Mark Latham Commodity Equity Intelligence Service

Monday 28th September 2015
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    China Industrial Profits Fall Most Since 2011 as Growth Ebbs

    Chinese industrial companies reported profits fell the most in at least four years, as the pillars of China’s infrastructure-led growth model suffered from a devalued yuan, a tumbling stock market and weak demand.

    Industrial profits tumbled 8.8 percent in August from a year earlier, with the biggest drops concentrated in producers of coal, oil and metals, the National Bureau of Statistics said Monday in Beijing. It was the biggest decline since the government began releasing monthly data in October 2011, according to data compiled by Bloomberg.

    China’s stock-market plunge and currency devaluation are adding new challenges for the world’s second-largest economy as it struggles with excess capacity, sluggish investment and weaker manufacturing. The nation’s official factory gauge slumped to a three-year low last month, while Bloomberg’s monthly gross domestic product tracker remained below the government’s 7 percent goal in August with a reading of 6.64 percent.

    “Companies are facing enormous operational pressures,” said Liu Xuezhi, a macroeconomic analyst at Bank of Communications Co. in Shanghai. “The momentum of growth is weak, and the downward pressure on the economy is relatively large.”

    Profits in coal mining plunged 64.9 percent in the first eight months of this year from the same period last year, while oil and gas profits tumbled 67.3 percent, the report said. Ferrous metal smelting earnings fell 51.6 percent.

    The drop in profit was attributed to falling product prices, lower investment returns and foreign-exchange losses, He Ping, an NBS official, said in an analysis on the agency’s website. The report is a gauge of earnings from industrial companies that have 20 million yuan ($3.1 million) or more in annual “core business income,” according to NBS.

    The Shanghai Composite Index retreated 0.2 percent to 3,086.34 as of 11:30 a.m. local time.

    Contributions from investment returns fell amid China’s stock-market rout, while exchange-rate losses rose “noticeably” due to yuan volatility, pushing the companies’ financial costs up by 23.9 percent last month from a year earlier, compared to a 3 percent drop in July, according to the bureau.
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    Shanghai shuts factories for Disney

    Shanghai Shuts Down Factories For Disney
    Shanghai will close down 153 factories near Disney to ensure blue sky for
    the opening day in 2016.
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    VW cheats on trucks.

    Is there no end to the huge emissions scandal Volkswagen done?Apparently not, for now, also reported that Volkswagen has cheated with its light trucks.

    Volkswagen Transporter

    In Germany it has come up data on additional cheats by Volkswagen. Transport Minister Alexander Dobrindt announced earlier on Friday that while Volkswagen Commercial Vehicles / Commercial vehicles, namely light trucks, have been affected by manipulated emissions from diesel engines.

    It is still unknown which engines and light trucks concerned, but Volkswagen vehicles includes models Amarok, Caddy (in different versions) and T-series models Transporter, Caravelle, Multivan, California and Crafter.

    Earlier today announced Alexander Dobrindt a figure of how many Volkswagen cars affected by the cheating in Germany: 2.8 million cars. A figure that may be growing as Volkswagen's small 1.2-liter diesel engine is under the microscope right now.

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    EU urges all member states to investigate emissions rigging devices

    The European Commission wants all member states to investigate how many cars use illegal defeat devices to cheat emissions tests in light of the scandal at Volkswagen, a Commission spokeswoman said.

    Volkswagen has said 11 million of its diesel cars around the world could be implicated after the U.S. Environmental Protection Agency revealed VW had been using software to mask pollutants.

    "We are inviting all member states to carry out an investigation at national level," Commission spokeswoman Lucia Caudet told reporters. "We need to have a full picture of how many vehicles were fitted with defeat devices, which break EU law."

    The Commission has proposed new legislation on tightening its vehicle testing regime to produce results more in line with real driving conditions, which it says is the responsibility of member states to enforce.

    It is also looking at whether the European Union's system of type approval, when new models are put on to the market, should be changed and has said it has called a meeting with national authorities, but it is not clear when this will happen.
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    Oil and Gas

    Iran is all set to surprise West on oil exports - Official

    Image Source: Operation WorldA senior energy official said that Iran sees its oil exports rising by 500,000 barrels per day by late November or early December much sooner than some in the West expect.

