Mark Latham Commodity Equity Intelligence Service

Tuesday 28th February 2017
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    Overloaded cement conveyor catches fire

    Overloaded conveyor belt catches fire at LafargeHolcim cement plant
    An overloaded conveyor belt at the LafargeHolcim cement plant near Hagerstown, Md., started a two-alarm fire that burned for more than an hour beginning at 11:26 p.m. on Monday night, ...
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    BHP says `bloody awful' trade pledges threaten Trump's pump

    The head of the world’s biggest mining company intensified his warnings that US trade protectionism under President Donald Trump would threaten global growth and the fight against poverty.

    While applauding efforts by the administration to boost US growth and infrastructure spending, BHP Billiton Chief Executive Officer Andrew Mackenzie said the consequences of restricting free trade would be “pretty bloody awful.”

    BHP, which is also the largest overseas investor in US shale, “is very anxious about the possibility that instead of that good leadership, we could have bad leadership from the US on global free trade," the Scottish-born executive said in an interview with Bloomberg TV at a conference in FloridaMonday.

    Global long-term growth is about 3% but needs to be 4% to get more people out of poverty, he said. “And that won’t happen under a protectionist regime and protectionist leadership in the US”

    Mackenzie and chairperson Jacques Nasser met Trump in New York last month, before his inauguration, to discuss the resources sector. Melbourne-based BHP is a partner in Arizona’s Resolution copper project with Rio Tinto Group, which has urged the new administration to accelerate approvals.

    BHP was little changed at A$25 in Sydney trading Tuesday, and has advanced about 61% in the past 12 months.


    Mackenzie’s concerns echo those from leaders of the world’s biggest banks, which have warned investors of Trump’s potential to roil markets and slow global trade. Standard Chartered Plc Chief Executive Officer Bill Winters, the former head of JPMorgan Chase & Co.’s investment bank, said last week that he’s mapping out scenarios “if things get very messy and we get into the trade-war zone.”

    So far, many investors appear unruffled, driving equity gauges including the Dow Jones Industrial Average to record highs. Stocks have risen as corporate results and European growth figures boosted optimism that the Trump administration will only bolster already-strengthening economies.

    Trump’s administration does bring benefits for businessconfidence with its policies on tax and with pledges to boost infrastructure spending and economic growth in US, Mackenzie said.

    Improved demand prospects have helped to fuel a rally in commodity prices which, in the case of copper, has been supported by supply disruptions in Chile and Indonesia. The red metal is up 28% in the past six months.

    After years of cutbacks to cope with low prices, the industry is trying to figure out what to do with the windfall, Mackenzie said, and how much should go back to shareholders versus being reinvested to secure future production.

    “My sense is that people will be quite reluctant to invest given what’s gone on,” he said. Even so, BHP would make acquisitions for the right kind of ore bodies he said, but “they’re very hard to come by.”

    The only deal the company has been able to do of late “for value” was a stake in the Trion offshore oil project, he said. Trion’s development costs may exceed $10-billion with first production expected between 2023 and 2025, Macquarie Group analysts wrote December 6. Mackenzie will travel to Mexico to sign the Trion deal on Friday. Asked if BHP will be able to cut the cost of the project or speed up development, he said “we’re certainly going to try.”

    Investors remain wary of the prospect of a wave of major deal-making among top miners, after the spree at the start of this decade that led to humbling writedowns and the ouster of a slew of key executives. BHP spent $20-billion expanding into US shale assets and was later forced to write down the value of the assets as prices slumped.

    Under Mackenzie’s predecessor, BHP launched an unsuccessful hostile takeover offer for Potash Corp. of Saskatchewan and previously had failed in an attempted takeover of Rio Tinto Group and a separate plan for an iron-ore joint venture with its rival.

    On the possibility he’d revisit a large corporate merger, Mackenzie said: “To be honest, I do think about that a bit, but I think that’s very, very low down our list of priorities.”

    BHP can achieve its goals with its existing ore bodies and successful exploration, he added.

    In the meantime, the company may continue to divest smaller marginal assets, he said, while declining to comment on which ones, or whether any active processes are under way.

    "Our portfolio is close to perfection,” he said.

    BHP – which focused its portfolio on key commodities with the 2015 demerger of other assets into South32 – is prioritizing copper, oil and potentially potash for investments or acquisitions, even as iron-ore and coal account for almost two-thirds of profits. The copper and petroleum divisions will account for about three-quarters of capital expenditure over the next five years, according to Macquarie forecasts.

    A reduction in capex is “broadly” a sign of the direction the company is headed but it will continue to produce coal and iron ore into the next decade, Mackenzie stressed.

    “Ten years from now, who knows, but I don’t think you will see a huge shift from where we are today and we may, by then, have chosen to add potash,” he said.

    BHP’s Jansen potash project in Saskatchewan may begin first production from as soon as about 2023, people with knowledge of the plans said in August.

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    Giant Leap in Iran's Gas Condensate Exports

    Giant Leap in Iran's Gas Condensate Exports

    The National Iranian Oil Company exported 24 million barrels of gas condensates in January to Asian and European buyers -- the outbound volume being over and above the average figures seen during the past several months.

    Since the easing of international economic sanctions in January last year, Iran's gas condensates exports have risen nearly four times, reaching a daily average of 550,000 barrels from just around 150,000 barrels per day in 2012 when trade and financial restrictions were in place, Shana reported.

    According to Ali Kardor, NIOC managing director, gas condensates output was around 300,000 bpd in 2013, but production capacity has since shot up by 50%, exceeding 600,000 barrels per day. Combined exports of crude oil and condensates have also climbed to 2.8 million bpd, said the official.

    Condensates are in the twilight zone between crude oil and natural gas. They possess characteristics of both oil and gas, and have values and market drivers both similar to, and distinctly separate from, oil and gas.

    Underscoring that the main buyers of Iranian gas condensates in Asia are its traditional oil customers, namely China, India, South Korea, Turkey, Taiwan and Japan, he noted, 'BP received its first gas condensates cargo from NIOC last year under single-shipment contracts and negotiations are underway for NIOC to sign long-term contracts with Shell.'

    In related news, Iran had stored up 10 million barrels of condensates in China as part of efforts to expand its presence in the world's second-largest energy market, but the entire inventory has been sold, the Oil Ministry said earlier in the week.

