Mark Latham Commodity Equity Intelligence Service

Wednesday 16th March 2016
Background Stories on

News and Views:

Attached Files


    Lawmakers approve China's five-year plan against economic headwinds

    Chinese lawmakers on March 16 approved the country's economic and social development blueprint for the 2016-2020 period, which sets targeted average annual economic growth at above 6.5% in the next five years.

    A total of 2,778 lawmakers, or 97.27 %, voted for the five-year plan at the closing meeting of the annual session of the National People's Congress (NPC).

    China has set 2020 as the target year to realize the "centenary goal" of building a moderately prosperous society in all respects, pledging efforts to double GDP and per capita personal income from the 2010 level before the Communist Party of China's 100th anniversary of founding in 2021.

    To this end, the five-year plan aims to keep medium-high growth in the next five years. By 2020, the size of China's economy is expected to exceed 90 trillion yuan ($13.8 trillion), compared with 67.7 trillion yuan in 2015, according to the plan.

    Attached Files
    Back to Top

    Senator's plea drags Brazil ethanol industry into graft scandal

    The testimony released on Tuesday of a prominent Brazilian senator is leading prosecutors in the widening corruption scandal beyond the graft-ridden oil and electric sector that have been their main focus and into the ethanol industry.

    In a 250-page plea bargain of ruling Workers' Party Senator Delcidio do Amaral, who was arrested in November for obstructing a federal investigation, the lawmaker recounts how funds allegedly skimmed from state oil company Petrobras were channeled into a massive ethanol start-up.

    The testimony says former chief executive of Petrobras, Philippe Reichstul helped direct funds from Petrobras operations into the ethanol start-up group Brenco, which was created in 2006 and had investors that included Vinod Khosla, Steve Case and Tarpon Investments.

    Reichstul denied Amaral's accusations, and told Reuters the senator's testimony was "absurd" and showed little understanding of project financing during his time at Petrobras and in the formation of seed capital for ethanol group Brenco.

    Brenco, facing financial difficulties, was bought up in 2010 by the cane industry division of Odebrecht, Latin Americas' largest engineering conglomerate that is at the center of the massive graft scandal involving bribes and political kickbacks funded from overpriced contracts with Petroleo Brasileiro SA .

    In addition to Brenco, Amaral's extensive testimony also mentions the powerful Bumlai family 111 times.

    Jose Carlos Bumlai, the patriarch of the family and close confidant to former President Luiz Inacio Lula da Silva, controls the Sao Fernando ethanol mill now in bankruptcy.

    Federal police arrested Bumlai
    in November over his alleged involvement in the far-reaching money laundering and graft ring.

    Attached Files
    Back to Top

    China oil giant CNPC, COFCO ally to boost sales

    China National Petroleum Corp and China National Cereals, Oils and Foodstuffs Corp have signed a strategic partnership agreement to strengthen cooperation in their sales network.

    Under the deal, CNPC and COFCO will implement comprehensive cooperation in products, marketing, membership communication and public welfare as well as in new business based on a principle of resource sharing for mutual benefits.

    Wang Yilin, chairman of the country's biggest oil and gas producer CNPC, said the cooperation could maximize the advantages of both sides while accelerating business transformation and upgrading.

    This is an effective move against the challenge of low oil prices, he said.

    COFCO Chairman Zhao Shuanglian said that the cooperation will not only improve the customer experience by better meeting their demand, but also expand the marketing network of COFCO with the tens of thousands of gas stations nationwide owned by the oil giant.

    To better integrate the marketing channels, share customer resources and improve consumer experiences, the two sides will also jointly promote online-to-offline cooperation, said the agreement.

    The deal is part of efforts to reform State-owned enterprises to ensure stable growth in a slowing economy.

    Xiao Yaqing, head of the State-owned Assets Supervision and Administration Commission, said last week that China's SOEs should directly face the pressures of the slowing economy.

    The reform for SOEs will mainly be pushed forward through mergers and acquisitions, instead of bankruptcies, and protecting the interests of employees will be a major task in the next step of reform, he said.

    The oil giant and COFCO had already launched pilot projects in Beijing, Tianjin, and Hebei, Shandong and Henan provinces.
    Back to Top

    Oil and Gas

    Oil producer hedging “already rampant” after price surge

    The recent surge in crude prices may have already delayed the day when the oil market can stage a major, sustained recovery and buoy Houston’s economy again.

    In a new report Tuesday, Morgan Stanley said oil hedging among petroleum producers is “already rampant” amid the oil rally, which came just a few weeks after oil prices fell below U.S. shale break-even costs and pushed the nation’s oil production toward a steep drop.

    Short positions among oil producers, which are helping them lock in higher prices for the oil they produce, have recently reached a new high since January, data from the U.S. Commodity Futures Trading Commission shows. That could fix some balance sheet problems, give some drillers access to capital markets and prompt others to finally pump crude from wells they’ve drilled but left offline, Morgan Stanley said.

    “Higher crude prices and hedging can ultimately slow the U.S. production decline,” Morgan Stanley said. “Hedging could keep supply more stable and less responsive to prices, just as excitement about declines was building.”

    Some oil companies, faced with high debt burdens and stricter banks, have been forced to lock in prices for the oil they produce. But other healthy, mid-sized and large drillers in the Permian Basin — the last U.S. shale play to stall out — have also secured positions.

    And some could turn on drilled-but-uncompleted wells. At least one major U.S. oil producer has said it could turn on its backlogged wells at the $40 to $45 per barrel range, close to current levels for future contracts that go months out, “which could support rapid rigless production.”

    Estimates vary widely on how big that production surge could be. Goldman Sachs says the dormant wells could produce 620,000 barrels a day for six months if they were all brought into production at the same time. But others say the number of wells in inventory have been vastly over-counted, with analysts including in their calculations a naturally occurring tail of wells that are drilled but left dormant because of technical problems. Those wells, analysts say, will likely never be turned on.

