Mark Latham Commodity Equity Intelligence Service

Friday 21st April 2017
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    For whats its worth: French Election,

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    Toluene-fed chemical production margins soften on weaker benzene, xylenes

    Falling benzene prices and continued softness in xylenes have significantly dented toluene-fed chemical production margins in the US and pushed prices to levels not seen since late fourth-quarter 2016.

    Hydrodealkylation (HDA) margins fell to minus $35.87/mt Tuesday while toluene disproportionation (TDP) and Mobil selective toluene disproportionation (MSTDP) margins were at minus $6.69/mt and $44.43/mt, respectively, according to S&P Global Platts data.

    Margins have fallen dramatically since the beginning of the month with HDA margins hit hardest, falling $79.71/mt and deep into negative territory since April 3. TDP and MSTDP margins have seen similar declines during the same period.

    One of the primary drivers behind the weaker margins is falling benzene prices. Spot benzene values on a DDP USG basis have fallen roughly 6% thus far in April and closed Tuesday at 264 cents/gal. Further, toluene prices have been stable in a stagnant market and were assessed Tuesday at 230 cents/gal FOB USG, 8 cents higher than at the beginning of the month.

    Lower margins are likely to translate into reduced operating rates and subsequently curbed supply, particularly on products such as benzene, sources said. This reduced supply, coupled with fewer imports from South Korea and increased demand from downstream styrene units, could lend support to benzene prices and help boost toluene-fed chemical production margins, sources said.

    Spot benzene prices on a DDP basis have bounced back from the 262 cents/gal assessment on Monday and ranges for April barrels were seen at 266-275 cents/gal DDP USG Wednesday morning.
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    MAN Diesel in 3D printing gas turbine breakthrough

    Germany’s MAN Diesel & Turbo is now equipping gas turbines with 3D-printed components.

    Chief executive Dr Uwe Lauber said that the company was “the first manufacturer in the world to use complex 3D-printed metallic components not only for test runs, but also for serial production”.

    He said the move has come “after a decade of research and development”.

    Dr Roland Herzog, head of material technology in MAN Diesel’s Strategic Business Unit Turbomachinery, said that 3D pinting – also known as additive manufacturing – offers “huge potential for our product range, especially when it comes to the production of gas turbine components”.

    “Additively-manufactured guide vane segments that we are now incorporating into our type MGT6100 gas turbines have proven particularly suitable. The approval for serial production is the result of intense co-operation with highly-specialized suppliers and development partners such as the Fraunhofer Institute for Laser Technology.”

    In order to further exploit the potential of 3D printing, MAN Diesel is currently investing €2.6m ($2.7m) in what it calls the MAN Centre for Additive Manufacturing, based at the company’s turbomachinery works in Oberhausen.

    The company said design specialists, materials experts and production engineers will come together at the so-called ‘MANCAM’ “to extend the benefits of additive manufacturing to further components and products, for example compressor impellers or fuel nozzles for engines”.

    Herzog added: “As well as shortened development cycles, 3D printing gives more freedom for innovative, superior component designs, reduces production and delivery times and enables us service-wise to produce spare parts on call.”

    Lauber said the the standardized use of additive manufacturing “is a strategic milestone” for MAN Diesel. “3D printing gives us clear competitive advantages in terms of our products supporting the decarbonization of industry and power generation. The techniques considerably reduce the path from an innovative design to a finished product. The digital data from our R&D departments can be converted into better products more quickly than before, while customers are supported throughout the entire product lifecycle with 3D-printing-based services.”
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    Datang Int'l Power Q1 power output up 22.96pct on year

    Datang International Power Generation Co., Ltd, a listed arm of China Datang Group generated 44.2 TWh of electricity in the first quarter this year, up 22.96% year on year, the company said in its quarterly report on April 19.

    Of this, thermal power output increased 27.25% on year; hydropower output dropped 10.36% from the year-ago level; wind power and photovoltaic power jumped 17.66% and 35.34% from the year prior, respectively.

    The company's on-grid electricity stood at 41.7 TWh, increasing 22.79% from the preceding year.

    As of March 31, the average on-grid electricity price was 377.03 yuan/MWh, the company said.
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    Oil and Gas

    Preliminary agreement reached among some OPEC ministers to extend production cuts: Falih

    Saudi energy minister Khalid al-Falih on Thursday said that he saw an extension of the OPEC/non-OPEC production cut agreement likely if global oil inventories do not fall to sufficient levels.

    "There has been a strong level of commitment in the past three months," Falih said at the GCC Petroleum Media Forum in Abu Dhabi. "Unfortunately we still have not reached our goal."

    If stocks remained too high, "we will extend this agreement to nine or even 12 months (from January 1) because our target is the level of (inventories), and this will be the indicator of the success of our initiative," he added.

    OECD stocks remained 336 million barrels above the five-year average at the end of February, the International Energy Agency said in its most recent monthly oil market report.

    OPEC ministers have said their aim with the production cuts is to bring inventory levels down to the five-year average.

    Under the six-month deal, which expires in June, OPEC was to cut 1.2 million b/d of crude production from October levels and 11 key non-OPEC producers led by Russia to cut output by 558,000 b/d.

    OPEC ministers will meet on May 25 in Vienna to decide whether to extend the production cuts, with a monitoring committee composed of Kuwait, Algeria, Venezuela, Russia and Oman to provide a formal recommendation before that.

    "We will have increasing demand for the rest of the year, and I expect we will have an extension of this agreement," Falih said. "We are still trying to know about the trends of other countries to know that we have a consensus on the extension."

    Though many ministers have indicated their support for an extension of the production cuts, Falih said that OPEC was "still communicating with many countries. And we will work to watch the market for April and May to ensure our colleagues in OPEC and outside OPEC will take the right measures in this regard."

    He said the production cut agreement, which was signed late last year, was needed to stimulate investment in the oil sector after two years of a price slump prompted by the oversupply in the market.

    "We in Saudi Arabia, and I think the market will agree, are concerned with what will happen in three to four years," Falih said. "The levels of investment in the producing counties and oil companies continue at the low levels we have seen during the last two years. And what we agreed with our partners, countries that are outside OPEC, was an important agreement."
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    Murky oil inventory picture leaves market grappling for clarity

    The jury is still out over whether an OPEC-led production cut aimed at tightening oil markets is working, or if the producer club has simply enabled higher prices without making much of a dent in the global fuel supply overhang.

    Analysts say there are early indications that at least some inventories, key in gauging the health of the market, are starting to draw down.

    However, inventory levels are hard to judge outside of the United States, as many countries do not release specific figures. Oil shipments show an ongoing excess, while price activity in oil futures suggests sagging optimism the imbalance is being corrected.

    Over two years into a 50 percent price slump, the Organization of the Petroleum Exporting Countries (OPEC) and some other producers, including Russia, pledged to cut production by almost 1.8 million barrels per day (bpd) during the first half of the year.

    But more oil than ever is currently traversing the world's oceans. Thomson Reuters Eikon data shows global crude shipments, which monitor tanker movements but exclude pipeline flows, hit a record 47.8 million bpd in April, up 5.8 percent since December, before cuts were implemented.

    This is in part due to a jump in production and exports from producers who did not agree to cuts, especially the United States.

    "OPEC seems more like a magician who is keeping the audience's attention fixed firmly on his hands (its production policy) while the actual trick takes place elsewhere (non-OPEC supply)," said Carsten Fritsch, oil analyst with Commerzbank.

    U.S. production is soaring, jumping by almost 10 percent since mid-2016 to 9.25 million bpd C-OUT-T-EIA. This brings its output close to the world's top two producers, Saudi Arabia and Russia.

    Futures prices suggest skepticism the market is rebalancing. Early this year the forward curve for Brent crude futures moved from contango, in which future prices are more expensive than those for immediate delivery, to flat or even briefly into backwardation, suggesting a balancing in prompt markets. This has since reversed sharply.

