Mark Latham Commodity Equity Intelligence Service

Thursday 13th April 2017
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    China slams Shanghai for environmental violations

    China's business hub of Shanghai has slacked off in efforts to improve the environment, levying fines too small to deter polluters, hundreds of whom have flouted closure orders, authorities said on Wednesday.

    Standards had fallen and some of Shanghai's environmental work had grown "slack", an inspection team found after a month-long investigation late last year, the Ministry of Environmental Protection (MEP) said on its website (

    The environmental protection work that remains undone could hold back Shanghai's development, the ministry said.

    "Shanghai's environmental protection work has had obvious successes but environmental quality remains a prominent weak point affecting the city's overall development," it said.

    From 259 water samples tested, 88 were found unfit even for farm and industrial use, falling below the ministry's "grade V" categorisation, it said, adding that overall water quality in some districts has worsened conspicuously since 2013.

    It singled out Shanghai's decision to postpone from 2016 until the decade's end a target of raising treatment standards for urban waste water, saying its plans to improve urban sewage and waste treatment had also fallen behind schedule.

    Ageing landfills are still leaching into Shanghai's water supply, and trash is still being illegally dumped, it added.

    Law enforcement in Shanghai, one of China's richest cities, was still inadequate, the team found, with fines too light to discourage persistent polluters. It said 800 enterprises ordered to stop production since 2013 were still operating normally.

    China's local governments are proving to be one of the key battlegrounds in its "war on pollution", with many accused of turning a blind eye to environmental violations so as to protect valuable sources of revenue and jobs.

    Teams of environmental inspectors have fanned out across China since last year, armed with special powers to make surprise checks and hold local leaders to account.

    While there has been progress in tackling air pollution, water quality in several regions has significantly worsened, reports from such teams revealed last November.
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    S.Korea coal, nuclear power targeted for cuts by presidential candidates

    No matter who is elected as South Korea's new leader next month it is clear that coal and nuclear power generation will likely be scaled back, with most of the candidates laying out plans on Wednesday to address public concerns over pollution and safety.

    Less than a month from a May 9 election to replace impeached president Park Geun-hye, policy experts outlined in a forum the energy proposals of four of the five contenders.

    The two leading candidates, liberal front-runner Moon Jae-In and centrist Ahn Cheol-soo, both plan to lower South Korea's reliance on coal and nuclear power, pointing to a need to shift to renewable energy, according to their policy advisors.

    In the latest poll by Gallup Korea, Moon got the support of 38 percent of respondents, and Ahn got 35 percent.

    South Korea, Asia's fourth-largest economy, gets 40 percent of its electricity from coal, 30 percent from nuclear, 20 percent from natural gas, and the rest from oil and renewables.

    But policy changes are expected amid growing concerns over pollution and the safety of nuclear energy, and Moon and Ahn appear determined to help drive them.

    "We should move away from coal and nuclear power, and shift to clean or renewable energy-based platforms," said Kim Jwa-kwan, head of Moon's energy policy team.

    Kim said his team planned for nuclear and coal power to account for 18 percent and 15 percent respectively of power supply by 2030, while the contribution of liquefied natural gas (LNG) would increase to 37 percent to support the rise of renewables.

    If elected, Moon also "would scrap a plan to build Shin Kori No.5 and Shin Kori No.6 nuclear reactors on which construction began last year and revamp the country's nuclear power expansion scheme," Kim said.

    That means South Korea's plan to build 11 nuclear reactors by 2029 could be under threat.

    Ahn would similarly shelve a plan to construct four coal-fired power plants and not extend the lifespan of ageing coal and nuclear power stations, said Oh Jeong-Rye, deputy director of Ahn's People Party.

    Both candidates target a 20 percent renewable energy share by 2030 as part of efforts to cut carbon emissions.

    Under the current power supply plan, in addition to building 11 nuclear reactors by 2029 - three of which are already under construction - South Korea plans to add 20 more coal-fired power plants by 2022.

    Policy experts for two other candidates - the conservative Bareun Party's Yoo Seong-min and the left-wing Justice Party's Sim Sang-jung - also said they would overhaul South Korea's coal and nuclear energy policy.

    Sim would cut nuclear power to zero by 2040 and phase out coal by 2060, according to her energy advisor.
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    China Q1 rail cargo transport rises 15.3pct on year

    China transported a total 724 million tonnes of cargoes via railway in the first quarter of this year, a year-on-year rise of 15.29%, said the China Railway Corporation on April 9.

    In March, the cargoes shipments via railway stood at 254 million tonnes, up 16.3% from the year-ago level. Urumqi Railway Bureau reported the sharpest year-on-year increase of 48.3% in cargoes delivery in March, said the company.

    China's rail transports have been sliding at a faster pace since 2015, with decline accelerating from 1.8% in 2012 to 4.7% in 2014 and to 11.6% last year. Yet shipments started to trend up this year, with shipments growth speeding up from 10.4% in January to 14.6% in the first two months further to 15.29% in the first quarter.

    The company cited its efforts in transport structural reform, supply-side structural campaign and modern logistics for the rebounded cargoes delivery. Meanwhile, China's overloading rules and controls on road coal transport at Tianjin port also boosted rail shipments to some degree.

    China's Ministry of Transport released a new overloading regulation on August 30 last year, which allowed the total weight of a coal truck to 49 tonnes at most, instead of previous 55 tonnes that have been in effect since 2004.

    The new regulation, which was put into effect on September 21, pushed up the freight for trucking coal from production bases to northern ports, and thus caused a shift from road transport to rail shipment.  

    In October last year, coal transports via railways logged a year-on-year increase of 6.6%. Afterwards, many railway bureaus began to raise rail coal freight rates amid stronger demand.

    In the first week of November last year, rail coal transports reached nearly 40 million tonnes, rising 10.2% from the year prior. On November 10, Taiyuan and Lanzhou railway bureaus further lifted rail coal freight rates by 10%.

    Tianjin, one major coal transfer port in northern China's Hebei province, will halt taking coal transported by trucks via road and can only receive coal from railways by end-September this year, in order to reduce pollution emission from diesel vehicles and combat smog, said Zhao Yingmin , minister of Ministry of Environmental Protection, on February 22.