    Mr Ali Kardor, director of investment at the National Iranian Oil Company, said Iran also expects to add 1 million barrels a day to its current exports by the spring of 2016.

    In August, Minister of Petroleum Mr Bijan Zangeneh ordered directors of oilfield operating and terminals companies as well as NIOC international affairs to be prepared for raising production by 500,000 barrel per day.

    Another official said at the time that a test operation of major oilfields for stepped-up recovery carried out last year would be repeated on all deposits.

    Mr Kardor said on the sidelines of the second Iran-Europe Forum which opened in Geneva Thursday and continues on Friday that “We are ready.”

    Iran, which currently exports about 1 million barrel per day to Asia as well as Turkey, plans to return to the pre-sanction sales levels in the shortest possible time when the restrictions are lifted.

    Mr Kardor said that more exports to Asian countries like China and South Korea will begin sooner than some in the West expect, adding the two countries have announced readiness to increase imports.

    Earlier this week, Mr Zangeneh said that Iran’s oil production will reach 4.2 million barrels per day by the end of 2016.

    Mr Kardor said that Iran will ask other OPEC members to make room for the country’s return to normal production levels at the group’s next meeting in Vienna in December.

    He said that “Some countries should reduce their production. They should reach a compromise.”

    Record production by the US and Saudi Arabia has led to a glut in the market, pushing prices as low as USD 40 from last summer’s highs of above USD 100 per barrel.

    Mr Kardor added that the return of the Iranian oil at pre-sanction levels will not lead to a price crash, adding the market will absorb it at a rate of USD 3 to USD 4 drop in prices.
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    The $12 Billion Reason BP Isn't Worried About a Hostile Takeover

    Oil giant BP Plc, which was said to be readying defenses for potential takeover offers, has a little-known ace in the hole: a disclaimer in its Macondo spill settlement that could tack $12.6 billion onto the price tag.

    A potential buyer might be forced to accelerate the payment of up to two thirds of the $18.7 billion in penalties the company agreed to pay the U.S. and several states, according to company filings. As it stands, BP has more than 15 years.

    An option that gives the federal government and some states the ability to demand faster payment in a takeover effectively hands them a veto power over any deal. Together with the company’s exposure to Russia amid sanctions and the worst oil crash in decades, it amounts to a powerful deterrent to suitors, said William Arnold, a former banker and executive at Royal Dutch Shell Plc.

    “This would be an important factor for those looking at possible opportunities” in many of the deal-focused war rooms that form in oil and gas down cycles, said Arnold, who teaches at Rice University in Houston. “To have to make such substantial upfront payments at a time when cash flows are down so much would make an attempt a lot more difficult.”

    - See more at:
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    Shell Halts Alaska Oil Drilling After Disappointing Well Result

    Royal Dutch Shell Plc will stop exploring for oil and gas offshore Alaska after abandoning a well, citing high costs and “challenging” regulation.

    “This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska,” the company said.

    Shell will abandon the Burger J well after indications of oil and gas weren’t sufficient to warrant further exploration, the company said in a statement on Monday.
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    Ukraine to pay around $230/tcm for gas in Q4 - Russian energy minister

    Ukraine will pay a price for Russian gas of around $230 per thousand cubic metres in the fourth quarter, including a discount, Russia's Energy Minister Alexander Novak said on Saturday, Russian news agencies reported.

    Russia cut off its gas supplies to Ukraine in July when an existing contract expired. Ukraine had refused to keep paying the price of $247 per thousand cubic metres that it had paid in the second quarter.

    The two countries have been haggling since then over the price that would be embodied in a new agreement to secure winter gas supplies.

    "In the region of $230 dollars plus or minus," Novak said when asked about the price of gas for the fourth quarter, according to comments cited by RIA news agency.

    Novak added that the exact price would depend on a formula that takes the caloric value of the gas into account.