    “If they're (OPEC) so busy complying, how come we're taking so much extra inventory? Why is the whole curve in free-fall when supplies are supposedly tightening?” said Robert Yawger, energy futures strategist at Mizuho Americas.


    To fully determine the state of oversupply, looking at storage levels is key, but it is not easy. U.S. inventories remain bloated C-STK-T-EIA, but outside the United States, it is notoriously difficult to reliably count stored barrels.

    There are some signs these harder-to-track inventories are easing. The International Energy Agency (IEA) said crude in less-visible places, such as barrels outside the developed world and those in floating storage, decreased in the first quarter.

    But IEA data on the 35 Organisation for Economic Cooperation and Development (OECD) countries paints a more bearish picture. OECD stocks fell by 17.2 million barrels in March, but since the OPEC-led cut started at the beginning of the year, inventories are up by 38.5 million barrels.

    "If stocks are still rising strongly, you've still got an oversupplied situation," said Jamie Webster, a fellow at Columbia University's Center on Global Energy Policy.

    "It doesn’t make sense for OPEC to pat itself on the back for strong compliance. That’s what they agreed to, not what the impact is."

    Some of the oil sloshing around the world could also have been taken out of OPEC's own storage to meet customer demand despite cuts. Saudi Arabian Energy Minister Khalid al-Falih said on Thursday in an interview with the Saudi-owned al-Hayat newspaper that supplies remained elevated in part because traders were selling oil out of tanker storage.

    Russia has also been boosting oil exports, despite cuts under the deal.

    Millions of barrels of Nigerian oil stored in South Africa's Saldanha Bay have been sold in recent weeks, and more are scheduled to leave in May.

    In Asia, the world's fastest growing consumption region, many countries, especially China, treat inventory data as strategically sensitive. But trade flows around Singapore, a key way station for virtually all tankers from Europe and the Middle East to Southeast Asia, are a bellwether.

    There has been a noticeable drop in crude storage around Singapore this year, although some cautioned these barrels will be quickly replaced by incoming cargoes from the United States and Latin America.

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    Malaysian crude June trading cycle kicks off under strong downside pressure

    Price differentials for June-loading Malaysian crude cargoes faced strong downside pressure Friday, weighed by hefty supply of light and medium sweet crude barrels from Southeast Asia and Oceania for the month.

    Petroleum Brunei kicked off the June trading cycle for light sweet Malaysian grades on a bearish note this week, with the Southeast Asian supplier receiving weaker premiums for its Kimanis crude cargo.

    Latest market talk indicated that Petroleum Brunei could have sold a 600,000-barrel cargo of the light sweet Malaysian grade for loading June 4-8 to Thailand Integrated Services at a premium of around $1.10-$1.50/b to the Platts Dated Brent crude assessments on an FOB basis, sharply lower than the premiums of around $2.20/b that regional buyers paid for May-loading cargoes in the previous trading cycle.

    Taking the latest spot trade deal into consideration, Kimanis crude was assessed at a premium of $1.40/b to Platts Dated Brent crude assessments on an FOB basis Thursday, the light sweet grade's lowest-ever price differential reported by S&P Global Platts.

    "It's going to be a bloody month," said a trader with a Japanese trading company, indicating that Malaysian crude suppliers would have to fend off competition from numerous trading houses and producers from Vietnam and Australia looking to sell their share of light sweet crude barrels for June. Platts previously reported that various trading firms could offer a combined total of around 2.5 million barrels of Vietnamese light Bach Ho crude into the Asian secondary market.

    Adding to the already growing pool of regional light and medium crude supply, a variety of low sulfur Australian crude grades including Barrow Island, Varanus, Cossack and Mutineer are also available for sale in the spot market this month.

    "I am sure [Malaysian crude] sellers want to sell [their June barrels] as quick as possible and they are already on the move... the longer they take [to clear cargoes] the deeper the premiums could fall," the trader added.

    Trade sources said Petronas was already offering some of its Miri crude barrels for loading in June. Market talk indicated that the Malaysian producer was recently seen offering a parcel of Miri crude at Dated Brent plus $2.50-$2.70/b.

    "Buyers are thinking much below that... I doubt it will sell anywhere near that level," said a Southeast Asian sweet crude trader.


    The preliminary June-loading program for Kimanis showed ample supply of the middle distillate-rich crude for the month.

    A total of ten 600,000-barrel cargoes of the light sweet Malaysian grade are scheduled for export in June, one more than in May.

    Malaysia's state-owned Petronas will load four of the 10 cargoes out of the Sabah Oil and Gas Terminal.

    Shell and ConocoPhillips were allocated two cargoes each, while Petroleum Brunei and Indonesia's Pertamina hold one cargo each.

    The four Petronas cargoes are expected to load June 1-5, June 10-14, June 16-20 and June 25-29 respectively.

    Shell is likely to have its cargoes loading over June 13-17 and June 28-July 2, while ConocoPhillips is scheduled to export its cargoes around June 7-11 and June 22-26.

    Trade sources said Pertamina is expected to take its equity cargo loading in June 19-23 into its own system.

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    Iraq may seek exemption from OPEC oil cuts to boost own output -Hakim

    Iraq may seek to be exempt from a deal between oil exporters to reduce global supply in order to support crude prices and ask to boost its own output, the leader of the nation's Shi'ite ruling coalition Ammar al-Hakim told Reuters.

    OPEC is due to meet in May to decide on an extension of supply curbs decided late last year to lift prices.

    Speaking in Cairo, Hakim cautioned that Baghdad could ask to be exempted from taking part in the supply curbs as the nation needed its oil income to fight Islamic State.

    "Given these sensitive circumstances, it is the right of Iraq to hope for an exemption by the other OPEC member states and have an opportunity to increase its production," Hakim, an influential cleric, said in an interview late on Wednesday.

    "But we are with the principle of reducing the overall OPEC supply to lift prices."

    Hakim is the president of the National Alliance, a coalition of the main Shi'ite political groups including Prime Minister Haider al-Abadi's Dawa party. The Shi'ite community forms a majority in Iraq.

    Iraq is OPEC's second-largest producer, after Saudi Arabia, with an output of 4.464 million barrels per day (bpd) in March, a reduction of more than 300,000 bpd on levels before OPEC cuts were implemented from Jan. 1.

    Baghdad reluctantly agreed to take part in the current agreement to restrain output. Hakim was one of the Iraqi leaders whom OPEC Secretary Mohammed Barkindo met while on visit to Baghdad in October when trying to broker a deal.
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    ConocoPhillips takes slow, steady route in race for oil profits

    ConocoPhillips has beaten its 2017 asset sales target less than four months into the year, after shedding $30.8 billion worth of energy assets in six years.

    But instead of a chorus of cheers on Wall Street, Chief Executive Ryan Lance is facing investor skepticism that the company can deliver growth from remaining oil and gas fields.

    ConocoPhillips' most recent sales of Canadian oil-sands properties and U.S. natural gas wells for a combined $16 billion will part with nearly 30 percent of its proved reserves in order to deliver near-term shareholder payouts and pare debt. For a graphic, click

    Lance told Reuters the sales to Cenovus Energy (CVE.TO) and Hilcorp Energy Co will fulfill promises to reduce long-term debt by 42 percent to $15 billion, fund $6 billion in share purchases and help reshape the company for an era of low and volatile energy prices.

    Drilling in two shale regions should help restore falling U.S. output by the fourth quarter.

    "I don't worry about production and reserves in the company," he told Reuters in an interview, citing oil and gas fields that could be upgraded to proved reserves over time.

    ConocoPhillips can achieve flat to 2 percent annual production growth on its properties, after adjustments for sales, and deliver shareholder payouts, he said.

    But interviews with portfolio managers, former employees and industry analysts point to the frequent sales as a short-term fix. They worry ConocoPhillips' plan for modest production growth, flat capital spending and steady shareholder payouts pales in comparison to rivals that have retooled themselves to deliver sharply higher growth rates.

