Mark Latham Commodity Equity Intelligence Service

Friday 22nd January 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Chinese consortium buying and storing metal with bank finance.


    China's plans to set up funds to manage coal and steel capacity closures and stockpiling schemes offer nervous markets some clarity on the likely future make-up of the country's sprawling and predominantly state-run metals and mining industries.

    As the world's largest producer of aluminium, steel and other metals, and the biggest consumer of copper and iron ore, China is crucial to global metals markets which have slumped in the past year as Chinese industrial demand growth slowed.

    China's slowdown has hit revenue at global miners such as BHP Billiton and Rio Tinto , and the market is keen to know what China plans for its own state-run mining and metals giants - many of which have kept producing even as prices drop below the cost of production.

    After weeks of talks between government officials and leading metals producers, Beijing looks set to take a direct approach to managing capacity cuts and layoffs in coal and steel. It will provide smaller-scale financing deals to groups of producers of non-ferrous metals, such as aluminium, for stockpiling and capacity cutback initiatives.

    On Thursday, state media reported that Beijing will allocate 30 billion yuan ($4.56 billion) over the next three years to support the closure of small and inefficient coal mines, and re-deploy some 1 million workers. Similar measures are expected to be unveiled for the steel sector. Both industries have huge over-capacity.

    Last week, six big aluminium producers - Aluminum Corp of China (Chinalco) , State Power Investment Corp, Yunnan Aluminium, Jiugang Group, Jinjiang Group and Weiqiao Aluminium & Electricity - agreed to set up a new company to handle a proposed stockpiling scheme and to coordinate and monitor production levels across the group, said two people with direct knowledge of the matter.

    Similar group-based initiatives are being considered by zinc and copper producers, but these are at a less advanced stage.

    JOINT COMPANY

    The aluminium stockpiling programme is part of a bigger plan proposed late last year by smelters and the state-controlled China Nonferrous Metals Industry Association.

    The producers have been in talks for several weeks with state-owned China Development Bank (CDB) for loans, and the establishment of the new joint company was a necessary step to access funding, the two knowledgeable people said.

    "(We) have invited the CDB to support (the funding)," said one of the two individuals, adding the bank funding would be used to stockpile nonferrous metals, and its scale would depend on smelters' needs. He said aluminium stockpiling could start before the Lunar New Year holiday in February, when demand was weak.

    Local media and postings on Chinese chatrooms say loans could total around 30 billion yuan and mature in three years. About a third would be used to stockpile aluminium, with another third used to buy nickel
    .

    Traders warned that commercial stockpiling was unlikely to support prices over the longer term, with demand still weak, and stronger prices could tempt some to re-start idled capacity, adding to the supply glut. Nearly 5 million tonnes of aluminium capacity was idled last year, according to the industry body.

    "Stockpiling may support prices for 1-2 months. After that, we have to see demand and production cuts," said a trader at a state-owned investment firm.

    Traders are also concerned the stocks could be hedged in futures markets, which could be a drag on prices. The aluminium producers have not discussed whether or not to hedge the stocks, the second knowledgeable individual said, and today's low prices should discourage hedging.

    The CDB loans could also help cover the cost of closing capacity at cash-strapped state-owned aluminium smelters, said a smelter executive briefed on the stockpiling programme.

    "Some firms want to get out ... but an exit route has not been opened up. Some local governments continue to urge steel firms to produce in the interests of local economic development and social stability," Zhang Guangning, outgoing chairman of the China Iron and Steel Association, said at a meeting last week.

    Shenwan Hongyuan Securities estimates the funds required to make a real dent in coal and steel capacity could be as much as 200 billion yuan ($30.4 billion).

    http://www.reuters.com/article/us-china-metals-stockpiling-idUSKCN0UZ1QZ



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    Top-Ranked Analyst Says BHP May Need $10 Billion Stock Sale


    BHP Billiton Ltd. needs to raise as much as $10 billion in a sale of new stock to its investors if it wants to keep its credit rating, according to the top-ranked analyst covering the world’s biggest mining company.

    As prices for key commodities such as iron ore and oil have tumbled, BHP’s stated goal of retaining its A+ credit rating at Standard & Poor’s and A1 rating at Moody’s Investor Service is under pressure, Richard Knights of Liberum Capital Ltd. wrote in a note on Friday. Raising $5 billion to $10 billion through a share sale to existing investors is required to fill the shortfall in cash flow to keep the rating, he said.

