Mark Latham Commodity Equity Intelligence Service

Wednesday 1st February 2017
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    Reflation trade as a fund.

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    Trump: Dalio sours, consensus mixed.

    Ray Dalio Sours on Trump After Immigrant Ban, Joining Soros

    Billionaire Ray Dalio’s honeymoon with President Donald Trump is looking to be short lived.

    Dalio, who in November was bullish on the incoming president’s ability to stimulate the economy, is now saying he’s more concerned that the damaging effects of Trump’s populist policies may overwhelm the benefits of his pro-business agenda.

    “We are now in a period of time when how this balance tilts will be more important to the economy, markets, and our well-beings than normally dominant drivers such as central bank policies,” Dalio and co-Chief Investment Officer Bob Prince said in Bridgewater Associates’ “Daily Observations” note to clients on Tuesday.

    Dalio, who runs the world’s largest hedge fund, is souring on the new president after he banned visitors from seven mostly Muslim countries, igniting protests nationwide, and proposed a border tax on Mexican goods. Earlier this month, Dalio said it remained to be seen whether Trump is aggressive and thoughtful, or aggressive and reckless. Dalio and Prince said so far they haven’t seen much thoughtfulness in Trump’s policy moves.

    Money managers at hedge fund Carlson Capital take an even more negative view of Trump’s nationalist agenda. His policies may have dire consequences for the U.S. and global economy and his attempts to tax imports and subsidize exports could touch off a depression, according to their quarterly letter to clients.

    “If the border adjustment mechanism is implemented as proposed we think it will cause a global depression and a major equity market decline,” Richard Maraviglia and Matt Barkoff said in the letter. “It is still unclear whether it will happen but at the very least we expect that U.S. trade policy will put downward pressure on global growth.”

    Billionaire George Soros, who had backed Democrat Hillary Clinton in last year’s election, said in January that the stock market rally since Trump’s win, spurred by his promises to slash regulations and boost spending, will come to a halt. He called Trump a “con man” and a would-be dictator.

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    Saudi Arabia introduces first tax in attempt to reduce deficit

    Falling oil revenues have led Saudi Arabia to put an end to tax-free living in the country, as it attempts to reduce its huge budget deficit of $97bn by introducing a 5% value added tax on certain goods.

    The Saudi cabinet agreed the deal with other Gulf nations as the slump in oil prices hits the profits of countries in the region.

    The official press agency in Saudi Arabia said that the government "decided to approve the unified agreement for value-added tax", and that it would be put forward for royal decree.

    The International Monetary Fund had previously recommended the introduction of taxes in the Gulf states in order to diversify their revenue streams to cope with the low prices of the commodity.

    Saudi citizens and residents have lived in a tax-free environment thanks to a heavily subsidised system, but the kingdom's government has begun to take steps to address its deficit, which had been spiralling out of control.

    The country's budget surplus has been as high as 20% of its overall GDP, which is double that of the UK and the US at the height of the global financial crisis in 2008/2009.

    Major construction projects have been put on hold, and cabinet ministers have had their salaries cut as they attempt to bridge the deficit, while Saudi Aramco, the world's biggest oil-producer, is being prepared for a flotation in 2018.

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    EIA: NatGas-Fired Electric Plants Adding 36.6 GW Next 2 Yrs

    As MDN has covered (shouted) for several years now: natural gas-fired electric plants are a really big deal. The conversion from using coal (and some other forms) to natgas to generate electricity is happening at an increasing rate. And those electric generating plants use A LOT of natgas–meaning new markets for drillers.

     Here’s one more bit of evidence that natgas-fired plants are a big deal. According to our favorite government agency, the U.S. Energy Information Administration, the electricity industry is planning to increase natgas-fired generating capacity by 11.2 gigawatts (GW) in 2017 and 25.4 GW in 2018 (for a total of 36.6 GW) based on information reported to EIA. That’s enough to power something like 26 million homes! If all these plants come online as planned, annual net additions in natural gas capacity would be at their highest levels since 2005.

    On a combined basis, these 2017–18 additions would increase natural gas capacity by 8% from the capacity existing at the end of 2016…
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    French Markets Slump As Le Pen Gains Traction

    Image titleAfter a turbulent week for the French Presidential front-runners, the latest polls show far-right and anti-EU candidate Marine Le Pen gaining traction.

    Le Pen has the younger vote...And as Bloomberg points out, markets are starting to take notice.

    The premium investors demand to hold French bonds over bunds has risen to the highest since 2014, and the country’s stocks  have fallen to at least a 30-year relative low against their German counterparts.

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    Consol Energy plans to sell or spin-off coal business

    Coal and natural gas producer Consol Energy Inc broke even on an adjusted basis in the fourth quarter, and said it planned to sell its coal business or spin it off to shareholders.

    The Pittsburgh-based company, which spun off some of its coal assets to form CNX Coal Resources LP in 2015, has been focusing on its oil and gas business.

    The company said on Tuesday it was looking to separate its coal unit from its oil and gas business as early as 2017.

    Consol sold its Buchanan Mine in southwestern Virginia and some other metallurgical coal reserves to a privately held company for about $420 million last year.

    The company, which gets most of its profits from the Marcellus shale in Southwest Pennsylvania and West Virginia and the Utica shale in Ohio, said total revenue from its exploration and production business rose 5.6 percent to $280.1 million in the fourth quarter ended Dec. 31.

    Consol's loss from continuing operations was $321.2 million, or $1.42 per share, in the quarter, compared with a profit of $45.3 million, or 18 cents per share, in the year-earlier period.

    Excluding a $237 million loss on commodity derivatives and other items, the company broke even on a per-share basis. The average analyst estimate was 1 cent per share, according to Thomson Reuters I/B/E/S.

    Total revenue and other income fell about 31 percent to $462 million.
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    Oil and Gas

    OPEC achieves 82 percent of pledged oil output cut in January: Reuters survey

    OPEC's oil output is set to fall by more than 1 million barrels per day (bpd) this month, a Reuters survey found on Tuesday, pointing to a strong start by the exporter group in implementing its first supply cut deal in eight years.

    The Organization of the Petroleum Exporting Countries agreed to cut its output by about 1.20 million bpd from Jan. 1 - the first such deal since 2008 - to prop up oil prices LCOc1 and get rid of a supply glut.