    Tehran turned to leasing oil storage tanks in China during the sanctions, making the country an export base for its petroleum products in the Far East as financial and trade restrictions had significantly curtailed Iranian oil trade and shipment.

    'With each barrel at $40, export of 50 million barrels of condensates generates $2 billion in revenues, Kardor was quoted as saying by Shana on Saturday.

    Condensate output is slated to reach 1 million barrels a day upon the launch of all phases of South Pars, the giant gas field shared by Iran and Qatar, the NIOC chief added.

    But Tehran has said it wants to reduce the outbound shipments of condensates and instead use the fossil fuel for manufacturing goods with higher value added.

    Condensate exports are set to decrease sharply upon the launch of several oil processing plants, including the Siraf and the Persian Gulf Star Refinery, the latter said to be the largest refinery project in the Middle East.

    Export of petroleum products has also risen to record levels in the first 10 months of the current fiscal year as 450,000 barrels of oil derivatives such as naphtha, diesel, bitumen and sulfur, were exported in large volumes to Southeast Asian clients from Mahshahr, Asalouyeh, Lavan and Bandar Abbas ports in southern Iran.

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    Russia says in talks over Iranian oil purchases

    Russia has been in talks of buying oil from Iran, Energy Minister Alexander Novak said on Monday, confirming earlier reports.

    At the sidelines of a economic forum in the Black Sea resort of Sochi, Novak told reportes he expected the deal to be reached "within weeks." The purchases will be carried out via Promsirieimport, a trading unit of Russia's Energy Ministry, he said.

    Last week, Iranian Students' News Agency (ISNA) reported that Iran will begin selling 100,000 bpd of to Russia within the next 15 days and receive payment half in cash and half in goods and services.
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    Iraq plans offshore oil and gas exploration to boost reserves

    Iraq is planning to start offshore oil and gas exploration to boost the OPEC nation's reserves, Oil Minister Jabar al-Luaibi said in a statement on Monday.

    Luaibi said he “gave guidance to the Oil Exploration Company about the importance of exploring territorial waters to assess the hydrocarbons reserves and to boost Iraq’s capacity".

    Iraq last week announced an increase in its oil reserves to 153 billion barrels from a previous estimate of 143 billion barrels. Iraq has boosted output rapidly in recent years with the help of foreign oil companies to become OPEC's second-largest producer behind Saudi Arabia. It agreed at the end of November to take part in an OPEC agreement to cut global supply to help to lift oil prices.
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    Sonatrach to revise down length of long-term natural gas contracts

    Algeria's state-owned Sonatrach is to revise down the duration of its long-term natural gas contracts at the request of "many customers," Sonatrach CEO Amine Mazouzi said on Saturday, underlining the company's commitment to safeguarding market share through customer-focused flexibility.

    Sonatrach -- which supplies pipeline gas to southern Europe on term contracts and LNG to a worldwide customer base -- has been deliberate in its attempts to satisfy new customer requirements in the wake of a rapidly changing global gas market.

    Last year, it agreed to alter the terms of its long-term gas supply deal with Italy's Eni for the period October 2016-September 2017, which Eni CEO Claudio Descalzi described as a "very important achievement."

    Speaking on Saturday in Hassi Messaoud at a ceremony to mark the anniversary of Algeria's move to nationalize its hydrocarbon sector, Mazouzi said Sonatrach's flexible contractual approach was intended not only to retain its traditional markets in Europe, but also to win new customers.

    "Sonatrach has the ability to adapt to the market, whose main driver is of course prices. We are going to have two strategies for both the long-term market and the spot," Mazouzi said, as reported by the government daily newspaper El Moudjahid.

    "For the long-term market, contracts that were previously over a period of 25 years will be reviewed and reduced to 10-15 years," he said.

    "Our strategy in this area is to reinforce our position in our traditional market -- the countries around the Mediterranean -- but also to conquer new markets."

    Mazouzi said Sonatrach was targeting LNG sales to new customers, and at the beginning of February took ownership of a new LNG carrier through its shipping subsidiary Hyproc.

    "This month we have just purchased a new LNG carrier for export operations to more distant countries," Mazouzi said.

    The vessel, called Tessala, has a capacity of 112,867 cu m of LNG and arrived at Arzew in early February.

    Prior to the acquisition, Sonatrach had eight LNG carriers to supply LNG from its two plants at Arzew and Skikda.


    While LNG supplies have been steady in the past two years, Algeria's gas supplies via pipeline to Europe are riding high.

    Pipeline flows to Spain via two subsea pipelines and the TransMed line to Italy hit a five-year high in February, with deliveries to Italy and Spain averaging 120 million cu m/d since the start of the month, according to data from Platts Analytics' Eclipse Energy.

    Algerian pipeline gas exports have been strong since the end of 2015 thanks mostly to a significant jump in supplies to Italy.

    This was despite considerable doubt among industry commentators that Algeria would be able to raise gas exports given slow upstream developments and rampant domestic demand growth.

    Flows to Italy in particular have soared -- last year they almost trebled to 18 Bcm from just 7 Bcm in 2015, according to Platts Analytics.

    The high exports to Italy have continued into 2017, which is likely to be down to higher nominations by buyers, attributed to the fact that oil-indexed gas supply contracts remain in the money compared with European hubs.

    Algerian pipeline exports have averaged 116 million cu m/d since the start of the year, the highest since February 2012.

    Gas demand in southern Europe was boosted at the start of the year by an unusually cold winter, with temperatures well below seasonal norms, but Algerian supplies have continued at the high levels despite a return to more normal temperatures.

    Flows to Italy have reached a four-year high since the start of 2017, regularly exceeding 70 million cu m/d, triggered also by the favorable renegotiation of the long-term supply contract between Sonatrach and Eni.

    The last time Algerian pipeline flows to Italy were above 70 million cu m/d was back in February 2013.

    Algeria expects to export a total of some 39 Bcm by pipeline to Italy and Spain in 2017, with an additional 17 Bcm of gas equivalent to be supplied by LNG, Sonatrach officials have said.

    A total export level of 56 Bcm would bring Algeria closer to matching its all-time export record of some 62 Bcm in 2005.