    “Slashing capital expenditure and even cutting its dividend to zero are not sufficient for BHP to realistically retain a ‘solid A’ credit rating, if spot commodity prices and currencies persist,” said Knights, who’s the top ranked analyst covering BHP’s London shares according to Bloomberg data. “Given the company continues to be married to the idea of a ‘solid A’ rating throughout the cycle, a rights issue looks likely.”

    Miners have been battered by headwinds from slowing growth in China, their biggest customer, and gluts in metals to energy markets. That’s forced competitors to scrap dividends and sell assets, while smaller rivals such as Glencore Plc and Freeport McMoran Inc. have already sold shares to strengthen their finances.

    The Melbourne-based miner could raise as much as $15.4 billion through a share sale to allow it to buy assets of distressed rivals, Bank of America Corp. analyst Jason Fairclough wrote in a note to clients earlier this month. Such a sale might accelerate the distress of more indebted companies in the industry and force the sale of quality mines, according to Fairclough.

    In addition to a cut to its dividend, BHP has options to make further reductions to capital expenditure and to continue to trim operating costs.

    “Given the optionality additional capital would give BHP around M&A at this point in the cycle, we feel a raise at the higher end of this range is more likely,” Liberum’s Knights wrote of his $5 billion to $10 billion estimate. “The threat of a capital call will weigh on the shares.”

    http://www.bloomberg.com/news/articles/2016-01-22/top-ranked-analyst-says-bhp-may-need-10-billion-stock-sale
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    Oil and Gas

    Legal uncertainties delay flow of Iranian oil to Europe


    European companies and trading houses are not rushing to buy Iranian oil because of legal uncertainties over the lifting of sanctions that are likely to take weeks to clarify.

    A lack of dollar clearing, the absence of an established mechanism for non-dollar sales, insufficient clarity on ship insurance and the reluctance of banks to provide letters of credit to facilitate trade are all giving cause for caution.

    Iran used to sell as much as 800,000 barrels per day (bpd) to European refiners in Italy, Spain and Greece before sanctions over its nuclear programme were imposed. European markets have since then been inundated with extra oil from Saudi Arabia, Russia and Iraq.

    Iran ordered a 500,000-bpd increase in oil output, of which 200,000 bpd will go to Europe, after the nuclear-related international sanctions were lifted on Saturday. But many European firms are wary of violating other sanctions that were imposed by the United States and have not been lifted.

    Russian oil major Lukoil's chief executive, Vagit Alekperov, said it was still not clear whether the company's refineries in Italy or the Netherlands were free of legal risks to buy Iranian oil.

    "It is all clear on the petrochemical side. We can transfer the money and buy and sell their products. On the crude side, our lawyers are looking into this," he told Reuters Television on the sidelines of the World Economic Forum in Davos.

    Marco Dunand, chief executive of Swiss trading house Mercuria, also believes Iranian oil imports into Europe remain complicated.

    "As a European citizen, I can probably trade it again provided I don't use U.S. dollars. But then if you use a euro-dollar conversion, does it become a grey (uncertain) zone?" he said.

    Dunand said a lot of additional explanatory work needed to be done by European governments on how ship insurance and banking would now work before imports to Europe resume.

    An executive from a European firm which was a big buyer of Iranian oil before the sanctions were imposed said it could take weeks to clear up many aspects.

    "Up until Monday, banks and ship insurers were simply refusing to have any conversations about this," he said.

    Another senior oil executive at the Davos meeting said his firm would eventually resume imports from Iran but was still exercising caution due to a lack of clarity.

    Market players, however, expect that companies which bought Iranian crude before the sanctions - such as Royal Dutch/Shell , Total, Eni, Hellenic Petroleum and traders such as Vitol and Glencore - will resume purchases at some point later this year.

    http://www.reuters.com/article/oil-iran-exports-idUSL8N1542EC
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    SaudiAramco plans to double crude oil, oil products exports to China


    SaudiAramco plans to double crude oil, oil products exports to China, say senior executives at the state-owned oil giant.

    @Plattsoil
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    China's Dec diesel exports up 264 pct on year -customs


    China's December diesel exports rose 264 percent from a year earlier to 980,000 tonnes, the country's General Administration of Customs said on Thursday, the second-highest month in 2015.

    Full-year diesel exports rose 74.6 percent in 2015 to 7.16 million tonnes.

    http://www.reuters.com/article/china-fuel-exports-idUSB9N0Y200S
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    Saudi-Israel pipeline?

