Mark Latham Commodity Equity Intelligence Service

Monday 29th February 2016
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    China: A Week or Weak?

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    Four Saudi jets arrive at İncirlik base for the fight against Daesh

    Four Saudi F-15 fighter jets have arrived at Turkey's İncirlik airbase on Friday in the fight against Daesh, according to various reports.

    Undersecretary of the Saudi Defense Ministry, Ahmad al-Asiri has confirmed the landing.

    A total of four F-15 E (Strike Eagle) fighter jets arrived in İncirlik, reports have said.

    The arrival of Saudi jets in İncirlik makes the total number of foreign countries having jets at the base to five.

    Turkish officials previously announced that Saudi Arabia would send fighter jets to the İncirlik airbase as part of the U.S.-led coalition forces' operations.

    This is the first time a non-NATO country deployed military forces to İncirlik since the base entered into service in 1955.

    A group of 30 advance guard Saudi Arabia troops had already arrived in the airbase along with C-130 Hercules multipurpose military transport aircraft. The Doğan news agency cited army sources as saying that C-130 cargo planes had been shipping military materials to İncirlik for the last two days.

    Saudi Arabia has also said early in February that it was ready to join any ground operation against Daesh.

    Saudi Arabia and Turkey both staunchly support opposition forces seeking to oust the Assad regime and see his overthrow as essential for ending Syria's five-year civil war that has cost more than 260,000 lives.

    Both are outraged by Russia's military intervention in Syria, which analysts believe has given Assad a new lease on life and has also alarmed the West.
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    Reformist gains in Iran elections clear way for business boom

    Gains by reformist candidates in Iranian elections open the way for changes to economic policy that will boost foreign investment and trade with the West, businessmen and analysts said on Sunday.

    Friday's vote ended more than a decade of conservative domination of the legislature and the Assembly of Experts, a body that oversees the Islamic republic's supreme leader.

    The outgoing parliament, filled with hardliners suspicious of detente with the West, had acted as a brake on President Hassan Rouhani's plans to strengthen the private sector, tackle corruption and welcome foreign investors.

    Rouhani, the architect of last year's nuclear deal with world powers, is now expected to find it easier to push legislative reforms making the economy more attractive to foreign firms.

    "In economic affairs the next parliament will be much better than the current parliament," said Saeed Leylaz, an economist who served as advisor to reformist former president Mohammad Khatami.

    Iran faces deep problems including corruption, a shortage of investment and a lack of productivity, but "all these problems can be solved through liberalizing the economy," he said.

    Iranian investment banker Ramin Rabii said he expected the new parliament to address issues crucial to the business sector such as updating the country's commercial code, modernizing labor laws and improving stock market regulation.

    "If you have a parliament that is friendlier to the executive branch, things tend to move forward more easily," said Rabii, chief executive of investment group Turquoise Partners.

    "When business-related regulations need to be passed, or joint venture agreements are signed with foreign partners and are scrutinized by parliament - it all goes more smoothly."

    One early result of the elections could be to allow the government to offer new oil and gas contracts to foreign firms, a cornerstone of its plans to raise energy production after international sanctions on Tehran were lifted last month.

    Iran had been scheduled to unveil the new contracts to international oil firms at a conference in London on Feb. 22-24. The conference was canceled earlier this month; oil executives blamed political feuding before the elections.

    It is not clear if the election result could affect Iran's willingness to agree in talks with OPEC and non-OPEC oil producers on a proposed output freeze to prop up crude prices. But by giving the Rouhani administration a popular endorsement, the result appears likely to leave the administration with more domestic political freedom to sign a deal if it chooses.

    Early election results on Sunday showed moderates and reformists dominating both elections in Tehran, and making significant gains elsewhere in the country. Full results are expected to be released in coming days.

    The elections do not leave the Rouhani administration with a completely free hand on economic policy. Many powers will remain in the hands of conservatives; the Guardian Council, an unelected clerical body, has the power to vet all laws, and Supreme Leader Ayatollah Ali Khamenei has the last word on all important matters of state.
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    Brazil justice minister to quit as Lula probe tension grows: papers

    Brazil's Justice Minister Jose Eduardo Cardoso plans to resign, fed up with rising attacks from his Workers' Party over a police probe into the activities of former Brazilian President Luiz Inacio Lula da Silva, two Brazilian newspapers reported Sunday.

