next month, leaving many high and dry,” he said. “Hopefully, this move will not only save jobs but also help consumers by preventing the need for businesses to pass on rising energy costs to them. [But] six months isn’t a very long time in a business environment… it’s only a [band aid] and simply kicks the problem further down the road.”

Tina McKenzie, policy and advocacy chair at the Federation of Small Businesses, said in a statement on Wednesday that the government’s new plans would provide some stability for six months, but cautioned that many businesses still had a tough year ahead of them.

“Small businesses are the definition of vulnerable when it comes to these energy price hikes,” she said. “Small firms do not have the ability to hedge or negotiate energy prices.”

Cost-of-living crisis

Wholesale natural gas prices surged to record highs in Europe last year, as low inventories and rising demand as countries emerged from lockdowns nudged the value of the commodity upward.

The problem has been exacerbated this year as much of Europe looks to sever its reliance on Russian gas imports following the invasion of Ukraine in February.

Britain, which is particularly reliant on gas as an energy source, has been hit particularly hard by the resulting energy crisis.

Last month, Britain’s energy regulator announced it was increasing its cap on consumer energy bills by 80% from October. In April, British energy costs more than doubled.

According to charity National Energy Action, energy bills in the U.K. would have risen by 170% year on year by October, with 8.9 million people projected to be pushed into fuel poverty.

In a recent forecast, consultancy Cornwall Insight said it expected annual household energy costs to reach £4,426 ($5,118) by April without government intervention. At the beginning of 2022, the average U.K. household was paying less than £1,500 a year for energy.

Rising energy costs have helped push the U.K. into its worst cost-of-living crisis for decades.

Earlier this month, Goldman Sachs warned that U.K. inflation could hit 22% in January if energy prices continue to spiral out of control.

Alongside soaring energy costs, food prices increased in August at the fastest rate since the 2008 financial crisis, according to the British Retail Consortium.

Truss has pledged to increase fracking in England in a bid to increase domestic energy production.  

Speaking to reporters in New York on Tuesday, Truss said higher fuel bills were “a price worth paying” for security—but said she did not want those costs to be passed onto British households.

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Santos gets $1.4B offer for PNG LNG stake from Papua’s state oil company (OTCMKTS:STOSF)

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Santos (OTCPK:STOSF) said it received a binding conditional offer from Kumul Petroleum Holdings, Papua New Guinea’s national oil and gas company, to buy a 5% interest in the PNG LNG liquefied natural gas project for US$1.4B plus ~$300M in project finance debt.

Santos (OTCPK:STOSF) said Kumul paid $55M to be held in escrow to secure the offer, which will remain open for acceptance until December 31 and is conditional on Kumul obtaining waivers on some pre-emptive rights by other PNG LNG project partners.

With the sale of a 5% stake, Santos (OTCPK:STOSF) would own 37.5% of the project, still ahead of operator Exxon Mobil (NYSE:XOM) with 33.2%, while Kumul Petroleum would own 21.8%, with the remaining shared between Japan’s JX Holdings and Papua New Guinea’s state-owned Mineral Resources Development Co.

Santos (OTCPK:STOSF) became the largest shareholder in PNG LNG, Papua New Guinea’s largest resource project, with its takeover of Oil Search Ltd. last year.

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U.S. steel industry activity rate slides to lowest since January 2021 (NYSE:NUE)

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U.S. raw steel production fell 0.6% to 1.683M net tons in the week ended September 24 while the capability utilization rate slipped to 76.4%, its lowest rate in 20 months, according to the latest weekly report from the American Iron and Steel Institute.

Adjusted YTD raw steel production through September 24 totaled 66.418M net tons at a capability utilization 79.6%, down from the same period last year when 69.208M net tons were produced at a capability utilization of 81.0%.

Potentially relevant tickers include (NYSE:X), (NYSE:CLF), (NYSE:NUE), (STLD), (SLX)

The AISI also reported the U.S. imported 2.51M net tons of steel in August, including 2.084M net tons of finished steel, down 6.2% and 8.4% Y/Y, respectively, from July.

YTD total and finished steel imports are up 8.8% and 28.7%, respectively, compared with the same period in 2021.