    In 2016, coal shipments at Tianjin port stood at 104 million tonnes, with 56 million tonnes or 53.85% transported via trucks.

    Daqin Railway Co., Ltd announced on March 25 it will lift rail coal freight rates by 10% to the benchmark rate set by the government, effectively canceling a discount that has been offered to boost shipment since early February 2016.  

    Effective 18:00 on March 24, coal freight rate for rail lines implementing the nation's standard rate would be raised by 0.01 yuan/ to the benchmark freight rate of 0.098 yuan/, while that of Daqin, Beijing-Yuanping and Fengtai-Shacheng lines was lifted by 0.01 yuan/ to 0.1 yuan/, Daqin Railway said in a statement.
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    China March exports rise 16.4 pct, imports up 20.3 pct, both beat forecasts

    China's March exports rose 16.4 percent from a year earlier, while imports increased 20.3 percent, both exceeding market expectations, official data showed on Thursday.

    That left the country with a trade surplus of $23.93 billion for the month, the General Administration of Customs said, reversing a rare deficit in February.

    Exports in the first quarter of the year rose 8.2 percent from the same period last year, while imports surged 24.0 percent.

    China's first-quarter trade surplus was $65.61 billion.

    Analysts polled by Reuters had expected March exports rose 3.2 percent on-year, after a surprise drop of 1.3 percent in February.

    Imports had been expected to grow 18.0 percent, after a blowout 38.1 percent expansion the previous month.

    Analysts had expected China to return to a surplus of $10.0 billion in March, versus February's $9.15 billion deficit.

    China's economic data in January and February can be highly skewed by the timing of the long Lunar New Year holidays, when offices and factories shut for a week or more.
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    Oil and Gas

    China Q1 crude oil imports climb 15 pct

    China's crude oil imports rose 15 percent in the first quarter compared with the same period a year earlier to 105 million tonnes, or 8.52 million barrels per day, the country's General Administration of Customs said on Thursday.

    Imports of refined products edged down 0.6 percent in the first quarter from a year ago to 7.68 million tonnes.
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    G7 advocates flexible LNG contracts

    The G7 energy ministerial meeting held in Rome under the Italian presidency called for greater flexibility of commercial clauses in liquefied natural gas (LNG) supply contracts.

    The energy ministers of Canada, France, Germany, Italy, Japan, the United Kingdom, the secretary of energy of the United States of America, and the European Commissioner for climate action and energy, stressed that LNG contracts should include relaxed destination clauses and similar restrictive mechanisms.

    The ministers welcomed the opening of new pipeline interconnections, new gas supply corridors, and the start of new and future LNG exports, with the aim of increasing market liquidity and diversity, and the management of disruption and emergencies, the joint statement reads.

    They also discussed the important role of storage as a component to a secure gas system.

    In addition to seeking additional flexibility in LNG contracts, ministers called for the increase of alternative fuels in transport.

    They discussed enabling conditions and frameworks to promote a comprehensive innovation strategy for increasing sustainable and advanced low- and zero-emission fuels, such as CNG, LNG, and electricity across all modes and uses of transport, according to the statement.

    Although no joint statement on climate change has not been signed, Italian economic development minister Carlo Calenda, in a brief social media comment said the discussion was “fruitful and constructive.”
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    OPEC over-delivers on oil cuts, but sees rivals' output rising

    OPEC cut oil output in March by more than pledged under a supply reduction deal and said oil inventories had fallen in February, suggesting that its effort to clear a supply glut that has weighed on world oil prices is succeeding.

    But the Organization of the Petroleum Exporting Countries also raised its forecast for supplies from non-member countries in 2017 as higher oil prices encourage U.S. shale drillers to pump more, reducing demand for OPEC's oil this year.

    OPEC is curbing its output by about 1.2 million barrels per day (bpd) from Jan. 1 for six months, the first reduction in eight years, to get rid of a supply glut. Russia and 10 other non-OPEC producers agreed to cut half as much.

    Oil prices pared gains on Wednesday after the report was released to trade at around $56 a barrel. Prices are up from about $42 a barrel a year ago. [O/R]

    OPEC was upbeat on the outlook for the market in its monthly report.

    "Despite some downside risks, general expectations for demand growth for oil products in the coming months remain bullish," the report said.

    "The return of refineries from seasonal maintenance and healthy demand, together with the high conformity observed in OPEC and non-OPEC production adjustments, should enhance market stability and reduce the volatility seen in recent weeks."

    Compliance in March by the 11 OPEC members with output targets under the supply cut deal averaged 104 percent, according to a Reuters calculation based on production figures OPEC published. This is in line with earlier figures seen by Reuters on Tuesday.

    OPEC is considering whether to extend the supply cut deal beyond June and most members, including Saudi Arabia and Kuwait, are leaning towards this if all producers, including non-OPEC also agree, OPEC sources told Reuters last month.
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    Japan’s Tokyo Gas, Kyushu Electric in LNG cooperation deal

    Japan’s biggest city gas supplier, Tokyo Gas and Kyushu Electric Power have entered into a  deal to cooperate in the liquefied natural gas (LNG) business.

    The two companies said in a joint statement on Wednesday that they are planning to form a strategic alliance to jointly buy LNG  “to contribute the further flexibility and the cost reduction.”

    “We are considering the cooperation of securing LNG to ensure the stability of supply of both companies, including in an emergency,” the statement said.

    LNG buyers have been for years urging the need for more flexible LNG contracts, especially when it comes to destination clauses that restrict them from reselling or swapping cargoes.

    In a similar move, Japan’s JERA, the world’s largest corporate LNG buyer, has signed a deal in March with South Korea’s Kogas and China’s CNOOC Gas and Power Trading & Marketing to cooperate in the LNG business and to secure more flexible contracts.

    The Tokyo-based company also recently signed a deal with the Dubai Supply Authority (DUSUP).
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    US oil production continues strong gains

                                                      Last Week    Week Before    Last Year

    Domestic Production '000........... 9,235            9,199             8,977
    Alaska ................................................ 534               533                518
    Lower 48 ........................................ 8,701            8,666             8,459
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    Summary of Weekly Petroleum Data for the Week Ending April 7, 2017

    U.S. crude oil refinery inputs averaged 16.7 million barrels per day during the week ending April 7, 2017, 268,000 barrels per day more than the previous week’s average. Refineries operated at 91.0% of their operable capacity last week. Gasoline production increased last week, averaging over 9.9 million barrels per day. Distillate fuel production increased last week, averaging about 5.1 million barrels per day.