    Cardoso will quit this week, Folha de S.Paulo said. Cardoso, who took office with Lula's PT successor Dilma Rousseff at the beginning of her first term in 2011.

    Leading members of Cardoso's party, known by its Portuguese initials PT, have raised pressure on the minister in recent days after Lula was notified that Brazilian courts plan to subpoena his bank, telephone and financial records, Folha and the Estado de S.Paulo reported.

    Lula, the PT's historic leader, a five-time PT presidential candidate and two term president from 2003 to 2010, has come under investigation in the wake of a giant and widening corruption scandal at state-led oil company Petroleo Brasileiro SA.

    Lula has already faced police questioning over the financial dealings of his children and friends and now faces questioning of his alleged ownership of a beach-front penthouse triplex and country estate.

    The penthouse and country home were allegedly renovated by construction companies involved in the price-fixing, bribery and political kickback scandal at Petrobras, as the oil company is known. Lula has said the properties don't belong to him.

    On Saturday, Lula lashed out at the subpoenas.

    "If this is the price people must pay to prove their innocence, I'll do it," Lula said referring to the subpoenas. "The only thing I want is that afterward they give me a good conduct certificate, because I doubt there is anyone more honest than I am in the country."

    A justice ministry spokeswoman declined to comment. Aides to Rousseff could not be reached. Cardoso, a lawyer and law professor, is recovering from lymphatic cancer.

    Cardoso is upset over PT allegations that he has failed to control a political witch hunt against Lula and other government allies.

    Cardoso has said he has no authority to restrict investigations without evidence police violated a person's rights, Estado reported.
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    Brazil police widen corruption probe with raids over railway contracts

    Brazilian federal police said they served search and seizure warrants on Friday across six states and in the federal district of Brasilia focused on suspected bribes and overbilling in two large railway projects.

    The warrants were based on testimony in an ongoing corruption probe known as "Operation Car Wash", they said.

    In a statement, police said, "Just in the state of Goias, the embezzlement of 630 million reais ($160 million) was detected, for just the segments under construction for the Norte-Sul Railway" project.

    After federal prosecutors uncovered massive misuse of funds, bribes, kickbacks, over billing and influence peddling in the state-run oil company Petrobras over the past two years, the investigation has spread into other areas of the economy.

    On Thursday, police raided the headquarters of one of Brazil's largest steelmakers Gerdau SA.
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    Brazilian hydropower sector boosted by rainfall

    Much-needed rainfall is allowing Brazil to deactivate thermal power plants in favour of hydroelectric power.

    An additional 3,000 MW of gas-fired power is set to be deactivated on March 1 as rains improve Brazil’s hydropower system, in a move that will trim electricity tariffs across the country, Energy Minister Eduardo Braga said on Thursday.

    15 thermal power plants are set to be switched off, amounting to 2,000 MW of power.

    Brazil, which mostly relies on hydropower, has had its more expensive natural gas-powered thermal plants running full throttle since a drought hit the southeast region three years ago.

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    Oil and Gas

    Iraqi Kurdish oil pipeline seen shut for two more weeks

    Iraqi Kurdish oil exports to world markets will remain halted for at least another two weeks, Turkish shipping and industry sources said on Friday, as security threats to the pipeline in Turkey's southeast have significantly increased.

    The outage, one of the longest in the past two years, is a major blow to Iraq's semi-autonomous region which depends on revenue from oil exports via the pipeline and is struggling to avert economic collapse brought on the slump in energy prices.

    It also highlights how intertwined Iraqi Kurdistan's economic woes are with the deteriorating security in Turkey's predominantly Kurdish southeast, engulfed in the worst violence since the 1990s after a two year-long ceasefire between the state Kurdish militants collapsed last July.

    The interruption is also bad news for European refiners which have been snapping up relatively cheap Kurdish barrels over the past year, boosting profits and already being spoilt for choice in an oversupplied market.

    Carrying around 600,000 barrels per day (bpd) of crude to Turkey's Mediterranean port of Ceyhan from fields in Iraq's Kurdish region and Kirkuk, the pipeline has been offline since Feb. 17.

