Mark Latham Commodity Equity Intelligence Service

Tuesday 1st March 2016
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    China slashed its reserve requirement ratio

    China's central bank reduced the amount of cash that banks must hold as reserves for the fifth time since February, 2015, as it seeks to revive a stumbling economy.

    The People's Bank of China said on its website that it would cut the reserve requirement ratio by 50 basis points for all banks, taking the ratio to 17 percent for the country's biggest lenders.

    China last cut the RRR on Oct. 23, when it also reduced interest rates by 25 basis points to rein in financing costs.

    "China's government is pushing forward the 'supply side' reform, and the move needs someone to pay the costs. A loosening monetary environment is what we need," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

    "We believe the central government will keep its loosening policy stance this year to support the economy."

    The cut is effective from March 1, and it comes after signs of increasing tightness in short-term money rates last week, with analysts saying that liquidity worries had begun to affect stock markets, which have slid sharply in recent days. 

    The cut came after the central bank governor Zhou Xiaochuan said on Friday that the PBOC had room and tools in its monetary policy to deal with potential downside risks to its economy.

    Offshore and onshore markets sold yuan on the news.

    China has been pursuing its most aggressive policy easing cycle since the 2008/09 global financial crisis, as it attempts to arrest an economic slowdown in the world's second-largest economy.

    But it had put easing moves on hold to stabilize the currency, relying instead on short-term operations in its money market to maintain liquidity.

    Chinese leaders outlined initiatives after the Communist Party's central committee held a policy meeting in late October, where the Party reiterated its goal of doubling GDP and incomes between 2010 and 2020, and committed to liberalizing its service sector to foreign investment.

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    Official and Caixin factory activity gauges slow again in Feb, underlining need for RRR move

    Twin gauges of Chinese factory activity revealed slowing growth in February, underpinning the case for more monetary stimulus a day after the country's central bank moved to improve liquidity conditions.

    Output from large factories contracted for the seventh straight month in February, a government survey revealed on Tuesday. The official manufacturing Purchasing Managers' Index (PMI) came in at 49.0, below Reuters forecasts for 49.3 and January's reading of 49.4.

    A number below 50 points indicates a decline in factory activity, while one above suggests expansion.

    But Chinese government data has long been taken with a pinch of salt so when it comes to assessing the state of factories, investors tend to gravitate towards a private gauge that tracks smaller and medium sized firms, known as the Caixin manufacturing PMI.

    Released 45 minutes following the official report, February's Caixin reading edged down to a five-month low of 48.0, versus 48.4 in January.

    "Companies that reported lower output generally cited weak market conditions and reduced intakes of new work. Furthermore, total new business declined for the eighth month in a row, albeit at a modest pace that was similar to January," Caixin said in a statement, adding that the decline in production was the quickest seen since September.

    Asian equity markets were mixed following both surveys, while theAustralian dollar—widely considered a proxy for China plays—dipped as much as 0.4 percent to $0.7105 U.S. cents.

    Hank Paulson: China needs to let companies fail

    The weak PMI results were partly due to seasonal effects. Much of the country was closed for the week-long Lunar New Year holidays last month and some analysts believe markets should wait until March to get a more precise picture of Chinese production.

    "Anytime during the first quarter, we tend to overlook these figures....It's hard to interpret from one single data point how China's economy is doing," Ken Wong, Asia equity portfolio specialist at Eastspring Investments, told CNBC.

    But a look at the breakdown of Caixin's survey still revealed cause for concern, pointed out Pu Yonghao, partner and chief investment officer at Fountainhead Partners, which has around $600 million assets under management.

    Sharp falls in new orders and the employment index were especially worrisome, he said, with manufacturers shedding jobs at the fastest pace in seven years.

    This is part of a larger employment issue that is becoming apparent as the economy stalls. Beijing said on Monday that 1.8 million coal and steel workers will be laid off from state-owned enterprises as the government addressed over-supply in those areas. The job cuts will now put those workers in competition with other unemployed Chinese for private-sector roles.

    "China's economy is going to continue struggling. Aside from boosting real-estate demand in tier-one cities, authorities are going to find it difficult to manage this downward trend," Pu said.

    Both sets of data will likely reinforce the rationale for the central bank's fresh stimulus moves.

    Late on Monday, the People's Bank of China (PBOC) cut its reserve ratio requirement for banks by 50 basis points to 17 percent, with analysts expecting the cut to release an additional $100 billion in liquidity. Monday's RRR cut, the fifth in a year, was aimed at driving lending and consumption as Beijing experiences its slowest pace of economic growth in more than 20 years.

    Secondary industry, or manufacturing, is no longer the nation's primary economic engine, but it still makes up 40 percent of gross domestic product (GDP). For the first time, services now account for more than half of the economy at 50.5 percent of GDP, according to official 2015 data.

    Separate data out on Tuesday showed China's official services PMI fell to 52.7 in February, from 53.5 a month earlier.

    Despite the modest deceleration, the Lunar New Year holiday was seen as positive for the services sector as it boosted holiday spending and domestic tourism, explained Iris Pang, Greater China senior economist at investment bank Natixis.

    "We keep our call that the services sector will continue to expand in 2016," Pang said.

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    China wants to sack up to 6 million workers from 'zombie enterprises'

    China is planning to overhaul its “zombie enterprises” by sacking 5-6 million workers over the next two to three years according to a Reuters report.

