Mark Latham Commodity Equity Intelligence Service

Tuesday 13th December 2016
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    Bond's still falling.

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    China Nov factory output, retail sales stronger than expected

    China's factory output and retail sales grew faster than expected in November, while fixed-asset investment was in-line with forecasts, adding to growing signs of stabilisation in the world's second-biggest economy.

    Factory output grew 6.2 percent from a year earlier, slightly better than analysts' forecasts and October's reading.

    Retail sales climbed 10.8 percent, the fastest pace since December 2015 and beating expectations for a 10.1 percent rise.

    After a rocky start to the year, China's economy has performed better than expected and looks set to hit Beijing's 6.5 to 7 percent growth target as increased government spending and a sizzling housing market spur a construction boom.

    Private investment remains weak, however, leaving economic growth more reliant on a steady stream of government spending, while the property market is showing signs of fatigue, raising fears that this year's momentum will not be sustainable.

    Growth of fixed asset investment was unchanged at 8.3 percent in January-November from the same period a year earlier, the National Bureau of Statistics said on Tuesday.

    That was in-line with analysts' estimates and the same pace as in the first 10 months of the year.

    Fixed-asset investment by state firms rose 20.2 percent in January-November, easing from 20.5 percent in the first 10 months.

    Growth of private investment picked up to 3.1 percent from 2.9 percent in January-October, suggesting an improved appetite from private firms to invest though still at low levels compared with previous years.

    Private investment accounted for 61.5 percent of fixed asset investment in the Jan-Nov period, the stats bureau said.

    Chinese policymakers have been trying to lure private investors into big infrastructure projects through public-private partnerships, but many lucrative sectors are still dominated by state firms.

    Retail sales were buoyed by gains in auto sales, home appliances and cosmetics.

    Auto sales in China surged for a sixth consecutive month in November, an industry association said on Monday, as consumers rushed to buy cars amid uncertainty over whether a tax incentive will be extended beyond the end of the year.

    Alibaba Group Holding Ltd (BABA.N) Singles' Day festival on Nov. 11 posted a record 120.7 billion yuan ($17.73 billion) worth of sales, though the gala shopping day saw growth slow as Chinese shoppers searched for deeper discounts and lower price tags.

    Last week, trade data showed China's imports grew at the fastest pace in more than two years in November, while exports also rose unexpectedly, reflecting a pick-up in both domestic and global demand.

    The statistics bureau said in comments with the data that China's economy showed positive changes in November but still faces uncertainties at home and abroad.

    China's property sales growth slowed sharply to 7.9 percent in November from a year earlier, its lowest November 2015, and well short of a 26.4 percent increase in October.
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    China launches WTO dispute resolution case against U.S., EU

    China said on Monday it had launched a dispute resolution case at the World Trade Organization over the surrogate country approach used by the United States and European Union to calculate anti-dumping measures against Chinese exports.

    When China joined the WTO in 2001, it agreed to let WTO members treat it as a non-market economy when assessing dumping duties for 15 years.

    That gave trade partners the advantage of using a third country's prices to gauge whether China was selling its goods below market value.

    But that clause expired on Dec. 11, and China has demanded that countries abide by the agreement.

    U.S. Commerce Secretary Penny Pritzker said in November the time was "not ripe" for the United States to change the way it evaluates whether China has achieved market economy status, and there was no international trade rules requiring changes in the way U.S. anti-dumping duties are calculated.

    China's Commerce Ministry said in a statement on its website that 15 years on, all WTO members had an obligation to stop using the surrogate country approach.

    "Regretfully, the United States and European Union have yet to fulfil this obligation," the ministry said.

    Separately, a ministry official said in another statement a U.S. investigation into what it regards as Chinese dumping of plywood products launched last week amounted to abuse of emergency trade relief measures.

    The United States and European Union are some of the biggest levelers of anti-dumping measures under this process against China. The measures have seriously affected exports and employment for Chinese firms, the ministry added.

    The case China has lodged is a normal way of resolving trade disputes, and it has every right to do so, it said.

    "China reserves the right under WTO rules to resolutely defend its legal rights," it added, without elaborating.

    The United States has repeatedly argued that China's market reforms have fallen short of expectations, especially in aluminum and steel, where state intervention has led to oversupply and overcapacity, threatening industries around the world.

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    China Minmetals unit raises $2.3 billion for restructuring

    Kingray New Materials Science & Technology (600390.SS), an electric components firm controlled by the world's largest metals trader, said it had raised 15 billion yuan ($2.17 billion) to use for restructuring.

    The company controlled by China's Minmetals Corp also said in a statement late on Sunday that it plans to issue shares to acquire Minmetals unit Minmetals Capital Holdings, which owns its financial assets, in a deal worth 17.8 billion yuan.

    It will use the 15 billion yuan that it raised from 10 institutions including CITIC Securities (600030.SS) and China Merchants Wealth to replenish capital at the unit, which has subsidiaries spanning financial leasing, banking, futures, securities and asset management.

    Reuters reported that Kingray and Minmetals were planning the fundraising in May.

    The financial asset restructuring of Minmetals Corp, one of China's biggest state-owned enterprises, was launched in December after the announcement of its takeover of equipment maker China Metallurgical Group Corp in one of the largest mergers in China's metals sector.
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    Oil and Gas

    Why oil will crash again in 2016

    In 1950 the American mathematician and economist John Forbes Nash, Jr. earned his PhD with a dissertation that explained why markets can gravitate towards a sub-optimal equilibrium. What is now known as a Nash Equilibrium results when all economic actors know that a different strategy would be better for them, but they also know that this different strategy will only be better for them if all other economic actors also change their strategy, as a consequence of which no-one will do anything.

    This situation is effectively what caused the oil price crash of 2014. As I documented in “The trends that will keep the oil price below $60/B”, the historically high oil price of the period 2000 – 2013 caused a massive influx of money into the oil & gas industry. This money was used by the oil & gas industry to increase production capacity, under the assumption that economic growth would increase global crude oil demand to such an extent that the market would be able to absorb the additional barrels. Since 2008, however, economic growth has largely disappointed. (Pretty much every quarter since the IMF has had to revise its global growth forecast downward.) Consequently, a crude oil supply glut built up. To maintain the (then still) comfortable price level the oil & gas industry should have gradually lowered production, but it didn’t. The producers were enjoying the high price too much and everyone knew that a reduction in his or her production would only support the price if everyone else did the same. So no-one did anything, hoping someone else would. This Nash Equilibrium lead to a steady increase in the imbalance between supply and demand, until it reached close to 2 million barrels per day in the 4th quarter of 2014, causing the price to collapse.