    "The physical repairs of the pipeline will not take a long time. However, the work to fully restore the security of the pipeline will take more time. We think that it will take two weeks at least," one Turkish industry source said.

    Considered a terrorist group by Turkey, the United States and the European Union, Kurdistan Workers Party (PKK) launched a separatist armed rebellion against the Turkish state three decades ago in a conflict that killed more than 40,000 people.

    The PKK, which says it is fighting for autonomy for Turkey's large ethnic Kurdish minority, has sealed off entire districts of some towns and cities in the southeast and declared autonomy, prompting the security forces to step up their operations.

    Idil, a town in Sirnak province, through which the pipeline passes, on border with Iraq and Syria have been a new focus in Turkey's operations. Army struck PKK targets in the region with Cobra helicopters earlier this week killing 12 militants.

    A Turkish shipping source said one crude tanker was due to be loaded for exports on Friday, with 375,000 barrels of Iraqi Kurdish oil from Ceyhan stocks. Once that cargo is exported, the stocks will depleted, he said but added there were several more vessels awaiting crude.

    "We have been told that large amounts of explosives have been buried near the pipeline and that it will take weeks to clear all that," the shipping source said.

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    Cheniere to export up to 10 LNG cargoes within the next two months

    Cheniere Energy expects to export between eight and 10 cargoes of LNG from the Sabine Pass project within the next two months. Speaking at the IHS CERAWeek conference, Katie Pipkin, the Senior Vice President of Business Development and Investor Relations, said that the cargoes will be sold on a spot basis, and are expected to be delivered to Europe or, following in the footsteps of the recent first export from the facility, Brazil.

    This initial export to Brazil’s state-run oil company, Petrobras, was the first ever US LNG export. Cheniere currently has six additional vessels under charter. At present, Cheniere has contracted to sell 42 cargoes of LNG from the terminal to EDF Trading between 2016 and 2018, as well 12 cargoes of LNG per year to ENGIE between 2018 and 2023.
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    China's $5 bln to $10 bln Petrobras loan may help pay most 2016 debt

    A loan announced Friday from China to Brazil's Petrobras is for $5 billion to $10 billion, can be paid in cash or oil at China's request and may help pay the bulk of the $12 billion in debt the state-run oil company must repay this year, a source involved in debt talks told Reuters late Friday.

    The loan from the China Development Bank was first agreed to in early 2015, and when added to a $5 billion CDB loan made in 2009, increases the bank's debt exposure to Petroleo Brasileiro SA as Petrobras is formally known, to as much as $15 billion the source said.
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    Gazprom Export to hold gas auction for Baltic States in March

    Gazprom Export will hold a second gas auction - for supplying natural gas to the Baltic States, the company said in a statement received by Interfax on Feb. 27.

    The auction will be held in mid-March 2016. Gas supplies will be sent in the second, third and fourth quarters of 2016 to the natural gas measurement station in Kotlovka (on the border between Belarus and Lithuania). The natural gas at an underground gas storage facility in Incukalns, Latvia, will also be on sale. In all, over 560 million cubic meters of natural gas will go on auction.

    Russia and U.S. prepare to fight for European gas market

    More details on the auction, terms and conditions, and related documentation will be published later on Gazprom Export's website.

    "This form of sale adds to the system of long-term contracts that provide Europe's energy security," the company said.

    Gazprom Export held its first public sale of natural gas in September 2015 for deliveries through the Nord Stream gas pipeline during the 2015/2016 winter. The auction resulted in more than 40 deals with 15 contractors for a total volume of over 1.2 billion cubic meters of natural gas.
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    Jera Co. holding discussions with KOGAS and CNOOC

    Japan’s Jera Co. is currently holding discussions with South Korea’s Korea Gas Corp., as well as China National Offshore Oil Corp. The talks are regarding the creation of an alliance that would offer the companies greater leverage in order to develop more flexible LNG contracts. Reuters reports that a Jera spokesman claimed that an agreement may be reached in a several days.

    Whilst the alliance’s purpose is largely to share market challenges – including LNG shipment restrictions related to destinations, and inflexible arrangements, including the periodic taking of deliveries – it would also consider the joint procurement of LNG, as well as joint investment in upstream developments. Nonetheless, the Jera spokesman claimed that any agreements regarding the latter are unlikely to come to fruition soon.
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    Russian Crude Production Sets New Post-Soviet Record In February

    According to calculations by Bloomberg's Julian Lee, released moments ago, Russian crude and condensate production just set new post-Soviet daily record of 10.92m bbl yesterday.

