Mark Latham Commodity Equity Intelligence Service

Tuesday 21st February 2017
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    China to shed 50 Mtpa coal capacity, boost clean energy in 2017

    China plans to shut down at least 500 outdated coal mines and use more clean fuel in 2017, the country's top energy watchdog said on February 17.

    The closure of outdated coal mines should lead to a capacity reduction of 50 million tonnes per annum (Mtpa), according to guidelines released by the National Energy Administration (NEA).

    The capacity-target was 80% lower than that of 250 Mtpa for 2016.

    China has a total coal capacity of over 5 billion tonnes per annum, and 300 Mtpa was actually eliminated last year.

    Despite lower target, China may be confronted with greater difficulty in the de-capacity move this year, as the work will more be focused on shutting of operational mines instead of dormant mines dealt with last year, said Jiang Zhimin, deputy head of China National Coal Association, adding the problem of staff resettlement will also be prominent.

    Meanwhile, the guidelines targeted 3.65 billion tonnes of coal output for 2017, a year-on-year growth of 5.8%, noting that coal should account for about 60% of China's total energy consumption. The proportion stood at 64% in 2015.

    China saw its coal output fall for the third consecutive year to 3.36 billion tonnes in 2016, owing to shrinking demand.

    The world's largest coal producer and consumer is now committed to slashing coal capacity as excessive supply weighs on its economy and smog pollutes big cities.

    The guidelines also set goals of capping national energy consumption at around 4.4 billion tonnes of coal equivalent and reducing energy use per unit of GDP by 5%.

    The NEA said the ratio of non-fossil energy use to the total consumption should rise to about 14.3%, up from 13.3% in 2016.

    It specified plans to build more hydropower, wind power and solar power plants this year.

    For nuclear power, 6.41 million KW of installed capacity will be added through the completion of new projects, the NEA said.

    The Chinese government aims to reduce the share of coal in the country's energy mix to 58% by 2020 and increase the share of non-fossil fuels to over 15%.
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    China to start construction on 35 railway projects: report

    It is full steam ahead for China's railway sector asconstruction on 35 new railway projects will start in 2017 as the country plans to expandthe network, according to a recent report in Xinhua-run Economic Information Daily.

    Construction will begin on 2,100 km of new rail line, 2,500 km of double-track lines and 4,000 km of electrified railways this year, the report cited unnamed authorities as saying.

    To achieve the targets, China Railway Corp. (CRC) has been assigned a budget of 800 billion yuan (116.8 billion U.S. dollars) by the central government, the same as in 2016.

    The vice minister of transport, Yang Yudong, disclosed earlier that China will spend 3.5 trillion yuan on railway construction during the 13th Five-Year Plan period (2016-2020).

    By 2020, China will have increased the length of high-speed railways in operation to 30,000 kilometers, connecting more than 80 percent of its big cities.

    By the end of 2016, China had a 124,000 km railway network, featuring the world's largesthigh-speed rail network of more than 22,000 km.

    While the vast network has enhanced connectivity in large swathes of the country, construction lags behind in the less developed western regions. The government wants toaddress this gap.

    Much of this year's construction projects will happen in China's central and western regions, to support the wider poverty-relief campaign, according to CRC.
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    Senate frets on Ryan plan

    Republican hopes for an ambitious tax overhaul rest on the House and Senate wings of the party ultimately reaching consensus on what that looks like. So far at least, signs aren’t promising.
    South Carolina’s Lindsey Graham Sunday noted the large number of senators uneasy about the tax plan emerging at the other end of the Capitol.

    Border adjustment tax is on 'life support,' and tax reform may come later ... and with less punch
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    BHP Billiton boosts interim dividend as iron ore prices soar

    Mining giant BHP Billiton rewarded shareholders with a bigger than expected dividend on Tuesday, signalling its growing confidence amid a resurgence in commodity prices.

    The world's biggest miner reported a near eight-fold rise in underlying first-half net profit to $3.24 billion from $412 million a year earlier, just missing market forecasts for $3.4 billion. It declared a first-half dividend of 40 cents, up from 16 cents a year ago.

    "This is a strong result that follows several years of a considered and deliberate approach to improve productivity and redesign our portfolio and operating model," Chief Executive Andrew Mackenzie said in a statement.
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    Oil and Gas

    Russia Overtakes Saudi Arabia as World's Top Crude Producer

    Saudis lose No. 1 spot for 1st time since March: official data
    U.S. ranked No. 3 with output of 8.8 million barrels a day

    Russia overtook Saudi Arabia as the world’s largest crude producer in December, when both countries started restricting supplies ahead of agreed cuts with other global producers to curb the worst glut in decades.

    Russia pumped 10.49 million barrels a day in December, down 29,000 barrels a day from November, while Saudi Arabia’s output declined to 10.46 million barrels a day from 10.72 million barrels a day in November, according to data published Monday on the website of the Joint Organisations Data Initiative in Riyadh. That was the first time Russia beat Saudi Arabia since March.

    Saudi Arabia and fellow producers from the Organization of Petroleum Exporting Countries decided at the end of November to restrict supplies by 1.2 million barrels a day for six months starting Jan. 1, with Saudi Arabia instrumental in the plan. Non-member producers, including Russia, pledged additional curbs. Brent crude prices have climbed about 20 percent since the end of November.

    The U.S. was the third-largest producer, at 8.8 million barrels a day in December compared with 8.9 million barrels a day in November, according to JODI. Iraq came in fourth at 4.5 million barrels a day, followed by China at 3.98 million barrels a day, the data show.

    Saudi Arabia’s crude exports declined to 8 million barrels a day in December, from 8.26 million barrels a day, the biggest outflow for any month since May 2003, according to JODI data.
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    Asian LNG prices continue to fall

    According to the latest Reuters report, Asian spot LNG prices fell for a sixth consecutive week as a series of sell tenders launched this week are seen offering supplies into a market with thin demand following a warmer-than-expected winter in North Asia.

    Spot prices for LNG for April delivery were pegged at around US$6.40 per million British thermal units, approximately 50 cents below last week's levels.

    Falling prices at Britain's gas trading hub, National Balancing Point (NBP), have dashed expectations of an influx of shipments heading to Europe, leaving more for other regions.

    Import tenders from India's Gail, Thailand's PTT and Argentina's Enarsa have done little to counter the supplies offered by Russia, Angola and Abu Dhabi this week.

    Russia's Sakhalin II LNG project issued two tenders to sell a combined nine shipments loading in 2017/2018 this week. The first tender offers three cargoes for loading on 23, 26 and 29 April, while the second tender is offering cargoes for loading between May and March next year.
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    Iran finds 2 billion barrels shale oil reserves in western province: agency

    Iran has found shale oil reserves of 2 billion barrels of light crude in its western Lorestan province, a senior official at the state-run National Iranian Oil Company (NIOC) was quoted as saying on Saturday.

