Mark Latham Commodity Equity Intelligence Service

Wednesday 16th September 2015
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    China Aug power consumption up 1.9pct on year

    China’s power consumption stood at 512.4 TWh in August, edging up 1.9% year on year and up 8.5% month on month, showed data from the National Energy Administration (NEA) on September 15.

    Power consumption by the residential segment was 73.2 TWh, rising 2% from the year prior and up 19.22% from July.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 13.3 TWh of electricity in August, rising 2.3% on year and up 2.3% on month.

    The secondary industries – mainly the industrial sector – consumed 354.3 TWh of electricity, increasing 0.7% on year but down 2.9% from July.

    The industrial sector specifically, consumed 347.9 TWh of electricity in August, rising 0.8% from the year before but down 3.1% from July, with the heavy industry accounting for 82.1% or 285.5 TWh, increasing 0.3% year on year but down 4.3% on month.

    Power consumption by tertiary industries – mainly the services sector – reached 71.5 TWh in August, increasing 7.8% year on year and 11% higher from the month prior.

    Over January-August, China consumed a total 3,678 TWh of electricity, up 1% from the same period last year, the NEA said.

    Power consumption by the residential segment amounted to 489 TWh during the same period, gaining 4.3% from the previous year.

    Under the non-residential segment, the primary industries used 70.4 TWh of electricity, up 2.3% year on year; the secondary industries used 2,643 TWh of power, dipping 0.7% year on year, with the industrial sector at 2,597 TWh, down 0.7%; while the tertiary industries consumed 475.6 TWh, up 7.5%.

    Meanwhile, the average utilization of power generating units across the country dropped 7.2% year on year to 2,658 hours over January-August this year.

    Hydropower plants logged average utilization of 2,274 hours during the same period, dropping 1.1% from the previous year; while thermal power plants logged average utilization of 2,925 hours, falling 7.9% from a year ago.

    China added 60.7 GW of power generating capacity from January to August, including 7.9 GW of new hydropower capacity and 30.82 GW of new thermal power capacity.

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    Traders Fear Second China State Entity Default

    China National Erzhong Group Co. may miss an interest payment later this monthafter one of its creditors filed a restructuring request, putting it at risk of becoming the second state-owned company to default in the nation’s onshore bond market.

    As Bloomberg details, uncertainty over the payment comes as deflation risks, overcapacity and spiraling corporate debt cloud the outlook for China’s economy, forecast to expand at the slowest pace since 1990 this year.

    China National Erzhong is a wholly owned subsidiary of state-owned China National Machinery Industry Corp.,according to a China International Capital Corp. report in April.

    Today’s statement doesn’t say whether China National Erzhong will be able to pay the interest if the court rejects the creditor’s request. The statement also said there is some uncertainty over whether the court will accept the restructuring request, and said China National Erzhong is trying to raise money to pay the interest.

    Yields on the 2017 bonds have risen to 28.801 percent from 26.846 percent at the start of the year, ChinaBond prices show.

    The smelting-equipment maker might not be able to pay a coupon that’s due Sept. 28 on its 1 billion yuan ($157 million) of 5.65 percent 2017 notes if a local court accepts the creditor’s restructuring application before that date, according to a statement posted on China National Erzhong, based in China’s western Sichuan province, issued the five-year securities in 2012 at par and the debentures are currently trading at 67.72 percent of that.

    “Because Erzhong is a state-owned company, if it defaults it may arouse investors’ concern about companies’ credit risks,” said Qu Qing, a bond analyst at Huachuang Securities Co. in Beijing.

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    Beijing to impose fee on emitters to curb pollution - Xinhua

    Manufacturers of furniture, petrochemicals, automobiles and electronics in Beijing will start paying fees in October for emitting volatile organic compounds (VOCs), a source of air pollution, the Xinhua state news agency said on Tuesday.

    Pollution has triggered increasing unease in China, where smog blankets many major cities, including Beijing, home to 21 million people.

    The polluters will be charged 10 yuan ($1.57) per kg of discharged gas if their VOC emissions do not exceed 50 percent of the city's limit, Xinhua said, citing Wang Chunlin, director of pollution prevention and control with Beijing Municipal Environmental Protection Bureau.

    Entities whose emissions are higher than half of the limit but do not exceed the standards will be charged 20 yuan per kg. Polluters whose VOCs emissions pass the limits will pay 40 yuan per kg.

