Mark Latham Commodity Equity Intelligence Service

Friday 15th January 2016
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    Oil and Gas


    Noble default risk rises most in Asia on debt payment challenge

    Singapore-listed commodity trader Noble Group Ltd.’s default risk rose the most in Asia this year as a deepening resources slump threatens to worsen the imbalance between the company’s cash flows and liabilities.

    The cost to protect the company’s notes against non-payment for one year is 2,593 basis points, the highest in Asia, according to data provider CMA. The company is preparing to refinance $2.1 billion of loans due in April and May. Noble reported short-term debt of $3 billion on Sept. 30 and $1.9 billion of unused committed bank facilities plus cash and equivalents.

    The climb in credit-default swaps came after Standard & Poor’s and Moody’s Investors Service both cut Noble’s rating to junk in the past month citing liquidity issues, while Fitch Ratings affirmed its score at the lowest investment-grade ranking on Thursday as asset sales improved finances. Noble said it has been successful in raising cash and still has support from its creditors.

    “They still have a liquidity issue that they've got to manage, which is dealing with the banks to refinance loans coming due in May at a time when the industry environment is not favourable,” said Joe Morrison, an analyst at Moody’s in Hong Kong. “The rating committee felt that selling assets to deal with a liquidity issue was not consistent with an investment grade profile and that the company still has some challenges going forward.”

    Noble agreed in December to sell the remaining 49 percent of its agricultural unit to China’s Cofco Corp. for at least $750 million to reduce debt. Cofco already owned the other 51 percent.

    “Banks have their own rating metrics, and none of our bank facilities have ratings triggers,” Stephen Brown, a Noble spokesman, said in e-mailed comments. “We have successfully raised $2.1 billion since last October. More than half of that capital is from the banks, which is a demonstration of strong support from the lenders that we still continue to enjoy. In addition, with the fall of commodity prices, working capital requirements — and hence funding needs — have decreased.”

    “Noble’s stretched gearing and cash flows have been exacerbated by the rapidly deteriorating commodities price outlook,” said Kuala Lumpur-based Ray Choy, head of fixed income and currency research at RHB Research Institute. “The default probability has risen now that the commodity cycle could have turned secularly worse.”

    “It’s inherently a thin-margin business,” Moody’s Morrison said. “When you've got a deteriorating industry environment and liquidity declining and you've got thin margins and you’ve got negative free cashflow from your core operation, there’s going to be pressure on the ratings.”
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    Why the market hailed BHP's shale decision

    There was an interesting message in the sharemarket’s response to BHP Billiton’s announcement of another $US7.2 billion writedown in the value of its US onshore oil and gas assets. BHP’s share price immediately rose 3 per cent.

    In the context of an overall market that was up only a fraction, the response was telling. The market expected and wanted BHP to address the impact of the plunge oil and gas prices on a shale business that had already been written down, in two steps, by $US5.6bn.

    It’s not so much the writedown that is significant — it’s a non-cash charge — but rather that it was accompanied by another reduction in BHP’s onshore drilling activity. Having previously slashed the number of rigs operating in the US from 26 to seven, the group has now shut down two more.

    Of the five remaining, three are in the highly productive and, even at today’s oil prices, positive cashflow-generating Black Hawk fields, while the other two are in the Permian Basin and have only been kept in operation because BHP has obligations to drill that it needs to fulfil to secure its ownership.

    The writedown, which follows a $US2.8bn writedown last year and another of similar magnitude in 2012, has come despite significant improvements in the productivity of the US business, with drilling costs halving in the past couple of years and capital intensity also reduced.

    BHP is among the most efficient of the shale oil producers. The Black Hawk acreage is regarded as having the best onshore liquids reserves in the US and the Permian is regarded as one of the most prospective.

    It’s not the underlying quality of the assets that is under pressure, or BHP’s operating capabilities, but an oil price that has plunged from above $US100 a barrel to around $US30 a barrel in a little over a year, dragging US gas prices down with it.

    The reason the market might have responded positively to the announcement is that it speaks to BHP’s intensifying focus on cashflow preservation. Onshore drilling is capital-intensive and, at today’s oil price, only the Black Hawk fields would be cash positive.

    With commodity prices plunging across the board and intense pressure on BHP to abandon its progressive dividend policy to conserve cash, reducing the amount of capital devoted to petroleum exploration and development (which has already been cut by more than a third from its peak) underscores BHP’s willingness to reduce under-returning investment further.

    The budget for onshore capital expenditure this financial year was $US1.4bn. The latest reduction in drilling activity probably won’t have a material impact in the first half but next week’s production report might provide some insight into its effect on second half capital expenditures and, indeed, the longer-term impact.

    The writedown and the shrinking of drilling activity in the US may presage a wider reduction in capital expenditures. BHP’s total capex budget for this year was about $US8.5bn, of which about $US5bn could be considered discretionary. If it is in absolute cashflow-maximising mode, it could carve into its non-essential investment plans.

    There are investors that would be very happy to see BHP cut its dividend, which absorbed more than $US6bn last year, to free up discretionary cash flows, protect its balance sheet strength and, perhaps, enable it to invest selectively and counter-cyclically while, with the exception of BHP and Rio Tinto, the rest of the sector is battling for survival.

    The writedowns themselves were forced by the continuing dive in oil prices, including a 30 per cent fall in the past three months in the face of a glut created by softer demand but, more particularly, increased production from OPEC and Saudi Arabia in particular.

    That forced a reduction in BHP’s own short to medium-term oil prices assumptions, while the extent of the volatility in the price also dictated an increase in the discount rate applied to value the assets.

    BHP spent $US20.6bn acquiring its onshore oil and gas assets in the US at the start of this decade and has now written their value down by $US12.8bn ($US8.7bn after tax). After taking into account the subsequent investment and earnings, their book value is now about $US16bn.

    With hindsight, it’s obvious BHP’s timing wasn’t great.

    The nature of the business, however — drilling activity can be dialled up or down very quickly — and the quality of the liquids-rich positions BHP holds makes it a potentially valuable asset in an environment where investment in conventional oil, with its massive exploration and development costs and long lead time before production, has been dramatically reduced.

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    Glencore launches refinancing of $8.45 billion loan

    Global diversified natural resource company Glencore has launched senior syndication of a refinancing of a $8.45 billion (5.87 billion pound), one-year revolving credit facility that it signed in May 2015, banking sources said on Thursday.

    The facility supports the company’s trading activities.

    A company spokesman confirmed that the refinancing was underway. Normally the company would begin the refinancing process in April, but it has decided to the put the financing in place earlier.

    The company has approached its top tier lenders and is looking to wrap the senior phase by the end of February, before launching a wider syndication post-results in April.

    Active bookrunners on the deal are ABN AMRO, HSBC, ING, Bank of Tokyo-Mitsubishi UFJ and Santander, all of which have credit approval for the deal.

    The financing is expected to receive strong support from the market, the sources said, despite Glencore being hit hard by a slump commodities in 2015, which forced it to launch debt reduction programme.

    The existing facility was part of a US$15.25bn financing arranged in May 2015, which included a US$6.8bn, five-year revolving credit facility. The five-year facility is being left in place.

    Active bookrunners on that deal were BBVA, HSBC, Lloyds Bank and Rabobank.
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    Renault Plunges 20% After French Authorities Raid Offices In Apparent Emissions Probe

    The French company’s shares fell by as much as 23% on Thursday after an apparent raid on what a union official described as “sites that have to do with standards testing and engine certification.”

    Earlier, AFP reported that the agents from the fraud office of France’s Economy Ministry visited the sites last week seizing computers as part of an apparent probe into emissions testing.

    As Bloomberg notes, “French authorities started a probe in September into whether VW deceived customers about the emissions levels of its diesel cars and promised to expand the probe to cover all carmakers, including Renault and PSA Peugeot Citroen.”

    Peurgeot shares fell nearly 10% in sympathy. In October, the automaker said it never used software to cheat emissions tests.

    The news rattled carmakers from France to Germany where the market is still on edge after the Volkswagen scandal rocked the country's auto industry to the core last year.

    Florent Grimaldi, the CGT labor official who spoke to the press, said the searches were conducted at company offices at Lardy near Paris. The Lardy site develops engines and ironically has been requesting more resources to work on anti-pollution systems. Apparently, the certification department was targeted.

    The stock's 20% plunge is the largest single day decline in 17 years, reflecting investor fears that the scope of the probe could mirror what unfolded at its German rival.

    "Separately, the country’s environmental regulator began randomly testing vehicles to check differences between emissions results found in laboratory testing and real-world figures," Bloomberg adds.

    Renault initially declined to comment but has now confirmed the story and says the company is co-operating with authorities.
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    Shandong "zombie enterprises"

    Shandong had 448 "zombie enterprises", 80% of which were in production suspension or half-suspension, said the provincial Economic and Information Commission recently.

    Total sales revenue of these enterprises was 48.1 billion yuan ($7.3 billion) in 2015, but only 1.6 billion yuan during the first three quarters of 2015.

    These zombie enterprises only accounted for 9.5% of the province’s loss-making enterprises, said Qian Huantao, director of the commission, adding more such enterprises should exist in the province.

    Overcapacity has become the tumor plaguing industrial development in the eastern province.

    Shandong has eliminated outdated capacity in iron-making, steel-making and coke industries last year. The capacity eliminated in these industries all exceeded targets set by the central government, as the province shut 49% above-target iron-making capacity and 100% plus-above targets in other six industries including steel and coke making.

    A recent meeting held by the commission pointed out that de-capacity, cleaning up zombie enterprises and cutting enterprise cost will be three major targets in 2016.

    The clearing of zombie enterprises would be dealt case by case. These that were insolvent would be merged or withdraw from the market; they will not allow getting subsidies from the government or other firms’ help.

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    Engie Steps Up Asset Sales to Cut Exposure to Commodity Prices

    Engie will accelerate asset sales as the French energy company formerly known as GDF Suez SA reduces its exposure to oil and gas prices and unregulated power markets.

    “Our strategy is to reduce the share of our activities that are exposed to price fluctuations of commodities and to increase the share of contracted or regulated activities,” Chairman and Chief Executive Officer Gerard Mestrallet told reporters in Paris Thursday. The goal is to “significantly” reduce exposure to those operations, which already account for less than half Engie’s assets.

    The company, based in La Defense near Paris, may sell thermal-power assets in “mature countries” and will look at selling a stake in its Belgian nuclear reactor operations, Mestrallet said. The company will step up spending cuts in oil and gas exploration and production, and may consider reducing its exposure to that unit this year, the CEO said.

    Mestrallet, who will be replaced as CEO by his deputy Isabelle Kocher in May, said the return on regulated assets is lower but much safer than unregulated assets, making them more valued by markets.

    Mestrallet reiterated that the 2015 profit of Engie, which is expanding in energy-efficiency services and renewables as falling gas prices and overcapacity crimp earnings, will be toward the low end of its target. Engie last year bought French solar park developer SolaireDirect SA and said it won’t develop new projects tied to coal.

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    Overcapacity may lead to 3m layoffs

    Layoffs in industries plagued by overcapacity are expected to reach 3 million in the next one or two years, according to a Chinese investment bank.

    However, this figure will only lead to a "marginal increase" in unemployment, the bank predicts.

    The estimate from China International Capital Corp is based on the assumption that the five industries mired in overcapacity will shed 30 percent of their capacity.

    As a result, 3 million jobs would be cut from the 10 million currently available in the coal, steel, electrolytic aluminum, cement and glass industries.

    However, real job losses are expected to be much lower. During the 1997-98 downturn, 21 million workers at struggling State-owned enter-prises were sacked. Of these, 13 million found new jobs, more than 1 million were transferred internally, while a third lost their jobs.

    If that ratio was applied today, one-third, or 1 million, would lose their jobs, according to the bank's estimate.

    Liu Liu and Liang Hong, authors of the report, said: "China's unemployment rate has remained steady in recent years - despite the downturn - at 5.1 percent. The 1 million job losses would only be the equivalent of 0.3 percent of the entire urban employment."

    The report comes as Beijing prepares to tackle increased unemployment by shedding excess capacity-a top priority for this year.

    Yang Weimin, deputy director of the Office of the Central Leading Group on Financial and Economic Affairs, said if so-called zombie firms were allowed to continue operating through hefty subsidies, profitable companies would be "dragged to their deaths".

    "The right approach is to tackle zombie companies resolutely. Only when excess capacity is shed, can price falls be stopped and good companies see hope," Yang said.

    While declaring its resolve to tackle the problem, Beijing has vowed repeatedly to minimize the social pain.

    At a meeting of top leaders in December, local governments were told to turn to mergers and acquisitions and to avoid bankruptcy and liquidation when dealing with firms that are unviable.

    Li Pumin, spokesman for the National Development and Reform Commission, pledged on Tuesday to put social policies in place to ensure against layoffs.

    A special fund will be set up at central government level to reward local governments that succeed in cutting overcapacity. The money will be used chiefly as compensation for layoffs

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    Iran Sanctions Seen Lifted by Monday Once Nuclear Deal Verified

    A decade of sanctions imposed on Iran’s nuclear program may come to an end by Monday, unlocking billions of dollars in frozen accounts and paving the way for a surge in oil exports from the Islamic Republic.

    The International Atomic Energy Agency is expected to report on Friday that Iran has fulfilled its commitments under July’s nuclear accord with world powers, Iran’s Deputy Foreign Minister Abbas Araghchi said in Tehran. That would enable a joint announcement by Sunday implementing the deal and lifting sanctions, he said.

    Iran’s foreign ministry on Tuesday sent its director of political and international affairs, Hamid Baeedinejad, to Vienna, where the IAEA is based.

    The end to nuclear-related sanctions will mean that the Iranian economy is open for funds to flood in, with Iran set to get immediate access to as much as $50 billion of cash frozen in overseas accounts, according to U.S. Treasury estimates. Crude exports are expected to rise by half-a-million barrels a day within weeks.

    While Iran says it will need $100 billion to rebuild its energy industry and another $29 billion for mining and steel, foreign investors are expected to return only gradually as they wait to make sure the nuclear deal holds. Diplomats left escape clauses if the accord is violated. Should the deal fail, sanctions could be reimposed just as Iran’s nuclear work could return to unchecked development.

    “Iran has granted the International Atomic Energy Agency unprecedented access to make sure it is doing all the things it said it would do in this deal,” U.K. Prime Minister David Cameron said in Parliament in London on Wednesday. “We should enter into it with a very heavy heart, a very clear eye and a very hard head in making sure this country does everything it said it would.”

    Friday would be the earliest date that IAEA inspectors could verify Iran has removed nuclear equipment and material from atomic sites, two diplomats with direct knowledge of the process said earlier on Wednesday. The IAEA press office declined to comment.

    The comments about the deal’s implementation came only hours after 10 U.S. sailors were released by Iranian authorities after their boats drifted into Iran’s territorial waters. Even as U.S. President Barack Obama on Tuesday night praised the nuclear deal foraverting a war with Iran, the Persian Gulf incident underscores lingering tensions in the relationship.

    “The Americans cannot have trade relations with us, and so be it,” Araghchi said, adding that Iran understands that non-nuclear sanctions targeting terrorism and ballistic missile programs will remain in place. “Iran and U.S. relations will stay where they are -- the intention of this deal hasn’t been about trust-building.”

    It was precisely because of that lack of trust between Iran and six world powers -- China, France, Germany, Russia, the U.K. and U.S. -- that negotiations to reach a deal took more than two years. In the end, Iran agreed to eliminate virtually all of its enriched uranium and dramatically reduce its nuclear capacity. In exchange, it will receive sweeping sanctions relief that reconnects its banks to the international financial system and allows oil and gas producers to boost exports.

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    China supply-side reform's positive impact on growth to show in long run

    China's supply-side reform -- cutting overcapacity, deleveraging, and reducing housing inventories -- sounds painful, but growth will be seen in the long run, Xinhua reported, citing an investment bank's report on January 12.

    The direct negative impact on GDP of cutting overcapacity in five key industries will be 0.3 to 0.4%, while tax cuts, also a key measure of supply-side reform, will boost GDP by 0.4%,
    China International Capital Corporation (CICC), a Chinese investment bank, was quoted as saying.

    The estimate was based on the assumption that the five industries, namely iron and steel, coal mining, cement, ship building, and aluminum and flat glass, will reduce 10% of their production capacity annually over the next three years.

    In the short-term, tax cuts will raise private investment and stimulate consumption, thus giving GDP growth a 0.4% boost if fiscal deficits rise to 3% in 2016, CICC said.

    CICC earlier said overcapacity cuts will slightly push up the unemployment rate, but considering the number of people that will be re-employed, the impact is very limited.

    Credit risks will also rise as the implicit guarantee by the government to cover non-performing companies' debt will be withdrawn, but in the long run, supply-side reforms will help achieve market-based pricing of credit risks and encourage the flow of funds to more efficient industries, according to the report.
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    BHP Spinoff South32 Said Interested in $1 Billion Anglo Sale

    South32 Ltd., the aluminum, coal and manganese producer spun out of BHP Billiton Ltd. last year, is considering bidding for Anglo American Plc’s $1 billion niobium and phosphate business in Brazil, according to three people familiar with the situation.

    South32 sent out requests to investment banks as it seeks to hire an adviser to assist in the bidding process, the people said, asking not to be identified because the information is confidential. Goldman Sachs Group Inc. and Morgan Stanley are managing the sale for Anglo, the people said.

    First-round bids are due by the middle of next month, and Anglo is seeking to complete the sale in one transaction, rather than split the niobium and phosphate assets, they said. Large North American fertilizer companies are also likely to participate in the auction, two of the people said. Anglo confirmed last month that it would work to sell the business this year.

    South32 was created last year in the mining sector’s biggest spinoff in about a decade as BHP narrowed its focus to copper, coal, iron ore and oil. Shares of Perth, Australia-based South32 plunged 56 percent in Sydney trading since listing in May.

    A spokeswoman said the company doesn’t comment on market speculation. South32 has a strong balance sheet and will look at acquisition opportunities, Chief Executive Officer Graham Kerr said in August.

    “Our primary focus is on optimizing the performance of our existing operations and maximizing the value of those assets,” the company said in an e-mailed statement.

    The assets are among several that Anglo is trying to sell as it seeks to raise $4 billion to cope with the collapse in commodities. The London-based miner already generated about $2 billion by offloading its tarmac business, two copper mines in Chile and platinum assets in South Africa.

    Anglo is set to become the world’s second-largest producer of niobium, a material used in high-temperature alloys for jet engines and lightweight steel for cars, when it completes the ramp up of its $325 million Boa Vista Fresh Rock plant in Brazil’s Goias state by mid-2016.

    It produced 2,934 metric tons of niobium in the first half of 2015, and the business contributed $35 million to earnings before interest, taxes, depreciation and amortization. The phosphates unit had output of 513,000 tons with Ebitda of $52 million.
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    Russia seeks spending cuts to ready for low oil price era

    "New realities" including the possibility that oil prices will remain low for a prolonged period will force Russia to take hard decisions about government spending, its finance minister said on Wednesday.

    Anton Siluanov warned the country's budget would only balance at an oil price of $82 per barrel, well in excess of the $50 per barrel assumption used for this year's calculations, let alone the $30 per barrel near which oil is currently trading. Some forecasters have predicted crude, Russia's major export and main source of revenues, could fall to $20 per barrel or lower.

    Although he said oil prices could start to recover in the second half of the year, Siluanov told the annual Gaidar Forum in Moscow that the 2016 budget should be revised according to a lower assumed average oil price of $40 per barrel.

    "Our task is to adapt our budget to the new realities," Siluanov said. "Our budget will be balanced when the price is $82 per barrel so there are still a lot of decisions to be made when it comes to budget policy."

    Speaking at the same conference, Prime Minister Dmitry Medvedev also said the country needed to steel itself for tough times. "One needs to prepare for the worst scenario," he said.

    Medvedev said the budget would need to be revised if oil prices fell further. But he also said the situation was manageable given Russia's existing cash reserves.

    Russia's central bank outlined a "risk scenario" last month under which oil prices would stay at around $35 for three years.

    Siluanov said last year's budget deficit was around 2.6 percent of gross domestic product, slightly lower than forecast, but warned that did not mean Russia had adapted to an era of cheap oil.

    This year's budget envisages a deficit of 3 percent of GDP, assuming the oil price averages $50 per barrel.

    Siluanov said the first steps towards adjusting spending had been taken, after the government ordered ministries to find 10 percent cuts in "non-protected items" of expenditure.

    Officials earlier told Reuters that the planned cuts had been approved by the government last month, but would exclude areas such as public sector pay and pensions.

    The finance ministry, which typically emphasises the need for fiscal caution, is likely to face resistance to spending cuts from other government departments as it did last year.

    Economy Minister Alexei Ulyukayev also warned that Russia needed to brace for a long period of low commodity prices.

    "I am convinced that the period of low commodity prices will be protracted," he told the forum.

    "One needs to fear that there will be (an oil price) of $20 or $15. By the logic of markets the bigger the fall today, the larger the rebound tomorrow, and this isn't the biggest risk.

    "The biggest risk is that there will be low prices for a long time -- that is for years, for decades," Ulyukayev said.

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    China Trade Surplus Swells as Exports Rise in Boost for Yuan

    China’s trade surplus widened and exports recovered last month, offering support to a weakening currency that has roiled global markets this year.

    The nation’s trade balance widened to $60 billion, taking the full-year tally to $594.5 billion, helping offset capital outflows that have pressured the yuan. Exports slid 1.4 percent in U.S. dollar terms in December from a year earlier, and rose when counted in the local currency.

    Asian equities and the Australian dollar climbed. China’s tumbling shares, which fell again Wednesday, and its weakening currency have shaken global markets in 2016, eroding confidence in an economy that’s struggling to stabilize after it likely grew last year at the slowest pace in a quarter of a century.