    A Saudi-Jordan-Israel oil and gas pipeline is the only answer.  It’s the shortest distance between the two points of Saudi Arabia and the Eastern Mediterranean.  That was the historical path of the westward oil pipeline before Israel was created in 1948, and the Arabs declared endless war.  Egypt is too unstable to protect and control its own pipeline through the Sinai, let alone anything grander.  Therefore, the Sunni oil kingdoms have one and only one choice: a pipeline through Israel.

    Israel is the perfect hub for all the non-evil-axis (though far from democratic) regional players: Turkey, Egypt, Cyprus/Greece, and Saudi Arabia.  The reason is that they all trust Israel not to attack each of them, whereas they all believe each would attack the other if they gained a contiguous border.  In short, Israel keeps all of the major players honest.  Therefore, Israel is the perfect buffer state for them. 
    Israel is the military glue that not only acts to protect all the parties but acts as the key middle transit area connecting all the players.  For all of the players this is a key element.  Israel has the necessary military power projection for all the players without the usual threat projection that comes from the power projection. Israel can play a key role in protecting the pipeline from attack.
    Such a pipeline will be an economic boom for Jordan and other Arabs in the area.  They will hopefully come to see Israel as the enabler of their economic base, and not an enemy.  For, if Israel were harmed, the pipeline would be doomed for destruction along with their economies.  In this regard, Turkey would be the greatest beneficiary because it would be guaranteed a secure source of gas and oil for its own use as well as for piping through to Europe.
    Israel is not only an ally of Saudi Arabia and the Arab Sunnis in the military struggle against the waxing Persian Safavidic hegemon Iran, it is also a vital partner in the economic war against the ayatollah's regimeilo.
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    Norway's Statoil, Det norske looking for more acquisitions


    Norwegian oil firms Statoil and Det norske are looking at more acquisitions after recent deals, their chief executives told Reuters, hunting for bargains after a plunge in energy prices.

    Statoil last week bought an 11.9-percent stake in Sweden's oil firm Lundin Petroleum for $540 million, increasing its dominance on the Norwegian continental shelf where it already operates more than 70 percent of Norway's oil and gas output.

    "We have done a transaction with Lundin, and we are of course monitoring other possibilities closely," Statoil CEO Eldar Saetre said in an interview, adding that Statoil has no current plans to raise its stake in Lundin.

    "It is most likely that this (mergers and acquisitions) will increase," he said, speaking generally about the sector.

    Last year saw a flurry of deals in Norway's biggest industry, with private equity investors buying up assets, betting on a recovery in crude prices, from energy firms happy to generate some cash.

    The price of Brent crude is down 77 percent since June 2014, putting pressure on the budgets of energy companies but offering scope to pick up assets at attractive prices for those bold enough to bid.

    Norway's Det norske, controlled by Norwegian billionaire Kjell Inge Roekke, has been another active buyer.

    The exploration and production company bought the Norwegian units of Marathon Oil, Svenska Petroleum and Premier Oil's over the past 18 months.

    "We want to play an active role in this market," Det norske CEO Karl Johnny Hersvik told Reuters on the sidelines of a company investment seminar. "We are looking for further opportunities."

    Smaller player OKEA, a private-equity backed Norwegian newcomer which this month took over a 60 percent stake in a North Sea oilfield from Repsol of Spain, said it was looking at more deals this year.

    "We think we can bring in more money as we make more good deals ... I hope that we can make one or two more deals in 2016," OKEA partner Erik Haugane told Reuters.

    "Changes like this (in the oil price) is a catalyst for action. Some will buy more resources like we do, while others will clean out their portfolio to focus their business."

    http://www.reuters.com/article/us-norway-m-a-oil-idUSKCN0UZ1I9
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    Rosneft says has financial resources to meet debt obligations


    Russia's top oil producer Rosneft has the resources to meet its 2016 debt obligations of $13.7 billion in full this year, the company told Reuters on Thursday, as the value of the rouble against the U.S. dollar and euro has plummeted.

    Rosneft, under Western sanctions over Moscow's role in the Ukraine crisis which limit its ability to borrow on global markets, bought TNK-BP, its smaller competitor, for $55 billion in 2013.

    Rosneft said on Thursday it had a total of around $23 billion in free cash and short-term financial assets as of Sept-end, 2015, enough to meet its debt obligations this year.