    Supply from the 11 OPEC members with production targets under the deal in January has averaged 30.01 million bpd, according to the survey based on shipping data and information from industry sources, down from 31.17 million bpd in December.

    Compared with the levels that the countries agreed to make the reductions from, in most cases their October output, this means the OPEC members have cut output by 958,000 bpd of the pledged 1.164 million bpd, equating to 82 percent compliance.

    The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data, and information provided by sources at oil companies, OPEC and consulting firms.
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    ARAMCO hires Gaffney Cline

    Gaffney Cline won’t be allowed to reveal to investors the number of barrels the company manages, the people familiar with the matter said, but only how long its reserves would last under normal conditions.
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    Saudi Aramco could raise March crude OSP differentials for Asia: traders

    Saudi Aramco is expected to raise the March official selling prices of its Asia-bound crude oil, largely due to the stronger Dubai crude oil market structure, traders said Tuesday.

    Most traders surveyed by S&P Global Platts said they expected Aramco to raise the March OSP differential of its Asia-bound Arab Light crude by around 10-20 cents/b from a discount of 15 cents/b to the Platts Oman/Dubai average in February.

    The expected increase reflects the narrowing contango in the Dubai market structure, traders said.

    S&P Global Platts data showed the spread between frontline cash Dubai versus same-month Dubai swaps at minus 26 cents/b over January to date, up from minus 61 cents/b in December.

    The spread between the two was last higher in October, when cash Dubai averaged 6 cents/b higher than same-month Dubai swaps.

    The Dubai market structure is understood to be a key component in the Saudi OSP calculations.

    Some traders expected the lighter Saudi grades to receive larger increases to their OSP differentials than the medium and heavier grades.

    "Naphtha crack got stronger compared to last month," said a Singapore-based crude trader.

    The second-month naphtha to Dubai crude swap crack has averaged at a premium of 55 cents/b in January to date, significantly higher than minus $1.40/b last month, Platts data showed.

    Meanwhile, fuel oil cracks were relatively steady compared with December, with second-month 180 CST and 380 CST HSFO averaging at minus $2.33/b and minus $3.29/b to Dubai crude swaps, respectively, to date in January.

    However, they were below the four-year highs of minus $2.23/b and minus $3.32/b in November respectively.

    "Fuel margin fell, which means Arab Heavy and Arab Medium's values should not be as high as Arab Extra Light or Arab Light," said a North Asian crude trader.

    However, one trader noted that Aramco could make more moderate changes to the March OSP differentials of the lighter crude grades if it intends to remain competitive to Asian buyers.

    "[Abu Dhabi's] Murban [crude] can compete with Saudi lights [and if Murban is cheap, it] might [put] some pressure [on demand for Saudi light grades]," said a Southeast Asian crude trader.


    In addition, the narrow Brent-Dubai exchange of futures for swaps, or EFS, could make western barrels increasingly attractive to buyers in Asia.

    The EFS has averaged at $1.65/b to date in January, the lowest since September 2015, when it averaged at $1.54/b.

    The EFS is a key spread watched by the market to evaluate the value of European sweet crudes against Middle East sour crudes.

    Earlier this month, Saudi Aramco raised the February OSP differential of its Asia-bound Arab Super Light and Arab Extra Light by 40-45 cents/b to premiums of $3.45/b and $1.10/b to the Platts Oman/Dubai average in February respectively.

    The February OSP differential of its Asia-bound Arab Light grade was raised by 60 cents/b to a discount of 15 cents/b, while the OSP differentials for Arab Medium and Arab Heavy grades bound for Asia were raised by 50 cents/b each to discounts of 90 cents/b and $2.80/b respectively relative to Oman/Dubai.

    Aramco is expected to announce its March OSP differentials in the coming days.

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    Exxon: not so good, Chevron awful.

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    It's Still Not a Great Time to Be Big Oil

    Crude prices may have stabilized, but it’s still not a great time to be Big Oil.

    Investors eliminated about $53 billion in market value for producers over three days as the twin titans of U.S. oil posted their worst annual financial outcomes in decades. With Royal Dutch Shell Plc, Total SA and BP Plc due to announce 2016 results in coming days, the grim headlines may not yet be over.

    Exxon Mobil Corp. reported Tuesday a $2 billion writedown of its natural gas fields, lower-than-expected quarterly profit and a full-year result that was its worst since 1996. That followed Chevron Corp., which reported its first yearly loss in at least 37 years on Jan. 27.

    Drillers have responded to the 2 1/2-year slide in energy markets by firing hundreds of thousands of workers, auctioning off billions in assets, abandoning their riskiest projects and living on borrowed cash. The latest results, though, suggest the industry may still need recovery time, even with crude prices more than doubling since dipping to a 12-year low in February 2016.

    “It was a pretty nasty year, one of the toughest years ever for the global oil industry,” said Sarah Emerson, managing director at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The big difference now is oil is above $55 a barrel.”

    Oil producers had been flying high on OPEC’s Nov. 30 plan to cut output. Investors responded by adding $235 billion in market value to the Bloomberg World Oil & Gas Index in the ensuing eight weeks. By the end of the trading day Tuesday after Exxon’s report, the index had fallen 1.9 percent in three sessions, also pressured by investors weighing U.S. President Donald Trump’s first week in office.

    Individually, Exxon fell as much as 2 percent on Tuesday. Chevron has lost 4.5 percent of its value since it announced results at the end of last week. The Bloomberg World Oil & Gas Index, which has slipped 2.9 percent since hitting a 17-month high on Jan. 5, was little changed as of 12:49 p.m. in Singapore.

    For Exxon, it was the ninth-straight quarter of year-over-year profit declines, the longest such streak since at least 1988. The bleak result capped Rex Tillerson’s final quarter at the helm of the world’s largest oil producer by market value. The market collapse aggravated the impact Exxon felt from its own stillborn Russian drilling venture, domestic legal disputes over whether the company engaged in climate-science deception and the loss of its gold-plated credit rating.

    Hefty Writedown

    Exxon’s writedown slashed fourth-quarter profit to $1.68 billion, or 41 cents a share, more than 40 percent lower than the average estimate of 21 analysts in a Bloomberg survey, the widest gap since at least 2006.