    The fees are higher than the treatment cost for polluters, so it "will stimulate polluters to adopt cleaner methods", Xinhua quoted Wang as saying.

    The government has launched a war on pollution, vowing to abandon a decades-oldeconomic model of growth at all costs that has damaged the water, air and soil.

    Vehicle emissions, the use of solvents, storage and transport of gasoline may generate VOCs, which can form hazardous, breathable particles known as PM2.5 following chemical reactions in the atmosphere, Xinhua said.

    PM 2.5, which refers to particles smaller than 2.5 micrometers in diameter, leads to hazardous smog that is a major cause of asthma and respiratory diseases, experts say.

    Lung cancer rates are rising in Beijing, say health officials, with the capital ranked among the world's most polluted cities.
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    Glencore raises $2.5 billion in share placement

    Mining and trading group Glencore said on Wednesday it has raised $2.5 billion through a share placement as part of its plans to cut debt built up through years of rapid expansion.

    The London-listed company has been under pressure to cut its net debt of almost $30 billion after a slump in prices of its key products, copper and coal. It announced plans last week to cut debt by a third by the end of 2016.

    Glencore said on Tuesday that it planned to place up to 1.31 billion new shares, representing 9.99 percent of its share capital.

    The sale was priced at 125 pence a share, the company said on Wednesday, representing a 2.4 percent discount to the stock's closing price of 128.05 pence on Tuesday.

    Glencore directors and employees have taken up 22 percent of the new shares as the company's executives try to shore up market confidence in the business.

    Glencore will also sell assets and cut capital spending in a bid to lower the debt.

    The strategy, which includes plans to shut down some copper mines to support flagging prices, had briefly triggered a rally in Glencore's stock, but concerns of further falls in commodity prices continue to weigh on the shares.
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    Oil and Gas

    China state firm to lease private tanks for oil reserves

    CEFC China Energy has signed a preliminary agreement with an state energy company to provide oil storage for 12.6 million barrels of commercial state crude reserves, two senior sources at the privately held CEFC China said on Tuesday.

    The deal, in which the un-identified state company will lease space enough for about two days of China's crude oil imports, lends some near-term support to global oil prices, which have been weighed down by a persistent supply glut.

    China has been taking advantage of oil prices more than 50 percent lower than their 2014 peak above $115 a barrel to build up reserves, and in April this year imported more crude than the world's No.1 buyer, the United States.

    CEFC China's new tanks, being built in Yangpu port on Hainan island off southern China, will have a total capacity of 17.6 million barrels and are to open at end-2015, several months behind an earlier plan and after a nearby oil terminal is ready for use, the sources said.

    Under the heads of agreement signed for the deal, the state company will lease its portion of the tanks for up to six years, said the CEFC China sources, declining to name the state firm involved.

    A final contract will be signed after the state company receives government approval to lease the storage, they said.

    Just across a road from the CEFC facility is an 8.2-million-barrel crude storage site owned by Vopak - the world's largest independent tank terminal operator - and the State Development Investment Corporation (SDIC).

    Commissioning at the Vopak site started early this month, and Vopak confirmed on Tuesday that one large crude oil cargo has been discharged.

    The CEFC and Vopak facilities are next to a tank farm owned by state refiner Sinopec Corp, and the three have agreed to connect the depots with pipelines to optimise operations, said one CEFC executive.

    The Sinopec farm is also linked with its 160,000 barrel-per-day Hainan refinery.

    China's state reserves are split into two categories: strategic petroleum reserves for which the state builds tanks and pays the full cost of storage and oil, and commercial state reserves whereby the state leases tanks and shares the cost of buying oil with companies.

    Most of the commercial storage tanks along China's coast are nearly full, and the CEFC and Vopak sites could be among the last available for stockbuilding before China's next strategic storage units are ready, storage and trading sources said.

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    ONGC bucks trend to build assets as oil prices ease

    ETPTI reported that global oil majors have slashed spending and cut jobs in response to plunging oil prices but state-owned Oil and Natural Gas Corporation is using the slump to build assets.

    Oil majors including Shell, Total and BP have cut capital spending by at least USD 14 billion this year in response to the plummeting oil price.