    He was speaking after the conclusion of gas talks between Russia, Ukraine and the European Commission which led to a tentative agreement that has not yet been signed.

    A price of $230 per thousand cubic metres would be slightly more than the $220 that Ukraine has described as acceptable, but below the $235-$242 that Russia has said is the average for its long-term European customers in 2015.

    European energy chief Maros Sefcovic said after the talks that the price would be "at a competitive level comparable to the prices offered to the neighbouring EU countries."

    The provisional agreement also involves supplying 2 billion cubic metres of gas in October. Ukraine's Naftogaz will pay Russia's Gazprom $500 million for those supplies, with the money supplied by European and international financial institutions.

    Commenting on the agreement on Saturday, Gazprom chief Alexei Miller said that there was no guarantee Ukraine would be able to pay for further supplies in November and December.

    "Today we are establishing that Ukraine has received money - this $500 million, and will begin to take Russian gas from the start of October," Miller said, in remarks to Russia 24 television channel cited by RIA.

    "But 2 billion cubic metres doesn't solve the problem... Therefore if this winter is unusually cold, one could still expect problems."
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    Total: "We don't want to be the first"

     We are preparing the group to face low oil prices for a long time,” Total Chief Financial Officer Patrick de la Chevardiere told reporters. “We don’t want to be the first group to cut the dividend.”
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    Repsol sells 10% stake in Compañía Logística de Hidrocarburos

    Repsol has reached an agreement to sell the 10% stake it held in Compañía Logística de Hidrocarburos (CLH) to investment company Ardian for 325 million euros.

    This sale is part of a program to optimise Repsol's portfolio through selective divestments of non-strategic assets launched after the acquisition of Talisman Energy, which significantly increased production and the quality and quantity of Repsol's asset base.

    The sale of CLH will generate a capital gain for Repsol of 300 million euros. The company has carried out an extensive process involving almost 150 potential investors, generating significant interest and competition, before selecting the winning bid.

    Following this agreement, in which BBVA has acted as Repsol's exclusive financial advisor, investment company Ardian holds a 25% stake in CLH.
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    Eni finds more gas in Guendalina field

    Eni has found gas at a sidetrack well in its Guendalina gas field in the Adriatic Sea, offshore Italy.

    A partner in the field with 20% working interest, Rockhopper Exploration plc announced on Monday that the sidetrack well reached its target depth (TD) at 3,276m measured depth on schedule and budget.

    According to Rockhopper, wireline logging has confirmed that all the target levels are gas bearing and have been encountered slightly higher to prognosis in an up-dip position with good reservoir characteristics and with an additional deeper gas level. The well is now being completed as a producer with gas production expected to start in late October at which time a further announcement will be issued, the company said.

    Sam Moody, Chief Executive Officer, commented: “This is positive news for Guendalina, and we look forward to increasing production from the field later in the year, which will enhance our already strong cash position.”
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    Oil exports from northern Iraq to Turkey restart - Kurdish ministry

    Oil exports from northern Iraq have restarted after "thieves" sabotaged the main pipeline to Turkey, the Kurdistan region's ministry of natural resources said in a statement on Saturday.

    The flow of crude resumed on Friday following an outage of around 9 hours, the ministry said in the statement.

    The pipeline, which pumps oil to the Mediterranean port of Ceyhan from fields in Iraq's autonomous Kurdistan region and Kirkuk, has been repeatedly targeted inside Turkey since a ceasefire between Ankara and Kurdish militants broke down in late July.

    Exports from northern Iraq fell to an average of 472,832 barrels per day (bpd) in August from 516,745 the previous month as a result of damage to the pipeline, which is the region's main economic lifeline.

    "Without such revenue, salaries of peshmerga forces, the security forces and other key government workers cannot get paid," the ministry said in a statement. "These treacherous acts of theft and sabotage harm the ability of Kurds across the region to fight Islamic State terrorism."
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    Highlands signs indicative terms for a Licence Agreement with Schlumberger in respect to DT Ultravert

    Highlands Natural Resources, the London listed oil and gas company, announces that it has signed indicative terms for a licence agreement with Schlumberger Technology Corporation, a 100% owned subsidiary of Schlumberger Limited, the world's leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry, in relation to Diversion Technologies, LLC's proprietary 'DT Ultravert' re-fracking technology. Highlands owns a 75% stake in Diversion's current patent applications both in the US and globally.