    Either way, this recent oil-price rally resembles the one in the second quarter of 2015 that sent prices up to levels where it was profitable again to order drilling equipment and pump out more crude. That rally didn’t last long, but it was enough to keep U.S. producers going months longer. Oil prices over the past four weeks have been bolstered by an improved economic outlook, a weakening dollar and other more transitory factors like pipeline outages in the Middle East.

    But the world still gets more oil than it needs, and global energy markets won’t get back into a supply-demand balance until U.S. crude output falls enough to stem the oversupply.

    “Such false rallies can actually be harmful for the recovery,” Morgan Stanley said. “Hedging 2017 at these elevated prices could help companies lock in returns, and/or support higher rig counts than (the) recent flat price would have suggested.”

    Attached Files
    Back to Top

    Oil Leaks and Disruptions Doing the Job That Producers Won't

    Pipeline leaks and shipping disruptions are doing more to reduce the global oil glut than producers who can’t seem to agree on whether to cap output.

    Outages from Iraq and Nigeria have disrupted more than 800,000 barrels a day of supply and tightened the Brent market, according to Citigroup Inc. That’s coincided with a 20 percent jump in Brent prices toward $40 a barrel since a proposed production cap from Saudi Arabia and Russia captivated the market and helped turn sentiment bullish. No deal has been struck and Iran has spurned the idea as it seeks to maximize output.

    “Actual disruptions and cuts we’re seeing in the background are largely going unnoticed,” Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney, said by phone. “U.S. supply is declining and we’re seeing other little disruptions occur here and there. Those types of things are slowly chipping away at the surplus.”

    Brent oil has gained about 40 percent since slumping to a 12-year low in January. The International Energy Agency predicts prices may have bottomed as shrinking supplies outside the Organization of Petroleum Exporting Countries and disruptions inside the group erode the global glut. JBC Energy Asia estimates the market, facing a surplus of about 2 million barrels a day in the first three months of the year, will start to rebalance during the third quarter.

    Shrinking Output

    Saudi Arabia, Russia, Qatar and Venezuela agreed they would freeze output at January levels if other producers followed suit to tackle a global oversupply. While Nigeria hoped producers would meet this month, talks are now most likely to occur in April, said Gulf OPEC delegates, who asked not to be identified because the matter isn’t public.

    The pipeline disruptions in Iraq and Nigeria are temporary and production is expected to come back online, returning more supply to the market.

    Damage to a pipeline in Iraq affected about 630,000 barrels a day of supply, according to a March 14 note from Citigroup. Disruptions continue, even after its repair. Exports from Kirkuk to the Turkish port of Ceyhan halted on oil ministry orders, hours after pumping resumed following a prolonged shutdown, the Al-Mada newspaper reported, citing an unidentified official at North Oil Co.

    Nigerian daily exports next month are scheduled to be the lowest since Nov. 2013. Loading at the Forcados facility was halted after a leak was discovered Feb. 14, according to the operator Royal Dutch Shell Plc. While the company stopped short of citing sabotage, it said damage was “consistent with the application of external force.” The shutdown cut oil production by 300,000 barrels a day and repairs will take as long as eight weeks, according to Minister of State for Petroleum Emmanuel Ibe Kachikwu.

    Attached Files
    Back to Top

    New Guard Rises in Saudi Arabia as Oil Crisis Forces Rethink

    After a year of plunging oil prices, all eyes were on Ibrahim Al-Assaf, Saudi Arabia’s finance minister for two decades, to deliver a budget that could restore confidence in the kingdom’s finances.

    Yet it was Adel Fakeih, economy minister for just eight months, who strode onto a shiny green television set to announce spending cuts and subsidy reductions. Another familiar face missing that day was oil minister Ali Al-Naimi, whose words continue to move global crude markets as they have since 1995. Changes to domestic energy prices were explained by Khalid Al-Falih, chairman of Saudi Arabian Oil Co. and health minister.

    The lineup at the end of December was one of the first signs of a shift in power to officials seen closely aligned with King Salman’s influential son, Deputy Crown Prince Mohammed bin Salman, as Saudi rulers confront a harsh new era of lower crude prices. With many of the new policy makers holding private-sector resumes, their mission is to overhaul one of the world’s most generous welfare systems through measures that were unthinkable a decade ago.

    The world’s largest oil exporter can no longer rely on “the old way of doing things,” said Fahad Nazer, who worked at the Saudi embassy in Washington and is now a political analyst at JTG Inc. “The economic and demographic challenges to the kingdom are too great, and they need to be resolved and confronted and addressed forcefully and quickly.”

    For a country that “has very effectively avoided any genuine structural reform at an essential level for forever” turning around its fortunes will be very tough, said Crispin Hawes, London-based managing director at Teneo Intelligence. “The basic structure of the Saudi economy is what it was 30 years ago.”

    Net foreign assets fell by $115 billion last year as the government plugged a $98 billion budget deficit by issuing bonds and drawing on reserves. After decades of talk of diversification, more than 70 percent of government revenue came from oil in 2015 and the state still employs two-thirds of Saudi workers. Foreigners account for nearly 80 percent of the private-sector payroll.

    Leading the attempted revamp will be the economic council headed by 30-year-old Prince Mohammed and the economy ministry, which under Fakeih has moved from being a peripheral body that churned out repetitive five-year plans to the center of policy deliberations.