    Citing sources with “ties to the countries leadership” the report says the move is aimed at bolstering “efforts to curb industrial overcapacity and pollution”.

    Coming on the day official and private sector measures of manufacturing and services and purchasing manager intentions suggested China’s economic transition is in trouble this is clearly a sensitive topic.

    Reuters said “both sources requested anonymity because they were not authorized to speak to media about the politically sensitive subject for fear of sparking social unrest.”
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    Shenyang: buy now, pay later! Property giveaway.

    Real estate is an important pillar of the overall revitalization of the city.Currently, the city's real estate market is generally good, but should pay attention to structural problems. To further improve the real estate supply and demand structure, and promote the healthy development of the city's real estate market, according to the requirements of the Central Economic Work Conference, the provincial government to resolve a number of opinions on real estate inventory, combined with the actual city, we made the following comments.

    First, to maintain the healthy development of the real estate market. 2016 to achieve the city's real estate sales grew 10% target, inventory to cycle control in a reasonable range, prices remain basically stable operation, and strive to 2--3 years to make the city's real estate market supply and demand equilibrium structure.

    Second, strict control of new land supply. On the city's real estate development land supply scale implementation of the total control of the city in 2016 on the principle of supply of land for real estate development area does not exceed 50% of the previous year. The implementation of different land supply policy, in principle, on-demand supply of industrial land, housing stock is too large for the area of supply reduction, in real estate development before the land transfer, by the planning, construction and commercial real estate department in charge of determining the reasonable ratio, ratio of parking spaces, the volume rate . Timely release of urban development planning, construction scale, supply structure, spatial layout, major infrastructure projects and the like progress information to guide rational investment real estate market and consumption.

    Third, increase the idle land disposal efforts. To start development of more than 1 year but less than 2 years of idle land, idle land fee according to the provisions of idle for more than two years to recover according to the law, the market re-configuration.

    Fourth, strengthen urban infrastructure and supporting construction. Accelerate new city and new projects surrounding roads, public transport and other urban infrastructure construction. Supporting individual projects lag, by the authorities agreed to develop businesses can Loaning construction until after acceptance of the payment to be deducted in supporting time-consuming. Improve the allocation of resources to education, health, commerce, etc., in the new city to encourage high-quality primary and secondary schools an additional campus, configure community medical institutions. Optimization of water, electricity, gas, heating and other utilities supporting services, lower fees, regulate the collection of fees and improve efficiency. Through franchising, investment subsidies, government procurement of services and other means to attract social capital to participate in the investment, construction and operation of urban infrastructure projects.

    Fifth, to support projects under construction. Regional governments to serious investigation, to address the impact has started selling land historical issues, to ensure that the transfer of land to achieve net standards. Improve processing efficiency building construction permits, construction permits the city to implement the relevant construction work and final acceptance of the norm views. Increase efforts to promote the construction of key projects, the municipal government on the implementation of key projects to promote the city's policy measures.

    Sixth, support the development of enterprise restructuring. We have been present prior to the transfer of the opinion issued land development companies can apply for adjustment of the ratio of the whole decoration. Have been supplied, undeveloped land for real estate development, development companies can apply for conversion purposes, adjusted commercial scale. For construction of commodity housing projects, real estate development companies can apply for adjustment of dwelling size structure, meeting market demand for housing units to make adjustments. For application development venture, each of the departments concerned under conditions permitting support and simplify work processes, shorten the approval period.

    Seven reward for individuals to purchase housing policy. Where more than 1% of the individuals to purchase housing deed tax rate portion, urban levels of financial subsidies. Housing Fair held during the municipal and off-site exhibitions, the purchase of real estate exhibition of residential and non-residential housing subsidies given to specific allowances will be forthcoming. Meanwhile, the Housing Fair launched "Huimin real estate" will be given to buyers who RATES subsidies, deed tax subsidies and home improvement subsidies none other promotions.Regional governments should actively organized regional fair housing, self preferential policies.

    Eight, increase housing provident fund loans to support. Pre-sale permit has been made, you can apply for housing provident fund loans. Lowest first apply for provident fund loans down payment ratio to 10%. Families or individuals can use the housing provident fund loans to buy two suites at the same time, the minimum down payment ratio of the second home loan is 20%. The implementation of "credit recognition does not recognize room" policy, the previous loan has been repaid, the loan is considered to apply again for the first time to apply. The maximum loan amount to unilaterally raise 50 million, the two sides 700,000 yuan tripartite 900,000 yuan. Primary borrower can their parents or children interoperability housing provident fund loans, housing provident fund account balances interoperability repay the loan. Terms of the employee housing fund into the "labor contract", increase urban private enterprises and practitioners efforts to establish a provident fund system, so that should be built to do to build, payable to make payment, and gradually meet the conditions of migrant workers, and township enterprises individual businesses and employees into the housing accumulation fund system.

    Nine, to reduce second-hand housing transaction taxes and fees. Second-hand housing transfer business tax, personal income tax after the front-end fill. Residents swap housing, "zero tax" policy, free of transaction fees, processing fees property, after paying the deed tax, business tax, personal income tax up front-end. Support residents to improve housing conditions within a year after the first sell or buy first sell to buy a house after the purchase of real estate area more than the sale of real estate area, according to the area of subsidies to 50 yuan per square meter of difference.