    The indicative agreement provides that Schlumberger will evaluate DT Ultravert by assessing the data gained from five field trials within one year.

    Highlands CEO Robert B. Price said:

    'Highlands will continue to work closely with Schlumberger and the engineers and geologists on our Advisory Board to perfect the DT Ultravert technology by designing fracs in several basins throughout the world. Trials will be undertaken to demonstrate its effectiveness, which will provide us with valuable data regarding its application.

    'We believe that if successful, DT Ultravert could represent a major disruptive force in the market and generate significant future revenue for Highlands.'
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    U.S. Oil-Rig Count Falls to 640

    The U.S. oil-rig count fell by four to 640 in the latest reporting week, extending a recent streak of declines, according to Baker HughesInc.

    The number of U.S. oil-drilling rigs, which is viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices started falling last year.

    After a six-week streak of modest growth, the rig count has now declined for four consecutive weeks.

    Crude oil prices rose 1% to $45.38.

    There are now about 60% fewer rigs working since a peak of 1,609 last October.

    According to Baker Hughes, the number of gas rigs fell by 1 to 197.

    The U.S. offshore rig count was 33 in the latest week, up two from last week but down 29 from a year ago.

    For all rigs, including natural gas, the week’s total was down four to 838.
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    Stone Energy Corporation shuts-in Appalachia gas field

    On September 1, 2015, Stone shut-in its Mary field in Appalachia curtailing approximately 100-110 Mmcfe of production per day, leaving approximately 25 Mmcfe per day producing from the Heather and Buddy fields in Appalachia. Low commodity pricing, including negative differentials in the region, combined with fees for transportation, processing and gathering, reduced the operating margins to an unacceptable level.

    As a result, despite being above production guidance for the first two months of the third quarter, production for the quarter is now expected to be below the previously stated guidance range of 39-41 Mboe per day, or 234-246 Mmcfe per day, and is being revised to 37.5-38.5 Mboe per day, or 225-231 Mmcfe per day.

    If the Mary field remains shut-in, the annual guidance of 42-44 Mboe per day, or 252-264 Mmcfe per day, will need to be adjusted to account for these curtailed volumes. Given the low margins in Appalachia, the cash flow impact from the curtailed volumes is not expected to be material for the third quarter. Higher margin Gulf of Mexico volumes experienced minimal downtime in the third quarter.
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    Fighting New England's natural-gas pipeline battle

    Though they live only a few hundred miles from North America's largest and most productive shale gas field, New Englanders still pay the highest energy costs in the continental U.S.  

    Any explanation for why this densely populated region is still waiting for access to the Marcellus gas play starts with a grass-roots anti-pipeline sentiment, though it's more complicated than that. What isn't hard to understand is that it's costing New Englanders lots of money.

    For example, according to Intercontinental Exchange Group Inc., Boston's wholesale gas price averaged $24.09 per million BTUs in January and February, compared with just $10.79 per million BTUs in Chicago and $3.37 in Pennsylvania.

    In the previous winter, customers saw their monthly electric bills, already double the national average, rise a whopping 37 percent over the year before.

    The hike came as a particularly cruel blow to homeowners who, caught in an equally tight oil market at the time, had to pay as much as $500 to $700 per month to fill household oil tanks. Facing annual energy bills in the thousands of dollars, even the toughest New Englanders are expressing new concerns over the region's economic future.  

    Compounding the problem is that the region's electric power providers are increasingly dependent on natural gas as a generation fuel now that aging coal, oil and nuclear plants are being retired.  

    Fifteen years ago, about 15 percent of New England's electric energy production came from generators fueled by gas, notes Marcy Reed, president of National Grid of Massachusetts. Her utility serves all of Rhode Island and more than 1 million customers in Massachusetts.