    The danger of its reliance on fewer assets was driven home in recent weeks as a fire at a supplier hurt its ability to ship crude from oil-sands properties.

    Mike Breard, who tracks energy stocks for Hodges Capital Management, said the strategy lacks appeal.

    "If I wanted yield, I'd buy something else. If I wanted growth, I buy something else. I just don't see what customers would want to be in that in-between situation," Breard said.

    The Houston company projects its daily production of crude and natural gas will fall 26 percent after the latest sales to about 1.16 million barrels of oil equivalent (boe). Barclays expects overall it won't return to production growth on a full-year basis until 2019.

    "They've sold a very valuable asset," said Marc Heilweil, senior portfolio manager at Atlanta-based investment firm Gratus Capital, referring to the oil-sands holdings.

    The deal will "make it harder for them to fully replace reserves down the line" because shale-oil properties have shorter productive lives, he said.

    To ensure growth, oil producers must continually add reserves to offset production and the natural decline that occurs in oil-and-gas properties.

    In 2012, ConocoPhillips spun off its refining business, leaving the ranks of the large, integrated companies like Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N), and putting it among a group of mostly-small U.S. independent exploration and production companies.

    Lance, who was the company's technology chief, became ConocoPhillips' chairman and CEO upon the spin off. He pledged to boost output by 3 percent to 5 percent annually by tapping its large pool of deep-water, oil-sands and conventional oil-and-gas properties. That goal ended two years later as prices collapsed, forcing it to borrow heavily to cover its spending on production. ConocoPhillips later cut its dividend.

    Its lack of exposure to refining has helped its shares stand out recently. The company's stock is down 4.3 percent year to date, even after an about 9 percent jump following the March 29 disclosure of a $3 billion addition to its share buy backs. In contrast, Chevron is 11.5 percent lower and Exxon is off about 10.8 percent in the same period.

    Of analysts with published ratings on the stock, 7 rate it a strong buy, 11 rate it a buy and 6 rate it a hold. That compares to Chevron with 6 strong buy ratings, 12 buy ratings and 3 hold ratings.


    Last fall, Lance recast ConocoPhillips as an energy company able to offer steady shareholder returns on flat production spending of about $5 billion a year. It shaved its growth target to as much 2 percent, instead of up to 5 percent, and promised 20 percent to 30 percent of operating cash flow would go to holders via dividends and buy backs.

    He insists the remaining assets can generate substantial cash from operations even if oil CLc1 falls below $40 a barrel. ConocoPhillips is ramping up output from its Eagle Ford and Bakken shale wells, from another oil-sands property and liquefied natural gas (LNG) from operations in Australia.

    Meanwhile, rivals have cranked up their production much faster. U.S. shale-focused companies project 15 percent volume growth this year, says consultancy Wood Mackenzie, and the larger oil producers such as Chevron are raising output and delivering fatter dividends.

    ConocoPhillips will be producing an average 1.25 million boe a day in 2019, estimates Barclays. In contrast, Chevron projects its daily output this year will rise between 103,000 boe and 233,000 boe over 2016's average 2.59 million boe, excluding divestitures. Chevron pays a 4 percent dividend.

    The risk for ConocoPhillips investors is the growth in production doesn't generate higher free cash flow for share buy backs, and the 2 percent dividend yield, about half that of Chevron, becomes the bigger part of returns.

    Henry Smith, co-chief investment officer at Haverford Trust, which invests in companies offering revenue growth and dividend gains, sold ConocoPhillips shares ahead of its 2016 dividend cut and has not been tempted back by the new strategy.

    ConocoPhillips' pledge to deliver steady returns and growth is appealing, said Smith. But, he added: "Exxon over the years has fit that bill." Haverford's oil-industry holdings are Exxon Mobil Corp (XOM.N), Chevron and Schlumberger NV (SLB.N), he said.

    Tom Bergeron, an equity analyst at Frost Bank, also prefers other oil producers such as Chevron and Occidental Petroleum Corp (OXY.N) for what he said is their expected growth and their higher dividend yields.

    Lance, who worked summers as an oilfield roughneck while studying petroleum engineering in Montana, said he understands investors want proof the company can deliver regular payouts without the asset sales.

    "It'll probably take performance through a cycle to demonstrate we have the position and the passion to deliver," he said, referring to the industry's boom and bust periods.
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    WoodMac: 60 pct of US LNG supplies to land in Europe

    Europe is expected to be the number one destination for U.S. liquefied natural gas (LNG) supplies by 2020, consultancy Wood Mackenzie said.

    Houston-based Cheniere started exports from the Sabine Pass liquefaction plant in Louisiana, currently the only such facility to ship U.S. shale gas overseas, in February last year.

    Since then, it shipped more than 100 cargoes to various locations around the globe.

    Many predicted a “flood” of U.S. LNG to Europe but only a small number of Sabine Pass LNG cargoes landed in Europe since February last year, better said in the southern part of the continent.

    The bulk of these cargoes went to Latin America, Africa and Asia.

    The U.S. is expected to become one of the world’s largest LNG suppliers by 2020 with an export capacity of about 60 million mt coming from five export terminals located along the Gulf Coast.

    “Between now and 2035, the US will become an important LNG supplier and, by 2020, 60% of US LNG will find a market in Europe,” Wood Mackenzie said in a report published last week.

    However, while demand is there, some US producers will be unable to recover the cash cost of shipping to Europe, as oversupply forces gas prices to stay low, the consultancy said.

    “It is likely some US LNG will be shut-in on a seasonal basis until the mid-2020s,” it added.

    According to Wood Mackenzie, volumes delivered to Europe will continue to increase to 2025 before falling once more as competition from other new LNG suppliers and destinations causes US volumes to be diverted elsewhere.

    China to become world’s top LNG importer

    China’s long-term growth potential remains considerable, despite recent downward revisions, Wood Mackenzie said in the report.

    “Chinese gas-into-power demand will grow 366% from 2016 to 2035, as the country becomes the world’s largest importer of LNG, overtaking Japan whose gas-into-power demand will fall 33% as the nuclear fleet ramps up again,” it said.

    In India, gas demand is projected to rise 156% from 2016 to 2035, or about 5% per year, according to Wood Mackenzie.

    “India will account for only 3% of the global market by 2035, but nevertheless will be the world’s largest importer of LNG – a neat illustration of the increasing fluidity of the global gas market in the years to come,” the consultancy said.

    Such varied growth in regional gas demand will make it difficult for supply and demand to balance without international trade, Wood Mackenzie noted in the report.

    In addition, the distance between supply regions and centres of demand is fostering the growth of the global LNG market as a solution.

    Wood Mackenzie expects that such significant change will herald a shift away from oil indexation in the gas market, creating more independent global hydrocarbon prices.
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    German February imported BAFA natural gas price below German, Dutch spot

    The average price of natural gas imported into Germany in February was Eur18.15/MWh, according to export control agency BAFA, below German NetConnect and GASPOOL and Dutch TTF February spot and front-month contracts for February delivery.

    The BAFA price is the monthly average price of natural gas on the border, based on a formula including long-term contracts linked to oil, spot gas and other mechanisms.

    The price of imported gas in January was up 2.4% from January and 15.7% higher year on year. In comparison, the price of imported gas in January was up 0.7% from December and up 10.1% year on year.

    Gas prices in February showed some strength month on month and year on year on cooler weather at the beginning of the month combined with low stocks.

    S&P Global Platts assessed average day-ahead prices at Germany's GASPOOL and NCG in February at Eur19.569/MWh and Eur20.063/MWh, respectively, Eur1.42/MWh and Eur1.91/MWh above BAFA prices.

    On the Dutch TTF hub, the contract in February was assessed at Eur19.586/MWh, Eur1.44/MWh above the BAFA price.