    Its officials reassure the international bankers flying to Riyadh alarmed by dire headlines of economic implosion, explaining how the still-vague National Transformation Program will overhaul the Saudi economy and government by 2020. Fakeih relies heavily on foreign consultants, earning for his department the moniker “Ministry of McKinsey.”
    Back to Top

    Novatek, China’s Silk Road Fund finalize Yamal LNG stake sale

    Russia’s Novatek said Tuesday it has completed the sale of a 9.9% equity stake in the $27 billion Yamal LNG project to China’s Silk Road Fund. The deal is worth 1.08 billion euros ($1.2 billion).

    Following the deal completion, Novatek owns a 50.1% stake in the giant LNG project, while Total and CNPC have 20% each.

    Earlier in December 2015, as part of the transaction, Novatek received a 15-year loan worth about 730 million euros from SRF for the financing of the Artic LNG project.

    Yamal LNG project includes the construction of a liquefaction plant with annual capacity of 16.5 million tons per annum based on the feedstock resources of the South-Tambeyskoye field.

    The production from the LNG project is scheduled to start in 2017.
    Back to Top

    Galp project breakeven price below $30 a barrel: CEO

    Portuguese oil company Galp Energia has a project breakeven price below $30 a barrel, making it one of the lowest cost producers in the industry, its chief executive said on Tuesday.

    "Our projects breakeven price is below $30 a barrel and we have room to improve," said Carlos Nuno Gomes da Silva at Galp's capital markets day in London.
    Back to Top

    Gazprom says EU looking into possible gas supply abuse in Bulgaria

    The European Commission is looking into allegations that Gazprom abused its dominant position in the Bulgarian wholesale gas market, the Russian gas producer said in a prospectus for a bond issue.

    The Bulgarian case increases the pressure on the Kremlin's energy champion within the European Union, where it has already come under fire in eight countries for allegedly abusing its dominant position and overcharging customers.

    "The European Commission sent to Gazprom and Gazprom Germania an official request for information in connection with an alleged violation of EU antitrust legislation related to natural gas supplies to Bulgaria," Gazprom said.

    "We have always supported competition in the gas market and have sought to comply with all international, European and national laws and regulations in countries where we operate," it said in its March 11 prospectus for a eurobond.

    Gazprom supplies roughly a third of the EU's gas and it has been accused in an ongoing EU case of abusing its dominant position and overcharging customers by up to 40 percent in Poland, Hungary and six other countries.

    An EU source said the Commission was looking separately into the alleged interruption of gas deliveries from Gazprom to Bulgaria's Overgas.

    In January, Bulgaria's state energy regulator launched emergency checks into Overgas after Gazprom suddenly halted supplies to the private company on Jan. 1.

    Overgas, which is 50 percent controlled by Gazprom and its export unit, supplies about 10 percent of Bulgaria's gas.

    Gazprom and its exporting arm, Gazprom Export, have agreed to exit Overgas by the end of April and an Overgas spokeswoman has said problems around deliveries at the start of the year were probably linked to the pending shareholder changes.

    "The European Commission is closely following the competitive conditions as regards the Bulgarian gas market," the Commission spokesman, Ricardo Cardoso, told Reuters.

    Attached Files
    Back to Top

    Pertamina selling uncommitted LNG cargoes

    Indonesia’s Pertamina is offering three to four uncommitted LNG cargoes from its Bontang facility, according to Sampe L. Purba SKK Migas vice president of gas commercialisation.

    Purba did add that in case of interest from the domestic buyers, priority will be given to them for domestic use, Reuters reports.

    He went on to say that these are Indonesia’s only uncommitted cargoes for 2016 when the country is expected to consume 60 LNG cargoes.

    According to Purba, around 80 percent of the volumes will be used in power generation.

    In December last year, Salis S. Aprilian, President Director and CEO of Badak NGL, said that the Bontang plant is expected to produce 147 standard cargoes of LNG in 2016.

    Badak NGL is Pertamina’s unit that operates the 22.5 mtpa LNG plant located in Bontang, East Kalimantan.
    Back to Top

    Rosneft attracts a consortium of strategic investors to participate in the Taas-Yuryakh Neftegasodobycha Project

    Rosneft (acting by the wholly owned subsidiary RN-Razvedka i Dobycha), Oil India, Indian Oil and Bharat Petroresources signed a legally binding share sale agreement relating to 29.9% participatory share in Taas-Yuryakh Neftegasodobycha. The document was signed by Rosneft Chairman of the Management Board Igor Sechin, Oil India Limited Chairman of the Board of Directors Upendra Singh, Indian Oil Corporation Chairman of the Board of Directors Balasubramanian Ashok and Bharat Petroresources Limited Managing Director Raji Kumar in the presence of the Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan.

    The document provides for the entry of the Indian companies' consortium into the joint venture (JV) established by Rosneft and BP on the basis of Taas-Yuryakh Neftegasodobycha. Price parameters of the transaction with Indian companies are similar to the terms of the agreement with BP signed at the St-Petersburg Economic Forum in June 2015. Rosneft will retain a majority stake in the JV. The transaction will be closed after set of condition precedents are accomplished and Rosneft's Board of Directors approval is obtained.

    Attracting strategic investors will give additional momentum to the development of Srednebotuobinskoye field, one of the largest oil and gas condensate fields in East Siberia, currently producing about 20 thousand barrels of oil per day. The JV is planning to create the infrastructure for further exploration and development of the reserves in the region.

    Commenting on the agreement signed, Igor Sechin said, 'The joint venture with our Indian and British partners allows to make the most of the technological, resource and commercial potential of all of the JV's participants. Joined efforts of Rosneft, BP, Oil India, Indian Oil and Bharat Petroresources allow a significant acceleration of the Upstream projects' implementation by virtue of increasing JV financial potential as well as open new prospects for marketing the East Siberian hydrocarbons'.