    Chevron and Exxon are taking markedly different approaches to the lingering sting of 2016. Whereas Chevron plans to shrink expenditures on drilling and other projects by 15 percent to conserve cash, Exxon said Tuesday it will boost its budget by 14 percent to $22 billion.

    Exxon appears to be taking a page from U.S. shale drillers who are responding to the uptick in crude prices with ambitious expansion plans: Continental Resources Inc. and Diamondback Energy Inc. are lifting spending by 77 percent and 106 percent, respectively.

    Exxon’s capital spending increase was “a much more assertive increase than most had anticipated,” said Guy Baber, an analyst at Piper Jaffray & Co.

    New CEO

    In his first month on the job, Exxon Chairman and Chief Executive Officer Darren Woods is looking to deepwater drilling in South America and West Africa, gas exports in the South Pacific and shale riches in the Permian Basin beneath Texas and New Mexico to bolster reserves and improve Exxon’s production and profit outlook.

    Woods, an Exxon lifer whose responsibilities included overseeing the company’s fleet of refineries and chemical plants, became chairman and CEO on Jan. 1 after his mentor Tillerson was nominated for U.S. Secretary of State.

    The company agreed two weeks ago to shell out as much as $6.6 billion to double its Permian drilling rights in Exxon’s biggest transaction in 6 1/2 years.

    The purchase may help replace reserves Exxon plans wipe off the books in coming weeks. Exxon expects to follow through with most of the 4.6 billion-barrel reserves reduction it warned investors about in October, Vice President Jeff Woodbury said during a webcast on Tuesday. That would equate to 19 percent of Exxon’s reserves and would be the largest de-booking since the 1999 merger that created the company in its modern form.

    “Investors have been concerned with the pace of reserve replacement and production growth, particularly projected into the next decade,” said Sam Margolin, an analyst at Cowen Group Inc. Exxon has an advantage over its peers partly because of the huge trove of shares it holds in its treasury that can be used like cash for acquisitions, he said.
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    Petrobras says judge orders suspension of Suape and Citepe sale

    Brazil's state-run oil company Petroleo Brasileiro SA said on Tuesday a judge had ordered the suspension of the sale of petrochemical companies Suape and Citepe.

    Petrobras, as the company is commonly known, said in a securities filing it was taking all judicial measures to protect the interests of its shareholders.

    The company announced the sale of the two units in late 2016 to Mexico's Alpek for $385 million.
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    Gazprom looks to add latest Ukraine bill to arbitration claim

    Russia's Gazprom has asked that a bill for $5.319 billion sent to Ukraine's Naftogaz Ukrayiny on January 17 be added to its list of claims against the state-owned Ukrainian company currently before the Stockholm arbitration court, Gazprom's press service said Monday.

    Gazprom charged Naftogaz for gas not taken in 2016 under the take-or-pay terms of a 10-year gas supply contract signed in 2009 and gave Naftogaz 10 days to pay.

    Naftogaz said it would refuse to pay anything to Gazprom until a ruling from the Stockholm court.

    With the 10-day deadline now passed, Gazprom said it had requested the new additional amount be considered by the Stockholm court.

    "Gazprom will look to have the request met," the service said.

    Before the latest bill, Gazprom was claiming some $39 billion from the Ukrainian company, while Naftogaz, in its own claims to the court, was seeking $28 billion from Gazprom, saying it had been overcharged since 2010.

    A ruling from the court, which began addressing all of the claims at the end of 2016, is due in June.

    If the court considers the latest bill too it would bring Gazprom's claims to more than $44 billion.


    Take-or-pay clauses -- where buyers agree to pay for gas even if it is not delivered -- are routine in supply contracts, giving the seller certainty of demand over a particular period of time.

    Naftogaz said it repeatedly asked Gazprom in 2016 to supply gas on terms in force in 2014 and 2015, when it signed special amendments to the supply contract.

    Naftogaz halted purchases of Russian gas in November 2015, saying it would instead buy gas from European partners, and has bought no Russian gas since.

    The Gazprom bill covers undelivered gas for second quarter of 2016 through the fourth quarter of the year, under the take-or-pay rules of the contract, but not the first quarter of 2016, when the take-or-pay obligations were waived under the agreed Winter Package of that year.

    According to the take-or-pay terms of the contract, Ukraine is obliged to buy 41.6 Bcm/year of Russian gas, but this amount can be lowered to 33.3 Bcm/year with Gazprom's consent.

    According to S&P Global Platts calculations, the amount of unpaid gas in the nine-month period is around 30.6 Bcm, or 111 million cu m/d, given the size of the bill.

    Platts estimates that the average price of Russian gas for Ukraine in the Q2 through Q4 period was $173.70/1,000 cu m, based on the formula in the Russia-Ukraine gas supply contract.

    The price in Q2 was $178.05/1,000 cu m, in Q3 $168.05/1,000 cu m and in Q4 $175.15/1,000 cu m.
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    Major U.S. tight oil-producing states expected to drive production gains through 2018

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    In EIA’s January Short-Term Energy Outlook, U.S. crude oil production is forecast to increase from an average of 8.9 million barrels per day (b/d) in 2016 to an average of 9.3 million b/d in 2018, primarily as a result of gains in the major U.S. tight oil-producing states: Texas, North Dakota, Oklahoma, and New Mexico. Of these states, Texas and North Dakota will continue to be the largest producers of crude oil because of the large amounts of economically recoverable resources in the Eagle Ford, Permian, and Bakken regions.

    Production in Texas, the largest oil-producing state, is driven by two major oil-producing regions, the Permian and the Eagle Ford. As defined in EIA’s Drilling Productivity Report, the Permian region makes up a large geographic area with producing zones each more than 1,000 feet thick and with multiple stacked plays. Because of its large geographic size, the Permian offers a lot of potential for testing and drilling, and the multiple stacked plays allow producers to continue to drill both vertical wells and hydraulically fractured horizontal wells.

    Although overall U.S. oil production has been declining since mid-2015, production has continued to increase in the Permian region. In 2016, Permian production averaged 2.0 million b/d, a 5% increase from the level in 2015. EIA expects this trend to continue, with Permian production projected to average 2.3 million b/d in 2017 and 2.5 million b/d in 2018.