    U.S. crude oil imports averaged 7.9 million barrels per day last week, up by 28,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.1 million barrels per day, 3.0% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 488,000 barrels per day. Distillate fuel imports averaged 118,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.2 million barrels from the previous week. At 533.4 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 3.0 million barrels last week, but are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 2.2 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories fell 1.2 million barrels last week and are in the lower half of the average range. Total commercial petroleum inventories decreased by 4.7 million barrels last week.

    Total products supplied over the last four-week period averaged 19.7 million barrels per day, remaining unchanged from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.3 million barrels per day, down by 1.0% from the same period last year. Distillate fuel product supplied averaged over 4.2 million barrels per day over the last four weeks, up by 15.6% from the same period last year. Jet fuel product supplied is up 3.6% compared to the same four-week period last year.

    Cushing up 300,000 bbls
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    U.S. oil output could near 1970 record next year, EIA says

    The Energy Department believes another burst of shale drilling could push U.S. oil production close to an all-time record by the end of next year.

    The return of drilling rigs and roustabouts to U.S. shale fields could lift the nation’s daily crude output to 10.1 million barrels by the fourth quarter of 2018, just 30,000 barrels under the November 1970 record, the Energy Information Administration said Tuesday.

    Such a feat would mean domestic oil producers would have to put out an additional 1.2 million barrels a day over the next two years, up from the current 8.96 million barrels a day.

    The EIA said that would contribute to a rise in global output to more than 100 million barrels a day by the second quarter of 2018, up 3.4 percent from current levels. The bulk of that growth, it believes, would come from outside of OPEC.

    The EIA revised its forecast for U.S. oil production up by around 2 percent for 2018, and it increased its projection for the fourth quarter of 2017 up about 1 percent.

    It pointed to higher levels of oil field spending. In the fourth quarter of 2016, investments by more than three dozen oil companies rose 72 percent, or nearly $5 billion, compared with the same period the year before. And spending continued to rise in the first quarter.

    The EIA believes that burst of oil could weigh on oil prices. It now expects U.S. oil prices to average $52.24 a barrel this year, down 2.3 percent from its previous projection. It also revised its forecast for next year’s oil prices down 1.9 percent to $55.10 a barrel.
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    NuStar buying Navigator Energy for $1.5 billion

    San Antonio-based NuStar Energy is buying Navigator Energy Services for $1.5 billion to establish its pipeline presence in West Texas’ Permian Basin.

    The Permian is booming again and NuStar is seeking to build a foothold there with pipeline, processing and storage capacity. Dallas-based Navigator is backed financially by the private equity First Reserve Energy Infrastructure Fund.

    The deal includes about 500 miles of crude oil pipelines, 1 million barrels of crude storage capacity, and a pipeline gathering system over 500,000 acres. The deal is expected to close in May.

    “We are excited about starting 2017 with a strategic acquisition, and the addition of Navigator’s Permian assets marks NuStar’s entry into one of the most prolific basins in the United States,” said NuStar President and CEO Bradley Barron.
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    Trump administration moving ahead with ending Jones Act exemptions

    The Trump administration appears to be moving ahead with an Obama administration proposal aimed at reversing long-standing Jones Act exemptions and is not considering weakening its criteria for waivers from the maritime law, a US Customs and Border Protection spokeswoman said.

    Those waivers "may only be granted if necessary in the interest of national defense," as they traditionally have been, Katrina Skinner, the CBP spokeswoman, said in a statement to S&P Global Platts on Monday.

    The issue centers on a change CBP proposed on January 18, just two days before the Obama administration ended, that would revoke decades of rulings allowing foreign-built vessels to transport certain equipment, such as repair pipe, between US ports and oil and gas operations in US waters.

    The change, which is backed by the US maritime industry and a bipartisan swath of Congress, would represent a significant strengthening of the federal government's enforcement of the Jones Act. The 100-year-old Jones Act requires vessels transporting goods between US ports to be US-flagged, US-built and majority US-owned.

    The proposed change is opposed by drilling and marine contractors and the American Petroleum Institute, which last week released a study claiming the change could reduce oil and natural gas production in the US Gulf of Mexico by about 500,000 b/d over the next 13 years.

    In her statement, CBP's Skinner said the agency was accepting comments on the proposed change through April 18 and is expected to issue a decision on the potential change by mid-May.

    While Skinner declined to comment further, sources said the Trump administration has indicated that it plans to go forward with the proposed change and will likely oppose any efforts seen as weakening the Jones Act.

    Related: Find more content about Trump's administration in our news and analysis feature.

    Proponents of the change pointed to initial statements made by members of Trump's cabinet in favor of the maritime law.

    "The Jones Act is the law of the land and it will be obeyed unless the Congress changes its mind on that," Transportation Secretary Elaine Chao said during her January 11 confirmation hearing.

    "I intend to consult closely with Congress on any Jones Act-related issues and ensure that our position in trade negotiations does not undermine our ability to enforce the statute," US Trade Representative Robert Lighthizer said during his March 17 confirmation hearing.

    During a press call last week, Jack Gerard, API's president and CEO, said his trade association was not pushing for a repeal of the Jones Act, but said the exceptions needed to stay in place since there were not enough US-flagged vessels needed to meet demand from US Gulf operations.

    But Aaron Smith, president and CEO of the Offshore Marine Service Association, said this issue will be solved by ending the long-standing exemptions that have allowed companies to "skirt" the Jones Act.

    "The only relevant economic impact is the adverse impact that CBP's erroneous rulings have had for decades on US shipowners, mariners and shipyards," Smith said. "CBP's course correction ensures that more ships will be built in US shipyards employing US citizens."

    In a March 30 letter to Department of Homeland Security Secretary John Kelly, 30 House members, including seven Democrats, wrote that the exceptions, which they called "flawed letter rulings," have hurt US maritime and shipyard industries.