    "The Chinese economy is stabilizing rather than collapsing," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors Ltd. in Sydney, adding that the trade surplus weakens the case for a substantial yuan depreciation. "Last week’s renewed share market turmoil in China owed more to regulatory issues around the share market than telling us much about the state of the Chinese economy."

    Exports climbed 2.3 percent in yuan terms from a year earlier, the customs administration said Wednesday, compared with a 3.7 percent drop in November. Imports extended a stretch of declines to 14 months, falling 4 percent in yuan terms, compared with a 5.6 percent drop a month earlier.

    In U.S. dollar terms, imports fell 7.6 percent from a year earlier, less than the 11 percent drop forecast by economists. In volume terms, the import data looks better, Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note.

    "China’s purchases of major commodities remain on trend, and even accelerated slightly in December," they wrote. "Commodities markets might be concerned about China’s growth outlook, but based on current purchases there’s little cause for alarm."

    China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. Iron ore imports jumped to a record last month, while steel exports climbed as the nation sells its glut overseas.

    Raising question marks over the sustainability of any export recovery, shipments to Hong Kong led the advance last month. Economists said the surprise gains may harken back to past instances of phony invoicing and other rules skirted to escape currency restrictions.
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    Obama says must change the way nation manages fossil fuel resources

    President Barack Obama on Tuesday said he would seek changes in the way U.S. oil and coal resources are managed, prompting a flood of reaction from environmental groups pushing him to do more to limit fossil fuel production - and producers anxious about regulatory changes.

    "I'm going to push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet," Obama said in his State of the Union address.

    As he enters his final year in office, Obama is looking to secure his legacy on priorities like curbing climate change. The White House did not provide details on Tuesday.

    "That's an issue I would say, stay tuned for the months ahead," White House Communications Director Jen Psaki told reporters during a briefing ahead of the speech.

    "This is not a speech where I would expect a 25-page fact-sheet. This is more talking about his vision and the issues we need to address," Psaki said.

    The Western Energy Alliance, a group that represents oil and natural gas companies that drill on public lands in the western states, said it suspected the lack of immediate details meant that Obama would look for ways to act without Congress.

    "He’ll close out his term by continuing to issue new rules through the federal agencies that kill jobs and economic growth in order to promote his climate change agenda," said Tim Wigley, the group's president, in a statement.

    Environmental groups noted Obama's pledge comes as his administration works on a new five-year plan for offshore oil and gas leases. They are also calling for changes to rules for production of oil and gas on federal lands.

    "For far too long, the Interior Department has given away our publicly owned fossil fuels to mining and drilling companies without regard for the damage they cause to communities and our climate," said Annie Leonard, executive director of Greenpeace USA, in a statement.
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    Gundlach warns stock, credit markets to struggle in first half, near term low in Oil

    Gundlach warns stock, credit markets to struggle in first half, near term low in Oil

    Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital and was prescient in his call for lower oil prices in 2015, said on Tuesday that oil hit a short-term bottom and that stock and credit markets will struggle during the first half of the year.

    As oil prices per barrel flirted with the $30-mark on Tuesday, Gundlach told Reuters: "Fundamentals are lousy but the technicals call for a short-term bottom today. A short-term bottom is due today, actually."

    Gundlach, who oversees $85 billion at Los Angeles-based DoubleLine Capital, said the snowball effect of lower oil prices will prompt Standard & Poor's to launch a barrage of credit-rating downgrades. "It's already happening, in fact," he said.

    Gundlach has also said the U.S. economy faces a 30 percent chance of recession this year. "Commodity prices so weak suggest dwindling global growth," Gundlach said.

    Gundlach said weak nominal gross domestic product growth; falling commodity prices, especially in energy which portend higher corporate default rates; tightening financial conditions and higher financing costs for corporations will affect growth.

    In a webcast later on Tuesday, Gundlach said both stock and corporate credit markets will struggle during the first half of the year. Gundlach said if the strong rhetoric by Federal Reserve officials continue, the S&P 500 index will come under renewed selling pressure.

    "The stock market is having a hard time (after the December rate hike). This is not a time to be a hero," Gundlach said about buying dips. "I think we're going to take out the September low of the S&P 500."

    He said stock markets are likely to struggle early in 2016 before a "buying opportunity" later in the year. Gundlach also said it was: "Too early to be buying a lot of speculative credit."

    Gundlach said the Fed began its rate-tightening cycle in December because average hourly earnings were trending higher. He said Fed officials needed to dial back their rhetoric, given softness in global markets and economic growth.

    On the U.S. dollar, Gundlach said the U.S. dollar "has peaked out" for the near term. Gundlach also said he didn't recommend investments in China anytime soon.

    DoubleLine Capital posted a net inflow of $1.03 billion into its open-end mutual funds in December, marking the 23rd straight month of inflows. Those funds attracted $14.31 billion overall in 2015. The firm's flagship DoubleLine Total Return Bond Fund, with $51.78 billion in assets, had a net inflow of $10.94 billion in 2015.
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    After "Murderous" Squeeze, China Boosts Capital Controls By Ordering Banks To Limit Yuan Outflows

    Back in September, just weeks after China's first dramatic currency devaluation, and when Bitcoin was trading at $220, we wrote that "China Scrambles To Enforce Capital Controls" and explained why this is "Great News For Bitcoin." Sadly, China's attempts to boost its capital controls failed as confirmed a few months later by the biggest one-month reserve liquidation in history which took place this past December, while fears about ongoing currency devaluation have led to lines of people rushing to exchange their Yuan into dollars. Oh yes, Bitcoin today is double where it was in September.

    So, now that China renewed its currency devaluation over the past 2 weeks with the CNY and CNH both plunging and unleashing the latest round of cross-asset selling across the world, it was only a matter of time before China boosted, or at least tried to, capital controls once again. Which according to Bloomberg it did moments ago:


    Actually, since all Chinese banks are at least partially state-owned, change that "ask" to "order." Here are the details:

    China’s foreign-exchange regulator has verbally instructed some banks operating in the mainland to limit yuan outflows and reduce offshore yuan positions and liquidity, according to people with knowledge of the matter.

    Banks are asked to better manage net yuan outflows in their capital accounts in the near term, according to the people, who asked not to be identified because the information hasn’t been made public.

    Banks are also requested to properly manage cross-border interbank yuan borrowing and corporate offshore yuan lending.

    The State Administration of Foreign Exchange didn’t immediately respond to a faxed request for comment after office hours.

    This takes place after overnight the PBOC unleashed a "murderous" liquidity squeeze, which sent the deposit rate on the offshore Yuan to 66%, or an overnight widowmaker for anyone who was short the currency.

    What happens next? Most likely a rerun of September, when a comparable (failed) attempt to boost capital controls and preserve capital outflow simply lead the public to find more effective ways to evade said capital controls... and also lead to a doubling of bitcoin in 4 months.

    Finally, how long before it becomes obvious to everyone that what is going on in among the top echelons of power in China can be summarized with one word: panic.
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    Anglo $2bn sale target "a stretch", say analysts

    ANGLO American put the finishing touches to the sale of its Tarmac business after divesting of Tarmac's Middle East operating joint ventures to a subsidiary of Bouygues Group, the French industrial company.

    Anglo announced in July that it would sell its 50% stake in Tarmac to Lafarge for $1.6bn - a valuation above expectations.

    The transaction today sees Bouygues company Colas SA buy Tarmac joint ventures in the United Arab Emirates, Oman and Qatar. "The sale to Colas of an additional non-operating joint venture entity in Oman is pending satisfaction of certain outstanding conditions," said Anglo in an announcement.

    There is scepticism, however, that Anglo American will be able to see the sale of some 30 to 35 of its other businesses at the same level of success, especially given the deterioration in the commodity market.

    Following the likely sale of its Rustenburg Platinum Mines, Anglo American guided to some $2bn worth of disposals in 2016/17 consisting of its niobium and phosphates division, as well as its Australian and South African thermal coal assets.

    Using an industry multiple, HSBC calculated that Anglo would try to get the niobium and phospates assets away for $400m and $500m respectively. It added, however, that "... the weak market backdrop may delay the potential sale or severely depress sale value".

    "Similarly, Australian and South African coal assets are unlikely to attract generous valuations, and as such we view the targeted disposal proceeds as a stretch," the bank said in a report.

    A "firesale" at Anglo’s Kumba Iron Ore was also expected by HSBC if iron ore prices were to fall lower amid ‘financing pressures’, it said.

    Anglo American said last year that Kumba Iron Ore may well test covenants with lenders if market prices were to persist and it failed to lower its break-even. Anglo would not have the appetite to put more capital into the company, said HSBC.

    "Given the cost profile and challenging operating environment for Minas Rio, we think Anglo would consider any bids though we struggle to identify buyers,” it said of Anglo’s Brazilian operation, the value of which it had written down.

    Barclays Capital sounded a slightly more optimistic note on Anglo, however, based on the fact the share had heavily under-performed which, in turn, was "starting to offer a glimmer of support from valuations".

    "However we are staying underweight given that commodity price risk still remains to the downside, in our view, and the prospect of a significant capital raising cannot be ruled out in those circumstances," it said.
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    Whiff of Panic in the air?

    RBS Warns: Sell Everything

    RBS economists have urged investors to “sell everything except high quality bonds,” warning of a “fairly cataclysmic year ahead.”

    Writing in a client note dated Jan. 8, the bank’s European rates research team said that clients should be concentrating on “return of capital, not return on capital,” and that an ominous outlook to the world economy “all looks similar to 2008.”

    The Key Points

    • • The note is particularly bearish on China and global commodities, and predicts that oil could fall as low as $16 a barrel.
    • • In a grim set of predictions, Andrew Roberts, head of European economics, rates & CEEMEA research said that the world has “far too much debt to be able to grow well.”
    • • He also warned that advances in technology and automation are set to wipe out up to half of all jobs in the developed world.
    • • The note says equities could fall 10% to 20%.
    • • It predicts the year will be spent focussing on how to exit positions which have benefited from long running QE, including emerging markets, credit and equities.

    “The world is slowing, trade is slowing, credit is slowing, we are in a currency war, global disinflation is turning to global deflation as China finally realises what it needs to do (devalue soon, and sharp) and the US then, against ALL THIS countervailing pressure, then stokes the fire by hiking rates.”
    Andrew Roberts, head of European economics, rates & CEEMEA research, RBS

    While the Fed’s interest rate move last year suggests a positive outlook for the US, the ECB’s quantitative easing is having a powerful effect, and eurozone activity picked up at the end of last year, there are undeniable headwinds, not least from China, oil and commodities.

    RBS is not the first bank to kick off the year with a series of bearish predictions on the world economy:

    Bears Out in Force

    • • JP Morgan today became the third bank to push back its forecast for the timing of a Bank of England rate rise, joining Goldman Sachs and Bank of America Merrill Lynch.
    • Morgan Stanley wrote in a note on Monday that oil prices could still fall a further 10% to 25% if the dollar continues to strengthen.
    • • Other major banks including Bank of America Merrill Lynch, Barclays, Deutsche Bank, Societe Generale and Macquarie have also cut their oil forecasts in the past week.
    • • Ratings agency Standard & Poor’s has more companies on a negative outlook than at any time since the financial crisis.
    • • A survey published by M&G and YouGov on Tuesday, based on data collected in the final quarter of 2015, shows that UK consumer inflation expectations are at their lowest level in three years.

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    Huaneng 2015 power output up 8.9pct on yr

    Huaneng Power International Inc., China’s largest listed power producer, generated 320.53 TWh of electricity within Chinese territory in 2015, up 8.9% year on year, announced the company in its annual report on January 9.

    In the fourth quarter of 2015, Huaneng generated 79.49 TWh of electricity, registering a year-on-year increase of 11.4%.

    The company mainly attributed the rise in power generation to the output from newly-acquired and newly-operated generating units last year.

    Total electricity sales during the year amounted to 301.98 TWh, rising 8.8% from the year prior, with September-December sales up 12.3% on year to 74.89 TWh.

    Huaneng said its on-grid electricity price last year averaged at 443.26 yuan/MWh, dropping 2.57% year on year.

    By December 31, 2015, Huaneng’s installed power generating capacity has reached 82.33 GW, said the company.
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    Offshore Renminbi lending rate soars to record

    Offshore Renminbi lending rate soars to record

    (Thanks to Google for the translation)

    The cost of borrowing RMB in Hong Kong today reached the highest since records began. Investors are transported into the Chinese territory of the yuan, in order to take advantage of onshore, offshore exchange rate difference arbitrage.

    On Monday, Hong Kong overnight bank lending rate (Hibor) shot up 939 basis points on Friday soared from 4% to 13.4%, the highest in June 2013 the highest level since records began. 7 days between Hong Kong banks lending rate also rose sharply from the 7.05% of 11.23% on Friday. Analysts say the recent onshore and offshore renminbi spread widened trigger arbitrage activities, prompting a significant tightening of offshore renminbi liquidity, short-term inter-bank lending and thus will push up interest rates.

    Offshore and onshore exchange rate spreads on the 6th of this month reached an unprecedented 1,600 points. At present the two sides spread about 1200 points. Many investors choose to buy renminbi offshore market sell in Chinese mainland arbitrage.

    In addition, the central bank interventions on the yuan could boost the liquidity squeeze. Standard Chartered Bank (SCB) senior interest-rate strategist in Hong Kong, Liu Jie in an interview with Bloomberg interview, "offshore renminbi liquidity tightened again, primarily due to a suspected offshore RMB spot market interventions influence." Last week, Chinese Bank at the behest of China's central bank intervened in the foreign exchange market, in the capital Dahon choose to hold rather than sell the yuan, to some extent boost the liquidity squeeze.

    Meanwhile, DBS Bank Wealth Management Solutions division in Hong Kong director Tommy Ong pointed out that the funds transferred offshore from the onshore market, many channels are blocked, which to some extent caused by the supply of RMB in Hong Kong market shortage.

    Today, the Hang Seng China Enterprises Index dropped by 5%, in October 2011 fell to the lowest level.

    The 7th Bloomberg citing informed sources, the Chinese central bank to consider additional measures in addition to outside intervention, in order to avoid sharp fluctuations in the yuan exchange rate. Major central bank to consider measures to limit foreign hot money speculation in particular, or the use of offshore onshore exchange differences arbitrage, China will increase efforts to verify the background of false trade transactions.

    On the 8th, and today the central bank for two consecutive days, respectively, the yuan central parity rate expires earlier closing prices sharply up 300 and 250 points.

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    "Nothing is moving" Shipping grinds to a halt?????????

    The continued collapse of The Baltic Dry Index remains ignored by most - besides we still have Netflix, right? But, as Dollar Vigilante's Jeff Berwick details, it appears the worldwide 'real' economy has ground to a halt!!

    Last week, I received news from a contact who is friends with one of the biggest billionaire shipping families in the world.  He told me they had no ships at sea right now, because operating them meant running at a loss.

    This weekend, reports are circulating saying much the same thing:The North Atlantic has little or no cargo ships traveling in its waters. Instead, they are anchored. Unmoving. Empty.

    Commerce between Europe and North America has literally come to a halt. For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America. All of them (hundreds) are either anchored offshore or in-port. NOTHING is moving.

    This has never happened before. It is a horrific economic sign; proof that commerce is literally stopped.

    We checked and it appears to show no ships in transit anywhere in the world.  We aren’t experts on shipping, however, so if you have a better site or source to track this apparent phenomenon, please let us know.
    Image title
    We also checked, and it seemed to show the same thing.  Not a ship in transit…
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    If true, this would be catastrophic for world trade. Even if it’s not true, shipping is still nearly dead in the water according to other indices.  The Baltic Dry Index, an assessment of the price of moving major raw materials by sea, was already at record all-time lows a month ago... and in the last month it has dropped even more, especially in the last week. Today BDIY hit 415...

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    Anglo American set to kick off $1bn sale of Brazilian business in bid to prop up balance sheet

    The mining sector has taken a hit over the last year with commodities prices plummeting (Source: Getty)

    Anglo American is poised to kick off the $1bn (£680m) sale of its Brazilian niobium and phosphate business as the firm attempts to raise cash to prop up its ailing balance sheet.

    Facing a rapid decline in demand for commodities off the back of an economic slowdown in China, Anglo American said in December that it would sell the operation as part of a disposal programme.

    The company said it will reduce the number of mines in its portfolio from 55 to between 20 and 25 as it sharpens its focus on its most lucrative and cost effective operations.

    Chief executive Mark Cutifani last year signalled that 85,000 jobs would be lost in the process.

    The Brazilian operation is the biggest Cutifani has put up for sale.

    Shares in Anglo American have nosedived recently as the price of metals such as iron ore and platinum have plummeted.

    Goldman Sachs and Morgan Stanley have reportedly been mandated to run the auction process with a number of potential suitors circling.
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    China Warns No "V-Shaped" Recovery Is Coming

    One week ago, many were shocked when an in an exclusive interview with China's official mouthpiece, the People’s Daily, an "authoritative insider" offered his interpretation of the details of China’s supply side structural reform.

    This anonymous person who was important enough to be on the cover page of Xinhua and thus to set the expectations of over 1 billion Chinese citizens accordingly, said that China's proposed "reform was decided on after careful deliberation about China’s economic situation" adding that "new economic risks are emerging from falling economic growth, industrial commodity price, corporate profit and the growth rate of fiscal revenue. In addition,most of these problems are structural rather than cyclical."

    His punchline: "against such a backdrop, China’s economy is unlikely to achieve a V-shape rebound, but instead an L-shape growth."

    But his most dire warning was one which would make an already unhinged Paul Krugman even more unhinged: "To deal with the medium and long-term economic malaise, the traditional Keynesianism methodology does not work. A structural reform is thus needed to address the root cause."

    Needless to say we liked said "authoritative insider" off the bat.

    However, maybe because not enough people caught the dire warning the first time, moments ago Bloomberg reported that Han Jun, the deputy director of China’s office of the central leading group for financial and economic afairs, spoke at an event at the Chinese consulate in New York and practically reiterated the anonymous source's warning practically verbatim. To wit:

    "There won’t be a strong economic stimulus and people shouldn’t expect a V-shape recovery; instead long period of L-shape growth path is likely" said Han, who participated in the drafting of China’s latest five year plan.

    One week ago we were confused just what "L-shaped growth" looks like. Seven days later we are just as confused. After all, there is, well, no growth in an L-shape.

    Confusion aside, whether Han was the "authoritative insider" referenced one week ago is irrelevant, but what is notable is that China is making it very clear that the old way of growing the economy to higher artificial GDP rates is no longer be welcome. It remains to be seen if he is only jawboning, although every passing day in which China does not engage in some massive stimulus is probably a confirmation that China may be serious.

    As if that news was not bad enough, Han also added that China has not manipulated yuan to gain unfair competitive advantage, begging the question just why it has manipulated the yuan in that case.

    He concluded with the usual platitudes uttered by any country undergoing currency war, namely that the "Yuan faces pressure of depreciation, but this is temporary and longer term the currency can depreciate or appreciate as two-way volatility becomes new normal." Finally he noted that "China is not seeking devaluations yuan to stimulate exports but wants to promote basic stability of yuan and opposes currency war."

    Considering the epic damage the recent PBOC actions have done, one can be excused to be a little skeptical.

    Finally, if indeed China is now holding back on "massive stimulus", this will have dramatic implications for social stability as the original Xinhua interview hinted:

    Q. Some people are concerned about the social impact brought by the reform. Can Chinese society sustain it?

    A: During reform, especially when reducing excessive production capacity and shutting down “zombie companies,” it is likely that there could be an impact on society.

    Turbulence cannot be entirely avoided, but it is worthwhile turbulence. If properly handled, the reforms will not cause long-term turmoil in society.

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    China Dec PPI down 5.9pct on yr

    China’s Producer Price Index (PPI), which measures inflation at wholesale level, dropped 5.9% year on year and down 0.6% month on month in December 2015, showed data released by the National Bureau of Statistics (NBS) on January 9.

    Factory prices of production materials dropped 7.6% on year and 0.8% on month.

    Prices of coal mining and washing industry fell 17.2% on year and down 0.7% on month, and prices of oil and natural gas mining industry posted a plunge of 37.3% on year and down 9.2% on month. Besides, prices of ferrous metal industry dropped 17.6% from the previous year and down 2.3% from November, data said.

    In 2015, PPI dropped 5.2% on average from the previous year, with factory prices of production materials decreasing by 6.7%.

    During the past year, prices of coal mining and washing industry decreased 14.7% on year; prices of oil and natural gas mining industry fell 37.3% on year; prices of ferrous metal industry dropped 20.3% from the previous year, data showed.

    The data come along with the release of the Consumer Price Index (CPI), which rose 1.6% from the year prior and up 0.5% on month.
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    Some sensible 'green' analysis

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    China's premier says market solutions needed to solve overcapacity

    China will use market solutions to ease its overcapacity woes and will not use investment stimulus to expand demand, Premier Li Keqiang said during a recent visit to northern Shanxi province, according to state media.

    "We will let the market play a decisive role, we will let businesses compete against each other and let those unable to compete die out," the state-run Beijing News quoted Li as saying.

    "At the same time, we need to prioritize new forms of economic development."

    Li said the country needed to improve existing production facilities because even during an enormous steel glut last year, China had to import certain high-quality steel products including the tips of ballpoint pens.

    China needs to set ceilings on steel and coal production volumes and government officials should use remote sensing equipment to check companies, the premier also said, according to the article which was reposted on the State Council's website.

    During his visit to Chongqing earlier this month, President Xi Jinping said China would focus on reducing overcapacity and lowering corporate costs.

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    Concerned about yuan's fall, India mulls steps on imports

    India on Friday called the slide in China's yuan a "worrying" development for its flagging exports and said it was discussing possible measures to deal with a likely surge in imports from its northern neighbour.

    Trade Minister Nirmala Sitharaman said the yuan's fall would worsen India's trade deficit with China.