    Unfortunately, this crash has not broken the market free from the Nash Equilibrium. Rather, it has locked it into another one.

    It is well known that despite impressive improvements in efficiency over the last year, a substantial part of the current tarsand and shale operations in North-America is unprofitable in the current price environment of $40 to $50 per barrel. Producers in these (and other) high-cost areas would actually make more money if they shut in production, but only very few actually have. In fact, global liquids production has increased, from 92.5 million barrels per day during the 2nd quarter of 2014 to 96.3 million barrels per day in the 3rd quarter of 2015.

    The reason for this surprising fact is that the oil & gas producers know that the first one to take the rational step of reducing production will lose if all others don’t follow suit. Hence OPEC’s decision not to reduce its production – why would it reduce in the knowledge that those who do not reduce would then reap the benefit of a higher prices?

    The consequence of this new Nash Equilibrium in the global crude oil market is a massive increase in inventories. According to the International Energy Agency the global stockpile of crude oil now stands at almost 3 billion barrels. Around the world, land storage sites are essentially full and producers and traders have turned to storing excess crude in tankers, driving up the day rate of supertankers to around $100.000 per day, its highest level since 2008.

    This new Nash Equilibrium can end in only one way: another crude oil price crash.

    So far, the high-cost producers in North-America have been enabled to continue uneconomical production by banks providing credit on terms equal to, or even better than those during the boom years. (Clearly, the banks are part of the current Nash Equilibrium. Every one of the original lenders to the shale industry knows that it would only be sensible to cut back lending, but he or she also know that whoever cuts back credit first will lose because his borrowers will go bankrupt, unless all other banks do the same at the same time.) In addition, private equity investors have stepped in, hoping to snap up crude oil assets on the cheap and willing to finance unprofitable operations until the oil price recovers.

    Therefore, unless the price goes down further, shale production will not collapse any time soon and the supply glut will remain. This effectively means that in the absence of a sudden uptick in crude oil demand (which is highly unlikely, as the Chinese economy is slowing and the country can not continue to build up strategic petroleum reserves), the price will go down.

    With land storage already full and floating storage increasingly uneconomical due to the high day rates for supertankers, it is just a matter of time before the market realizes it doesn’t have to buy crude at oil $40 per barrel. Because producers are getting ever closer to the situation where they simply have to sell their production, at any price, due to a lack of other options. This will change market sentiment and drive the crude oil price further down, even making $20 per barrel a distinct option.

    In other words, the current Nash Equilibrium will be broken up by another price crash, one that will really reset the industry back to normal and rebalance crude oil supply and demand. Only from that point onward will the rule that the crude oil price is determined by the cost of the marginal barrel apply again, which, as I explained in “The trends that will keep the oil price below $60/B”, I foresee to be around $60 per barrel.

    But we’ll need to go down first, before we can start going up again.
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    Novak warns oil companies, outlines cuts


    Russian Energy Minister Novak: Russian output cut to reach 300K BPD by May, to stay there until end-June --Die Presse

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    Rosneft buys into Eni’s giant gas discovery (Egypt)

    Italian oil and gas company Eni is trimming its stake in the giant Zohr discovery, offshore Egypt. Namely, the company will sell a 30 percent stake in the Shourouk Concession, containing the Zohr, to Rosneft.

    The sale, announced on Monday, follows a recent divestment of a ten percent stake in the license to BP, the completion of which is ongoing.

    Rosneft will pay $1.12 billion, plus a reimbursement of Eni’s past expenditures, which so far amount to $450 million.

    In addition, Rosneft has an option to buy a further 5% stake under the same terms, Eni said on Monday.

    The Zohr field was discovered by Eni in August 2015 and is the largest natural gas field ever found in the Mediterranean, with a total potential of 850 billion cubic meters of gas in place. On February 2015, the authorization process for the development of the field was completed, while the first gas is expected by the end of 2017.
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    Israel and Turkey are working to eliminate a major obstacle to natural gas deals: their own fractious history.

    The two governments are working on a framework for the export of Israeli natural gas to Turkey that would protect contracts between companies if diplomatic ties break down, Israeli Energy Ministry Director-General Shaul Meridor said in an interview in Jerusalem. With such a shield in place, gas could begin flowing from Israeli waters to Turkey as soon as 2019, he said.

    “For banks to eventually finance such a project they will have to know that no matter what happens between the countries politically, the business side will be protected,” he said.

    The prospect of energy ties helped the countries patch up a six-year rift over a deadly Israeli raid on a Turkish ship that sought to breach Israel’s blockade of the Hamas-ruled Gaza Strip. Israel was looking for export markets, while Turkey sought to bolster its status as an energy hub and diversify away from Russian gas. But while companies are in talks to sign gas deals, concerns linger that diplomatic relations could deteriorate.

    Pipeline Dream

    Partners in the Leviathan field, Israel’s biggest natural gas reservoir, are negotiating to export about 10 billion cubic meters of gas per year to Turkey, Bloomberg reported in March. Through its units, billionaire Yitzchak Teshuva’s Delek Group Ltd. owns a 45.3 percent stake in Leviathan, while Houston, Texas-based Noble Energy Inc. holds 39.7 percent. Ratio Oil Exploration 1992 LP owns the rest.

    A pipeline from Israel to Turkey would have to traverse the territorial waters of Cyprus, but Meridor signaled that its construction wouldn’t hinge on the fate of talks to reunify the island, whose north Turkey occupied in 1974. He declined to go into details.

    “We have a plan for every scenario,” he said. “We’re talking with the Cypriots and of course with the Turks about it. I’m pretty sure we’ll find a way for the pipeline to go through Cypriot economic waters to Turkey.”

    Israel is seeking to attract global energy companies to bid for new licenses after gas development was delayed by years of domestic debates on everything from resource taxes to export quotas. Meridor, who recently met with executives of large energy companies in Houston, said there’s growing interest now that the disputes have been overcome, but declined to give names.

    “We’re back in business,” he said. “We lost five to six years years in discussions inside the government with the current companies. But we’re there now. The Israeli regime isn’t going to change now, we’re very clear about that.”