    "The CBP action restores the integrity and intent of the Jones Act in the offshore maritime industry, and will create American jobs and opportunities to the benefit of our national and economic security," the House members wrote.

    The Obama administration initially proposed ending Jones Act exemptions in 2009, but faced opposition, including within the administration, and apparently delayed the effort until January 18.
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    Alternative Energy

    E.ON invests in airborne wind project

    E.ON is investing in the development of airborne wind energy, which it says offer “game-changing technologies for renewable energy production”.

    Airborne wind technology harvests wind energy by using a fixed wing or sail in altitudes up to 450 metres. E.ON said that the technology “has the potential to transform the global offshore wind generation market, as airborne wind devices are cheaper to manufacture and easier to maintain than conventional wind turbines”.

    It added that they are also easier to deploy in deeper waters surrounding countries such as Portugal, Japan and the US.

    The German company has committed to invest in the development, and if successful, construction and operation of a demonstration site in County Mayo in Ireland.

    It has also signed a collaboration agreement with Dutch company Ampyx Power to be the first user of the upcoming test site.

    Founded in 2009, Ampyx develops fixed-wing airborne wind systems for deployment in utility scale wind parks and plans to utilize its initial 2 MW product to repower first-generation offshore wind farms which were built in the early 2000’s.

    “Airborne wind supports one of our overall targets to drive down cost for renewable energy,” said Anja-Isabel Dotzenrath, chief executive of E.ON Climate & Renewables.

    “In addition to making airborne wind competitive to conventional wind power, we would like to work with authorities and legislators to pave the way for introducing this exciting technology and eventually make it eligible to participate in tendering processes.”

    Ampyx managing director Wolbert Allaart said the deal with E.ON was “a major milestone for our company. It is fundamental for us as it allows us to incorporate E.ON’s vast offshore wind expertise into our product design efforts.”

    E.ON is already active in the airborne wind sector – last year it invested in Scottish start-up Kite Power Systems.
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    Precious Metals

    China's Fosun plans to buy stake in Russia's Polyus: Interfax

    China's Fosun International Ltd plans to sign an agreement to buy a stake in Russia's largest gold producer Polyus (PLZL.MM), Interfax news agency quoted Russian First Deputy Prime Minister Igor Shuvalov as saying on Wednesday.

    He did not provide further details on the deal. Sources with knowledge of the matter told Reuters in November that Fosun was in exclusive talks to buy a large minority stake in Polyus.

    Shuvalov also said that aluminium giant Rusal could soon announce the placement of the second tranche of its Chinese yuan-denominated bond, known as a Panda bond. Rusal placed its first tranche of the Panda bond in March.
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    Base Metals

    S&P Global Ratings raises copper, aluminium price forecasts

    S&P Global Ratings has raised its 2017-2018 forecasts for copper and aluminium due to production curtailments, steady industrial demand and continued Chinese growth seen so far this year.

    S&P Ratings analysts now expect aluminium to average $1,800/mt for the rest of 2017 and $1,800 in 2018 compared with $1,650 and $1,650, respectively.

    Copper is expected to average $5,500 for the rest of 2017 and $5,500 for 2018, compared with earlier forecasts of $5,070 and $5,290, respectively. "Steady gains in aluminium, copper, and iron ore prices that started in late 2016 have continued for the most part," S&P Ratings analysts noted in a report released last Monday.

    "In our view, this reflects a combination of improved supply conditions, notably production curtailment in China and strikes in Chile, amid steady growth in industrial demand," they said.

    "Despite market concerns related to a slowing Chinese economy, we believe consumption will increase to an extent that should support currently favourable commodity prices generally in line with our assumptions."

    The aluminium forecast revision was based in part on the Chinese government's plan to curtail supply by reducing aluminium and alumina processing capacity to minimize air pollution.

    "We also continue to expect that demand for aluminium will remain healthy and increase in the low- to mid-single digits over the next 12 to 24 months," S&P Ratings analysts said. "We expect a slight price decline from currently high levels (close to $2,000/mt), primarily based on our expectation for a modest global surplus of aluminum in 2017. However, our expectation for relatively balanced market conditions beyond this year underpins our price assumptions through 2019."

    Recent trade actions brought by the World Trade Organization on behalf of the US Trade Representative over illegal Chinese subsidies and petitions in March from the US Commerce Department and the Aluminum Association for anti-dumping duties may further support prices, S&P Ratings analysts said.

    The revision of the copper price forecast was based expectations for continued robust demand in Asia, coupled with a tighter supply scenario, analysts added.

    "Our estimates indicate a deficit scenario becoming more evident toward 2019, so we are assuming an upward sloping [price] curve," they said.

    Gold prices are likely to average $1,200/oz through 2019, unchanged from previous forecasts.

    "In our view, gold prices are likely to maintain an inverse correlation with US interest-rate expectations. Our forecast for gradual interest-rate increases and the continued relative strength of the US dollar underpin our subdued average gold price assumptions over the next several years," the analysts said.

    But heightened geo-political tensions and global market uncertainty could increase demand for gold, thereby mitigating downward price pressure, they added.
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    Water scarcity, pollution to take shine off Latin American mining sector

    Water supply concerns and pollution in Latin America will drive increasingly strict environmental regulations in the region over the coming years, which in turn will also make miners’ life more difficult, a report by BMI Research shows.

    According to the analysts, in addition to raising costs for mining companies and delaying certain projects, the focus on the amount of water used by the extraction industry will heightened social pressure on firms operating in the area.

    A recent example of this trend is what happened in El Salvador, which last month passed a law that bans all mining for gold and other metals in the country, in an effort to protect its environment, particularly its water streams.

    BMI expects the usage and treatment of water in the mining industry to come under increasing scrutiny in Latin America, as droughts or arid environments in key regions heighten tension between miners and local communities and previous incidents lead to additional regulations.

    The researchers name Chile, Argentina and countries in Central America as the most likely to enforce stricter water regulations due to scarcity, contamination or a combination of both issues:

    In Chile, the environmental regulatory body (SMA) has been more aggressively pursuing and fining water mismanagement in the mining sector, levelling charges against Antofagasta Minerals' Los Pelambres copper mine and effectively suspending Kinross Gold's Maricunga gold mine in 2016.