    While the government would not rush into any action, it had discussed likely steps it could take to counter an expected flood of cheap steel imports with domestic producers and the finance ministry, she said.

    The comments came a day after China allowed the biggest fall in the yuan in five months, pressuring regional currencies and sending global stock markets tumbling as investors feared it would trigger competitive devaluations.

    "My deficit with China will widen," she told reporters.

    India's trade deficit with China stood at about $27 billion between April-September last year compared with nearly $49 billion in the fiscal year ending in March 2015.

    India steel companies such as JSW Ltd have asked the government to set a minimum import price to stop cheap imports undercutting them.

    A similar measure was adopted in 1999.

    "We have done ground work but are not rushing into it," Sitharaman said when asked if India would impose a minimum import price for steel.
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    Political risk seen on the rise in these key mining markets

    Low commodity prices will continue to be one of the main drivers of political risk for investors this year in major producing countries across Africa and Latin America, a new report suggests.

    According to the 2016 Political Risk Outlook, released Friday by Verisk Maplecroft, there will be little respite for investors from the political instability, civil unrest, economic volatility, security crises and geopolitical rivalries that defined the last 12 months.

    The experts see Africa and the Middle East —particularly rising tensions between Iran and Saudi Arabia— as one major source of potential crisis.

    Verisk Maplecroft expect more strikes and other industrial actions this year in several resource-rich countries, such as DRC and Zambia, following the massive job losses experienced last year.

    The impacts of depressed oil, gas and metals prices on domestic government spending and rising living costs across the region, in turn, are likely to stoke social turmoil, the experts say.

    “The fact that 31 of sub-Saharan Africa’s 49 countries already fall within the ‘high’ or ‘extreme’ risk category of Verisk Maplecroft’s Civil Unrest Index 2016 underscores the threat of disruption for companies operating in these markets,” the reports warns. Countries to watch in the region, say the experts, are Central African Republic, Sudan, Kenya, Ethiopia, DRC, South Africa and Nigeria.

    Corruption in Latin America

    The end of the commodities boom that fuelled Latin America’s decade-long growth has laid bare the profligacy of South America’s two largest economies, Brazil and Argentina, as well as the region’s largest oil producer, Venezuela, says the report.

    Lower commodity prices, coupled with chronic economic mismanagement, dealt heavy electoral losses to the ruling parties of Argentina and Venezuela in late 2015. Both countries will experience a rise in political instability

    Lower commodity prices, coupled with chronic economic mismanagement, dealt heavy electoral losses to the ruling parties of Argentina and Venezuela in late 2015. Both countries will experience a rise in political instability as they make the painful adjustments necessary to get back on a more sustainable growth track.

    In Brazil, corruption and economic recession will dominate the political landscape. The ongoing impeachment process against President Dilma Rousseff is unlikely to be successful, but it will ensure protracted legislative gridlock during 2016 and prevent the passage of the reforms required to arrest the deteriorating fiscal landscape and restore investor confidence. The mass anti-government protests witnessed in 2015 are set to continue and could spike in the run up to the summer Olympic Games in Rio de Janeiro.

    The region’s economic problems are compounded by social concerns over graft in 2016, increasing the risks of political and civil instability, as the newly formed lower middle class see their socioeconomic gains threatened or reversed. Verisk Maplecroft’s Corruption Risk Index 2016 identifies Argentina, Colombia, Ecuador, Peru, Venezuela and Brazil as posing a ‘high’ or ‘extreme’ risk.

    The analysts conclude that as the public finances of major commodity-producing countries are set to remain under intense strain in 2016, many of them will have to take unpopular fiscal tightening measures, which in turn will increase the risk of societal unrest.
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    China Central Bank Announces More Rate Liberalization, Yuan Internationalization

    China's central bank said it would further liberalise interest rates, according to a statement posted on the People's Bank of China website on Friday. China's PBOC is preparing to further liberalize interest rates while further internationalizing the Yuan, translated: even more devaluation + even less intervention = bad for risk.

    The central bank also said it would make the yuan more international, keep the currency basically stable, further improve the currency formation mechanism and deepen reforms of the foreign exchange management system and financial institutions.

    The central bank will use medium-term loans, and pledged supplementary loans and credit policies to support key areas of the economy.

    The central bank also said it would maintain prudent monetary policy and flexibly use monetary policy tools to keep adequate liquidity in the banking system.

    We wonder how long until the PBOC "retracts" this story following the adverse futures reaction. After all, if this week has taught us anything it is that when it comes to policy, in China everything is now dictated by market.
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    Oil and Gas

    Transneft reports Russian exports decline sharply

    State-owned oil transportation monopoly Transneft says Russian oil companies have applied for 215 million tons of crude exports in 2016. This is 6.4 percent less than last year, business daily Vedomosti reports.

    In 2015, the situation was the opposite for Transneft, which accounts for almost 90 percent of Russian oil shipments. The company transported seven percent more oil than in 2014.

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    Chevron nears start of exports from $US54b Gorgon LNG

    Chevron is about to begin exports from its massive Gorgon LNG project on Barrow Island off WA. 

    Chevron has marked a milestone in preparations to start exports from its delayed $US54 billion Gorgon liquefied natural gas project in Western Australia, signalling that the first shipment from the country's biggest single resources project is just around the corner.

    The US gas major advised on Friday that an LNG cargo had arrived at the plant on Barrow Island off the WA coast to be used to cool down the infrastructure ahead of the first shipment.

    Chevron Australia managing director Roy Krzywosinski described the moment as "a significant milestone" for the venture, which was originally scheduled to begin production in late 2014.

    "The commissioning cargo is essential for the final testing of critical systems and to efficiently cool down the plant prior to the start of LNG production," Mr Krzywosinski said in a statement.

    Gorgon, which was sanctioned for construction in September 2009, will eventually produce some 15.6 million tonnes a year of LNG, tapping massive Gorgon and Jansz-Io fields in the Carnarvon Basin for supply to customers in Japan, South Korea, India, China and elsewhere.

    It was originally budgeted at $US34 billion but has suffered a series of cost blowouts, partly on foreign exchange, partly on weather delays and some labour productivity issues.

    The venture is coming into production just as spot LNG prices in Asia are seeing some of their lowest levels for years amid disappointing demand in China and falling consumption in the two biggest markets, Japan and South Korea. Contract prices are also in the dumps because of the collapse of crude oil prices.

    However the venture, which is 25 per cent owned by each of Shell and ExxonMobil, is due to produce for several decades, potentially for 40 years or more.

    "Gorgon will be a long-term supplier of natural gas to our customers in the Asia-Pacific region and in Australia, delivering energy security as well as significant long-term economic benefits to Australia for decades to come," Mr Krzywosinski said.

    The Chevron-operated LNG vessel, Asia Excellence, delivered the commissioning cargo to cool down the storage and loading facilities ahead of the first LNG export cargo from Gorgon, which Chevron said is planned "in early 2016."

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    As clock ticks down on sanctions, oil-laden Iran tankers set to target India and Europe

    As clock ticks down on sanctions, oil-laden Iran tankers set to target India and Europe

    With Iran poised to resume usual business ties with the world under a historic nuclear deal, Tehran is set to target India, Asia's fastest-growing major oil market, and old partners in Europe with hundreds of thousands of barrels of its crude.

    Iran expects the U.N. nuclear watchdog to confirm on Friday it has curtailed its nuclear program, paving the way for the unfreezing of billions of dollars of assets and an end to bans that have crippled its oil exports.

    Tehran plans to lift exports by 500,000 barrels per day (bpd) post-sanctions and gradually raise shipments by the same amount again, adding to a glut of global oil and likely putting more pressure on oil prices which have already dropped 70 percent since 2014 to around $30 per barrel.

    Iran has 22 Very Large Crude Carriers (VLCC) floating off its coast, with 13 fully or almost fully loaded, mapping data on Thomson Reuters' Eikon showed, carrying enough crude to meet India's import needs for almost a week.

    A senior Iranian source close to supply negotiations said that the country - which has the world's fourth-biggest proven oil reserves - was targeting India as its main destination for crude.

    "Indian crude demand is growing faster than other Asian countries. Like our competitors, we see this country as one of the main targets for Asian sales," said the official, who spoke on condition of anonymity.

    Iran hopes to raise its exports to India by 200,000 bpd, up from the 260,000 bpd currently shipped under sanctions' restrictions, the official said.

    At the right price, Indian refiners said they were keen to import more from Iran, as the country's demand for fuel soars on the back of 10 percent annual growth in car sales, a rate that is now faster than China's.

    "We have a long-lasting relationship with Iran and post lifting of sanctions we will evaluate the scenario," said L K Gupta, managing director of India's Essar Oil.

    "It makes sense to buy oil from nearby options (like Iran)," said H. Kumar, managing director of another Indian oil firm, Mangalore Refinery and Petrochemicals, but added "intake will depend on prices." The Iranian official said there was not much room for major export increases to China, South Korea or Japan due to slowing demand and also because of a shift there towards more non-Middle East crudes. A South Korean refinery source confirmed he did not expect a big increase in Iranian supplies, largely because of plentiful alternatives.

    A Japanese refiner said that his firm could only take Iranian deliveries once it had insurance in place, which could take time.

    Iran already trades limited amounts of oil mainly with Asian buyers legitimately under sanctions, but its crude exports have fallen to just over 1 million bpd, down from a peak of over 3 million bpd in 2011, pre-sanctions.

    The Iranian official said Tehran planned to revive supply deals with European partners in order to ramp up exports.

    Shipping industry association BIMCO confirmed that European clients would be among the first post-sanction clients.

    "Former clients of Iran are the ones who are likely to return as buyers... Italy, Spain and Greece were the top EU importers in 2011," said Peter Sand, BIMCO's chief shipping analyst.

    Following years of under-investment, Iran needs foreign cash to modernize its creaking oil industry.

    Italy's ENI, Spain's Repsol and France's Total were some of the companies with the biggest delegations at a conference in Tehran last November, during which Iran published new terms for foreign oil investors.
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    Argentina signs $500 mln shale deal with American Energy Partners

    State-run energy firm YPF said on Thursday it had signed a preliminary deal worth more than $500 million over three years with American Energy Partners LP (AEP) to explore for shale gas in Argentina's vast Vaca Muerta formation.

    Argentina sits atop some of the world's largest shale resources but is a net energy importer after years of under-investment in the country's energy sector. YPF says $200 billion over a decade are needed to reverse the deficit.

    That task has been made more complicated by the rout in global oil prices.

    The foray into Argentina by American Energy's Aubrey McClendon comes months after the former CEO of Chesapeake Energy Corp hired investment banks to shore up the finances of his Oklahoma-based oil and gas venture.

    In a statement, YPF said the joint venture involved a pilot project in the Bajada de Anelo block, located in Argentina's Neuquen province that would run until mid-2018.

    If the project is continued, Pluspetrol and the province-owned Neuquen Oil and Gas would join the venture, exploring the southern zone of another bock Cerro Areno. A company affiliated to American Energy Partners would take up to a 50 percent stake in both blocks.

    McClendon co-founded Chesapeake Energy in 1989 and turned it into a top U.S. gas producer. He resigned from the company in 2013 following a corporate governance crisis.

    McClendon went on to form AEP, whose financial backers have included Houston-based private equity firm Energy and Minerals Group.

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    Hedging its bets, Pioneer shines in struggling U.S. oil patch

    During the U.S. shale boom, fortune favored the bold drillers that discovered and pumped oil fastest. Today the winners are producers like Pioneer Natural Resources who best shielded themselves from tumbling prices.

    Using derivative transactions known as swaps and collars, the Texas-based firm locked in a minimum price for 85 percent of this year's production. As a result, it gets $60 per barrel for a large chunk of its output while many rivals are selling at the market price of around $30, often not even enough to cover the cost of drilling new wells.

    Pioneer shares, though down 23 percent since the start of 2015, outperform a broad S&P index of oil and gas producers energy sector whose value dropped 46 percent. The company also managed to sell $1.4 billion worth of new shares to investors this month - a rare feat in a market that has shut for most energy issuers.

    Its executives are not gloating over their winning hedging formula, but they are certainly sleeping better, chief operating officer Tim Dove says.

    Dove told Reuters Pioneer forged its strategy, which entails hedging production two or three years in advance, after the 2008-2009 oil market crash caught it virtually unprotected. Battling for survival, the company idled 97 percent of its drilling rigs and its executives did not want to go through such "draconian cuts" ever again, he said.

    "If we're going to protect ourselves, we're going to protect heavily," Dove said, describing the company's philosophy.

    Now, with crude prices down by 70 percent since mid-2014, that strategy is paying off.

    A Reuters analysis of late 2015 filings by the 30 largest U.S. oil firms showed Pioneer had 60 million barrels of oil hedged through 2017, nearly twice as much as any other major U.S. shale producer. (

    That could bring Pioneer a windfall of more than $730 million this year if oil prices stayed near current 12-year lows, according to a Reuters analysis of company data.

    Tim Rezvan, energy analyst with Sterne Agee CRT, estimates that while Pioneer could get 23 percent of its revenue from oil and gas hedging this year, the majority of drillers have little or no output with price guarantees in 2016.


    Shale producers face a moment of reckoning after a decade-long fracking boom nearly doubled U.S. oil output and turned the United States into the world's leading natural gas producer.

    With costs for new drilling in some U.S. shale areas as high as $50 a barrel, the price rout has already triggered several bankruptcies, and tightened credit for those that remain active.

    For Pioneer or its smaller rival Newfield Exploration that inspired its hedging program, locking in prices for the bulk of their future production has become a part of their annual business planning.

    Newfield Chief Financial Officer Larry Massaro told Reuters hedging has been a strategic pillar for more than a decade for the Texas-based producer. It has a team that meets as often as daily to review its positions.

    In global markets, Mexican state oil giant Pemex stands out as an adept hedger, having locked in a $49 price per barrel for 212 million barrels of planned oil exports this year.

    But for many other oil producers to hedge or not to hedge is a daunting tactical choice.

    During the long spells of $100 plus oil between 2009-2014 many drillers were reluctant to fix their prices as it meant foregoing considerable potential gains if prices moved higher.

    When prices started to fall in 2014, producers faced another dilemma - buy protection against a further decline and risk losing out if there is a bounce or double down on a quick price recovery, leaving themselves fully exposed to a further slump.

    That is what happened to Continental Resources. Its CEO Harold Hamm announced in November 2014 that it had cashed all of its hedges, pocketing $433 million, to "fully participate in what we anticipate will be an oil price recovery."

    Analysts estimate the fateful decision has cost Continental more than $1 billion by now.

    Some hedge funds and oil consumers, such as airlines, have also lost money by ending up on the wrong side of hedging bets.

    In contrast, Pioneer's hedging has saved it around $1.6 billion since 2014, Dove estimated.

    It has also helped Pioneer plan to lift output by as much as 20 percent annually through 2018 even as the U.S. government expects national production to fall 9 percent over the next two years.

    "We're one of the few companies that is out there doing a lot of drilling," Dove said.

    Pioneer, which ranks among the top 10 U.S. oil and gas producers by market value, pumps around 106,000 barrels of oil per day and is one of the largest players in the low-cost Permian basin that straddles Texas and New Mexico.

    $50 HANDLE

    Yet even the most comprehensive hedging program cannot offer a blanket protection against the downturn. Earlier this month, Pioneer said it planned to write down as much as $1 billion in South Texas Eagle Ford shale assets due to falling oil prices.

    In racing to drill more wells, Pioneer also risks losses if crude prices stay low for longer or crater to the $20 per barrel level that some major banks have warned about.

    The latest slide also makes it impossible for Pioneer and other producers to lock in attractive prices for much of their output in 2017 and beyond as options markets now offer swaps for less than $42 on 2017 U.S. benchmark crude.

    Newfield is partially hedged into 2017, but it allowed positions representing 5 million barrels to expire recently and has not yet replaced them.

    Pioneer locked in prices for about 20 percent of 2017 production when last June 2017 oil futures briefly rose to around $55 a barrel, Dove said, but has done few transactions since then. "We would probably want it to at least have a five handle," Dove said, referring to prices in the $50-60 a barrel range.

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    Antero Resources 4Q15 Update: NatGas Sales Averaged $4.40/Mcf

    Yesterday Antero Resources, one of the biggest drillers in the Marcellus/Utica, filed their fourth quarter 2015 operational update.

    As in the past they did not disclose their financials–they wait a few more weeks to disclose those numbers. However, as in the past, the operational update is full of great information.

    Of chief importance (for us) is how much they sell their natural gas for. Because they have such a great hedging program–locking in future sales at a given price–Antero sold their gas for an average of $4.40 per thousand cubic feet (Mcf) during 4Q15–which is an average of $2.13 MORE than gas sold for at the benchmark Henry Hub! Astonishing. Companies can make money selling gas at those prices.

    Antero reports that although 4Q15 production volumes were 18% higher than 4Q14, the volume was down 1% from the previous quarter, 3Q15. Why? Antero is selectively shutting in production at some locations so they don’t have to sell it at depressed prices at the Dominion South and TETCO M2 trading points. Smart.

    During 4Q15 Antero drilled and brought online 14 Marcellus wells and 16 Utica wells.

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    Cheniere delays first Sabine Pass LNG export

    Cheniere Energy has delayed the first export of liquefied natural gas from its Sabine Pass plant by about one month until late February or early March, the company announced Thursday.

    The shipment, which was originally secluded to depart near the end of January, is still slated to be the first cargo of liquefied gas to sail from the continental United States.

    In a statement disclosing the delay Thursday, the company cited “instrumentation issues” discovered during the final phases of plant commissioning and said it will work to fix them during the next few weeks.

    “With construction of Train 1 finished, we remain well ahead of the guaranteed contractual schedule with Bechtel and anticipate no issues in meeting all contractual targets and guaranteed completion date,” said Neal Shear, interim president and CEO of Cheniere.
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    Norway oil investments seen falling further in coming years

    Investments in Norway's key oil and gas sector will fall further in 2016 and in the coming years following a 16-percent drop in 2015, the Norwegian Petroleum Directorate (NPD) said on Thursday, suggesting more pain ahead for the country's economy.

    Norway's economy, long one of Europe's best performers, has begun to struggle as its main industry, oil production, is hit by a three-quarters fall in the price of Brent crude since June 2014.

    The NPD now sees investments, excluding exploration, falling to 135 billion crowns ($15.3 billion) in 2016 from close to 150 billion in 2015. It predicted a moderate rebound in investments from 2019 onwards.

    Its 2016 investment forecast was revised down from an estimate of 137 billion made a year ago, echoing recent forecast cuts by the central bank and Statistics Norway.

    "They (investments) are expected to continue their decline going forward, followed by a moderate increase from 2019," the NPD said in a statement.

    The directorate noted, however, that its current investment forecasts presume the oil price will increase from today's level in the near future.

    "If this presumption proves wrong, and oil prices remain at the current level for a longer period, this could entail further postponement of activities, resulting in even lower investments and exploration costs," it said.

    In terms of production, Norway's oil output will drop to 1.53 million barrels per day in 2016 and 1.41 million in 2020 from 1.57 million in 2015, the NPD estimated.

    Norwegian gas production will fall to 106.6 billion cubic metres in 2016 from last year's 117.2 billion, rising again to 111.1 billion by 2020, it said.

    The directorate said low prices led to oil companies not developing certain hydrocarbon fields. More than half of Norway's oil and gas resources have yet to be produced.

    "We see a tendency for the companies to prioritise short-term earnings rather than long-term value creation," NPD chief Bente Nyland said in a statement.

    On the positive side, the directorate said oil firms' efforts to cut costs led to more oil development projects becoming more profitable.

    Norway's top oil producers include Statoil, Shell , ConocoPhillips, BP, Det norske and Lundin Petroleum.

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    Lithuania puts US LNG imports on hold

    According to Reuters, Lithuania has had to put off plans to import US LNG, because the LNG is more calorific than the Russian equivalent, which the state gas system was built to accommodate.

    Reuters reports that Ernesta Dapkiene, a spokeswoman for Lietuvos Energija, said: “We are not buying gas from the US at the moment, because the gas they are offering at the moment does not meet specifications needed for our gas distribution system.

    They are still testing their liquefaction equipment, and at the moment they cannot ensure the chemical composition of gas, which is needed for Lithuania.

    We believe that once the testing phase is over, they will be able to meet our specifications.”

    Reuters claims that this test phase could last between 4 – 6 months. Nonetheless, once complete, a long-term contract between Cheniere and LNG shipping company, BG Group, could be signed. Litgas, which is the LNG import arm of Lietuvos Energija, has been discussing LNG deliveries with Cheniere from its Sabine Pass export plant in Louisiana, US.
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    Asian VLCC rates fall again, down by 44% since start of the year

    Asian VLCC rates fell again Wednesday, dropping 11 Worldscale points to take the cumulative decline since the beginning of the year to w53.25 amid stiff competition from owners to snap up cargoes to avoid long waiting periods for vessels heading to the Middle East.

    The key Persian Gulf to Japan route for a 265,000 mt cargo has slumped by over 44% in the eight trading days so far this year, from 119.25 Worldscale points to w66 Wednesday.

    The weakness in the market was writ large with charterers heard to be receiving more than 10 offers on a single cargo on the Persian Gulf to East routes.

    Adding to the owners' woes, charterers were seen replacing vessels taken for the Persian Gulf to East voyages by at least 22.5 Worldscale points below initially done levels, mainly due to the ample supply of vessels including newbuild VLCCs, older tonnage and ships that are just out of the dry dock.

    "The market is dropping so quickly, much faster than I expected! There are three to four newbuild VLCCs and many owners are keen on one cargo so the market is very competitive," said a VLCC shipowner.

    "Around 40-50 vessels will roll over to the February program, and since there are lots of [competitive] vessels remaining in the market it might take some time for the market to rebound," he added.