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    Russia's Yamal LNG gets 750 mln euros in credit line from Intesa

    Dec 12 Russia's Yamal LNG project, which aims to start producing liquefied natural gas next year, said on Monday it had obtained a 14.5-year credit line worth 750 million euros ($796 million)from Intesa Sanpaolo bank.

    The loan pays an annual interest rate of 6-month EURIBOR plus 2.5 percent, while the Italian export credit agency SACE and the French export credit agency COFACE provide an insurance coverage.

    The $27 billion Yamal LNG project got $12 billion in loans from Chinese banks in April.

    Yamal LNG, the world's most northerly project of its kind, is located beyond the Arctic circle. The gas, frozen at a temperature of around minus 160 Celsius (minus 320 Fahrenheit), will be shipped to global markets including China.

    Russia's Novatek holds 50.1 percent of Yamal LNG. France's Total and China National Petroleum Corp control 20 percent each while China's Silk Road Fund owns 9.9 percent.
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    China November refinery runs hit record high, crude output falls

    China's refinery throughput hit a daily record in November as plant maintenancewound down and independents ramped up productions, while crude oil production fell as producers held to output cuts at inefficient wells.

    Data from the National Bureau of Statistics (NBS) showed on Tuesday that refinery throughput rose 3.4 percent year-on-year to 45.77 million tonnes, or 11.14 million barrels per day (bpd), an all-time high on a daily basis.

    "Plant overhauls wound down sharply in October and November versus a peak in August," said Harry Liu, a Beijing-based consultant with research and analysis agency IHS. "A rebound in diesel fuel demand also helped."

    Diesel consumption strengthened between October and November driven in part by a price surge in local commodity futures for coal and steel, said Liu.

    The re-opening of some mines, in response to the government's call to boost output to tame a year-long price rally in the world's top coal consuming nation, also drove up diesel use for heavy-duty trucks.

    A few independent refineries winning fresh quotas to import crude oil since late September also added to run increases, analysts and traders have said.

    Daily crude oil output in November, however, fell 9 percent from a year ago to 3.915 million barrels, the data also showed. It recovered from October's 3.78 million bpd, though, the lowest in more than seven years.

    For the first 11 months, crude production in the world's second-largest oil consumer was down 6.9 percent on the year at 182.91 million tonnes, just under 4 million bpd.

    Major upstream producer PetroChina reported in October that its crude output for the first nine months of 2016 fell 3.7 percent from a year earlier to 696.6 million barrels.

    Sinopec Corp recorded a 12.6 percent year-on-year fall in crude oil productions in the first nine months of the year.

    But with global oil prices rebounding to an 18-month high after OPEC and some of its rivals reached their first deal since 2001 to reduce output, production declines may slow in the coming months, said IHS's Liu.

    Natural gas output gained 5.5 percent from a year ago to 12.4 billion cubic meters, with year-to-date productions up 2.2 percent on-year at 123.5 bcm, the NBS data showed.

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    Sinopec sells 50 pct gas pipeline stake to China Life and SDIC unit

    China's Sinopec has sold a 50 percent stake in its Sichuan-East China gas pipeline to China Life Insurance and SDIC's transportation business in a deal that values the asset at 45.6 billion yuan ($6.6 billion).

    A Sinopec statement on Monday said that China Life Insurance paid 20 billion yuan for a 43.8 percent stake while SDIC's transportation unit paid 2.8 billion yuan for 6 percent.

    "The asset is fairly valued and the deal is a win-win for both parties" Nomura analyst Gordon Kwan said. "China Life is looking at a good long-term stable investment."

    Sinopec said the pipeline generated a first-half net profit of 1.17 billlion yuan on revenue of 2.6 billion yuan.

    The sale comes four months after the country's second-largest oil and gas group announced plans to divest half of its share of the pipeline in a move spurred by Beijing's reform push to boost efficiency and increase infrastructure investment in cleaner fuels.

    Sinopec has said that the proceeds will be used to expand the 2,200 km (1,370 miles) pipeline and build gas storage facilities.
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    Japan's average price for LNG spot cargoes contracted in Nov jumps 15% on month

    The average price Japanese buyers paid for spot cargoes contracted in November jumped 15% month on month to $7.0/MMBtu, the highest since January this year, the Ministry of Economy, Trade and Industry showed Friday.

    METI gathers data from utilities and other LNG buyers in Japan to publish a simple average of contract prices, but the delivery months of the cargoes are not disclosed.

    Platts JKM averaged $7.181/MMBtu in November, reflecting spot deals concluded for December and January deliveries to Japan and South Korea.

    The ministry also said the average price of cargoes delivered into Japan in November was $5.9/MMBtu, up 3.5% from the previous month.

    Meanwhile, the Platts JKM for November delivery averaged $5.977/MMBtu. The November JKM was assessed from September 16 to October 14, during which prices rose, thanks to firm demand from end-users.
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    Mexico rebrands decline into non-Opec pledge

    Mexico surprised the oil market over the weekend by signing on to an accord to cut non-Opec production, but its short-term pledge appears to be more of a symbolic gesture that rebrands an existing decline in output.

    At its 10 December meeting in Vienna, non-Opec countries led by Russia committed to reducing combined production by 558,000 b/d for six months starting on 1 January, complementing an Opec pledge of cutting up to 1.2mn b/d, led by Saudi Arabia.

    Mexico's deputy oil minister Aldo Flores attended the meeting, maintaining a low profile in the wake of the government's first-ever awards of deepwater acreage to foreign oil companies in a historic auction last week.

    The official statement from the meeting said the reductions pledged could encompass "managed decline" as well as active cuts.

    Mexican state-run oil company Pemex tweeted yesterday that it "will reduce its production by 100,000 b/d in 2017, in line with what was approved in the 2017 Income Law and the Pemex business plan 2017-2021. This reduction is the result of the natural decline of the fields."

    But Algeria's state news agency specifically asserted that the Latin American country would actively reduce output by 100,000 b/d beyond expected natural decline of 200,000 b/d. Algeria was a key player in broking both the Opec cut agreement and the deal with non-Opec producers.

    Speaking this morning at Washington-based think tank Wilson Center, Flores did not directly respond to the Algerian statement. But he said Mexico's participation in the Vienna meeting was in the context of Pemex's expected production declines.