    In Argentina, Barrick Gold paid a $9.8mn fine for a cyanide spill at the Veladero gold mine in 2016, agreeing to increase water monitoring at the operation in res ponse. In March, a provincial government suspended operations at the mine due to a pipeline issue and, in April, Barrick announced the sale of a 50% stake in the Veladero mine to Chinese firm Shangdong Gold Group for $9.6mn.

    In Brazil, following the 2015 tailings dam burst at the Samarco iron ore mine which killed nearly 20 people and polluted hundreds of miles of rivers, parent firms Vale and BHP Billiton face a $50bn lawsuit for damages. In March, a Brazilian judge suspended the lawsuit as the firms negotiate with prosecutors.

    Tighter regulations will come at a time when illegal gold mining is once again picking up in the region on the back improving prices for the yellow metal. Generally, these kinds of miners not only don’t abide by environmental regulations, but also use mercury to isolate small amounts of gold, polluting rivers and streams and eventually impacting the health of local communities.

    “When the negative externalities of gold mining, namely mercury and cyanide exposure to water sources, are left unaddressed, public opinion on all mining activity can motivate extreme legislation,” BMI concludes.
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    Scrap merchants' dwindling stocks to help narrow cash copper discount

    Seasonally stronger copper demand in top consumer China and dwindling stocks of scrap are expected to narrow the discount between metal for nearby delivery against the three-month contract, which hit a four-year high this week.

    The discount or contango for the cash copper contract against the three-month forward on the London Metal Exchange jumped to $35.25 a tonne MCU0-3 this month, matching the high hit in June 2013. It closed at $27.25 on Tuesday compared with a $3 premium in January.

    "As second-quarter physical buying gets underway the contango will decline," Societe Generale analyst Robin Bhar said. "Copper rallied because people were worried about supply disruptions, it saw scrap dealers around the world sell inventory, the bulk of which has probably already come through."

    China is the world's largest consumer, accounting for nearly half of global demand estimated at more than 23 million tonnes this year. Chinese demand typically rises in the second quarter ahead of the summer months when construction and industrial activity picks up.

    The trigger for scrap dealers to release stocks was higher benchmark copper prices, which climbed above $6,200 in February, the highest since March 2015 and a gain of nearly 30 percent since November last year.

    Citi analyst David Wilson expects scrap supplies to increase by one million tonnes this year relative to 2016, overwhelming losses of around 385,000 tonnes from disruptions at mines.

    "We expect the rate of scrap flow to slow into the second half of the year, as scrap inventories at merchants are drawn," Wilson said, adding that disruptions could cut mine supply by around 7 percent this year.

    That is above the 5 percent analysts typically assume.

    Disruptions include strikes in Chile at BHP Billiton's Escondida, the world's largest copper mine, and in Peru at Cerro Verde.

    In Indonesia, production at Freeport-McMoRan's giant Grasberg mine in Papua fell after the government banned copper concentrate exports on Jan. 12, part of an effort to boost the local smelter industry.

    These problems gave the impression of bottlenecks and supply shortages, but there was no shortage of concentrate for smelters, Aurubis, Europe's largest copper producer, said in a newsletter.

    "There were large amounts of cathode that suddenly appeared on the official warehousing system," it said.

    Stocks of copper in LME-approved warehouses rose more than 70 percent to above 340,000 tonnes in the first half of March but have since fallen more than 30 percent to below 260,000 tonnes. They are expected to fall further as demand strengthens over the next three months.
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    Indonesia eyes truce with Freeport as losses mount for both sides

    Losses amounting to hundreds of millions of dollars appear to be pushing the Indonesian government and mining giant Freeport McMoRan to resolve a row that has crippled operations at Grasberg, the world's richest copper mine, for three months.

    Freeport says it has lost revenue of about $1 billion since the export of copper concentrate from Grasberg was halted on Jan. 12 under new rules issued by the government. The government has lost millions of dollars in royalties and is worried about layoffs and a slowing economy in the restive Papua region, where the giant mine is located.

    "There's a lot of grandstanding in public – that, with our economy being close to a $1 trillion a year now, Freeport is a small matter," said a senior Indonesian government official, who estimated the lost royalties and taxes from the mine at about $1 billion a year.

    "But truth be told, a $1 billion a year reduction in fiscal revenue is a lot," said the official, who spoke on condition of anonymity.

    Indonesia halted Freeport's copper concentrate exports under new rules that require the Phoenix, Arizona-based company to adopt a special license, pay new taxes and royalties, divest a 51 percent stake in its operations and relinquish arbitration rights.

    Freeport threatened in February to take the dispute to arbitration, saying the rules were "in effect a form of expropriation".

    But now, Indonesia has promised to allow Freeport to export its copper concentrate once again, while negotiations continue over the next six months on contentious issues, including on divestment, economic and legal protection and smelting investment.

    The compromise comes ahead of a visit to Indonesia by U.S. Vice President Mike Spence next week. Pressure to resolve the row could also come from Freeport's third-biggest shareholder, activist investor Carl Icahn, who has been appointed a special adviser to President Donald Trump.

    For Indonesia, tensions at Grasberg could hamper its efforts to calm the Papua region, where a low-level insurgency has simmered for decades. The mine's social and environmental footprint also remains a source of friction.

    Papua's GDP growth is expected to drop to 3 percent this year due to the Freeport dispute, down from 9.21 percent in 2016, according to the Papua branch of Indonesia's central bank.

    A slump in Papua's economy could aggravate tensions with Jakarta, complicating efforts by President Joko Widodo to enforce policies to extract more from its natural resources.

    "When there is a crisis at Freeport, it will send major ripples through Papuan society," said Achmad Sukarsono, an Indonesian expert at the Eurasia consultancy.


    In Timika, a sprawling town of around 250,000 people and a supply hub for Grasberg, the Freeport dispute has hit businesses, caused a slump in house prices and stalled credit, residents say.

    Mastael Arobi, who owns a car rental business there, has cut his fleet by two-thirds because of slow business and is worried about the interest he pays on loans.

    "We are half-dead thinking about repayments," he said.