    The drastic cut in rates was described as a "bloodbath," and market participants said that with vessels failing, owners were under pressure as charterers expected to obtain further discounts on rates.

    Among fixtures heard, Mercuria replaced the Desh Vibhor with the Ridgebury Pioneer for a PG-East voyage, loading January 15-17 at w47.5 basis 270,000 mt on 2016 Worldscale rates.

    This is the fourth vessel taken by Mercuria for this cargo, at a rate significantly lower, having dropped from w75 on the DS Commander.

    Shell took two SK Energy re-let vessels, the C. Vision and the Perseus Trader, on subjects for PG-Singapore voyages, loading January 25 and January 27 respectively, both at w57.5 basis 270,000 mt on 2015 Worldscale rates. Sources said Shell previously had the Front Ariake and the Nave Synergy on subjects at w80 for these cargoes.

    Market participants said the lowest fixture was S-Oil having placed a newbuild ship, the Gener8 Apollo, on subjects for a PG-Onsan voyage, loading January 27-29, at w44.5 basis 274,000 mt on 2015 Worldscale rates.
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    Diamondback offering near doubled on strong demand: Wells economic at $30?

    Diamondback Energy Announces Pricing of Upsized Common Stock Offering

    Diamondback Energy, Inc. announced today the pricing of an underwritten public offering of 4,000,000 shares of its common stock.  The 4,000,000 share offering represents a 1,750,000 share upsize to the originally proposed 2,250,000 share offering

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    Norway's Statoil Buys Minority Stake in Lundin Petroleum

    Statoil ASA, Norway’s biggest energy company, bought a 12% stake in Lundin Petroleum AB, increasing its exposure to the giant Johan Sverdrup field.

    The Norwegian oil producer bought about 37 million shares in the Stockholm-based company, Statoil said in a statement on Thursday. Statoil is supportive of Lundin’s management, board and strategy and there is no plan to increase its shareholding in the company.

    “We consider this a long-term shareholding,” Statoil CEO Eldar Saetre said in the statement. “The Norwegian Continental Shelf is the backbone of Statoil’s business, and this transaction indirectly strengthens our total share of the value creation from core, high value assets on the NCS.”

    The move comes as oil companies cut costs to adapt to a plunging oil price, with Brent crude falling below $30 a barrel on Wednesday. Lundin holds the second-largest stake in the Johan Sverdrup field, Norway’s biggest offshore project in decades. The field is estimated to hold 1.7 billion to 3 billion barrels of oil.

    Statoil owns a 40 percent stake in the field, which is scheduled to start production at the end of 2019. Lundin Petroleum AB holds a 23 percent stake, Petoro AS 17 percent, Det Norske Oljeselskap ASA 12 percent and A.P. Moeller-Maersk A/S 8 percent.
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    Oil price rout forces companies to slash $170 billion in projects from 2016-2020

    Oil and gas projects worth $380 billion have been postponed or cancelled since 2014 as firms slash costs to survive the oil price crash, including $170 billion of projects planned between 2016 and 2020, energy consultancy Wood Mackenzie said.

    Crude oil prices have fallen by 70 percent since mid-2014 to just over $30 per barrel as soaring global production leaves hundreds of thousands of barrels a day without a buyer, while demand - especially in once-booming Asia - is slowing markedly.

    Oil and gas firms were being forced into survival mode as oil prices fell to levels last seen in 2004, Wood Mackenzie (WoodMac) said in a report on Thursday.

    "The impact of lower oil prices on company plans has been brutal. What began in late-2014 as a haircut to discretionary spend on exploration and pre-development projects has become a full surgical operation to cut out all non-essential operational and capital expenditure," said Angus Rodger, WoodMac's principal upstream analyst.

    The report comes the same week as Barclays bank said global oil and gas companies planned to cut spending on exploration and production by as much as 20 percent in 2016.

    WoodMac said a total of 68 major projects with combined reserves of around 27 billion barrels of oil equivalent had been deferred since 2014, with $170 billion of cuts falling between 2016 and 2020.

    In terms of production, a total 2.9 million barrels per day (bpd) of liquids production would be deferred into next decade, more than OPEC-member Venezuela produces, it said.

    "Against a backdrop of overwhelming corporate pressure to free-up capital and reduce future spend - to the detriment of production growth - there is considerable scope for this wall of output to get pushed back further if prices do not recover and/or costs do not fall enough," the report said.

    The average break-even cost for delayed new projects was $62 per barrels of oil equivalent, WoodMac said, adding that deepwater projects had been hit hardest.

    These accounted for over half of the total "as companies are forced to rework projects with high breakevens, large capital requirements and high costs."

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    Small increase in US domestic oil output

                                         Last Week    Week Before    Last Year

    Domestic Production 000'....... 9,227              9,219            9,192
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    Summary of Weekly Petroleum Data for the Week Ending January 8,

    U.S. crude oil refinery inputs averaged over 16.4 million barrels per day during the week ending January 8, 2016, 194,000 barrels per day less than the previous week’s average. Refineries operated at 91.2% of their operable capacity last week. Gasoline production increased last week, averaging over 8.8 million barrels per day. Distillate fuel production decreased last week, averaging about 4.8 million barrels per day.

    U.S. crude oil imports averaged 8.2 million barrels per day last week, up by 678,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.7 million barrels per day, 4.1% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 446,000 barrels per day. Distillate fuel imports averaged 154,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.2 million barrels from the previous week. At 482.6 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 8.4 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 6.1 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 4.5 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 10.0 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.3 million barrels per day, down by 3.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 8.8 million barrels per day, down by 4.3% from the same period last year. Distillate fuel product supplied averaged about 3.4 million barrels per day over the last four weeks, down by 12.1% from the same period last year. Jet fuel product supplied is down 3.4% compared to the same four-week period last year.


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    Premier Oil confirms deal to acquire E.ON’s North Sea assets for $120m

    Premier Oil has confirmed it will acquire E.ON’s North Sea assets in a $120million deal.

    The company said the deal had been funded from existing cash resources.

    Earlier today the company confirmed it had suspended share on the London Stock Exchange.

    Premier will acquire interests in licence in the Central North Sea, West of Shetland and the Southern Gas Basin.

    This includes shares in Elgin-Franklin, Huntington, Babbage and Tolmount.

    Speculation had begun building earlier today that E.ON was the subject of the reverse takeover.

    The company said the deal would add significant production and associated cash flow this year and in 2017 even with the current low oil price.

    It also said the deal would allow Premier to share the abandonment cost of exposure on Ravenspurn North and Johnston with E.ON.

    Premier Oil chief executive Tony Durant said:”In this challenging macro environment, maximising production whilst cutting costs is critical; both were achieved in 2015 and will continue in 2016.

    “Selling our cash negative Norwegian business and re-investing in cash positive UK assets through the proposed E.ON acquisition, is value accretive and materially improves both our current and future financial position.”

    Premier Oil said it had “significant liquidity” with cash and undrawn bank facilities of $1.2billion and a year-end covenant headroom in excess of $900million.

    It added that the E.ON acquisition would be “materially covenant accretive”.

    The company also said the acquisition requires approval from the company’s shareholders, US private placement holders and banks.

    It is expected a shareholder circular and notice of meeting will be published in due course.

    Yesterday, Broker Jefferies cut Premier’s rating to hold and target price to 33p from 120p.

    The firm’s shares fell 33% from 19p to 9.5p – a fraction of May 2014’s high of 358.6p.

    Premier Oil’s debt is thought to be more than £1.83billion.

    Its current market capitalization is £155million.

    The company said progress was also continuing on its Solan project, with first oil now expected in February due to challenging weather conditions which Premier descirbed as “unprecedented”.

    The deal comes days after the firm confirmed an oil find in the North Falkland basin.

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    China sets floor for retail fuel pricing

    China will not cut its domestic retail fuel prices when international oil prices fall below 40 U.S. dollars a barrel, the country's economic planner said on Wednesday.

    Previously, China set a ceiling for domestic retail fuel prices, which will not be raised if international oil prices rise above 130 U.S. dollars per barrel.

    The floor and ceiling aim to buffer the negative effects of violent fluctuations in international oil prices, according to the National Development and Reform Commission (NDRC).

    The latest reforms aim to improve China's oil pricing mechanism, which was introduced in 2013.

    Following the new rule, the NDRC on Wednesday announced cuts in the retail price of gasoline and diesel from Thursday. Gasoline prices will drop by 140 yuan (21.34 U.S. dollars) per tonne, while diesel prices will go down by 135 yuan per tonne.

    The NDRC has suspended price adjustments of domestic refined oil products twice since Dec. 15, awaiting the changes.

    Under the updated mechanism, China will adjust domestic prices of refined oil products when international crude prices translate into a change of more than 50 yuan per tonne for gasoline and diesel for a period of 10 working days, but will not do so if the international prices go below 40 U.S. dollars or above 130 U.S. dollars a barrel.
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    Petrobras mulls sale of Braskem stake - newspaper

    Brazil's state-controlled oil producer Petrobras is seeking to sell its 5.8 billion Brazilian real ($1.4 billion) stake in petrochemical producer Braskem SA, newspaper Folha de S. Paulo reported on Wednesday.

    Petróleo Brasileiro SA (Petrobras) has hired Brazilian bank Banco Bradesco SA as a financial adviser and has started to pitch the sale to foreign investors, Folha said, without naming sources.

    Petrobras owns a 36 percent stake in Braskem, Latin America's largest petrochemical producer. The sale would help Petrobras meet its target of selling $15.1 billion worth of assets in 2015-16, a key part of its plan to cut debt as oil prices plunge to 12-year lows.

    Petrobras Chief Executive Aldemir Bendine late last year said the pace of divestments in 2016 would likely be faster than originally expected.

    Representatives of Petrobras, Braskem and Bradesco were not immediately available to comment.
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    Oil Rebounds From Below $30 as Threat of More Declines Persists

    Oil bounced back after tumbling below $30 a barrel for the first time in 12 years. A persistent oversupply means prices still haven’t staved off the threat of further declines.

    Futures rose as much as 2.2 percent in New York, after dropping 3.1 percent on Tuesday. While the industry-funded American Petroleum Institute was said to report U.S. inventories fell 3.9 million barrels last week, government data on Wednesday is forecast to show supplies expanded. The world is now “confronting $20 oil,” according to Citigroup Inc.

    “The big picture for the market is still oversupply,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone. “It’s going to be a tough couple of months for prices, $30 oil is very painful.”

    Oil May Rise to $60 in 12 Months, UBS's Purcell Says

    Supplies at Cushing, Oklahoma, the delivery point for New York futures and the biggest U.S. oil-storage hub, declined by 300,000 barrels last week, the API said Tuesday, according to a person familiar with the figures. Nationwide inventories probably rose by 2 million barrels through Jan. 8, according to a Bloomberg survey before an Energy Information Administration report.

    The EIA cut its 2016 forecast for WTI by 24 percent to $38.54 a barrel, according to its monthly Short-Term Energy Outlook Tuesday. U.S. output will drop an average 700,000 barrels a day in 2016, and an additional 270,000 barrels a day next year, the report showed. Production averaged 9.2 million barrels a day through Jan. 1, according to EIA’s weekly data.

    “The $20 number is something you have to talk about,” Ed Morse, the global head of commodities research at Citigroup, said Tuesday in Calgary. “When you’ve seen a $10 price slide and WTI is trading just slightly above $30, the likelihood is fairly great. Clearly oil markets cannot maintain a price at below the $30 level for very long. The question is how much longer.”
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    Amid global price rout, China crude oil imports hit record

    China's crude oil imports hit a record 7.82 million barrels a day (bpd) in December, customs data showed, as the world's No.2 oil consumer took advantage of low crude prices to fill strategic reserves, but also increased its exports of refined fuels to an all-time high.

    Crude imports for December were 33.19 million tonnes, up 21.4 percent on the month and 9.3 percent on the year, well above earlier estimates by Thomson Reuters Oil Research and Forecasts.

    The December import figures may mean China challenges the United States to be the world's top importer of crude, although the U.S. Energy Information Administration has yet to provide its December data. Chinese monthly imports surpassed U.S. imports once, in April 2015.

    China shipped in 335.5 million tonnes of crude oil for the year, the data showed on Wednesday. That was up 8.8 percent, or roughly 542,600 bpd, to 6.71 million bpd - also a new record.

    Wu Kang, Beijing-based vice chairman of FGE Asia, said the two driving factors behind growth in 2015 were new demand from small, independent "teapot" refineries who gained the right to use imported crude oil in the latter part of the year, and stockbuilding in strategic reserves and commercial storage.

    Nearly 20 small refiners have been granted quotas to use imported oil or import oil directly themselves.

    China seized the chance to add up to 147 million barrels to its reserves in the first eleven months of 2015, according to Reuters calculations, following a more than 50 percent slump in oil prices LCOc1 since mid-2014.

    China said it more than doubled the size of its strategic crude oil reserves between November 2014 and the middle of last year, building inventories at a rate exceeding analyst estimates of the country's stockbuilding.

    Industry experts said Chinese firms could expand purchases possibly even more this year, as new tanks become available.

    "2016 might be more interesting as the two driving factors are set to become more powerful as the government relaxed control both on crude imports as well as fuel exports, at a pace faster than thought," Wu said.

    Demand for crude oil could rise 4.9 percent in 2016, the country's petroleum industry association said on Tuesday.

    Even so, with waning economic growth, growth in demand for gasoline was moderate last autumn and appetite for diesel has fallen, putting oil demand - refinery throughput plus net imports of fuels - down 2.5 percent in November.

    Fuel exports have risen as a result, hitting a record 4.32 million tonnes in December, or 975,500 bpd, up 5.4 percent on the year. Exports marked a record 693,300 bpd in 2015, up 21.9 percent.

    Net fuel exports were 1.48 million tonnes in December.

    China has allowed independent refineries to export fuel for the first time, having granted an estimated 440,000 tonnes of quotas under the first batch release.
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    Crude Curve Collapses - Market Sees Sub-$50 Oil Through 2021

    The crude curve has just collapsed, especially since the rebound after China’s Golden Week reprieve ended around October 15. As Alhambra's Jeff Snider notes, the entire futures curve is under $50, an upsetting commentary on everything from US "demand" to long-term implications and especially those that are derived from economists’ somehow continued insistence that this is all just "transitory."

    Image title
    Transitory just died.

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    EIA Jan DPR: Marcellus Production Way Down Again, Utica Up

    Yesterday our favorite government agency, the U.S. Energy Information Administration (EIA), issued our favourite report, the Drilling Productivity Report (DPR).

    The January 2016 report shows what the EIA predicts oil and natural gas production will be in February from the seven largest commercial shale plays in the U.S. What does the report show?

    The biggest drop in production will once again be the biggest natgas producer in the country–the Mighty Marcellus. The EIA predicts the Marcellus will produce 15.222 billion cubic feet per day (Bcf/d) in February, vs. 15.447 Bcf/d in January, a decrease of 225 million cubic feet per day (MMcf/d).

    Meanwhile the Utica Shale will continue to show an INCREASE in production month over month–from 3.206 Bcf/d in January to 3.249 Bcf/d in February, a 43 MMcf/d increase month over month. The Utica, for a second month in a row, shows the largest increase in natgas production of all seven plays covered in the DPR.

    Overall the DPR shows that oil production month over month will decrease in February, the seventh month in a row, and natural gas will decrease for the eighth month in a row…
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    PTTEP ‘in Bongkot offer to BG

    Thailand’s PTT Exploration & Production (PTTEP) has made an offer for UK gas major BG Group’s stake in the Bongkot gas field off Thailand, according to a report.

    The Bangkok-headquartered wing of state giant PTT is hoping to conclude the purchase of BG’s 22.2% stake in the field within months, Reuters quoted PTTEP chief executive Somporn Vongvuthipornchai as saying.

    "We have already proposed an offer and it should be concluded in the first half," he told reporters.

    Although not specifying an offer price, Reuters cited him as saying it could be lower than $1.2 billion, given the recent renewed dive in oil prices.

    BG, which is in the process of being taken over by Anglo-Dutch supermajor Shell, put the stake up for sale inSeptember, hiring Morgan Stanley to run the sale process. It had hoped to complete a deal before the end of last year.

    Thailand accounted for about 6% of BG’s global gas output last year, with the Bongkot field meeting about a fifth of the South-East Asian country’s gas demand.

    Thailand’s state-owned PTT Exploration & Production (PTTEP) has a 44.4% stake in the field, while France's Total owns the remaining 33.3%.

    Reuters also said PTTEP may chop its $3.4 billion investment budget for this year even further due to the oil price malaise.
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    Abu Dhabi-listed Dana Gas to axe jobs, slash costs by half

    Abu Dhabi-listed Dana Gas aims to slash its head office workforce by 40 per cent and cut general and administrative costs by half between 2015 and early 2016, its chief executive said on Tuesday.

    The energy company will continue to invest in Egypt and sees its production in the country increasing, Patrick Allman-Ward told reporters on the sidelines of a conference in Abu Dhabi.

    Dana produces 34,000 barrels per day of oil equivalent in Egypt, Mr Allman-Ward said, adding its Balsam field in the Nile delta came on stream in late 2015.

    The company has operations Egypt, the UAE and Iraq’s Kurdistan region.
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    Petrobras Reduces Production Estimates on Deeper Spending Cuts

    Brazil’s state-controlled oil producer Petrobras has deepened spending cuts and reduced production growth estimates amid the worst oil market in a generation and a massive corruption scandal.

    Petroleo Brasileiro SA, as the company is formally known, has slashed its business plan for five years through 2019 to $98.4 billion, the latest adjustment to the original $130 billion in programmed outlays it announced last year, it said Tuesday in a filing. The company reduced its 2020 target for Brazilian oil production by 3.6 percent to 2.7 million barrels a day as a result.

    “Petrobras has been working to constantly improve its business plan and rapidly adapt to changes in the business environment,” the company said in the statement.

    Rio de Janeiro-based Petrobras has been beset with the collapse in oil prices as it navigates Brazil’s biggest corruption scandal, which blocked some of its suppliers from future contracts and a sent a group of former executives to jail for allegedly taking bribes. The world’s most-indebted oil company still plans to divest $14.4 billion this year to help finance investments.

    The company plans to invest $20 billion in 2016, up slightly from its most recent estimate of $19 billion, it said. It expects Brent crude prices to average $45 a barrel this year, down from its previous estimate of $55 a barrel.

    Petrobras’ shares fell 4.1 percent to 5.84 reais ($1.45) at 10:57 a.m. local time, the lowest since 2003.
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    BP to slash thousands more jobs in face of oil downturn

    British oil and gas company BP announced plans on Tuesday to slash 5 percent of its global workforce in the face of a continued slump in oil prices.

    It said it aims to reduce its global oil production, or upstream, headcount by 4,000 to 20,000 as it undergoes a $3.5 billion restructuring program. BP said its headcount totaled around 80,000 at the end of 2015.

    With crude oil prices at 12-year lows of around $32 a barrel, the world's biggest oil and gas producers are set to continue aggressively slashing spending this year as they face their longest period of investment cuts in decades.

    "We want to simplify (our) structure and reduce costs without compromising safety. Globally, we expect the headcount in upstream to be below 20,000 by the end of the year," a company spokesman said.

    In the North Sea, he said BP planned to reduce headcount by 600 people over the next two years with most cuts likely in 2016.

    BP shares, which have fallen by around 40 percent since the oil price began to slide in mid-2014, were up 1.2 percent at 1157 GMT compared with a 0.8 percent rise for the broader sector index.

    Oil companies including Royal Dutch Shell and Chevron have already slashed tens of thousands jobs globally to deal with a near 75 percent drop in oil prices since June 2014 that has seen earnings collapse.

    BP, which must also pay $20 billion in fines to resolve the deadly 2010 Gulf of Mexico spill, announced in October plans for a third round of spending cuts and said it would limit capital spending, or capex, to $17-19 billion a year through to 2017.

    The company, which has already sold over $50 billion of assets in recent years in order to cover the spill costs, said it expected an additional $3-5 billion of divestments in 2016.

    Fourth-quarter upstream earnings for oil majors are expected to fall by 84 percent from a year earlier and 48 percent from the previous quarter, according to analysts at Macquarie.

    BP will report fourth quarter and full-year results for 2015 on Feb. 2.
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    Europe refiners rush to make more gasoline after diesel hangover

    Europe refiners rush to make more gasoline after diesel hangover

    After years of building up diesel production, European oil refiners are using every trick in the book to maximize gasoline output to meet unabated global demand as the two fuels stage a sharp reversal of fortune.

    Many operators on the continent, including Total, BP, Royal Dutch Shell and ExxonMobil, have invested hundreds of millions of dollars over the past decade to increase production of diesel, the road fuel of choice in the region, while seeking to lower gasoline output, seen as a mere "by-product" of that process until recently.

    But today the world faces a growing excess of diesel and spectacular demand in Asia and the United States for gasoline and naphtha, a feedstock for plastic manufacturing.

    While oil refineries can not maintain high output of gasoline without also ramping up diesel production, they are now taking every possible step to tweak production in order to favour gasoline and naphtha.

    One such step is using as feedstock lighter crude oil grades with higher yields of gasoline and naphtha. For example, light Nigerian crude prices have outperformed heavier grades

    Some refineries have also opted to lower operating levels, or runs, in diesel producing units known as hydrocrackers.

    In recent weeks, as naphtha cracks surged to record levels, some refiners have tweaked the distillation boiling temperature, or "cut point", in order to favour naphtha over kerosene and jet fuel, according to refinery sources and traders.

    The results are already showing -- yields of middle distillates, which include gasoil and diesel, dropped to around 50 percent in December, date from industry monitor Euroilstock showed, the lowest in around 6 years.

    "We expect European refiners to do all sorts of things... They are already doing this as the market is sending such strong signals. We will see fractions pulled out of the diesel pool and moved into jet and we will see naphtha fractions taken out of jet and moved into light ends," according to Robert Campbell, head of oil products research at consultancy Energy Aspects.