    He notes that the monthly estimate is based on daily data from Energy Ministry’s CDU-TEK for 1st 25 days, and applies the average rate over last week for final 4 days. And since this compares with a revised 10.91m b/d for January, it means that Russia took the production "freeze" seriously: by freezing at a new record high level of production.

    He adds that total January output was revised up by 32k b/d, and also notes that February output has risen by 205k b/d compared to a year ago.

    Lee quotes Russian DPM Arkady Dvorkovich who said that "no extra measures needed for Russian companies to meet proposed output-freeze deal." Well sure - since Russia can't produce more - even if it wanted to as it already is at capacity - there is no downside to making a "freeze" pledge.

    Which means that the only marginal wildcard is what shale producers will do: will the recent production cuts by the likes of such shale titans Whiting and Continental lead to a real and sustainable decline in US oil production, a metric which has stubborning refused to decline materially, or will the modest pick up in prices lead to a resumption of production.

    One answer, even if largely meaningless, will come later today when Baker Hughes will release its latest rig count, however as explained previously, the rig count has become a largely irrelevant statistic thanks to a efficiency improvements by existing wells.

    In any case, we expect many more spurious headlines, mostly out of Venezuela for whom the day of reckoning draws ever closer should oil fail to rebound sustainable from current prices.
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    Petronas posts $704 million fourth-quarter net loss, confirms spending cuts

    Malaysia's Petroliam Nasional Bhd, or Petronas, reported a fourth-quarter net loss on Monday and announced spending cuts for the next few years, as the state oil company braces for a prolonged period of low oil prices.

    Petronas reported a net loss of 2.96 billion ringgit ($704.3 million) for the October-December period, compared with a loss of 7.3 billion ringgit a year ago. The company attributed the net loss to impairment of assets caused by low oil prices.

    Revenue for the quarter was 60.1 billion ringgit, down nearly a quarter from 79.4 billion ringgit for the corresponding period a year ago.

    The 70 percent slump in crude oil prices LCOc1 since mid-2014 has been squeezing the finances of unlisted Petronas, which accounts for about a third of the Malaysian government's oil and gas revenue.

    "2016 and 2017 will continue to be challenging for Petronas," Petronas President and Group CEO Wan Zulkiflee Wan Ariffin said at a press conference to announce the results.

    "We are planning our projections based on Brent price at $30 for this year, and must brace ourselves for the corresponding impact to our financial performance."

    Petronas also confirmed plans to cut spending by 50 billion ringgit over the next four years, as earlier announced in an internal memo to its staff.

    It said the company would start with 15-20 billion ringgit cuts in 2016. But it added that it would stick to its commitment of paying a dividend of 16 billion ringgit to the government for 2016.
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    Novatek’s profit doubles in 2015

    Russia’s Novatek, the operator of the giant Yamal LNG project, said its profit doubled to  74.4 billion roubles ($992 million) in 2015.

    The company’s profit rose mainly due to increase in liquids sales and a rise in rouble gas prices, Novatek said in a statement on Friday. Revenues for the year of 2015 increased by 32.9 percent to 475.3 billion roubles.

    Novatek’s natural gas sales volumes totaled 62.5 bcm as compared to 67.2 bcm in 2014.

    Lower natural gas sales volumes were mainly a result of warmer weather conditions in 2015 compared to 2014, as well as one of the company’s “major customers not taking temporarily its full contracted volumes due to technical reasons,” Novatek said
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    Genel to take about $1 bln impairment on Iraqi Kurdistan field

    Genel Energy Plc said it expected to book about $1 billion in impairment to the 2015 value of its Taq Taq oilfield in Iraqi Kurdistan, citing reduced estimate for recoverable reserves there and falling oil prices.

    Shares in the company lost nearly a fourth of their value in early morning trade in London.

    Following a review, the oil producer said it estimated that Taq Taq had proven and probable reserves of 356 million barrels of oil (mmbls) as of Dec. 31, down from its earlier assumption of 683 million barrels in June 30, 2011.