    "Based on studies, it is estimated that the shale oil reserves in Ghali Koh in Lorestan amount to 2 billion barrels of oil in place,” Bahman Soleimani, NIOC’s deputy director for exploration, told the semi-official news agency Tasnim. "The oil is light."

    Soleimani said exploration was also being carried out for shale gas reserves in the area, and the studies were expected to be completed by October, 2017.

    Iran's proven oil reserves of about 160 billion barrels, almost 10 percent of the world's total, rank it fourth among petroleum-rich countries.

    Attached Files
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    Japan readies for LNG bunkering as marine industry turns to cleaner fuels

    Japan, the world's largest LNG importer and accounting for about 35% of global demand, is set to play a significant role in LNG bunkering as the marine industry turns to cleaner fuel options to comply with stricter environmental regulations.

    In October 2016, the International Maritime Organization decided to cut global sulfur emission limits for marine fuels from 3.5% to 0.5% by 2020.

    Currently, the demand for heavy fuel oils as marine fuel is about 250 million mt/year. Ship operators will have to switch to cleaner, more expensive fuels or invest in emissions cleaning systems. LNG is another option.

    Major impediments to the widespread adoption of LNG bunkering have been high infrastructure costs, lack of sufficient enforcement as well as current low crude oil prices.

    Another problem is matching the expectations of the buyers and sellers. While sellers are keen to lock in long-term contracts, ship operators, who are already facing challenging market conditions, prefer to buy spot cargoes.

    LNG could be a viable and cheaper alternative as the price for middle distillates rises, sources said.

    Besides tackling sulfur emissions, LNG addresses other environmental aspects too.

    It has no detectable sulfur, and LNG-fueled vessels emit lower particle and nitrogen oxide than those using marine fuels.

    "The volume of fuel oil bunkering, which has to be replaced by low sulfur fuel oil is huge. It is 2 million b/d. Almost equal to... or a little bit less than Iran's oil production. But it is huge. How can it be replaced in three years?" Fereidun Fesharaki, chairman of Facts Global Energy, said at an energy event in Tokyo last week.

    Blending diesel and fuel oil to create 5,000 ppm sulfur fuel was extremely difficult, he said, adding that compliance would be impossible.

    "Not in 2020, not in 2023, 2024, 2025. In that process, there will be more LNG bunkering definitely ... it is a very, very big challenge," Fesharaki said.

    Demand from LNG will also be boosted by the lower prices of natural gas in the future, Robin Meech, managing director at Marine & Energy Consulting, said, adding that global annual demand for LNG bunkers could rise from less than 1 million mt currently to as high as 8 million mt by 2025.


    Japan carried out a feasibility study for the development of an LNG bunkering hub at the port of Yokohama, on the Pacific side as it serves as a bunkering base on the Asian side of the Pacific route.

    A report by Japan's Ministry of Land, Infrastructure, Transport, and Tourism in December set a three-phase road map for the development of an LNG bunkering base.

    According to the report, Phase I has already started with the introduction of truck-to-ship bunkering.

    "The optimization has been realized since November 2016," the report said. Phase II comprises ship-to-ship bunkering by using the LNG terminal in Tokyo bay (Sodegaura terminal) where the required facilities are already in place for supplying LNG to ships by 2020.

    Phase III will strengthen ship-to-ship supply capacity by introducing new LNG supply system and another bunkering ship at Yokohama once demand reached a certain scale, it said.

    In October 2016, the ministry became part of an international focus group to co-operate on LNG bunkering. The group comprises the ports of Singapore, Rotterdam, Antwerp, Zeebrugge, Jacksonville, the Norwegian Maritime Authority, and South Korea's Ulsan Port Authority.

    "We think the market [for LNG bunkering] will be surely growing, seeing strong environmental regulations ... Yes, Japan can be one of the most important hubs," a spokesman at NYK Line said.

    The Japanese shipping line said on Wednesday that it, together with ENGIE, Fluxys and Mitsubishi Corporation, has taken delivery of ENGIE Zeebrugge, the first purpose built LNG bunkering vessel.

    A number of other vessels that NYK could use for LNG bunkering are also under study. "Details are not been decided though, study is on-going," a company spokesman said.

    Mitsui O.S.K. Lines, another Japanese shipper, said last month that it had reached an agreement to launch a joint study of an LNG-fueled Capesize bulker with five other companies -- BHP Billiton, DNV GL, Rio Tinto, Shanghai Merchant Ship Design and Research Institute and Woodside Energy.

    "The MOL Group continually takes a proactive approach to developing and adopting technologies that contribute to reducing environmental impact and enhancing safe operation, while providing safe and reliable transport services," it said in a statement in January.
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    Petronas considers $1 bln stake sale in offshore gas project

    Malaysian state-owned oil and gas firm Petronas is aiming to sell a large minority stake in a prized upstream local gas project for up to $1 billion (804.57 million pounds) as it seeks to raise cash and cut development costs, two sources familiar with the matter said.

    Petroliam Nasional Bhd (Petronas) is looking to sell a stake of as much as 49 percent in the SK316 offshore gas block in Malaysia’s Sarawak state, the sources told Reuters, a move that would be one of its first major recent sales as it grapples with oil prices that have slumped by half from two-and-a-half years ago.

    Petronas is working with an investment bank on the stake sale and kicked off the process this month, one of the sources said. Petronas did not respond to a request for comment.

    Gas from the NC3 field in the SK316 block feeds Malaysia’s liquefied natural gas (LNG) export project, known as LNG 9, Petronas’ joint venture with JX Nippon Oil & Energy Corp that started commercial production in January.

    The sources said the stake is expected to include a combination of the producing NC3 gas field, the potential development of the Kasawari field in the same block and other exploration acreage in the block.

    The funds raised could contribute to the future development of the Kasawari field, one of the largest non-associated gas fields in Malaysia, which has an estimated recoverable hydrocarbon resource of about three trillion standard cubic feet.

    The stake could appeal to firms such as Indonesia’s state-owned Pertamina, Thailand’s PTT Exploration, and Production PCL and some Japanese companies, the sources said.

    As huge production comes online in Australia and the United States, LNG markets are oversupplied, resulting in an almost 70 percent slump in the Asian spot LNG price since 2014 to $6.40 per million British thermal units now.

    Despite this, Malaysia’s LNG assets are viewed as attractive thanks to comparatively low production costs and due to their proximity to North Asia’s big consumption hubs of Japan, China, and South Korea.

    Petronas is currently gauging interest from potential bidders, said the sources, who declined to be identified as they were not authorised to speak about the matter.

    A slump in oil markets since 2014, which has seen crude prices halve to little more than $50 per barrel, has squeezed Petronas’ cashflow and forced it to announce a 50 billion Malaysian ringgit ($11.2 billion) cut in capital expenditure in January 2016 over four years.
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    Rosneft-led consortium plans to complete Essar acquisition next month -sources

    A consortium led by Russian oil major Rosneft plans to finally complete its $12.9 billion acquisition of India's Essar Oil next month, two Russian sources close to the deal told Reuters.