    "We have been very clear that [Mexico's] managed decline that was mentioned at the meeting will take place in the context of Pemex's own plan," Flores said. "A managed decline will also help in bringing the market into the balance." Mexico's participation in the agreement between Opec and other producers will not overturn the historic opening of Mexico's energy sector, he said. "We will continue to implement our reform as planned."

    Mexico's oil production has been falling steadily from a 2004 peak of 3.4mn b/d, and further declines have already been factored into the nation's 2017 budget. Next year's output is forecast to drop below 2mn b/d, from around 2.1mn b/d in 2016.
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    UAE's ADNOC to cut January oil supplies to Asia; Kuwait, Oman to follow

    Abu Dhabi National Oil Company on Tuesday said it would cut crude supplies by 3-5 percent across its three export grades to meet commitments under an OPEC deal to curb output.

    The move is one of the first visible indicators that oil markets could be physically tighter in 2017 as the Organization of the Petroleum Exporting Countries (OPEC) and other producers cut production to ease a supply glut and prop up prices.

    Still, ADNOC's cut is unlikely to have a large impact on the market as it is within operational tolerance limits, while some buyers have extra oil from Saudi Arabia and Iraq to replace lost Abu Dhabi supplies, traders said.

    "I think it's manageable. Many (refiners) received incremental Arab Extra Light in January to cover," said a North Asian refinery official, speaking on condition of anonymity.

    In a notice to term lifters, ADNOC said it would reduce Murban and Upper Zakum crude supplies by 5 percent and cut Das crude exports by 3 percent.

    "In line with OPEC's latest decision to cut production, we regret to advise you that crude oil allocation for the month of January 2017 will be reduced," ADNOC said.

    Kuwait Petroleum Corp (KPC) has also notified at least two customers in Asia it "will implement its share of the reduction, which shall take effect January 2017", refining officials said.

    Non-OPEC Oman will tell customers on Tuesday that it plans to cut output by 45,000 bpd and will provide details on the reduction to each customer later, a source said.

    ADNOC's supply cuts will mostly hit Asia although they remain within tolerance limits of 5 percent, as allowed by a contract clause that lets seller or buyer adjust loading volumes based on logistics.

    ADNOC's production hit a record 3.1 million bpd in November, according to a Reuters survey. The producer's flagship crude is light sour Murban, with production of about 1.6 million bpd and an API gravity of about 40 degrees.

    Besides state-controlled ADNOC, France's Total, South Korea's GS Energy and Korea National Oil Corporation (KNOC), and the Japan Oil Development Company (Jodco) are partners in producing onshore crude. Key Murban crude buyers are in Japan, South Korea, New Zealand and Thailand.

    The UAE's main offshore crudes are Upper Zakum and Das. Upper Zakum, owned 28 percent by U.S. oil major ExxonMobil, and 12 percent by Jodco, is a medium grade crude. Das, a blend from the Umm Shaif and Lower Zakum oilfields, is a relatively light crude grade. Beyond ADNOC's 60 percent share, Britain's BP, Total and Jodco are partners in producing Das crude.
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    Genscape Cushing inventory

    Genscape Cushing inventory: 68,428,795, +1,129,415 from week ended Dec. 02

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    Expected Jan month-on-month gain in US shale oil output first since Apr 2015: EIA

    US shale oil production should rise overall by 2,000 b/d to 4.542 million b/d in January -- the first month-on-month projected overall increase since April 2015, the US Energy Information Administration said Monday.

    Even so, crude production in two of the bigger domestic oil plays, the Bakken in North Dakota and Montana and the Eagle Ford Shale in south Texas -- should continue to drop overall as rig counts in those plays remain low relative to two years or even one year ago, EIA said in its monthly Drilling Productivity Report.

    Even so, the decreases in those plays, particularly the Eagle Ford, are slowing. There, for example, January production is pegged to fall 23,000 b/d to 980,000 b/d. That is less than the 33,000 b/d drop predicted for December, 35,000 b/d in November, 46,000 b/d for October and 53,000 b/d for September.

    Likewise, the Bakken is forecasted to decrease just 13,000 b/d for next month to 905,000 b/d, below the 14,000 b/d output drop predicted for December, 21,000 b/d for November and 28,000 b/d in October.

    Positive oil output forecasts for the Permian Basin continued for January, the fifth month of predicted increases for that region which is the most active in the US. There, EIA forecasts production to jump by 37,000 b/d next month to 2.126 million b/d.

    US shale production has been decreasing for about 20 months during a two-year industry downturn that has seen severe drilling cutbacks and has affected energy companies along the value chain.

    The number of drilling rigs globally has dropped worldwide, although the impact was most severe in the US where shale output was frenzied in mid-2014. That was when oil prices that were over $100/b began to drop and reached half that figure by year-end.

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    EQT Announces 2017 Operational Forecast

    EQT Corporation today announced the Company’s 2017 capital expenditure (CAPEX) forecast of $1.5 billion, excluding business development and land acquisitions, and including $1.3 billion for well development. Funding will be provided by cash generated from operations, and cash-on-hand.

    EQT forecasts 2017 production sales volume of 810 – 830 Bcfe, which includes volume growth of 70 Bcfe, the majority of which stems from the previous year’s drilling program. The majority of the volume expected from the 2017 drilling program will be realized in 2018, at which time EQT forecasts production volume growth of 15 – 20% per year for several years.

    EQT’s 2017 CAPEX forecast excludes CAPEX for EQT Midstream Partners, LP (NYSE: EQM), a master limited partnership controlled by EQT Corporation and consolidated in EQT’s financial statements. EQM announced its 2017 financial and CAPEX forecast today in a separate news release, which can be found at


    In 2017, the Company plans to drill 119 Marcellus wells with an average lateral length of 7,000 feet – all of which will be on multi-well pads to maximize operational efficiency and well economics. The Marcellus drilling program will focus on the Company’s core Marcellus acreage, with 76 wells in Pennsylvania and 43 wells in West Virginia.


    The Company plans to drill 81 Upper Devonian wells with an average lateral length of 7,300 feet. These wells will be limited to co-development on Marcellus pads in Pennsylvania.


    The Company plans to drill seven deep Utica exploratory wells with an average lateral length of 6,800 feet. EQT owns approximately 490,000 net acres that the Company believes to be prospective for the deep Utica.