    "By 2014, that number had risen to nearly 50 percent." she said. "Meanwhile, pipeline capacity for gas transmission into New England has not kept pace. ... There is simply not enough gas coming into the region to reliably or affordably power these plants and meet the needs of millions of residential and commercial gas customers."

    According to various analysts and regulators, the area would need 1 billion to 2 billion cubic feet of additional capacity to prevent price spikes during peak demand periods.

    A recent report released by the New England Coalition for Affordable Energy - a newly formed organization of business and labor groups advocating for the expansion of all means of energy infrastructure throughout the region - quantified the economic consequences should the region remain in its current stasis.

    The report estimates that ongoing energy constraints have already cost the region $71 billion, on top of the estimated $7.5 billion in higher energy costs seen over the past three winters.  

    According to the authors' prognostications, failure to expand new energy infrastructure - including natural-gas pipelines - within the next five years will result in a train wreck of consequences that threaten to jeopardize the region's ability to compete economically, which would hurt job-creation.
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    Alternative Energy

    Drax to pull out of UK White Rose CCS project when ends

    British power producer Drax said on Friday it would not invest further in the White Rose carbon capture and storage (CCS) project when it is completed and will then withdraw as a partner in the developer Capture Power Ltd.

    The project, aimed at proving CCS technology on a commercial scale, is due to end in six to 12 months. It is exploring the feasibility of capturing 90 percent of carbon emissions from a new coal-fired power station next to Drax's existing power plant in Yorkshire and storing them under the North Sea.

    When the project has ended, Drax will not invest further but will make the site, which it owns, and the power plant infrastructure available for the project to be built.

    "This is for us a sad decision but ultimately investment is about choices and we are in a very different financial situation today than we were two years ago when we decided to invest in the project," Drax Chief Executive Dorothy Thompson told the BBC radio.

    "There have been changes to the government's renewable policy but there have also been dramatic movements in the commodity markets and that has greatly reduced our profitability," Thompson said.

    Other partners in Capture Power are energy technology firm Alstom and industrial gas supplier BOC, which is part of the Linde Group.

    Capture Power said it was still committed to delivering the CCS project and a final investment decision will depend on the outcome of an engineering and design study.

    Britain, along with many other countries, will need CCS to help meet its emissions reduction targets if it is still running fossil fuel power generation plants.

    The British government has committed 1 billion pounds ($1.5 billion) for two CCS projects - one at a coal plant and one at a gas plant which is being developed by Shell and SSE and which could be operational by the end of the decade.

    In general, CCS technology has so far failed to live up to early hopes of wide adoption. After many years of research, Saskatchewan Power opened the world's first coal-fired power plant retrofitted with CCS last year, but European utilities have struggled.
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    China reportedly to start operations at 31 new nuclear plants

    China's nuclear energy authorities have recently finished investigative research on 31 nuclear power plants in inland regions, indicating a commencement of operations at the nation's new reactors.

    "A report based on the research has been submitted to the State Council. Once approved, it will be a signal of the beginning of the operations of new nuclear reactors," an anonymous energy expert at the Energy Research Institute of the National Development and Reform Commission, told the Beijing-based China Times.

    The research, aimed at ensuring the safety of operations, was jointly conducted by the Chinese Academy of Engineering and China Nuclear Energy Association (CNEA).

    China halted its nuclear power projects after the Fukushima nuclear disaster in Japan, only approving several such projects in eastern coastal areas. Although the resumption of the inland nuclear power projects has yet to be officially announced, at least 10 provinces have already proposed to develop a nuclear power industry.

    According to the 13th Five-Year Plan (2016-20), installed nuclear power capacity will reach 58 million kilowatts by 2020. The capacity of those currently under construction is 30 million kilowatts.

    "It's difficult to reach that goal without new nuclear power reactors in inland regions," the expert was quoted as saying.

    Three nuclear reactors in inland regions have already obtained approval from the National Development and Reform Commission and are waiting to be established. They are the Taohuajiang nuclear power plant in Hunan Province, the Xianning nuclear power plant in Hubei Province and the Pengze nuclear power plant in Jiangxi Province.

