Prettocraig

As more environmentally conscious Americans do their bit to help clear the air by paying up for an eco-friendly Prius or a sporty Tesla, a damaging form of polluted rain is falling in China.

The link is graphite, a vital component in batteries used in Tesla’s Model S, Toyota’s plug-in Prius and other electric cars, as well as in electronic gadgets including iPhones. It’s mostly mined and processed in China where graphite pollution has fouled air and water, damaged crops and raised health concerns. Now, in response, Chinese authorities are closing dozens of graphite mines and processors in a bid for cleaner air even as global demand for the commodity is surging.

“There’s little question that the Chinese are between a rock and a hard place environmentally,” said Josh Landess, an advanced transportation analyst with Bloomberg New Energy Finance. “There’s an obvious irony that the disruption it’s causing is within the clean vehicle and transportation industry.”

The graphite outcry is the latest among environmental flashpoints in China that have ranged from lead poisoning to acid spills and “unbearable smog” in big cities. And while the clampdown may help improve the quality of China’s environment, it could also affect as much as a third of worldwide production.

Analysts disagree about the impact of a sharp decline of graphite supplies. Simon Moores, a London-based senior analyst at Industrial Minerals Data sees China’s tougher stance pushing graphite prices up as much as 30% this year. Others say even that rise would have an only minimal impact on the overall price of electric cars though it could slow the expected long-term decline of battery prices.

Supply Critical

The market for hybrid and electric cars such as Toyota Motor Corp.’s Prius hybrid and Tesla Motor Inc.’s fully electric Model S as well as for e-bikes is forecast to surge this decade, propelled by demand for greener vehicles.

To keep up with demand, Tesla plans to invest US$5 billion building a factory to produce battery packs for its luxury electric cars, it said last month. The project, dubbed the “gigafactory,” would be the world’s largest such operation, according to Chief Executive Officer Elon Musk.

Each electric car contains about 50 kilograms (110 pounds) of graphite. Hybrid cars use about 10 kilograms, e-bikes 1 kilogram, laptops about 100 grams and mobile phones about 15 grams, according to Anthony Pandolfo from Monash University’s department of materials engineering. The growth and diversity of electronic devices will propel demand for rechargeable batteries, according to Lux Research.

Noah Berger/BloombergA battery awaits installation in a Telsa Motor Inc. Model S sedan at the company's assembly plant in Fremont, California. To keep up with demand, Tesla plans to invest $5 billion building a factory to produce battery packs for its luxury electric cars, it said last month.

Double Demand

Tesla’s factory alone could double demand for graphite in batteries, requiring the equivalent of six new mines to come into production, according to Industrial Minerals’ Moores. Battery makers include Sony Corp., Panasonic Corp., Samsung Electronics Co. Ltd. and NEC Corp.

Instead, China is cutting back production as it battles more damaging environmental issues stemming from its reliance on coal for electricity and conventional automobiles.

As many as 55 graphite operations were suspended in Shandong province, which controls 10% of global supply, in December last year on a range of environmental breaches. The government intervention could easily extend to other poorly-run producers in Heilongjiang Province, said Credit Suisse Group AG analyst Michael Slifirski.

More damaging than the graphite rain, the silver dust that falls from carelessly managed mines, is the hydrochloric acid used in China to process raw graphite into a usable form. The acid is highly corrosive and when released untreated as waste water into the environment is harmful to all forms of life.

Emile Wamsteker/BloombergA Tesla Motors Inc. store in the Short Hills Mall in Short Hills, New Jersey, U.S. The demand for lithium-ion batteries, which use graphite, will drive up the total value of the rechargeable battery market by 52 percent to $41 billion by 2018, according to Cosmin Laslau, a Boston-based analyst at Lux Research Inc.

New Mines

No significant new mines have been added outside China since the 1980s, according to Industrial Minerals. That’s about to change. Concern about diminished supply from China is prompting a rush to secure other sources, including the Uley graphite mine in Australia that’s due to re-open this month after being shuttered for more than two decades because of rising output from China that depressed prices.

The demand for lithium-ion batteries, which use graphite, will drive up the total value of the rechargeable battery market by 52% to US$41 billion by 2018, according to Cosmin Laslau, a Boston-based analyst at Lux Research Inc.

The lion’s share of growth will come from products such as Apple’s iPad and Amazon.com Inc.’s Kindle, as well as smart phones, Laslau said in a presentation.

A spokesman for Toyota, the world’s biggest carmaker, said in an e-mail that it is “important to maintain a stable supply of any raw material, and we work with our suppliers to do so.”

Tesla, Apple, Panasonic and Sony declined to comment on the potential effect of higher graphite prices for its batteries and production practices in China.

Feng Li/Getty ImagesA model stands beside a Toyota Prius Plug-in Hybrid concept car.

Supply Security

Seiichiro Toda, a Tokyo-based spokesman for NEC, said prices hadn’t increased at this point. Samsung said it didn’t expect an impact from capacity closures in Shandong province.