    Ten, owner-occupied apartments enjoy housing policy. Residents to buy residential apartments or apartments for owner-occupied, can be regarded as residential housing transaction taxes to pay in accordance with the standard, while settled, regard school, water heating and other civilian price enjoy equal housing policy. We have purchased residential apartments or apartments for owner-occupied from the date of publication of this opinion, and enjoy equal housing policy.

    XI broaden the use of non-residential and residential functions. Encourage commercial building retrofits and idle will meet the conditions for the electricity for commercial use, "a passenger space". Allowed in e-commerce, creative industries small and micro enterprises and freelancers will be residential apartments registered as business premises.

    XII vigorously promote the reform shed monetization. From this year to incorporate the new shed change resettlement residents, and strive to full implementation of monetization.

    XIII, high-end talent buyers enjoy preferential policies. Further implement the "Mukden talent" strategy, and other leaders and outstanding talent, municipal levels, the financial district housing subsidies paid by the policy.

    Fourth, support for universities, secondary vocational school students, new graduates buyers. No more than five years of graduation universities, secondary vocational school graduates in Shenyang to buy real estate, to give policy support to the housing provident fund, provident fund deposit limit of six consecutive months reduced to 3 months, the down payment "zero down payment" policy , the maximum loan amount to unilateral 600,000 sides 800,000 yuan. Universities, secondary vocational school students to buy real estate, to give 200 yuan per square meter incentives. At the same time, colleges and universities, secondary vocational school students, the purchase of new graduates, given the deed full subsidies.

    Fifth, encourage farmers into the city to buy a house to live. Actively explore the homestead farmers voluntarily quit and land value-added benefits paid reasonable distribution mechanism. Implement the "two powers" to the mortgage policy, proof of income requirements and simplify security procedures, etc., to provide loans for the purchase of farmers into the city. Comprehensively promote the residence permit system, promote residence holders enjoy the same housing to protect the rights of local registered population, it will meet the conditions of the agricultural transfer of population into the housing security range. Three counties and one city in the region can be combined with the actual introduction of supporting policies.

    XVI facilitate buyers schooling for their children. Residents schooling for their children purchase of commodity housing, entry requirements will be made "to settle down on the time" to "to live on the time," live time from the date of commercial buyers who handle the filing date of the contract.

    XVII support two separated families, migrant workers and expatriates to purchase a home. Two separated families purchase a home in Shenyang, according to purchase an area subsidy of 100 yuan per square meter of financial relief. Shen purchase children of migrant workers can be accepted compulsory education in the city, the nearest school, can participate in the examination in the city. Shen expatriates in copy number of buyers without restrictions.

    Eighth, to support the development of enterprise mergers and acquisitions, expanding financing channels. To encourage the development of enterprise-scale, intensive, professional development, the introduction of the city to support the development of M & A policies. Support the development of enterprises to broaden the financing channels for coordinating financial institutions lowered mortgage margin ratio good corporate credit, increase brand development enterprise credit support.

    Nineteenth, to reduce the development burden on enterprises. Developing Enterprises unfinished product development tax gross margin was 15%, non-ordinary residential, commercial, warning sings of land value-added tax rate was adjusted to 2% of the garage, warning sings of ordinary residential land value-added tax rate adjusted to 1.5%. Shall be transferred to the development of enterprises approved after the completion of construction and government school sites, urban land use tax shall not be levied. When set to levy for "pre - commercial (sales) sales license" or "building warrant" after urban infrastructure fee. Canceled construction project safety measures costs, social security fee collection and disbursement. Further clean up of unreasonable charges involving real estate, deposit, supervision and funding, no clearly defined laws and regulations should be resolutely abolished, it should be appropriate to reduce the high fees. Further sort of real estate development and construction approval process to the public approval procedures and charges, undisclosed or approval shall not be subject to charges.

    XX, strengthen the supervision of the development of enterprises. Strengthen the development of a dynamic enterprise qualification regulation, improve the exit mechanism, out of "zombie companies." Explore the establishment of real estate sale financial supervision mechanism, to avoid market risks.

    XXI strive to foster the development of the housing rental market. Further deepen the reform of the housing system, the establishment of both buyers and renters, market allocation combined with the Government to protect the housing system. Actively cultivate rental housing operators to promote rental housing scale, professional management. Conduct on the use of self-contained rental housing stock business development companies, and specializes in the rental business enterprises, institutions and individuals, given the financial and taxation support policies. Encouraging all kinds of idle listings into the rental market, more channels to increase supply. Shen support employment, entrepreneurial college graduates rental housing, rental subsidies can receive three years, the standard is: Dr 800 yuan per month, 400 yuan per month Master, Bachelor of 200 yuan per month. To further expand the scope of protection of public rental, reduce the access threshold, to outside workers, graduates of higher education in the tilt, and promote the development of the housing rental market to grow.

    XXII, strengthen leadership over the work of real estate. Government of the regional governments and relevant departments to implement the present observations conducted performance evaluation, set up by government leaders as head of real estate work leading group, responsible for the development of the city's real estate market research planning, objectives, policies and measures to promote the organization jobs. Leading Group Office located in the City Real Estate Board, in charge of the real estate market to find out and analyze the situation, coordinate the promotion of specific tasks. Regional governments to set up corresponding leading bodies and the establishment of evaluation system.