    As of the end of 2013, the Taohuajiang nuclear power plant has received 4.6 billion yuan ($700 million) in investments while the other two plants attracted about 3.4 billion yuan each.

    "If the nuclear power projects in inland regions restart, the three plants will be the first to start operation," an insider who requested anonymity, told the China Times. The China Times reporter learnt from a nuclear power conference that the country will focus on developing nuclear power projects along the east coastal regions, and only develop one or two projects in inland regions.
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    Cigar Lake mine officially starts production

    Last week Cameco and Areva senior management including Cameco president and CEO Tim Gitzel cut the ribbon on the mine, located in the uranium-rich Athabasca Basin of northern Saskatchewan. They also led dignitaries including Saskatchewan Economy Minister Bill Boyd and community leaders from northern Saskatchewan on a tour of the underground workings.

    "We are happy to celebrate these two major uranium mining assets in Saskatchewan, the Cigar Lake mine and the McClean Lake mill,” said Olivier Wantz, member of the executive committee and senior executive vice-president, mining and front end business group for Areva Resources Canada Inc, which owns 37 percent of the project. “Their successful operation demonstrates the determination and expertise of our employees to ensure the safe start-up and continued production.”

    The Cigar Lake uranium deposit is the second largest high-grade undeveloped uranium deposit in the world, with concentrations of uranium 100 times the world average (the largest is the nearby McArthur River mine). However, the deposit, which according to Cameco has 117.5 million pounds U3O8 at an average grade of 17.84 percent, is also considered one of the most technically challenging to mine.

    Construction started in 2005 but it was soon hit by catastrophic floods in 2006 and 2008. Costs also ballooned from nearly half a billion dollars to $2.6 billion, as Cameco and partners struggled to figure out how to mine the deposit which lies almost half a kilometre underground.

    Mining at Cigar Lake began in March 2014, but was suspended last July to allow the ore body to freeze more thoroughly. The freezing was done to improve ground conditions, prevent water inflow and improve radiation protection. Commercial production at Cigar Lake was declared on May 1, 2015.

    The high-grade ore is removed using custom-made machines that inject water at high pressure to cut away the rock. The resulting ore slurry is then collected through pipes, run through underground grinding and thickening circuits and then pumped to surface. At the surface, the ore is loaded in special containers for truck transport to Areva's McClean Lake mill located 70 kilometres away, where it is processed into uranium concentrate.

    Cameco says it produced between 6 and 8 million packaged pounds for Cigar Lake and McClean Lake in 2015. The production target is 18 million pounds by 2018. Once the expansion at McLean Lake mill is complete, the mill will have capacity to produce 24 million pounds of uranium per year. The mine currently employs over 600 people, the majority from northern Saskatchewan, while the mill has a payroll of around 350.

    Operator Cameco owns 50% of the mine, followed by Areva (37%), Idemitsu Canada (7.9%) and TEPCO Resources Inc. (5%). The McClean Lake mill is owned by Areva Resources Canada Inc. (70%), Denison Mines Inc. (22.5%) and OURD Canada Co. Ltd. (7.5%).
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    China's COFCO says Nidera biofuel losses won't impact firm's future

    Chinese grain trader and food processor COFCO, the majority shareholder in Nidera, has said it still has confidence in the Dutch grain and oilseeds merchant after an ethanol trader racked up significant losses through fraudulent activities.

    COFCO bought a majority stake in Nidera last year and is in talks to increase its holding in the company, sources have told Reuters.

    "Nidera has dealt with the issue, which has not affected the company's daily operation. As a shareholder, we are confident in Nidera's development and looking forward to more in-depth cooperation in the future," COFCO said in an email sent to Reuters late on Friday.

    Nidera suffered a "significant loss" in biofuels trading but none of its other trading activities were involved, a spokesman said on Thursday.

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    Precious Metals

    Dieselgate: Palladium the big winner

    On Friday, the rally in the palladium price continued to build as the outlook for diesel vehicle sales becomes murkier following top automaker Volkswagen's admission a week ago that it's been cheating on pollution tests.