    Also announced today by EQT, is a modification to the Company’s midstream agreement with Williams Ohio Valley Midstream, LLC (Williams) related to the dedicated portion of the approximately 62,500 Marcellus acres EQT acquired from Statoil USA Onshore Properties, Inc. earlier this year. Under the new agreement, EQT has committed firm volumes of 50 MMcfe per day initially and growing to 200 MMcfe per day by the fourth year. In addition to the existing right to provide wellhead gathering services, EQM can now provide high pressure pipeline services on the volume in excess of the commitment. EQM is currently coordinating with EQT Production to design a midstream system to support the Marcellus well development plans on this acreage. The investment opportunity for EQM is estimated to be $600 million for full buildout of wellhead gathering and high pressure pipeline services.

    2017 GUIDANCE

    Based on current NYMEX natural gas prices, adjusted operating cash flow attributable to EQT is projected to be approximately $1,200 million for 2017, which includes approximately $200 million from EQT’s interest in EQT GP Holdings, LP (NYSE: EQGP). See the Non-GAAP Disclosures section for important information regarding the non-GAAP financial measures included in this news release, including reasons why EQT is unable to provide projections of its 2017 net cash provided by operating activities and 2017 net income, the most comparable financial measures to adjusted operating cash flow attributable to EQT and EBITDA, respectively, calculated in accordance with GAAP.
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    Enerplus Announces Sale of Non-Operated North Dakota Assets and Increased Drilling Inventory at Fort Berthold

    Enerplus Corporation announces that its wholly-owned subsidiary, Enerplus Resources (USA) Corporation, has entered into a definitive agreement to sell non-operated assets in North Dakota (the “Assets”) for total cash consideration of US$292 million (approximately C$385 million), subject to estimated cash tax of US$12 million and customary closing adjustments. The divestment includes approximately 5,800 net acres primarily located on the Fort Berthold Indian Reservation with an average working interest per drilling spacing unit of 8%. Production from the Assets averaged approximately 5,000 BOE per day (approximately 4,000 BOE per day net of royalties) during the third quarter of 2016.

    The Assets comprise approximately 8% of the Company’s existing net acreage in North Dakota. Upon closing of the divestment, Enerplus will hold an operated position in North Dakota of approximately 65,500 net acres. Production from Enerplus’ operated North Dakota assets averaged 23,700 BOE per day (90% liquids) in the third quarter of 2016.

    “We have established a position as one of the leading operators in the Williston Basin. This divestment of our non-operated, low-working interest acreage is highly accretive and will further improve our focus on our operated core acreage position allowing us to more efficiently allocate capital to the play,” commented Ian C. Dundas, President & CEO. “This transaction also highlights our significant running room in the core of the Williston Basin where our operated acreage has, on average, approximately half the drilled well density of the divested acreage.”

    Mr. Dundas added, “The proceeds from this sale will provide additional financial flexibility and a source of funding for the acceleration of activity at our operated Fort Berthold acreage over the coming years.”

    Evercore and RBC Richardson Barr are acting as financial advisors to Enerplus on this transaction.

    Enerplus expects to provide updated 2017 capital plans and guidance in early 2017.

    Increased Drilling Inventory at Fort Berthold

    As part of Enerplus’ ongoing development optimization at Fort Berthold, the Company continues to progress its evaluation of well density. Based on analysis of Enerplus’ higher density units and data from other operators in the basin, Enerplus believes there is strong technical and economic justification to support a higher recovery factor assumption and higher well density than the Company’s previous development plan.

    Enerplus is now planning for higher density in the Middle Bakken zone, increasing to six wells per drilling spacing unit, compared to four wells previously. At this time, Enerplus has not changed its planning assumptions for well density in the Three Forks’ zones. Overall, this results in an average density of approximately ten wells per drilling spacing unit leading to an estimated 550 gross remaining drilling locations (465 net). This increase in gross operated inventory represents growth of nearly 40% from previous estimates. Enerplus’ 550 gross remaining drilling locations were comprised of 92 proved plus probable undeveloped reserves locations, 155 development pending best estimate contingent resources locations, and 303 unbooked future locations at year-end 2015. Enerplus expects to have drilled 20 gross locations in 2016. The remaining 530 gross locations represent approximately 16 years of drilling inventory under a two rig program.

    In connection with the ongoing down-spacing analysis, Enerplus is continuing to modify its completion design in order to optimise capital efficiencies and individual well recoveries while maximising economic returns and recoverable resources per drilling spacing unit.
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    Canadian Natural Resources Limited Announces the Sale of its Ownership Interest in the Cold Lake Pipeline

    Canadian Natural ResourcesLimited  is pleased to announce that it has reached an agreement to monetize the Company’s non-core ownership interest in the Cold Lake Pipeline, to Inter Pipeline Ltd (“Inter Pipeline”). The transaction consists of the monetization of the Company’s entire 15% ownership interest of Cold Lake Pipeline Ltd. and its 14.7% ownership interest in the Cold Lake Limited Partnership. Upon closing of the transaction the Company will receive gross proceeds of $350 million in cash and 6,417,740 common shares of Inter Pipeline at an ascribed value of $177.5 million for total value of approximately $527.5 million. The transaction is targeted to close in 2016.

    Canadian Natural expects to record an after-tax gain on disposition of approximately $200 million, based upon preliminary value allocations.

    As previously announced, Canadian Natural has reinitiated Phase 1 of the Kirby North Project (“Kirby North”). To transport Kirby North volumes, Canadian Natural has, concurrently with this disposition, secured firm pipeline transportation capacity with Inter Pipeline for the Kirby North production and diluent volumes, with first production targeted for the first quarter of 2020. This will effectively integrate with the existing transportation arrangements for Canadian Natural’s producing Kirby South volumes.

    The Cold Lake Pipeline equity ownership was a non-core asset for Canadian Natural and monetization of the asset brings forward significant value for the Company’s shareholders, not previously recognized, and does not alter the Company’s rights, pricing and access to the Cold Lake Pipeline itself. After completion of the sale, Canadian Natural will retain access to the Cold Lake Pipeline system for portions of the Company’s crude oil volumes.

    Canadian Natural retained BMO Capital Markets to act as financial advisor for the transaction.

    Canadian Natural is a senior oil and natural gas production company, with continuing operations in its core areas located in Western Canada, the U.K. portion of the North Sea and Offshore Africa.
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    Patterson-UTI to buy Seventy Seven Energy for $1.76 bln including debt

    U.S. driller Patterson-UTI Energy Inc said on Monday it would buy its smaller counterpart Seventy Seven Energy Inc in an all-stock deal worth $1.76 billion including debt.