    Looking at the month-ahead price in January for February delivery, the contracts at the three hubs were also above the BAFA price, at Eur19.333/MWh for GASPOOL, Eur19.837/MWh for NCG, and Eur19.794/MWh for TTF.

    In February, BAFA was once again about the same level as Platts Northwest Europe Gas Contract Indicator for February, which was at Eur18.14/MWh. This indicator shows the theoretical value of an old-fashioned, oil-indexed long-term gas import contract.

    The BAFA price was also above Platts Analytics' Eclipse Energy oil-indexed range (901) of Eur17.60/MWh in February. Platts Analytics oil-indexed range also includes some spot indexation and prices renegotiation.

    But German and Dutch spot February and front-month contracts for February delivery were also above Platts Analytics' oil-indexed range.

    The value of imported natural gas in January and February was Eur4 billion from Eur3.1 billion in the same period last year, BAFA said.
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    Woodside ups drilling as March quarter falls short

    Woodside Petroleum has increased its already-busy drilling program in Myanmar this year and may add extra wells in its African exploration venture in Senegal as it puts the emphasis on building its pipeline of development opportunities over potential acquisitions.

    News of the increased activity came as the oil and gas producer reported what analysts described as a "soft" quarter as cyclones and storms hit production in Karratha.

    Three exploration wells will now be drilled off the coast of Myanmar this year instead of two, bringing the total schedule to five firm wells, with potentially another two to be added depending on results.

    In Senegal, Woodside is talking with its partners on two further exploration wells that may be drilled towards the year-end, chief executive Peter Coleman said.

    Woodside reported sales of $US895 million in the March quarter, down 8.8 per cent from a year earlier. Production slid 9.7 per cent to 21.4 million barrels of oil equivalent, impacted by a worse-than-usual cyclone season and the expiry of a domestic gas sales contract. The company still maintained its full-year guidance for production.

    RBC Capital Markets analyst Ben Wilson said quarterly production fell 5 per cent short of his expectations, while sales revenues missed by 10 per cent.

    Mr Wilson described the three months as "a soft production quarter, explained by adverse weather events".

    JPMorgan's Mark Busuttil also said production, sales volumes and revenues were all below his estimates.

    But Mr Busuttil highlighted Woodside's guidance that it would finalise the broad design concept this year for both its Browse gas development and for the Scarborough gas venture, both off Western Australia, signalling progress at both large projects.

    Woodside said it now preferred developing Browse gas through existing onshore LNG plants on the Burrup Peninsula, rather than through floating LNG which it was focusing on previously. That stance is "subject to reaching acceptable terms with the Burrup infrastructure owners," Woodside said.

    Both the Woodside-operated North West Shelf venture and Woodside's majority-owned Pluto LNG venture have their plants on the Burrup Peninsula. The company said in February it had revived work on potential expansion options for Pluto.

    Woodside also reported it had inked new medium-term LNG sales contracts for up to 16 cargoes, to be delivered by 2019

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    ConocoPhillips says keen to tap proposed trans-Australia gas pipe

    ConocoPhillips will consider diverting natural gas from fields in northern Australia along a proposed transcontinental pipeline that would link directly to markets in the southeast, a senior executive told Reuters on Thursday.

    The U.S. oil major is also leaning towards developing the Barossa gas field offshore northern Australia, with a final decision due in the first quarter of 2018, Kayleen Ewin, the company's vice president for sustainability, communications and external affairs, said in an interview. That is earlier than the company had previously indicated.

    Ewin said the proposed transcontinental pipe would open Australia's domestic market for northern producers. The system would carry natural gas from the Northern Territory to Moomba in South Australia, the hub for gas to the country's main southeastern markets. Australia's government said last month it would study and possibly contribute to building the pipeline.

    That offers another opportunity for developing gas resources in a region where Royal Dutch Shell, Malaysia's Petronas, Italy's ENI SpA, and Australia's Santos and Origin Energy have undeveloped interests.

    "Really our only route to market at the moment is LNG (liquefied natural gas) for northern Australia gas, and we always welcome anything that opens up another route to market," Ewin said.

    "We'd definitely look in to it ... southeast Australia for LNG has historically been and will be in future a big market for us. Proximity to market just means there is a cost advantage in terms of competing."

    A looming gas shortage for Australia's populous east has seen prices spike and the government search for solutions, including calling a crisis meeting this week with producers, some of whom have drawn gas from the domestic market to meet export contracts.

    Another pipeline linking central Australia with the east is delayed.

    ConocoPhillips announced on Wednesday it is also considering adding a second production unit, or train, at its Darwin LNG plant and possibly processing gas from rivals' undeveloped fields.

    ConocoPhilips is also in the final stages of picking a new gas field to fill the plant's existing train, when supply from its current gas source, the Bayu-Undan field, runs out around 2022.

    "Barossa looks to be the lowest cost development," Ewin said, adding its proximity and the ease of extraction means the company is leaning toward preferring it over the larger Poseidon field.

    The project is expected to cost up to A$10 billion ($7.5 billion).

    The company had said in February a final decision was due late in 2018 at the earliest.
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    Court orders Shell-Exxon criminal probe over Dutch gas quakes

    A Dutch court ordered prosecutors to open an investigation on Thursday into whether a Shell-Exxon joint venture bears any criminal responsibility for earthquakes triggered by production at the country's largest gas field.

    No physical injuries have been caused by numerous small quakes, which have damaged thousands of buildings and structures across the north-eastern province of Groningen, and prosecutors had previously declined to act, arguing it was a civil matter.

    However, the Leeuwaarden-Arnhem Appeals Court directed them to open an investigation, saying they had not looked carefully enough at whether a crime could be proved.

    The government was formally censured by the country's Safety Board after a magnitude 3.6 quake hit the town of Huizinge in 2012. This was larger than had been deemed possible by NAM, the Royal Dutch Shell and Exxon Mobil joint venture that oversees production at Groningen.

    "The court observes that there is evidence that the NAM is culpable of...damaging buildings with threat to human life," the court said in Thursday's ruling.

    NAM, which has accepted civil responsibility for damage caused by the quakes and is paying damages of more than 1 billion euros ($1.1 billion), said in a statement it was surprised by the decision over Groningen, which was discovered in 1959 and is one of the world's largest gas fields.

    "In earlier rulings, prosecutors and the court have continually found that there was no reason for prosecution," it said, adding that investigations do not automatically lead to charges being brought.

    Earlier this week, the Dutch government said it will again cut output at the field to lessen the risk posed by quakes, the fourth such move since the Safety Board's pivotal February 2015 report said authorities had ignored potential risks at Groningen for decades and were putting lives in danger.

    Output at Groningen has been steeply reduced from 53.9 billion cubic meters in 2013 to a maximum of 24 billion cubic meters on an annual basis at present; in October that will be further cut to 21.6 bcm.

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    More oil: Permian keeps on drilling

    Drillers in the Permian Basin just keep cranking out more oil.

    Crude production in the Permian increased by 57,700 barrels per day from February to March, according to a new report from the Federal Reserve Bank of Dallas. Wells drilled but not completed — a sign of production to come — also increased, and are now at their highest count in more than three years.

    “The firming of crude oil prices since the OPEC agreement has likely boosted confidence in the sector,” said Dallas Fed senior research analyst Kunal Patel.

    And those wells drilled but not completed to 1864 wells means Permian operators can quickly produce more oil when crude prices rise.

    Permian Basin production increased in March by almost 3 percent to 2 million barrels per day, double the increase in South Texas’ Eagle Ford, where production rose by a little more than 1 percent to 1 million barrels per day. Operating rigs numbered 310 in the Permian and 80 in the Eagle Ford in March.

    The Fed also reported an increase in oil and gas employment in Texas, of 3,000 jobs in February to roughly 208,300 total.
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    Alternative Energy

    Turnbull says Tasmania wind, hydro can become “energy battery” for Australia

    Prime minister Malcolm Turnbull has extended his vision of large-scale pumped hydro and storage to Tasmania, outlining plans to expand the island’s existing hydropower system, and possibly add 2,500MW in pumped hydro, and describing the possibility that the state could become the “renewable energy battery” for Australia.