    Addressing company shareholders, Mr Dinesh K Sarraf, CMD of ONGC, said that energy industry, particularly the oil and gas sector, was facing challenging times due to the collapse of crude prices.

    He said that oil prices have collapsed from USD 110 per barrel to sub-50 dollars a barrel due to lower growth in demand than expected from China, slow recovery in some of the developed economies and steady build-up of new supplies backed by strong North American output.

    Mr Sarraf said that "While many of the global E&P companies have responded to this situation by cutting down their investments, ONGC takes this as an opportunity to build its assets in this environment of lower costs as well. ONGC remains steadfastly committed to the quest of energy security, a national priority endorsed by none other than our Prime Minister."

    He said that ONGC has stepped up ongoing development efforts to bring new hydrocarbon volumes into the country's energy basket. Important projects have been given the go-ahead for development and more proposals to monetise our reserves are under various stages of finally being approved.

    Having reversed the decline in crude oil production in 2014-15, ONGC is now fully focused on implementing programmes to raise output from ageing and old fields.

    He said that "Every drop counts and ONGC's production track record from its predominantly mature portfolio and commercially prudent and holistic management of producing assets is really remarkable."

    Improved Oil Recovery and Enhanced Oil Recovery projects to maximise production have yielded positive outcomes in 2014 to 2015 over 34% of ONGC's crude production was a result of investments in these projects.
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    Tecnicas and Petrofac Selected to Build $4.7B Saudi Gas Project

    Spain's Tecnicas Reunidas and Britain's Petrofac have been selected for contracts worth as much as $4.7 billion to build the Fadhili gas plant in Saudi Arabia for state oil giant Saudi Aramco, industry sources said on Tuesday.

    "They received notification last week; a letter of intent," said one of the sources, who declined to be identified as the information isn't public.

    Petrofac and Tecnicas declined to comment, while Saudi Aramco said it does not comment on its business plans.

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    Eni plans to hold the keys for east Mediterranean gas exports

    Braving all the political risks of the region, Italy's Eni aims to pull together its east Mediterranean gas empire headed by a giant Egypt find, into a major hub to supply Europe.

    State-controlled Eni, the biggest foreign oil and gas major in Africa, wants to use its deep ties with Egypt and Libya to help create the export hub for liquefied natural gas.

    It expects Libyan gas to flow into a hub when conflict abates, hopes to attract other producers seeking an export outlet from Israel and accelerate plans to send Cypriot gas owned by other companies into the facility, likely to be located in Egypt.

    The project would help diversify gas supply to Europe, now dependent on Russia for about a third of its needs, but faces long odds given the region's mix of political disputes, conflict zones and state involvement in energy policy.

    Its scope of tying together a multi-national gas supply network may be unprecedented. Pipelines would need to be built linking the various gas deposits scattered across the region to an LNG plant.

    "The area (Egypt) could restart exporting LNG and, as it's very close to Italy and Spain where LNG import terminals are idle or underused, it's very likely it will come in there," Eni CEO Claudio Descalzi told Italy's parliament last week.

    Descalzi, who has already flown to see heads of state in Egypt and Cyprus where the idea of a gas export hub was discussed, told senators the hub could be established to bring together the resources of Egypt, Cyprus, Israel and at some later point Libya.

    "There's massive potential here for Europe and room for Italy to increase its clout in the area. It's clear there are huge amounts of gas, including off Libya," a person familiar with the matter said.

    Fuel shortages have forced Egypt to idle its two liquefied natural gas (LNG) export plants, which chill gas into liquid form for transport on ships.

    Pooling the region's rich energy resources could spur investment in previously stranded gas fields in Israel and Cyprus, while resuscitating once-bustling LNG export plants like BG's Idku as well as Eni's dormant Damietta in Egypt.

    In Cyprus, Eni itself has not yet discovered any gas deposits but is focused on doing so, the company said last week.

    Still, the firm's bumper gas find in Egyptian waters this month, the biggest ever in the Mediterranean, may help unlock aspects of the problem by providing large new supplies to feed the gas export hub.

    While gas from the newfound Zohr field, holding 30 trillion cubic feet of reserves, will mainly feed domestic Egyptian demand only, a deeper reservoir below it could be a candidate for gas exports.

    "Egypt had a plan to double its LNG export capacity and if the hub grows it could do it," Descalzi told Italy's parliament.