    All units must fully understand and resolve the real estate stock market to promote the healthy development of the real estate of great significance to further deepening the reform, innovative and realistic, as a positive, comprehensive facilities strategy, strengthen their sense of responsibility to this work, initiative, self-awareness. The regional government should bear the responsibility, good net transfer, supporting the construction of idle land recovery, the regional fair housing organizations and other management services. All relevant departments should give full play to the role of joint, improve the coordination of real estate regulation, consistency, complementarity, and actively guide the development of enterprises to adapt to the market situation, with the government policy of benefiting, let promotion.

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    UK Consumes Less Stuff.

    The amount of stuff the UK consumes has fallen dramatically since 2001, according to official government figures.

    The Office for National Statistics data reveals that on average people used 15 tonnes of material in 2001 compared with just over 10 tonnes in 2013.

    The figures look at the total amount of biomass (crops, wood and fish), coal, oil and gas, metal and non-metallic minerals (such as construction materials) used in the UK every year.Image title

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    Glencore takes $5.8 bln of charges, 2015 profit down 32 pct

    Miner and commodity trader Glencore reported $5.8 billion of charges on Tuesday, mostly due to impairments following a slide in commodity prices, and a 32 percent fall in 2015 core profit.

    Group adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) totalled $8.7 billion, Glencore said, in line with analysts' expectations.

    Glencore also said in a statement it was confident of achieving $4-5 billion of asset disposals during the rest of 2016.

    Glencore Plc, the commodity trader and miner headed by billionaire Ivan Glasenberg, reported a 69 percent slump in annual profit as prices for metals and oil tumbled.

    Adjusted net income slid to $1.34 billion in 2015 from $4.29 billion a year earlier, the Baar, Switzerland-based company said in a statement Tuesday. That beat the $1.17 billion average of 15 analyst estimates compiled by Bloomberg.

    Glencore is trying to save money and unveiled a plan last year to lower debt as much as 40 percent to $18 billion by scrapping its dividend, cutting costs and selling assets and new shares.

    “Financial market sentiment weakened considerably during the course of 2015 amid concerns over slowing economic growth,” Chief Executive Officer Glasenberg said in the statement. “The commodity sector was particularly adversely affected by a succession of disappointing China macroeconomic data, declining oil prices, and the strong U.S. dollar. As a result, sector focus quickly switched from cash distribution to balance sheet concerns and cash preservation.”

    The commodities slump means Glencore now generates most of its cash from trading as its mines and smelters around the globe struggle for profitability.

    Adjusted earnings before interest and tax from the trading division was $2.46 billion, compared with the company’s forecast of $2.5 billion and $2.79 billion in the previous year. Earnings from the mining unit swung to a loss of $292 million from a profit $3.9 billion in 2014.

    Glencore reduced net debt to $25.9 billion from $30.5 billion, missing its target of about $25 billion.

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    Standard & Poor's affirms BHP Billiton's credit rating

    Standard & Poor's affirmed its "A" rating on global miner BHP Billiton's debt, citing a change in the company's dividend policy.

    Shares of the company were up 1.3 percent at 725.1 pence at 1405 GMT on the London Stock Exchange.

    S&P said the miner's move to link its dividends to its operating performance materially increased its financial flexibility. (

    The credit ratings agency cut its rating on the company to "A" from "A+" earlier this month due to the challenging commodities market, and said it could further cut the rating depending on BHP's dividend policy.

    BHP said on Tuesday it would pay out at least half of its underlying profit to its shareholders going forward, abandoning its policy of paying steady or higher dividends.

    It said it would pay an interim dividend of 16 cents, down from 62 cents a year earlier.

    "BHP was on notice, it needed to do something, and it did something," Investec analyst Hunter Hillcoat said, referring to the cut in dividend.

    A slump in the prices of iron ore, copper, and oil have hurt the miner, which reported a half-yearly net loss of $5.67 billion last week.

    "Our commitment to maintain a solid A credit rating through the cycle provides us with access to low-cost funding, financial strength and flexibility," Chief Financial Officer Peter Beaven said in a statement on Monday.
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    NRG Energy posts $6 billion loss

    NRG Energy reported a $6.4 billion quarterly loss on Monday primarily from write downs, including the loss of value of its struggling Texas coal plants.

    NRG, which is carrying out a restructuring under a new CEO, said Monday it’s slashing its dividend nearly 80 percent.

    NRG also still plans to spin off or sell much of its stake in its home solar and electric vehicle charging businesses in the spring as previously planned.

    Longtime CEO David Crane was pushed out in December amid investor concerns over the company being too complicated and too focused on solar businesses that were not yet profitable. The chief operating officer, Mauricio Gutierrez, took over as president and CEO at that time.

    “I am here to tell you the simplification of our business is an imperative,” Gutierrez said Monday, adding that NRG is focusing on its power generation and its thriving retail electricity businesses.

    NRG posted a net loss of $6.4 billion, down from a $97 million profit from the same time a year ago. For the year, NRG had $6.44 billion loss, compared to a $132 million net gain in 2014. NRG’s losses were primarily driven by more than $5 billion in impairment charges.

    NRG said it’s cutting its dividend nearly 80 percent from 58 cents to 12 cents a share to reallocate about $145 million annually for capital spending and debt reduction.