    Rosneft, which accounts for 40 percent of Russian oil output, said last year it had paid international banks $7.9 billion in the third quarter of 2015.

    The company's net debt was down by 40 percent to $24.5 billion in the third quarter, quarter-on-quarter, thanks to the forward payments by its clients worth more than 1 trillion roubles ($11.9 billion).

    Rosneft did not elaborate on Thursday whether it expected more such forward payments this year.

    The company raised 625 billion roubles in rouble bonds at the end of 2014, in a deal described later by the central bank governor Elvira Nabiullina as "non-transparent, unclear to the market and... an additional factor of volatility."

    Rosneft said at the time it did not use the funds raised to buy foreign currency.

    http://www.reuters.com/article/russia-rosneft-debt-idUSL8N1551P5
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    Schlumberger Cuts Another 10,000 Jobs as Crude Rout Deepens


    Schlumberger Ltd. cut another 10,000 jobs to cope with a crude market collapse that’s forced its customers to slash spending for two consecutive years.

    The world’s largest oilfield service provider reported a loss of $1.02 billion, or 81 cents a share, compared to profit of $302 million, or 23 cents, a year earlier, the Houston- and Paris-based company said in a statement Thursday. Excluding charges, Schlumberger earned 65 cents a share, 2 cents more than the average 63 cents estimated by 37 analysts in a Bloomberg survey.

    Schlumberger, which has fallen 44 percent since the downturn began 19 months ago, will launch a new $10 billion stock buyback program as its current repurchase plan of the same amount wraps up.

    "It’s always nice to know the company is investing in itself," Matt Marietta, an analyst at Stephens Inc. in Houston, who rates the shares the equivalent of a buy and owns none, said in a phone interview. "All things considered, I think their cost-savings program can be viewed positively."

    The company took $2.1 billion in charges to account for the latest layoffs and restructuring. That exceeded the $1.77 billion in charges from a year ago as the company completed its first major round of restructuring amid plunging oil prices. Total job cuts for the company since the third quarter of 2014 now add up to 34,000 -- 26 percent of its workforce, according to Joao Felix, a spokesman.

    Schlumberger’s revenue dropped 39 percent in the quarter to $7.74 billion, the lowest in five years.

    "The decrease in land activity was the sharpest seen since 1986," Chief Executive Officer Paal Kibsgaard said in the statement. With the rig count dropping so steeply, "the massive over-capacity in the land services market offers no signs of pricing recovery in the short to medium term."
     
    The company’s operating profit margin could slip to as low as 5 percent in North America by the first quarter, after it was 8.9 percent in the third quarter, Lemoine said. It may not be until late 2017 that Schlumberger and its peers will gain the ability to push prices back up for some of their highly competitive services such as hydraulic fracturing, he said.

    http://www.bloomberg.com/news/articles/2016-01-21/schlumberger-beats-estimates-as-oil-rout-forces-deeper-cuts

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    Summary of Weekly Petroleum Data for the Week Ending January 15, 2016


    U.S. crude oil refinery inputs averaged 16.2 million barrels per day during the week ending January 15, 2016, 233,000 barrels per day less than the previous week’s average. Refineries operated at 90.6% of their operable capacity last week. Gasoline production increased last week, averaging about 9.5 million barrels per day. Distillate fuel production decreased last week, averaging about 4.6 million barrels per day.

    U.S. crude oil imports averaged 7.8 million barrels per day last week, down by 409,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.8 million barrels per day, 9.6% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 512,000 barrels per day. Distillate fuel imports averaged 185,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.0 million barrels from the previous week. At 486.5 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 4.6 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 1.0 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 1.9 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 6.6 million barrels last week.

    Total products supplied over the last four-week period averaged over 19.3 million barrels per day, down by 1.8% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.8 million barrels per day, down by 2.8% from the same period last year. Distillate fuel product supplied averaged 3.3 million barrels per day over the last four weeks, down by 15.4% from the same period last year. Jet fuel product supplied is down 3.1% compared to the same four-week period last year.

    CUSHING STOCKS +0.2M TO 64.2M BARRELS IN JAN 15 WK

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    US Oil production shows very small increase, just ahead of last year


                                               Last Week   Week Before   Last year

    Domestic Production '000..... 9,235            9,227             9,186

    http://ir.eia.gov/wpsr/overview.pdf
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    Southwestern Energy to lay off 1,100 workers amid oil slump


    Southwestern Energy Co said it would lay off 1,100 employees, or nearly 40 percent of its workforce, as it slows down drilling activity in response to a prolonged slump in oil prices.