    Benchmark European gasoline refining margins, or cracks, rose to around $15 a barrel this week -- nearly three times higher than a year ago and ten times above 2013 levels -- as demand in China and Asia for the road fuel remains unabated.

    Diesel cracks, on the other hand, have languished due to rising global production, slower demand and a mild winter that has filled storage tanks to the brim.

    The small changes in refining slates are having an incremental effect. A 1 percent swing in yields could lower Europe's diesel production by more than 250,000 tonnes per month, according to Campbell.

    "It is not enough by itself to right the market but would help a little bit. A similar development in the U.S. Gulf Coast would shave another 150,000-200,000 tonnes off the balance and that starts to have a pretty significant effect on the overall number of cargoes being shown."

    The global shortage in gasoline is expected to continue this year too.

    "With new refinery additions less tailored towards light products and increasing demand for petrol in Asia, it appears increasingly likely that the market could find itself short of gasoline again as it did over the summer of 2015," Barclays said in a note.

    In the near term, the sharp decline in crude oil prices due to a persistent supply glut is likely to support refining margins but Energy Aspect's Campbell expects "modest" cuts in refining rates in both Europe and the United States.

    Once crude supplies tighten towards the end of the year, "that support will go away and margins will really struggle," he said.
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    OPEC president sees emergency meeting in March

    OPEC president Emmanuel Ibe Kachikwu said on Tuesday that he expects an extraordinary meeting of the oil cartel in "early March" to address nosediving crude prices.

    "We did say that if it (the price) hits the 35 (dollar per barrel), we will begin to look (at)... an extraordinary meeting," said Kachikwu, who is Nigerian minister for petroleum resources.

    The prices have hit levels that necessitate a meeting, he told an energy forum in Abu Dhabi, but added that he not yet confirmed with fellow OPEC ministers if they would be willing to attend.

    The US crude oil price tumbled below 31 a barrel Tuesday, extending a sell-off that has pushed it to more than 12-year lows amid a global supply glut, a strong dollar and tepid demand.

    Saudi-led Gulf exporters within OPEC have so far refused to cut production to curb sliding prices, seeking to protect their market share despite a heavy blow to their revenues.

    Kachikwu said that member states differ on the issue of intervention.

    "One group feels there is a need to intervene. The other group feels even if we did, we are only 30 to 35 percent of the producers really," as 65 percent of supply comes from non-OPEC countries, he said at the Gulf Intelligence UAE Energy Forum.

    "Unless you have this 65 percent (of) producers coming back to the table you really won't make any dramatic difference," he added.
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    Baker Hughes makes leap in artificial lift delivery

    Baker Hughes is field trialling a new adaptive production system which the global services firm delivers 300% greater oil production and 200% higher natural gas production compared with its previous artificial lift offering for unconventional plays.

    The firm installed its Leap system last month at a depth of 5,200ft in the Mississippi Lime play in Woods County, Oklahoma, for SandRidge Energy.

    In continuous operation since its installation, the system was deployed through the deviated section of the wellbore and started on its first attempt with no issues.

    Baker Hughes describes Leap as an entirely new approach to artificial lift, designed to adapt to dynamic production profiles typical in most unconventional oil wells.

    Artificial lift is used on oil wells to increase pressure within the reservoir and encourage oil to the surface.

    Baker Hughes opened its own $60 artificial lift research and technology centre in 2014 in Oklahoma to research and and develop new artificial lift technology after the company recognised that traditional production technologies were not meeting the demands of unconventional oil plays.

    It established a team to research innovative artificial lift solutions to address the challenges.

    “Until now, operators have had to use 100-year-old technology that was never intended to operate in deep, horizontal wells or to handle the rapidly declining production rates and high gas volumes typical of unconventional reservoirs,” said Wade Welborn, vice president, Artificial Lift Systems at Baker Hughes.

    “Leap is the first artificial lift technology designed specifically for these unique production challenges,” added Welborn

    Unlike any other positive displacement pumping technology currently available, proprietary software built into the Leap system surface variable speed drive (VSD) integrates with downhole electronics to allow remote adjustments to the pumping system speed and stroke length as production rates change.

    The downhole system consists of a positive displacement pump, which can be installed to sit deeper in a well than traditional rod pumps, a submersible linear electromagnetically actuated motor, which drives the pump and eliminates the need for the long rod string (a primary source of failure in rod lift systems) and a sensor, which provides pressure and temperature data to help ensure the highest level of production optimisation and system longevity.

    Welborn said: “Leap dramatically reduces the large surface footprint required for traditional rod systems, mitigates potential emission and leak paths and eliminates the safety hazards to wellsite personnel that are inherent with large pump jacks.”

    The SandRidge field trial comes only 18 months after approval of the initial system design.
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    Shell-BG merger hits shareholders bump

    Shell’s proposed combination with BG Group came across a first obstacle on the road towards the shareholder vote on January 27 as Standard Life Investment opted to vote against the merger.

    Reuters reported David Cumming, head of equities at Standard Life Investments, saying that the proposed terms of Shell’s acquisition of BG are value destructive for Shell shareholders.

    Cumming noted that SLI’s conclusion is based on the downside risk to Shell’s oil price assumptions and risks carried by BG’s Brazilian assets. As a consequence of such conclusion, Standard Life Investments intends to vote against the deal.

    However, Shell is still expected to have the backing of its investors as the company’s CFO Simon Henry and CEO Ben van Beurden hold talks with leading investors in order to gather information prior to the January 27 vote.

    Contrary to Standard Life Investment, Institutional Shareholder Services, advisor of around 5 percent of Shell’s small and medium shareholders supports the deal due to the positive economics to be realized within a short time frame.
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    Marcellus Ethane Sets Sail for Europe Next Month W

    e’re almost there! INEOS, one of Europe’s largest petrochemical companies, had commissioned and purchased two tankers to ferry Marcellus/Utica ethane from the Marcus Hook refinery near Philadelphia to Norway and Scotland.

    The final leg of the Mariner East Pipeline is ready to go online, and the twin tankers are ready to be loaded. In February, the first shipment of Marcellus ethane will set sail from Philadelphia bound for Norway…
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    Norwegian oil minister steers clear of Statoil dividend debate

    Norway's oil minister refused to be drawn into public debate over whether state-controlled Statoil should cut its dividend because of the fall in oil prices, saying on Monday that such matters are discussed privately with the company's top executives.

    The government owns 67 percent of Statoil -- which bowed to investor pressure for increased shareholder payouts by introducing quarterly dividends in 2014 -- but takes an arms's-length approach that gives the board the freedom to make commercial decisions.

    Two members of parliament for Norway's ruling Conservatives argued in financial daily Dagens Naeringsliv on Monday that Statoil should reduce the dividend sharply and save the cash for investments.

    "I note that Statoil's dividend is being questioned from several sides. As the person responsible for the state's ownership in the firm, I discuss such matters with the leading organs in Statoil, not in public debate," Energy Minister Tord Lien, who represent the populist Progress Party, said in a statement. Progress and the Conservatives have held power in a coalition government since 2013.

    Labour unions have protested that Statoil is laying off staff and cutting investment while increasing its debt to pay dividends, but the company has repeatedly said that it has room to raise its leverage.

    "Our dividend policy is based on a long-term perspective and our long-term earnings, and is not tied to the current oil price," Chief Executive Eldar Saetre told Reuters on Jan. 7.

    However, Statoil's dividends have also been questioned by analysts.

    "Overall, we see dividend risk at Statoil higher than most peers," RBC Caital Markets analysts wrote in a research note last week.

    Statoil is due to announce fourth-quarter earnings and its quarterly dividend on Feb. 4, when it will also provide a strategy update. The company, which paid a third-quarter dividend of 22.01 cents a share, declined to comment on Monday.

    North Sea crude oil currently trades at about $33 a barrel, down by around 70 percent since mid-2014.

    Brokerage Swedbank estimates that oil at that level means that Statoil will have negative cashflow of 19 Norwegian crowns per share after 2016 dividend payments if it cuts capital expenditure by 15 percent from 2015 levels.

    "In good times, generous dividends should be paid to owners. In bad times, owners should settle for lower dividends," Rune Selmar, head of asset manager and Statoil shareholder Odin Forvaltning, wrote in Dagens Naeringsliv on Monday.
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    China's Demand for Crude is Showing Signs of Cracking

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    When looking for the prime culprit behind widespread weakness in commodity prices, fingers often point squarely at China.

    On the supply side, especially in select metals, the world's second-largest economy deserves a hefty portion of the blame for the rout.

    But in the case of crude, China has responded to lower prices with a jump in demand, says Barclays' Commodities Analyst Miswin Mahesh. Although, as he notes, there are signs that this increased appetite may soon wane.

    Getting a handle on China's true oil demand is notoriously difficult, and estimates will vary widely depending on which analyst you ask. While Mahesh projects that the demand for oil in the world's second-largest economy grew by 5 percent in 2015, he cautions that: "Chinese oil data are finally starting to reflect weak economic activity."

    In November, implied oil demand contracted by 2 percent relative to the same period in the previous year, the first such decline since July 2014.

    Demand for gasoline remains solid, the analyst notes, but the moderation in the 'old' industrial segments of the economy has dampened the use of diesel.

    The moderation in China's economic expansion entails a decrease in the rate of—and sheer size of—demand growth this year, according to Barclays.

    "In 2016, we expect Chinese oil demand to grow at a slower pace, of 300,000 barrels per day (3 percent) versus the estimated 510,000 barrels per day in 2015, reflecting the country’s economic slowdown," he concludes.

    From 2011 through 2014, implied year-over-year oil demand growth averaged 361,000 barrels per day, according to Mahesh.

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    Suncor Seen Needing to Raise Canadian Oil Sands Bid After Rebuff

    Suncor Energy Inc. will probably need to sweeten its bid for Canadian Oil Sands Ltd. after failing to convince enough shareholders to accept a C$4.03 billion ($2.84 billion) offer that management repeatedly rejected for undervaluing the company.

    Based on early returns, shareholders believed to represent less than half of the shares outstanding voted to accept the offer of 0.25 Suncor shares for each of Canadian Oil Sands’, a person familiar with the matter said Friday, who asked not to be named because the matter is private. That’s short of the two-thirds of the shares Suncor was looking for.

    "They will have to search out any larger shareholders that might have voted against the deal and see what it takes to get it over the hump," Rafi Tahmazian, a Calgary-based fund manager at Canoe Financial LP, said in an e-mail. Tahmazian had owned shares of Canadian Oil Sands and sold his position shortly after the Suncor bid. "I suspect it could be a better ratio" of shares, meaning a higher offer, he said.

    Suncor chief executive officer Steve Williams said in a statement Monday he strongly believed in the value of the offer for Canadian Oil Sands, and that he was encouraged by the number of shares tendered. He did not disclose what percentage of shares were tendered by the deadline Friday evening. "We have decided to extend the offer in order to allow shareholders to continue to tender to the offer," he said.

    Suncor declined to improve the offer earlier this month even as Canadian Oil Sands’ shareholders including resource investor Seymour Schulich, Burgundy Asset Management and Value Financial, spoke out against the merger. Those who opposed the deal were either looking for a higher offer price or were not interested in selling at all.

    Schulich, who currently holds about 5 percent of Canadian Oil Sands’ shares, has floated the idea of a warrant being issued alongside the offer that would protect shareholders if the price of oil rises.

    Suncor extended its offer Friday of 0.25 share for each of Canadian Oil Sands to Jan. 27.
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    Dangote Plants Seen Selling $6 Billion Yearly to Nigeria by 2018

    Nigerian billionaire Aliko Dangote’s industrial complex in the commercial capital Lagos will sell as much as $6 billion a year of foreign exchange to the West African nation’s central bank by 2018, according to Governor Godwin Emefiele.

    Dangote’s fertilizer plant, which will be operational next year, and the petrochemical plant and refinery, expected to be completed by 2018, will meet local consumption of petroleum and chemical products that currently make up 35 to 40 percent of Nigeria’s import needs, Emefiele told journalists at the construction site Sunday. The complex will also produce for export, he said.

    “We expect that by the time these projects are completed, it will not only meet the needs of our domestic requirement,” Emefiele said. “By the time it is completed, he will be exporting these products to the point where he will be selling foreign exchange to Nigeria, to Nigerians and to the Central Bank of Nigeria to the tune of almost about $6 billion a year.”

    Africa’s top oil producer relies on fuel imports to meet domestic needs since its four state-owned refineries produce a fraction of their 445,000 barrels-per-day capacity after decades of poor maintenance, corruption and mismanagement. Nigeria is also struggling to cope with crude prices that have fallen more than 70 percent since their June 2014 peak to below $40 a barrel.

    The Abuja-based central bank has resorted to holding the naira at 197 to 199 per dollar since March by introducing trading curbs to conserve reserves and stem a rout after it fell to a record 206.32 in February. While Nigerian President Muhammadu Buhari has supported the governor’s measures, International Monetary Fund Managing Director Christine Lagarde last week called for more flexibility in the monetary policy.

    “You can imagine what will happen to the savings in foreign exchange” by the time the refinery, petrochemical and fertilizer plants are completed, Emefiele said. “We can’t wait, we need him to do this very fast so we can begin to save foreign exchange,” he said, referring to Dangote, Africa’s richest man.
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    IHS to buy oil pricing data provider OPIS for $650 mln

    IHS Inc said it agreed to buy U.S.-based Oil Price Information Service (OPIS) for $650 million to add real-time pricing information to its energy analytics business.

    OPIS, which provides information used for commercial contracts and to settle trades, has presence in 30 countries, IHS said.

    The acquisition is IHS's second in a less than a month. The company agreed in December to buy Canada-based vehicle data provider Carproof Corp for $460 million to boost its automotive research business.

    OPIS provides real-time and historical spot, wholesale/rack and retail fuel prices for refined products, renewable fuels, and natural gas and gas liquids industries.

    The acquisition "gives IHS visibility across the entire petroleum value chain, from wellhead to consumer," Chief Executive Jerre Stead said on Monday.

    Stead had said earlier that IHS could pursue some "larger acquisitions" of at least $500 million in the industrial and energy research sectors.
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    Ardian targets energy shake-out with infrastructure fund

    Ardian targets energy shake-out with infrastructure fund

    French private equity firm Ardian is seeking to profit from a shake-up of the oil industry after raising a record 2.65 billion euros ($2.89 billion) infrastructure fund.

    Half of the new fund is targeted at the transport sector and half on energy as it anticipates low oil prices will trigger dramatic changes in the oil industry, Ardian head of infrastructure Mathias Burghardt told Reuters on Monday.

    "Oil groups are divesting mid- and downstream assets and we are ready to invest in some of these, having done two such deals already," Burghardt said.

    "As an indication of the change, Saudi Aramco has announced (plans) to divest stakes of some oil-related assets and we will look at them," he said, adding the new fund could invest 20 percent of its money outside Europe.

    He said Ardian also had a keen interest in northern Europe, although it had not yet decided whether to invest in German gas network operator Thyssengas.

    Ardian, which manages or advises on the management of $50 billion in assets, was the private equity investing arm of French insurer AXA until it was spun off in 2013 in an employee buyout. It said that the new fund was the biggest ever raised to invest in European infrastructure and that it brought its assets under management targeting the sector to $7 billion.

    The fund, its fourth focused on infrastructure, attracted institutional investors from pension funds, insurers and sovereign wealth funds with locations ranging from Europe to North America and Asia, Ardian said.

    Ultra-low government bond yields mean institutional investors are being tempted into Europe's infrastructure market in search of higher and stable long-term returns.

    One billion euros of the new Ardian fund have already been committed, with investments in Italian airport firm 2i Aeroporti, Repsol's CLH oil transport and storage subsidiary, Portuguese toll-road operator Ascendi and French oil transport and storage firm Geosol.
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    APLNG ships inaugural cargo

    The ConocoPhilips-operated Australia Pacific LNG project has on Saturday shipped its first cargo of liquefied natural gas from the Curtis Island facility near Gladstone.

    The first cargo was loaded onboard the Methane Spirit LNG carrier, Origin Energy, one of the project partners, said in a statement.

    The second cargo of chilled gas is expected to be shipped soon from the A$25 billion (US$17 billion) APLNG plant.

    However, the first cargo was planned to be loaded before the end of 2015. The delay has caused issues for another APLNG partner, China’s Sinopec that has had the BW Pavilion Vanda LNG carrier waiting at anchor off Gladstone since December 18. As Reuters reports, due to the delay, Sinopec racked up more than US$500,000 in demurrage costs.

    Sinopec has a 7.6 mtpa long-term contract  with APLNG while Japan’s Kansai Electric has booked 1 mtpa of LNG from the facility on a 20-year deal.

    Australia Pacific LNG CEO, Page Maxson said that the full production capacity of 9 million tons per year from the APLNG facility is expected to be reached in 2016.

    With the start-up of APLNG’s first train, all three liquefied natural gas facilities on the Curtis Island near Gladstone have entered operation.

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    US Oil rig count plummets to start 2016

    The number rigs drilling for oil in the U.S. plummeted by another 20 rigs during the first week of 2016 as the energy sector continues to struggle.

    West Texas’ seemingly resilient Permian Basin led the way with the loss of eight rigs, while southern Texas’ Eagle Ford shale dipped by five rigs, according to weekly data released by oil field services firm Baker Hughes.

    The sharp cutbacks starting the new year might represent the first sign of significant budget slashing for the new fiscal calendar, said Andy Lipow, president of Lipow Oil Associates in Houston.

    “The Permian tends to be more resilient, and we might be seeing the impact of producers cutting their new budgets,” Lipow said.

    The oil rig count now stands at 516 rigs, down 68 percent from when oil field rigs were operating at the peak of the U.S. oil boom in October 2014, when oil rigs totaled 1,609. The amount of rigs exploring for natural gas also sunk sharply by 14 down to just 148 rigs.

    The overall rig count is at it lowest point since 1999. Texas still counts 308 rigs, which is nearly half of the nation’s total of 664 rigs. Louisiana picked up one new rig and it was the only gainer in the country for the week.

    The holdouts, essentially, can no longer hold out, said Marshall Adkins, director of energy research at Raymond James in Houston.

    “The last bastions of resistance are being ferreted out by the low price of oil,” Adkins said. “It’s rapidly becoming a wasteland.”

    The price of oil also continued to sink Friday with the benchmark for U.S. oil settling at $33.16 a barrel, down 11 cents for the day and at its lowest settlement since 2004 on the New York Mercantile Exchange.

    “Below $50 the industry doesn’t work, and we’re well below $50,” Adkins said. “Oil prices have been a disaster. At these levels, you’re going to see everyone cut back.”

    Rig count and oil production reductions are likely to continue at least through March thanks to the global glut of oil supply, Lipow said, but also because U.S. refiners will soon enter into spring maintenance periods and their demand for crude oil will temporarily decline.

    The next three to six months are expected to be ugly, Adkins said, but he is bullish heading into the latter half of the year, and even for 2017 and 2018.

    The ongoing U.S. production cuts will eventually put supply and demand back into synchronization, Adkins said. That balance will have a much greater impact than the market’s focus on China’s weakening economy and other concerns, he said.
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    PetroChina, Chevron Sichuan Gas Project in China Starts Output

    Chevron Corp. and PetroChina Co. started natural gas production in China’s southwestern regions of Sichuan and Chongqing, eight years after signing a production-sharing agreement.

    Gas well-A in Chongqing’s Luojiazhai gas field began commercial natural gas production on Dec. 30, China National Petroleum Corp., PetroChina’s parent, said in a statement Monday. PetroChina had signed the 30-year agreement with Chevron in 2008, under which the second-largest U.S. oil producer took a 49 percent stake in the parcel and became the operator.

    The Luojiazhai project, the first phase of development, will produce 3 billion cubic meters of gas a year, according to the statement. Both parties will work on phase two and three in the same area. The three phases together, known as the Chuandongbei project, cover about 800 square kilometers (309 square miles), according to the statement.

    The partners had promised to produce 2 billion cubic meters of gas by 2010 and 6 billion cubic meters by 2013 from the Chuandongbei project, China’s largest onshore oil and gas exploration venture with a foreign partner.

    Chevron beat Royal Dutch Shell Plc, Statoil ASA and Total SA to win the right to develop the so-called sour-gas reserves at Chuandongbei. Sour gas refers to natural gas that contains a high level of hydrogen sulphide.

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    At private Goldman confab, U.S. oil drillers add to glut woes

    Goldman Sachs has diagnosed a new reason for the sudden slump in energy industry sentiment this week: talk of agility, not agony, among leading U.S. shale oil producers speaking at the Wall Street bank's closed-door conference.

    In a research note following its Jan. 5-7 Global Energy Conference in Miami, which was closed to the media, the analysts said that investor sentiment "deteriorated further" during the event for three reasons, including a view that drillers were still overly optimistic about the potential for $50 oil.

    "Investors felt producers were not being responsive to $35 a barrel WTI (West Texas Intermediate crude oil) by focusing more on their agility versus potential for their production to decline," they wrote.

    Unfavorable weather and weakness in the Chinese economy also weighed on sentiment, the analysts said in a note entitled "Are we there yet?". They also said Pioneer Natural Resources' $1.4 billion equity offering this week "increased investor concern that financial stress is insufficient to bring oil markets back into balance".

    While the note is focused on energy companies rather than the oil market, it offers a new perspective on the dramatic 10 percent slump in crude prices this week that traders blamed on a variety of other factors, including a dive in the Chinese stock market and a sharp rise in U.S. gasoline stocks.

    It also reinforces the core thesis underpinning the bank's ultra-bearish outlook on the oil market. Its market analysts have been warning that a $20 a barrel price shock may be necessary to accelerate the slow-down in drilling and prevent global inventories from overflowing with surplus crude oil.