Bayerische Motoren Werke AG last month said it had 11,000 orders for its fully electric four-door i3 car, while BYD Co., the Chinese automaker backed by investor Warren Buffett’s Berkshire Hathaway Inc., is preparing to begin U.S. production of electric buses in March.

China’s graphite pollution crackdown is raising concern among battery makers over supply security, according to Chris Darby, chief executive officer of Valence Industries Ltd., the developer of the Uley in South Australia. The company already has commitments for initial output from stockpiles, he said.

“They can see demand growing,” Darby said. “They want certainty of supply, and they’re uncertain about the supply that’s coming out of China, or any of the other regions around the world.”

A 30-percent increase in graphite prices could increase the price of battery packs for electric vehicles by as much as 5%, according to Brian Warshay, a New York-based analyst for Bloomberg New Energy Finance.

“It would slow the expected decline in battery prices,” he said in an interview.

Bloomberg.com

Overview of the Adams River in 2010. Photo: Jamie Heath, Terrasaurus Aerial Photography Ltd.

As we all learned in school, salmon die at the end of their spawning journey. Without careful management by the fisheries there could be so many this year that they clog the river and prevent others from spawning. Photo: courtesy PSF

It took less than two days for an otherwise thriving Alberta-based bitcoin bank to be robbed of roughly $654,000 worth of the crypto currency, shut down due to the loss, and leave its users with no recourse.

Flexcoin looked to law enforcement to investigate the hack, but apparently to no avail.

“My attempts to file a police report were laughed at, I was advised #bitcoin is a scam,” according to a tweet posted by the Flexcoin Twitter account Wednesday. “Thanks for the help @edmontonpolice.”

The latest bitcoin hacking casualty highlights the grey area in which these entrepreneurs operate. It’s an unregulated space, there’s mounting evidence that it needs the checks and balances — and protections — of a financial institution dealing in real dollars. Bitcoin enthusiasts, and academics, say the latest snafus don’t mark the end of the cryptocurrency itself, but will accelerate a move towards some sort of regulation and better practices.

“It will probably require the bitcoin [entrepreneurs] to rethink how they’re doing things, and come up with things that are a little more secure,” said Gordon Sick, professor of finance at the Haskayne School of Business at the University of Calgary. “Things that look a lot more like a bank runs.”

Flexcoin announced on its website it was shutting down after 896 bitcoins were stolen from its “hot wallet”, an electronic wallet connected to the Internet, a day earlier.

“As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately,” the company said in a statement on their website Tuesday.

Flexcoin later posted an update on its site saying that the attack “exploited a flaw in the code” which allows transfers between users, slamming the platform with multiple requests to move coins between accounts.

This comes after Tokyo-based bitcoin exchange, Mt. Gox, said it may have lost some 850,000 bitcoins due to hacking and has filed for bankruptcy protection in Japan.

Anthony Di Iorio, co-founder of the Bitcoin Alliance of Canada, says while these are bad marks on the cryptocurrency’s record, it won’t have any long-term impact.

“The system is fine. It was that bank that had a problem,” he said. “It’s not the bitcoin protocol or the network that was insecure or had an error or had a bug as the reason why people lost their bitcoins.”

However, he does anticipate a move among bitcoin businesses towards more protective measures and standards — whether regulated by government or by the industry — such as insurance.

“We’re only five years into this experiment, and those are things that are going to start coming out,” he said.

The Calgary-based Canadian Virtual Exchange, or Virtex, has proactively tried to follow government regulations and sought out registration or licensing when possible, said its chief executive Joseph David.

This includes registering as a money-services business (MSB) with the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), a government agency collecting and disclosing information on suspected money laundering and terrorist financing.

He says it has helped ease worries of some Canadian banks which were reluctant to deal with them.

It will probably require the bitcoin [entrepreneurs] to rethink how they’re doing things, and come up with things that are a little more secure

“They are willing to do business, they are willing to process payments for us now,” Mr. David said.

However, FinTRAC and the Department of Finance told the Financial Post that under current law, a virtual currency exchange isn’t considered to be an activity that qualifies them as an MSB. The desgination would cover any activities such as foreign exchange or remittance of funds, for which Virtex has been registered for, in legal currency but not bitcoin, said Peter Lamey, spokesperson for FinTRAC.

Mr. David said while being registered for an MSB licence doesn’t cover its bitcoin activities, foreign exchange and remittance of funds were the next closest categories available.

“It’s simply a foreign exchange MSB licence. However, this is part of my proactive stance,” he said. “Because the more foreign exchange we do, and the more bitcoin exchange we do, and the more remittance and compliance we do, the more that they will accept that bitcoin does fall under some new category. And the lines of communication are now open.”

As announced in the federal budget last month, the department of finance is proposing to introduce anti-money laundering and anti-terrorist financing regulation for virtual currencies such as Bitcoin.

This includes extending the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) requirements for money service businesses (MSBs) to entities in the business of dealing in virtual currencies, a finance official said in an e-mail to the Financial Post.

“These requirements include customer identification, recordkeeping, registration and reporting to FINTRAC. The regulations would aim to cover entities such as virtual currency exchanges, not individuals or ordinary businesses that use virtual currencies for buying and selling goods or services.”