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    Gabon's oil sector braces for change as Total, Shell look to divest

    Gabon's oil sector is likely to see more deals taking place this year after oil major Total agreed to sell its stake in some oil fields and infrastructure to Perenco, while Shell is currently looking to dispose of its onshore assets in the country.

    Total and Shell dominate the central African country's oil sector and this is expected to have a major impact on the country as it seeks to repeal the decline of its oil production.

    Total has agreed to sell interests in its mature oil fields in Gabon to Anglo-French company Perenco, which translates to a divestment of 13,000 b/d of oil output, the oil major said Monday.

    The $350 million deal includes the sale of stakes and the transfer of operatorship in various mature assets in Gabon to Perenco, which is already active in the country, including the sale of the Rabi-Coucal-Cap Lopez pipeline network.

    Total said this deal has come about in an environment where "reducing the breakeven of our operations is a top priority" due to oil price volatility.

    "This agreement demonstrates our ability to capture value through the disposal of mature assets while benefiting from the synergies generated by the transfer of operatorship," said Arnaud Breuillac, president of Total Exploration & Production.

    Total is currently the operator of the Capo Lopez terminal, from which the key export grades of Rabi Light and Mandji are exported.

    Total Gabon's equity share of operated and non-operated oil production averaged 47,400 b/d in 2016, from 47,300 b/d the previous year.

    The company's revenues amounted to $745 million in 2016, down 11% from $842 million in 2015, mainly due to the lower average selling price for Total Gabon's crude oil grades, partially offset by the 6% increase in volumes sold over the period due to the lifting schedule.


    Shell also indicated recently that it is in ongoing talks related to the divestment of the company's assets there, which could affect oil output in the country.

    Shell's production in Gabon is around 55,000 b/d of oil equivalent. It also operates the Gamba terminal from which a further 20,000 boe/d from other producers is exported.

    Production reached a peak of 365,000 b/d in 1996 but has since steadily declined, mainly due to maturing fields and also because of a lack of any significant oil projects over the past decade.

    Gabonese crude attracts a fairly broad and eclectic customer base, including refiners in Trinidad & Tobago, France, Malaysia and Australia.

    Gabon rejoined OPEC in July after a gap of more than 20 years, and its current production is around 200,000 b/d, according to S&P Global Platts estimates.

    Under the current OPEC output agreement, Gabon is expected to cut production by 9,000 b/d to 193,000 b/d during the first six months of this year.

    Gabon, like its West African neighbors, has been hit hard by falling crude prices, with oil accounting for about half of government revenues and 80% of national exports.

    Last year, Gabon postponed its 11th offshore oil licensing round due to reduced interest as oil companies have shelved and delayed billions of dollars in upstream spending since the oil price slump.

    The high cost of deepwater developments in the current environment has put a dampener on such projects, especially in the West African region.
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    Total in talks to buy Iranian LNG project: sources

    Total is in talks to buy a multi-billion dollar stake in Iran's partly-built liquefied natural gas (LNG) export facility, Iran LNG, seeking to unlock vast gas reserves.

    The French oil major -- the first of its peers to strike deals in Iran after sanctions -- seeks entry into Iran LNG at a discount to the pre-sanctions price in exchange for reviving the stalled project, two sources with knowledge of the matter said. A third source confirmed Total was in the running for a stake, alongside several other oil majors, but any deal was still some way off.

    Total declined to comment. Iran's National Gas Export Co. (NIGEC), a central stakeholder in the project, did not respond to requests for comment by email and phone.

    "Iran is trying to revamp its oil and gas projects and the abandoned LNG plant is one of them," the third source added.

    Iran shares the world's biggest gas field with Qatar, which has used the reserves to build over a dozen giant liquefaction plants to chill gas into a liquid for export on ships -- a move Iran is keen to replicate.

    The Iranian part of the field, known as South Pars, contains over 14 trillion cubic metres of gas, according to the Pars Oil and Gas Company website.

    Iran aims to grow gas output to 1 trillion cubic metres by 2018, up from 160.5 billion cubic metres in 2012, before the latest sanctions took effect.

    But it currently has no ability to freeze its gas into LNG for tanker exports.

    However, Total aims to commit $2 billion to develop the 11th phase of the South Pars field this summer - supplies from which could be used to feed Iran LNG - though that investment hinges on the renewal of U.S. sanctions waivers.

    Any deal for a stake in Iran LNG would also likely face similar hurdles.

    An Iranian industry source with ties to Iran LNG said Total moved several employees to the firm's offices in Tehran last year as part of the discussions.

    Work on the 10.8 million-tonnes-per-annum (mtpa) plant hit a wall in 2012 when sanctions stopped Iran from bringing in specialist liquefaction technology from German contractor Linde (LING.DE).

    The Munich-headquartered firm declined to say when it would ship the parts to Iran. At issue are reimbursements demanded by Linde for the cost of storing Iran LNG's liquefaction train, or production line, during the sanction years, industry sources said.

    "Equipment was finished for the first production line (or train) of 5.4 mtpa, and about half finished for the second one," a second Iranian gas industry source said.

    With $2.3 billion invested so far, Iran LNG is more than half-built with two storage tanks, a jetty and power plant, sources said -- but total costs to bring the plant on-stream may be as high as $10 billion.

    NIGEC, which owns 49 percent of the joint venture, and Iran Oil Pension Fund, which holds the rest, have expressed willingness to sell down their stakes to attract a Western partner.

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    Hyundai Oilbank buys South Korea's first U.S. Southern Green Canyon crude

    South Korean refiner Hyundai Oilbank has purchased a cargo of U.S. Southern Green Canyon crude oil, the country's first import of the grade, three trade sources said on Tuesday.

    The country's smallest refiner by capacity has bought 1 million barrels of the U.S. heavy crude from a major oil company to arrive in May, according to the sources, who asked not to be identified as they were not authorized to speak with media.

    A Hyundai Oilbank spokesman declined to comment on the issue.

    The purchase comes as crude shipments to Asia from places such as the United States have jumped due to low shipping costs and as production cuts by the Organization of the Petroleum Exporting Countries (OPEC) drive up prices for Middle Eastern oil.