    By the end of last year, Taq Taq field had already produced 184 mmbbls gross.

    The news comes after Genel said earlier this month that it would resume drilling work at Taq Taq in the coming weeks to ramp up production, despite a roughly 40 percent fall in oil prices over the past year to around $30 a barrel.

    The move would have marked the first time in more than a year that Genel has drilled in the region to increase output from its fields after the Kurdistan Regional Government struggled to pay producers for oil exports.

    Genel said on Monday it had found that fracture porosity within the Shiranish - one of the three principal producing units at Taq Taq - was lower than estimated in 2011.

    Gross production at the field is expected to average about 80,000 barrels of oil per day (bopd) this year, the company said, sticking to its full-year guidance of 60,000-70,000 bopd.

    Genel shares were down 21 percent at 98.40 pence at 0838 GMT, making them the top percentage losers on the London Stock Exchange. The stock touched a low of 94.67 pence earlier. 
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    U.S. shale's message for OPEC: above $40, we are coming back

    Less than a year ago major shale firms were saying they needed oil above $60 a barrel to produce more; now some say they will settle for far less in deciding whether to crank up output after the worst oil price crash in a generation.

    Their latest comments highlight the industry's remarkable resilience, but also serve as a warning to rivals and traders: a retreat in U.S. oil production that would help ease global oversupply and let prices recover may prove shorter than some may have expected.

    Continental Resources Inc, led by billionaire wildcatter Harold Hamm, is prepared to increase capital spending if U.S. crude reaches the low- to mid-$40s range, allowing it to boost 2017 production by more than 10 percent, chief financial official John Hart said last week.

    Rival Whiting Petroleum Corp, the biggest producer in North Dakota's Bakken formation, will stop fracking new wells by the end of March, but would "consider completing some of these wells" if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told analysts. Less than a year ago, when the company was still in spending mode, Volker said it might deploy more rigs if U.S. crude hit $70.

    While the comments were couched with caution, they serve as a reminder of how a dramatic decline in costs and rapid efficiency gains have turned U.S. shale, initially seen by rivals as a marginal, high cost sector, into a major player - and a thorn in the side of big OPEC producers.

    Nimble shale drillers are now helping mitigate the nearly 70-percent slide crude price rout by cutting back output, but may also limit any rally by quickly turning up the spigots once prices start recovering from current levels just above $30.

    The threat of a shale rebound is "putting a cap on oil prices," said John Kilduff, partner at Again Capital LLC. "If there's some bullish outlook for demand or the economy, they will try to get ahead of the curve and increase production even sooner."

    Some producers have already began hedging future production, with prices for 2017 oil trading at near $45 a barrel, which could put a floor under any future production cuts.

    "It's no longer enough to be the low cost producer in U.S. horizontal shale," Bill Thomas, chairman of EOG Resources Inc , said on Friday. "EOG's goal is to be competitive, low-cost oil producer in the global market."

    Thomas did not say what price would spur EOG to boost output this year, but said it had a "premium inventory" of 3,200 well locations that can yield returns of 30 percent or more with oil at $40.

    Apache Corp, forecasts its output will drop by as much as 11 percent this year, but said it would probably manage to match 2015 North American production if oil averaged $45 this year.
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    More US rigs idled last week

    Rigs targeting oil in the U.S. fell by another 13 to 400, after more than 100 were idled since the start of the year, Baker Hughes Inc. said on its website Friday. The report marks the 10th straight week of declines in the number of working rigs. Natural gas rigs gained by 1 to 102, bringing the total down by 12 to 502.

    Texas took the brunt of the week’s cuts. The Eagle Ford Shale in South Texas idled 8 rigs, bringing the total working in the region to 41. One rig was idled in the Permian Basin. Rigcounts in the D-J Niobrara and Williston Basin were both unchanged.

    After falling 31 percent in 2015, crude is down another 8 percent this year on speculation a worldwide surplus will be prolonged because of rising U.S. stockpiles that have swelled to the highest level in more than eight decades. Global producers are in discussions about a site for a meeting next month on a possible production freeze, Venezuelan Oil Minister Eulogio Del Pino said during a television broadcast on TeleSur.

    “Oil is stabilizing above $30,” Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. “U.S. production cuts are by far the most likely source of further price support for the oil market, rather than any talks between Venezuela, Russia and other producers.”