    Nymex palladium contracts for December delivery exchanged hands for as much as $678.00 an ounce on Friday, up another 3% on the day for a more than $60 an ounce or 11% gain since the news broke.

    The price of palladium reached 13-year highs above $900 an ounce in September 2014

    In August the metal plunged to $532 an ounce, but quickly recovered. The price of palladium reached 13-year highs above $900 an ounce in September 2014 on the back of supply disruptions and a robust outlook for the US and Chinese auto markets.

    Palladium finds application in gasoline engines and is more exposed to the Chinese and US markets, where diesel hardly features in the passenger vehicle segment. Roughly 75% of palladium demand is from the autocatalyst sector and in the longer term the metal would benefit from a move away from diesel.

    After a bounce back yesterday from more than six-and-a-half year lows platinum, which is mainly used in to scrub emissions in diesel engines, in New York fell again on Friday.
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    Silver Wheaton faces potential C$353m CRA tax bill for offshore revenue

    The world’s largest precious metals streaming firm Silver Wheaton is set to challenge the Canadian Revenue Agency (CRA) over the agency’s decision to reassess the company’s 2005 to 2010 tax years and collect taxes on income earned by Silver Wheaton’s offshore subsidiaries. 

    The TSX- and NYSE-listed company, which provided financing to miners in exchange for the right to buy a share of their future metal output, reported late on Thursday that it had received notices of reassessment from the CRA, in line with the CRA proposal Silver Wheaton said it had received early in July. According to the notices of reassessment, the CRA was looking to increase Silver Wheaton’s income subject to tax in Canada for the relevant tax years by about C$715-million, which would result in federal and provincial tax of C$201-million. 

    The CRA was also seeking to impose transfer pricing penalties of about C$72-million and interest and other penalties of C$81-million for the period. The total tax, interest and penalties sought by the CRA for the relevant taxation years amounted to C$353-million. Management held that Silver Wheaton had filed its tax returns and paid applicable taxes in compliance with Canadian tax law and the company intended to “vigorously and expeditiously defend its tax filing position”. 

    President and CEO Randy Smallwood was at a recent Toronto investor presentation at pains to defend Silver Wheaton’s position that its Cayman Islands-registered subsidiaries, where it took delivery of precious metals under its forward-sales contracts, were independent from the Canadian parent. It was up to the sovereign state of the Cayman Islands to determine the corporate tax rates the subsidiaries would be subjected to, which just happened to be 0%, he advised. 

    Silver Wheaton intended to file a notice of objection within the available 90-day period provided under the Income Tax Act and that it would be required to make a deposit of C$177-million, representing half of the reassessed amounts. The company would seek to post security in the form of a letter of credit for this amount as opposed to a cash deposit.
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    Base Metals

    China’s bonded copper stockpiles plunge to lowest in three years

    Copper stockpiles in China’s bonded warehouses declined to the lowest in more than three years as users withdrewmetal to take advantage of relatively high prices in the Shanghai market.

    Inventories were about 350,000 metric tons in late September, the lowest since Feb. 2012, according to a survey by CRU Group, a London-based commodities research firm. That’s 20 percent less than the 440,000 tons a month before. Bonded warehouses are located in free-trade zones and are exempt from tariffs and value-added tax.

    The stockpiles, which aren’t formally disclosed by any organization, represent a gray area in global commodity trade and the estimates are widely followed as a measure of China’s demand. Traders are selling copper into the Shanghai market because prices are higher than London, leading to a slide in inventories, said Matthew Wonnacott, a consultant at CRU in London.

    “Essentially it’s been mostly arbitrage-related,” Wonnacott said in an interview. “It’s possible that domestic production has been a little bit weaker than maybe expectations so that could have been drawing material into the domestic market.”
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    Hudbay aims to start construction at Rosemont copper mine in Arizona in 2016

    Toronto-based Hudbay Minerals plans to start construction at its Rosemont copper, silver and molybdenum project in Arizona next year once permitting is complete, CEO David Garofalo said.

    The company recently hired Ausenco to work on detailed engineering studies at the project over the next eight to 10 months before starting a two-year construction period, Garofalo said.