    A source told Reuters in January that Japan's TonenGeneral Sekiyu KK had bought a 500,000-barrel Southern Green Canyon cargo. Green Canyon is an area of the Gulf of Mexico.

    South Korea's top refiner SK Energy [SKENGG.UL] said this month that it had bought 1 million barrels of Russian Urals crude for the first time in 10 years.
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    Exxon's Post-Tillerson Fortunes Closer to Home as New CEO Pivots

    Exxon Mobil Corp. is pinning its fortunes closer to home as new CEO Darren Woods veers from the oil titan’s longtime focus on Asian and African riches.

    After a two-year pricing rout erased 19 percent of Exxon’s untapped crude by making it unprofitable to extract, Woods faces a tough task in sustaining the company’s output. Woods’s ability to replenish the portfolio will rely heavily on regions the driller long avoided: the U.S. Great Plains and Latin America.

    Woods’s first public appearance since becoming chief executive officer is Wednesday, when analysts will press him for operational details at Exxon’s yearly strategy session. Findings off South America’s Guyana coast and in the shale fields of Oklahoma, Texas and New Mexico could help him restore profits, recover from a $1 billion stillborn venture in the Russian Arctic, and replace aging supply sources in West Africa and Indonesia.

    “Not a lot is known about him beyond his work history,” said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis who has a “hold” rating on Exxon’s shares. “People are going to want to hear what he plans to do about cash flow over the next few years, what kind of oil price they need, and the outlook for production.”

    A Kansas-born electrical engineer by training, Woods, who is 52, joined Exxon as an analyst in 1992 and rose through the ranks on the refining and chemicals side of the business. He succeeded Rex Tillerson, who now serves as President Donald Trump’s secretary of state, as CEO and chairman on Jan. 1.

    His leadership comes at a time when the largest U.S. oil producer is facing tough challenges in recovering from a market collapse that erased more than $154 billion in Exxon’s discounted future cash flows as fields that prospered during the oil bull market became money losers.

    Reserves Reduction

    At the same time, Woods removed the equivalent of 3.3 billion barrels of untapped crude from the books last week in the biggest reserves reduction since the company’s $88 billion takeover of Mobil Corp. in 1999. The huge African and Asian prospects acquired in that deal have mostly been exhausted, and the Irving, Texas-based company has been drifting back to the west ever since.

    Exxon disputes the usefulness of discounted future cash flows, which it is required to file annually under U.S. Securities and Exchange Commission rules. And the company said the reduction in reserves is only a short-term setback since those barrels can be reclaimed as prices rise, and remain available to be pumped from the ground.

    But as reserves and future cash flows evaporate, so has Exxon’s long-held reputation as the industry’s most efficient cash generator. The explorer’s return on capital plummeted to less than a nickel on the dollar last year from 36 percent as recently as 2008, according to data compiled by Bloomberg. The writing was on the wall in April when S&P Global Inc. stripped Exxon of the platinum credit rating it had held since the Great Depression.

    ‘Greatest Challenge’

    “In our view, the company’s greatest business challenge is replacing its ongoing production,” the credit-rating company said at the time.

    To that end, Exxon has fast-tracked development of the 1.5 billion-barrel Liza discovery 120 miles (193 kilometers) off Guyana’s shores. The company plans to formally greenlight the investment by the end of this year. Guyana President David Granger last month said it may begin pumping crude as soon as 2019. That would be breakneck speed for an industry that often takes as long as a decade to bring deepwater finds online.

    As impressive as the Guyana discovery is, it won’t be enough on its own to rejuvenate Exxon’s portfolio, said Pavel Molchanov of Raymond James Financial Inc., one of just seven analysts who rate Exxon’s stock the equivalent of a “sell."

    “It’s a good-sized deepwater project but nothing extraordinary,” Molchanov said. “If this was in Angola, the Gulf of Mexico or Norway, people wouldn’t be talking about it. It’s interesting only because Guyana is a brand-new frontier” oil region.

    Permian Footprint

    On its home turf, Exxon agreed last month to shell out as much as $6.6 billion in an acquisition that will more than double the company’s footprint in the Permian Basin, the most-prolific U.S. oil field.

    In its biggest transaction in 6 1/2 years, Exxon agreed to spend $5.6 billion in shares, plus a series of contingent cash payments totaling as much as $1 billion over the next 15 years, on rights to Permian’s Delaware region. After acquiring the assets from the Bass family -- legendary Texas wildcatters -- Exxon plans to deploy 15 drilling rigs to expedite development.

    When the transaction closes, Exxon’s Permian resource base will reach the equivalent of 6 billion barrels of crude, an asset that’s worth $324 billion at current oil prices. Wells drilled in the acquired area will generate “attractive returns” even if crude drops back down to $40 a barrel, Exxon said when the deal was announced on Jan. 17. West Texas Intermediate crude, the U.S. benchmark, has averaged about $50 for the past six months.

    The three Bass tracts Exxon is buying will provide at least 20 years of drilling, according to the company.

    Interoil Acquisition

    To be sure, Woods hasn’t entirely abandoned the quest for bonanzas on the other side of the world. Just last week, Exxon completed a takeover of Papua New Guinea natural gas driller InterOil Corp. that may cost the U.S. company as much as $3.9 billion. The deal, launched six months before Woods’ ascension, will provide Exxon with additional sources of natural gas for a liquefaction and export facility it opened in the South Pacific nation in 2014.

    “The challenge for Exxon is its size,” Youngberg said. “To make an acquisition that is any way material, they have to pursue something pretty big. And things of that size are hard to come by.”
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    EOG Resources narrows losses as oil prices rise and efficiency improves

    On Monday, Houston-based oil and gas company EOG Resources said it narrowed its losses during the fourth quarter of 2016 as oil prices rose and operations improved.

    EOG’s revenues rose by 30 percent in the last three months to years, climbing to $2.4 billion from $1.8 billion in the same period in 2014. The company’s losses shrunk to $142.4 million, or $0.25 per share, compared to a $284.3 million loss, or $0.52 per share in fourth quarter of 2015.

    For all of 2016, EOG lost $1.1 billion, or $1.98 a share, in 2016, compared to a loss of $4.5 billion, or $8.29 per share, in 2015. Revenues for the full year in 2016 were $7.65 billion, as compared to $8.7 billion in 2015.