    Seventy Seven shareholders will receive 1.7725 shares of Patterson-UTI for each share held, Patterson-UTI said.

    The deal includes $336 million of Seventy Seven Energy's debt net of cash and warrant proceeds.

    Patterson-UTI said it will issue about 49.6 million common shares for the deal and will pay off Seventy Seven's debt through a combination of cash on hand and its own credit.

    Patterson-UTI will have more than 1.5 million hydraulic fracturing horsepower following the closing of the transaction, it said.

    The company also expects to achieve $50 million in synergies from the deal, which is expected to add to its cash flow.

    Seventy Seven Energy, which provides drilling and hydraulic fracturing, or fracking, services, had cut its debt by $1.1 billion and exited bankruptcy in early August under the control of its creditors.
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    FERC denies rehearing on Veresen’s Jordan Cove LNG export project

     The U.S. Federal Energy Regulatory Commission rejected a rehearing for Veresen Inc.’s multibillion-dollar proposal to build a liquefied natural gas (LNG) export terminal in Oregon.

    The FERC has earlier this year denied a permit to two Veresen units to construct, own and operate the 6 mtpa Jordan Cove LNG plant and an associated 232-mile pipeline.

    Jordan Cove Energy Project and Pacific Connector Gas Pipeline, both units of Veresen, have filed a request for rehearing on the permit in April.

    In its decision to deny the rehearing, the FERC said that the March 11 order “properly denied the application and that it would not reopen the record and consider evidence filed subsequent to the initial decision, as the request for rehearing did not demonstrate the existence of extraordinary circumstances.”

    The FERC reiterated that its denial is without prejudice to the applicants submitting a new application should the companies show a market need for these services in the future.

    “Veresen remains committed to this important energy infrastructure project,” Don Althoff, CEO of Veresen said in a statement.

    “We are very disappointed by FERC’s decision, especially in light of the significant progress that has been made in demonstrating market support for the project and the strong showing of public support for the project. We continue to firmly believe this project will provide significant economic benefit to Oregon, while ensuring responsible environmental stewardship and stakeholder engagement.”

    Veresen said in the statement that the Calgary-based company will review all of its options in light of the FERC denial, including appeal or the submission of a new application with FERC.

    To remind, Veresen recently announced it will continue to advance the LNG export project and associated pipeline with plans to spend about US$30 million next year on the development.
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    Stine Seed gives U.S. soy farmers a rare chance to replant GMO seeds

    Major producers of genetically modified seeds, including Monsanto Co and Bayer AG, have long barred U.S. farmers from saving seeds after harvest to replant - a condition that allows the companies to charge every year for the technology.

    Now, a smaller challenger, Stine Seed, wants to disrupt that practice.

    Next year, family-owned Stine says it will give about 200 farmers in a pilot program the chance to replant genetically modified soybean seeds. The program is expanding after launching this year with about 50 farmers.

    Major genetically modified seed companies have largely stamped out the once-common practice of saving seed in the United States over the past two decades. They have required farmers to sign contacts that bar them from replanting the patented, genetically modified seeds now used to produce most of the nation's soybeans.

    If Stine's program succeeds and expands further, it would represent the renewal of a technique that major seed developers view as a threat to the commercial value of their intellectual property.

    Seeds in Stine's program will include those containing a genetic trait called LibertyLink, which was developed by Bayer and licensed by Stine, and that's created tension between the companies.

    Bayer "does not support saved seed," spokesman Jeff Donald said. He declined to comment specifically on Stine's program.

    Two top Stine executives - Harry and Myron Stine, who are father and son - gave Reuters conflicting accounts of the company's talks with Bayer about the pilot program and its plans to profit from it.

    "Bayer despises that we're doing it," Myron Stine, company president, said in a telephone interview in September. "We are constantly changing things to fit what Bayer wants," he added in an October interview.

    In a later interview at a Stine Seed's office in Iowa, however, founder and Chief Executive Harry Stine said that Bayer merely wanted Stine to ensure that farmers did not replant Libertylink seeds without paying for the technology. Stine crafted a system to ensure it can accurately track when farmers save and replant seeds and ensure they pay Bayer the appropriate fees.

    "They just wanted to make sure you weren't having some farmer just go to a bin (of genetically modified seeds) and plant whatever he wanted," Harry Stine said about Bayer in October. "Other than that, they were fine with the program."

    Genetically modified seeds are sold by independent companies, such as Stine, and by major players, including Monsanto, Bayer and Syngenta AG. Stine and other independent seed sellers often pay to license genetic traits from the larger companies to put into seed.

    Monsanto, the world's largest seed maker, has successfully sued U.S. farmers who saved genetically modified seed after pledging in contracts with the company to use it for only one crop. Other trait developers make U.S. farmers sign similar agreements.

    In Argentina - where farmers are legally allowed to save seed - Monsanto has stopped launching new soybean technologies, following a dispute with exporters and the government over royalties paid for saved seed.

    Monsanto and Syngenta declined to comment on Stine's program.


    Stine plans to limit its seed-saving program to farmers willing to allow the company the option to buy the new genetically modified seed grown by farmers during each harvest.

    To secure seed supplies, Stine has traditionally hired farmers to grow the seeds and agreed to buy all the seeds those farmers produce. In the pilot program, however, Stine will reserve the right to reject seeds because of low customer demand or other reasons, eliminating waste and saving Stine money.

    As an incentive for farmers in the pilot program, Stine is offering discounts on the original seed they use - charging them as little as $26 per acre instead of the going rate of about $40 per acre for seeds containing Bayer's LibertyLink trait.

    Myron Stine said Bayer had received calls from Stine competitors, who also pay to license the Bayer trait, complaining that Stine was offering farmers a "super lucrative price" on seeds containing LibertyLink, which protects soybean crops against a weed killer.

    "It just ticks them off," Myron Stine said of Stine's competitors.

    Asked about Myron's comments, Donald, the Bayer spokesman, said the company "wouldn't want to discuss our internal conversations with licensees."

    Myron Stine said Stine Seed would initially lose money on the pilot program, partly because it must pay licensing fees to Bayer for LibertyLink.

    But Stine could turn a profit later, he said, if it starts licensing new traits from a closely affiliated company, MS Technologies, possibly for lower prices than Bayer charges. Seeds containing the new MS Technologies traits are not yet on the market.