    So far, the U.S. shale oil drillers have proven stubbornly optimistic about the outlook, doing everything they can to maintain output even as cash dwindles and, in the process, feeding the glut that has depressed global prices.

    "Investors were looking for fear and trepidation from producers but got agility and below-expected clarity instead," according to Friday's research note.

    The analysts said that producers such as Continental Resources Inc, Devon Energy Corp and Marathon Oil Corp had assumed a $50 a barrel price, and indicated they would have to cut back on spending if the forward price curve dropped below that level. The balance of 2016 was trading at around $38 a barrel on Friday.

    None of the firms posted any material on their websites by Friday.

    It will likely take several more months to see whether the response among drillers would be enough to shore up prices as drillers get into the "mindset" of $40 crude, they wrote.

    "At our conference, producers largely did not provide specifics on what capex/ production would look like at $35/bbl oil," they wrote. "Instead, producers spoke largely of their agility to spend within cash flow and ... ramp up when needed."

    And when might that be?

    "Commentary suggested $50 per barrel WTI is now where producers would raise activity."

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    E&P Capex Outlook Grimmer, With U.S. Spending Possibly Falling 40-50%

    Oversupplied oil and natural gas markets, now coupled with sharply declining oil prices, are setting up a dismal year for capital spending by exploration companies, with domestic operators possibly cutting their spend plans by as much as half from 2015, analysts said this week.

    The hope that capital expenditures (capex) by the exploration and production (E&P) sector would increase this year is becoming less likely, one analyst said. The bottom line is simple, he toldNGI's Shale Daily. If commodity prices were to rise, spending would follow, but at current prices, that scenario is tentative at best.

    Cowen and Co. LLC this week issued The Original E&P Spending Survey, the signature report by analyst Jim Crandell, who initiated it in 1982. Worldwide capex plans were reviewed for 450 companies, with analysts asking detailed questions about the composition of budgets and strategic shifts. For 2016, it's going to be a slice and dice world for the E&Ps.

    "In the U.S., the 185 companies that we surveyed are planning an average decrease in their upstream capital expenditures of 24% to $89.6 billion," Crandell said. "In Canada, we estimate that the 103 companies that we surveyed are budgeting upon a 22% decline.

    "The cuts in U.S. E&P spending are broad-based and driven by reduced cash flows and uncertain economics. Under a 24% decline in spending, we estimate the average U.S. onshore rig count will fall by 29% in 2016, to exit the year at 660. We forecast completion activity will drop by 24% for the calendar year of 2016."

    Global capex is estimated to decline by 17% this year to $447 billion, but the estimate is based on $48.50/bbl West Texas Intermediate (WTI). International spend is expected to decline by less than in North America.

    "We did notice that the companies that were among the later ones to respond to our survey used a bit lower oil prices," Crandell said. "Because of the small difference, we treated Brent the same as WTI."

    The latest findings represent the "largest two-year declines" in North American (NAM) and international spending since the survey began more than three decades ago. There are "cutbacks across the board," but "smaller companies are cutting back far more substantially."

    Domestic producers whose capex budgets are less than $50 million are reducing spending by an average of 63%, while the largest spenders -- those with budgets of more than $1 billion -- plan to cut spending by 20%. Canadian E&P spend is similar, with overall reductions of 22%. The companies spending under $50 million in Canada now are planning to reduce their budgets by 41% year/year, while the $1 billion-plus spenders see capex down by 19%.

    The oil majors whose businesses are concentrated in NAM -- BP plc, Chevron Corp., ExxonMobil Corp. and Royal Dutch Shell plc -- are seen reducing their capex on average by 10% from 2015.

    "We forecast a 20%-plus coming from Chevron, but single-digit declines at BP, ExxonMobil and Royal Dutch Shell," Crandell said.

    If oil prices were to stay at current levels, more capex reductions are likely. The "most common answer" to Cowen's survey for what average oil price would cause E&Ps to reduce capex was $40/bbl.

    "Since we are below these levels going into the year, it seems to us that there is a good chance of further reductions," Crandell said. Most of the E&Ps surveyed (60%) said it would take a $60/bbl oil price to get them to increase spending; 21% said a $55 price would trigger a bump.

    Based on the analysis by Cowen colleague Marc Bianchi, "this spending scenario would result in a year-end 2016 rig count of about 660 versus 685 today and an average 2016 rig count of 666 -- down by 29% versus calendar 2015," Crandell said. "The difference is increased capex per rig. Well counts would perform a bit better, down by 24% for calendar 2016.

    "Assuming a 30% spending cut, rigs would need to fall by 75, exiting at 610 with well counts down by 28% for the calendar year."

    E&Ps have changed their thinking about "important technologies," the Cowen survey noted.

    "In recent years it has been a battle between horizontal drilling and fracturing/stimulation for the top spot," Crandell said. "They were joined this year by reservoir recovery optimization. Other notable gainers included deepwater technology and intelligent well completions.

    "It should be of no surprise that the majority of companies in every category called the economics of drilling poor. The one surprise was that there were both independents and majors who called the economics of drilling in the U.S. excellent."

    Evercore ISI's James West said the E&Ps now are "at oil's mercy." West and his analyst team issued an updated capex forecast this week one month after publishing initial findings -- all because of the decline in oil prices. Evercore's initial survey estimated NAM capex would fall by 19% year/year, with U.S. spend down 20% to less than $100 billion total. Today's projections at today's oil price are grimmer.

    "Our initial expectation was formed with E&P companies budgeting WTI prices at $47.60/bbl, roughly 29% above the current spot price and 17% above the current calendar '16 strip price," West said. A "record 74% of operators surveyed originally had selected oil prices as the key determinant of 2016 budgets, followed by cash flow at 59%. In addition, nearly 80% of companies we surveyed are expecting to spend within cash flow this year, up sharply from just 55% in 2015."

    More than half of the companies had stated they would decrease spend if WTI "remained below $40/bbl. Given continued weakness in the underlying commodity, we believe initial 2016 NAM budget announcements over the coming one to two months may amount to as much as 40-50% annual reductions -- significantly steeper cuts than forecasted less than one month ago."

    Many E&Ps are "largely at the mercy of the commodity with under-hedged books," according to West. Evercore analyst Stephen Richardson recently noted that 2016 hedged crude oil volumes stood at 27% at the end of December for his coverage universe of independent producers, while operators hedged only 6% of 2017 volumes.

    "With laser focus on spending within cash flow, initial 2016 upstream budgets are now unlikely to start down just 15-20% in North America as WTI crude oil lingers below $40/bbl," West said.

    The "bear scenario would remove an incremental $65 billion of upstream spending this year. Assuming a 45% sequential NAM spending decline and a 15% international spending decline, global upstream capex would post a 23% year/year decline during 2016 compared to our initial forecast for a global spending decline of 11%," which could "effectively remove an additional $65 billion of global upstream spending from this year's market.

    "However, as oil market fundamentals likely improve heading into second half of 2016, we think upward revisions to budgets, particularly for North America, should unfold. One caveat is that consolidation among the majors, which is increasingly likely in a more sustained low oil price environment, could present risks to increased overall spending levels."

    Whichever way the energy industry considers 2016, it looks to be a challenging year, said U.S. Capital Advisors analysts Cameron Horwitz and Omar Zakaria. The "pain trade has to spill over into the New Year. We think '16 will be a period of capitulation, marked by the rationalization of high-cost supply sources that are no longer needed and a broad-based hunkering down of even the best asset/strongest balance sheet operators."

    The first six months "will invariably be painful," they said. However, with "massive efficiency gains and cost structure improvements, we see E&Ps with core asset bases coming out of the '16 abyss in position to more competently compete for global market share."

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    Oil Producers Here Are Now Getting Double The World Price

    Last month I wrote about soaring profits for resource companies working in Argentina. With local costs for such firms plunging following the devaluation of the Argentinean peso.

    And this week the government here confirmed this as one of the best crude markets going on the planet.

    That’s because of the oil price in the country. Which officials said will be fixed at US$67.50 per barrel for 2016.

    Unlike most global oil markets, Argentina currently mandates oil sale prices — to provide profitability for drillers and ensure development of domestic oil fields and security of local supply.

    That means Argentina’s oil producers will be seeing some of the highest revenues going anywhere in the world.

    The government did say it may adjust the price throughout the coming year — with this week’s announced price being a 10 percent decrease from the $75 per barrel price that prevailed across Argentina in December.

    But even a few more cuts of that magnitude would still leave Argentina’s oil market as the best on the planet. By far.

    The high oil price is especially good news in the wake of the recent peso devaluation. Which should push down costs for labor and local supplies for E&P firms — further ramping up profits.

    Combine that with recent successful work in Argentina’s emerging Vaca Muerta shale oil and gas play, and it looks like this may be the world’s best spot in the petroleum business today. Watch for financial statements from firms producing here to see if profits are super-charging over the coming months.
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    Saudi Aramco Confirms

    On Friday, the kingdom confirmed it's mulling plans to sell a stake in the company. Here’s the official statement:

    Saudi Aramco confirms that it has been studying various options to allow broad public participation in its equity through the listing in the capital markets of an appropriate percentage of the Company’s shares and/or the listing of a bundle its downstream subsidiaries.

    Once the study of these various options is complete, the findings will be presented to the Company’s Board of Directors which will make its recommendations to the Saudi Aramco Supreme Council.

    This proposal is consistent with the broad and progressive direction pursued by the Kingdom for reforms, including privatization in various sectors of the Saudi economy and deregulation of markets, which the Company strongly supports.

    Saudi Aramco would like to emphasize that this process will strengthen the Company's focus on its long term vision of becoming the world’s leading energy and chemical enterprise. This includes prudently managing the Kingdom’s hydrocarbon resources, adding value across the value chain, reliably meeting its customers’ demand, and meeting its stakeholder and environmental commitments.

    As we noted before, "Aramco has the largest known oil reserves at around 261bn barrels – almost 10 times more than Exxon Mobil."

    In order to get an idea of the sheer magnitude, consider the following chart which shows that when it comes to crude, no one does it like Riyadh:

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    Alternative Energy

    Vattenfall aims to build subsidy free offshore wind farms by 2025

    Vattenfall expects to be able to build offshore wind power projects without subsidies by 2025, according to a senior company official.

    The Swedish power giant said it plans to increased its portfolio to 4 gigawatts by 2020 from the current installed 1.8 GW, and further to 7 GW by 2025.

    Michael Simmelsgaard, head of Vattenfall’s strategic projects in wind expected it could build offshore wind power without subsidy by 2025, depending on the projects,”

    Vattenfall is trying to sell its polluting lignite or brown coal mines and power plants in eastern Germany.

    Last year, Vattenfall won a tender to build the 400-megawatt Horns Rev 3 wind park off Denmark, which is expected to produce the world’s cheapest offshore wind energy.

    The UK government announced last year that it would end onshore wind subsidies – known as the renewables obligation – from April 2016, but subsidies for offshore wind are to remain.

    Offshore wind is one of the most expensive renewable energy technologies in Britain, because manufacturing and maintaining turbines strong enough to withstand marine environments is costly.

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    Germany wants to put 2 billion euros into encouraging electric cars

    German Economy Minister Sigmar Gabriel wants to commit two billion euros ($2.17 billion) to encourage more people to buy electric cars, the newspaper Die Zeit reported on Wednesday.

    Buyers of electric cars would receive a subsidy from the government, the newspaper said, giving no further details.

    Gabriel also wants to expand charging stations and encourage federal offices to use electric cars - an initiative that will be funded under the current German budget without tax increases, he said.

    The German government aims to put one million electric cars on the roads by 2020. Among the country's carmakers, BMW, Mercedes and Volkswagen now produce all-electric cars; Audi, Mercedes and Porsche have plans to build one.

    Sales of electric cars totaled some 19,000 in 2014, but at the end of 2014 Germany had only 2,400 charging stations and around 100 fast-charging points.

    Calls for supporting electric cars grew at the end of last year after the Volkswagen emissions scandal. Both Gabriel and his fellow Social Democrat Environment Minster Barbara Hendricks have called for a quota for electric cars.

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    SunEdison Plunges 15%, Halted As Tepper Sues To Block Acquisition

    The ongoing drama between SunEdison and Terraform Power and Appaloosa's David Tepper just escalated yet again. The stock plunged 15% after an initial halt but is now halted once again asTepper sues the firm to block the firm's 'nepotistic' deal to acquire Vivint assets.


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    UPS Signs Deal to Fuel Fleet with Renewable Fuels

    UPS, a major global logistics provider, has put steps in place to supply its fleet for Memphis, Tennessee and Jackson, Mississippi, with an estimated 15 million diesel gallon gas equivalents of renewable natural gas (RNG) as part of a multi-year agreement with Memphis Light, Gas and Water and Atmos Energy Marketing, LLC. The deal is part of an initiative announced in 2015 by UPS to significantly expand its use of renewable natural gas fuel for transportation.

    “UPS operates one of the most diversified fleets in private industry today, and renewable natural gas is a critical part of our strategy to expand our fuel sources and minimize the environmental impact associated with growing customer demand,” said Mark Wallace, UPS senior vice president global engineering and sustainability. “We are using methane that otherwise would be released into the atmosphere as a greenhouse gas emission and converting it to power our trucks while helping to promote the use of this renewable fuel in transportation.”

    The company has a goal of driving one billion miles with its alternative fuels fleet, known as the Rolling Laboratory by the end of 2017, an effort that is reducing environmental impact and helping to advance new sustainability solutions and markets.

    The RNG will fuel more than 140 heavy duty trucks in Memphis and Jackson, part of UPS’s natural gas fleet, which includes more than 3,800 medium and heavy duty vehicles worldwide. RNG, also known as biomethane, can be derived from many abundant and renewable sources, including decomposing organic waste in landfills, wastewater treatment and agriculture. It is then distributed through the natural gas pipeline system, making it available for use as liquefied natural gas (LNG) or compressed natural gas (CNG).

    Memphis Light, Gas and Water president and CEO Jerry Collins described the deal as “impressive”. “Kudos to UPS for not only talking the talk but walking the walk.”
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    Rare earth miner Molycorp to start bankruptcy sale of business

    Rare earths producer Molycorp reached agreements with its junior creditors on Friday that clear the way for the bankrupt company to accept bids for the company and to ask creditors to vote on a plan to exit bankruptcy.

    Molycorp, the only U.S. producer and processor of the rare earth elements that are used in cell phones and military equipment, has been battling its bondholders who have alleged it is doing the bidding of its lender, Oaktree Capital Management.

    Lawyers for Greenwood Village, Colorado-based Molycorp told a U.S. Bankruptcy judge it would allow advisers for the official committee of unsecured creditors and a group of bondholders to join calls and meetings about potential bids.

    Molycorp has said in filings with the U.S. Bankruptcy Court in Wilmington, Delaware, it had received 20 potential bids. On Tuesday, Bloomberg reported that potential buyers from China and Australia submitted nonbinding bids of more than $700 million for Molycorp's processing operations. The company has estimated the operations were worth less than $450 million.

    Bids for the company's bonds have jumped this week from less than 5 cents on the dollar to more than 12 cents as the prospects for repayment have improved for bondholders.

    An auction is scheduled for March 4.

    The auction would include the company's closed mine in Mountain Pass, California, which was once one of the world's main sources for rare earths.

    If bids fall short of a certain threshold, Molycorp has proposed exiting bankruptcy through a reorganization plan, excluding the Mountain Pass mine, under the control of Oaktree. U.S. Bankruptcy Judge Christopher Sontchi on Friday cleared the way for Molycorp to begin seeking creditors' votes for its reorganization by approving the so-called disclosure statement, which describes the plan.

    Molycorp and Oaktree still face struggles with junior creditors, who convinced Sontchi on Friday to strike a provision in the reorganization plan that would deny payments to objecting creditors.

    Luc Despins, a lawyer for the creditors committee, said he plans to sue Molycorp's directors and officers over the company's agreements with Oaktree. The committee also plans to press claims against Oaktree, including for unjust enrichment, at a confirmation trial beginning March 28.

    Molycorp filed for bankruptcy in June with more than $1.7 billion in debt after prices for rare earths fell when China lifted export restrictions.

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    FuelCell Energy Jumps on Approval of Biggest Fuel Cell Project

    FuelCell Energy Inc. surged the most in more than three years after Connecticut approved a proposal for what would be the world’s largest fuel cell power plant.

    FuelCell rose 24 percent to $6.61 at 9:45 a.m. in New York, after earlier climbing as much as 33 percent, the most intraday since May 2011. Before Friday, the Danbury, Connecticut-based fuel cell manufacturer’s market value had declined 70 percent over the past year to about $170 million.

    The Connecticut Siting Council approved Thursday a draft decision for the 63.3-megawatt Beacon Falls fuel cell power plant in the state that will use FuelCell Energy equipment, according to a statement from the project developer. That would be bigger than a 59-megawatt fuel cell plant in operation in South Korea, which also uses FuelCell Energy systems.

    Jeffrey Osborne, a Cowen & Co. analyst in New York, estimated that the revenue from the project would be almost triple the company’s market value.

    “We expect the total value to FuelCell Energy to be close to $500 million,” Osborne said in the note. “We see this project as a huge win for the company.”

    Fuel cells turn natural gas or hydrogen into electricity through a chemical reaction that produces little greenhouse-gas emissions.

    “This is a good milestone. It clears a hurdle,” Kurt Goddard, FuelCell Energy’s head of investor relations, said in an interview Friday.
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    EDF, Areva agree reactor business worth about 2.5 billion euro: sources

    EDF and French nuclear group Areva have agreed that Areva's reactor business is worth slightly more than 2.5 billion euros ($2.7 billion) as part of EDF's plan to take a controlling stake in the unit, two sources said on Wednesday.

    In late July, EDF agreed to buy 51 to 75 percent of the Areva NP reactor unit based on a value of 2.7 billion euros for the entire division, though it has since been the subject of tough negotiations.

    Confirming information first reported on Wednesday by Les Echos newspaper, one of the sources also said that EDF's board would meet on Jan. 27 to formally approve its offer.

    One of the sources said that the amount that EDF would pay for the unit could be adjusted with a bonus in two years depending on how well the business performs.

    Talks between the two groups have stalled over differences about the value and how to take into account risks linked to a much delayed and over budget reactor Areva is building in Finland that has plunged it deep into losses.

    Les Echos reported that once EDF makes a firm offer, the government may indicate how large a capital increase Areva would need, which may be in the range of 3.0-4.5 billion euros, according to its sources.

    The Economy Ministry declined to comment. Areva is 87 percent state-owned, EDF 84.5 percent.

    EDF has indicated that it would not accept being exposed to risks linked to the Finnish reactor as Areva and its Finnish customer Teollisuuden Voima (TVO) seek billions of euros in damages from one another.

    Les Echos said one possibility under consideration would be to transfer the Finnish contract from the reactor division to Areva the parent company, leaving the state to bear risks tied to the project.
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    EDF sinks to all-time low as nuclear waste cost estimate soars

    Shares in French utility EDF sank to all-time lows on Tuesday after the country's Andra nuclear waste agency said that storage costs could be higher than EDF's estimates.

    Mirroring German utilities E.ON and RWE , which saw their shares hit decade lows late last year over worries about nuclear decommissioning costs, EDF fell as much as 7.3 percent before recovering to 4.1 percent lower.

    A string of brokerage price target downgrades and French forward power prices falling to new decade lows only added to the gloom.

    In a report released late on Monday, Andra said costs for the Cigeo deep geological storage project could be as high as 30 billion euros or as low as 20 billion depending on assumptions about different cost factors in coming years.

    "There are different views on the calculation, more or less conservative, depending on estimates for future technological progress and optimisation," Andra said in a statement.

    In a letter to the energy ministry, posted on the ministry's website, EDF, fellow state-controlled company Areva and the CEA (Atomic Energy Authority) said they estimated the cost at around 20 billion euros.

    "Andra's study only took into account a small number of possible optimisations," said the letter, adding that a certain number of costs and ratios used by the state agency were not in line with their experience.

    "We are waiting for a decision of the energy minister on the cost of storage," an EDF spokesman said.

    Energy Minister Segolene Royal's decision on the 10 billion euro gap in estimates could have a huge impact on the already stretched balance sheet of EDF, which operates 58 nuclear plants in France and generates the bulk of the country's nuclear waste.

    EDF already needs to borrow money just to pay its dividend and is set to spend tens of billions of euros on upgrading its ageing reactors, building new nuclear plants in Hinkley Point, Britain and buying the reactor arm of Areva.

    "This report is clearly negative for all nuclear operators, and most specifically for EDF and Areva," Bryan, Garnier analyst Xavier Caroen said in a note, adding that the risk of a cost revaluation was not new.

    EDF shares are down more than 44 percent in the 12 months, the second-worst performer in the Stoxx utilities index after RWE. The company has been replaced in France's CAC-40 index of leading shares by shopping centre operator Klepierre .
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    Germany's K+S explores Morton Salt flotation - paper

    German salt and potash miner K+S is discussing internally a potential listing of its U.S. salt division Morton Salt to bolster its share price and discourage unwanted takeover approaches, a German newspaper reported on Thursday.

    The fertiliser mining group last year fended off a takeover approach by Potash Corp of Saskatchewan, arguing the 41 euros a share offer undervalued its salt business and its Canadian potash mine construction project.

    Selling some shares in a separately listed Morton Salt could highlight the unit's market value and bolster the group's share price, but considerations are at an initial stage, daily Frankfurter Allgemeine Zeitung cited company sources as saying.

    It added there were conflicting views about the matter among senior managers.
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    Syngenta looking at different tie-ups, too early to predict result -chairman

    Syngenta is in talks about a possible merger but must be discreet before any deal is completed, the Swiss agrichemicals group's Chairman said on Wednesday.

    Michel Demare said last month Syngenta was in talks with ChemChina, Monsanto and others.