Nucor (NUE) recently warned it expects Q3 earnings of $6.30-$6.40/share, well below Wall Street estimates.

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Falling home prices shouldn’t collapse the financial system, says hedge funder who made $4 billion betting on the 2008 housing crash

The U.S. housing market is experiencing one of the most rapid and dramatic shifts in its history.

The reason is pretty simple: Spiked mortgage rates are sidelining buyers across the country. 

And it’s far from over. Last week, Fed Chair Jerome Powell even went as far as to call it a “difficult correction.”

While the speed and breadth of the slowdown have some Americans worried about a repeat of the 2008 housing bust and subsequent global financial crisis, others aren’t as concerned. John Paulson, the hedge funder who famously pocketed $4 billion betting against the U.S. housing market in 2008, is among those who believe history isn’t repeating itself.

“We’re not at risk of a collapse today in the financial system like we were before,” Paulson told Bloomberg on Sunday. “Yeah, it’s true, housing may be a little frothy. So housing prices may come down or they may plateau, but not to the extent it happened [in 2008].”

A tale of two Wall Street oracles

Paulson, who started his hedge fund (which has since been converted to a family office), Paulson & Co., in 1994 and boasts a net worth of $3 billion, believes that the housing market is on stronger footing than it was at the start of the Great Financial Crisis.

“The underlying quality of the mortgages today is far superior. You don’t even have any subprime mortgages in the market,” he said. “In that period [2008], there was no down payments, no credit checks, very high leverage. And it’s just the opposite of what’s happening today. So you don’t have the degree of poor credit quality in mortgages that you did at that time.”

After the blow-up of the 2008 housing bubble and subsequent global financial crisis, senators passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in order to ensure the stability of the U.S. financial system and improve the quality of U.S. mortgages.

The act created the Consumer Financial Protection Bureau (CFPB), which is tasked with preventing predatory mortgage lending. In the years since the CFPB’s creation, the average credit rating of homebuyers has improved dramatically. Leading up to the 2008 housing bust, U.S. homebuyers’ average credit rating was 707. In the first quarter of this year, it was 776, according to data from Bankrate.

Bank of America Research analysts led by Thomas Thornton also found that the portion of buyers with so-called “superprime” FICO scores of 720 or above hit 75% this summer. During the years preceding the 2008 housing bust, just 25% of buyers boasted similarly strong credit.

The Dodd-Frank Act also established the Financial Stability Oversight Council which monitors the health of major U.S. financial firms and sets reserve requirements for banks, and the Securities and Exchange Commission (SEC) Office of Credit Ratings which verifies the credit ratings of major firms after critics argued private agencies gave misleading ratings during the financial crisis. Both of these regulatory bodies have helped to improve the resiliency of the U.S. financial system and banks during times of economic stress.

Paulson noted on Sunday that banks were highly leveraged during the financial crisis and took risks that would be seen as unacceptable in today’s markets after the Dodd-Frank act established the Volcker Rule, which prevents banks from making some specific types of risky investments.

“The problem, in that period of time, was the banks were very speculative about what they were investing in. They had a lot of risky subprime, high-yield, levered loans. And when the market started to fall, the equity quickly came under pressure,” he said, noting that the average bank now has three to four times as much equity as they did during the Great Financial Crisis of 2008, which makes them less susceptible to default.

While Paulson isn’t worried about a repeat of 2008, hedge funder Michael Burry, who also rose to fame predicting and profiting from the Great Financial Crisis, as depicted in the book and movie “The Big Short,” has warned for years that he believes the global economy is in the “greatest speculative bubble of all time in all things.”

Burry argues that central banks created a bubble in everything from stocks to real estate with loose monetary policies after the Great Financial Crisis, and pandemic-era spending meant to boost the economy only made things worse.

Now, as central bank officials around the world shift stances to fight inflation and continue raising interest rates in unison, the hedge fund chief argues asset prices will fall dramatically.

“There is risk growing in many sectors. The unfettered narrative feeding itself until the absurdity explodes, revealing the folly to all and easily starting a revolution,” Burry said in a cryptic, since-deleted Sept. 21 tweet.

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