    The CEO said Eni has made big gas discoveries in Libya that have lain dormant for years because they were unable to develop them as conflict raged, seeing Egypt as one export outlet.

    Zohr is also close to Cyprus' offshore block 11 which is licensed to French major Total and the reservoir may extend across the maritime border, creating opportunities for explorers on the Cypriot side.

    Israel and Cyprus already have plans to export gas to Egypt but progress has been slowed by regulatory interference and dragging negotiations.

    Pulling off the hub project will not be easy given the region's tangle of political disputes.

    Turkey opposes any export of Cypriot gas reserves until a long-standing dispute over territory is cleared up and a mechanism for sharing gas profits between the Turkish and Cypriot sides of the island are put in place.
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    Moody's revises INPEX CORP's outlook to negative

     "The change of outlook to negative primarily reflects the uncertainties generated by the delay in the start-up of production and cost overruns at the company's Ichthys LNG Project in Australia," says Kailash Chhaya, a Moody's Vice President and lead analyst for INPEX CORPORATION.

    "In addition, Moody's considers that the headroom within the company's current rating has been reduced by weak earnings in the current low oil price environment and the increasing level of liabilities related to Ichthys", adds Chhaya.

    On 11 September 2015, INPEX announced that the start of production at Ichthys will be delayed to the third quarter of 2017, from the expected start date of end-2016. As of June 2015, the project's overall development was approximately 74% complete. But, a detailed review of its schedule prompted the company to revise the start date.

    INPEX also announced that various factors -- including the delayed production start -- will increase by 10% the total project investment, estimated at the time of the final investment decision in January 2012.

    INPEX will also likely increase its borrowings to cushion the impact of low oil prices and to fund the additional costs of the project, which will raise adjusted debt/EBITDA leverage. As of 31 March 2015, INPEX's adjusted debt/EBITDA leverage, calculated after treating its Ichthys-related completion guarantees as debt, stood at 2.6x.

    Ichthys is critical to INPEX's goal of expanding its daily production capacity to an equivalent of 1.0 million barrels per day, 2.5x its current level, in the next 10 years. At its peak capacity, INPEX estimates that Ichthys will supply about 10% of Japan's annual LNG import volume.

    Moody's recognizes INPEX as a government related issuer (GRI), based on direct (19%) and indirect (2%) ownership of approximately 21%, as well as on the government's ownership of a special-class share, or a golden share. When considering the rating of GRIs, Moody's applies a joint default analysis (JDA) composed of four factors: a baseline credit assessment (BCA), the related government's credit quality, its default dependence, and its support probability.

    Moody's has assessed INPEX's BCA as baa1, based on the above mentioned fundamental characteristics. If leverage increases due to the planned investments in the Ichthys and Abadi projects, then the opportunity for a ratings upgrade is limited.

    The credit quality of the Japanese government, as the potential support provider to the issuer, is A1 with a stable rating outlook.
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    China's Coal bed methane to remain viable in long term

    Prospects for the country's natural gas market remain strong in long term, despite the economic slowdown, according to the head of one of China's leading developers of unconventional gas resources.

    Pierce Li is co-CEO and president of AAG Energy Holdings Ltd, an independent producer of coal bed methane, or CBM, which just raised $363 million in a Hong Kong flotation.

    "While domestic demand for natural gas will be affected by the temporary economic slump to an extent, we are confident the Chinese economy will warm up in future," he said.

    Through a series of production-sharing contracts, AAG holds majors shares in two gas concessions in the Qinshui Basin in Shanxi province: 80 percent of the Panzhuang concession (spanning 67.4 square kilometers) and 70 percent of the Mabi concession (898.2 sq km).

    Panzhuang began production in 2007 and is considered the most commercially advanced Sino-foreign-owned CBM asset in China, and remains the only one to have received full development plan approval. At the end of last year its daily output hit a record 1.4 million cubic meters.

    AAG started pilot production of Mabi in the first half of 2010, and in November 2013 received preliminary approval for its first phase of development from the National Development and Reform Commission, with production target of 1 billion cu m per year, starting in 2016.

    An International Energy Agency report on coal mine methane in China, published in 2008, revealed China has seven geographic regions with different concentrations. Shanxi and Shaanxi provinces, and Inner Mongolia autonomous region contain the richest sources, with the Qinshui Basin considered the best single area.