    The announcement comes just weeks after Turnbull unveiled a new study to investigate the so-called “Snowy 2.0”, a plan to add 2GW – with up to 175 hours of storage – in pumped hydro capacity in the Snowy Mountains; a move that would effectively kill the prospect of new coal or gas plants.

    The latest announcement, made in Launceston with the Tasmanian premier and the state-owned Hydro Tasmania on Thursday, canvasses the possibility of adding a new cable between the island and the mainland, and significantly boosting both hydro capacity and wind energy to supply “baseload” renewables to the major markets.

    Turnbull said the Australian Renewable Energy Agency (ARENA) was in the process of assessing applications from Hydro Tasmania to support feasibility work into redeveloping the Tarraleah scheme and enhancing the Gordon Power Station.

    It’s also considering an application to explore the utility of several new pumped hydro energy storage schemes that could deliver up to 2500MW of pumped hydro capacity: Mersey Forth-1, Mersey Forth-2, Great Lake and Lake Burbury – with capacity of around 500-700 MW each – and an alternative of nine small scale sites totalling 500MW.

    “Its importance has become greater as the energy market has evolved. there is an opportunity for more wind and hydro today,” Turnbull said.

    “We recognise that as the energy sources changes, we need to ensure that we have the storage … we have announced a study for the Snowy Hydro, but there is the opportunity here in Tasmania.

    “It can double the capacity of hydro Tasmania, and it has the best wind assets in Australia. The roaring forties … are fantastic for wind farms. There is an opportunity for Tasmania to play a bigger part in ensuring that Australia has reliable and affordable energy, and meet emission reduction targets.

    “Tasmania could become a renewable battery storage for Australia in an era of distributed, renewable power.”

    The announcement came in tandem with the release of a study by Dr John Tamblyn into a second interconnector. Dr Tamblyn’s report finds another interconnector might be beneficial, but will depend on the ongoing development of the electricity system in Tasmania and the National Electricity Market.

    Hydro Tasmania’s CEO Steve Davy said the company was looking to upgrade and expanding Tasmania’s hydropower network, as well as the potential for new private wind farm development and pumped storage opportunities, “to help lead Australia through the challenging (energy) transition.”

    “We have nation-leading expertise in integrating renewable energy into the grid in a stable and affordable way. We’ve done that innovatively and successfully in Tasmania, and it’s the very challenge mainland Australia is starting to grapple with,” Davy said in a statement.

    The studies would include an investigation into replacing one of Tasmania’s oldest operating power stations at Tarraleah in the Central Highlands, and expanding it from around 550GWh of renewable energy each year  to more than 760GWh. The proposal involves constructing a 17-kilometre long underground tunnel from Lake King William and adding pumped hydro capacity.

    There is also a study to add a third, smaller turbine to the Gordon power station, the largest in Tasmania, and the only station on the Gordon/Pedder scheme.
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    California oversupply volumes grow, ISO curtails more renewables

    The California Independent System Operator is curtailing growing amounts of renewable generation, Mark Rothleder, the grid operator's vice president for market quality and integrating renewables, said.

    Speaking Wednesday during a meeting of the Western energy imbalance market board, Rothleder said the ISO curtailed about 60,000 MWh in February and about 80,000 MWh in March, up from about 21,000 MWh and 47,000 MWh a year earlier.

    Matching the increased curtailment volumes, the ISO experienced curtailments in 31.1% of its market intervals so far this year, up from 21.1% a year ago, 15.9% in 2015 and 9.6% in 2014, he added.

    California's net load -- actual load minus wind and solar production -- and its late afternoon ramps are at levels the ISO expected to see in 2020, according to Rothleder.

    When the ISO first put out its "duck curve" chart several years ago, the grid operator underestimated the amount of behind-the-meter solar that would be added in the state, he said, noting that there is about 5,000 MW of rooftop solar, with more being added every day.

    On April 9, the ISO had a net load of 10,386 MW, roughly 1,700 MW less than the grid operator forecast in its duck curve chart for a typical spring day in 2020.

    The ISO has roughly 10,000 MW of nuclear, hydroelectric and qualifying facilities on its system that "you can't move," Rothleder said, which leads to renewable curtailments in low load periods.

    Most of the curtailments come via economic bids, but some are manual, he said.

    The Western energy imbalance market has provided an opportunity for California to sell energy from renewables that would be otherwise have been curtailed, according to Rothleder. In some periods of oversupply, California exports up to 2,000 MW, he said.

    The ISO has also been able to import energy via the EIM to address its ramping periods when solar production falls off in the late afternoon, Rothleder said.

    However, so far this year, the amount of avoided curtailments has dropped compared with a year ago. It is unclear why this is happening, Rothleder said.

    In an effort to better address oversupply conditions, the ISO about three weeks ago started issuing oversupply forecasts so that market participants can prepare ahead of time for the oversupply conditions, Rothleder said.

    Meanwhile, Portland General Electric is on track to begin participating in the EIM on October 1, according to Petar Ristanovic, ISO vice president for technology and EIM executive sponsor.

    PGE's participation will add about 450 MW of bi-directional transfer capacity between the utility's balancing authority area and the western part of PacifiCorp's footprint, Ristanovic said. It will also add 450 MW of transfer capacity to the north and 300 MW to the south, he said.

    PGE expects joining the EIM will save it up to $4 million a year while it is expected to bring up to $3.7 million in benefits to the rest of the market.

    PGE has 3,843 MW of generating resources and gets about 15% of its electricity from non-hydro renewables, according to Larry Bekkedahl, PGE vice president for transmission and distribution. Oregon has a renewable portfolio standard that ramps up to 50% by 2040.

    PGE is working with smaller balancing authority areas to help them join the EIM, Bekkedahl said. "Our hope is to make it as easy as possible" for them to join, he said.

    Also, the ISO is preparing to start a stakeholder process by July that aims to develop rules for non-EIM entities to donate transmission capacity for EIM transfers in exchange for congestion rents, according to Brad Cooper, ISO manager for market policy.

    A proposal is expected to go to the EIM governing body and the ISO board by the end of the year, he said.

    The ISO is also preparing to start a process to establish an EIM wheeling charge to address a drop in transmission revenue caused by EIM transfers across participating balancing authority areas, Cooper said. Before the process starts late this year, a working group will determine exactly how much transmission revenues have dropped, he said.

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    Pesticide maker Dow tries to kill risk study

    Dow Chemical is pushing the Trump administration to scrap the findings of federal scientists who point to a family of widely used pesticides as harmful to about 1,800 critically threatened or endangered species.

    Lawyers representing Dow, whose CEO also heads a White House manufacturing working group, and two other makers of organophosphates sent letters last week to the heads of three Cabinet agencies. The companies asked them "to set aside" the results of government studies the companies contend are fundamentally flawed.

    The letters, dated April 13, were obtained by The Associated Press.

    Dow Chemical chairman and CEO Andrew Liveris is a close adviser to President Donald Trump. The company wrote a $1 million check to help underwrite Trump's inaugural festivities.

    Over the last four years, government scientists have compiled an official record running more than 10,000 pages showing the three pesticides under review — chlorpyrifos, diazinon and malathion — pose a risk to nearly every endangered species they studied. Regulators at the three federal agencies, which share responsibilities for enforcing the Endangered Species Act, are close to issuing findings expected to result in new limits on how and where the highly toxic pesticides can be used.

    The industry's request comes after EPA Administrator Scott Pruitt announced last month he was reversing an Obama-era effort to bar the use of Dow's chlorpyrifos pesticide on food after recent peer-reviewed studies found that even tiny levels of exposure could hinder the development of children's brains. In his prior job as Oklahoma's attorney general, Pruitt often aligned himself in legal disputes with the interests of executives and corporations who supported his state campaigns. He filed more than one dozen lawsuits seeking to overturn some of the same regulations he is now charged with enforcing.