    America’s oil drillers have been idling rigs since October 2014 as the world’s largest crude suppliers battle for market share. Despite the cutbacks, U.S. production has remained stubbornly high as new techniques that increase efficiency keep the oil flowing.

    Production fell by 33,000 barrels a day to 9.14 million, the lowest since October. It was the fifth straight week that U.S. output has declined.
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    Alternative Energy

    SunEdison plans to offload equity in 500 MW project in Andhra Pradesh

    Image Source: Economic TimesSunEdison, the world's biggest renewable energy company, plans to offload equity in a 500 megawatt project it won in India by making a bid that rivals said was too low to make commercial sense.

    Industry sources said that the US company has approached potential buyers for the sale of equity and has consulted investment bankers to value the project it won in November with a bid of Rs 4.63 per unit in an auction conducted by NTPC for solar plants in Andhra Pradesh under the Jawaharlal Nehru National Solar Mission.

    SunEdison can sell up to a 49% stake in the project initially and can exit only one year after it is commissioned.

    Mr Pashupathy Gopalan, President, Asia Pacific, at SunEdison did not rule out the possibility of bringing in equity partner as allowed by the PPA.

    Mr Gopalan said that "We are always looking for equity investors as a business model in addition to selling our assets to our YieldCo. The power purchase agreement (PPA) we're about to sign for the Andhra project allows us to sell up to 49% stake after signing the PPA."

    But he insisted that SunEdison was extremely serious about executing the project.

    He said that "We have made an equity infusion of Rs 120 crore into the company and have submitted performance bank guarantees of Rs 150 crore to NTPC. We have done all the paperwork and are waiting for NTPC's response before signing the PPA," he added. Was he likely to sell the project a year later?

    He added that in our business model, we will continue to explore three strategies on an ongoing basis - holding assets in our balance sheet, selling assets to our YieldCo and partnering with third party investors.

    SunEdison's bid of Rs 4.63 per unit, which was the lowest ever at that time, had rattled the industry, prompting rivals to question the viability of the tariff, which is comparable to new coal-fired power plants.

    Aa rival developer said that "My sense is that doing the project all alone is proving difficult for the company and it is looking for some financial arrangements."

    Analysts said that if SunEdison exits the project, it would help the parent company, which has faced a harrowing time. Its stock price in New York has plunged on concerns of a massive debt burden, business performance and market worries about aggressive acquisition of assets.
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    PotashCorp to idle two mines temporarily

    PotashCorp has responded to the ongoing slump in the potash market with more plans to curtail production.

    In a press release, the fertilizer giant said it is responding to market conditions by "adjusting inventory" at its Allan and Lanigan operations- meaning the two mines will stop producing for 4 weeks starting March 20. The temporary stoppages, designed to coincide with maintenance shutdowns, will reduce the company's 2016 output by around 400,000 tonnes. No layoffs are expected to result.

    The decision is the latest of several taken by PotashCorp in an effort to improve its bottom line. In November the world's largest crop nutrient company by capacity announced it would close its New Brunswick mine, Penobsquis, and take inventory shutdowns at three mines in its home province of Saskatchewan. Then in January, PotashCorp said it is "indefinitely" halting operations at its relatively new Picadilly mine, also in New Brunswick, in response to falling potash demand and weakening prices.

    The company, which had more than 5,000 employees worldwide at the end of 2014, said the suspension, effective immediately, would lead to 420-430 job cuts.

    And a month ago, the company announced it would cut its dividend by a third in response to weaker sales volumes and lower fertilizer prices, after seeing its fourth-quarter profit cut in half.

    Potash prices have fallen to under $300 a tonne from a peak of around $900 a tonne in 2008. The Financial Post quotes analysts at Macquarie as saying that prices could average US$254 a tonne in 2016 due to "ongoing weakness in agricultural commodities and depreciating currencies in emerging markets." The Australian investment bank expects global potash demand to fall by 4.4 million tonnes this year, with the largest declines coming in Southeast Asia, India and Brazil.