    Compared with the Permian region, the Eagle Ford region has fewer overall drilling opportunities in core areas. The Eagle Ford region has a significantly smaller geographic area than the Permian region, and the region's target producing zones are only about 200–300 feet thick, compared to the thousands of feet within the Permian. As with most shale and tight oil regions, the Eagle Ford region has wells with high initial production rates, but faster than average production rate declines. Because of these production rates, drilling fewer new wells has a more immediate effect on production. As low oil prices slowed the pace of drilling, production in the Eagle Ford region has declined since March 2015, with average annual production at 1.6 million b/d in 2015 and 1.3 million b/d in 2016.

    Although declines in Eagle Ford production are expected to continue through the first half of 2017, EIA expects production in that region will begin increasing in the third quarter of 2017 and will continue to increase through 2018 as higher oil prices encourage more drilling activity. With the combination of the Permian’s continued growth and renewed production in the Eagle Ford, Texas is expected to continue to be the largest-producing state through 2018.

    The Bakken and Three Forks formations drive crude oil production in North Dakota, which has been in decline since 2015 in response to lower prices. Unlike in Texas, producers in North Dakota have additional infrastructure constraints involved in transporting their products to market. During the winter, production costs increase as operators must deal with below-freezing temperatures and heavy snowfall. However, as in the Eagle Ford, new drilling is expected to increase, enabling overall Bakken production to stay at least flat through 2018.

    More information about current drilling activity and production in key regions is available in EIA’s Drilling Productivity Report. More information about monthly production and price expectations through 2018 is available in EIA’s Short-Term Energy Outlook.

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    Anadarko Petroleum narrows loss

    Anadarko Petroleum Corp. said oil sales climbed 25% in its fourth quarter to help it narrow its losses, but results still fell short of profit projections.

    The latest results come amid stirring hopes for downtrodden energy markets. Analysts are raising their oil-price forecasts for the first time in five months, even as they continue to see plentiful risks.

    The Organization of the Petroleum Exporting Countries has trimmed output by slightly more than 1 million barrels a day, or 88% of what they agreed to in November, according to JBC Energy.

    Anadarko, based in The Woodlands, Texas, reported a loss of $515 million, narrower than that in the same period last year, when it lost $1.25 billion. On a per-share basis, the company booked a loss of 94 cents compared with a loss of $2.45 a year ago. Excluding certain items, the company's loss per share was 50 cents versus a loss of 57 cents per share a year ago.

    Revenue rose 16.3% to $2.39 billion, with oil sales jumping to $1.45 billion from $1.16 billion.

    Analysts surveyed by Thomson Reuters projected an adjusted loss of 45 cents a share on $2.38 billion in revenue.

    Earlier this month, Anadarko agreed to sell its South Texas oil-and-gas assets to Sanchez Energy Corp. and Blackstone Group LP for $2.3 billion.

    Anadarko has been selling assets aggressively, going well over its sales target last year, as it shifts its drilling focus to Texas and Colorado.
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    Halliburton Selects SandBox as Its Preferred Provider for Last Mile Logistics

    Halliburton today announced it has selected SandBox Logistics, a U.S. Silica company as its preferred provider for containerized sand delivery, pursuant to a long-term agreement.

    Sandbox’s delivery solution offers significantly improved operating efficiencies, a safer work environment and cost savings relative to current proppant delivery systems. “Logistics is an important part of the supply chain and one of the parts that gets the tightest in today’s environment is the last-mile component,” said Jeff Miller, president of Halliburton. “Sandbox’s containerized system helps enhance our ability to provide our customers with better service quality by providing a safer, more efficient delivery system.”

    “We’re very pleased to be chosen by Halliburton to provide a proven containerized delivery solution which will enable them to flex quickly with customers and markets and maximize the value of their logistics assets,” said Bryan Shinn, U.S. Silica president and chief executive officer. “Our agreement with Halliburton further establishes Sandbox as an industry leader in last mile containerized delivery solutions.”

    About Halliburton

    Founded in 1919, Halliburton is one of the world's largest providers of products and services to the energy industry. With approximately 50,000 employees representing 140 nationalities, and operations in approximately 70 countries, the company serves the upstream oil and gas industry throughout the lifecycle of the reservoir – from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction, completion and production optimization. Visit the company’s website at Connect with Halliburton on Facebook, Twitter, LinkedIn, and YouTube.

    About U.S. Silica

    U.S. Silica Holdings, Inc., a member of the Russell 2000, is a leading producer of commercial silica used in the oil and gas industry, and in a wide range of industrial applications. Over its 117-year history, U.S. Silica has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver over 260 products to customers across our end markets. The Company currently operates nine industrial sand production plants and nine oil and gas sand production plants. The Company is headquartered in Frederick, Maryland and also has offices located in Chicago, Illinois, and Houston, Texas.
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    Texas Pipeline, Highway Remain Shut After Rupture

    S-1 Pipeline ruptured Monday afternoon by road construction crews, spraying oil several stories into air

    A major crude oil pipeline owned by Enterprise Products Partners and Enbridge Inc. remained shut Tuesday after road construction crews ruptured it northeast of Dallas, causing a gusher that sprayed oil all over a highway.

    The 30-inch diameter Seaway S-1 pipeline pumps oil 500 miles from the commercial hub in Cushing, Okla. to refineries near Houston and elsewhere along the Gulf Coast. Pipeline representatives weren’t immediately available to indicate how much oil was spilled or when the line may reopen.

    The Collin County Sheriff’s Department said a contracted road crew working with the Texas Department of Transportation punctured the high-pressure pipeline Monday afternoon, sending oil gushing several stories into the air and onto State Highway 121 near the tiny town of Trenton.

    The highway was shut in both directions to prevent accidents on the oil-caked roadway, and a dispatcher from the sheriff’s office said Tuesday the highway is likely to stay shut until Tuesday afternoon as cleanup continues.