    NRG will reincorporate its NRG Renew solar business for commercial and industrial customers back into NRG from its previous spin off NRG Yield, which shows NRG is not abandoning renewables, Gutierrez said.

    However, NRG still plans to unload much of its home solar and electric vehicle charging businesses in the second quarter, he said.

    The power sector is depressed overall from natural gas prices near historic lows and NRG’s disadvantaged coal plants are suffering. NRG executives particularly referenced the company’s two, big Texas coal plants: the WA Parish plant southwest of Houston and Limestone plant in Jewett, which is east of Waco.

    The Electric Reliability Council of Texas last yer identified the Limestone plant as one of a handful Texas plants that could be shuttered in the coming years because of anticipated upgrade costs.

    Gutierrez on Monday said such a shutdown is possible, but he said he expects the market to rebound before such action is needed.

    “Right now, still not the time,” he said.

    Gutierrez said the Texas market is “very disappointing” for now, although he sees “strong fundamentals” long term.

    Although NRG suffered a big financial loss, Gutierrez pointed to the company’s operating cash flow for the quarter of $625 million, down from $661 million, as estimated by earnings before interest, taxes, depreciation and amortization, called EBITDA.

    He said such cash flow shows that NRG is still operating very efficiently and poised to rebound strongly as the market recovers.

    The focus will remain on cost cutting, debt reduction and some asset sales moving forward, he said.

    “We are in a period of stay-low natural gas prices,” he said.

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    Oil and Gas

    Inflation expectations imply weak Oil.

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    Saudis advocate cooperation to stabilize market

    "The kingdom (of Saudi Arabia) seeks to achieve stability in the oil markets and will always remain in contact with all main producers in an attempt to limit volatility and it welcomes any cooperative action," the Saudi cabinet said in a statement.

    Saudi Arabia and several fellow OPEC members agreed with non-OPEC Russia this month to freeze output at January levels in an attempt to prop up prices.

    Russian President Vladimir Putin called a meeting with top managers of his country's leading oil producers on Tuesday.

    However, Iran remains the main obstacle to a global output freeze because it is determined to ramp up supply after the country's emergence from international economic sanctions in January.

    On Monday Iran said it had increased exports steeply over the past month. Exports climbed as high as 1.75 million barrels per day, adding to an already oversupplied market.

    "There is still a lot of downside risk ... but the U.S. crude market seems to have passed the worst point and crude runs should start creeping higher, taking pressure off inventory levels," said Richard Gorry, director of JBC Energy Asia.

    U.S. producers cut the number of rigs drilling for oil for a tenth week running, taking the rig count to its lowest since December 2009.

    A Reuters monthly poll showed on Monday that oil prices are expected to average a little more than $40 a barrel this year.

    Financial data also suggested sentiment might be shifting.

    Data from InterContinental Exchange on Monday showed that investors in crude held more futures and options contracts betting on rising prices than at any time since the records began in 2011.

    The amount of open positions in U.S. crude contracts betting on a further fall in prices has dropped to about 17 percent since mid-February.

    At the same time, financial traders have raised their bullish bets on oil after talk of a global production freeze, signs of falling U.S. shale crude output and growing gasoline demand.

    "There are tentative signs the worst may be over for commodities, at least judging by the pick-up in investor sentiment," Barclays said.
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    Exxon Said to Plan Bond Offering After Rating Downgrade Threat

    Exxon Mobil Corp., the world’s largest oil company by market value that’s under threat of losing its top-notch credit rating, is tapping the bond market.

    The company may sell debt in as many as nine parts for general corporate purposes, according to a person with knowledge of the matter. The offering comes after Moody’s Investors Servicewarned Thursday that the oil-market collapse imperils cash flow needed to cover debt payments and investment in new discoveries at Exxon and cut its outlook to negative from stable.

    Standard & Poor’s made a similar move on Feb. 2. Exxon is one of three U.S. corporate issuers with AAA ratings from S&P, along with Microsoft Corp. and Johnson & Johnson.

    "If you are Exxon, you have to be looking around at all of the wreckage in the energy sector these days and feel like a kid in a candy store," said Spencer Cutter, an analyst at Bloomberg Intelligence. "I am not sure I would say that this debt sale is a sign of health, but more likely of building a capital stockpile to be able to take advantage of the market, invest in assets while they are cheap."

    The longest portion of the offer is a 30-year bond yielding 1.75 to 1.8 percentage points more than comparable government debt, said the person, who asked not to be identified because the deal is private. Exxon is also selling 10-year and 7-year bonds.

    U.S. crude futures headed for their longest run of monthly losses in a year as a further pullback in drilling failed to stifle speculation that the glut will persist.

    As the company likely doesn’t need cash for anything in the near term, the debt offer may be a sign that Exxon intends to "start picking up great assets at fire-sale prices" and "take advantage of the downturn and start shopping," Cutter said. Though most investors will look at the deal as if the company has already been downgraded, he said, this probably won’t have a great impact on pricing as Exxon is still one of the strongest corporate credits in the world.
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    Pemex sees production drop of 100,000 bpd with budget cuts

    Production at Mexican state oil company Pemex is likely to fall by around 100,000 barrels per day (bpd) due to a current round of budget cuts at the firm, chief executive officer Jose Antonio Gonzalez Anaya said on Monday.