    China has prioritized the development of unconventional energy to reduce its reliance on coal.
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    White House says does not back U.S. House bill to repeal oil export ban

    The White House said on Tuesday it does not support a bill in the U.S. House of Representatives to repeal the 40-year-old ban on exports of crude oil.

    "This is a policy decision that is made over at the Commerce Department, and for that reason, we wouldn't support legislation like the one that's been put forward by Republicans," White House spokesman Josh Earnest told reporters at a briefing.

    "The administration believes that the American people are better served by making sure that we pursue the kind of approach that also invests in renewable energy," he said.

    The full House is expected to pass the bill to repeal the ban in coming weeks, after a vote on Thursday in the chamber's energy panel.

    Energy interests say the domestic drilling boom could soon choke on a glut of crude if producers are not allowed to ship the oil to consumer countries in Asia and Europe.

    A similar bill faces a tough battle in the Senate, however. Even if all 54 Republicans in the 100-member Senate voted for the bill, they would need support from six Democrats to overcome a procedural roadblock.

    In July, the Senate energy panel passed a bill to lift the ban, but no Democrats voted for it.

    The top Democrat on the panel, Senator Maria Cantwell of Washington state, has said she needs to know more about whether lifting the ban would be good for consumers. Cantwell has also voiced concerns that repealing the ban could increase the number of trains carrying oil through her state.
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    EIA: Shale output fell by 350,000 barrels a day since April

    Government analysts say shale oil fields in Texas, Colorado, North Dakota and Ohio are set to decline by 80,000 barrels a day this month, bringing their combined daily output to 5.2 million barrels in October.

    That brings production declines in the U.S. shale plays to 350,000 barrels a day since the shale boom reached its peak in April, according to the Energy Information Administration’s monthly report on shale drilling productivity.

    The oil wells drilled into shale formations have steep natural decline rates because the rock isn’t porous or permeable, making it difficult to squeeze out oil and gas. Shale wells typically give up most of their hydrocarbons in the first year after they’re brought into production.

    These shale production losses have come from the Eagle Ford Shale in South Texas, the Bakken Shale in North Dakota, the Utica Shale in Ohio and the Niobrara in Colorado, Kansas, Nebraska and Wyoming. The only oil-focused shale play that didn’t give up production in October was the Permian Basin in West Texas, which is expected to bring up an additional 23,000 barrels a day by next month.

    The biggest declines since April have come from the Eagle Ford, which has lost 300,000 barrels a day. The Permian has continued to bring production up, adding 88,000 barrels a day since shale production peaked,according to the EIA.

    In the last few days, OPEC and the International Energy Agency put out dueling predictions of how far U.S. oil production will decline over the next year. The Saudi-led Organization of Petroleum Exporting Countries believes U.S. production will still grow next year but only by 50,000 barrels a day, down from its estimate of 400,000 barrels a day this year. And the Paris-based IEA said U.S. production is set to plunge by 400,000 barrels a day next year.
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    Sunoco holds binding open season for third Mariner East pipeline

    Sunoco Logistic Partners LP is holding a binding open season for a third Mariner East pipeline. The pipeline will deliver Appalachian natural gas liquids (NGL) to Sunoco's Marcus Hook Industrial Complex on the Delaware River south of Philadelphia, USA.

    Sunoco said shippers have expressed interest in expanding Mariner East to provide more NGL takeaway capacity from points in eastern Ohio, western Pennsylvania and West Virginia for delivery to Marcus Hook – a former oil refinery that's being repurposed for NGL storage, processing and distribution to local, domestic and international markets.

    Sunoco launched the current open season on 10 September.

    Sunoco revealed in June that it was considering constructing a third Mariner East pipeline. It would likely follow the 300 mile path of the company's existing Mariner East 1, which runs from Western Pennsylvania to Marcus Hook.

    Sunoco is also moving ahead on acquiring the more than 2500 parcels of land, some by eminent domain, needed to expand its Mariner East II pipeline to carry Marcellus shale gas to Marcus Hook.

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    Penn West to sell Mitsue assets for $192.5-million

    Canadian oil producer Penn West Petroleum Ltd said it would sell its assets in Mitsue in Central Alberta for $192.5-million in cash to reduce debt.

    The company said it would have raised $605-million this year by divesting its non-core assets upon the closing of the Mitsue deal.