    Oil futures dropped to their lowest levels since 2003 this week on worries of a growing crude glut amid slowing demand due to economic weakness, especially in China.

    Southwestern had no drilling rigs in operation at the start of 2016 and is yet to finalize its capital budget and operating plan for the year.

    The company said on Thursday it expects to record a pre-tax charge of about $60 million to $70 million related to the job cuts in the first quarter.

    Southwestern also said the latest round of job cuts along with the 102 layoffs in August would lower its annual costs by $150 million to $175 million.

    http://www.reuters.com/article/southwestern-redundancies-idUSL3N15542R

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    Alternative Energy

    China's solar capacity overtakes Germany in 2015, industry data show


    China is likely to have surpassed Germany in the fourth quarter as the country with the most solar capacity, despite missing its target for 2015, industry data showed on Thursday.

    China's installed photovoltaic solar capacity stood at 43 gigawatts (GW) by the end of the year, up about 15 gigawatts from 2014, the China Photovoltaic Industry Association (CPIA) said, according to the official Xinhua news agency.

    This compares with a figure of roughly 40 GW for Germany, according to data from that country's Federal Network Agency and Fraunhofer ISE.

    Germany's installed solar capacity stood at 38.24 GW at the end of 2014, up 8 percent, the Federal Network Agency has said, while installed capacity added in 2015 was roughly 1.3 GW, according to Fraunhofer ISE.

    China had been on track to surpass Germany.

    Data from China's National Energy Administration (NEA) shows installations were up 60 percent in 2014, and up 35 percent in the first nine months of 2015, to 37.45 GW.

    The NEA set an aggressive 2015 target of 23.1 GW for solar farms, but did not issue a target for the "distributed solar" category, which it defines as installations smaller than 20 megawatts, after installing just a quarter of its 2014 target.

    "Overall, China managed to exceed its 35 GW set in the framework of the twelfth five-year plan, clearly demonstrating the political commitment," said Frank Haugwitz, director of Asia Europe Clean Energy Advisory Co, citing the previous targets China had set for the period from 2011 to 2015.

    The NEA has yet to release final fourth-quarter and full-year 2015 figures.

    Solar makes up roughly 2.85 percent of China's installed capacity, Reuters calculations using official data show.

    China will add 15 GW of solar capacity in 2016, the NEA chief said in December.

    https://mail.google.com/mail/?shva=1#inbox?compose=152644bbe6ee9fad

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    New 7 MW wind turbine certified


    Siemens Energy has been awarded final Type Certificate for its new 7-MW offshore wind turbine by DNV GL.

    The certification, confirming the safety and reliability of the SWT-7.0-154 turbine, enables Siemens to bring its latest model to market ahead of schedule.

    "Conscious of the current state of the industry it was vital we deliver this project on schedule. We understand our customers’ time pressures and the demand to continuously bring the latest turbine innovations to the market," said Steffen Haupt of DNV.

    The new Siemens turbine delivers almost 10 per cent more energy output than its 6-MW predecessor under offshore wind conditions, according to the announcement.

    First order for the 7-MW turbine in October with 47 units has gone to the Walney Extension Eastproject in the Irish Sea of Danish utility Dong Energy A/S. The deal is part of a frame agreement concluded between Dong Energy and Siemens in 2012.

    http://www.powerengineeringint.com/articles/2016/01/new-7-mw-wind-turbine-certified.html
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    Base Metals

    Someone Is Trying To Corner The Copper Market


    It may not be as sexy as gold and silver, but sometimes even doctor copper needs a little squeeze and corner love as well, and according to Bloomberg, that is precisely what someone is trying to do.

    One company whose identity is unknown, is "hoarding as much as half the copper available in warehouses tracked by the London Metal Exchange."

    By taking control of half the available copper, the trader can help drive up the fees associated with rolling forward a short position, making it tougher for speculators to keep their bearish, explains Bloomberg.

    Indeed, as shown in the chart below, this week the borrowing cost jumped to the highest in three years, almost as if someone is desperately trying to punish the shorts in a strategy very comparable to what Shkreli did with KBIO, when he bought up 70% of the outstanding stock and then made removed his shares from the borrowable pool, forcing a massive short squeeze.