    The company attributed its improved performance to higher crude oil and natural gas prices and more efficient operations. For instance, the EOG produced nearly the same volumes of oil and gas in 2015 and 2016 but cut exploration expenses by 42 percent, the company said in a news release.
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    Houston’s Hi-Crush Partners buying Permian Basin Sand Co.

    Houston-based Hi-Crush Partners will buy the Permian Basin Sand Co. for $275 million to beef up its sand reserves to service rapidly growing drilling activity in West Texas.

    Hi-Crush is one of the biggest oilfield services business in providing sand to the hydraulic fracturing, or fracking process. Massive amounts of sand are pumped into the wells to help fracture the shale rock and release hydrocarbons.

    Virtually sold out of sand in the first quarter of this year because of increased activity, Hi-Crush is acquiring Permian Basin Sand’s 1,226-acre sand reserve with more than 55 million tons of sand.

    “Location is critical, and nobody will be closer or better positioned to efficiently serve the Permian Basin,” Hi-Crush CEO Robert Rasmus said in a prepared statement.

    Most of Hi-Crush’s existing sand reserves are focused on Northern White sand from Wisconsin. Rasmus said the Permian deal helps to diversify its mix. The deal is expected to close by the end of March.

    The deal is seven-year-old Hi-Crush’s largest acquisition thus far.
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    Precious Metals

    Hedge funds up bullish gold price bets most since Trump win

    Gold made headway for the sixth day in a row in heavy trade on Monday as the metal continues to make up lost ground following Donald Trump's victory, the dollar weakens and interest rates in the US trend lower again.

    Gold for delivery in April, the most active contract on the Comex market in New York with nearly 16m ounces traded by lunchtime, hit a high of $1,264.90, bringing its year-to-date gains to nearly 10%. Gold is now at it's the highest since November 11, erasing much of its losses since the US presidential election.

    Gold bears had been making big bets that Trump's plans for fiscal stimulus, including a $500 billion infrastructure spending program, will lead to strong US economic expansion, higher interest rates and a more robust dollar.

    A number of prominent hedge fund managers and billionaires running family offices moved aggressively out of gold and into stocks.

    That pattern seems to be reversing with hedge funds or so-called managed money investors in gold futures and options add to their exposure to the yellow metal by a fifth  last week according to trader positioning data supplied by the government.

    Overall bullish positioning or net longs held by derivatives traders jumped to 8.2 million ounces, it was the biggest increase in bullish bets since the start of November. That's still well below July's all-time record of nearly 29 million ounces when gold was hitting its 2016 peak, but does mark a change in sentiment.

    Gold helped to drag May silver contracts higher which were priced at $18.54 in New York, up close to 1% from Thursday's close. Silver has enjoyed nine straight week of gains for, the metal's best weekly run of gains in more than a decade. Year to date silver is up 14.7% and compared to lows hit January 2016, the metal has recovered 35% of its value.

    Large scale speculators in silver have been  bullish on the price for a long time with CFTC data indicating that traders added to long positions and cut shorts – bets that silver can be bought back cheaper in future – for eight weeks in a row . Net bullish positioning has now reached the equivalent of close to 377 million ounces, a 21-week high
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    Fresnillo's FY profit jumps six fold on higher output, prices

    Precious metal miner Fresnillo Plc reported a more than six-fold jump in its profit for the year, boosted by higher production and metal prices and a weak Mexican Peso.

    The company, which mines silver and gold from six mines in Mexico, reported profit of $425.0 million for the year ended Dec. 31, compared with $69.4 million reported a year earlier. Total revenue rose 31.9 percent to $1.91 billion.

    Silver production was up 7.1 percent to 50.3 million ounces, while gold production for the year was up 22.8 percent to 935,513 ounces. Capital expenditure for the year was $434.1 million, 8.6 percent lower than 2015 and below guidance.
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    Base Metals

    Shareholders tell miner Freeport to get tough with Indonesia

    Shareholders are pressuring miner Freeport-McMoRan Inc to stand up to the Indonesian government over changes the Southeast Asian country wants to make in the U.S. miner's contract, Freeport's chief executive officer said on Monday.

    Rio Tinto Plc, which is a partner in Freeport's massive Grasberg copper and gold mine in Indonesia, is also supportive of Freeport's tougher approach toward Jakarta, CEO Richard Adkerson said.

    In some of his strongest language yet on the issue, Adkerson said the new regulations sought by Indonesia were "in effect a form of expropriation of our assets and we are resisting it aggressively."

    "Many of our shareholders feel that we have been too nice. Now we are in the position of standing up for our rights under the contract,"
    Adkerson told a mining conference of institutional investors in Hollywood, Florida.

    He said Freeport had held talks with large shareholders but did not name them. Freeport's third-biggest shareholder is activist investor Carl Icahn, who holds around 7 percent of its shares. Icahn has been appointed a special adviser to U.S. President Donald Trump.

    Freeport, the world's biggest publicly listed copper producer, warned last week it could take the Indonesian government to arbitration and seek damages over a contractual dispute that has halted operations and exports at Grasberg, the world's second-biggest copper mine.

    The dispute, which centers around the sanctity of Freeport's 30-year mining contract, comes as the Indonesian government seeks to squeeze more revenue out of the mining industry by shaking up regulations over foreign ownership and ore processing.

    The two sides have 120 days to settle their differences before heading to arbitration. "The polite approach that we have had in the past, if we go to arbitration, is going to be replaced with tough lawyers," Adkerson said.

    He added that he hoped the dispute could be resolved cooperatively although the Indonesian government has so far "responded aggressively through ministers."

    Freeport's inability to export copper since mid-January, coupled with a strike at BHP Billiton's Escondida in Chile, the world's biggest copper mine, has pushed copper prices to 20-month highs of $6,204 a tonne on the London Metal Exchange this month.

    In the face of the export halt, Freeport last week said it was proceeding with its plan to reduce production at Grasberg by about 60 percent, make significant cuts to its workforce and suspend investments in the province of Papua.

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    Copper mining hit by heavy rain in northern Chile

    Heavy rains and flooding across Chile have slowed mining activity in the copper-rich north of the country, the government said Monday, with the northern region of Antofagasta the worst affected.