    Transport operators in Timika had similar complaints, with a motorcycle taxi driver saying it was hard to make even a third of the up to 300,000 rupiah ($22.50) he used to make each day.

    "Since these furloughs and layoffs began we have stopped providing credit to Freeport workers," said Joko Supriyono, a regional manager at Bank Papua in Timika, who said ATM transactions had declined by around two-thirds since January.

    Freeport, which employs more than 32,000 staff and contractors in Indonesia, has now "demobilised" just over 10 percent of its workforce, a number expected to grow until the dispute is resolved.

    Persipura, the main soccer club in Papua and one of Indonesia's most decorated teams, announced last month that Freeport, its top sponsor, had stopped its funding.

    Indonesian Vice President Jusuf Kalla said in a recent interview that while he did not anticipate political pressure, Washington should not politicize the Freeport issue.

    Another Indonesian government official said moves to allow Freeport to export temporarily were aimed at showing that the government is willing to find a solution, and to send a positive message, especially to foreign investors, who are watching the saga closely.

    "We are not changing our stance. Our basic stance on 51 percent divestment, our demand for smelters - all that is still there. But in negotiations, you should give a little to assure the other side that we are still open to some options," said the official.

    The two sides had opted for a temporary solution to break a deadlock in issues that "cannot be resolved quickly," said Bambang Gatot, Director General of Coal and Minerals in the mining ministry,

    A spokesman for Freeport Indonesia declined to comment on the warming ties with the government.

    A senior Freeport McMoRan executive said last week the company was awaiting details of a temporary export permit from the Indonesian government that would allow it to ramp up production.
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    Rio ponders future in Indonesia's Grasberg copper mine

    Diversified miner Rio Tinto Plc said on Wednesday it was continuing talks on the long-term future of its stake in the Grasberg copper mine in Indonesia and one of its top executives would visit the country for talks over the coming weeks.

    Mine operator Freeport McMoRan's exports of copper concentrate from Grasberg, the world's richest copper mine, have been at a standstill since mid-January, when Indonesia introduced rules intended to improve revenues from its resources and create jobs.

    "There is no doubt that Grasberg is a world-class resource. However, there's a difference between a world-class resource and a world-class business," Rio Tinto Chief Executive Jean-Sebastien Jacques said on Wednesday, responding to a shareholder at the company's annual general meeting in London.

    "Depending what will happen in the coming months and years in terms of negotiations with the government, the extension beyond 2021, Rio will have to come to a conclusion whether we want to stay or not," Jacques said, adding discussions involving all parties would continue over the next six months.

    Rio Tinto has a joint-venture with Freeport-McMoRan Inc for the huge Grasberg copper and gold complex in remote Papua, with rights to 40 percent of production above specific levels until 2021 and 40 percent of all production after 2021.

    As pressure mounts on Indonesia to agree a compromise U.S. Vice President Mike Pence will visit the country next week and Arnaud Soirat, head of Rio Tinto's copper and diamonds business, will visit shortly afterwards, Rio officials said.

    Freeport McMoRan, the biggest publicly-listed copper miner, has lost $1 billion since the export of copper concentrate from Grasberg was halted on Jan. 12 under new rules issued by the government.

    The Indonesian government has lost millions of dollars in royalties and is worried about layoffs and a slowing economy in the restive Papua region.
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    Lead price boost as deficits set to widen

    Lead's rally from multi-year lows hit November 2015 were on the back of major zinc-lead mine shutdowns and strong demand from the automotive sector, responsible for the bulk of demand.

    A new report from BMI Research says positives for the market will largely stay in place leading to a widening albeit relatively small market deficit through 2021.

    BMI, a unit of rating agency Fitch, forecasts the lead market will be minimally undersupplied this year the back of persistent supply cuts and growing demand from second-tier consumer countries but the shortfall could quadruple to 70,000 tonnes in 2021.

    Mined lead production will continue to feel the effects of a global slowdown in mining capital expenditure, which will have a knock-on effect on refined lead supply.

    China produces nearly half the world's mined lead and is responsible for some 40% of global refined lead output. The country's production of refined lead will stagnate on the back of Beijing's pollution clampdown on heavy industry and growth will be muted at best elsewhere. China's imports of lead was up threefold last year and will slow going forward, but an increasing refined deficit will support import levels.

    Tightening conditions are already evident with LME warehouse stocks falling by 10% over the past month

    Thanks to high recycling rates (lead's main application is in batteries and in the US for instance recycling rates are close to 100%) mining makes up less than half of annual global supply.

    On the demand side Chinese lead consumption growth of 11% in 2016 will slow dramatically as its red hot auto market cools, but India will take up some of the slack with growth rates in high single digits for the next five years.

    BMI's autos team forecasts a slowdown in vehicle production growth in China from 13.4% in 2016 to an average of 5.9% from 2017–2021, providing support to lead demand. Globally vehicle output is also projected to expand from an annual average of 2.8% from 2012–2016 up to 2.9% during 2017–2021.

    The global stocks-to-use ratio will gradually decline from 5.7% in 2017 to 3.6% in 2021 says BMI.

    Tightening conditions are already evident this year with LME warehouse stocks falling by 10% over the past month. Lead was drifting lower on Tuesday at $2,253 a tonne ($1,022 a pound), but the metal is holding onto year to date gains of 13.6%.
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    Steel, Iron Ore and Coal

    Russia Q1 coal output and exports climb YoY

    Coal-rich Russia produced 99.35 million tonnes of coal in the first quarter of this year, a year-on-year rise of 3.63%, showed data from the Energy Ministry of Russian Federation.

    Its coal output in March gained 3.28% from February and 3.91% from the year-ago level to 33.36 million tonnes, data showed.

    Over January-March, the country's coal exports stood at 43.59 million tonnes, up 16.73% from the year prior.

    In March, its coal exports were 15.49 million tonnes, increasing 18.28% year on year and up 13.67% month on month.

    Attached Files
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    China orders miners, utilities to sign more long-term coal deals to ease price pain

    China's embattled power companies may receive a long-sought reprieve from rising coal prices after the country's state planner ordered miners to increase the share of supplies sold through lower-priced long-term contracts.