     Image title

    Meanwhile, market participants are quietly moving to the sidelines ahead of what may be some serious copper price swings:

    "A big trader is probably trying to squeeze the market," said Gianclaudio Torlizzi, the managing director of T-Commodity srl, a Milan-based consultancy.“It’s an indication the supply side in copper is tightening."

    Bloomberg adds that yesterday was the third Wednesday of the month, when many traders settle their commitments. To renew a short position, traders have to buy back metal while selling it forward. The tom-next spread, a measure of how much the process costs over one day, jumped as high as $30 a metric ton on Tuesday, the highest since May 2012.

    The declining amounts of physical copper mean that liquidity in the metal is evaporating, resulting in violent, sharp price swings. The amount of metal available in warehouses has dropped more than 40 percent since August, making it costly to roll shorts.

    So who is trying to corner the plunging in price metal? According to Bloomberg, the suspect who controls a large portion of the copper is an unidentified company. "Two firms held 40 to 49 percent of copper inventories and short-dated positions, according to Jan. 19 exchange data that shows holdings as a proportion of available stockpiles. While the LME provides data on the approximate size of large positions, it doesn’t disclose who is behind them."

    One wonders if perhaps the question is not which company is behind the cornering, but rather which country.

    http://www.zerohedge.com/news/2016-01-21/someone-trying-corner-copper-market

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    China State Grid cuts 2016 investment plan on phasing of projects


    The State Grid Corporation of China (SGCC) cut its 2016 investment budget because the timing of its power transmission projects means less capital is required than last year, its chairman said on Thursday.

    The investment cut by SGCC, China's dominant state power grid builder and operator and a major consumer of copper and aluminium, has added to concerns over dwindling Chinese demand, but Chairman Liu Zhenya said it was just a timing issue.

    "(We) do not intend to cut investment, it is just what (our) projects need," Liu told reporters during a news conference in Hong Kong.

    SGCC's investments in China will rise to 2.3 trillion yuan ($349.68 billion) over the 2016-2020 period, Liu said, up from the 1.8 trillion yuan invested over the last five years.

    For 2016, however, investment will fall to 439 billion yuan from 452.1 billion yuan last year.

    Liu said the company's annual investment plans were linked to the progress of its projects. Normally, lower levels of spending are needed during the early stages of a project.

    SGCC's lower 2016 spending comes at a time global investors are worried about China after the world's second largest economy grew at its weakest pace in a quarter of a century last year.

    The State Grid would continue to seek investment projects overseas, its chairman said, saying that while he saw the European market as mature Africa was full of opportunities, without elaborating.

    SGCC is seeking partners to develop a global power transmission network, which could cut costs and ease pollution, said Liu, who is also chairman of the power industry body, the China Electricity Council.

    He said the construction of any future global grid would need help from governments and enterprises.

    http://www.reuters.com/article/china-stategrid-power-idUSL3N1553IH

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    Jiangxi Copper revenue down 3% as copper drops 27.5%


    Jiangxi Copper Company Limited, one of China's largest metal producers, reported a sales revenue of 201 billion yuan ($30.6 billion)in 2015, down 3 percent year on year, a company executive said Wednesday.

    Even this reduced revenue is quite an achievement, since the price of copper dropped by around 27.5 percent in 2015, said Long Ziping, general manager of the company.

    The company paid 4.1 billion yuan as taxes in 2015, down 46 percent, but no explanation for the drastic decline was given.

    The company will look for international resource program for acquisition and boost its overseas sales in 2016, Long said.

    Ten leading Chinese copper producers, including Jiangxi Copper, announced in December that they will reduce refined copper output in 2016 by 350,000 tons, about 5 percent of China's annual production to reduce overcapacity in the struggling nonferrous metal industry.

    Jiangxi Copper, listed both in Hong Kong and Shanghai, was ranked 354 on the Fortune Global 500 in 2015.

    http://en.chinamining.com.cn/Companies/2016-01-22/1453425220d75098.html
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    Aluminium stockpiling fund gives glimpse of China metals reforms


    China's plans to set up funds to manage coal and steel capacity closures and stockpiling schemes offer nervous markets some clarity on the likely future make-up of the country's sprawling and predominantly state-run metals and mining industries.

    As the world's largest producer of aluminium, steel and other metals, and the biggestconsumer of copper and iron ore, China is crucial to global metals markets which have slumped in the past year as Chinese industrial demand growth slowed.

    China's slowdown has hit revenue at global miners such as BHP Billiton and Rio Tinto , and the market is keen to know what China plans for its own state-run mining and metals giants - many of which have kept producing even as prices drop below the cost of production.