    "Mines operations in areas affected by the weather conditions are operating partially. All the mining companies in the region have activated contingency plans," the ministry said.

    Mines in the Antofagasta region, which include Codelco's Chuquicamata, Ministro Hales and Radomiro Tomic mines, Freeport McMoRan's El Abra operation and the BHP Billiton-controlled Escondida pit, produced a total of 3.1 million mt of copper in 2015, representing 54% of Chile's total output.

    Production at the Escondida mine has been halted since February 9 when workers began a strike over pay.

    Major mines in central Chile, including Codelco's Andina and El Teniente divisions and Anglo American's Los Bronces, are operating normally although some roads and other transport infrastructure have been closed.

    The railroad that carries concentrates from Andina to the Port of Ventanas has been suspended while preventative measures have been taken the open pit at El Teniente.
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    Escondida deal beginning to look distant

    Escondida deal beginning to look distant

    In a television interview with BHP CEO Andrew Mackenzie said talks had resumed with the main union representing 2,500 workers at Escondida, the world's largest copper operation by a wide margin adding that the miners are "extremely well paid".

    But he was contradicted by a spokesman of the union who said last Monday's government mediated talks were the last time the parties had been around a table. While this type of brinkmanship is not uncommon in wage negotiations it could indicate that the strike may take longer to resolve.

    “Copper traders are voting with their feet that a resolution to the strike isn’t close as the red metal finishes near highs despite mixed messages from BHP and union leaders,” Tai Wong, director of commodity products trading at BMO Capital Markets, told Bloomberg in an e-mail.

    "Copper traders are voting with their feet that a resolution to the strike isn’t close"

    BHP, which operates and majority owns the mine with fellow Melbourne diversified giant Rio Tinto, declared force majeure at the mine on February 10. The previous labour deal was signed four years ago when copper was trading around $3.40 a pound.

    In its financial results released last week BHP expected full-year production at Escondida of 1.07 million tonnes, which gives the mine a nearly 5% shares of global primary copper production. BHP also cut full year guidance by 40,000 tonnes to 1.62m tonnes.
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    China's Jan copper concentrate imports from Peru rise 27% on year to 398,568 mt

    China imported 398,568 mt of copper concentrate from Peru in January, up 27% year on year, latest data released over the weekend by the General Administration of Customs showed.

    Peru edged out Chile as China's top source of imported copper concentrate in January.

    Imports from Chile stood at 318,618 mt in January, up 1% year on year. China's other top eight suppliers in January were Mongolia with 110,867 mt, the US 67,011 mt, Mexico 50,440 mt, Australia 48,852 mt, Kazakhstan 37,852 mt, Spain 26,699 mt, Indonesia 25,942 mt and Laos 21,120 mt.

    Imports from the top 10 countries totaled 1.11 million mt, comprising 88.6% of China's total copper concentrate imports of 1.25 million mt for January.

    S&P Global Platts metals market reports feature global news, analysis, daily pricing, and commentary on major metals including aluminum, copper, lead, tin, zinc and precious metals, as well as ferroalloys and steel.

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    MMG narrows losses in 2016

    Metals miner MMG has warned shareholders of a likely net loss of some $100-million for the 2016 financial year.

    This compares with a net loss of more than $1-billion for 2015.

    MMG said on Monday that the expected loss in 2016 represented a substantial improvement in the underlying operating conditions in the second-half of the year, with commodity prices increasing, the addition of Las Bambas to the operating portfolio and record production levels for the company.

    Factors contributing to the loss include end-of-year inventory and deferred tax asset writedowns of some $116-million after tax.
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    No end in sight to strike at Noranda zinc plant in Quebec

    A strike at Noranda Income Fund's zinc processing plant in Quebec stretched into a 13th day on Friday, with no talks scheduled between management and the United Steelworkers of America union.

    Noranda's zinc processing facility in Salaberry-de-Valleyfield is the second-largest in North America and largest in eastern North America, where the bulk of zinc customers are located. It is managed by a subsidiary of Glencore Canada Corporation.

    The plant's 371 unionized workers went on strike after the two sides could not agree on proposed changes to the pension plan in the collective agreement.

    There have been no talks during the strike and none are currently scheduled, said Manon Castonguay, president of Steelworkers Local 6486.

    It was unclear whether the strike has severely impacted production at the facility. The union said output was likely very low.

    Noranda could not be immediately reached for comment. It had previously said it would provide a production update on March 1 when it releases its fourth-quarter results.

    Zinc prices have nearly doubled since January 2016 due to a shortage tied to mine closures and shutdowns. The price of zinc was 1 percent higher at $2,817 a tonne on Friday.

    The union said Noranda has failed to demonstrate that is experiencing any financial troubles and has refused to explore other cost-cutting measures.

    Noranda said on Feb. 13 that the Fund would be paying market prices starting May 3, replacing the previous fixed rate, a change that will substantially impact its results.
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    Steel, Iron Ore and Coal

    China iron-ore, steel resume rally amid steel curbs, demand pickup

    Iron-ore and steel futures in China jumped more than 4% on Monday, resuming their rally, amid planned curbs in steel production in key areas and a pickup in seasonal demand.

    Rebar prices pushed to a fresh three-year high and iron-ore neared a record peak, as both commodities benefited from China's efforts to tackle a steel glut and boost infrastructure spending.

    The most-active rebar on the Shanghai Futures Exchange was up 4.7% at 3 610 yuan ($525) a tonne at 0320 GMT after rising as far as 3 648 yuan earlier, its strongest since February 2014. The construction steel product has gained about 24% this year.

    iron-ore on the Dalian Commodity Exchange was up 4.4% at 722.50 yuan per tonne. The steelmaking raw material has risen 30% this year, having touched a record high of 741.50 yuan last week.

    Steel producers in the Hebei-Beijing-Tianjin area have been asked to shift their peak-load production to reduce pollution ahead of the start of China's National People's Congress on Friday, said Helen Lau, analyst at Argonaut Securities.

    Steel inventory held by Chinese traders fell to 16.29-million tonnes as of Feb. 24 from 16.39 million tonnes in the prior week, the first decline since last November, due to seasonal demand recovery, she said.