    Pruitt declined to answer questions from reporters Wednesday as he toured a polluted Superfund site in Indiana. A spokesman for the agency later told AP that Pruitt won't "prejudge" any potential rule-making decisions as "we are trying to restore regulatory sanity to EPA's work."

    "We have had no meetings with Dow on this topic and we are reviewing petitions as they come in, giving careful consideration to sound science and good policymaking," said J.P. Freire, EPA's associate administrator for public affairs. "The administrator is committed to listening to stakeholders affected by EPA's regulations, while also reviewing past decisions."

    The office of Commerce Secretary Wilbur Ross, who oversees the Natural Marine Fisheries Service, did not respond to emailed questions. A spokeswoman for Interior Secretary Ryan Zinke, who oversees the Fish and Wildlife Service, referred questions back to EPA.

    As with the recent human studies of chlorpyrifos, Dow hired its own scientists to produce a lengthy rebuttal to the government studies showing the risks posed to endangered species by organophosphates.

    The EPA's recent biological evaluation of chlorpyrifos found the pesticide is "likely to adversely affect" 1,778 of the 1,835 animals and plants accessed as part of its study, including critically endangered or threatened species of frogs, fish, birds and mammals. Similar results were shown for malathion and diazinon.

    In a statement, the Dow subsidiary that sells chlorpyrifos said its lawyers asked for the EPA's biological assessment to be withdrawn because its "scientific basis was not reliable."

    "Dow AgroSciences is committed to the production and marketing of products that will help American farmers feed the world, and do so with full respect for human health and the environment, including endangered and threatened species," the statement said. "These letters, and the detailed scientific analyses that support them, demonstrate that commitment."

    FMC Corp., which sells malathion, said the withdrawal of the EPA studies will allow the necessary time for the "best available" scientific data to be compiled.

    "Malathion is a critical tool in protecting agriculture from damaging pests," the company said.

    Diazinon maker Makhteshim Agan of North America Inc., which does business under the name Adama, did not respond to emails seeking comment.

    Environmental advocates were not surprised the companies might seek to forestall new regulations that might hurt their profits, but said Wednesday that criticism of the government's scientists was unfounded. The methods used to conduct EPA's biological evaluations were developed by the National Academy of Sciences.

    Brett Hartl, government affairs director for the Center for Biological Diversity, said Dow's experts were trying to hold EPA scientists to an unrealistic standard of data collection that could only be achieved under "perfect laboratory conditions."

    "You can't just take an endangered fish out of the wild, take it to the lab and then expose it to enough pesticides until it dies to get that sort of data," Hartl said. "It's wrong morally, and it's illegal."

    Originally derived from a nerve gas developed by Nazi Germany, chlorpyrifos has been sprayed on citrus fruits, apples, cherries and other crops for decades. It is among the most widely used agricultural pesticides in the United States, with Dow selling about 5 million pounds domestically each year.

    As a result, traces of the chemical are commonly found in sources of drinking water. A 2012 study at the University of California at Berkeley found that 87 percent of umbilical-cord blood samples tested from newborn babies contained detectable levels of chlorpyrifos.

    In 2005, the Bush administration ordered an end to residential use of diazinon to kill yard pests such as ants and grub worms after determining that it poses a human health risk, particularly to children. However it is still approved for use by farmers, who spray it on fruits and vegetables.

    Malathion is widely sprayed to control mosquitoes and fruit flies. It is also an active ingredient in some shampoos prescribed to children for treating lice.

    A coalition of environmental groups has fought in court for years to spur EPA to more closely examine the risk posed to humans and endangered species by pesticides, especially organophosphates.

    "Endangered species are the canary in the coal mine," Hartl said. Since many of the threatened species are aquatic, he said they are often the first to show the effects of long-term chemical contamination in rivers and lakes used as sources of drinking water by humans.

    Dow, which spent more than $13.6 million on lobbying in 2016, has long wielded substantial political power in the nation's capital. There is no indication the chemical giant's influence has waned.

    When Trump signed an executive order in February mandating the creation of task forces at federal agencies to roll back government regulations, Dow's chief executive was at Trump's side.

    "Andrew, I would like to thank you for initially getting the group together and for the fantastic job you've done," Trump said as he signed the order during an Oval Office ceremony. The president then handed his pen to Liveris to keep as a souvenir.

    Rachelle Schikorra, the director of public affairs for Dow Chemical, said any suggestion that the company's $1 million donation to Trump's inaugural committee was intended to help influence regulatory decisions made by the new administration is "completely off the mark."

    "Dow actively participates in policymaking and political processes, including political contributions to candidates, parties and causes, in compliance with all applicable federal and state laws," Schikorra said. "Dow maintains and is committed to the highest standard of ethical conduct in all such activity."
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    Precious Metals

    GDXJ: Index changes portend some savage selling.

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    GDXJ adds on the basis of increasing the mcap limit in the index.

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    Base Metals

    Turquoise Hill output falls on lower grades

    Rio Tinto subsidiary Turquoise Hill Resourceshas reported a 23% drop in concentrate production at the Oyu Tolgoi copper/gold mine, in Mongolia, as it processed lower grades from phases 6 and early 4A of the openpit, as well as stockpile material, during the three months ended March.

    Concentrate production slumped to 176 000 t in the period, in line with expectations, offset by the concentrator recording record throughput on the back of benefit from earlier productivity improvements, Turquoise Hill CEO Jeff Tygesen stated on Wednesday.

    During the quarter, openpit operations focused mainly on Phase 6, which has higher copper grades but relatively low gold grades. Ore treated during the period increased 2.7% over the prior period, and average daily throughput of 112 100 t for the first quarter increased by 5.1% over the December quarter.

    Copper output for the quarter decreased 16.3% quarter-on-quarter to 38 100 t and gold output fell 49% over the prior comparable period to 25 000 oz owing to lower grades, with recoveries at the lower end of the grade recovery curve.

    Oyu Tolgoi is expected to produce 130 000 t to 160 000 t of copper and 100 000 oz to 140 000 oz of gold in concentrates for 2017.

    Rio Tinto operates the Oyu Tolgoi copper/gold mine, which is 66% owned by its Turquoise Hill arm and 34% owned by the Mongolian government.
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    Alcoa swaps New York for the city of steel as Harvey simplifies

    Alcoa is giving up the glamour of New York City and going back to Pittsburgh, as new CEO Roy Harveysteps up efforts to streamline the aluminiummaker.

    Changing headquarters and closing seven locations across the US, Europe and Asia is part of a push to lower costs after the producer of the light-weight metal split from its jets- and auto-parts business last year. Alcoa called Pittsburgh, known as the steel city, home for decades until it moved to New Yorkin 2006.

    At an industry conference in February, Harvey said his key priorities for the company moving forward would sound like “apple pie and ice cream” to Americans in the audience: “simplify, simplify, simplify.”

    “Today’s announcement is another step in our drive to be a more competitive, operator-centric company,” Harvey said Wednesday in  statement. “We are taking every opportunity to streamline Alcoa to reduce complexity.”

    The move would come as little surprise to analysts on calls with the new Alcoa management team, which has been quick to point out its frugality. The company once regarded as a corporate bellwether has eliminated a Geneva office and reduced its office space on Park Avenue, in Manhattan, to one floor. As Alcoa CFO William Oplinger noted in a November call: “We did not take any of the corporate jets with us.”

    Arconic, the downstream business that split from Alcoa in November, remains in New York. Arconic is involved in a proxy battle with activist investor Elliott Management that this week led to the departure of Klaus Kleinfeld as CEO and chairman. Among Elliott’s complaints were Arconic’s corporate overhead expenses and Kleinfeld’s globe-trotting lifestyle.

    Alcoa expects annual savings of $5-million in corporate expenses once it finalises the changes. Affected employees will relocate to other offices or facilities or telecommute.