    After weeks of talks between government officials and leading metals producers, Beijing looks set to take a direct approach to managing capacity cuts and layoffs in coal and steel. It will provide smaller-scale financing deals to groups of producers of non-ferrous metals, such as aluminium, for stockpiling and capacity cutback initiatives.

    On Thursday, state media reported that Beijing will allocate 30 billion yuan ($4.56 billion) over the next three years to support the closure of small and inefficient coal mines, and re-deploy some 1 million workers. Similar measures are expected to be unveiled for the steel sector. Both industries have huge over-capacity.


    Last week, six big aluminium producers - Aluminum Corp of China (Chinalco) , State Power Investment Corp, Yunnan Aluminium, Jiugang Group, Jinjiang Group and Weiqiao Aluminium & Electricity - agreed to set up a new company to handle a proposed stockpiling scheme and to coordinate and monitor production levels across the group, said two people with direct knowledge of the matter.

    Similar group-based initiatives are being considered by zinc and copper producers, but these are at a less advanced stage.

    With demand weakened by the economic downturn, a metals glut has dragged prices to multi-year lows, causing widespread losses.

    JOINT COMPANY

    The aluminium stockpiling programme is part of a bigger plan proposed late last year by smelters and the state-controlled China Nonferrous Metals Industry Association.

    The producers have been in talks for several weeks with state-owned China Development Bank (CDB) for loans, and the establishment of the new joint company was a necessary step to access funding, the two knowledgeable people said.

    "(We) have invited the CDB to support (the funding)," said one of the two individuals, adding the bank funding would be used to stockpile nonferrous metals, and its scale would depend on smelters' needs. He said aluminium stockpiling could start before the Lunar New Year holiday in February, when demand was weak.

    The CDB did not respond to requests for comment.

    Local media and postings on Chinese chatrooms say loans could total around 30 billion yuan and mature in three years. About a third would be used to stockpile aluminium, with another third used to buy nickel.

    Traders warned that commercial stockpiling was unlikely to support prices over the longer term, with demand still weak, and stronger prices could tempt some to re-start idled capacity, adding to the supply glut. Nearly 5 million tonnes of aluminium capacity was idled last year, according to the industry body.

    "Stockpiling may support prices for 1-2 months. After that, we have to see demand and production cuts," said a trader at a state-owned investment firm.

    Traders are also concerned the stocks could be hedged in futures markets, which could be a drag on prices. The aluminium producers have not discussed whether or not to hedge the stocks, the second knowledgeable individual said, and today's low prices should discourage hedging.

    The CDB loans could also help cover the cost of closing capacity at cash-strapped state-owned aluminium smelters, said a smelter executive briefed on the stockpiling programme.

    Though severe over-capacity has been identified as a major problem across a range of industries, loss-making firms are reluctant to exit, saying they cannot afford to settle debts and staff redundancy payments.

    "Some firms want to get out ... but an exit route has not been opened up. Some local governments continue to urge steel firms to produce in the interests of local economic development and social stability," Zhang Guangning, outgoing chairman of the China Iron and Steel Association, said at a meeting last week.

    Shenwan Hongyuan Securities estimates the funds required to make a real dent in coal and steel capacity could be as much as 200 billion yuan ($30.4 billion).

    http://www.reuters.com/article/us-china-metals-stockpiling-idUSKCN0UZ1QZ

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    Iluka Resources reports positive cashflow


    Mineral sands producer Iluka achieved positive free cash-flow for the year to Dec, lifting FY2015 zircon, rutile, synthetic rutile production by 29% to 690,000t (FY2014: 535,000t).

    Z/R/SR sales rose by 5.6% to 651,000t and revenue by 17% to $A740M, reflecting currency translation benefits, and unit costs of goods sold improved 10% to $780/t.

    Iluka says its full-year results release next month will show a net cash position, from net debt of $59M in Dec 2014.

    http://www.miningbusiness.net/content/iluka-resources-mineral-sands-giant-gains-positive-cash-flow
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    Steel, Iron Ore and Coal

    The coal miner “on everybody’s list” as the next bankruptcy victim


    Plummeting coal prices have pushed almost half the debt issued by U.S. coal companies into default, and for miners and their investors there’s no end in sight.