    When asked about the prospect of Syngenta possibly becoming a Chinese company, Demare said: "We are at a stage where we are looking at different combinations. I'm just saying it's one of them. Everybody has spoken to each other. I have said a few months ago that I believe within six months we will see some consolidation steps  it is too early to say how all this will finish."
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    Precious Metals

    Platinum is cheapest ever compared to gold as China woes deepen

    An ounce of platinum bought as little as 0.76 ounce of gold on Tuesday, the lowest since records began in January 1987, data compiled by Bloomberg show. Platinum has underperformed gold since 2014, as investors treated it more like an industrial commodity than a haven asset. The white metal, used in pollution-control devices for cars, suffered as China’s slowdown cut demand. Adding to the bearish picture was the emissions scandal at Volkswagen AG, which trimmed consumer demand for diesel-fueled vehicles.

    “Chinese growth prospects are very pessimistic right now and that’s hurting the demand side, even though European auto sales have been decent at least,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “You still have the VW story lingering. In the short-term, the trend can continue. But as things play out and we get better industrial demand, the ratio will reverse.”

    About 43% of global demand for the metal comes from automakers, according to the World Platinum Investment Council. Sales of Volkswagen brand vehicles fell 4.8 percent to 5.8 million vehicles in 2015, their first decline in 11 years, after the company admitted it rigged emission tests on its so-called clean diesel vehicles. The outlook for jewelry demand also waned as China’s economy expanded at the weakest pace in more than a generation.
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    Eldorado CEO says mining halt in Greece will cost 600 jobs

    Canadian miner Eldorado Gold expects the suspension of much of its mining activities in Greece after confrontation with the country's leftist-led government will cost more than 600 jobs, its chief executive said on Tuesday.

    The Vancouver-based gold miner had to resort to Greece's top administrative court to annul a government decision that revoked its mining permit in northern Greece on environmental concerns. It won a favourable ruling in November.

    The government revoked Eldorado's permit in August, disputing the miner's tests for a so-called flash-melting method to ensure against any environmental damage.

    "Our investment is treated as a political toy, we never anticipated this," CEO Paul Wright told reporters in Athens. "Failure to receive timely licenses and permits has proved very expensive.

    "It's bad for Greece because it is seen as such from off-shore," he said.

    Wright will meet with leaders of opposition political parties and Energy Minister Panos Skourletis in the next days.

    Skourletis told Parapolitika radio earlier on Tuesday the government would not be blackmailed.

    "Judging from the behaviour of the company, it is another attempt at creating blackmailing situations. No company, Greek or foreign can blackmail the Greek state," he said.

    On Monday, Eldorado said it would suspend construction at its Skouries project in northern Greece and warned that it would do the same at its Olympias project if it did not receive a permit by the end of March.

    Eldorado has said it has created around 2,000 direct jobs in Greece, which suffers from a jobless rate of 25 percent, the highest in the euro zone.

    Its Greek assets make up about 30 to 40 percent of the company's net asset value, according to analysts' estimates. Eldorado's shares have shed 40 percent in the last 12 months, largely due to its problems in Greece.

    Wright said the treatment of Eldorado by the Greek government would be seen as a litmus test by other potential investors in the country.

    Asked whether the company was considering pulling out, Eldorado's CEO said the miner is not considering giving up on its investment.

    "No, we are here for a long haul," Wright said.
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    Chinese Central Bank Buys Another 19 Tonnes Of Gold In December

    The PBoC has been continuing to bolster its officially announced gold reserves with an uptick of 19 more tonnes in December bringing them to 1,762.323 tonnes. As we have pointed out beforehand, though, although China supposedly came clean on its official reserve figures back in June this year, and has been announcing monthly increases since in the interest of transparency in line with its pending inclusion in the SDR currency basket, it is still widely believed the total reserve figure is, in reality, hugely understated, as may well be the size of the announced monthly purchases.

    With the Russian central bank also continuing to increase its gold reserves there is an anticipation that 2016 could well see a continuation of the good level of overall central bank purchases we have been seeing over the past couple of years. However, Russian forex reserves are not nearly as robust as those of China and any need to protect a continuation of the ruble downturn could be limiting. But with Russia relying so much on oil and gas exports, ruble devaluation is at least helping those companies involved in the resource sector stay afloat. Russia is less reliant on imports from countries whose currencies are not tied to the ruble anyway than many western economies would be in a similar situation. The lower ruble thus has less effect on the general populace than many in the west might surmise.

    Regarding its gold reserves, China may well be unwilling to report its full total and monthly purchase figures in order to keep the gold market ticking over at a level which suits its long term financial aims. A major rise in the gold price, which would likely ensue should it report far higher monthly purchases and a possible tripling or quadrupling of its total reserve figure, may not be in its best interests. There is no auditing process on the level of gold reserves reported to the IMF on a monthly basis so, in effect, a country can just report these as it may suit its political and economic aims. It is known that China considers gold to be a key element in the future world currency and economic power scenario, and at the moment, it may well just be keen to be seen to carry on raising its gold reserves at a rate which won't make future purchases raise any red flags among economic analysts.

    That gold plays such a huge part in the Chinese psyche - as it does in that of many other nations, particularly in Asia - is already evident in the enormous level of withdrawals from the Shanghai Gold Exchange this year. By December 25th, these had reached 2,555 tonnes (See: Chinese 2015 gold demand equates to around 80% of total global gold output) - already a huge new record - and by the year-end, will have almost certainly reached a fraction short of 2,600 tonnes. Whether SGE withdrawals are an accurate representation of the nation's actual gold demand or not (there are conflicting opinions on this), the record levels involved are certainly a great indicator of the national sentiment towards the yellow metal.
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    Base Metals

    China alumina refineries slash 9.1 mt/y capacity since Nov 2015 - Antaike

    Large alumina refineries in China have begun to slash output due to rock bottom prices of aluminium, which has 80% of the country's domestic alumina industry operating with negative cashflow, state-backed research house Antaike said on Friday. 

    Alumina, made from bauxite, is used to produce aluminium. "Domestic alumina refineries have halted 9.10-million tonnes per year capacity... around 2.30-million tonnes per year alumina capacity will be closed in the near term," Antaike said in a release. 

    Most of the product cut happened in the high-cost regions of Shandong and Henan, it said. China is the world's biggest producer of glut-stricken aluminium.

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    Chile's Codelco implements cost-cutting measures to confront copper slide

    The chief executive of world No.1 copper producer Codelco said on Thursday that the Chilean state-owned miner will implement new cost-cutting measures to save $574 million in 2016 as the sector reels from a steep slump in metals prices.

    Pizarro said Codelco was aiming for cash costs of $1.255 per pound this year, versus the $1.386 in 2015.

    "Our commitment is to do everything possible to control our costs, and generate a reduction of 13.1 cents per pound (in cash costs)," said Pizarro.

    In recent months, Codelco has already laid off workers, scaled back the size and investment needed at some of its projects, and implemented other cost-cutting measures.

    Codelco, which hands over all of its profits to the state, is seen posting pre-tax profits of $703 million and producing 1.704 million tonnes of copper in 2016, said Pizarro.

    The company is seeking to implement an ambitious $22 billion multi-year investment plan to open new mine projects, like Ministro Hales, and revamp older ones, such as Chuquicamata, where output is declining.

    Copper hit 6-1/2-year lows on Thursday on concerns a spike lower in the oil price foreshadowed weaker global economic growth, but a recovery in Chinese shares helped limit losses.

    Chile's state copper commission Cochilco on Thursday forecast average copper prices of $2.15 per pound for 2016 and $2.20 per pound in 2017.

    "We believe that $1.98-$1.99 per pound is the point at which (copper prices) should rebound," said Pizarro.
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    Freeport submits $1.7bn Grasberg mine divestment price

    Freeport McMoRan Inc's Indonesian unit has submitted a divestment price to the Indonesian government for an additional stake in one of the world's biggest copper mines, an energy ministry official said on Thursday. 

    Freeport Indonesia must sell the Indonesian government a 10.64% stake of the huge Grasberg copper and gold complex in remote Papua as part of the process to extend its right to operate beyond 2021. 

    The US mining giant valued its Indonesian asset at $16.2-billion, Bambang Gatot, the ministry's director general of coal and minerals told reporters, adding that the divestment offered to the government was worth $1.7-billion. "Finance Minister will decide who will take this divestment," he said, adding that several other ministries would be involved in the decision making process. "We still continue to discuss renegotiation or amendments of contract." 

    Gatot has previously said that the government will decide within 60 days whether it will buy the stake or offer it to a state-owned enterprise or regional government. The Indonesian government is looking to increase its ownership of Freeport Indonesia to 20% from a current 9.36%. 

    A further 10% must be divested to the government by the end of 2019. Under current rules, many major miners operating in Indonesia can only apply for a contract extension two years before a concession agreement is due to end. Freeport, which is looking to invest $18-billion to transition the Grasberg complex from open pit to underground mining in late 2017, wants to finalise an extension before it signs off on the expansion. 

    Freeport has also sought certainty on the concession agreement extension or changes to the contract as part of discussing the larger divestment. Following a contract amendment or extension, Freeport has "agreed to offer at fair market value" an additional 20.64% stake in Grasberg to bring the government ownership to 30%, company spokesman Eric Kinneberg told Reuters in an email on Thursday. 

    "The government requested that PTFI (Freeport Indonesia) submit a valuation of the company to facilitate discussions and FCX (Freeport) has submitted a valuation report to the government in connection with this process," he added.
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    Ex-Barrick CEO said to offer $1bn for Glencore mine

    Mining and commodity trading giant Glencore kicked off the process to sell its Australian copper mine in Cobar, New South Wales, and its Lomas Bayas copper mine in the Atacama desert in Chile in October.

    Glencore said at the time it had received a number of unsolicited expressions of interest for the mines and that potential buyers can bid to purchase "either one or both of the mines and may or may not result in a sale". Glencore said it expects to finalize the sales in the first half of the year.

    It has emerged that one of the last bidders in the running for Lomas Bayas is former Barrick Gold Corp CEO Aaron Regent's Magris Resources.

    Regent "is competing against a small number of Chilean-focused operators that have offered Glencore close to $1 billion for the mine" according to Bloomberg.

    The Lomas Bayas open pit's output is 75,000 tonnes of refined copper per year. Glencore acquired Lomas Bayas as part of its 2013 takeover of Xstrata. Cobar produces roughly 50,000 tonnes copper in concentrate per year.

    These mines are over and above the asset sales, share offerings and other money raising efforts including byproduct forward sales detailed by the Swiss-based company as part of its plans to reduce its crippling debt load by $13 billion over the near term.

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    Australian Bauxite suspends operations, seeks buyer for maiden shipment

    Australian Bauxite said it has suspended production at its operations in the southern state of Tasmania after failing to lock in a buyer for its first shipment of the aluminium-making material.

    "ABx is taking steps to conserve cash until a sale of its maiden shipment is achieved," it said in a filing to the Australian Stock Exchange on Thursday.

    "This includes a temporary suspension of production and haulage of bauxite products from its Bald Hill Bauxite Project at Campbell Town, Tasmania at the end of this week until sales commence."

    Australian Bauxite said its negotiations in China have been frustrated by large inventories of cheap Malaysian bauxite stockpiled by Chinese refineries over the past five months, and particularly over the last fortnight in the lead up to Chinese new year in early February.

    China is the world's top producer of aluminium, and it has ramped up imports the world over since former top supplier Indonesia banned exports of the raw material in early 2014.

    As Chinese producers began a global search for new suppliers, Malaysia jumped in to fill the gap. Its shipments to China surged nearly fourfold in November, and were up by nearly 50 percent in the first 11 months of last year on the year before.

    Australian Bauxite said on Dec. 8 that its first shipments had been delayed due to low bauxite prices after Malaysia ramped shipments ahead of its rainy season.

    Malaysia this month imposed a three-month ban on bauxite mining, following alarm over its environmental impact, in a move that could dent China's stockpiles.

    The Australian company said it welcomed the suspension but uncertainty over future volumes from Malaysia remained "a confusing issue" in the Chinese bauxite market.

    The company and its marketing partner are continuing negotiations with potential bauxite customers in China, India, the Middle East, Australia and elsewhere, it said.

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    Alumina jumps most since ’09 as curbs tipped to spur prices

    Alumina, the Australian partner of Alcoa in the world’s largest alumina producer, rose the most in almost seven years after Citigroup upgraded the stock, citing expectations that global production cuts can drive a recovery in prices.

    The Melbourne-based producer rose as much as 13% in Sydney, the most since March 2009, and closed 11% higher at A$1.095, trimming its decline in the past 12 months to 44%.

    Alcoa, the largest US aluminum producer, forecasts an alumina deficit of 2.8 million metric tons in 2016 as a result of global production curbs, including at the Point Comfort refinery in Texas. The Alcoa World Alumina & Chemicals venture has taken about 3 million tons of capacity out of the market, Citigroup analysts including Sydney-based Clarke Wilkins wrote in a note dated January 12.

    “The savage price fall is driving curtailment of production that should bring market into balance, driving a recovery in the spot price,” the analysts wrote, upgrading Citigroup’s recommendation to neutral from sell. The price of alumina tumbled 42% in 2015, according to Metal Bulletin data.

    Malaysia Ban

    Alumina is the only listed company to generate the majority of its earnings from bauxite and alumina, according to Bloomberg Intelligence. Bauxite is a mined material that’s processed into alumina, an intermediate product that’s further refined into aluminum.

    Malaysia, which supplied more than 40% of China’s imports of bauxite last year after Indonesia imposed a ban on shipments in January 2014, is imposing a three-month ban on bauxite mining in Pahang, the largest producing state, amid an investigation into alleged corruption and complaints over environmental impact.

    Alumina has a 40% stake in Alcoa World Alumina & Chemicals with Alcoa holding the remainder. The venture has interests in bauxite mines and alumina refineries from Brazil to Western Australia.
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    Six Chinese firms to form JV for commercial aluminium stockpiling - Antaike

    Six large Chinese aluminium producers in China are considering forming a joint venture company that will handle primary aluminium stockpiling, a report by state-backed research firm Antaike said on Tuesday. 

    The six companies -- four state-owned firms and two private enterprises -- include Aluminium Corp of China (Chinalco), State Power Investment Corporation, Yunnan Aluminium, Jiugang group, Jinjiang group and Weiqiao Aluminium & Electricity, Antaike said. 

    The amount that the joint venture company will stockpile has not been decided, according to the report. An aluminium stockpiling plan has been discussed over the past few weeks after aluminium prices fell to multi-year lows in the second half of last year, and is likely to be funded by commercial loans, sources have said. 

    The stockpiling amount is expected to be between one and two million tonnes. The JV group may not need to stockpile as much as anticipated as production cuts currently in place are reducing supply, said Xu Hongping, an analyst at China Merchants Futures. "If they stockpile 500 000 t in the first half of this year, the Chinese market may have a supply deficit," she said.
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    Alcoa posts 4th qtr loss due to charges from shuttering capacity

    Metals company Alcoa Inc on Monday reported a quarterly net loss after charges related to shuttering parts of its traditional smelting business.

    The New York-based company has been curtailing smelting capacity as the industry endures tumbling prices amid rising trade tensions with China. Alcoa said last week it would close a plant in Evansville, Indiana, which would bring U.S. aluminium output to its lowest level in more than 65 years.

    London Metal Exchange aluminium prices,  which fell 18.6 percent in 2015, are hovering near 6-1/2 year lows as demand wanes in top-consumer China. The Midwest premium AL-PREM paid to producers on top of the LME price has fallen more than 60 percent to about 8.9 cents a pound from record highs last year.

    In September, Alcoa announced it would split in two, spinning off its value-added aerospace and car parts business from its traditional aluminium smelting business that includes bauxite and alumina. The split will take place in the second half of this year and questions remain on how the company will divide up debt and pension liabilities between the two new entities.

    Earlier on Monday, in good news for the added-value portion of Alcoa's business, the company announced a $1.5 billion long-term contract with General Electric Co's aviation unit to supply components used in aircraft engines.

    That follows several other major contracts in the aerospace industry the company announced during the last quarter.

    "These contracts demonstrate that the push toward value-added business continues to show good results," Chief Executive Klaus Kleinfeld told Reuters in an interview after the results were announced.

    But Kleinfeld said Alcoa's traditional business still faced "massive headwinds" from falling aluminium prices.

    Alcoa on Monday posted a fourth-quarter loss of $500 million or 39 cents per share, compared with a net profit of $159 million or 11 cents a share a year earlier.

    Excluding charges for shuttering capacity and income tax charges, Alcoa would have posted a profit of $65 million or 4 cents a share, above analyst expectations of 2 cents per share.

    Alcoa said it expected global aluminium demand to rise 6 percent in 2016 versus 2015. The company said global aerospace sales should increase between 8 percent and 9 percent this year, while global automotive production should rise between 1 percent and 4 percent.

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    China’s top aluminium maker aims to raise $490m with stock

    China Hongqiao Group, the world’s biggest maker of aluminium, will raise nearly half a billion dollars from a rights offer underwritten by its founder, highlighting the difficulties of producers amid five-year-low commodities prices. The company’s shares fell in Hong Kong.

    The Shandong province, China-based company aims to bring in HK$3.84 billion ($490 million) by offering seven shares for every 50 held by shareholders, the company said in a statement to the Hong Kong stock exchange. Chairman and founder Zhang Shiping, who has pledged to underwrite 99% of the issue, holds more than 78% of Hongqiao through a holding company, according to the statement.

    “Strategically the raising will address working capital needs and highlights the challenging environment of aluminium markets at current prices,” analyst Daniel Kang at JPMorgan Chase & Co said in a note on Monday. “While the parent’s role may provide some confidence to the market, it could reduce the company’s free-float further.”
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    CHALCO unit to cut or halt output within weeks: media report

    A subsidiary of China's largest aluminium maker, Aluminum Corp of China (CHALCO), is reportedly poised to slash or even stop production in the first quarter of 2016, a move experts said shows just how sluggish the market is and how crucial it is for producers to tackle the sector's supply-demand imbalance.

    CHALCO Shanxi Aluminum Co, a unit of CHALCO that produces alumina (an input for aluminum), has warned that it will lose 162 million yuan ($24.67 million) just this month, and the weak market means it can't keep operating, domestic news portal reported Saturday, citing a document posted on a public WeChat account named "Bo Sheng Da."

    However, the company is operating normally and it still isn't confirmed whether production will be cut or halted, a spokesman surnamed Jiang with CHALCO told the Global Times on Sunday.

    Based in Hejin in North China's Shanxi Province, CHALCO Shanxi Aluminum Co was formerly known as Shanxi Aluminum Plant.

    The annual production capacity of the company could reach 2.3 million tons, the largest alumina production firm under CHALCO, the website of CHALCO Shanxi Aluminum Co showed.

    According to the report, any disruption in the company's production will weigh on the business of two other subsidiaries of CHALCO in Shanxi, which would have to obtain alumina from other provinces at a higher cost.

    The aluminium industry is being challenged by a domestic economic slowdown and slack market demand, Wang Guoqing, director of the Beijing-based Lange Steel Information Research Center, told the Global Times on Sunday.

    Sun Yonggang, an analyst at Chaos Ternary Futures Co, agreed and said it's unavoidable that some of CHALCO's subsidiaries will have to close. Sun said the group's costs are relatively high within the industry, which is grappling with excess capacity.

    "Dealing with the industry's overcapacity is the priority in the next few years," Sun told the Global Times on Sunday.

    CHALCO Shanxi Aluminum Co's woes suggest that the parent company also faces a tough situation.

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    Union at BHP Billiton's Cerro Colorado copper mine in Chile to strike

    The union at global miner BHP Billiton's Cerro Colorado copper mine in Chile said on Friday that it will go on strike on Monday over failed contract negotiations.

    "If the company doesn't offer anything better we will go on strike on Monday," said Leoncio Parra, president of Union 1 at the mine.

    The union, which represents 682 workers at Cerro Colorado, said the strike is set to begin at 07:35 am Chile time (10:35 GMT) on Monday.

    "Unfortunately, the latest proposal by Cerro Colorado only considered a real (wage) increase of 1 percent, which we consider to be a mockery of the workers, whose efforts are the lifeline of the company's profits," said Parra.

    Cerro Colorado produced 55,600 tonnes of copper in January to September 2015, according to Chilean state copper commission Cochilco.
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    Steel, Iron Ore and Coal

    Obama administration to announce remake of coal program, freeze leases

    The Obama administration is due on Friday to announce an overhaul of how the United States manages coal development on federal land, and freeze new coal mining, according to government and conservationist sources, in a further move to confront climate change.

    Interior Secretary Sally Jewell is expected to make the announcement at midday Friday from New Mexico, one of five western states with tens of thousands of acres under lease.

    Democratic President Barack Obama in his State of the Union address on Tuesday said he would "change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet."

    The new plan will require federal officials, when weighing land use decisions, to consider how burning coal could worsen climate change, said sources familiar with the plans.

    It will also include moratorium on coal leases, said sources familiar with the effort, as the government works on longer-term structural reforms to the coal program.

    The overhaul also will aim to maximize returns for taxpayers by updating royalty rates when mining companies pull coal from federal land, said the sources.

    Interior Department spokesperson declined to give details about the Friday announcement.

    Environmentalists have urged the White House to freeze new coal leases on federal land until it accounts for how that fossil fuel development contributes to climate change.

    Coal leases are often awarded without a competitive bidding process, frequently going to a single bidder, and officials can undervalue the fuel heading to market, the nonpartisan Government Accountability Office has concluded.

    "Public lands should be developed in the public interest but taxpayers have been short-changed for decades," said Theo Spencer of the Natural Resources Defense Council, an environmental group.

    The Energy Information Administration says roughly 41 percent of U.S. coal production occurs on federal land, primarily in Wyoming.