    Meanwhile, weakness in the potash and oil markets is taking a toll on Saskatchewan's economy, which is heavily dependent on both commodities. An economist at CIBC Capital Markets, told the Globe and Mail on Feb. 1 that he expects the provincial economy to shrink by half-a-percent in 2016, the same as in 2015. Saskatchewan in November projected a $262-million deficit for 2015-16.
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    Precious Metals

    Resolute's profits rise on higher output and gold price

    Gold miner Resolute Mining has reported an increase in gross profits for the first half of 2016, from the A$29-million reported in the previous corresponding period to A$67-million in the six months ending December. 

    Revenue for gold sales during the period was up 19% on the first half of 2015, from A$209-million to A$249-million, on the back of higher gold production and sales, combined with a higher gold selling price. Gold production during the interim period under review reached 153 191 oz, an increase of 11% over the previous corresponding period, while gold sales reached 158 540 oz, at an average gold price of A$1 561/oz. 

    “Positive operation performance from Syama and Ravenswood has allowed Resolute to increase liquidity and aggressively pay down debt while we prepare for investments in our exciting growth developments,” said Resolute MD and CEO John Welborn. “The focus for the period has been strengthening the balance sheet, commencing our continuous improvement programme, and advancing feasibility studies for the future of our Syama, Ravenswood and Bibiani operations.” 

    Welborn noted on Monday that Resolute’s transformation would continue in the second half of the financial year, with the delivery of the Syama underground definitive feasibility study, in Mali, and the completion of an updated feasibility study for the Ravenswood extension project, in Australia, and the Bibiani gold mine, in Ghana. Resolute has, meanwhile, maintained its full 2016 production guidance at 315 000 oz of gold, at an all-in sustaining cost of A$1 280/oz.
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    Base Metals

    Production line remains suspended at Codelco's Andina mine

    Chile's state-owned mining company Codelco, the world's top copper producer, said Friday that a production line transporting concentrate at its Andina mine remained suspended after a pipeline burst. 

    The miner said in a statement that it was not yet possible to measure the impact on output because it would depend on the length of the suspension. On Thursday, the company had reported the production line halt after an underground pipe carrying material from a concentrator to a filtration plant burst, although the flow was quickly cut off. 

    Codelco said Friday that a full restart of operations "will only be possible once compliance with safety standards can be verified." Last year, Andina, which is located near capital Santiago, produced 224 300 t of copper, about 13% of Codelco's total 2015 production of 1.73-million tonnes.

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    Steel, Iron Ore and Coal

    China expects to lay off 1.8 million workers in coal, steel sectors

    China expects to lay off 1.8 million workers in the coal and steel sectors as part of its efforts to reduce industrial overcapacity, an official at the human resources and social security ministry said on Monday.

    Yin Weimin, minister of human resources and social security, said capacity cuts will lead to some layoffs in 2016, but added that he was confident of keeping employment stable this year despite downward pressure on the economy.

    No timeframe was given for the 1.8 million figure cited.

    China aims to remove around 500 million tonnes of coal production capacity within the next three to five years and halt approvals of all new projects.
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    Shaanxi Coal Industry Co. 2015 net loss at 3 bln yuan

    Shaanxi Coal Industry Co., Ltd, a leading coal producer in northwestern China’s Shaanxi province, suffered a net loss of 3 billion yuan ($458.2 million) in 2015, a deterioration from 951-million-yuan net profit a year ago, showed latest data from the company.

    It was mainly attributed to plunging coal prices amid severe oversupply and sluggish demand in the coal industry, it said.

    The company realized operating revenue of 32.51 billion yuan last year, down 132.26% from the year prior, data showed.

    Efforts had been made by the company to cut costs and optimize structure, which yet was offset by overwhelming price drop in 2015.

    Shaanxi Coal Industry announced to sell the stock rights, assets and liabilities of five coal mines in the red to parent Shaanxi Coal & Chemical Industry Group in November last year, and the deal would be closed before end-December. However, the move did not change its losing fate.

    Lately 28 listed coal producers released their earnings preannouncements for 2015, which showed 14 of them or 50% may make a profit, with 3 coal producers seeing rise in profits while the other 11 seeing declines of 60-80% year on year.

    The remaining 14 coal firms forecast a loss last year, of which 10 firms may turn from profitability into loss and 4 firms may face delisting risk warnings.

    “The coal industry saw over 90% of producers suffer losses in 2015 amid falling prices,” said Jiang Zhimin, deputy chairman of the China National Coal Association (CNCA).