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    China spot alumina prices fall on expected Xinjiang smelter cuts

    China's spot alumina prices fell Thursday on the back of news this week that Xinjiang smelters in northwest China will be cutting around two million mt/year of new aluminum capacity which have yet to receive required government approvals.

    The ex-works Shanxi daily spot alumina assessment by S&P Global Platts stood at Yuan 2,350/mt ($342/mt) full cash terms, down Yuan 50/mt day on day, Yuan 60/mt lower week on week and a fall of Yuan 350/mt from a month ago.

    A spot trade was heard done at Yuan 2,350/mt cash to full credit terms, ex-works Henan basis for 20,000 mt of refiner East Hope's alumina sold to a trader, market participants said.

    Refiners, traders and smelters said Yuan 2,350/mt cash was the current market clearing rate for both Henan and Shanxi spot alumina.

    A source from East Hope denied having done the trade but did not rule out that the company's alumina may have been traded via other channels at Yuan 2,350/mt.

    Another Henan refiner who also heard of the trade said it was "very possible due to East Hope's anticipated Xinjiang smelter cuts...even though it has not started, they will have extra supply so that is definitely a pressuring factor now."

    A third Chinese refiner/trader agreed, adding he expected this trade to further dampen alumina and push prices down even lower near term.

    A Shanxi refiner, however, continued to put spot prices closer to Yuan 2,400/mt cash "as East Hope is not a pure refiner, they have a smelter and anticipated cuts, so their price may not be repeatable for others. But prices will reach the Yuan 2,300/mt levels soon, just maybe not now, not yet."

    The front-month aluminum contract on the Shanghai Futures Exchange closed at Yuan 14,250/mt, up from Yuan 13,935/mt last week and from Yuan 13,680/mt a month ago.
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    Iluka revenues soar

    Revenue from mineral sand sales from ASX-listed Iluka Resources increased by 118.5% during the three months to March, compared with the previous corresponding period, reflecting an increase in sales volumes.

    Total revenue for the quarter reached A$218.5-million, compared with A$102.1-million in the previous corresponding period, as total mineral sands production increased from 232 200 t to 336 900 t.

    Iluka said on Thursday that improved mineral sands market conditions were evident in the first quarter of 2017, with the company recording a 131.5% increase in total zircon, rutile and synthetic rutile sales volumes, compared with the first quarter in 2016.

    Higher weighted average received prices were also recorded for both zircon and rutile.

    The production and sales volumes are inclusive of Sierra Rutile, which Iluka recently acquired.

    During the quarter under review, Iluka’s only operating mine continued to be the Tutunup South operation, which is the principal source of ilmenite for the synthetic rutile kiln in the south-west of Western Australia.

    The Jacinth-Ambrosia mine remained suspended, to enable Iluka to further draw down on heavy mineral concentrate inventories.

    During the quarter, the company processed some 154 000 t of heavy mineral concentrate and processed 366 000 t.

    Meanwhile, Iluka on Thursday flagged that operations at its Hamilton processing plant, in the Murray Basin in Victoria, will be suspended from October this year, as the plant will only be processing the remaining heavy mineral concentrate from the Murray Basin operation.

    The suspension of Hamilton will last until Iluka’s next planned mining development in the region, the Balranald deposit, in New South Wales.
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    Steel, Iron Ore and Coal

    Post cyclone coking coal price plunge

    The price of coking coal dropped sharply on Thursday with the industry benchmark price tracked by the Steel Index losing 4.6% to $289.50 a tonne as supply disruption following tropical storms in Australia begin to ease.

    Last week the price of Australia free-on-board premium hard coking coal jumped to highest since the second quarter of 2011. That price spike was also the result of flooding in Queensland that saw quarterly contract prices negotiated at an all time high of $330.

    While coking coal is returning to more expected levels, iron ore's unnerving decline appears to have been arrested

    Cyclone Debbie caused serious damage to key rail lines serving mines in the state of Queensland and while three lines have now reopened according to operator Aurizon, but large sections of the Goonyella railroad in the centre of the network is only be expected to be up and running in a week's time.

    Earlier expectations were that roughly 12–13 million tonnes of Australian met coal cargoes destined for China, India and Japan could be delayed, but Aurizon said this week up to 21 million tonnes have been affected.

    A total of 221 million tonnes of coal was exported last year from Queensland, according to the Queensland Resources Council quoted by Reuters and of that at least 75% be steelmaking coal.

    Customs data released last week showed Chinese imports of coal – both thermal and metallurgical coal – in March rose 12.2% from a year ago and 25% from February to 22.1 million tonnes.

    The global met coal market is around 300 million tonnes per year with premium hard coking coal or PHCC constituting more than a third of the total market. More than half of PHCC seaborne coal come from Australian producers according to TSI data.

    A reduction in allowable work days at China's coal mines last year sparked a massive rally in coal prices, lifting met coal prices to multi-year high of $308.80 per tonne by November from $75 a tonne earlier in 2016. But the speculative rally fizzled soon fizzled out with the commodity hitting a 2017 low of $150.10 a tonne last month.

    While coking coal is returning to more expected levels, iron ore's unnerving decline – more than a third over just the last month  – appears to have been arrested.

    The Northern China import price of 62% Fe content ore advanced for a second day on Thursday trading at $64.70 a tonne after dipping to a six-month low of $61.50 per dry metric tonne on Tuesday according to data supplied by The Steel Index.
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    Strong power demand to support Chinese thermal coal in 2017: Citi

    Chinese domestic thermal coal prices are expected to be supported by robust industrial power demand and slower-than-expected supply additions this year, Citi analysts said Thursday.

    The Chinese 5,500 kcal/kg NAR thermal coal price could average Yuan 500-600/mt in 2017, the analysts said in their second-quarter commodity market outlook.

    Thermal coal prices more than doubled last year after China reduced the number of working days at most of its mines, hitting production, while rains in Indonesia disrupted supply.

    However, the Chinese government later relaxed its production policy to meet growing demand. Coal production in major mining provinces in China was also affected this year by adverse weather and intesive safety inspections.

    The price of FOB Qinhuangdao 5,500 kcal/kg NAR coal has surged nearly 81% since the start of 2016 to be assessed Wednesday at Yuan 660/mt, S&P Global Platts data showed.

    "We anticipate Chinese thermal coal demand to stay flat in 2017 after a slight 1% year-on-year decline in 2016, thanks to robust industrial power demand, and supply rising 7% year year on year after a 8% decline last year," Citi analyts said.

    Chinese thermal power generation rose 7% year on year in the first two months of the year, supporting thermal coal prices.

    "Thermal coal looks tightish in the near term, but Chinese supply should come back rapidly in the second half of 2017, and overseas miners are targeting marginally higher output," the analysts said.

    However, the analysts sounded a bearish note on India, another major buyer of imported coal.

    "India's thermal coal imports should continue to disappoint the global market," the analysts said.

    Earlier this month, Australia's Resources and Energy Quarterly report said it estimated India's total imports of thermal coal to fall to 161 million mt in calendar 2017 from an estimated 166 million mt in 2016, and to 157 million mt in 2019 before rising to 175 million mt by 2022. SUPPLY IMPACT

    On the supply side, the analysts do not see a significant impact on Australian thermal coal shipping volumes from the disruption caused by Cyclone Debbie earlier this year.

    "But the cyclone disruption could give producers better bargaining positions ahead of the April JPU contract negotiation with Japanese buyers," the analysts noted.

    Talks to finalize the benchmark price for April 2017-March 2018 shipments of Glencore's Australian thermal coal to Japan's Tohoku Electric Power are still ongoing, sources say, despite being nearly three weeks past their deadline.

    Indonesian exports may continue to be affected by rains and other logistics bottlenecks in Kalimantan province in the short term, Citi said, adding that they expect about 5% year-on-year supply growth for 2017.