    "Looking ahead over short and mid-term, China's steelmarket will remain tight on the back of production regulation and seasonal demand recovery. We expect to see more upside in steel prices in both spot and futures markets," Lau said in a note.

    The revival in futures could push spot iron-ore prices back toward $100/t, after retreating last week as some traders cast doubt on the sustainability of this year's rally amid ample stocks of the raw material in China.

    Iron-ore for delivery to China's Qingdao port .IO62-CNO=MB slipped 0.9% to $90.50 a tonne on Friday, according to Metal Bulletin. The spot benchmark hit a 30-month peak of $94.86 last Tuesday.

    Stockpiles of imported iron-ore at 46 major Chinese ports continued to rise, hitting 129.35 million tonnes, the highest since 2004 when SteelHome consultancy began tracking the data.

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    Australian Newcastle's PWCS coal vessel queue at six-week high of nine ships

    The vessel queue at the Port Waratah Coal Services terminals at the Port of Newcastle, Australia, was the longest reported in the Hunter Valley Coal Chain Coordinator's weekly report Sunday for six weeks, but it remained short in comparison to last year's queues.

    The queue grew from two ships to nine week on week, which is the second longest queue reported for 2017 to date. The longest queue was 11 ships on January 16.

    For the first nine weeks of the year, there has been an average of six vessels queuing at PWCS, which compares to an average of 22 ships in the last nine weeks of 2016, data from HVCCC shows.

    HVCCC forecasts that the queue will be 12 ships at the end of February and five at the end of March.

    Inbound receivals to PWCS were 1.66 million mt of coal for the week ended Sunday, which is down from 3.22 million mt the previous week, HVCCC said. Port Waratah coal stocks finished the week at 1 million mt, down 456,000 mt week on week, it said.

    Coal stocks at the Port Kembla Coal Terminal were down slightly week on week while throughput increased.

    PKCT had 396,512 mt stockpiled Sunday, down from 417,460 mt a week earlier, while out loadings rose from 166,096 mt to 212,489 mt, data from the operator said.

    There was one ship assembled at the terminal on Sunday and one queuing, compared to one assembled and zero queuing the previous week.

    At the Dalrymple Bay Coal Terminal, there were two ships loading Monday and 11 at anchor, down from two queuing and 18 at anchor the week prior, DBCT Management said.

    The RG Tanna Coal Terminal at the Port of Gladstone had four ships at berth and four at anchor Monday, which compares against two at berth and six at anchor a week earlier, the Gladstone Ports Corporation said.

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    Jiangxi to close 94pct of its coal mines this year

    Central China's Jiangxi province may close 94% of its coal mines this year, local media reported, citing a meeting held by the provincial coal bureau on February 24.

    Last year, Jiangxi shut a total 232 coal mines. It plans to further eliminate coal mines with annual capacity below 90,000 tonnes.

    "That means the province will close around 94% of its coal mines and no longer take coal as one of its key industries," the report said.

    At present, the province has 265 coal mines, with 249 mines or 94% with capacity below 90,000 tonnes per annum.

    In 2016, Jiangxi produced over 7 million tonnes of coal, covering only 10% of the province's demand.

    Menghua railway, linking coal-rich western Inner Mongolia to Jiangxi, is expected to operate in 2019. By then, it will provide more than 40 million tonnes of coal per year to Jiangxi.

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    Japan Jan thermal coal imports hit a new high

    Japan imported 10.7 million tonnes of thermal coal (including bituminous and sub-bituminous coals) in January, increasing 10.1% year on year and up 13.13% month on month, hitting a new high since July 2015, the latest customs data showed.

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    In January, Japan imported 9.48 million tonnes of bituminous coal, rising 10.15% on the year and 10.18% on the month.

    Australia remained the largest supplier to Japan with 8.06 million tonnes of the material, up 5.53% from the year-ago level and 17.83% from the previous month.

    This was followed by Indonesia at 0.66 million tonnes, more than tripling from a year prior and up 46.3% from December.

    The country's bituminous imports from Russia stood at 0.37 million tonnes, falling 28.59% compared to the same month a year prior and down 64.54% from December.

    Meanwhile, Japan imported 1.22 tonnes of sub-bituminous coal in January, gaining 9.69% on the year and 42.98% on the month.

    Indonesia, the top supplier of this material, shipped 1.04 million tonnes to Japan in January, more than doubling from the month prior and up 36.92 from a year ago, the highest since July 2015.

    Australia followed with 0.14 million tonnes, rising 161.24% from the month-ago level and up 67.13 from the same month in 2016.

    Total value of Japan's bituminous coal imports in January reached 109.47 billion yen ($977.02 million), increasing 19.96% from the previous month. That translated to an average imported price of 11,548.6 yen/t, rising 8.88% from December.

    The value of its sub-bituminous coal imports surged 62.12% on the month to 9.62 billion yen in January. That translated to an average imported price of 7,495.19 yen/t, up 13.38% from December.

    Additionally, Japan imported 466,200 tonnes of anthracite coal in January, sliding 38.14% from a year ago but up 21.34% from December.

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    US coal train loadings increase from all major basins: railroads

    Weekly US coal train loading volumes strengthened week on week across all major basins, Surface Transportation Board filings show.

    Data filed by the four major US railroads -- CSX, Union Pacific, BSNF and Norfolk Southern -- for the week ending February 17 shows nationwide coal loadings averaged 105.2 trains/day, up from 102.9 the prior week.

    Powder River Basin loadings increased in the latest reports to 63.8 trains/d from 63 the previous week, falling just short of tying year-high average of 63.9 in mid-January.

    Central Appalachian coal loading volumes were up to 14.7 trains/d from 14.2 the previous week, while Northern Appalachian grew to 12 trains/d from 11.5.

    Illinois Basin loadings increased to a year-high 8.3 trains/d from 7.5. IB loadings were last higher in early September last year.

    Utica Basin coal train loadings were flat at 4 trains/d, and loadings from outside the primary basins slipped to 2.4 trains/d from 2.7.

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    Changes to U.S. coal mining royalties blocked

    President Trump has promised to remove any Obama-era roadblocks to energy projects such as the Keystone XL pipeline. He also has vowed to lift restrictions on mining coal and drilling for oil and natural gas.