    Penn West had long-term debt $2.21-billion as of June 30.

    The company lowered its budget and cut jobs this month and said it would only spend cash it earned from operations.

    The company had also cut its 2015 production forecast to 86,000 to 90,000 barrels of oil equivalent per day (boepd) from 90,000 to 100,000 boepd.
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    Alternative Energy

    Aqueous Hybrid Ion (AHI™) battery

    Dr. Jay Whitacre’s Technology has the Potential to Transition the World toward a More Sustainable Energy Future

    Jay Whitacre, Ph.D., a Materials Scientist and Professor at Carnegie Mellon University’s College of Engineering, is the recipient of the 2015 $500,000 Lemelson-MIT Prize. Whitacre is the inventor of the Aqueous Hybrid Ion (AHI™) battery, a reliable, environmentally-benign and cost-efficient energy storage system.

    This first-of-its-kind battery, often used in combination with solar and wind energy systems, stores significant amounts of energy at a low cost per joule and allows for around-the-clock consumption. Whitacre’s AHI™ battery, developed using abundant and inexpensive resources including water, sodium and carbon, can help reduce dependence on fossil fuels and make sustainable energy a viable alternative. The company that Whitacre founded, Aquion Energy, has fully scaled manufacturing and commercialized the battery with global distribution channels and installations in many locations including Australia, California, Germany, Hawaii, Malaysia, and the Philippines.

    Whitacre founded Aquion Energy (then known as “44 tech”) in 2008 with support from venture capital firm Kleiner Perkins Caufield & Byers, with the goal of bringing to market a new class of aqueous sodium ion functional battery. The resulting Aquion battery systems help customers increase use of renewables, reduce reliance on diesel, control peak energy costs, provide power stability, bring access to electricity in under-electrified regions, and improve power reliability to areas with unstable grid infrastructure. It is the industry’s first-ever Cradle to Cradle Certified™ battery while offering superior value when compared to other energy storage products on the market.
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    Praxair acquires industrial-gas assets from Norway’s Yara

    Industrial gases giant Praxair Inc has agreed to buy carbon-dioxide and dry-ice assets from Norwegian fertilizer supplier Yara International SA for EUR 312 million to bulk up its activities serving the food and beverage sector in Europe.
    The companies said on Tuesday that Praxair would pay EUR 218 million for Yara’s carbon-dioxide business and EUR 94 million for the Norwegian company’s 34% stake in Yara Praxair Holding AS, a joint venture established in 2007 that delivers industrial gases and dry ice to the Scandinavian market.

    The acquisition is part of Praxair’s effort to expand in regions where it can gain cost savings as well as enhancing our presence in noncyclical segments such as food and beverage, said Praxair Chairman and Chief Executive Steve Angel. Praxair’s main customers include steelmakers, petrochemicals suppliers and the electronics industry.

    Yara said it was exiting a noncore business.

    Mr Svein Tore Holsether, CEO of Yara, said that “The CO2 business has been an attractive and long-standing part of Yara’s portfolio, but remains a relatively small part of the broader industrial-gas industry, and where Praxair is well positioned to create additional value.”
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    Base Metals

    Citigroup joins copper price bulls

    In New York trade on Tuesday copper for delivery in December turned positive ticking higher to $2.4280 per pound or around $5,350 a tonne.

    Last Friday the price reached a near 8-week high following a torrid week of trading that saw the price rise nearly 6%. The red metal has recovered strongly from six-year lows struck late August, but remains down some 13% year to date after a 16% fall in 2014.

    The latest rally was inspired by the announcement ofsteep production cuts by Glencore, the world's number four producer of the metal.

    Glencore's move followed news that US-based Freeport-McMoRan (NYSE:FCX) which vies with Codelco as the world number one copper miner in terms of output, is cutting in half output at is El Abra mine in Chile and idling two US mines.

    For its part Chile's state-owned Codelco has vowed to "cut costs to the bone" and delayed several expansion projects including going underground at Chuquicamata and pushing back expansion of the Andina complex by two years.

    Around two-thirds of capex at major producers and 28% of total costs are dollar-denominated reducing the positive impact of weak local currencies on cash costs

    An new research note by Citigroup predicts production cuts and mine disruptions will send the market back into deficit in 2016. So far in 2015 over 1.5 million tonnes were lost due to labour action and the weather including floods in the Atacama desert in Chile, lack of rain in Zambia and Indonesia where Freeport predicted lower output at its giant Grasberg mine due to the El Nino weather effect.