    Acquiring the refiner will give state-owned oil Rosneft access to India, one of the world's fastest-growing energy markets. The deal was announced to fanfare in October but has still not closed.

    The sources said the delay was due to the complexity of Essar's structure and financing, not to any issues relating to the buyers, who will buy 98 percent of Essar. Rosneft is under Western sanctions due to Moscow's role in the Ukraine crisis.

    The deal, announced during a visit to India by Russian President Vladimir Putin, is now set to be completed on March 15, the two sources said.

    Rosneft will acquire a 49 percent share in Essar and another 49 percent will be shared between commodities trader Trafigura and Russian private investment group United Capital Partners (UCP).

    The deal was structured to avoid the risk of Western sanctions, the chief executive of Russian bank VTB, which is involved in financing the deal, told Reuters last year.

    Essar Oil operates a 400,000 barrel-a-day refinery in Vadinar on India's west coast and sells fuels through its 2,470 filling stations across the country.

    Trafigura has said that VTB would co-fund Trafigura and UCP's 49 percent stake. Rosneft has said it may use its own funds, external financing or both to pay for its share.

    One of the sources close to the deal said discussions about the management team at Essar were holding up completion of the deal, but did not elaborate.

    The second source said that Essar's Indian creditor banks, who include State Bank of India (SBI), must approve a change of control at the company. The deal was also complicated by Essar's ongoing debt restructuring programme, the source said.

    "The process of receiving lender approvals, including SBI, for the transaction is underway. Sanctions provisions do not apply to the transaction," Essar said in emailed comments to Reuters.

    A senior SBI official said the bank was on course to approve the deal, and did not see U.S. sanctions getting in the way, but did not give a timeframe.

    VTB earlier agreed to provide Essar with up to $3.9 billion for debt reconstruction.

    In response to Reuters queries, Rosneft said it expected to close the deal in the first quarter of 2017. Trafigura gave the same timeframe, and said it was also replying on behalf of UCP.
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    Platts revamps Brent oil benchmark for first time in a decade

    Oil pricing agency S&P Global Platts said on Monday it was making the first major overhaul of its Brent oil assessment in a decade to address falling supply underpinning the benchmark that prices most of the world's oil.

    A decline in supply from North Sea fields has led to concerns that physical volumes could become too thin and hence at times could be accumulated in the hands of just a few players, making the benchmark vulnerable to manipulation.

    Platts said on Monday it would add Norway's Troll crude to the four British and Norwegian crudes it already uses to assess dated Brent from Jan 1. 2018. This will join Brent, Forties, Oseberg and Ekofisk, or BFOE as they are known.

    "Overall we have had significant support for the addition of a new grade to the basket," Jonty Rushforth, global editorial director for S&P Platts Global's oil and shipping price group, said at an industry conference.

    "Far and away, Troll has received the most support."

    Brent is used to set the price of billions of dollars of daily oil trade though a forward market for BFOE crude cargoes, swaps markets, physical benchmark dated Brent and Brent crude futures.

    Supply of the four BFOE grades is expected to fall next month to a rate of 884,000 barrels per day (bpd), from February's originally planned 943,000 bpd rate, based on loading programmes from trading sources.

    This will be the smallest programme since November.

    Typically, Troll produces about 10 to 15 cargoes of 600,000 barrels each per month. Platts said its inclusion should boost volumes by about 20 percent, helping to improve liquidity.

    Troll, a light, sweet crude, is operated by Norwegian state producer Statoil, which also contributes to the Oseberg, Statfjord, Gullfaks, Grane and Asgard streams.

    The last change to the dated Brent benchmark was in 2007 when Platts added Ekofisk, a light, sweet crude produced jointly by British- and Norwegian-owned fields.

    Platts added Oseberg and Forties, a slightly heavier, more sour grade, to the basket in 2002.

    In an earlier move to boost liquidity, Platts began to apply quality premiums to two better-quality crudes - Oseberg and Ekofisk - to encourage delivery of these into contracts. There are no plans yet to apply one to Troll.

    "The market appreciates a measured response in terms of changes," Rushforth told a media briefing. Platts will be sticking with the BFOE name.

    Thomson Reuters, parent of Reuters news, competes with Platts in providing news and information to the oil market.
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    Shell’s first LNG Outlook: LNG demand to grow at twice the rate of gas demand

    The Hague-based LNG giant Shell on Monday launched its first” LNG Outlook”, an assessment of the global liquefied natural gas (LNG) market.

    According to the outlook, global demand for gas is expected to increase by 2% a year between 2015 and 2030 while LNG demand is set to rise at twice that rate at 4 to 5%.

    The oulook says that many expected a strong increase in new LNG supplies would outpace demand growth during 2016. Instead, demand growth kept pace with supply as greater than expected demand in Asia and the Middle East absorbed the increase in supply from Australia, according to the outlook.

    “Global LNG trade demonstrated its flexibility time and again in 2016, responding to shortfalls in national and regional gas supply and to new emerging demand,” said Maarten Wetselaar, Integrated Gas and New Energies Director at Shell.

    China and India driving growth

    China and India – which are according to the report set to continue driving a rise in demand – were two of the fastest growing buyers, increasing their imports by a combined 11.9 million tones of LNG in 2016. This boosted China’s LNG imports in 2016 to 27 MT and India’s to 20 MT.

    Total global LNG demand increased following the addition of six new importing countries since 2015: Colombia, Egypt, Jamaica, Jordan, Pakistan and Poland. They brought the number of LNG importers to 35, up from around 10 at the start of this century.

    Egypt, Jordan and Pakistan were among the fastest growing LNG importers in the world in 2016. Due to local shortages in gas supplies, they imported 13.9 MT of LNG in total.

    The bulk of growth in LNG exports in 2016 came from Australia, where exports increased by 15 MT to a total of 44.3 MT. It was also a significant year for the USA, after 2.9 MT of LNG was delivered from the Sabine Pass terminal in Louisiana, the report said.

    LNG prices and trade changes

    Global LNG prices fell dramatically in the last two years following to the slump in oil prices.

    According to the report, global LNG prices are expected to continue to be determined by multiple factors, including oil prices, global LNG supply and demand dynamics and the costs of new LNG facilities. In addition, the growth of LNG trade has evolved into helping meet demand when domestic gas markets face supply shortages.

    In addition, the growth of LNG trade has evolved into helping meet demand when domestic gas markets face supply shortages.

    LNG trade also is changing to meet the needs of buyers, including shorter-term and lower-volume contracts with greater degrees of flexibility. Some emerging LNG buyers have more challenging credit ratings than traditional buyers, the report noted.

    New investments needed

    While the industry has been flexible in developing new demand, there has been a decrease in final investment decisions for new supply.

    Shell said it believes further investments would need to be made by the industry to meet growing demand, most of which was set to come from Asia, after 2020.

    The report noted that in China, a government target has been set for gas to make up 15% of the country’s energy mix by 2030, up from 5% in 2015. Meanwhile, Southeast Asia is projected to become a net importer of LNG by 2035, a significant transformation for a region which includes Malaysia and Indonesia – currently among the major LNG exporters in the world, the report said.

    Looking forward, the outlook says that from 2020 to 2030 most new LNG demand growth will be driven by: policy, floating storage regasification units (FSRUs), replacing declining domestic gas production, small scale LNG and transport.
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    India’s LNG imports down almost 15 pct in Jan

    India’s imports of liquefied natural gas (LNG) dropped 14.7 percent in January as compared to the same month a year ago.

    This is the third monthly LNG import decline since April 2016. India’s monthly LNG imports were down in July and December, respectively.

    India imported 1.64 billion cubic meters or about 1.21 million mt of LNG in January, as compared to 1.92 Bcm in the same month in 2015, according to the data from oil ministry’s Petroleum Planning and Analysis Cell (PPAC).

    Domestic natural gas production rose 11.9 percent in January to 2.73 Bcm.

    In the April-January period, India’s LNG imports rose 16.1 percent year-on-year to 20.73 Bcm or about 15.09 million mt of LNG, PPAC data shows.

    India’s LNG imports have been rising steadily in the last 12 months, boosted by low prices of the chilled fuel.

    Costs of importing LNG into India have dropped sharply last year after the country’s largest importer, Petronet LNG signed a revised long-term contract with Qatari LNG producer RasGas.

    India paid $0.5 billion for January LNG imports. In the April-January period, LNG import costs reached $4.8 billion, PPAC said.

    To remind, the country also recently announced plans to halve its basic customs duty on imports of the chilled fuel.

    India aims to reduce the basics customs duty on LNG from current 5 percent to 2.5 percent as part of its plans to shift to a natural gas-based economy.
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    Iraq and Iran sign MoU on Kirkuk oil export pipeline study

    Iraq and Iran signed a memorandum of understanding on Monday to study the construction of a pipeline to export crude oil from the northern Iraqi fields of Kirkuk via Iran, the Iraqi oil ministry said in a statement.

    The agreement, signed in Baghdad by the oil ministers of the two countries, also calls for a commission to solve a conflict about joint oilfields and the possible transportation of Iraqi crude to Iran's Abadan refinery, it said.

    Iraqi Oil Minister Jabar al-Luaibi said in the statement that he also agreed with visiting Iranian counterpart Bijan Zanganeh to cooperate on the policies of the Organization of the Petroleum Exporting Countries.
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    Oil Search steps up spending for next leg of growth

    Australia's Oil Search Ltd said it will boost capital spending this year to help expand output in Papua New Guinea in coming years, despite reporting a 70 percent drop in annual core profit on weak oil and gas prices.

    The PNG-focused oil and gas firm is pushing global giants ExxonMobil Corp and France's Total SA, its partners in two rival projects, to work together to expand liquefied natural gas (LNG) exports from the country.

    While slumping LNG prices due to a flood of new supply have forced several proposed projects to be shelved, projects in PNG are still seen as promising, thanks to the quality of the gas, low costs and proximity to big buyers in Asia.

    Oil Search Managing Director Peter Botten said on Tuesday a recent rebound in Asian LNG prices, which more than doubled to $9.75 per million BTUs between April and January, was unlikely to last, but saw the market improving within a few years.

    "While we expect spot LNG prices to soften from current levels through 2017, the long-term LNG market fundamentals remain strong, with major Asian buyers expected to have substantial new LNG requirements early next decade," he said in a statement.

    Oil Search plans to roughly double capital spending this year to between $360 million and $460 million, particularly on work to understand a new find, Muruk, in the highlands of PNG, which could provide a cheap source of gas to expand PNG LNG.

    The Muruk partners, ExxonMobil, Oil Search and Santos Ltd , believe the field could hold between 1 trillion and 3 trillion cubic feet of gas, which would be on top of a recent 25 percent increase in the resource estimate for the PNG LNG fields to 11.5 trillion cubic feet.

    Oil Search is also a partner in the Papua LNG project, run by Total, which is looking to develop the Elk-Antelope gas fields. Oil Search believes billions of dollars could be saved if those fields are used to help expand the PNG LNG project, rather than building a completely new LNG plant.

    ExxonMobil will also become a partner in Papua LNG, once it completes its delayed takeover of InterOil.

    Oil Search's net profit before one-offs fell to $106.7 million for 2016 from $359.9 million a year earlier, as average liquefied natural gas (LNG) prices dropped by a third and oil prices slid 12 percent. The result matched analysts' forecasts of $107.9 million, according to Thomson Reuters I/B/E/S.

    The firm cut its full year dividend to 3.5 cents a share from 10 cents, slightly ahead of analysts' forecasts at 3 cents.

    Oil Search expects to produce between 28.5 million and 30.5 million barrels of oil equivalent in 2017, flat to slightly weaker than last year's record output.
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    Energy impacts of Pruitt's confirmation as EPA administrator

    Scott Pruitt was confirmed Friday as administrator of the US Environmental Protection Agency by a 52-46 Senate vote.

    Oklahoma's attorney general since 2011, Pruitt has sued EPA on behalf of the state and argued it overstepped its authority into areas that states should control. But he struck a more moderate tone during his confirmation hearing, saying he would honor Congress' intent in carrying out regulations.

    Highlights of his energy-related comments during the confirmation process that could signal his impact on policy ahead:


    Pruitt said he would uphold the Renewable Fuel Standard and only deviate from statutory volume increases after careful deliberation, distancing himself from his previous criticism of the policy as an "unworkable" and "flawed program."

    While Pruitt is not expected to change 2017 blending levels, he could lower 2018 targets due in November and possibly side with refiners and blenders urging the agency to move the RFS point of obligation to the wholesale rack.

    "The EPA needs to better administer this program to provide involved entities with the certainty they need," he said.


    Pruitt said he would work with Congress to administer the corporate-average fuel economy standards but did not say whether he would uphold a midterm review that the Obama administration finalized in its last weeks in office. The review found that automakers are meeting the 2022-25 emissions standards quicker and at lower costs than expected, creating no need to curb the federal targets set in 2012.

    Pruitt would ensure the rules "provide the best possible legal framework for governing American fuels, fuel infrastructure, and vehicles, and for promoting American energy independence, energy security, and environmental protection," he said.


    While President Donald Trump expressed a desire to get rid of EPA while campaigning and has called the agency's work a disgrace, Pruitt said EPA served a valuable role and still has much work to do. But he said the agency under his leadership would respect the rule of law, partner with states and respect public participation when making regulations.

    "We must reject as a nation the false paradigm that if you're pro-energy, you're anti-environment, and if you're pro-environment, you're anti-energy," Pruitt said. "I utterly reject that narrative."

    When asked about his environmental philosophy and what he would do to protect the environment, Pruitt said the regulated community currently suffers from an "inability to predict or know what's expected of them as far as their obligations under our environmental laws." He said EPA's mission is to protect natural resources, improve air and water quality, help ensure the health and welfare of citizens and pursue vigorous enforcement where necessary.

    When asked if he believed there was a need to transform the US energy system away from fossil fuels to protect the planet for future generations, Pruitt said that the EPA and its administrator have "a very important role in regulating the emissions of CO2." He declined to expand on that response.


    Pruitt said states are "not mere vessels of federal will -- they don't exist simply to carry out federal dictates from Washington, DC."

    "There are substantive requirements, obligations, authorities, jurisdiction granted to the states under our environmental statutes," he said.

    When states' rights are not respected, "that is what spawned most of the litigation referenced here today," he said. "It matters that the states participate in the way Congress dictated, and they've been unable to do so for a number of years."


    Pruitt made clear that he disagreed with Trump's campaign statements that climate change was a hoax, conceding that the climate is changing and that "human activity in some manner impacts that change." But, "the ability to measure with precision the degree and extent of that impact and what to do about it are subject to continuing debate and dialogue," he said.

    When pressed to share what he believed to be causing climate change, Pruitt said his personal opinion was immaterial to the job of EPA administrator. Rather, that job "is to carry out the statutes as passed by this body," and those statutes put constraints on what EPA can do in regards to carbon emissions, Pruitt said.


    Asked why he took no action as Oklahoma attorney general in response to a spike in earthquakes tied to wastewater injection wells, Pruitt said the state has taken the issue very seriously and has successfully regulated hydraulic fracturing for decades.

    "While earthquakes have increased in frequency in recent years, the state has taken aggressive actions and reports have indicated the rate of seismic events has recently declined," he said. "Seismic activity can of course have significant impacts on communities and the activities linked to seismicity concerns in Oklahoma are regulated under state law by other agencies that my office works with as appropriate under Oklahoma law."


    Asked about reports that the Trump administration wanted to slash EPA's budget, Pruitt said he had no first-hand knowledge of such a plan. "If confirmed, I will work to ensure that the limited resources appropriated to EPA by Congress are managed wisely in pursuit of that important mission and in accordance with all applicable legal authorities," he said.
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    China to kick off 8 nuclear power units construction in 2017

    China planned to kick off construction of eight nuclear power units this year, with installed capacity totaling 9.86 GW, said the National Energy Administration (NEA) in a notice released on February 17.

    Meanwhile, China will complete construction of Sanmen #1, Fuqing #4, Yangjiang #4, Haiyang #1, Taishan #1 units this year, adding 6.41 GW of new nuclear power capacity to the country's total, according to NEA.

    The country will strengthen technical cooperation with Russia and the U.S. in nuclear power sector, and further promote cooperation with Argentina, Turkey and Romania in nuclear projects.

    Separately, China planned to complete construction of a few hydropower stations this year, with newly-added installed capacity of 10 GW. Construction of Baihetan, Batang, Lawa, Tuoba hydropower stations will kick off this year, with installed capacity expected to be 30 GW.

    The wind and solar power units will also kick off construction in 2017, adding new installed capacity of 25 GW and 20 GW, respectively.
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    Potash demand destruction likely in India, after gov't hints at subsidy cut

    Already reeling from decades-low prices, potash miners are staring at another headwind, this time from India, a major importer of the crop fertilizer ingredient.

    The news out of India today is highlighting a proposal by the Indian government to cut the potash subsidy by 17% in order reduce fiscal debt. Doing so, however, would have the effect of raising the prices paid by companies that import it; India relies on imports to meet its roughly 4 million tonnes of potash demand annually. That in turn would lead to a reduction in Indian demand, which would affect producer companies like Uralkali, Potash Corp, Agrium Inc, Mosaic, K+S, Arab Potash and Israel Chemicals.

    "The subsidy reduction will weigh on the new contract negotiations. We cannot offer higher prices in new contracts due to the proposed subsidy reduction": Indian government official

    Such companies had been hoping for an uptick in demand to counter lagging prices, which are hovering just above $200 a tonne – over half of what the market was offering five years ago.

    For instance Potash Corp – the world's biggest fertilizer producer – recently reported its profit is down by 70% on weak prices, but sounded an upbeat note on better expected demand:

    “With increased demand and limited new capacity additions, we anticipate relatively balanced market fundamentals in 2017,” it said in an end-of-January statement.

    Similarly, Mosaic’s Colonsay potash mine in Saskatchewan is re-opening based on rosier predictions for potash.

    Reuters reports that India's fertilizer ministry has proposed fixing the potash subsidy at 7,669 rupees ($114.61) a tonne for the 2017-18 fiscal year beginning in April, down from 9,280 rupees per tonne this year. Doing so would save the government almost $100 million based on 4 million tonnes of imported product.

    "The subsidy reduction will weigh on the new contract negotiations. We cannot offer higher prices in new contracts due to the proposed subsidy reduction," Reuters quoted a government official who negotiates with overseas miners.

    The proposal still has to passed by the Indian Cabinet headed by Prime Minister Narendra Modi. Contracts signed by India and China are considered global benchmarks.

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    Precious Metals

    Gemfields says India's demonetisation drive to hurt FY results

    British precious stone miner Gemfields plc said on Monday India's move to scrap higher value banknotes forced the company to delay an emerald auction and would hurt its full-year revenue and core earnings.

    Shares in the company fell as much as 7.9 percent to 46.50 pence in morning trading before recovering to 48.6 pence by 0832 GMT.

    The auction, which was pushed to February from December, sold about 84 percent of the total emeralds on sale by weight, and generated $22.3 million in revenue, the company said in a statement on Monday.

    The sale yielded the third highest value per carat to date for the company, with an average price of $63.61 per carat and total volume of 349,935 carats, Gemfields said.

    "A normal high quality auction delivers revenue normally of $32-$35 million on 500,000-600,000 carats of sales. Today they delivered very good pricing... but it was only on 350,000 carats sold, so a significantly smaller auction," analyst Michael Stoner at brokerage Peel Hunt told Reuters.

    "We would like to see that kind of strength to pricing on higher volumes," he said.

    The company, which mines for emeralds and amethysts in Zambia and for ruby and corundum in Mozambique, reported a loss of $4.3 million for the half year ended Dec. 31. Revenue fell 45.7 percent to 51 million pounds.

    The company rescheduled the auction for higher quality rough emeralds due to India's demonetisation programme and had cancelled another higher quality emerald auction, Chief Executive Ian Harebottle said in a statement.

    Indian Prime Minister Narendra Modi scrapped 500-rupee and 1,000-rupee banknotes in November in a bid to flush out cash earned through illegal activities, or earned legally but never disclosed.

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    Base Metals

    Escondida copper miners and BHP meet as strike drags on

    The union representing striking workers at Chilean copper mine Escondida and mine owner BHP Billiton Plc sat down to talk on Monday afternoon after the government called a meeting in hopes of ending the 12-day-old strike.

    The stoppage at the world's biggest copper mine helped boost copper prices on expectations of tighter supply, although news of the pending meeting had cooled the rally.

    The company had stipulated over the weekend that it would attend only if strikers did not interfere with nonunionized service employees on their shift change.

    It said on Monday after the shift change it would go ahead with the meeting, but that access to the mine for the contractors had been "partial."

    "Some 112 workers were stopped for more than an hour before the blockade was lifted ... and 21 contractors had to return to the city," BHP said in a statement.

    Escondida, which produced about 5 percent of the world's copper last year, is located about 170 kilometers from the regional city of Antofagasta.

    The union said there were no blockades and the buses with the contractors were allowed through, but that workers had checked that no strike-breakers were entering the mine.

    The meeting is aimed at getting the two sides to commit to a schedule of fresh wage contract talks, after initial negotiations failed.

    However, significant differences remain, including the company's wish to give new workers lower benefits. Other issues include shift pattern changes, a one-off bonus paid every four years, and other benefits.

    Escondida is majority-controlled by BHP with minority interests held by Rio Tinto and Japanese companies including Mitsubishi Corp.

    A government-mediated meeting between BHP Billiton and striking workers at its Escondida mine in Chile has failed, and workers will head back to their encampment without any future dialogue planned, a union spokesman told Reuters on Monday.

    "The company is continuing with their stubborn posture, and thus there is nothing to discuss anymore and we're going back to our camp," spokesperson Carlos Allendes said after the meeting.

    BHP was not immediately available for comment.
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    Philippine panel says review of decision to shut mines may take three months

    A Philippine panel tasked to review the environment minister's decision to shut more than half of the country's mines could take three months to complete it, a member of the committee said on Monday.

    "Three months is probably reasonable," Finance Undersecretary Bayani Agabin told reporters. "It will merely be a fact-finding body, it should be unbiased."

    The government's Mining Industry Coordinating Council will review Environment and Natural Resources Secretary Regina Lopez's order earlier this month to close 23 of the country's 41 operating mines for environmental violations including damaging watershed areas. Another five mines were suspended.
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    Sherritt mulling Ambatovy retreat to pop debt balloon

    Sherritt's dream of lifting Madagascar out of poverty and making a handsome packet for itself on the proceeds from a huge nickel mine appear to be in jeopardy.

    The Toronto-based company revealed it is looking at exiting the Ambatovy nickel and cobalt project – a mine it spent 90% of the $5.5 billion it cost to develop, with its Asian partners – in an effort to relieve a crushing debtload that has caused red ink to spill.

    “It’s an enormous debt number for a company our size”: CEO David Pathe

    To build the mine, Sherritt had to go cap in hand to its Korean and Japanese partners, and borrow US$650 million to pay for its 40% share of what is the world's biggest nickel mine, with the capacity to produce 60,000 tonnes of nickel and 5,600 of cobalt a year. According to CEO David Pathe, that loan has now grown to around $1.3 billion.

    “It’s an enormous debt number for a company our size,” Pathe said in an interview with the Globe and Mail at the Mining Indaba mining conference in South Africa.

    Sherritt, which also owns oil and gas operations in Cuba and mines cobalt and nickel on the island through its Moa joint venture, recently reported a net loss of $378.9-million for 2016. 2015 was quite a bit worse, with a net loss of $2.1 billion largely due to a $1.6-billion writedown on Ambatovy.

    In discussions with Pathe, the Globe reports that while Sherritt is supposed to receive a 12% share of Amabotovy's cash flow, the mine has yet to make any cash to distribute. The mine was expected to produce between 48,000 and 50,000 tonnes of nickel in 2016 and 3,300-3,800 tonnes of cobalt.

    The company's current preferred option is to work out a deal with its partners that would involve surrendering some equity in exchange for reducing its debt, but if that option fails, a complete exit from the project is “potentially still on the table,” according to the newspaper.

    Sherritt's stock was beaten down by the news, closing the day nearly 10% in the red, on double average volumes.

    Sherritt was Canada's largest thermal coal producer before it sold its entire coal business in late 2013 for $946 million, to Westmoreland Coal and Altius Minerals.

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    Aluminium producer looks for 30-pct hike in Q2 premium from Japan buyers -sources

    A major aluminium producer has made an indicative offer of a premium of $125 per tonne to Japanese buyers for April-June primary metal shipments, up 32 percent from the last quarter, three sources directly involved in pricing talks said on Monday.

    The offer comes as premiums climb in the United States and Europe, and as some Japanese buyers face lower inventories due to healthy local demand.

    The sources, who declined to name the producer, did not want to be identified as they were not authorised to speak with media.

    Japan is Asia's biggest aluminium importer and the premiums for primary metal shipments that it agrees to pay each quarter over the London Metal Exchange (LME) cash price set the benchmark for the region.

    "A producer sent us an email last Friday with an indicative price of $125, citing higher overseas premiums and lower inventories in Japan," said a source at an end-user in Japan.

    U.S. spot premiums and European spot premiums have risen by about $30-40 per tonne over the past three months, according to the sources.

    "Given stronger overseas premiums, we will need to accept an increase for the next quarter. But we would aim to get somewhere between $115-120 a tonne," said a source at a trading firm.

    For the January-March quarter, Japanese buyers agreed to pay a premium of $95 per tonne PREM-ALUM-JP, up 27 percent from the prior quarter due to higher spot premiums.

    The quarterly pricing negotiations between Japanese buyers and miners, including Rio Tinto Ltd , Alcoa Inc , South32 Ltd and Rusal, are expected to continue through next month

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    Steel, Iron Ore and Coal

    China coal firms to discuss moves to stabilize output on Tuesday: media

    China's top coal producers will meet on Tuesday to discuss plans for stabilizing output this year, the official Shanghai Securities News reported.

    The meeting organized by the China Coal Association will assess current operations and explore further measures to ensure stable output, the newspaper said in a report on its website on Monday.

    Talk in the market that the government will reinstall daily limits on coal mining output after the winter heating period pushed up thermal coal futures last week.

    Coke and coking coal futures rose on Monday after Beijing suspended imports of North Korean coal as part of its efforts to implement United Nations sanctions against the country.

    The output cuts, introduced in April 2016, ordered mines to limit the number of days they operate each year to 276 from 330 as part of Beijing's effort to cut inefficient surplus capacity.

    But the limits were abandoned in November after a double-digit percentage drop in output triggered a sharp rally in prices ahead of the key winter heating season.

    The report said that Shenhua Group, China National Coal Group and others are backing renewed cuts to 276 working days from 330, but that details on the implementation still needed to be worked out by the government.

    It added that targeted output cuts in 2017 are expected to be lower than last year but more difficult to achieve.
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    Ningbo coal imports fall in recent three yrs

    Ningbo port, located in southeastern China's Zhejiang province, saw coal imports fall for three straight years in 2014-2016, showed data from the local Entry-exit Inspection & Quarantine Bureau.

    In 2016, coal imports through Ningbo, the largest coal import port in eastern China, stood at only 4.66 million tonnes, with total value at $309 million, about 20% of the highest level ever reached, data showed.

    The port imported a record high of 12.92 million tonnes in 2013, with value at $1.19 billion.

    The decline was mainly impacted by China's new quality standards for imported commercial coal implemented since January 1 2015, weakening demand from downstream sectors, and lower prices of domestic coal.

    Its major products -- bituminous coal, anthracite coal, coking coal and lignite, were mainly shipped from Australia, Indonesia, Canada and Russia.

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    Coal price rise fuels giant Whitehaven recovery

    Whitehaven Coal's half-year profit has risen steeply thanks to a jump in coal prices late last year and increased production, the Australian Associated Press reported on 17 February.

    The miner's net profit of $157.5 million for the six months to December 31 is up from $7.8 million a year ago.

    Revenue has also jumped sharply from the same time last year - up 43 per cent to $823.5 million.

    "Whitehaven Coal is capturing the benefit of the improved coal price environment, aided by a sustained focus on cost reduction," chief executive Paul Flynn said.

    The profit growth during the quarter was driven by a sharp rebound in coal prices during the last few months of 2016.

    The company said it received an average price of $92 a tonne for thermal coal and $104 a tonne for metallurgical coal during the December quarter. For the half, its realised price averaged $81.3 a tonne, compared to $59.8 a tonne in the 2016 first half.

    As a result, its average profit margin on coal sales jumped to 42 per cent during the first half, from 19 per cent a year earlier.

    Coal sale volumes also rose, by 6 per cent, to 7.8 million tonnes, helped by higher production at its two main mines — Narrabri and Maules Creek in NSW.

    Last month, the company had lowered the production guidance for its Narrabri mine by about 6 per cent after encountering "adverse geotechnical conditions" at the site, but today it reaffirmed its guidance for full-year coal production to be between 21 million and 22 million tonnes.

    Whitehaven said production in the second half of FY2017 is planned to be higher than in the first half.

    It did not declare an interim dividend, but Mr Flynn said the increased profits and strong cash flows meant the business was well positioned to accelerate debt reduction.
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    US coal mines are opening in a year of `cautious optimism’

    Add Corsa Coal Corp. to the short list of U.S. coal producers doing something that’s become a bit of a rarity these days: opening mines.

    The Canonsburg, Pennsylvania-based company will start a new operation in Pennsylvania as early as May. It joins Ramaco Resources Inc., which began producing at its first mine in West Virginia in December and plans to open two more this year in Central Appalachia. They’re among the few turning more bullish on the business following an unprecedented market collapse that has shut hundreds of mines and left thousands jobless in recent years.

    “We’re staffing up,” Corsa Chief Executive Officer George Dethlefsen said in a phone interview this week. “We’re going to hire 100 people, and we’ve gotten hundreds of applications.”

    There’s newfound optimism in America’s coalfields with spot prices for metallurgical coal — the sort used in steelmaking — twice as high as they were a year ago. China curtailing its own production and tightening seaborne markets helped stoke a rally last year. President Donald Trump is now promising to bring coal jobs back, making his first move this week to roll back Obama-era environmental regulations that targeted the sector.

    “There’s definitely cautious optimism after years of being brutally beaten down,” Jeremy Sussman, an analyst at Clarksons Platou Securities Inc., said in a phone interview.

    Global demand for the carbon-intensive, power-plant fuel is still weakening. A new age of clean, cheap natural gas and renewables has emerged, thanks to the shale boom and fears of global warming. Miners including Corsa have said they’re focused on financial metrics such as rates of return and credit ratings rather than simply production to survive in the shrinking market.

    Earlier this month, Ramaco held the industry’s first initial public offering in two years. On top of the three mines it’s planning to open this year, the miner’s working to get one in Pennsylvania permitted so it can start operations in 2019.

    “We will be a very big shot in the arm down into an area that certainly needs some help and good news,” Ramaco Chairman Randall Atkins said in a phone interview.
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    Iron ore price sets fresh 30-month high

    The Northern China import price of 62% Fe content ore gained 2.7% on Monday, reaching $92.7 per dry metric tonne, the highest since mid-August 2014 according to data supplied by The Steel Index.

    After a 85% rise in 2016, the price of iron ore has improved by over 16% so far this year and has more than doubled in value since hitting near-decade lows at the end of 2015.

    The rise in the price of the steelmaking raw material has flummoxed market observers given supply growth expected in 2017, record-setting inventory levels at ports and an uncertain outlook for demand from China.

    FocusEconomics in its January survey of analysts and institutions shows the price of iron ore averaging $56.70 a tonne during the final quarter of next year. For Q4 2018, analysts expect prices to moderate further to average $55.70 over the three month period.

    None of the analysts foresee iron ore holding at today's prices – Dutch bank ABN Amro is the most optimistic calling for a $76 average towards the end of 2017 while London-based Investec sees an average of $71.50 over the cours of this year.

    BMO Capital Markets see prices correcting sharply from today's levels to average $45 by the start of 2018 while Oxford Economics expects iron ore to average $53 this year and below $50 in 2018.

    Record imports

    Imports by China continued to strengthen in 2017 after hitting an all-time high last year.

    Trade figures released earlier this month showed China imported 92 million tonnes of iron ore in January, up 12% or just less than 10 million tonnes compared to a year ago. Shipments for January were the second highest on record valued around $7 billion.

    The all-time record for monthly Chinese imports in terms of volume was in December 2015 with shipments totalling 96.3 million tonnes. But the price of iron ore fell to below $40 a tonne, the lowest in nearly a decade during that month, pushing the value of shipments below $5 billion.

    The all-time record in terms of dollar value was set in January 2014, when the country imported $11.3 billion worth of iron ore back when prices were firmly in triple digit territory.

    Forging more than half the world's steel, Chinese imports of iron ore for the full year 2016 topped one billion tonnes for the first time. The 1.024 billion tonnes constitute a 7.5% increase over the annual total in 2015 and is indicative to what extent exporters from Brazil and Australia has been able to displace high-cost domestic producers.

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    Vale to scrap controlling bloc, merge shares in major governance move

    Vale SA plans to become a company with no defined controlling shareholder as soon as possible, in a landmark step aimed at enhancing transparency and equal rights for all shareholders in the world's largest iron ore producer.

    Controlling shareholders grouped under holding company Valepar SA agreed to stay together for up to three and a half more years. Under terms of that, they will present a proposal soon by which Vale will incorporate Valepar and proceed to merge the company's several classes of stock into a single, common one by November.

    The existing 20-year accord governing Valepar that expires in May will be extended through November to guarantee the transition. Holders of Vale's Class A preferred shares (VALE5.SA) who join the share conversion voluntarily will receive 0.9342 common stock (VALE3.SA), as part of the process.

    To ensure completion of the plan, Vale would pay owners of Valepar a 10 percent premium for their shares, implying a 3 percent dilution for all shareholders. The former Valepar owners can sell the equivalent of up to 22 percent of Vale's common shares after a lock-up period starting in August expires, provided they keep a combined 20 percent by November 2020.

    The change represents a milestone in a country long hobbled by corporate governance abuses and reorganizations that hampered minority investors in most cases. Reuters reported on Jan. 19 the planned to make Vale a company with dispersed share ownership and the listing of a single type of stock.

    The announcement sparked a surge in common shares of Rio de Janeiro-based Vale, which touched their highest level since December 2012. Preferred shares, Vale's most widely traded class of stock, also hit their highest since January 2013.

    "This represents a historical opportunity for Vale, and it's an invitation that the controlling bloc is extending to investors to join a company with the strictest governance standards," Chief Executive Officer Murilo Ferreira said at a conference to discuss the Valepar proposal.

    At least 54 percent of holders of Vale's preferred shares will have to approve the conversion, whose approval is also linked to the passage of the entire proposal. Ferreira expects the company to convene a shareholder assembly to vote the entire plan around June.

    "The transaction seems to be a win-win for both controlling and minority shareholders," said Rodolfo de Angele, a senior basic materials analyst with JPMorgan Securities.


    People familiar with the matter told Reuters in January that Valepar members Bradespar SA (BRAP4.SA) and pension fund Previ Caixa de Previdência [PREVI.UL] wanted a dispersed share ownership in Vale as a way to attract more investors.

    Once the final accord expires in November 2020, a shareholder who owns over 25 percent of Vale will be forced to launch a buyout offering.

    The partners in Valepar include Previ - currently Vale's largest shareholder, Bradespar, Japan's Mitsui & Co (8031.T), an arm of state development bank BNDES, and pension funds Petros Fundação [PETROS.UL], Funcef [FUNCEF.UL] and Fundação Cesp.

    The plan could give some of those cash-strapped pension funds the possibility to cash out from Vale, whose two classes of shares have almost risen four-fold over the past 12 months.

    Shares in Bradespar, which is controlled by Banco Bradesco SA (BBDC4.SA), posted their biggest intraday jump ever, adding as much as 20 percent. Analysts said the accord increases the value of Bradespar's net assets while freeing it up from having to make a large cash payment to Previ for renewing the accord.


    Currently, Vale's American depositary receipts (VALE.N) trade at the equivalent of 10.5 times estimated earnings for this year, below Rio Tinto Plc's (RIO.L) 10.7 times and BHP Billiton Plc's (BLT.L) 15.9 times, according to Thomson Reuters data.

    The implications of Monday's announcement on investor perception about Vale's governance should translate into a faster convergence of Vale and Rio Tinto share prices, Banco BTG Pactual's trading desk said in a client note, adding the move could help unleash 21 percent more value for Vale shareholders.

    The plan will also help limit government interference in Vale - an aspect that weighed down the company's stock during President Dilma Rousseff's five years in office. Improved governance stemming from the move could help Vale's stock cut the valuation gap relative to global mining peers.

    "It's a brutal change of governance for the company," the BTG Pactual note said.

    Still, the Brazilian government will keep a so-called golden share, a legal mechanism that allows it to fend off hostile takeover attempts and shape strategic decisions, Ferreira said.

    "It's a political event ... that in my view, should not impact the Vale case being discussed today," he said at the call.

    The strategy replicates the move that helped put planemaker Embraer SA (ERJ.N) out of the government's control in 2006 in which the share conversion was done simultaneously with the scrapping of the planemaker's shareholder accord. The government, however, kept a golden share in Embraer.

    The 3.073 billion-real ($990 million) goodwill generated by Vale's incorporation of Valepar will be split equally among all shareholders, Chief Financial Officer Luciano Siani said at the call.

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    China steel mills caught on the hop by North Korea coal ban

    China's steel mills and traders were scrambling to find alternative supplies of coking coal for steel making on Monday after Beijing slapped a surprise ban on coal imports from its isolated northern neighbour.

    Chinese prices of steel, coking coal and coke all rallied, as traders and analysts said mills will likely be forced to buy more expensive domestic material or seek alternatives further afield from Russia or Australia, driving up costs.

    While North Korea accounts for only a small portion of China's total coal imports, it is the main foreign supplier of high-quality thermal coal, called anthracite, which is used to make coke, a key ingredient in steelmaking.

    "This news really took us by surprise. We are looking at a couple of alternative plans," said a steel mill purchasing manager, based in the northern province of Liaoning.

    These included buying anthracite from Shanxi province or buying more coke from local providers, but both were more costly, said the manager, whose firm uses about 10,000 tonnes of North Korean anthracite each month.

    Business with North Korea had become increasingly difficult under years of sanctions and the once-bustling trade handling coal from the north had shrunk to just a few private merchants.

    Still few mills or traders anticipated the complete suspension of imports, which came a week after Pyongyang tested an intermediate-range ballistic missile, its first direct challenge to the international community since U.S. President Donald Trump took office on Jan. 20.

    China bought 22.48 million tonnes of anthracite from North Korea in 2016, 85 percent of its total imports.


    Steel mills often blend anthracite with coking coal to make coke, a fuel used in blast furnaces, rather than using only more expensive coking coal.

    China's most-active futures contract for rebar, a steel product used in construction, rose 2.6 percent by 0640 GMT on Monday, while coke and coking coal added 2.6 percent and 2.4 percent respectively.

    Shares in Chinese anthracite producer Yangquan Coal Industry rose 2.8 percent.

    "Rebar jumped on anticipation that the ban on North Korean anthracite could lead to higher costs for steel mills that will struggle to find cheaper alternatives in the domestic market," said Zhang Min, a coal analyst based in Zibo, Shandong with Sublime Information Group.

    A coke producer said he expected to ban to lead to a rebound in coke prices, which had fallen since late December due to good supply and reduced demand for the Lunar New Year.

    "I am not planning to take any new orders from new clients right now, because we believe coke powder prices will rebound sharply this week on the news," said the manager of a domestic coke plant, based in Shandong province.

    Some mills could seek other imports, but producers such as Australia, Russia and Vietnam didn't produce enough to pick up the slack and shipping it would cost significantly more than from North Korea, traders said.

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