    The drop should be reversed at some point, Gonzalez told a news conference, but he did not specify when.
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    Origin inks LNG deal with China’s ENN

    Origin Energy of Australia said Tuesday it has signed a non-binding heads of agreement with a unit of China’s privately-owned ENN Energy for the supply of 500,000 tonnes of LNG per year for a period of five years.

    A binding LNG SPA, which includes an option to extend the supply period by an additional five years, is expected to be executed during the second half of 2016, Origin said in a statement.

    Deliveries of LNG under the deal would be expected to begin in 2018 or 2019 after completion of ENN’s Zhoushan receiving terminal in Zhejiang province, China.

    Origin holds a 37.5 percent stake in the APLNG joint venture and is the upstream operator of the LNG export project.

    Under the heads of agreement, Origin has the flexibility to supply ENN from its portfolio interests, optimised with third party purchases where market conditions create an opportunity to lower overall cost of supply.

    As LNG and commodity markets strengthen in the future, Origin together with its partners, has the option to “bring forward the development of its resource positions on Australia’s east coast,” Origin said in the statement.

    “For example, the Ironbark resource is an economic source of supply for ENN when tolled through existing LNG infrastructure and can be developed at a time when it becomes the lowest cost source of supply,”  Origin added.
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    Gatwick gusher has moved from science project to “commercial reality”, says UKOG boss

    The boss of UK Oil & Gas said strong flow rates has converted the Horse Hill scheme from a “science project” to a “commercial reality”.

    UKOG Stepehn Sanderson spoke out after the site produced more than 900 barrels per day from an 88-foot aggregate perforated zone within the Upper Kimmeridge limestone interval at a depth of approximately 840 metres below ground level.

    The firm said sweet oil flowed freely to the service without pumping.

    Sanderson said: “This test provides unequivocal proof of concept for the Company’s new Kimmeridge limestone oil play. The two Kimmeridge flow tests have not only shown that moveable oil exists within the Kimmeridge, but more importantly, that it can be extracted at commercial rates even from vertical wells without significant stimulation.

    “This result is therefore very significant for the company and the Weald Basin of the UK. The Kimmeridge play has moved from science project into the zone of commercial reality.

    “The well’s natural aggregate flow rate from the Kimmeridge limestones of 1360 bopd looks to be one of the highest natural flow rates recorded in a UK onshore wildcat well since the Wytch Farm discovery in the 1970s. It should be noted that the planned use of horizontal appraisal and development wells may further significantly enhance production flow rates seen to date.

    “Following the final flow test in the overlying Portland, HHDL now plan to move full speed ahead to obtain the necessary permissions to return to the well, drill a horizontal sidetrack and conduct long term production tests.”

    With this stable Upper Kimmeridge limestone flow, the two Upper Kimmeridge and Lower Kimmeridge limestone intervals have now produced a combined average stable rate of over 1,360 bopd.

    The HH-1 well is located within onshore exploration Licence PEDL137, on the northern side of the Weald Basin near Gatwick Airport.
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    Cushing inventories in huge build

    Nothing says buy-the-dip in crude oil like a massive inventory build in an already-near-peak-storage Cushing. Following a dive in prices after Genscape reported a massive Cushing build of approximately 1mm barrels, WTI has surged as algos keep the dream alive in stocks...

    This would be the biggest weekly inventory build at Cushing this year...
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    Southwestern Cuts 2016 Spending 80%, Idles Marcellus Rigs (for Now)

    Southwestern Energy reported a large paper loss of $4.6 billion for 2015, but also reported an increase in production of 27% over 2014. As part of the quarterly dog and pony show,

    Southwestern (like every other driller) hosted an analyst phone call to accompany the release of their numbers. As sometimes happens, further details came out on the phone call that weren’t evident in the official update.

    For example, in 2016 Southwestern currently does not plan to drill any new wells in the Marcellus/Utica. They have “idled” all of their drilling rigs. Southwestern CEO Bill Way said he specifically used the word idled because they are waiting to restart them when/if prices pick up again.

    The current plan is to complete 20-30 wells in the northeast, in the southwest and northeast Marcellus–and then wait and see what happens with prices…
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    Marathon Oil Seeks $1.3 Billion in Stock Sale to Weather Rout

    Marathon Oil Corp. joins a slew of U.S. producers selling shares to shore up their finances as they endure the worst market rout in a generation.

    The producer plans to offer 135 million common shares, and underwriters will have the option to buy an additional 20.25 million, Houston-based Marathon said in a statement. That total would amount to about $1.3 billion at the closing price Monday, making it the company’s biggest share raise on record and increasing shares outstanding by about 20 percent. The stock, which is down 35 percent this year, fell 3.8 percent to $7.90 after the close of regular trading as of 7:27 p.m. in New York.

    Marathon is the latest U.S. oil company raising money by selling shares as it seeks funds to help ride out the worst oil-price downturn in decades. Devon Energy Corp. raised about $1.5 billion last week. Pioneer Natural Resources Co. and Hess Corp. are among other producers that offered shares to raise cash.

    "It supports the notion that Marathon will have the cash to continue to weather this downturn," said Brian Youngberg, an analyst at Edward Jones in St. Louis. "These are unusual times and, at the end of the day, the focus is on liquidity and credit."