    The pipeline is operated by Seaway Crude Pipeline Company, a 50/50 joint venture between Houston-based Enterprise and Canadian firm Enbridge. “The pipeline has been shut down and isolated,” it said in its most recent statement Monday, adding it is developing “a plan to resume operations as quickly and safely as possible.” Seaway said the incident didn’t result in any fire or injuries.
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    ExxonMobil Chemical says to start up Baytown steam cracker by H2 2017

    ExxonMobil Chemical will complete expansions of its Baytown and Mont Belvieu, Texas, operations on schedule in the second half of 2017, a company spokesman said Tuesday during ExxonMobil's fourth-quarter 2016 earnings call.

    "The construction of the ethane cracker is progressing well," spokesman Jeff Woodbury said, adding that startup was expected by the second half of this year.

    Related video: US propylene producers reportedly buying spot to fulfill obligations

    The project will add a 1.5 million mt/year ethane-fed steam cracker at ExxonMobil's Baytown, Texas, facility.

    ExxonMobil's Baytown petrochemicals facility can produce 1.18 million mt/year of ethylene, according S&P Global Platts data.

    At least one polyethylene line is being built at ExxonMobil's Mont Belvieu complex too, and is expected to come online at the same time. The plant is expected to add linear-low density and high density polyethylene capacity.

    The Baytown project will look to to take advantage of cheaper natural gas liquid feedstock, according to the company.

    When combined with ExxonMobil's 650,000 mt/year polyethylene capacity expansion at its Beaumont, Texas, facility (See story, 1635 GMT), about 2 million mt/year of capacity will come online, increasing ExxonMobil's US polyethylene production by about 40%.

    The increase would make Texas the company's largest polyethylene supply point, Woodbury said.
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    Valero Energy profit beats estimates on higher ethanol margins

    Valero Energy Corp, the largest independent U.S. refiner, reported a better-than-expected quarterly profit as higher margins in its ethanol unit more than offset weakness in its refining business.

    The company reported an operating profit of $126 million in its ethanol business for the fourth quarter, compared to a loss of $13 million a year earlier, helped by lower corn and stronger ethanol prices.

    However, the company's refining margins were hurt by the narrowing gap between the price of U.S. crude and globally-traded Brent crude, to which refined products prices are tied.

    Refining throughput margin fell to $8.22 per barrel in the fourth quarter, from $10.87 per barrel a year earlier.

    Valero's refineries operated at 95 percent throughput capacity utilization in the quarter, in line with the preceding quarter.

    The company said it expects to spend about $2.7 billion in 2017, more than the $2 billion it spent last year.

    Net income attributable to shareholders rose to $367 million, or 81 cents per share, in the fourth quarter ended Dec. 31, from $298 million, or 62 cents per share, a year earlier.

    Valero also reported adjusted earnings of 81 cents per share, while analysts on average had expected earnings of 77 cents, according to Thomson Reuters I/B/E/S.

    Operating revenue rose 10.3 percent to $20.71 billion, handily beating estimates of $17.42 billion.
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    Dakota Access pipeline moves closer to completion: lawmakers

    The U.S. Army Corps of Engineers will grant the final approval needed to finish the Dakota Access Pipeline project, U.S. Senator John Hoeven and Congressman Kevin Cramer of North Dakota said on Tuesday.

    However, opponents of the $3.8 billion project, including the Standing Rock Sioux Tribe, whose reservation is adjacent to the route, claimed that Hoeven and Cramer were jumping the gun and that an environmental study underway must be completed before the permit was granted.

    For months, climate activists and the Standing Rock Sioux tribe have been protesting against the completion of the line under Lake Oahe, a reservoir that is part of the Missouri River. The one-mile stretch of the 1,170-mile (1,885 km) line is the only incomplete section in North Dakota.

    The project would run from the western part of the state to Patoka, Illinois, and connect to another line to move crude to the U.S. Gulf Coast.

    Hoeven said Acting Secretary of the Army Robert Speer had told him and Vice President Mike Pence of the move. "This will enable the company to complete the project, which can and will be built with the necessary safety features to protect the Standing Rock Sioux Tribe and others downstream," Hoeven, a Republican, said in a statement.

    Representatives for the Army Corps of Engineers could not be reached immediately for comment late on Tuesday. The Department of Justice declined to comment.

    President Donald Trump signed an executive order last week allowing Energy Transfer Partners LP's Dakota Access Pipeline to go forward, after months of protests from Native American groups and climate activists pushed the administration of President Barack Obama to ask for an additional environmental review of the controversial project.

    The approval would mark a bitter defeat for Native American tribes and climate activists, who successfully blocked the project earlier and vowed to fight the decision through legal action.

    On Tuesday evening, the Standing Rock tribe said the Army could not circumvent a scheduled environmental impact study that was ordered by the outgoing Obama administration in January. "The Army Corps lacks statutory authority to simply stop the EIS," they said in a statement.

    The tribe said it would take legal action against the U.S. Army's reported decision to grant the final easement.


    Jan Hasselman, an Earthjustice lawyer representing the tribe, told Reuters that Hoeven and Cramer "jumped the gun" by saying the easement would be granted and that the easement was not yet issued.

    Dallas Goldtooth of the Indigenous Environment Network, which has been a vocal opponent of the pipeline, said on Twitter that lawmakers were "trying to incite violence" by saying the easement was granted before it was official.

    There have been numerous clashes between law enforcement and protesters over the past several months, some of which have turned violent. More than 600 arrests have been made.

    Heavy earth-moving equipment had been moved to the protest camp in recent days to remove abandoned tipis and cars, with the camp to be cleared out before expected flooding in March.

    There were more than 10,000 people at the camp at one point, including Native Americans, climate activists and veterans. Several hundred remain.

    A spokesman for Hoeven, Don Canton, said it would probably be a "matter of days rather than weeks" for the easement to be issued.

    Oil producers in North Dakota are expected to benefit from a quicker route for crude oil to U.S. Gulf Coast refineries.

    North Dakota Democratic Senator Heidi Heitkamp said the timeline for construction was still unknown but said she hoped Trump would provide additional law enforcement resources and funding to ensure the safe start of pipeline construction.

    "We also know that with tensions high, our families, workers, and tribal communities deserve the protective resources they need to stay safe," Heitkamp said.

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    Precious Metals

    Zimplats says Zimbabwe in fresh bid to seize its mining claims

    Zimplats said on Tuesday the Zimbabwean government had issued a new notice earlier this month to forcibly acquire more than half of its mining ground and had given the company 30 days to lodge an objection.