    Harry Stine serves on the board of directors for MS Technologies and has a financial interest in the company, said Joseph Saluri, an MS Technologies director and general counsel for Stine Seed. He said pricing for the MS Technologies traits had not been determined.


    After Myron Stine spoke to Reuters several times, company attorney Brenda Stine-Reiher wrote to a reporter in October saying Myron had provided "misinformation." She singled out his comments on potentially lower pricing - what she called "priority pricing" - for Stine Seed on traits from MS Technologies.

    "There is no such pricing in place yet," wrote Stine-Reiher, who is Myron's sister.

    The company then set up an interview with Harry Stine. In contrast to his son, Harry Stine said he intended to profit immediately from the pilot program. He said MS Technologies' fees were not set but would likely be similar to Bayer's.

    If Stine eventually turns to MS Technologies for traits, Bayer will still be linked, at least to some degree, to its seed-saving program, Harry and Myron Stine said. One new trait Stine is considering for the program is a joint project of Bayer and MS Technologies.

    Bayer declined to comment on that trait.

    MS Technologies co-developed a second soybean trait with Dow AgroSciences. Stine also wants to offer that trait in program, Harry and Myron Stine said.

    The traits will allow soybeans to resist more herbicides than LibertyLink.

    Dow did not respond to questions about Stine's program but said in a statement it "will not support 'saved seed.'"
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    Precious Metals

    India's top gold import bank suspends bullion dealers accounts

    Axis Bank Ltd, India's top importer of gold, has suspended the bank accounts of some bullion dealers and jewellers after two of its executives at a branch were arrested over alleged money laundering.

    The move is likely to curtail imports by the world's second-biggest gold consumer this month and could weigh on global prices already near their lowest level in ten months.

    "We have temporarily suspended transactions in a few current accounts as a part of a larger enhanced due diligence exercise being conducted on transactions post-demonetisation," the bank said in an e-mailed reply to questions from Reuters.

    Prime Minister Narendra Modi scrapped 500-rupee and 1,000-rupee banknotes on Nov. 8 in a bid to flush out cash earned through illegal activities, or earned legally but never disclosed to tax authorities.

    There have also been reports of people rushing to buy gold by paying as much as a 50 percent premium above official prices using their unaccounted money to skirt the note ban.

    Axis did not directly comment on the arrests. Last week the Enforcement Directorate, a government agency that fights financial crime, said it had arrested two Axis bank employees for allegedly helping launderers to buy gold with the help of scrapped notes.

    The bank said the suspended gold dealers' accounts will be restored over the next few days after an "enhanced due diligence process".

    A Chennai-based bullion dealer, who declined to be named, said the bank had frozen his account without giving a reason. Half a dozen other dealers in Kolkata, Mumbai, Ahmadabad and New Delhi also confirmed the freezing of their Axis accounts.

    The move has brought bullion trading to a standstill, with jewellers fearing attention from government agencies if they make large purchases, said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city of Kolkata.

    It is estimated that one-third of India's annual demand of around 800 tonnes is paid for in "black money" - the local term for untaxed funds held in cash by citizens that do not appear in any official accounts.

    Jewellers and bullion dealers are deferring purchases and gold imports in December could fall to 30 tonnes, down from 107 tones in the same month a year ago, said a Mumbai-based dealer.

    In November the country's gold imports jumped to around 100 tonnes, the highest in 11 months.

    Axis, India's third-biggest private sector bank, said last week it had suspended 19 employees over alleged breaches at one of its branches in implementing a government-ordered exchange of high-value bank notes.
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    Steel, Iron Ore and Coal

    Teck Resources sets Q1 coking coal price at $285/t, highest since 2011

    Teck Resources said on December 12 it has agreed with major customers on a benchmark price of $285/t for the first quarter of 2017 for its top quality steelmaking coal, the highest quarterly price in more than five years, Reuters reported.

    The price is 43% up on the fourth-quarter industry benchmark of $200/t, and helped to boost the Canada-based company's share price by nearly 3% to close at C$22.96 ($17.51) on the Toronto Stock Exchange.

    Earlier on the same day, Japanese steel mill Nippon Steel & Sumitomo Metal Corp and mining company Glencore Plc settled the January-March premium hard coking coal price at $285/t, Platts reported quoting unnamed parties familiar with the negotiations.

    If other international steelmakers follow this price, it would be the highest industry quarterly benchmark since the fourth quarter of 2011.

    Prices for steelmaking or metallurgical coal have quadrupled this year on the back of Chinese government curbs on domestic production and supply disruptions, reviving the fortunes of producers like Teck, which just a year ago was struggling to reduce debt and lost its investment-grade rating amid weak commodity prices.

    Teck also said it has ratified new five-year collective agreements with unionized employees at its Fording River and Elkview coal mines in British Columbia.

    Teck's first-quarter realized prices will reflect a combination of sales at the quarterly contract price and spot sales, the company said in a statement.

    As a result of the higher prices, Teck should be able to reduce its net debt to C$6.2 billion by the end of the first quarter of 2017 from C$7.6 billion at the end of September, said RBC Capital Markets analyst Fraser Phillips.

    The de-leveraging of Teck's balance sheet "will continue to drive outperformance of Teck's share price over the next three to six months," Phillips said in a note to clients.

    Teck's shares have surged nearly 500% this year, on the back of the coal price rally and helped by stronger zinc and copper prices as well.

    The Fording River agreement would expire on April 30, 2021 and the Elkview contract on October 31, 2020, Teck said. As a result of the new collective agreements, Teck expects to incur a one-time, after-tax charge to profit in the fourth quarter of approximately C$35 million.

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    Daqin Nov coal transport increases for the 5th straight mth

    Daqin line, China's leading coal-dedicated rail line connecting Datong City of coal-rich Shanxi province with northern Qinhuangdao port, transported 37.59 million tonnes of coal in November, said a statement released by Daqin Railway Co., Ltd on December 9.

    That was 28.56% higher than the year-ago level and 3.19% more than the month before – the second year-on-year and fifth month-on-month gain – thanks to increased hauling efforts by railway authorities to meet strong demand from utilities in the heating season.

    In November, Daqin's daily coal transport averaged 1.25 million tonnes, up 15.74% from the previous month.

    Daqin rail line realized coal transport of 312.84 million tonnes in the first eleven months, falling 14.07% year on year.