    Last year, the company cut its dividend by 76 percent to preserve cash. Earlier this month, Marathon also slashed its 2016 capital spending plan more than 50 percent below last year’s budget.

    Morgan Stanley is acting as the book-running manager for the offering, Marathon said.
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    Alternative Energy

    Why Is The Chinese Government Stepping In To Help Yingli Green Energy?

    Over the last few weeks, there have been reports thatYingli Green Energy will receive about 3.3 billion yuan ($500 million) in loans from the state-backed China Development Bank and the government of its home city of Baoding, as the beleaguered solar firm tries to reorganize its balance sheet.   The support would mark one of the most significant interventions by the state in recent years to shore up a struggling solar company, considering that the government largely allowed players such as Suntech Power and LDK Solar to go bankrupt after they failed to service their debts. So why exactly is the government stepping in to help Yingli and what could the support mean for the company?

    The global solar market has been faring well, owing to the recent policy tailwinds (COP21 and U.S. ITC extension) as well as growing demand from emerging markets. Installations are poised to grow by roughly 16% this year to about 67 GW according to IHS . The decline in module pricing has also been more moderate as compared to previous years given the relatively better supply-demand equilibrium in the market, which has allowed a majority of the large Chinese solar companies to return to profitability.

    Yingli appears to be in a fairly good position to take advantage of this demand growth, given its well recognized brand, wide distribution footprint and its vast manufacturing capacity (about 4 GW for modules as of May 2015). However, while many of Yingli’s peers such asFirst Solar FSLR +0.42% and Trina Solar have been operating at near full capacity in 2015, Yingli is only expected to have shipped about 2.4 GW of modules for 2015, implying a utilization rate of 60%, as it has been seeking to conserve cash for its debt payments (related: Yingli Posts Tough Q3 Amid Focus On Upcoming Debt Payments). A liquidity infusion could help the firm ramp up production.

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    Chevron Said to Weigh Sale of Asian Geothermal Energy Operations

    Chevron is considering a sale of its geothermal assets in Asia as it seeks to counter a slump in energy markets, according to people familiar with the matter.

    Operations could fetch as much as $3b, said one of the
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    Toshiba mulls battery plant in Australia as Japan seeks sub deal: sources

    Japan has enlisted electronics firm Toshiba Corp to help it try to win Asia's biggest defense contract, a A$50 billion ($36 billion) deal to build a dozen submarines for Australia, three sources said.

    Toshiba is considering building a factory in Australia to make lithium-ion batteries to power the vessels, said the sources who are familiar with the plan but not authorized to talk to the media.

    The potential investment, which is contingent on Canberra picking the Japanese design, is part of an incentive package promising commercial and defense sector work beyond the submarine program, aimed at winning over politicians who want jobs in Australia.

    The proposed plant, which could be worth hundreds of millions of dollars, will also fabricate industrial scale power packs for commercial customers around the world, said the sources.

    Such an investment could be an attractive proposition for Australia, which is seeking other avenues of growth as it grapples with plunging commodity prices.

    "Australia's prime minister (Malcolm Turnbull) is promoting innovation, and that is something Japan can do," said one of the sources.

    Australia's submarine industry is based in South Australia but the sources did not say where Toshiba was considering building a factory.

    Toshiba denied it was mulling a new Australian battery plant.

    Without commenting on Toshiba's potential involvement, South Australia's Minister for Defense Industries Martin Hamilton-Smith said he expected new facilities associated with battery technology would be based in the state as part of any domestic build option, regardless of who won the tender.
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    SunEdison delays annual report citing internal probe

    SunEdison Inc  said on Monday it has delayed filing its annual report, mainly due to an internal investigation into the solar company's financial position.

    The investigation, which began late last year, is based on allegations by former executives concerning SunEdison's anticipated financial position disclosed to the board, the company said in a filing. 

    The investigation is being conducted by a committee set up by the board and no wrongdoing has been found so far based on the executives' allegations, SunEdison said.

    SunEdison did not comment further, when contacted by Reuters.

    In mid-November, SunEdison reported a wider-than-expected quarterly loss, prompting the company to stop selling projects to its "yieldcos"- dividend-paying units that hold solar, wind or other power assets for the parent company.

    Later in the month, the chief executives of SunEdison's two yieldcos stepped down.

    One of SunEdison's yieldcos, TerraForm Power Inc, is also delaying its annual report, according to a company filing on Monday. 

    Last week, SunEdison fought off an injunction filed by Appaloosa Management which prevented Terraform Power from buying some assets from Vivint Solar Inc (VSLR.N).

    David Tapper's Appaloosa said the acquisition of Vivint's assets - which had an initial purchase price of $922 million - was not in the interest of the yieldco's shareholders, mainly because it would alter the company's business model and force it to take on debt of $960 million.

    TerraForm Power could not be reached for comment, outside regular business hours.

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    Cabot Corporation Launches New Conductive Additive for Lithium-Ion Batterys

    Cabot Corporation (NYSE: CBT) announces the launch of the new LITX® 300 specialty carbon performance additive for use in lithium-ion batteries for consumer electronics, electric vehicles and other energy storage applications. The LITX 300 product strengthens Cabot’s current portfolio of performance additives by offering increased conductivity at lower loadings enabling greater storage capacity. This new performance additive also delivers mechanically stronger and more flexible electrodes for good stability and extended cycle life of lithium-ion batteries. Cabot will showcase this new product at booth B-671 at Battery Japan, March 2 – 4, 2016, in Tokyo, Japan.