    According to Bloomberg Citigroup analysts are predicting mine output this year will total 18.9 million tonnes leading to small primary surplus. But the market will return to a deficit of 284,000 tonnes next year and stay in deficit – albeit a shrinking one – through 2019. The investment banks sees copper trading above $5,700 by the fourth quarter.

    That compares to an expansions of 1.3% expected by Citigroup for next year. The bank also says to "reach consensus expectations of 3 percent to 4 percent annualized growth this year would imply an 'unrealistic acceleration' to as much as 9 percent for the second half of 2015."

    Another factor that should support prices is falling grades and dirty concentrate   at the world's largest mines. The proportion of deleterious elements such as arsenic, antimony and bismuth have crept up relative to copper concentrate grades over the past decade as result of a greater proportion of low grade – high tonnage operations.

    Citigroup also analyzed the impact of weaker local currencies and found that the savings from the strong dollar for producers in Latin America, Africa and Asia are less than expected. Around two-thirds of capex at major global producers and 28% of total costs are dollar-denominated reducing the positive impact of weak local currencies on cash costs.

    Last week a new report by Capital Economics made an even more bullish case for copper mainly because the London-based independent research house believes mine supply will only grow by an anaemic 1.7% this year before contracting next year.
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    Steel, Iron Ore and Coal

    China coal chemical industry faces oversupply risk

    China’s coal chemical industry faced oversupply risk with an influx of investment into this sector, said Li Shousheng, president of the China Petroleum and Chemical Industry Federation (CPCIF) during a meeting on September 10.

    More and more coal producers are turning to downstream industries of power and coal chemical amid a supply glut of the traditional fossil fuel.

    China’s coal chemical products are mainly coal-to-methane, coal-to-olefin and coal-to-glycol, said Li, adding that homogeneity of these products are becoming serious. “If we don’t improve the differentiation and advancement of these products, they may be caught in vicious competition within the industry”, said Li.

    A total 53 coal-to-olefin projects have been kicked off the preliminary work or been planned in China, with combined capacity totaling 33 million tonnes per annum, showed incomplete statistics from the CPCIF.

    Besides, 7 coal-to-oil and 19 coal-to-glycol projects have been planned or under construction across the country, with annual capacity at 13.9 million and 4.7 million tonnes, respectively. 18 coal-to-gas projects were planned or under construction, with total annual capacity at 74 billion cubic meters.

    The completion of all these projects would consume 429 million tonnes of coal, and the output of coal-to-olefin would far exceed domestic demand, said Li.

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    Mongolia’s Tavan Tolgoi coal mine deal likely to stall, again

    Southern Mongolia’s Tavan Tolgoi coal mine, one of the world’s largest undeveloped coal deposits–estimated to contain reserves in excess of 6 billion tonnes of high-quality coking coal used for steelmaking, has stalled digging again recently.

    The likelihood of Mongolia’s parliament approving the $4 billion deal between the government and a consortium of companies–the Mongolian Mining Corp, China’s Shenhua Energy and Japan’s Sumitomo Corp to develop the mine, had fallen dramatically, said Mendsaikhan Enkhsaikhan, one of Mongolia’s lead negotiators on the deal.

    In addition, China’s economic tumult throw the mine’s near-future into question. Coal accounts for over 35% of Mongolia’s exports and China is the destination of 89% of all Mongolian exports.

    The deal might violate Mongolian laws, said Zandaakhuu Enkhbold, the speaker of parliament. Shortly after, the government agreed that the deal would need to be approved by the legislature.

    In the first half of 2015, Mongolia earned $353.9 million from coal exports, a 30% decrease from the same period in 2014. The volume of coal exported also fell 22%. The reasons for the decline were the Chinese economy as well as new regulations in Mongolia making it “compulsory to carry coal by heavy transport road.”
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    Unions reject revised coal sector wage offer, mediation continues

    South African unions in the coal sector have rejected revised wage offers in pay talks, officials said on Tuesday. "All the unions have rejected the offer and the commissioners are still trying to mediate," said Peter Bailey, who is representing the National Union of Mineworkers (NUM), the biggest of the four unions, in the talks. 