    The National Development and Reform Commission (NDRC), in an April 7 document, ordered coal companies and utilities to fix 75 percent of their total coal purchases through long-term contracts by April 30, up from the current 60 percent, three power utility officials who received the notice said this week.

    Chinese thermal coal futures have rallied nearly 25 percent this year, hitting a record high of 648.60 yuan ($94.11) per tonne in March. Prices are surging on falling domestic supply as China's government clamped down on illegal mining and required miners to shut production as way to combat pollution and overcapacity.

    Requiring miners to commit to larger long-term volumes would reduce costs for China's electric utilities, which have suffered mounting losses in recent months as coal prices have climbed.

    For the miners, the results are more mixed. Shifting to long-term contracts, they will sell less supply at higher spot prices. However, they do lock in sales for a majority of their output near the high prices and gain firm outlets for their supply.

    "We would love to sign more long-term contracts with utilities, but the problem is coal producers do not have enough supply to sign with us," a senior manager with China Datang Group told Reuters.

    "The utilities sector has turned unprofitable since October 2016. We expect power companies to make a total loss of more than 100 bln yuan due to the high cost of coal," he said.

    Another source at China's Huaneng Group said they have arranged meetings with coal miners, trying to secure more supply before the NDRC deadline.

    Following a surge in coal prices last year, Beijing capped long-term thermal coal prices at 535 yuan per tonne for big utilities from Dec. 1 - well below the spot market at the time. Long-term contract prices were then adjusted gradually every month, but remain at a 40 yuan per tonne discount to current spot prices.


    In the document reviewed by Reuters, the NDRC said it will penalize any suppliers or utilities who do not comply with the deal terms.

    Coal producers that default on more than 10 percent of supplies for a contract and do not have at least 75 percent of their sales through long-term contracts by April 30 will be charged higher power prices.

    Power companies that fail to take more than 10 percent of their contracted supply under a long-term contract and do not secure 75 percent of their supply on a long-term basis will receive lower subsidies on power prices.

    In addition, power companies that fail to reach the target will be restricted in the direct power trading scheme.

    The NDRC did not reply to Reuters inquiry for comments.

    Spot coal prices for delivery to the Chinese port of Qinhuangdao were $102.20 a tonne on April 3, according to reporting service McCloskey.
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    Shaanxi Coal Industry predicts Q1 net profit at 2.3-2.7 bln yuan

    Shaanxi Coal Industry Co., Ltd., a major coal company in northwestern China, expects to gain a net profit of 2.3-2.7 billion yuan ($333.3-391.3 million) in the first quarter of 2017, compared with a loss of 38.84 million yuan during the same period last year, the company said in a statement late April 11.

    The improved earnings were mainly attributed to coal price rallies amid de-capacity drive, asset restructuring and management enhancement last year.

    In April last year, the company disposed high-cost and unprofitable coal mines, and purchased a newly-built coal mine in Wenjiapo, optimizing its asset structure.

    Shaanxi Coal Industry predicted a net profit of 2.5-3 billion yuan last year, compared with a loss of 2.99 billion yuan a year earlier.
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    Shanxi coking coal prices supported by supply tightness, survey shows

    Coking coal prices were underpinned by tight supply in Shanxi, one key production base in China, showed a survey organized by and Liulin Chamber of Commerce.

    "We have no stocks of raw and washed coking coal," said a large producer in Liulin, Shanxi. "We mainly sell coal to end-user customers including Taiyuan Iron and Steel Group and Baotou Iron and Steel Group, but they are cash-strapped."

    The source said his company planned to tap market in Rizhao, Shandong this year through Wari (Watang, Shanxi – Rizhao, Shandong) railway.

    The head of Liulin Chamber of Commerce said sales of primary coking coal were satisfactory in Liulin, as supply lagged behind demand.

    Local coal authority conducted inspection and ordered unqualified mines to halt production for rectification, which may affect local coking coal supply.

    Coal mines in Liulin have maintained slow production since last year and mainly focused on ensuring safe and stable production.

    Local coal washing plants were little impacted by environment check, and 26 independent coal washing plants have all passed the check.

    Some steel producers have increased buying of Mongolian primary coking coal while reducing that of Liulin primary coking coal since early this year. Reportedly Baotou Iron and Steel Group has slashed purchase of Liulin low-sulfur primary coking coal by 20 yuan/t since March.

    One miner in Liulin said his mine was safety-compliant and maintained normal production despite safety check. Coking coal prices may be rising in the short run, but in the long term the outlook remains gloomy.

    Recent cyclone in Australia caused a supply shortage in the international market, also boosting market confidence in China. And an improving coke market also indicated continued demand for coking coal.

    Under strict environment check, coke producers in Xiaoyi, Shanxi limited production by 30%, and those in Zibo and Heze kept operating rate at 50-60%. As coke supply is seen to shrink further, an upturn could be expected in coke market across China.

    The Fenwei CCI Met index assessed ex-washplant price of Liulin low-sulfur primary coking coal at 1,360 yuan/t with VAT on April 11, stable week on week; and that of Liulin high-sulfur at 1,145 yuan/t on the same day, up 5 yuan/t over the week.
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    India's Tata Power to seek coal from countries other than Indonesia after court order

    Indian private sector power producer Tata Power will consider sourcing coal from countries other than Indonesia, to address under recovery at its imported coal based 4,000 MW ultra mega power plant at Mundra, in western India's Gujarat state, the company said Tuesday.

    The Supreme Court of India set aside the previous favorable order of the Appellate Tribunal of Electricity, which had allowed compensatory tariff on account of force majeure conditions in Indonesia, Tata Power said in a regulatory filing to Bombay Stock Exchange.

    The company will continue to pursue all alternatives at Coastal Gujarat Power Limited -- a subsidiary of Tata Power that owns the Mundra UMPP -- including sourcing of competitive coal from other relevant geographies that also use low grade and blended coal options, to contain the onslaught of under recovery at Mundra UMPP, Tata Power said.

    Private power producers like Tata Power, Adani Power and Reliance Power had acquired coal assets in Indonesia to fire their thermal power plants in India.

    In 2010, the Indonesian government changed the law by making coal exports expensive for these companies.