    The lithium battery market continues to grow as applications such as mobile and consumer electronics, electric vehicles and renewable energy storage drive increased demand for higher-performing batteries. The performance and cost requirements of lithium-ion batteries are steadily increasing, and battery manufacturers continue to seek advanced and cost-effective materials to deliver increased energy density and power delivery. While conductive additives are a relatively small component of the total battery, they can have a significant impact on battery performance. As such, manufacturers are increasingly looking for advances in performance additives to enable next generation lithium-ion batteries to power electro-mobility, high-end electronics and other technology trends.

    “Our new LITX 300 product is a welcome addition to our existing portfolio that includes LITX 50 and LITX 200 additives that are designed for current applications and provide a balance of properties for the battery cell makers,” said Gregg Smith, business and marketing director for Cabot Energy Materials.

    “The LITX 300 additive is relatively easy to disperse and incorporate into the lithium-ion battery manufacturing process,” noted Miki Oljaca, technology director for Cabot Energy Materials. “For battery manufacturers looking to further boost their product performance, the LITX 300 additive allows increased energy density for high-end electronics and other applications that require very thick battery electrodes.”

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    Base Metals

    Chile copper output drops in January as price rout bites

    World No 1 copper producer Chile produced 453 638 t of copper in January, down almost 14% from a year earlier, as the year-long rout in prices forced miners to scale back output, the government said on Monday. 

    The drop was the steepest in percentage terms in at least a year. It was also the lowest monthly total since August, when output was hit by maintenance stoppages and the effect of labour protests – the clearest sign yet that miners' spending cuts had started to curb supplies. 

    Cooling demand in top copper buyer China, the world's second-largest economy, has driven down the price of the base metal, leading miners around the globe to suspend or reduce high-cost production. "January 2016 saw lower ore grades and progressive decreases in production at some mines due to the adverse situation in mining, with low prices and high costs involved in production," said Chile's national statistics agency, INE. 

    Until now, the cutbacks have not been so sharply evident in the output data as miners have worked to improve efficiencies and boost yields from existing operations. "We are finally seeing some welcome reductions in Chilean copper production," said Ed Meir, metals analyst at INTL FCStone. Chile produced 5.79-million tonnes of the red metal in 2015, fractionally more than the previous year. Output is forecast to hold steady this year. London Metal Exchange prices have fallen almost a third since January last year and are languishing around $4 600/t, their lowest level since 2009. To be sure, a high base of comparison after Chile reached "historic levels" of copper output in January 2015 also helped explain the steep drop in output in January 2016, said INE. Mines in Chile produced 4 948 t of molybdenum in January, a 29.9% increase from a year earlier.

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    Indonesian government hope to revise mining law by September

    Image Source: valuewalkReuters reported that Indonesian lawmakers hope to revise the country's resource rules by September in a move that could include easing of export curbs on minerals, such as nickel and copper, giving Freeport McMoRan Inc and other miners time and money to build smelters.

    A parliamentary commission is discussing possible revisions to a 2014 law - which banned exports of nickel, bauxite and copper ores and set a three-year limit on concentrates sales to force firms to build smelters but instead ended up costing Indonesia billions of dollars in lost revenue.

    Mr Kurtubi, a member of the commission responsible for drafting the proposed revisions, told Reuters “If they are not allowed to export, the economy could be destroyed. Mining companies, mainly nickel producers, should be allowed to resume some ore and bauxite exports so they can earn revenue and complete their smelter projects.”

    Mining accounted for almost 6 percent of Indonesia's GDP before the ban, but has since slipped to about 4 percent.

    At least 32 smelter projects have been delayed or cancelled, mostly nickel, government officials said, due to a prolonged slump in prices of the metal that are mired near their lowest since 2003. Only five nickel smelters, of a targeted 12, were completed last year.

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    Tiger trips on falling copper price

    The falling copper price has resulted in miner Tiger Resources swinging to a loss during the full year ended December. The miner this week reported an after-tax loss of A$17.8-million, compared with a  profit of A$7.7-million in 2014. 

    Along with the decreased copper price, Tiger’s bottom-line was also affected by higher noncash run of mine inventory expenses associated with a full-year of processing heavy mineral sand stockpiles through the solvent-extraction and electrowinning plant at its Kipoi project, in the Democratic Republic of Congo, and higher finance costs. 

    Meanwhile, revenue for 2015 was up 2.1% on the previous year, reaching A$146.3-million, as production from the Kipoi project increased. Tiger delivered 26 151 t of of copper in 2015, compared with 13 557 t in 2014.
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    Steel, Iron Ore and Coal

    Consol to sell coal assets for $420 mln

    Coal and natural gas producer Consol Energy Inc said it agreed to sell some of its coal assets for about $420 million and would suspend its quarterly dividend once the sale closes.

    Pittsburgh-based Consol, which has shifted its focus to natural gas from coal, said it would sell its Buchanan Mine in southwestern Virginia and some other metallurgical coal reserves to Coronado IV LLC.

    The deal is expected to close in the first quarter.

    Consol said it intends to suspend its dividend beginning with the first declared quarterly dividend after the transaction closes.
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