    Hudbay, which acquired the 20,100-hectare property in July 2014, has drilled 43 drill holes at Rosemont to confirm proven reserves for 279 million mt of 0.44% copper. The project could produce up to 150,000 mt/year of copper and have similar cash costs to its $1.7 billion Constancia copper mine in Peru, he said.

    "While the permitting is going on one track, on a parallel track we're doing engineering. ... We have to advance both of those on a parallel track so we're in a position to make an investment case next year," Garofalo said in an interview on the sidelines of a mining conference in the southern highland city of Arequipa, Peru. "Hopefully we'll start work next year on Rosemont."

    Hudbay, which started production at Constancia at the beginning of the year, is currently operating at 12-15% above capacity of 80,000 mt/year of copper, Garofalo said, adding that costs are running at the lower end of guidance at about $9/mt.

    Hudbay will invest more capital in junior exploration firms such as Panoro Minerals rather than buy exploration properties outright in a market in which metals prices are slumping, he said.

    "I'm short-term somewhat bearish and medium-term bullish. Copper prices are slightly below where equilibrium is," Garofalo said. "There isn't another generation of producer supply coming on to replace the inevitable decline in mine ore grades."

    The company aims to produce 140,000-175,000 mt of copper, 95,000-120,000 mt of zinc and 135,000-170,000 oz of gold equivalent this year. Last year, Hudbay produced 37,644 mt of copper, 82,542 mt of zinc, 73,377 oz of gold and 745,910 oz of silver.
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    NALCO to invest over INR 65,000 crore

    NALCO to invest over INR 65,000 crore

    PTI reported that buoyed by 106 per cent jump in profit, aluminium giant NALCO is all set to invest over INR 65,000 crore to launch ambitious projects in the country and abroad, besides undertaking expansion and diversification into power and mining sectors in a big way.

    NALCO CMD T K Chand said “Investment to the tune of INR 65,000 crore is proposed to be made for a number of projects, including a greenfield aluminium smelter abroad.”

    He said “The company is exploring countries like Oman, Iran and Indonesia to set up the proposed smelter plant with an estimated investment of INR 20,000 crore. Location would be finalised after examining factors like availability of low-cost power and infrastructure.”

    The smelter unit is sought to be of 5 mtpa capacity together with 150 mW captive power plant, Chand said, adding that though NALCO is ready to go for the project alone, it is open to a joint venture if a suitable partner comes forward.

    While power is cheap in Oman and Iran, abundant coal is available at low cost in Indonesia. Port facilities would also be a major factor, the CMD said adding the project is likely to take off this year itself as NALCO aims to emerge as a major global player in mining, metal and energy sectors.

    Turning to the domestic turf, he said that after getting the allocation of Utkal D and E coal Blocks, NALCO is now hopeful of the Odisha government’s consent for allocation of the Pottangi bauxite Mines in Koraput district.

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    Steel, Iron Ore and Coal

    NEA publishes updates on China’s coal mines capacity

    China’s National Energy Administration (NEA) published an announcement on September 21, giving updates on production capacity of operating coal mines, following efforts to curb mines that producing beyond their approved capacity.

    Shaanxi and Shanxi topped the list, with capacity of coal mines publishing for the first time or changing capacity totaling 133 million and 117 million tonnes per annum by the end of June this year, respectively, the NEA said.

    In Shaanxi, the capacity was dominated by 28 coal mines, seven of which with capacity in excess of 10 million tonnes per year; while the capacity in Shanxi was mainly from 67 mines, with 22 mines above 900,000 tonnes per annum and two mines over 10 million tonnes per annum.

    Inner Mongolia and Xinjiang Uygur Autonomous Region followed, with capacity all above 10 million tonnes per annum.

    Among those coal mines whose capacity would no longer be published by the NEA, either to be closed or merged with others, 97 coal mines were in Hunan province, with combined capacity totaling 5.65 million tonnes per annum.

    Chongqing province ranked second, with 91 small coal mines at a combined capacity of 5.44 million tonnes per year; Xinjiang followed with 32 coal mines at 2.92 million tonnes per year.

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