    Workers want pay increases of up to 15% and the NUM is seeking a 50% rise for its lowest paid workers, who make R6 000 ($445) a month in basic pay. The Chamber of Mines, which represents Glencore, Anglo American Coal and Exxaro, raised its offer for lower-paid miners last week to between 6% and 7%, depending on the mine and category of worker, from a previous offer of 5.5% to 6.5%. 

    More highly skilled and higher-paid workers were offered raises of 4.5% to 5%. The talks come at a time when producers are closing some shafts in the wake of lower coal prices and, if mediation fails, it could set the stage for potential strikes.
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    Carmakers curb China output as sales growth stalls

    Volkswagen and other major carmakers have begun reining in Chinese output, wages and other costs, industry sources told Reuters, as executives at the Frankfurt auto show put a brave face on a sharp slowdown in the world's biggest vehicle market.

    The German car giant's Chinese joint venture, FAW-VW, is cancelling staff bonuses and cutting shifts at its plants near Changchun, northeastern China, people with knowledge of the matter said. The bonuses being scrapped typically account for more than half of the assembly-line workers' take-home pay.

    Volkswagen's (VOWG_p.DE) high-end Audi brand also said it had cut output at its Chinese plants, trimming the working week to five days from seven in response to lower demand for models such as the A6 saloon.

    And German rival BMW (BMWG.DE) said on Tuesday it had reduced output of its locally produced 3 and 5 series models. "We reacted relatively fast," Chief Financial OfficerFriedrich Eichiner told journalists. "We are not stockpiling."

    Car sales in China, until recently the profit engine for automakers around the world, have been hit by a cooling economy and a plunging stock market. Demand was flat in the first eight months of the year and could drop in 2015 for the first time since the market took off in the late 1990s.
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    China says steel export limits won't solve trade tensions

    Using anti-dumping measures to restrict Chinese steel exports will not provide a lasting solution to growing trade tensions in the sector, which is suffering from overcapacity on a global scale, China's commerce ministry said on Wednesday.

    With domestic demand weakening, the Chinese steel sector has seen the foreign market as a lifeline, with historically low prices allowing them to boost exports by as much as 26.5 percent in the first eight months of this year.

    Chronic overcapacity has helped drive Chinese steel prices to their lowest level in decades, and European steel body Eurofer has accused Chinese producers of selling at prices that do not fully cover their costs.

    But Shen Danyang, spokesman for the Ministry of Commerce, told reporters that there were no grounds to believe that Chinese steel was being dumped on overseas markets.

    "Blindly determining any case involving China as dumping is unfounded and unjustified," he said, noting that the costs of Chinese steel reflected the collapse in global iron ore prices.

    "Overcapacity is the common problem faced by the global steel industry during its restructuring process, but simply imposing limits just isn't the channel or method that will fundamentally solve the problems," he added.

    The China Iron and Steel Association (CISA) has warned that the industry's growing reliance on exports might not be sustainable because of growing trade friction, and urged its members to refrain from selling overseas at below cost.
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    POSCO to settle CRGO electrical steel case with Nippon Steel reported that POSCO is set to pay 300 billion won (US$254 million) in compensation to Japan‘s Nippon Steel for business secrecy and patent violations in connection with technology for grain-oriented electrical steel (GOES). POSCO would also be required to pay royalties when exporting electrical steel and engage in consultation before making decisions on regional export quantities.

    In exchange, Nippon Steel is to withdraw suits that it has filed in South Korea, Japan, and the US.

    Some company insiders told Hankyoreh on Septemebr 13 that POSCO is planning to ink the deal with Nippon Steel shortly, with details to be announced around the long Chuseok harvest holiday later this month.

    Nippon Steel first filed suit with Tokyo District Court for business secrecy and patent infringement in April 2012, alleging that POSCO had acquired GOES manufacturing technology by hiring its former employees as advisers. It also filed a similar suit with the US District Court for New Jersey demanding the equivalent of around one trillion won (US$847 million) in damages.

    POSCO countered in July 2012 with an absence of liability case in Daegu District Court. It also requested patent invalidation trials with the US Patent Office in September 2012 and the South Korean Intellectual Property Trial and Appeal Board in April 2013, which are still ongoing. But the company appears to have decided it would be better to strike a deal than to continue the legal battle,

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