    Following the document signing, the Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan said: 'Russia is a longstanding and time-tested partner of India. I am happy, that India and Russia have high levels of understanding and cooperation in almost all areas of the bilateral relationship. We are committed to work together to further strengthen the India-Russia relations in the hydrocarbon sector'.

    Attached Files
    Back to Top

    Russia's Gazprom warns of Southeast Europe gas default

    Russia's Gazprom has said certain countries in southeast Europe may be at risk of defaulting on their payments for gas supplies.

    In an upcoming Eurobond prospectus, Gazprom says Bulgaria, Greece, Macedonia and Serbia could all miss payments for gas supplies given the current state of their credit rating, Russian daily Vedomosti reported Tuesday.

    "Most of Gazprom's European customers have high credit ratings, but there are some countries in southern Europe that could defer payments or not pay at all," Vedomosti cited the document as saying.

    A similar prospectus for a 2013 Gazprom Eurobond prospectus did not mention a similar risk.

    The four countries mentioned in the prospectus -- which have all suffered recent credit rating downgrades -- accounted for a total of 6.83 Bcm of Russian gas supply in 2015, up from 5.95 Bcm the year before.

    While the markets are only small -- representing 4.3% of Gazprom's total exports to Europe and Turkey of 158.56 Bcm in 2015 -- they are of strategic importance to Gazprom, especially Bulgaria and Greece.

    Gazprom said last month it wanted to build a sub-Black Sea pipeline to Greece and Italy through unnamed third countries, one of which would have to be Bulgaria.

    Russia and Bulgaria, whose relations in the energy sector have been strained for a number of years, also now seem to be rekindling their relationship, with Russia looking seriously at helping develop a Balkan gas hub in Bulgaria.

    Russia has also traditionally been a close ally of Serbia, and Gazprom's oil arm is the majority shareholder in Serbian oil and gas company NIS.

    Analysts played down the risk to Gazprom, saying any default would not have a material impact on its business.

    "[Gazprom] is unlikely to reflect any sizeable provisions in its financials with respect to this," analysts at VTB Capital said in a note Tuesday.
    Back to Top

    Tullow wildcat looks good.

    FTSE 250 oil and gas exploration group Tullow Oilsaid its Cheptuket-1 well in Northern Kenya has encountered good oil shows.

    Cheptuket-1, which is in Block 12A, is the first well to test the Kerio Valley Basin and was drilled to a final depth of 3,083 metres.

    The objective of the well was to establish a working petroleum system and test a structural closure in the south-western part of the basin.

    Tullow said the strong oil shows encountered in Cheptuket-1 indicate the presence of an active petroleum system with significant oil generation. Post-well analysis is in progress ahead of defining the future exploration programme in the basin.

    The company said further exploration activities are now being evaluated following the encouraging Cheptuket-1 and successful Etom-2 results.

    Exploration director Angus McCoss said: "This is the most significant well result to date in Kenya outside the South Lokichar basin. Encountering strong oil shows across such a large interval is very encouraging indeed.

    “I am delighted by this wildcat well result and the team are already working on our follow-up exploration plans for the Kerio Valley Basin."

    Tullow operates Block 12A with 40% equity and is partnered by Delonex Energy with 40% and Africa Oil Corporation with 20%.

    Back to Top

    Obama administration reverses course on Atlantic oil drilling

    The Obama administration reversed course on Tuesday on a proposal to open the southeastern Atlantic coast to drilling as an oil price slump and strong opposition in coastal communities raised doubts about the plan.

    Besides market and environmental concerns, the U.S. Interior Department said it also based its decision on conflicts with competing commercial and military ocean uses.

    The decision reverses a January 2015 proposal for new leases in the Atlantic as part of the department's five-year plan to set new boundaries for oil development in federal waters through 2022.

    “We heard from many corners that now is not the time to offer oil and gas leasing off the Atlantic coast,” Interior Secretary Sally Jewell said.

    “When you factor in conflicts with national defense, economic activities such as fishing and tourism, and opposition from many local communities, it simply doesn’t make sense to move forward with any lease sales in the coming five years.”

    The proposal would have opened up drilling sites more than 50 miles off Virginia, North and South Carolina, and Georgia to oil drilling by 2021.

    Coastal communities in these states protested the administration's plan, fearing the possibility of an oil spill like the BP Horizon accident in 2010 on the U.S. Gulf Coast, and its effects on tourism and their economies.

    "With this decision coastal communities have won a ‘David vs. Goliath’ fight against the richest companies on the planet, and that is a cause for tremendous optimism for the well-being of future generations,” said Jacqueline Savitz, environmental group Oceana's vice president for U.S. oceans.

    Virginia officials had welcomed the initial plan to allow offshore drilling, saying it would bring economic benefits. On Tuesday, Senator Tim Kaine, a Democrat from Virginia, said he was surprised that the Department of Defense had raised concerns about naval installations, one of which is off the state's coast.

    "The DOD has been relatively quiet during this public debate and has never shared their objections with me before," he said.

    The American Petroleum Institute said on Tuesday that the decision to reverse course on Atlantic drilling goes against the will American voters, governors and members of Congress who support more development.

    “The decision appeases extremists who seek to stop oil and natural gas production which would increase the cost of energy for American consumers and close the door for years to creating new jobs, new investments and boosting energy security,” said API President Jack Gerard.

    The Interior Department also announced Tuesday that it would evaluate 13 other potential lease sales in other areas of the country - 10 in the Gulf of Mexico and three off the coast of Alaska.

    "The proposal focuses potential lease sales in areas with the highest resource potential, greatest industry interest, and established infrastructure," Jewell said.

    The Interior Department said that in the Gulf, resource potential and industry interest are high and infrastructure already exists.

    It proposes two annual lease sales that include the Western, Central, and part of the eastern Gulf of Mexico not subject to the current congressional moratorium.