    This impacted financial viability of the power plants operated by them because the electricity procurers -- state electricity boards -- were not willing to pay higher prices when the power producers increased the tariffs to offset high Indonesian coal prices.

    Last year, the Appellate Tribunal for Electricity justified the hike in tariffs by the power producers in view of the change in regulation in Indonesia, and ordered electricity procurers to pay compensatory tariff for the 4,000 MW Mundra UMPP to offset escalation in the price of imported coal.

    The power procurers then went to the Supreme Court against this and disallowed Tata Power from charging compensatory tariff.

    The apex court ruling is applicable to Adani Power too, for its 4,600 MW imported coal based plant at Mundra.

    Adani Power said in a statement Tuesday that the Supreme Court didn't grant relief for the increase in coal cost due to the change in the Indonesian regulation. The company would decide further course of action after going through the final order, Adani Power said.

    From April 2016-February 2017, Adani Power imported around 14.5 million mt of imported coal while Tata's Mundra UMPP imported around 9.9 million mt, according to Central Electricity Authority data.
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    Whitehaven says Australia cyclone outages to hit coking coal prices for months

    Australia's Whitehaven Coal Ltd said on Thursday that coking coal prices would remain high for months as supply disruptions since Cyclone Debbie damaged train lines and interrupted exports reverberate through markets.

    Whitehaven, whose mines about 1,300 km (800 miles) south of the cyclone's path have been unaffected by the rail stoppages, also plans to boost its own coking coal sales next quarter as exporters further north grapple with stalled operations.

    Five miners in the cyclone-hit region, including BHP Billiton and Glencore have declared force majeure - a clause typically invoked after natural disasters - since multiple landslides and flooding knocked out major coal rail networks.

    Railway operator Aurizon is gradually returning some tracks to service. Its Blackwater line resumed operations on Monday and its Newlands line is expected to open on Thursday.

    However, with the busiest Goonyella line further north closed until May, the disruption caused by the cyclone could lead to the potential loss of 15 million tonnes of coking and thermal coal exports from Australia, Whitehaven said in a statement on Thursday.

    "This loss of exports is likely to be positive for coal prices until normal production and shipments resume and any contract delivery shortfall recovered, which could take some months," the company said.

    Coking coal prices this month posted the biggest one-day surge on record as the rail outages blocked up to half the world's export shipments. Spot prices on the Dalian Commodity Exchange, jumped more than 7 percent and Australian coking coal futures on the Singapore Exchange leapt 43 percent on news of the disruptions.

    Whitehaven said customer requests for coking coal "increased substantially" since the storm and that the company expected to boost coking coal sales next quarter.

    Whitehaven said it produced 5.7 million tonnes of coal for the quarter and affirmed its full-year production guidance of 21 to 22 million tonnes.
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    China March iron ore imports surge to second-highest ever

    China's March iron ore imports rose 11 percent from the same month a year earlier to the second-highest monthly amount on record as the world's second-biggest economy ramped up a drive for cheap overseas supply as the cost of domestic output grew.

    Imports last month were 95.56 million tonnes, according to data from the General Administration of Customs on Thursday - a fraction below the monthly record of 96.27 million tonnes imported in December 2015.

    For the first quarter of the year, imports grew 12 percent to 271 million tonnes, customs said. That is a quarterly record.

    "We have seen the follow-through on new supply coming on to the market in seaborne iron ore, and there is still more supply to come, which will replace higher cost (Chinese) production," said Nev Power, chief executive of Australia's Fortescue Metals Group, the world's fourth-largest exporter of iron ore.

    "Imported iron ore to China will continue at the levels we are seeing now, or perhaps even grow as we go forward," said Power, when asked about the data during a media call on Fortescue's quarterly production.

    Imports of industrial metals also surged in March as Chinese businesses stocked up on supply ahead of a seasonally strong period for manufacturing.

    China imported 430,000 tonnes of copper and semi-manufactured copper products in March, the highest since March 2016, and up 27 percent from a month ago, the data showed. Strong imports are expected to continue through April as manufacturing business keep machinery humming at a brisk pace.

    For the first quarter as a whole, though, copper imports were down 20 percent from a year ago at 1.15 million tonnes.

    "We have been seeing exchange inventories going down, so we are not surprised about the March import recovery," said Helen Lau, an analyst at Argonaut Securities.

    "For fabricators, perhaps they are looking at the short supply of copper concentrate, and choosing to import more metal now. For sure, this trend will extend into April but for May we will need to wait and see."

    Meanwhile China's aluminium products exports surged to 410,000 tonnes from 260,000 tonnes in February.
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    U.S. raises duties on South Korean oil tubing, cites steel subsidies

    The U.S. Commerce Department said on Tuesday that it increased anti-dumping duties on oil and gas drilling pipes from South Korea, applying new legal tools that allow for more comprehensive calculations of foreign cost distortions.

    Following an administrative review, the department lifted duties on oil country tubular goods to a range of 2.76 percent to 24.9 percent from a previous range of about 4 percent to 6.5 percent.

    The decision was the first to be made under a provision of the Trade Preferences Extension Act of 2015 that allows the Commerce Department to consider a "particular market situation" such as foreign subsidies for raw materials.

    In the case of the South Korean oil country tubular goods, that included not only cost calculations for the production of the pipes, but price distortions for the hot-rolled steel used in the pipes that are caused by subsidized electricity.

    "We will not stand for the distortions in foreign markets being used against U.S. businesses," Commerce Secretary Wilbur Ross said in a statement.

    "The Trump administration will continue to employ all of the tools provided under the law to take swift action against harm full trade practices from foreign nations."

    Imports of the oil country tubular goods, used for drilling, extraction and transport of oil and natural gas, were estimated at $1.1 billion from South Korea from July 2014 to August 2015, accounting for 25 percent of all imports in that category, the Commerce Department said.

    A slump in drilling activity and a glut of steel pipe imports idled several American steel mills in 2015, including U.S. Steel's Granite City, Illinois, plant, where some 2,000 workers were laid off.

    U.S. Steel and other American producers that first brought the case argued that since the Commerce Department had already issued anti-subsidy duties against Korean hot-rolled steel, the dumping margins for the drilling pipes should be adjusted upward to account for this.
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