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    Iron ore upturn lures hedgers worried gains may soon fade

    Some junior Australian and other Western iron ore miners are hedging forward cargoes for the first time in months after prices surged to their highest since October, trading sources say, looking to cash in on a price rally many fear may not last.

    The volumes being hedged are not huge, but the move underlines the sense of caution in the market after years of slumping prices, despite a strong comeback. At one point last week, iron ore was the best performing commodity this year.

    A junior Australian miner hedged a 300,000-tonne iron ore cargo for second quarter delivery last week, said a Singapore-based trader at an international trading firm, as prices topped $50 a tonne.

    "The last time we've seen these miners come to us to hedge was in September when prices also rallied," the trader said, adding they are also in talks with the miner to hedge a similar sized cargo for the third quarter.

    Hedging allows iron ore producers to cover future commitments at a fixed price, taking advantage of a current jump in market sentiment, even if the spot price falls back.

    Iron ore for delivery in April and May on SGX climbed to the highest since July at $48.25 a tonne last week while June jumped to a five-month peak of $46.75.

    "More and more inquiries are coming in," the trader said. "They're just not very confident of how sustainable the rally can be."

    "Above $45 I think it changes the landscape fairly significantly," said a Singapore-based broker who's seen some Western miners hedging, "taking some positions in the market particularly for Q2."

    The primary hedging tools are iron ore swaps and futures on the Singapore Exchange, the most liquid dollar-denominated marketplace for iron ore derivatives where volumes picked up as prices rallied.

    "The general premise had been that lower prices would quickly force higher-cost junior producers to exit the market, though shrewd hedging strategies taking advantage of recently higher prices could undermine that," Adrian Lunt, head of commodities research at SGX, told Reuters.
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    Salzgitter sees breakeven, room for optimism on steel

    German steelmaker Salzgitter said it was cautiously optimistic on steel prices thanks largely to EU anti-dumping measures taking effect this year and expects to break even at the pretax level in 2016.

    European steelmakers have been hit by a plunge in steel prices blamed largely on a surge in cheap exports from China, where existing overcapacity has been exacerbated by declining domestic demand.

    Salzgitter stands to benefit more than its rivals from new EU trade duties, with about half its shipments exposed to the affected steel categories. But the benefits are not expected to be felt until the second half of the year, the company said.

    Salzgitter's breakeven forecast disappointed analysts, who had expected more after the company posted its first pretax profit in four years for 2015 thanks to drastic restructuring measures. The profit figure totalled 12.6 million euros ($13.9 million).

    The steelmaker saw some reasons for optimism on steel prices and said it expected stable sales this year.

    "EU trade defence measures already implemented and partly decided a short while ago, the first signs of recovery in the large-diameter tubes business, as well as the recent halt called to the declining prices of many steel products gives us the basis for looking to the future with cautious optimism," Chief Executive Heinz Joerg Fuhrmann said in a statement.

    Shares in Salzgitter turned positive after dropping almost 3 percent in early trade and were up 2 percent at 20.05 euros by 1005 GMT, outperforming Germany's mid-cap index, which was up 1.7 percent.

    ArcelorMittal, the world's largest steelmaker, launched plans this month for a $3 billion share issue to help reduce debt and cut costs, and said it saw little improvement in overall global demand for steel this year.

    "Compared to peers, Salzgitter has a decent track record of cost cutting and asset restructuring," Jefferies analyst Seth Rosenfeld wrote in a note, but added that the company was coming towards the end of its latest restructuring programme.

    "In the absence of a notable recovery in market conditions, Salzgitter will find itself under increased pressure to expand cost cutting and restructuring measures in the year ahead," he wrote, keeping his "hold" recommendation on the stock.

    China said earlier this month it would cut crude steel capacity by 100-150 million tonnes within the next five years to tackle a crippling glut that has dragged prices down to multi-year lows.

    "A sustainable recovery is not guaranteed. But we think there is scope for a seasonal market recovery to continue into Q2 and that could drag equities higher still given positioning is still so negative in the space," Credit Suisse wrote.

    ArcelorMittal shares have dropped to less than a third of their value a year ago. Salzgitter shares have lost a quarter of their value during that time.
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