    It also includes a potential sale each in the Chukchi Sea, Beaufort Sea, and Cook Inlet planning areas in Alaska. The department would take comments on other options, including an alternative that includes no new leasing.
    Back to Top

    Oil producers announce meeting on output freeze...without Iran?

    Sources at the Organization of the Petroleum Exporting Countries (OPEC) said a meeting of producers led by Saudi Arabia and Russia to discuss an output freeze will take place on April 17, even without Iran.

    Producers are considering pegging output at January levels, when both Saudi Arabia and Russia were both producing near record levels of over 10 million barrels per day (bpd).

    Iran's production, however, was still low due to sanctions that cut its output to little over 1 million bpd, and Tehran has said that it would only participate once its production hits 4 million bpd from a current 3 million bpd.

    Analysts said that talks about freezing output would do little to rein in a global glut that sees over 1 million barrels of crude produced every day in excess of demand.

    "Any such deal would still not be a game changer. It would really just maintain the excess supply that is now in place," Thomas Pugh of Capital Economics said in a note.

    Prices also received support from expectations of lower U.S. production resulting from financial distress.
    Back to Top

    Linn Energy says bankruptcy may be 'unavoidable'

    Linn Energy, which has been struggling with a heavy debt burden, has engaged financial and legal advisers to analyze strategic alternatives, including refinancing through a private restructuring, the company said in the "risk factors" section of its annual regulatory filing on Tuesday.

    Chapter 11 bankruptcy filing may be "unavoidable".

    The company, which exercised its 30-day grace period for paying a total interest of about $60 million that was due on Tuesday, said it was evaluating strategic options to shore up its balance sheet.

    "The uncertainty associated with Linn's ability to meet its obligations as they become due raises substantial doubt about the company's ability to continue as a going concern," Linn Energy said in a statement on Tuesday.

    The company, which had previously suspended distributions in October, said in February it exhausted its credit facility by drawing down the remaining $919 million, which took its total borrowings to $3.6 billion.
    Back to Top

    Ascent Resources Sells More of Company to Pay Down Debt

    In what appears (to us) to be a complex financial transaction, Ascent Resources (formerly Aubrey McClendon’s American Energy Partners’ Utica Shale company) is floating 2.2 billion (with a “b”) common units in order to raise $500 million.

    Ascent then plans to use that money to pay off existing notes, or IOUs. What confuses us is that Ascent is an LLC, a Limited Liability Company (i.e. corporation). Common units are the equivalent of shares of stock for an MLP, or Master Limited Partnership–a different form of company often used for midstream companies.

    How can a corporation/LLC issue common units as if it’s an MLP? Perhaps one of our sharp MDN readers can enlighten us? The bottom line in all of the financial mumbo jumbo you’ll read below is this: Ascent is selling more of the company (equity) in return for retiring notes (debt). It is trading equity for debt. That’s the upshot of this latest offering…
    Back to Top

    Alternative Energy

    IEA’s 2015 carbon audit points to growth-emissions ‘decoupling’

    IEA’s 2015 carbon audit points to growth-emissions ‘decoupling’ 

    A new International Energy Agency (IEA) analysis of global energy-related carbon dioxide (CO2) emissions points to a “decoupling” of greenhouse-gas emissions from economic growth, with emissions having remained flat in 2015, notwithstanding global economic growth during the year of over 3%. Global CO2 emissions were recorded at 32.1-billion tonnes in 2015, which was more or less in line with emissions recorded in 2013 and 2014. 

    The report follows the 2015 United Nations Climate Change Conference, or COP 21, which was held in Paris, France, and where a global agreement was struck to limit global warming to 1.5 °C compared with preindustrial levels. 

    The agreement is expected to further spur low-carbon energy technologies and improve prospects for the roll-out of energy-efficiency solutions. COP 21 is also expected to result in the introduction of global carbon pricing, either through taxes of market-based instruments, and to make investments in fossil fuel power projects more risky, unless there are associated mechanisms to either capture carbon, or compensate for the emissions. 

    The IEA attributed the 2015 trajectory partly to the rising role of renewable energy, with renewables accounting for around 90% of new electricity generation in 2015. “In the more than 40 years in which the IEA has been providing information on CO2 emissions, there have been only four periods in which emissions stood still or fell compared to the previous year. Three of those – the early 1980s, 1992 and 2009 – were associated with global economic weakness,” the agency said in a statement. 

    It argued, therefore, that the recent stalling in emissions was significant as it came amid global growth of 3.4% in 2014 and 3.1% in 2015, as calculated by the International Monetary Fund. “The two largest emitters, China and the US, both registered a decline in energy-related CO2 in 2015. 

    In China, emissions declined by 1.5%, as coal use dropped for the second year in a row.” Coal generated less than 70% of Chinese electricity, ten percentage points less than had been the case in 2011. Over the same period low-carbon sources jumped from 19% to 28%, with hydro and wind accounting for most of the increase. 

    In the US, emissions declined by 2%, as a large switch from coal to natural gas use in electricity generation took place. However, increasing emissions in most other Asian developing economies and the Middle East, together with a moderate rise in Europe, offset the decline observed in the two major emitters.

    Attached Files
    Back to Top


    Kazakhstan may take back some nuclear assets from JVs

    Kazakhstan, the world's largest uranium producer, may take back some assets from the joint ventures it has set up in the nuclear sector, President Nursultan Nazarbayev said on Tuesday.

    Some joint venture partners of state nuclear firm Kazatomprom "are not meeting their obligations", Nazarbayev said at a meeting with Kazatomprom Chief Executive Askar Zhumagaliyev, the president's office said in a statement.

    "In this regard it is necessary to either ensure that they (partners) meet their obligations or look into reclaiming those assets in the interests of our state," Nazarbayev's office quoted him as saying.