    This is the third time since February 2012 that President Robert Mugabe's administration has issued a notice to seize 27,948 hectares of mining ground from the country's largest platinum producer, which objects to the acquisition.

    Zimplats, which is 87 percent owned by Impala Platinum Holdings, said in its September-December results that Harare had issued the new notice on Jan. 13.

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    Base Metals

    Chilean workers vote to strike at world no.1 copper mine

    Workers at BHP Billiton's Escondida mine in Chile, the world's biggest copper mine, have voted to reject a company wage offer and go on strike, the union told Reuters in the early hours of Wednesday.

    The strike is due to begin in 48 hours but the union said the company will likely request government mediation to attempt a resolution, which would delay any strike action for about another week.

    The vote had been expected after union leaders last week called BHP's latest wage offer "absurd" and recommended its 2,500 workers reject it and prepare for an extended conflict.

    BHP did not immediately respond to requests for comment, but has previously said that its offer was fair. Workers have been offered a $12,000 bonus.

    In the last contract talks four years ago, when the copper price was higher, workers received a $49,000 bonus after a two-week strike.

    The failure of the contract negotiations has already triggered a rise in the global price of copper on expectations of a potential stoppage at the mine.

    Escondida produced 1.15 million tonnes of the metal in 2015, about 6 percent of the world's total. It is majority controlled by BHP, with Rio Tinto and Japan's JECO also owning stakes.
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    Russia's Nornickel sees nickel, palladium output up in 2017

    Norilsk Nickel (Nornickel) , one of the world's largest nickel and palladium producers, plans to increase output of its main metals from Russian raw material this year, the company said in a statement on Tuesday.

    Nornickel, which competes with Brazil's Vale SA for the rank of the world's top nickel producer, experienced falls in production of nickel, copper and platinum group metals in 2016.

    The lower output was mainly due to scheduled decommissioning of an old nickel plant and ongoing reconfiguration of downstream production facilities in northern Siberia.

    This year Nornickel, part-owned by Russian tycoon Vladimir Potanin and aluminium giant Rusal, plans to produce from Russian feedstock 206,000-211,000 tonnes of nickel, 377,000-387,000 tonnes of copper, 2.6-2.7 million ounces of palladium and 581,000-645,000 ounces of platinum.

    In 2016, its consolidated nickel production was 235,749 tonnes, down 12 percent year-on-year. Nickel output from its own Russian feed was 196,664 tonnes.

    Its 2016 consolidated copper production was 360,217 tonnes, 2 percent less than in the previous year, of which 344,482 tonnes was produced from its Russian feed.

    Its 2016 palladium and platinum output was 2.6 million ounces, down 3 percent, and 644,000 ounces, down 2 percent, respectively. Palladium and platinum output from Russian feed totalled 2.5 million ounces and 608,000 ounces, respectively.
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    Philippine minister says some mines need to be shut on eve of green audit results

    Some Philippine mines need to be shut given the environmental harm they have caused, the minister in charge of sector said on Wednesday, a day before the government announces the results of a months-long review of the country's mineral producers.

    "We'll be really, really strict," Environment and Natural Resources Secretary Regina Lopez told radio station DZMM. "There's some really that have to be closed," Lopez said, without identifying which mines she meant in the review to be published on Thursday.

    "That's what I see, because it's too much, it's extreme" Lopez said on the destruction some mines have caused.

    The Southeast Asian nation, the world's biggest nickel ore supplier, last year suspended operations at a group of 10 of its 41 mines - including gold and copper mines as well as nickel ore producers - for environmental infractions after launching an audit of the sector in July. Manila said in September that 20 more mines were at risk of suspension.

    The country's firebrand leader Rodrigo Duterte has backed Lopez's mining audit, warning shortly after taking office last June that the Philippines could survive without a mining industry.

    "The decisions that we're making are not political," the minister said. "I'm not looking at who owns the mines. What's important is the welfare of those people who live there."

    Some 22 of the 30 mines under review are nickel ore producers, and the threat to disruption of supply from the Philippines has helped fuel a 14 percent rally in global nickel prices since last year.

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    Elliott starts proxy fight with Arconic as it posts fourth-quarter loss

    Activist investor Elliott Management Corp on Tuesday launched a proxy fight against Arconic Inc (ARNC.N), which makes engineered metal parts for the aerospace, automotive and other industries, campaigning for the ouster of the company's chief executive and saying it had a plan to boost the company's performance.

    The news came after Arconic reported a quarterly net loss following the market close, caused by charges related to the company's separation from Alcoa Corp (AA.N) last November and said cost-cutting would help it boost margins in 2017.

    Elliott, which manages funds that own 10.5 percent of common stock and equivalents of Arconic, has nominated five independent candidates to the board.

    In a presentation Elliott said it could improve Arconic's valuation to at least between $33 and $54 per share. The stock closed at $22.79 on Tuesday.

    "We believe a change in CEO is needed for the Company to sustainably create maximum shareholder value," the presentation says.

    Elliott said it had engaged Larry Lawson, formerly CEO of Spirit AeroSystems Holdings Inc (SPR.N), as a consultant and that it believes he should be a leading candidate for CEO of Arconic.

    New York-based Arconic said tax valuation allowance charges related to the split with Alcoa, plus restructuring and other costs were behind its fourth-quarter loss.

    Alcoa retained the company's legacy aluminum, alumina and bauxite smelting business, while Arconic focused on higher-end aluminum and titanium alloys used in planes and cars.

    "In 2017 we are squarely focused on operational improvements, margin expansion, and capital efficiency to drive shareholder returns," CEO Klaus Kleinfeld said in a statement. "We will continue to cut cost through productivity and corporate overhead reduction."

    The company said on Monday that Kleinfeld had the unanimous support of its board of directors despite reports some shareholders wanted to oust him.

    When asked about those efforts, Kleinfeld said that Alcoa shareholders have seen returns of 21 percent since the split in November and Arconic shares have gained roughly 19 percent.

    "It's clearly been very successful in unleashing value," he said.

    Arconic said it expects revenue in the first quarter to range from $2.8 billion to $3 billion, and full-year 2017 revenue to be between $11.8 billion and $12.4 billion.