    The Trump administration has made another pro-coal decision, this time relating to how Washington calculates royalties on coal mined from federal and Indian lands.

    iPolitics reported on the weekend that the Interior Department has put on hold changes to the value of coal extracted from public lands, meaning current rules governing the industry will remain in place pending court decisions. The Obama administration had sought to change the rules – saying they were improperly calculated – and argued that the changes were to ensure that taxpayers were given a fair share of coal sales to Asia and other export markets.

    Trump's decision is likely to be controversial. IPolitics quotes a Montana rancher saying “This announcement is a gift to coal companies trying to avoid paying their fair share,” but some Western U.S. politicians are on board with it. Rob Bishop of Utah, chairman of the House Natural Resources Committee, told the online news site the rule changes would increase electricity rates for consumers by forcing utilities to pay more for coal. “The Trump administration made the right decision to suspend this illogical and legally dubious rule,” he said.
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    Teck bullish on coal, but not enough to add production capacity

    Teck Resources Ltd. is bullish on steel-making-coal prices, but not enough to enhance production capacity, Bloomberg reported on February 28, citing the head of Canada's largest diversified miner.

     Teck Chief Executive Officer Donald Lindsay said on February 27 there's a clear change in direction in coal prices in the past 10 days, with a surge in forward prices for metallurgical material.
    The possibility that China could reinstate coal output restrictions at the end of March and its decision to stop importing coal from North Korea are supportive of prices, Lindsay said.
    While the Vancouver-based company has additional metallurgical-coal capacity that it could bring into production very quickly, it has no plans to do so until the steel business in India appears to "be really taking off," he said.
    Any new protectionist policies under the U.S. administration are unlikely to affect the company very much because 95% of Teck's coal sales go to Asia and Europe, Lindsay said. "Teck is watching Chinese policy much more closely than U.S. President Donald Trump's policies."
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    Anglo American's Australian Drayton South coal project rejected

    Anglo American's Australian Drayton South coal project located in the Upper Hunter Valley of New South Wales has once again been rejected by the state's planning commission, Platts reported, citing the Planning Assessment Commission.

    The project, which was to extract 74.9 million tonne of run-of-mine coal over a 15-year period at a rate of around 6.4 million tonne per year, was not in the public interest, PAC said.

    Anglo American had hoped to extend operations from the neighboring Drayton mine to Drayton South, but it had to close the Drayton mine in September 2016 as it was mined out and the company was facing difficulties in gaining the extension approval.

    Anglo American has recently divested its Australian coal operations, which including its Dartbrook project to Australian Pacific Coal, its Callide thermal coal mine in Queensland to Batchfire Resources, and its Foxleigh mine, also in Queensland, to Middlemount South.
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    Fortescue, Apollo said to bid for Wesfarmers coal assets

    Fortescue Metals Group and Apollo Global Management are among bidders for Wesfarmers’s Australian coal operations, according to people with knowledge of the matter.

    Apollo submitted an indicative offer for Wesfarmers’s stakes in the Curragh and Bengalla mines by a deadline around the end of last month, the people said, asking not to be identified because the information is private. Fortescue bid for Curragh, which produces mostly metallurgical coal, according to the people. The suitors are now studying detailed information on the assets, which could fetch as much as A$2-billion ($1.5-billion) combined, the people said.

    Wesfarmers, the Australian retail-to-fertilizer conglomerate, started a sale process for the mines after prices for coking coal soared last year. Any purchase by Fortescue, the world’s fourth-biggest iron ore exporter, would further the company’s goal of expanding into other commodities to diversify its revenue sources.

    Representatives for Apollo, Fortescue and Wesfarmers declined to comment.

    Wesfarmers fully owns the Curragh mine in Queensland’s Bowen Basin, an asset that can produce about 8.5-million metric tons of metallurgical coal and 3.5-million tons of thermal coal a year, according to the Wesfarmers website. The company also holds 40% of the Bengalla thermal coalmine, which is located in New South Wales state’s Hunter Valley and can suppl y as much as 10.7-million tons a year.

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    China's February iron ore imports stay strong

    If you did nothing more than look at China's imports of iron ore, you would be satisfied that the robust rally in the price of steel-making ingredient is entirely justified.

    February's imports of iron ore look set to continue the recent strength, with vessel-tracking and port data pointing to imports of around 88.78 million tonnes.

    The data compiled by Thomson Reuters Supply Chain and Commodity Forecasts doesn't align exactly with Chinese customs numbers given discrepancies of when cargoes are booked as having arrived for customs purposes and differences in volumes onboard vessels.

    However, the vessel-tracking data tends to err on the conservative side, with its estimate of 2016 imports some 3.5 percent lower than the official figure of 1.024 billion tonnes.

    If the February customs arrivals are in line with the vessel-tracking data, it suggests an acceleration in the pace of imports on a daily basis from January, which were the second highest on record on a monthly count.

    Daily imports in January averaged 2.97 million tonnes, and if February's imports are around the ship-tracking estimate, they will be about 3.17 million tonnes.

    Overall, the robust imports by China, which buys about two-thirds of global sea-borne iron ore, appear to justify much of the strong price gains over the past 14 months, even if there does seem to be some froth in the DCE futures, which is perhaps unsurprisingly given their appeal to Chinese day traders.

    Inventories of iron ore at 46 major ports hit a record high of 129.35 million tonnes last week, according to consultancy SteelHome.

    This is up 15.4 million tonnes since the start of the year and inventories are now 63 percent higher than they were in June 2015, when the uptrend started.

    Rising inventories would be fine if they were a reflection of increased demand for steel, but it is likely that China's steel production is close to a peak for now.

    The World Steel Association estimates that January output was 67.2 million tonnes, the same as in December.

    China's steel production was 808 million tonnes in 2016, up 1.2 percent over the prior year, the association said on Jan. 25.

    This was a strong performance in the context of expectations that steel output would actually decline as excess capacity was shuttered, but infrastructure stimulus spending and increased property construction helped keep steel mills producing.

    Will this continue in 2017? While it's likely the Chinese authorities want economic growth to continue at around 6-6.5 percent per annum, the chances of strongly rising steel demand this year are uncertain.

    Rather it appears the authorities want to continue to rationalize steel capacity and target illegal factories in a bid to cut pollution from burning coal in steel blast furnaces.

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