    Patriot Coal Corp., Walter Energy Inc. and Alpha Natural Resources Inc. have all filed for bankruptcy in the past year. Now that Arch Coal Inc., the second largest coal miner in the U.S., has joined their ranks, investors are wondering if the biggest, Peabody Energy Corp., could be next.

    “Lots of people are wondering: What’s the next shoe to drop? Who might be the next company? Peabody’s on everybody’s list,” said Spencer Cutter, a Bloomberg Intelligence analyst.

    Coal producers are suffering through a historic rout. Over the past five years, the industry has lost 94 percent of its market value, from $68.6 billion to $4.02 billion.

    In addition, Fitch Ratings said in a Jan. 11 report that Arch’s bankruptcy pushed the sector’s default rate to “an unprecedented peak” of 43 percent. So investors are now raising questions about the viability of other miners, such as Consol Energy Inc., Foresight Energy LP, Cloud Peak Energy Inc. and Murray Energy Corp.

    “This once mighty industry is destined to gradually shrink in importance, and virtually disappear as an investable sector,” said Margie Patel, a portfolio manager with Wells Fargo Asset Management in Boston, which manages $351 billion.

    http://www.mineweb.com/news-fast-news/the-coal-miner-on-everybodys-list-as-the-next-bankruptcy-victim/
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    Brazil court orders closure of Vale's Tubarão iron ore port


    A Brazilian federal court on Thursday ordered the suspension of activities at Vale SA's Port of Tubarão until pollution concerns are fixed, halting the world's largest iron ore exporter's ability to ship more than a third of its output.

    The ruling by the court in Vitoria, Brazil was made as part of a police investigation at the giant man-made port. It comes as Vale comes under increasing pressure over its environmental record after a dam burst at a Brazilian mine run by its Samarco joint venture in October, killing at least 17 people.

    The court order paralyzed imports and exports at one of the world's most important iron ore terminals. Its docks loaded 82.5 million tonnes of iron ore destined for steelmakersaround the world in the first nine months of 2015, Vale said.

    Vale's preferred shares, the company's most traded class of stock, reversed early gains of nearly 5 percent to fall more than 1.3 percent at the close of trading.

    In addition to iron ore, Tubarão handles coal imports and steel exports for the Brazilian unit of ArcelorMittal SA, the world's largest steelmaker. ArcelorMittal said in a statement that Vale is responsible for port operations and that the closure will not have an immediate impact on its operations.

    Police have said activities at Vale's iron ore dock and coal dock have resulted in iron ore and coal dust polluting the surrounding water and air and contributing to pollution in other areas, including nearby beaches.

    Judge Marcus Vinicius Figueiredo de Oliveira Costa said in his ruling the suspension would remain in effect until Vale and ArcelorMittal fix the pollution problems.

    The judge said that failure to obey the closure order would result in a daily fine equal to 2/30ths of Vale and ArcelorMittal's monthly revenue.

    ArcelorMittal said the operation of the port was Vale's responsibility. It also handles coal imports for other steelmakers in Brazil's interior, who receive the coal by rail.

    Vale said in a statement that it will take all judicial measures necessary to guarantee the re-opening of the port. It said the closure will have serious economic impact on Espirito Santo state, where Tubarão is located, and on Minas Gerais, the state where iron ore exported at Tubarão is mined.

    Vale already faces a 20 billion real ($4.89 billion) lawsuit brought by Brazil's federal government over the October breach of an iron ore tailings dam at Samarco Mineração SA [SAMNE.UL], Vale's 50-50 joint iron ore venture with Australia's BHP Billiton Ltd.

    The closure could further crimp revenue at Vale struggling with a nearly 40 percent decline in the price of iron ore in the last year to 40.50 a tonne, one of the lowest prices in the last decade.

    A court spokeswoman said the order does not affect state-run oil company Petroleo Brasileiro SA's fuels terminal at the site. Some areas of Espirito Santo have recently run out of fuel because of Petrobras logistics problems.

    Petrobras confirmed that its terminal was operating normally and is not affected by the ruling.

    Vale has had a long and torturous relationship with the government and environmentalists in Vitoria. Since it opened in 1966, many have complained of dust and other air pollutants coming from the port, which also houses a steel mill, iron ore pellet plants and giant iron ore storage patios.

    Vale said in a statement that it has spent 800 million reais ($193 million) between 2007 and 2014 improving environmental control systems at the port an amount that will rise to 1 billion reais by 2020.

    http://www.reuters.com/article/us-vale-iron-ore-port-idUSKCN0UZ2JQ

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