    It provided no details and Kazatomprom could not be reached for comment.

    Kazatomprom has joint ventures with French firm Areva , Canada's Cameco, Japan's Sumitomo Corp and Kansai Electric Power, several Russian firms including Rosatom and a few Chinese companies.

    Kazakhstan produced 23,800 tonnes of uranium last year. Kazatomprom's share of total output was 13,000 while its joint venture partners accounted for the remainder.
    Back to Top

    Base Metals


    There are signs that the commodities rout is bottoming out, but iron ore prices still face downside risk, BHP Billiton's chief executive told CNBC on Wednesday.

    Andrew Mackenzie admitted that the "collapse of OPEC" and sustained slide in oil prices caught the mining giant by surprise, although "there are some signs that may have bottomed", which may stem the spillover on other commodities, he said.

    In December, the Saudi Arabia-led Organization of Petroleum Exporting Countries declined to cut production, even amid a global oil oversupply, leading to further price falls. Subsequent attempts by OPEC and non-OPEC producers to agree a deal on production levels have so far proved fruitless.

    But the mining boss had a less positive outlook on one of BHP's key product.

    "The reality is ... the supply of low-cost iron ore continues to grow at a faster rate than demand is increasing," Mackenzie said on the sidelines of the Australian Financial Review Business Summit in Melbourne.

    "So, of all the products that we produce, it has the greatest risk of price downside, but we still make the most money in it. So, if we can continue to reduce the cost of producing iron ore in Australia, we can win market share, and we can still make appropriate profits."

    Iron ore dump truck going down a roadPisani: Are the iron ore and oil rallies for real?

    Iron ore prices had jumped almost 50 percent since the beginning of the year to around $63 a ton last week, in part on hopes that China would boost economic stimulus.

    But prices have since come off to trade around $52, and Mackenzie attributed the spike to traders covering their short positions.

    In February, the world's biggest diversified miner reported a net loss of $5.67 billion for the first half of the 2016 financial year, its first loss in more than 16 years.

    The company also ditched its progressive dividend policy, which held that it would pay a steady or higher dividend at each half-year result.

    Mackenzie said at the time that slower growth in China and OPEC's moves had resulted in lower prices for BHP's products, which meant it needed a new dividend policy and capital allocation framework in order to manage volatility.

    Trucks at an iron ore mineGoldman: Iron ore rally likely short-lived

    Mackenzie said on Wednesday that he remained positive on China. Despite slowing commodities demand, the country's 1.3 billion-strong population and its growing middle class meant that there was still upside in the longer term for the world's second-largest economy, he said.

    "The good news coming out of China is that they are managing the transition to more of a services-led economy," he said.

    "They are taking advantage of the employment it gives them to restructure some of their heavier industries to make it more competitive, which does mean in the medium-term they are probably going to demand less commodities than people might have thought, but in the longer term they will demand more."

    Attached Files
    Back to Top

    Auto, power firms save millions swapping copper for aluminium

    Manufacturers are abandoning copper for its lighter and cheaper rival aluminium after a decade of technological innovation that is saving some companies hundreds of millions of dollars.

    Japanese auto giant Toyota and Saudi's power company are among those making the switch while Sapa, a supplier of aluminium components, said it has seen a pickup in demand.

    Some sectors including shipbuilding, building construction and electric circuitry will still need copper's high conductivity, flexibility and durability.

    But developments in aluminium wiring that compensate for lower conductivity and less flexibility, new ways to stop corrosion and more efficient conductors, mean there is more scope to replace copper in power grid cables, auto wiring, air conditioning and refrigeration systems.

    Saudi Electricity Co. said it has already saved 2.4 billion riyals ($640.09 million) by shifting from copper to aluminium in its medium voltage distribution network.

    “We started more than a year ago and we plan to continue,” SEC’s Chief Executive Ziyad Alshiha told Reuters.

    A push for innovation to overcome the obstacles to substituting the two metals gathered speed in 2011 when copper prices spiked to $10,000 a tonne while aluminium, suffering from a supply glut, was $2,525.

    The price gap has more than halved, but aluminium is still around $3,400 cheaper than its rival.

    "Ten years of high (copper) prices incentivized many players involved throughout the supply chain to invest in the R&D and make more substitution possible," said analyst Patrick Jones at Nomura in London.

    "Now we're starting to see some results on this front."

    The biggest potential for switching from copper is in the power sector, where aluminium is already widely used in overhead high-voltage cables from power stations but is now attractive for wiring branching off from substations.

    Japan's Kansai Electric Power last year began replacing 50-year-old copper distribution cabling in Osaka prefecture with aluminium. A spokesman said its plans to replace some 140,000 km of copper cabling over 30 years would save tens of billions of yen.

    Their new aluminium wires compensated for the downside of being thicker with a dimpled design that reduces wind pressure and helps repel snow meaning they can use existing electric poles and lower the risk of cables snapping, the spokesman said.

    The automotive sector also has benefited from innovations, boosting the potential for further use of lightweight aluminium to help the industry cut vehicle weight to help meet stricter emission standards.

    Having already switched to aluminium radiators from copper, it had been cautious of expanding the use to wiring, partly because aluminium is more susceptible to corrosion.

    But Japan's Furukawa Automotive Systems, a unit of Furukawa Electric Co, has developed new corrosion-proof terminals for aluminium wires in a harness, the backbone of a car's electrical system, a spokesman said.

    Furukawa has been supplying aluminium wire harness systems to Honda’s light vehicles and Toyota’s luxury vehicles.

    Attached Files
    Back to Top

    Norilsk sees flat global nickel consumption in 2016

    Russia's Norilsk Nickel reported a 24 percent decline in 2015 core earnings on Tuesday mainly due to lower prices for its metals and forecast global primary nickel consumption to remain flat this year.