    Exports of Indonesian thermal coal totaled 227.66 million mt in 2016, sliding 5% year on year on year, according to customs data.

    "As in 2016, iron ore, thermal coal and coking coal markets should take their cues from Chinese government actions in cutting capacity and actively managing short-term output," Citi analysts said.
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    Vale’s iron ore output just hit another record

    Brazil’s Vale, the world’s No.1 iron ore miner, said output of the steelmaking material hit a fresh record high in the first quarter as its massive S11D mine in the Amazon continued to ramp up.

    The Rio de Janeiro-based company said iron ore production jumped 11% to 86.2 million tonnes in the January-March period, compared to the same quarter a year earlier.

    The figure however, was 6.7% lower than total iron ore output of 92.386 million tonnes in the prior three months, and the company said it might restrain supply even further in coming months to support prices if necessary.

    For now, however, the mining giant reiterated its output guidance for the year of between 360 million and 380 million tonnes of seaborne.

    The commodity has been steadily falling in the last few days, to a near six-month low this week, on the back of fresh signs of a supply glut and ramped-up production in China.

    While prices have recovered slightly in the past two days — ore with 62% content in Qingdao added 76 cents overnight to $65.36 a tonne on Thursday according to the Metal Bulletin — analysts expect supply to surpass demand for the foreseeable future.

    For some, such as Stan Wholley, president for the Americas at CSA Global, the current downtrend is nothing but a expected correction. “I think people got exuberant about iron ore on the way up and we are seeing a bit of reality check right now,” he told

    He noted that at least one of the main factors dragging prices down at the moment — high level of stockpiles in China and the anticipated increases in supply coming from Vale and Roy Hill — may soon reverse its course.

    “There is not a great deal that can be done about the new supply — it will happen. However, there are indications that stockpiles in China are decreasing (albeit from record highs) which may slow or even halt the decline,” he said.

    “I also think the handover of power that will be occurring in China later in the year will have a stabilizing influence, as the incoming government will not want to see wild swings in the economy and will want to see growth maintained as they assume power,” said the CSA Global consultant, who has more than 25 years of experience in exploration and mining geology, particularly in the iron ore sector.

    Longer term, Wholley thinks iron ore fundamentals are sound. Steel production in China increased in 2016 and it’s predicted to do so again this year to support infrastructure projects as Beijing tries to stimulate the economy.

    At Macquarie, analysts seem to be on board of a very different boat. In a note Thursday, the bank said it expected to see iron ore find support at around $50 per tonne, suggesting that falls of a further 20% are in store.
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    Asia steelmaker shares rise despite Trump salvo on trade

    Shares of most Asian steelmakers rose on Friday, deflecting the first salvo of a long-anticipated anti-dumping campaign from U.S. President Donald Trump.

    Citing concerns about national security, Trump on Thursday launched a trade probe against China and other exporters of cheap steel into the U.S. market, raising the possibility of new tariffs.

    In Japan, shares in Nippon Steel rose 1.3 percent, after five weeks of steady losses, partly on speculation that any action by the U.S. would mostly target China which is easily the world's largest producer.

    South Korean steelmaker Posco followed with gains of over 2 percent, while Taiwan's China Steel advanced 1.3 percent.

    "Trump is targeting China, although he says the steel import probe has nothing to do with China," said Choi Moon-sun, a steel analyst at Korea Investment & Securities in Seoul.

    "Only about 5 percent of South Korea's steel produce goes to U.S., so any impact will be very limited for Posco. China will feel the pain if there is any wider import restrictions."

    Trump won many votes in industrial states like Michigan and Pennsylvania with a pledge to boost manufacturing and crack down on Chinese trade practices.

    His move diverges from the Obama administration's approach to the issue, which relied largely on filing complaints to the World Trade Organization (WTO).

    China is the largest national steel producer and makes far more than it consumes, selling the excess output overseas, often undercutting domestic producers.

    Investors in most Chinese producers seemed to absorb the news well, in part because it had been so long telegraphed.

    China's stock markets often march to their own drummer and, despite Trump's talk of massive dumping, U.S. steel demand really isn't that big of a deal for China.

    The Asian behemoth accounts for almost a quarter of global steel exports, yet less than 1 percent of those exports went to the United States last year, according to data from the U.S. Commerce Department.

    Shares in Baotou Steel were up 1 percent, while Angang Steel added 0.3 percent and Baoshan Iron & Steel Co held steady.

    Beijing has long pledged to downsize the industry which is plagued by oversupply from inefficient, high-polluting mills, but has baulked at the potential loss of jobs.

    Many Chinese investors seem to favour a rationalisation in production which would boost the price of steel as shares in lower-cost producers rally whenever cutbacks are floated.

    "The key thing is that we don't know enough about this, and whether the Trump administration is somehow going to reduce the supply of steel coming out of China, because that would actually be positive for steelmakers everywhere and would increase steel prices," explained a director of equity cash sales at a foreign securities house in Tokyo.

    Prices for steel and iron ore in China were indeed rallying on Friday, after a rough few weeks when fears that production was starting to outstrip domestic demand hammered markets.

    Inventories are swelling, adding to fears of a supply glut later in the year.

    China's crude steel output reached a record 72 million tonnes in March as mills ramped up output.

    Its exports of steel products rose about 32 percent to 7.56 million tonnes in March from February, when they were at a three-year low.
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    Sichuan cuts 10.7 Mtpa steel capacity

    Southwestern China's Sichuan province has slashed 10.7 million tonnes per annum (Mtpa) of steel capacity through removal of 27 companies' medium frequency furnaces since December last year, local newspaper reported.

    Sichuan realized the goal to shut 8.64 Mtpa outdated steel capacity during the 12th Five-Year Plan period (2011-2015).

    The province eliminated 4.2 Mtpa of crude steel in 2016, achieving the target ahead of time.

    It also shed 0.38 Mtpa of iron making capacity and 0.77 Mtpa of steel marking capacity in 2016, respectively.
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    Russian steelmaker Severstal says Q1 core earnings more than double

    Severstal, one of Russia's biggest steelmakers, said on Thursday its core earnings more than doubled in the first quarter as it benefited from rebounding metals prices, although its results lagged market expectations.

    Earnings before interest, taxation, depreciation and amortisation (EBITDA) totalled $578 million, up from $273 million in the first quarter of last year, but below a Reuters poll forecast of $591 million.

    Chief Executive Alexander Shevelev said Russian steel demand was likely to increase by 1.5-2 percent this year due to the improving domestic economy.

    Russian steelmakers such as Severstal and market leader NLMK struggled over the last two years as world steel prices plumbed 11-year lows and Russia's economic crisis sapped domestic demand, but their prospects have improved as metals prices picked up. They are seen brightening further this year as the Russian economy is expected to return to growth.

    "Severstal entered into 2017 delivering a robust financial performance supported by high raw material and steel prices," Shevelev said in a statement. "Overall, we expect 2017 to be a better year for the steel industry globally."

    Severstal, controlled by billionaire Alexei Mordashov, reported revenues of $1.77 billion for the first quarter, up 61 percent year-on-year.

    Net profit totalled $359 million, up 33 percent from the same period last year, the company said, but including a forex gain of $19 million.

    "Adjusting for this non-cash item, Severstal would have posted an underlying net profit of $340 million," it said in the statement.

    Severstal's crude steel production fell 2 percent quarter-on-quarter in the first three months of the year to 2.86 million tonnes, due to planned maintenance at its major Cherepovets Steel Mill in northwest Russia.

    The company's overall output could fall by 1-2 percent in 2017, from last year's 11.6 million tonnes, due to further planned maintenance, Chief Financial Officer Alexei Kulichenko told Reuters last week.

    Severstal said on Wednesday its board had recommended a dividend payment of 24.44 roubles ($0.4323) per share for the first quarter.

    "Results are weaker than expected and huge dividends ($350 million, 3 percent yield) does not look nice in this situation," BCS analysts said in a note.
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