    To boost coal stocks and curb the rapidly rising coal price, the Taiyuan Railway Administration was asked to increase coal transport from Shanxi to Qinhuangdao port during November and December.

    As of November 30, coal stockpiles at Qinhuangdao port stood at 6.52 million tonnes, rising 11.37% from the year-ago level and up 51.69% from a month prior.
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    Hunan 2016 cuts 20.73 Mtpa of coal capacity

    Hunan province in central China would eliminate coal production capacity of 20.73 million tonnes per annum (Mtpa) by closing 318 mines this year, according to statements announced by the provincial Coal Administration on its website.

    Since August, the administration has published three batches of coal mines that would be shut, with the last batch dated December 7.

    The administration, however, didn't say if these mines have all been closed or not. Phone calls made by China Coal Resource ( to the administration were not answered.

    Usually, coal mines earmarked for closure would be ordered to stop production and enter the closure process.

    The third batch listed 29 coal mines with combined capacity of 1.9 Mtpa, while the first and second batch had 257 and 32 mines with capacity at 16.10 Mtpa and 2.73 Mtpa, respectively.

    The Hunan provincial government said earlier this year it planned to phase out 15 Mtpa of outdated coal capacity during the 13th Five-Year Plan period (2016-20), and cap the number of coal mines at 200 or so and annual output around 25 million tonnes.

    Hunan plans to produce 25 million, 30 million and 20 million tonnes of coal in 2020, 2025 and 2030, respectively.

    The province will also strive to increase recovery rate of thick, medium-thick and thin coal seams to 80%, 85% and 90%, separately.
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    Asia iron ore hits new 2016 high at $83.95/dmt CFR Qungdao; bullish steel spurs buying

    The seaborne iron ore market hit a new 2016 high Monday as a spike in billet price buoyed buying interest and propelled a spate of spot deals at higher levels.

    S&P Global Platts assessed the 62%-Fe Iron Ore Index at a year-to-date high of $83.95/dry mt CFR North China Monday, up $2.80/dmt from Friday.

    IODEX saw its previous high for the year on December 7 at $82.30/dmt CFR Qingdao.

    The front-month January IODEX swap was up $2.2/dmt on the day at $79.40/dmt.

    Continued strength in the steel market has caused iron ore prices to rise as mills pursued productivity to maximize margins, sources said.

    "Steel prices are up, and at the moment margins are still there, so production is still ongoing," an eastern China trader said.

    However, the spot price of square billet in Tangshan, a closely watched barometer, spiked Yuan 190/mt from Friday to Yuan 3,110/mt ($450.16/mt) ex-stock Tangshan Monday.

    "The Chinese mills are now chasing after cargoes," said a Beijing trader, adding that stronger steel prices are sparking buying interest from Chinese buyers.

    A strong steel performance also pushed up derivatives.

    The most liquid January rebar contract on the Shanghai Futures Exchange surged Monday, last trading at Yuan 3,444/mt ($498.51/mt), up Yuan 99/mt from Friday, and settling at Yuan 3,436/mt, up Yuan 111/mt.

    On the Dalian Commodity Exchange, the most liquid May iron ore contract last traded at Yuan 635.5/dmt ($91.99/dmt), up Yuan 17.50/dmt from Friday, and settled at Yuan 634.50/dmt, up Yuan 20/dmt over the same period.

    Mills were also actively considering steel and metallurgical coal and coke prices to determine the most cost effective blast furnace mix, sources said.

    "Mills margins up, medium and high grade fines will remain popular," an eastern China mill source said.
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    New WA iron mine to start production in H1 2017

    A new iron ore facility in Western Australia expects to start mining in early 2017.

    Final approval for the Iron Hill mine, being developed by Mount Gibson Iron Limited, came from the Western Australia environment minister.

    The state’s environmental protection agency (EPA) gave the project the green light in July. The new mine, located just 3 km from the company’s existing Extension Hill operation, is expected to offset an imminent output drop as mining at Extension Hill will cease by the end of this year. It will use the existing mine's facilities and logistics arrangements.

    Iron Hill has 8.8 million tonnes of indicated and inferred mineral resources graded at 58.3% iron content.

    “We welcome this important environmental approval of the Iron Hill mine, which takes us one step closer to commencing mine development in early 2017,” Mount Gibson Iron CEO Jim Beyer said in a statement published on Friday.

    The announcement bumped Mount Gibson Iron's stock price by 4.6% on Friday, to 34 cents a share.

    The company expects to sell 2.8 to 3.1 million tonnes of product in the 2016-17 financial year, with all-in cash costs in line with those of Extension Hill.
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    China's November steel output grows at fastest in over two years: stats bureau

    China's steel mills boosted their monthly output at the fastest pace in more than two years in November, data showed, as robust infrastructure demand spurred producers to expand production for a ninth straight month even as coking coal prices bite.

    Output rose 5 percent to 66.29 million tonnes year-on-year, the fastest growth since June 2014, according to data from the National Bureau of Statistics on Tuesday.

    Although soaring costs of key raw materials, like coking coal and iron ore, have eroded margins, steel mills were still making a profit of between 200-600 yuan ($28.98-86.95) per ton, said Wang Yilin, senior steel analyst at Sinosteel Futures.

    "Steel mills want to increase production because of the big profit margins," she said. "The steel market has also been driven by strong infrastructure demand, as Beijing has approved more projects this year."

    The spike last month showed mills in the world's top producer were chasing rising prices, said Richard Lu, analyst at CRU consultancy in Beijing. Shanghai rebar futures have surged 95 percent this year.

    Strong demand and rising prices of raw materials have enabled steel mills to increase their prices and pass on the cost to end-users, said Lu.

    "Because of the strong market sentiment, physical traders are buying steel in hopes of making money with the price continuing to increase," he added.

    Compared with October, output dropped 3.24 percent to its lowest level since February ahead of a seasonally slowest period for steel sales from the infrastructure and construction sectors during the colder winter months.

    Analysts expect output to decline in December as mills undertake annual scheduled maintenance.

    Total output for the first 11 months of 2016 edged up 1.1 percent to 738.94 million tonnes.

    In 2015, China's output dropped for the first time since 1981 as weak metal prices and a government clampdown on excess capacity forced plants to shut or suspend operations.

    This year, most of the capacity that has been closed for good was already shuttered.

    "Some of them have been idle for years, so it won't largely impact steel output," said Lu.

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