    This would be flat to down versus revenue of $12.4 billion in 2016 and 2015.

    Analysts have predicted full-year revenue for Arconic of $12.1 billion.

    The company reported a fourth-quarter net loss of $1.2 billion, or $2.88 per share. Adjusted for one-time items, the company reported net income for the quarter of $71 million or 12 cents per share. Analysts had expected earnings per share on an adjusted basis of 13 cents.
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    Steel, Iron Ore and Coal

    Japan coal fired power station plans

    Japanese government planning to build 45 new coal fired power stations to diversify 


    The power plants will utilise high energy, low emissions (HELE) technology that use high-quality black coal.

    Japan is the largest overseas market for Australian coal producers, taking more than a third of all exports.

    Tom O'Sullivan, a Tokyo based energy consultant with Mathyos Global Advisory, said in the wake of the Fukushima nuclear disaster in 2011, Japan started importing more liquefied natural gas (LNG) from Australia.

    But he said the move to more coal fired power was because coal was cheaper than LNG, and the energy security was priority for the government.

    "Japan needs to import 95 per cent of all its energy sources," he said.

    "So it's trying to diversify its fuel sources and it doesn't want to be too reliant on any one market."

    Japan has ratified the Paris Climate Agreement and committed to a 26 per cent reduction in carbon dioxide emissions by 2030.

    But Mr O'Sullivan said Japan was yet to price carbon emissions.

    "Although Japan spent $US36 billion dollars on commercial solar power last year, and is planning much more, there is no carbon price," he said.

    "So at this stage there is no incentive to not build coal fired power station, unlike other countries and states that can have a price as high as $US35-40 per tonne of carbon dioxide emitted."

    Mr O'Sullivan said while community and environmental groups had expressed concerns about the construction of a major coal power station, Prime Minister Shinzo Abe was firmly behind the plans.

    He said the decision would ensure the use of coal in Japan would continue well into the middle of the century. 

    "These guys [private companies] are not going to go ahead and [put money into] in large capital investments unless they have a 30-year depreciation period," he said.

    "So if they're building these coal power plants now it is reasonable to expect them to be still on the books by the end of 2050."

    HELE power plants and emissions reduction

    There are a number of different types of HELE power station technologies. In Australia, the CSIRO has been working on different programs to further the use of them.

    The Minerals Council of Australia and the Federal Government are on the record saying HELE coal fired power plants produce half of the emissions of traditional plants.

    But David Harris, a CSIRO research director in the Low Emissions Technology Department, said it was not as straight forward as that. 

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    Alliance plans higher coal production and sales in 2017

    Illinois Basin and Appalachian coal producer Alliance Resource Partners expects higher coal production and sales in 2017, citing improvements in domestic thermal coal markets, after posting a 74% increase in net income during the fourth quarter of 2016 over a year ago.

    "Supply and demand fundamentals have improved meaningfully compared to this time last year and are pointing to cyclical recovery in domestic thermal markets," Joseph Craft III, president and CEO of the Tulsa, Oklahoma-based company, told analysts during a conference call Monday to discuss Q4 and full-year 2016 earnings.

    Craft also anticipate the administration of President Donald Trump will have a positive impact on the coal industry, including Trump's intention to reduce burdensome federal regulations on industry.

    In 2016, Alliance produced and sold 35.2 million and 36.7 million st of coal, 15% and 9%, respectively, below 2015 levels as the company strategically shifted production to its lowest-cost mines to offset a decline in demand and lower prices.

    This year, Alliance expects production to rise by about 3 million st with sales up around 2 million st. Already, the company has committed sales of 34.9 million st for 2017, or roughly 90% of its anticipated output. So far, it also has secured sales commitments for 18.9 million st in 2018.

    Alliance realized 3.3% less on the 10.5 million st it sold in the October-December period, an average of $48.01/st, compared with an average of $49.63/st it received in the fourth quarter of 2015.

    But costs fell even more. Fourth quarter costs averaged $27.72/st, down 16.5% from average costs of $32.44/st a year earlier.

    Craft said Alliance's projected increase in production this year is driven largely by an anticipated rise in output at its Hamilton No. 1 longwall mine near McLeansboro in Hamilton County, Illinois. Alliance acquired the mine, then known as White Oak No. 1, two years ago from privately owned White Oak Resources.

    According to Craft, there was a temporary work force and production cut last summer at the mine, but more miners were recalled and production began increasing again late last year.

    In the fourth quarter, Hamilton 1 turned out 1.3 million st, almost triple the 500,000 st or so it had produced in previous quarters of the year.

    "We didn't really start that ramp until November at Hamilton," he said. "If we can get Hamilton to full production, we believe it will be our lowest-cost mine."

    The mine is capable of producing as much as 6 million st annually.

    Alliance also expects to boost production this year at its Gibson South underground mine near Princeton in Gibson County, Indiana. Its other top performing mines include the River View continuous miner operation in Union County, Kentucky, and Tunnel Ridge longwall mine in West Virginia and Pennsylvania.

    Although it never has been a major coal exporter, Alliance already has contracted for 1.5 million st in export sales for 2017 over last year, including 167,000 st of metallurgical coal. However, it expects to sell its remaining 10% of uncommitted tons this year into the domestic market.

    "We feel confident those tons will be placed," Craft said. 'The reason they're open today is that our customers are continuing to stick to a shorter-term buying practice instead of committing more long term."

    Overall production in the high-sulfur ILB is expected to be flat in 2017, he added.

    "The only tons we've seen go up are our own 3 million from us," he said. "We expect flat production to continue into 2017" in the basin.

    There is hope for higher realized prices, though, in 2018 if not in 2017, depending upon electric utility demand and natural gas prices staying in the range of $3.25/MMBtu. "We do anticipate growth in both tonnage and price as we look to 2018," he said.

    Brian Cantrell, Alliance's chief financial officer, said the company recorded net income of $119.6 million in the fourth quarter and $339.4 million for all of 2016, compared with $21.5 million in the fourth quarter of 2015 and $306.2 million for all of 2015.

    Total revenue fell to $527.4 million, down 2.7% in the latest quarter, and to $1.93 billion in 2016, versus $2.27 billion in 2015, mainly because of lower price realizations.