Mr. Sick says in addition to some kind of regulatory authority, bitcoin businesses could shore up credibility by being more transparent with financial statements and auditing standards.

But Joshua Gans, a professor at the University of Toronto who has done research in virtual currencies, argues that companies like Flexcoin are more like a storage warehouse than banks and may need to be treated under consumer protection regulations instead.

Governments have to decide how best to handle these pure digital goods, and how they fall under normal regulatory expectations, he said.

“With bitcoin, the money is actually still owned by the individuals,” Mr. Gans said. “It literally can be the case that they come in and steal your money… They are effectively safe holding this new money. But of course, some safes are more easily cracked than others.”

NEW YORK/ABU DHABI — Ben Bernanke earned more in 40 minutes on Tuesday than he made all of last year as head of the U.S. Federal Reserve.

Bernanke was paid at least $250,000 for his first public speaking engagement, in Abu Dhabi, since stepping down in January, according to sources familiar with the matter. That compares to his 2013 paycheck of $199,700, and the appearance was only the first of three around the world this week.

Bernanke’s public post-Fed debut was a departure from the private audiences that his predecessor Alan Greenspan addressed shortly after he handed over the central bank’s reins in 2006. In his remarks, Bernanke recounted the Fed’s response to the 2007-2009 financial crisis, an issue he is exploring for a book he plans to shop around to publishers.

Bloomberg.com Alan Greenspan drew criticism for giving high-paying investors a potential leg up on their competitors with closed-door remarks about interest rates shortly after he left office.

In hitting the speaking circuit, Bernanke is following a well-trod path of top public servants cashing in on the demand for the insights they can offer. In the case of a one-time Fed chairman, those insights could potentially be market-moving.

And given that his successor, Janet Yellen, has vowed to stay the course he set, investors could view him as a weather vane for the world’s most powerful central bank.

“He will obviously be enjoying the fruits of the free market,” said Jan Baran, a partner and head of the election law and government ethics group at Washington law firm Wiley Rein LLP. “He will personally experience supply and demand.”

Lawyers and agents say Bernanke, 60, should be able to command around $250,000 per speech for a while to come.

The paycheque “sounds reasonable to me,” said one speaking-circuit agent who did not want to be named. Bernanke could have a “very long shelf life,” he added.

He will obviously be enjoying the fruits of the free market

While the fee launches him into the upper echelons of sought-after speakers, it leaves him well short of former President Bill Clinton – the gold standard of Americans turning charisma into cash – who has, by some estimates, earned two or even three times that much for some appearances in recent years.

“He’s free to offer his own views either historical or forward-looking,” said Baran, when asked about the ethics of Bernanke cashing in on his eight years as Fed chairman. “Nothing sounds illegal or unethical and in fact it sounds fairly routine.”

As Bernanke joked on Tuesday: “I can say whatever I want.”

Not always, as his predecessor learned.

Greenspan drew criticism for giving high-paying investors a potential leg up on their competitors with closed-door remarks about interest rates shortly after he left office, and for comments in March 2007 on the probability of a U.S. recession that roiled financial markets even as Bernanke was reassuring investors about the outlook.

SOFT-BALL QUESTIONS

At the conference sponsored by the National Bank of Abu Dhabi, attendees paid $2,000 each to listen to Bernanke and other speakers, including former U.S. Treasury Secretary Lawrence Summers. Greenspan garnered a similar fee in the United Arab Emirates capital in 2008.

Bernanke, who is now a distinguished fellow at the Washington-based Brookings Institution think-tank, did not discuss monetary policy, and only brushed on prospects for the U.S. economy. Instead, he choose to elaborate on his experience as chairman, acknowledging the Fed could have done more to battle the financial crisis.

Questions from the audience were relatively soft, leading to a discussion about family and baseball. On Wednesday, Bernanke speaks at a Johannesburg forum hosted by the financial firm Discovery Limited, and on Friday he will discuss the U.S. energy boom at a conference hosted by Siemens and IHS in Houston.

Through a Brookings spokeswoman, Bernanke declined to comment on his speaking engagements.

Greenspan took to the speaking circuit one week after departing office in January 2006 with an appearance at a private dinner hosted by Lehman Brothers. That brought in a reported $250,000, while a private telechat with investors in Japan that same day brought in about $120,000.

Greenspan’s take on that first day is equivalent to $433,000 today after adjusting for inflation.

For his planned memoir, Bernanke is being represented by Robert Barnett, the Washington-based attorney who also handled Greenspan, according to a source familiar with the situation. Bernanke plans to meet publishers soon to discuss the book.

While it is unclear how large of a cash advance Bernanke is seeking, Greenspan clinched $8 million.

Former Treasury Secretary Timothy Geithner, who is also publishing a book, made $400,000 from three speeches to financial firms, according to the Financial Times.

After handing the reins to Greenspan in 1987, former chairman Paul Volcker also hit the speaking circuit after learning, he later recounted, that he could make a year’s salary – about $80,000 for the Fed chief at the time – in a speech or two.

© Thomson Reuters 2014