    Norilsk, the world's second-largest nickel producer, has been hit by weakening metals prices although the rouble's fall against the dollar has partially offset this.

    "The unprecedented plunge in metal prices heavily weighed on our performance, affecting negatively our top line performance and EBITDA, with major positive offsets coming from foreign exchange, cost savings in Russia and exit from international assets," Chief Executive Vladimir Potanin said in a statement.

    The company's 2015 results were also affected by the divestiture of international assets and one-off logistical and operational preparations for the shutdown of its old nickel plant in the city of Norilsk planned for 2016.

    Its earnings before interest, tax, depreciation and amortisation (EBITDA) fell 24 percent year-on-year to $4.3 billion and met the average estimate in a Reuters poll.

    The company's 2015 net profit fell 14 percent to $1.7 billion, while net profit adjusted for non-cash items reached $3.2 billion. Revenue was down 28 percent at $8.5 billion, and capital expenditures rose 27 percent to $1.7 billion.

    Norilsk, part-owned by Russian tycoon Potanin and aluminium producer Rusal, is the world's second-largest nickel producer after Brazilian miner Vale SA and the world's largest palladium producer.

    It has repeatedly called for global output cuts in the nickel industry to support prices, saying Norilsk itself, however, remains profitable thanks to its low-cost Arctic assets.

    A substantial drawdown of exchange inventory is also needed to trigger a sustained nickel price recovery, it said on Tuesday.

    It forecast global primary nickel consumption to remain unchanged at 1.9 million tonnes and the market to develop a deficit of 70,000-90,000 tonnes in 2016.

    Norilsk said the current weakness in palladium prices was temporary and that booming car sales in the United States and China should provide for robust palladium demand in 2016.
    Back to Top

    China Hongqiao starts alumina output in Indonesia, up bauxite from Guinea

    China Hongqiao Group Limited, the top primary aluminium producer in the country, is running a trial production at its one million tonnes-a-year alumina plant in Indonesia and will complete building another 1 million tonnes by the end of 2017, its Chief Executive Officer said on Monday.

    The capacity is the first- and second-phase of a 4 million-tonne-a-year plant. Zhang Bo said the company had no timetable to build the remaining two million tonnes and the construction would be determined by market situations.

    Alumina is a material for production of primary aluminium, used in everything from soda cans and window frames to airplanes and cars.

    The production in Indonesia uses local bauxite, ores to be refined into alumina. Hongqiao produces alumina in China using bauxite imports mostly.

    Zhang said the company's bauxite imports from Malaysia, India and Indonesia would fall sharply as supplies from its bauxite mining project in Guinea in Africa rose. The Guinea project started shipments to Hongqiao in September 2015.

    "In the future, our demand (of bauxite) from Indonesia, Malaysia and India will be very little," Zhang said at a news conference in Hong Kong on Monday.

    The company expects shipments of 15 million tonnes of bauxite from the Guinea project this year and 30 million tonnes in 2017, Zhang said. The 2016 amount is equivalent to about a quarter of China's imports last year. Malaysia was the top bauxite supplier to China last year, followed by Australia and India.

    Higher supplies of alumina from the Indonesian plant and of bauxite from Guinea would support Hongqiao's aluminium production in China, he said. Hongqiao produced 4.28 million tonnes of aluminium last year, up 36.8 percent from the previous year, according to its annual results.

    Aluminium capacity rose 28.8 per cent from a year earlier to 5.186 million tonnes in 2015, which Zhang said may rise further to 6 million tonnes by the end of this year, depending on market situations.

    Zhang expects China's aluminium market to stabilize this year after prices fell to multi-year lows in 2015 which cut Hongqiao's profits. In a bid to support aluminium prices, Hongqiao's parent, Weiqiao Aluminium & Electricity and other five large aluminium producers formed a joint venture for stockpiling the metal, Zhang said.

    The five companies include Aluminium Corp of China (Chinalco), State Power Investment Corporation, Yunnan Aluminium, Jiugang group and Jinjiang group.

    Zhang said Chinalco holds a 30 percent stake in the joint venture, Weiqiao and State Power each own 20 percent and the rest each hold 10 per cent.

    Attached Files
    Back to Top

    Steel, Iron Ore and Coal

    South Korea coal imports drop in February

    South Korea Feb thermal coal imports slide 14.7% on yr

    South Korean saw thermal coal imports—bituminous coal and sub-bituminous coal-- slide 14.67% year on year and down 15.14% from January to 7.1 million tonnes in February, according to the latest customs data.

    Thermal coal imports for the first two months of the year stood at 15.47 million tonnes, 1.9% lower from the previous year.

    The highest volume of imported thermal coal in February stood at 2.82 million tonnes from Australia, with 2.67 million tonnes of bituminous coal and 0.15 million tonnes of sub-bituminous coal, dropping 23.41% on year and compared with zero import in the same month last year, respectively.

    Thermal coal imports from Indonesian reached 2.68 million tonnes in the month, with sub-bituminous imports being reported the most at 0.34 million tonnes or 70% of Korea’ imports of the same material, sliding 8.63% on year.

    The imports of bituminous coal fell 17.73% from a year ago to 2.33 million tonnes in the same month.

    South Korea received 1.28 million tonnes of Russian bituminous coal in February, climbing 27.09% on year but dropping 11.07% from January.

    S. Korea Feb met coal imports down 25pct on yr

    South Korea imported 1.83 million tonnes of metallurgical coal (including coking coal and PCI coal) in February, dropping 24.68% year on year and down 36.93% from last month, showed the latest customs data.

    Coking coal imports in the month stood at 1.24 million tonnes, slumping 45.79% month on month and down 27.99% on year.