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    RBCT targeting export of 77Mt coal in 2017

    The export target of Richards Bay CoalTerminal (RBCT) for 2017 is 77-million tonnes, up on the 72.5-million tonnes exported in 2016.

    In 2015, RBCT exported a record 75.4-million tonnes of coal.

    RBCT CEO Alan Waller described as “amazing” the fully integrated value chain, which the private-sector-owned terminal has with State-owned Transnet.

    He expressed RBCT’s ongoing commitment to efficiencies in partnership with Transnet Freight Rail and the TransnetNational Ports Authority.

    “The true value of RBCT lies in the efficiency and reliability with which the terminal can move a ton of coal,” Waller told a visiting media contingent, which included Creamer Media’s Mining Weekly Online.

    The terminal is in the midst of a R1.4-billion equipment-replacement project, which remains on time and on budget for completion in January 2018.

    RBCT engineering and project manager Bill Murphy told Mining Weekly Online that the installation and erection of the new equipment would in no way interrupt the operation of the terminal, which would continue to function without interference.

    He expressed strong confidence in Chinese company TZME, which is nearing the completion of a new shiploader under Sandvik Mining Systems.

    Outgoing RBCT chairperson Mike Teke announced his stepping down as chairperson.

    Former CEO Nosipho Siwisa-Damasane is the new incoming chairperson with Teke remaining on the board as a nonexecutive director.

    Black women own 6.18% of RBCT, which is a 32.53% black-owned terminal, where 9 000-plus trains delivered coal for more than 900 vessels from coal mines as far away as 1 060 km.

    The terminal averaged 76 vessels a month in 2016, peaking at 95 vessels in November when it pulled out all the stops to despatch a record eight-million tonnes.

    Trains peaked at 868 in October, two short of a record-breaking level with an average of 25 trains a day being tipped.

    The terminal is in the process of reallocating the four-million-tonne coal export entitlement for junior miners under the under-utilised Quattro scheme.
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    NMDC seeks new iron-ore leases through preferential allotment

    India’s largest iron-ore miner, NMDC, will be able to ramp up its yearly production from 30-million tons currently to 75-million tons by 2019 and 100-million tons by 2022, if it were awarded additional mining leases in iron-ore-bearingprovinces.

    NMDC has conveyed to the government that its current operational mines, which are predominantly located in the central province of Chhattisgarh, will be a limiting factor in rapidly expanding production capacities, unless it is able to secure fresh mining leases in other geographies.

    The government-owned and -managed miner has communicated that the government should allocate fresh mining leases under the preferential route as per the newly amended mining legislative norms.

    NMDC wants the government to award fresh mining leases to the company under Section 17A of the Mines and Minerals (Development and Regulation) Act 2015, which will exempt the company from having to follow the mandatory auction route for securing the new leases.

    The relevant section states that the “state government may, with the approval of the central government, reserve any area not already held under any prospecting licence or mininglease, for undertaking prospecting or mining operationsthrough a government company or corporation owned or controlled by it and where it proposes to do so, it shall, by notification in the official gazette, specify the boundaries of such area and the mineral or minerals in respect of which such areas will be reserved”, a NMDC official pointed out.

    NMDC has also stated that it will be willing to consider development of new iron-ore blocks in other provinces like Odisha, Jharkhand, Karnataka and Chhattisgarh through joint ventures or special purpose vehicles as may be decided by the central or provincial governments.

    Securing additional iron-ore mining leases through the preferential route is also critical for the miner to offer higher volumes through merchant sales, as a substantial part of its current production has been allocated for its upcoming steelmaking project.

    NMDC is constructing a three-million-ton-a-year steel mill at Nagarmal, Chhattisgarh, for which it is investing $284-million to develop Deposit 4 of its iron-ore reserves at Bailadila, also in the same province, which will produce seven-million tons a year to feed the steel mill.

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    Iron-ore production in Odisha to hit decade high

    Buoyed by a revival in prices and transaction volumes in international iron-ore trade, the eastern Indian province of Odisha is poised to achieve a decade-high in iron-ore output.

    According to a senior provincial government official, iron-oreproduction is expected to touch the 120-million-ton mark at the end of the current financial year on March 31. Production growth is expected to be maintained at about 10% to 20% in the next financial year, with government having already announced a series of measures to bring new iron-ore mines back into production.

    Earlier this month, Odisha approved the renewal of seven iron-ore mining leases for a period of 50 years under new federal mining legislation. The leases expired as they did not have the required clearances under the Mines and Minerals (Development and Regulation) Act, which was promulgated in 2015. The clearances have since been regularised and fresh leases have been awarded.

    A government official said on Tuesday the granting of fresh mining leases would result in substantially higher iron-oreproduction in Odisha over the next two years.

    The province would also put two more iron-ore blocks up for auction in the next month, following the successful conclusion of three iron-ore block auctions last year. The government has completed preliminary work to auction the Netrabandhapahad and Kalmang mines, which include a differential global positioning system of survey, as mandated by the central Mines Ministry.

    However, the official could not provide details of the iron-orereserves and other geological details of these blocks, as geological details and mappings would be made available only after a notification of the auction was issued.

    Mining Weekly Online has also learnt that the Odisha government plans to put two more iron-ore blocks up for auction before the end of March.

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    Gerdau withdraws $40/st US steel beam increase

    Gerdau Long Steel North America on Monday said it was withdrawing a previously announced $40/st increase on most beam products "in order to remain competitive."

    The increase, which was to take effect with new orders Monday, was announced January 24, as Gerdau said it was looking to recover escalating raw material costs. As of Monday, no other US beam producers had followed the increase.

    In a letter sent to customers Monday, Gerdau said discounts previously offered by the company in order to remain competitive with other steel producers will be reduced or eliminated, effective immediately, as a continued effort to offset some of escalation in production costs.

    "We will continue to monitor the market to ensure Gerdau and its partners are on a competitive playing field and reserve the right to make adjustments to our pricing policy as needed," the letter said.

    In retracting the $40/st increase, Gerdau's list price for medium wide-flange beams remains at $751/st ($33.75/cwt). This price was set in December, when US mills announced a $35/st increase.
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