    The coal industry had been battered in recent years by competition from cheap natural gas and clean-air regulations that have raised costs for burning the black rock.

    This week, Arch Coal Inc, one of the nation's largest coal companies, filed for bankruptcy - the latest mining company to seek protection from creditors in the current downturn.

    The National Mining Association was not immediately available for comment.

    Some analysts said that market conditions have dampened demand for new mining.

    "Over the last two years a number of coal leases were bid out by the Bureau of Land Management and no bids were received, reflecting the fact that there are no market incentives to go forward with new mining," said Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis.

    But for some environmental campaigners, the expected announcement bolsters their argument that all fossil fuels must be kept in the ground to combat climate change.

    “The only safe place for coal in the 21st century is deep underground - these reforms will help keep more of it there,” said Bill McKibben, co-founder of activist group
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    China Harbin resolute in battling pollution from coal use

    Heavily polluted Harbin, the capital city of Northeast China's Heilongjiang province, was determined to tighten control over pollution from the burning of coal, according to a draft regulation issued by the municipal government several days ago.

    The city will cap total coal consumption in the future, and endeavor to reduce the share of coal in its energy mix while raising that of clean energy sources, said the draft.

    If a lower-level government misses the target of coal consumption control, it will face restrictions in obtaining approval for new coal consumption projects.

    Companies ranging from producers to end users should strictly implement national and provincial quality standards. Those providing transport, storage and other conveniences to companies breaching relevant regulations will face fines up to 50,000 yuan ($7,621).

    And coal companies should deal with coal dust in a closed environment.

    As the heating season continues amid poor meteorological conditions, Harbin has been frequently shrouded in heavy smog with air quality further deteriorating. Lingering smog occasionally forces coal-burning plants to reduce production, construction sites to suspend operation, and students to stay indoors.

    Harbin aims to see a negative growth in total coal consumption by 2017, the provincial environmental protection bureau said last December.
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    Iron ore price drops back below $40

    Vale's giant iron ore carriers are the world's largest dry bulk vessels capable of carrying 400,000 dead weight tonnes

    The price of iron ore fell below the $40 a tonne level on Wednesday with the Northern China 62% Fe import price including freight and insurance (CFR) declining 1.8% to $39.30.

    The steelmaking raw material has fallen 8.4% in value so far in 2016 after a near 40% decline in 2014. The price hit a near decade low a month ago of $37 and today's price compares to the record high of $190 a tonne hit February 2011 and an average of $55 last year.

    The ridiculously cheap iron ore and freight rates have allowed mills to keep producing steel and flood international markets

    Chinese iron ore imports surged 17% in December from the previous month to 96.3 million tonnes. Cargoes for the whole of 2015 also set a new record, up 2.2% to 952.7 million tonnes compared to 2014.

    Many smaller producers have exited the market and others are "hanging on by their fingernails," but domestic Chinese producers which struggle with low grades and high production costs have been most affected.

    Many Chinese mines are staying open only because of support from local governments pressured to keep jobs safe. The country's miners produced some 350 million – 400 million tonnes a year on a 62% Fe-basis in 2014, although reliable stats are lacking (this figure is calculated working backwards from pig iron production).

    Ralph Leszczynski, head of research at Genoa-based shipbroker Banchero Costa & Co quoted in a Bloomberg report estimates that domestic Chinese output fell 8% last year:

    “China can get iron ore from Australia and Brazil so cheaply that there’s less need for domestic supplies. The ridiculously cheap iron ore and freight rates have allowed mills to keep producing steel and flood international markets.”

    Freight rates recently fell to record lows and the Australia–China route adds less than $5 a tonne to the price, while from Brazil shipping costs for iron ore are below $10 a tonne. Chinese steel exports have nearly doubled over the past two years, hitting 112 million tonnes in 2015.
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    Shandong shuts 9.63Mt backward coal capacity in 2015

    In 2015, Eastern China’s Shandong province closed 61 coal mines with combined outdated capacity at 9.63 million tonnes per annum, including 42 small coal mines completely shut and 19 small coal mines upgraded, local media reported on January 14.

    The province shut down a total 287 outdated coal mines from 2005 to 2015, with combined capacity at 20.6 million tonnes per annum.

    By end-2015, Shandong province had seen its average scale of single shaft rise from 402,000 tonnes per year to 1.16 million tonnes per year.

    The province’s coal market was still on the decrease in 2015, in line with an overall excess of supply in the country. The year-on-year drop of 93% and 144%, respectively, was seen in average price of commercial coal and total profits in the industry.

    Continuously sliding prices drove some 86% of local coal miners into the red last year, one of the toughest year on record.

    "Shandong aims to control coal output at 146 million tonnes this year, and then reduce to 130 million tonnes by 2020 and further down to 110 million tonnes by 2025," said Qiao Naichen, director of Coal Industry Bureau of Shandong province.

    Eastern China’s Shandong province produced a total 145 million tonnes of raw coal in 2015, registering a year on year decline of 2.14%, showed data from the Shandong Administration of Coal Mine Safety on January 6.
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    Premier Li says to set demand-based caps on coal and steel output

    Chinese Premier Li Keqiang called for setting caps on coal and steel output based on market demand, as he presided over a work conference on overcapacity in Taiyuan, the capital city of coal-rich Shanxi province earlier this month.

    The government should continue to keep a very tight rein on new capacity and set appropriate goals in eliminating excess capacity in coal and steel industries in the next three years, Li said.

    Steel mills failing to meet national environmental and safety standards or being outdated should be scrapped from the market this year.

    Those mines, which use government-prohibited coal mining methods or technologies unlikely to be upgraded or don’t meet safety production requirements, should be closed completely.

    In 2016, a total 13 kinds of small outdated coal mines in the country, including those with approved capacity below 30,000 tonnes a year and coal and gas outburst mines below 90,000 tonnes per year, must all be closed in line with relevant laws, he emphasized.

    It will mainly be coal and steel companies themselves to make effective cut on output and rein in new capacity to get rid of overcapacity. Li made similar remarks during a visit to Shanxi coking coal Group’s Guandi Mine on January 5.

    Meanwhile, the government will offer some favorable policies, such as providing subsidies and other financial support for companies actively involved in resolving overcapacity.

    Banks are asked not to renew loans for illegal companies and "zombie companies" -- those should go bankrupt owing to bad performance but managed to avoid bankruptcy on bank loans and government funds.

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    Daqin Dec coal transport down 14.5pct on yr

    Daqin line, China’s leading coal-dedicated rail line, transported 32.92 million tonnes of coal in December last year, up 12.58% on month but down 14.52% on year – the sixteenth consecutive year-on-year drop, said a statement released by Daqin Railway Co., Ltd on January 12.

    In December, Daqin’s daily coal transport averaged at 1.06 million tonnes, 8.9% higher than November’s 975,000 tonnes.

    Over 2015, Daqin transported a total 396.99 million tonnes of coal, down 11.82% on year, accounting for 94.52% of its annual target of 420 million tonnes in 2015.

    This decline was attributed to lesser coal delivery at northern ports amid decreasing coal price and weak demand, its routine maintenance in October and the snowy weather in November.

    In 2014, Daqin line accomplished a total coal transport volume of 450.2 million tonnes, up 1.11% on year, accounting for 27.42% of the nation’s total.
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    China crude steel apparent consumption over Jan-Nov down 5.5pct on yr

    China’s apparent consumption of crude steel in the first 11 months of 2015 decreased 5.5% from the same period last year to 645 million tonnes, said Zhang Guangning, director of the China Iron and Steel Association (CISA.

    According to the figures from CISA, its member steel enterprises or key steel makers in China suffered a total net loss of 53.1 billion yuan ($8.19 billion) over January-November last year, among which the enterprises in loss accounted for 50.5%, taking 47.38% of the total crude steel output.

    The top ten enterprises in profit posted a combined profit of 11.05 billion yuan, plunging 46.03% from the year prior; and the top ten in loss suffered a total loss of 49.50 billion yuan, 11.88 times of the loss a year ago.

    Steel industry has worsened further, as steel mills in loss were facing intensified loss, while the ones in profit saw their profitability decreasing.

    Over January-November, China’s net exports of crude steel totaled 93.9 million tonnes, a year-on-year rise of 28.1%.

    This increase was mainly dragged up by the expanding international demand, which indicated a stronger competitiveness of China’s steel products in the international market. But given the decreasing price advantage and frequent anti-dumping activities abroad, China steel export may be hindered in the future.

    Under the current situation, steel makers need to lower their production capacity and output to avoid overproduction and vicious competition before they could find a way out, said Zhang.

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    India to re-open commercial coal mining to private firms after 40 yrs

    India is getting ready to open up commercial coal mining to private companies for the first time in four decades, with the aim of shifting the world's third-biggest coal importer towards energy self-sufficiency, Anil Swarup, the director of the country's coal department, told Reuters on December 8.

    The government has identified mines it plans to auction, and is now finalizing other terms such as eligibility criteria for companies to take part and whether and how to set up revenue sharing.

    He said a plan should be ready in the 2-3 months, setting a clear timeline on a plan that has previously only been vaguely marked out.

    India has an ambitious plan to double its coal production to 1.5 billion tonnes a year by 2020, as part of Prime Minister Narendra Modi's push to bring power to 300 million people who live without electricity, and give a boost to manufacturing.

    It would also support the government's efforts to develop eastern parts of the country, which are resource-rich and hold most of India's coal reserves but have lagged the western states in development.

    State-owned Coal India (CIL) is on track to produce 1 billion tonnes a year by the end of this decade, and India is counting on private firms to produce the remaining 500 million tones - which may prove a tough target to achieve.

    As of now, only Coal India and a small government-owned company are allowed to mine and sell coal in India.

    "It's imperative that India opens up the sector so that private companies can bring in new technologies and the efficiencies that we keep talking about," said Dipesh Dipu at energy-focused Jenissi Management Consultants. "But I don't think private companies will be able to produce more than 100 million tonnes this decade as the process has yet to start."

    The move is likely to attract coal block bids from Indian conglomerates such as the Adani Group  and GVK, but the government may find it harder to lure big multinational miners such as Rio Tinto, BHP Billiton, Anglo American and Peabody Energy.

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    Beijing to end coal use by 2020 to reduce smog

    China's capital Beijing and its adjoining areas will end coal use by 2020 to reduce the recurring smog in Beijing and improve air quality with a host of measures including replacement of coal-fired stoves with that of electricity and gas, state-run China Daily reported.

    Boosting efforts to cut air pollution in northern China, especially winter smog from the burning of coal, is a mission for this year, an official of the Beijing's Environmental Protection Bureau said.

    Among the efforts, Beijing has declared that it will wipe out coal use in its most rural areas by 2020.

    As much as "60% of smog content is caused by coal burning in the starting phase of each smog", Fang Li, an official with Beijing's Environmental Protection Bureau said.

    To start with, Beijing will replace coal-fired heating stoves with those powered by electricity or gas in 400 villages this year, before taking the campaign to the districts of Chaoyang, Haidian, Fengtai and Shijingshan by 2017, said Guo Zihua, a municipal rural development official. Beijing's downtown districts of Dongcheng and Xicheng eliminated coal burning last year, officials said.

    The capital and other places in northern China experienced several smog alerts in November and December, when peak readings were many times higher than the national safety level.

    Last month Beijing declared its first red alert as the city of over 22 million people was enveloped by heavily polluted smog leading to a host of emergency measures including closure of schools and restriction of traffic with odd and even number plates.

    Burning coal for winter heating has been listed as one of the primary causes of air pollution, Chen Jining minister of environmental protection has said at the annual meeting on environmental protection in Beijing.

    He said the ministry will do everything to prevent environmental protection from becoming a stumbling block for the country during the 13th Five-Year Plan period (2016-2020).
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    China illegal new coal capacity reaches 800 Mtpa in 2015

    China had 800 million tonnes per year (Mtpa) of coal mine projects newly built or in capacity expansion illegally by the end of 2015, said Jiang Zhimin, vice director of China National Coal Association (CNCA) in a meeting on January 9.
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    Demand concerns drag iron ore to a 2-week low

    Iron ore futures in China fell to a two-week low on Monday, under pressure from expectations of further output cuts by steel producers reeling from weak demand and tighter environmental controls.

    The steelmaking commodity fell 40 percent last year, marking its third annual decline, as a global glut overwhelmed a market hit by an economic slowdown in top consumer China.

    There is unlikely to be a lot of restocking among Chinese mills ahead of the new year.

    "We don't see iron ore demand picking up before the holidays. It may only improve by the end of February or beginning of March," said a Shanghai-based trader.

    North China's Hebei Province, which makes a quarter of the country's steel, has pledged to cut steel output by 8 million tons this year to address overcapacity and air pollution, the Xinhua News Agency reported on Friday.

    "People expect some small and medium-sized mills that are not environmentally qualified to be forced to stop production for a long period of time," the Shanghai trader said.

    To tackle overcapacity, Chinese Premier Li Keqiang said the government "will let businesses compete against each other and let those unable to compete die out."

    That could further curb demand for iron ore, with stocks of imported material at China's ports near their highest level since May 2015, based on data from industry consultancy SteelHome.    

    "Rising iron ore exports from key suppliers and declining demand is expected to weigh on prices in the coming months," ANZ said in a note.
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    China 2015 coal output down 4pct on year

    China’s coal output fell 4% year on year to 3.7 billion tonnes in 2015, showed the latest data from the China Coal Transport & Distribution Association.
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    China's Ansteel weighs future of $2 billion Australian iron ore mine

    China's Angang Steel Co Ltd is reviewing the future of the A$3 billion ($2 billion) Karara iron ore mine, which could become the latest victim of a global slump in iron ore prices.

    Ansteel's minority partner Gindalbie Metals Ltd said on Tuesday the Chinese firm had hired a third party to look at the viability of the struggling project. Gindalbie warned it may go under if Ansteel decided not to inject more funds.

    The mine is one of five magnetite projects that Chinese firms poured billions into at the height of the resources boom as China's steel makers sought to ease their dependence on global iron ore giants, Brazil's Vale and Australia's Rio Tinto and BHP Billiton.

    Iron ore prices have plunged nearly 80 percent from their peak in 2011 as Chinese demand has slowed while major producers have expanded output creating a surplus, driving all but the lowest cost producers into the red.

    Magnetite is particularly costly to produce as the ore has to be heavily processed to produce high quality concentrate.

    Doubts arose last week about the future of the mine after the chief executive of Karara wrote a memo to staff saying Ansteel was unable to continue to provide funding support to Karara Mining Ltd (KML) due to the economic and industry downturn.

    "As part of efficiency and cost reduction measures, Ansteel has engaged a third party to review the viability of operations as well as potential options for KML," Gindalbie said in a statement to the Australian stock exchange on Tuesday.

    Gindalbie said it has asked Ansteel to notify it about its decision on funding Karara and has yet to receive a response.

    "A decision by Ansteel to withdraw funding support could lead to claims under various operating and financing guarantees against Gindalbie, which if successful could cast doubt on Gindalbie's ability to continue as a going concern," Gindalbie said.

    Gindalbie's shares slumped 62 percent to 0.8 Australian cents, valuing the company at just A$12 million ($8 million), after the announcement.
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    China’s Hebei to cut iron, steel production in 2016

    The northern province of Hebei, which produces one-fourth of China’s steel, on Friday pledged to slash iron and steel production to tackle problems like over-capacity and air pollution.

    Production of iron will be reduced by 10 million tonnes and that of steel by eight million tonnes in 2016, Xinhua reported.

    Production of steel and cement will be capped each at 200 million tonnes, and flat glass at 200 million weight cases by the end of 2020 to alleviate over-capacity, Hebei governor Zhang Qingwei said.

    The central government has made tackling over-capacity one of its top priorities in the next five years.

    An over-reliance on heavy industry for local growth has left Hebei vulnerable to sustained weakness in demand for capital goods both at home and abroad. Some steelmakers were operating at thin margins and more were operating at a loss.

    Production of steel, cement and glass have also been widely blamed for the worsening air pollution in the region.

    The province has previously said it will cut a combined 160 million tonnes in steel, cement and coal, and another 36 million weight cases in glass by 2017 compared with 2013 levels.

    Cutting overcapacity weighs on Hebei’s economic growth, which came in at 6.5 percent during the first nine months of 2015, making it increasingly challenging for the province to meet the seven percent target set for the whole year.
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    US coal production hits lowest level in 30 yrs

    U.S. coal production has fallen to its lowest level in nearly 30 years as cheaper sources of power and stricter environmental regulations reduce demand, according to preliminary government figures.

    A report released by the U.S. Energy Information Administration estimated 900 million tonnes of coal were produced last year, a drop from about 1 billion tonnes in 2014. That’s the lowest volume since 1986.

    The slump has led to bankruptcies and layoffs at mining companies, but the effects have rippled outward, stressing state budgets and forcing layoffs in other sector such as railroads, which are transporting less coal.

    Power plants are increasingly relying on cheaper and cleaner-burning natural gas to provide electricity and comply with regulations aimed at reducing pollution that contributes to climate change. The average daily spot price for natural gas at the benchmark Henry Hub fell to $2.61 per million British thermal units last year, a 40% decrease from 2014, according to the government report.

    A sweeping agreement adopted last month by nearly 200 countries determined to further reduce greenhouse gas emissions is likely to make coal an even less viable choice in the decades ahead.

    Last year’s drop in demand hit hardest in the central Appalachian basin, where production plunged 40% below its annual average from 2010 through 2014, according to the report.

    The U.S. coal industry didn’t get any help overseas last year either, as exports to the United Kingdom, Italy and China plummeted by more than 50%. Overall, U.S. exports of coal dropped by about 21% last year, the report estimated.
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    India imports 18.9 mln T coal in Dec

    India imported around 18.9 million tonnes of coal in December through 29 major ports, up 11.2% month on month, according to data released on January 8 by Indian shipbroker Interocean.

    Of the total, thermal coal accounted for 15 million tonnes, up almost 14% from November, while coking coal imports rose 0.4% to 3.85 million tonnes, data showed.

    Mundra port on the west coast received the highest volume of coal shipments at 2.9 million tonnes, up 49% from November, consisting of 2.83 million tonnes of thermal coal and 79,756 tonnes of coking coal.

    Goa port on the west coast received the highest volume of coking coal shipments at 951,087 tonnes, up from 888,644 tonnes in November.

    Of the total 18.9 million tonnes of coal imported in December, Indonesia supplied 11.3 million tonnes, Australia 3.32 million tonnes, South Africa 3.64 million tonnes, and the US 415,888 tonnes. Imports from other countries totaled 233,035 tonnes.

    Adani Enterprises, JSW Group, Swiss Singapore, Tata Group, Agarwal Coal and Steel Authority of India Limited are the leading importers of coal into India.
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    Japans Tepco agrees floating price for Jan-Dec coal

    Japanese utility Tokyo Electric Power Co. has opted for a floating market price for its 2016 supply contract for Australian thermal coal, several market sources said Friday.

    The reference price for the January-December contract is believed to be trading platform globalCOAL's floating index for Newcastle 6,000 kcal/kg NAR thermal coal, said a number of market sources.

    It is the second straight year Tepco has agreed to a floating contract price with its major Australian supplier Glencore for imported thermal coal, sources said.

    "There hasn't really been a fixed-price January contract negotiated since 2014," said another market source.

    For the first time in its negotiations with Australian suppliers, Tepco handed responsibility to Jera, a 50:50 joint venture between Tepco and Chubu Electric Power, another major Japanese utility.

    Several market sources said Jera was responsible for all of Tepco's imported thermal coal buying, including its January and July annual requirements.

    Jera took over fuel buying for Tepco and Chubu on October 1.

    Their total demand for thermal coal imports is about 17 million-18 million mt/year, and there are plans to expand this through coal trading with third parties, according to company data.

    Chubu Electric had a joint venture with the trading arm of European utility EDF -- Chubu Energy Trading -- that did its thermal coal buying and was effectively the forerunner of Jera.

    The Tokyo-based joint venture is to gradually assume responsibility for all of the two utilities' supply chain management for imported fossil fuels and of their investment in overseas coal mines, according to information on Jera's website.
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    Indonesia coal export to focus on India market than China

    Indonesia's Ministry of Energy and Mineral Resources expected coal shipments to India to rise in 2016, while coal exports to China are expected to decline further.

    China is experiencing a persistent slowdown and curbing imports of coal with a lower calorie grade. But coal demand from India has not fallen, said Adhi Wibowo, director for Coal at the Energy Ministry. Moreover, India is highly dependent on Indonesia for its thermal coal.

    The sluggish global economy, particularly China's slowdown, has been plaguing global coal prices hence making the coal mining industry an unattractive one.

    The benchmark thermal coal reference price of Indonesia (Harga Batubara Acuan, or HBA), set by the Energy Ministry each month, declined 1.69% on month to USD $53.51/t (FOB) in December 2015, touching a new all-time record low level.

    Over January-November 2015, Indonesia’s coal exports to China fell over 30% from the same period last year.

    Hendra Sinadia, Executive Director at the Indonesian Coal Mining Association (APBI), said Indonesia - given the current situation - cannot rely on China for its coal exports. Indonesia's coal industry should focus on the domestic market, particularly now as new coal-fired power plants are set to start operations in 2016.

    Data from Indonesia's Energy Ministry show that in 2014 China was Indonesia's largest export market for coal shipments. During 2014 Indonesia shipped a total of 41.54 million tonnes of coal to China.

    India was the second largest export market for Indonesian coal in 2014, which imported 37.48 million tonnes.

    Wibowo added that - besides India - the Philippines, Pakistan and Malaysia are still interesting export markets for Indonesian coal and form an opportunity for Indonesian coal miners.

    In the January-November 2015 period Indonesia exported 253 million tonnes of coal, down 27.71% from the same period one year earlier. Meanwhile, Indonesia produced 335 million tonnes of coal in the first eleven months of 2015, down 20% on year.
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