    Of this, the highest volume came from Australia, with 690,400 tonnes received in the month, falling 20.1% month on month and down 13.89% from the previous year.

    Cargoes from Russia dropped 23.25% on month but jumped 9.97% on year to 233,000 tonnes, and that from Canada plummeted 80.36% on month and down 70.18% on year to 145,000 tonnes, ranking the second and the third of the total, respectively.

    In the same period, the country’s PCI coal imports dropped 3.45% on month and fell 16.54% on year to 584,800 tonnes.

    Of this, Australian arrivals into South Korea reached 442,000 tonnes or 75.58% of the total, edging down 0.84% from last month and down 16.64% from the year prior.

    Volumes from Russia increased 6.2% on month and surged 113.9% on year to 118,600 tonnes; and that from Switzerland stood at 24,200 tonnes, compared with none of last month and last year.

    Attached Files
    Back to Top

    India's Adani gets Queensland backing for Australian coal project

    Parliament in the Australian state of Queensland agreed on Tuesday that India's Adani Enterprises Ltd should be granted "all state government approvals" to build one of the world's biggest coal mines, state mining minister Anthony Lynham said.

    The A$10 billion ($7.45 billion) project in the undeveloped Galilee Basin has been delayed by challenges from environmental campaigners, but a Queensland court last December rejected a bid to stop it.

    Environmentalists are still fighting it on numerous fronts and lobbying banks not to provide loans. They cite potential damage from port dredging, shipping and climate change stoked by coal from the mine.

    Lynham said the development could create thousands of jobs. Adani has estimated it will generate A$22 billion in state taxes and royalties.

    The minister told parliament that the projects' mining leases would only be approved when compensation agreements were reached. In a press statement, he did not elaborate on this.

    The statement said the Queensland government would also stick to an election pledge that dredging for the Abbot Point coal terminal should not proceed until the Indian conglomerate demonstrated it had the necessary funding in place for the entire mine, rail and road project.

    Analysts say even with approvals in hand, Adani will find it tough to raise financing for the project amid the prolonged downturn in the coal market.

    An Adani spokesman was not immediately available for comment outside normal working hours.
    Back to Top

    China key steel mills daily output up 2.3pct in late-Feb

    The average daily crude steel output of China’s Key steel mills stood at 1.59 million tonnes in late-February, up 2.34% from ten days ago, according to the latest data released by the China Iron and Steel Association (CISA).

    China’s daily crude steel output in late-February was estimated at 2.11 million tonnes, edging up 2.68% from mid-February.

    Steel products daily output in key steel mills averaged 1.58 million tonnes, rising 7.68% on month, with that of pig iron and coke standing at 1.58 million and 0.31 million tonnes, rising 2.2% on month but down 2.72% from ten days ago, respectively.

    By February 29, stocks in key steel mills stood at 13.79 million tonnes, sliding 5.67% from February 20.

    In the same period, the average price of steel products dropped 2.52% to 2,479 yuan/t from mid-February. The daily sales of steel products in key steel mills averaged 1.56 million tonnes, up 40.16% from ten days ago.

    Domestic prices of the six major steel products all increased in late-February, with rebar price averaging 1,984.5 yuan/t, up 2.6% from mid-February, showed data from the National Bureau of Statistics (NBS).

    A substantial improvement in steel industry was presently observed, mainly based on the favorable data released lately, including the first rise of fixed-asset investment (FAI) growth within recent 20 months, a yearly rise of 3% and 15% respectively in housing investment and infrastructure construction investment in January-February as well as the gradual demand recovery of appliances and automobiles, analyst said.

    The demand is expected to continue the upward trend amid the coming of peak season, and the steel makers’ circumspect mood in the bullish market will also lend some support to the steel market in March.

    Attached Files
    Back to Top

    EU revises steel plan after Chinese pressure

    China has persuaded the European Commission to cut estimates of its spare steel capacity, EU documents seen by Reuters show, raising concerns in Europe that Brussels may be weakening its hand against cheap Chinese imports.

    A sequence of drafts of proposals to protect Europe's still shrinking steel industry, to be published by the EU executive on Wednesday, shows estimates of Chinese over-capacity -- a factor that can help support a case that firms are unfairly "dumping" product abroad -- being revised down by close to 20 percent.

    That revision, from 400 million tonnes in a draft early this month to 350 million and then 325 million in the most recent draft seen by Reuters, was the result of Chinese complaints, said an EU official who spoke on condition of anonymity.

    "The figures were revised after China challenged our data," the official said after negotiators met in Beijing last week.

    A Commission spokeswoman declined comment on the drafts.

    The European Union is keen to promote trade, investment and other relationships with China. But steel producers, backed by governments including France, Germany and Britain, are pushing the Commission to do more to keep out ultra-cheap imports coming from Chinese factories which face problems of over-capacity.

    Despite the imposition of EU anti-dumping duties on several Chinese producers, European competitors, whose remaining output is just 170 million tonnes a year, blame China for the loss of 20 percent of EU steel jobs since 2008, and fear more closures.

    The Commission plan, to be issued after Wednesday's weekly meeting of the 28 commissioners, proposes a number of measures to counter what the draft documents describe as more than a doubling of Chinese imports in three years.

    The proposals include a "prior surveillance system on steel products", a protective mechanism to be triggered if imports rise sharply, higher anti-dumping duties, and a faster system of imposing penal tariffs on unfairly cheap imports.

    The proposals may disappoint some in the industry and their government supporters. France wants the inquiry period before the imposition of provisional sanctions to be cut from nine months to two. The Commission drafts do not specify the period.

    The draft says other EU trade defences may be bolstered if China is recognised by the Commission as a "market economy" in December -- something Beijing is pushing for and which European manufacturers fear will make it harder to penalise its products.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP