Mark Latham Commodity Equity Intelligence Service

Thursday 2nd March 2017
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    Shanxi Jan power output down 3.57pct on year

    Shanxi Jan power output down 3.57pct on year

    Northern China's Shanxi province saw its power output slide 3.57% year on year to 21.11 TWh in January, showed data from Shanxi Supervision Office of the National Energy Administration.

    Thermal power output stood at 19.24 TWh or 91% of the total in January, a year-on-year decline of 4.2%.

    The province used 16.08 TWh of power in January, up 3.57% from a year ago, data showed.

    By end-January, Shanxi had an installed power generation capacity of 76.46 GW, 82.55% of which or 63.12 GW was thermal power capacity.
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    Oil and Gas

    Russian oil production cutting drive stalled in February

    Russia's oil output was unchanged in February from January at 11.11 million barrels per day (bpd), signalling a pause in Moscow's efforts to curb
    production as part of a global deal, Energy Ministry data showed on Thursday.
    The Organization of the Petroleum Exporting Countries (OPEC) and other large oil producers led by Russia, agreed to reduce their total oil output by almost 1.8 million bpd in the first half of this year in order to support weak prices of oil, their key source of revenues.

    Of that, Russia pledged to cut 300,000 bpd, while reaching that mark gradually with 200,000 bpd of reduction in the first quarter. This is compared to output of more than 11.2 million bpd in October, taken as the baseline for the global deal on oil production cuts.

    In January, Russia cut output by around 100,000 bpd month-on-month, its first reduction since August. In tonnes, oil output reached 42.434 million in February versus 46.992 million in January. According to Reuters calculations, Russia's cut from the October level reached 100,000 bpd in February, resulting in a compliance of just 33 percent.            

    By contrast OPEC compliance is 94 percent, due to a steep reduction by Saudi Arabia. Reuters uses a barrels/tonnes ratio of 7.33.

    Russian oil pipeline exports in February declined to 4.311 million bpd from 4.409 million bpd in the first month of the year.
    Russian gas production was at 58.53 billion cubic metres (bcm) last month, or 2.09 bcm a day, versus 66.11 bcm in January.

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    Eni plans to boost LNG portfolio

    Italy’s Eni intends to turn its gas and power business into the company’s global gas and LNG marketing arm and boost its LNG portfolio, according to Eni’s new strategy revealed on Wednesday.

    Eni noted that the gas and power business is expected to reach breakeven this year and positive later on “as it benefits from the alignment of gas supply contracts to market conditions and a reduction in logistics costs.”

    The company expects the unit to report earnings before interest and tax in excess of €600 million (Approx: US$632 million) from 2019 onwards.

    Eni further noted that, under its new strategy, it intends to focus on the return of equity gas and transform its retail business into a unit.

    In the upstream sector, Eni expects its hydrocarbon production to grow by 3 percent from 2017 through 2020 period, through ramp-up and start-up of new projects and further project optimization.

    Under its development plan, Eni expects to deliver new discoveries of 2-3 billion boe, almost two times the discoveries of the previous plan, by drilling around 120 wells in more than 20 countries.

    The company expects the average breakeven price of new projects to be approximately $30/bbl.
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    ExxonMobil’s Integration, Diverse Portfolio of Investments to Drive Growth

    ExxonMobil’s Integration, Diverse Portfolio of Investments to Drive Growth

    Exxon Mobil Corporation is positioned to succeed in any price environment by maximizing the competitive advantages of its integrated businesses and by investing in projects that generate high-value products across the commodity cycle, Chairman and Chief Executive Officer Darren W. Woods said Wednesday.

    “Our job is to compete and succeed in any market, regardless of conditions or price,” Woods said during a presentation at the company’s annual analyst meeting at the New York Stock Exchange. “To do this, we must produce and deliver the highest-value products at the lowest-possible cost through the most-attractive channels in all operating environments.”

    ExxonMobil anticipates capital spending of $22 billion in 2017, an increase of 16 percent from 2016. Capital and exploration expenses through the end of the decade will average $25 billion annually.

    More than one quarter of the planned spending this year will be made in high-value, short-cycle opportunities, including in the Permian and Bakken basins. Short-cycle investments are those expected to generate positive cash flow in less than three years after initial investment. The company has an inventory of more than 5,500 wells in the Permian and the Bakken with a rate of return greater than 10 percent at $40 a barrel, with nearly one-third generating significantly higher returns. Total annual net production growth from these basins through 2025 could be as high as 750,000 oil-equivalent barrels per day at a compound annual growth rate of about 20 percent.

    At the same time, the company will advance longer-term projects focused on growing higher-value production in locations including Canada, Guyana and the United Arab Emirates. In Guyana, for example, two wells last year confirmed a world-class discovery with recoverable resources in excess of 1 billion oil-equivalent barrels. Guyana startup is expected by 2020, less than five years after the initial discovery well – a rare occurrence in the industry in terms of development time.

    ExxonMobil expects the startup of five major upstream projects in 2017 and 2018, which will contribute an additional 340,000 oil-equivalent barrels per day of working-interest production capacity. Odoptu Stage 2 in Far East Russia and the Hebron project in Eastern Canada are expected to start up by year-end. Other projects planned for startup in the period are the Upper Zakum expansion in the United Arab Emirates, Barzan in Qatar and Kaombo in Angola. Since 2012, the company has started up 27 projects, adding 1.2 million oil-equivalent barrels per day of installed capacity. The company has an upstream portfolio of nearly 100 projects that are in various stages of planning, concept selection and construction.

    These investments will support upstream volumes that are projected to be in the range of 4 million to 4.4 million oil-equivalent barrels per day through 2020.

    In the downstream, the company is investing across the value chain to continue building on the strength of its portfolio of refining and other advantaged manufacturing assets. At its Rotterdam refinery, for example, the company is reconfiguring a hydrocracker unit to manufacture higher-value products, including premium lube base stocks and ultra-low sulfur diesel, by upgrading lower-value vacuum gas oil.

    The chemical segment is investing to capture advantaged feed stocks and produce high-performance products in the U.S. Gulf Coast region and at its Singapore complex in Asia.

    “Our integrated investments along the Gulf Coast will capture the full value of the unconventional resource molecule, from the wellhead to market,” Woods said.

    During the meeting, ExxonMobil reviewed the following performance highlights.

    ExxonMobil has increased its dividend for 34 consecutive years through 2016, with an annual increase of almost 9 percent per year over the past 10 years, exceeding the S&P 500 and industry competitors during the same period.
    ExxonMobil was the only major integrated oil company to significantly increase its dividend last year by 3.5 percent.
    ExxonMobil recently completed its acquisition of InterOil to expand its acreage in Papua New Guinea and doubled its resource base in the Permian basin through another purchase.
    Since the Exxon and Mobil merger in 1999, the company has returned nearly $370 billion to shareholders in the form of dividends and share repurchases, more than the individual market values for nearly all of the S&P 500 companies.
    The company’s return on average capital employed over the past decade averaged 5 percentage points above its nearest competitor.
    ExxonMobil generated more than $26 billion of cash flow from operations and asset sales in 2016 including $4.3 billion from asset sales.

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    Solid increase is US lower 48 oil production

                                                    Week     Last Week     Last Year

    Domestic Production '000........ 9,032            9,001          9,077
    Alaska .............................................. 517                518             509
    Lower 48 ..................................... 8,515            8,483          8,568

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    Summary of Weekly Petroleum Data for the Week Ending February 24, 2017

    Summary of Weekly Petroleum Data for the Week Ending February 24, 2017

    U.S. crude oil refinery inputs averaged about 15.7 million barrels per day during the week ending February 24, 2017, 393,000 barrels per day more than the previous week’s average. Refineries operated at 86.0% of their operable capacity last week. Gasoline production increased last week, averaging about 9.5 million barrels per day. Distillate fuel production increased last week, averaging about 4.8 million barrels per day.

    U.S. crude oil imports averaged 7.6 million barrels per day last week, up by 303,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.2 million barrels per day, 5.1% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 457,000 barrels per day. Distillate fuel imports averaged 210,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.5 million barrels from the previous week. At 520.2 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.5 million barrels last week, but are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 0.9 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 0.5 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories increased by 0.3 million barrels last week.

    Total products supplied over the last four-week period averaged over 19.8 million barrels per day, up by 0.9% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.7 million barrels per day, down by 6.2% from the same period last year. Distillate fuel product supplied averaged about 4.0 million barrels per day over the last four weeks, up by 15.7% from the same period last year. Jet fuel product supplied is down 4.7% compared to the same four-week period last year.

    Cushing up 500,000 bbls
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    Adjusted for productivity gains, U.S. rig counts are only 10% off of the 2014 peak.

    Adjusted for productivity gains, U.S. rig counts are only 10% off of the 2014 peak.

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    Day One of EnerCom Dallas: a Very Positive Mood and a Full House

    EnerCom Dallas 2017 investment conference opened to a full house.

    The presentation room at the Tower Club in Dallas was overflowing Wednesday morning by the time WPX Energy Chairman and CEO Rick Muncrief took the microphone a 8:00 a.m. and laid out his company’s stark turnaround.

    In his presentation Muncrief discussed how WPX used $6.5 billion in A&D activity to convert the company from a natural gas-focused operator to a Delaware basin-focused oil/liquids producer tightly focused on only three assets—Delaware, Williston and San Juan basins. “We built a brand new company.”

    The room was jammed for presentations by Range Resources
    Chairman and CEO Jeff Ventura, Earthstone Energy
    President and CEO Frank Lodzinski and Core Laboratories
     Chairman and CEO David Demshur.

    Completions are in the Stone Age

    Demshur talked about the results his company has produced in the past few months along the road of developing and field testing some new technologies designed to boost recovery from oil and gas reservoirs, a project the company started during the downturn.

    Demshur said Core’s scientists in the lab have been able to increase recovery rates from 9% to 15%. Demshur talked in detail about Core Lab’s goal of altering the decline curve by injecting associated gases into reservoirs. “To do this we had to invent some technology.”

    Core’s CFO Dick Bergmark echoed Demshur’s comments about the company’s unique focus on reservoir optimization. “We don’t generate revenue when you’re drilling; it’s when you’re doing completions.”

    In the Core Lab breakout session an investor asked, “Who’s your number one competitor?”

    Demshur responded: “Inertia.”

    Switching from defensive mode to offensive mode

    Whiting Petroleum’s Senior VP of Planning Pete Hagist was another presenter who discussed how evolving completion design has served a major oil company with much improved return rates. Hagist gave credit to his company’s use of diverting agents to distribute the sand up and down the wellbore. He said Whiting was tracking some individual well’s EURs toward 1.5 MMBOE with the bigger sand loading, compared to an average of 900 MBOE.

    After a detailed discussion of factors that are boosting capital efficiency for the leading Bakken oil producer, such as cutting drilling time, enhanced completion design, improvements in technology, and “eliminating a whole string of casing,” Hagist said his company “is switching from being in defensive mode of the past couple of years to offensive mode.”

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    Kinder Morgan sells 49 percent stake in LNG export project

    Houston’s Kinder Morgan said Tuesday it will sell a 49 percent stake in its liquefied natural gas export project in Georgia for $555 million to the EIG Global Energy Partners private equity firm.

    Kinder Morgan started construction on its nearly $2 billion Elba Island LNG export project in November and Chief Executive Steve Kean has long indicated he was seeking a financial partner to help bear the cost burden.

    Royal Dutch Shell originally owned a 49 percent share, but pulled out almost two years ago. Shell is still helping fund the project through a 20-year contract to purchase the exported LNG.

    Elba Island, which is near Savannah, Georgia, is one of the smallest LNG export projects in the works, but it’s also moving along faster than many others because Kinder Morgan already had an LNG terminal in place. The project is expected to begin exporting LNG in late 2018 and be fully completed in early 2019. The plan is to export up to 2.5 million metric tons of LNG a year.

    EIG has U.S. offices in Houston and Washington, D.C. The deal includes an up-front cash payment of $385 million, along with additional payments totalling $170 million.
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    Marathon Petroleum sells assets to its MLP for $2 billion

    Marathon Petroleum Corp said on Wednesday it sold some terminal, pipeline and storage assets to MPLX Inc, the master limited partnership that it spun off in 2012, for $2.02 billion.

    Ohio-based Marathon has said it would speed up asset sales to MPLX and consider a separation of its Speedway retail business in response to pressure from activist hedge fund Elliott Management to boost its stock price.

    "This drop-down of additional high-quality logistics assets to MPLX represents the first of several drops expected to occur in 2017, and is an important part of our plan to unlock the value of our midstream business for investors," Marathon Chief Executive Gary Heminger said in a statement.

    The assets being sold include 62 product terminals with about 24 million barrels of storage capacity, 604 miles of pipeline and 73 tanks with 7.8 million barrels of storage capacity.

    Marathon will receive $504 million in MPLX stock and $1.51 billion in cash for the assets.
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    Alternative Energy

    Japan accelerates wind power development as govt support pays off: study

    Japan accelerates wind power development as govt support pays off: study

    With a month to go this fiscal year, Japan's installation of new wind power capacity in 2016-17 is set to come in almost double that of the previous 12 months, propelled by higher tariffs guaranteed by Tokyo and a rising number of offshore wind farms.

    Japan is set to add 300 megawatts of wind capacity - enough to power more than 100,000 average homes - in the 12 months through March, Japan's Wind Power Association said in a study released late last month. Some 157 megawatts of wind power were installed in the previous year.

    The agency didn't estimate how much has been invested in the new turbines, but the figures underline the pace of wind power's development in Japan since the Fukushima nuclear disaster in 2011 triggered a drive to develop new energy sources.

    The country relied on nuclear power for 30 percent of its electricity supply before a massive earthquake and tsunami wrecked the Fukushima-Daiichi plant and brought the shutdown of reactors across Japan.

    "The projects that started environmental assessments at the end of last year exceeded 10 gigawatts," the association said in the study. "If these projects go smoothly, it is possible that achieving the 10 gigawatt capacity is quite possible in the early 2020s."

    A capacity of 10 gigawatts would be triple the nearly 3.4 gigawatts that the wind power association estimates will be installed in Japan by end-March.

    While that 3.4 gigawatts represent just 1.5 percent of the country's overall installed capacity - and solar power accounts for more than 90 percent of Japan's renewable capacity - the wind industry is betting on strong growth to continue.

    The association projects wind power capacity is set to rise more than tenfold to 36.2 gigawatts by 2030, depending on environmental assessments and acceptable grid capacity.

    A major factor behind this year's surge came last May, when the government relaxed rules for building turbines offshore in the country's harbors and ports.

    Wind operators also still benefit for comparatively higher prices for their power under a feed-in-tariff scheme introduced in 2012, where certain renewable suppliers get guaranteed rates based on source of input.

    But Tokyo's Ministry of Economy, Trade and Industry (METI) will cut the feed-in-tariff for large wind power projects to 21 yen per 1 kWh from Oct. 1 in the business year starting in April from 22 yen now, taking into account a decline in costs over time. The rate for offshore wind power was kept at 36 yen.

    Wind operators in Japan have long complained about the country's requirement for environmental impact studies that can take as long as five years to complete, as well as other impediments to investment.

    To accelerate renewable schemes, METI and the Environment Ministry have now teamed up with the aim of halving the time it takes for environmental assessments for wind and geothermal projects.

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    Lynas narrows H1 losses

    Australian rare earths miner Lynas has narrowed its loss during the half-year ended December, on the back of increased revenues.

    The ASX-listed Lynas this week reported that gross loss for the period had decreased from the A$19.3-million reported at the end of 2015, to A$2.9-million, on the back of increased revenues, which were up from A$93.2-million to A$114.6-million.

    Earnings before interest and tax decreased by A$20.9-million compared with the previous corresponding period, in part due to an increase in sales, Lynas reported.

    Mineral sands production for the first half of 2017 reached 2 506 t, which was up from the 1 905 t produced in the same period last year, with total ready-for-sale production of rare earth oxide reached 7 579 t, compared with the 6 337 t in the previous corresponding period.
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    Cameco may cut uranium output further, as prices stay low – CEO

    Canada’s Cameco, the world’s second-biggest uranium producer, said on Tuesday it may not be finished cutting production as prices remain low after a major customer cancelled a supply contract.

    Spot prices of uranium, used to fuel nuclear reactors, dipped to a 13-year low late last year and have rebounded only modestly in 2017. They have stayed stubbornly weak since a 2011 tsunami in Japan led to the shutdown of all the country’s nuclear reactors.

    This month, Tokyo Electric Power Company Holdings(Tepco), the operator of the wrecked Fukushima nuclear plant, said it was scrapping its uranium supply contract with Cameco.

    "2017 could make us look at changes to our inventory position, our production profile and our purchasing activity; all of those effects of the Tepco situation," Cameco CEO Tim Gitzel said at an investor conference in Florida.

    Cameco “won’t be very compromising” in its legal position against Tepco, Gitzel said.

    The Saskatoon, Saskatchewan based company said in January it would cut 120 jobs at three uranium mines in 2017. It reported lower-than-expected quarterly profit this month.

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    Hundreds of North American bee species face extinction: study

    More than 700 of the 4,000 native bee species in North America and Hawaii are believed to be inching toward extinction due to increased pesticide use leading to habitat loss, a scientific study showed on Wednesday.

    The Center for Biological Diversity's report concluded that of the 1,437 native bee species for which there was sufficient data to evaluate, about 749 of them were declining. Some 347 of the species, which play a vital role in plant pollination, are imperiled and at risk of extinction, the study found.

    "It's a quiet but staggering crisis unfolding right under our noses that illuminates the unacceptably high cost of our careless addiction to pesticides and monoculture farming," its author, Kelsey Kopec, said in a statement.

    Habitat loss, along with heavy pesticide use, climate change and increasing urbanization are the main causes for declining bee populations, the study found.

    Experts from the center reviewed the status of 316 bee species and then conducted reviews of all available information to determine the status of a further 1,121 species. The center said the species which lacked sufficient data were also presumed to be at risk of extinction.

    Among the native species that are severely threatened are the Gulf Coast solitary bee, the macropis cuckoo bee and the sunflower leafcutting bee, which is now rarely seen.

    Last month, the rusty patched bumble bee was listed by federal authorities as endangered, becoming the first wild bee in the continental United States to gain such protection.

    Bees provide valuable services: the pollination furnished by various insects in the United States, mostly by bees, has been valued at an estimated $3 billion each year.

    The center's Kopec noted that almost 90 percent of wild plants are dependent on insect pollination.

    "If we don't act to save these remarkable creatures, our world will be a less colorful and more lonesome place," she said.
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    Thousands of soy trucks stranded on swamped Amazon highway in Brazil

    About 3,000 trucks carrying soy beans are backed up on a major road to port through the Amazon region that has become impassible due to swamps caused by heavy rainfall, highway police said on Wednesday.

    Trucks have become bogged down on an unpaved section of the BR-163 highway in southern Pará state, running up loses of $400,000 a day for grain traders moving soy from Mato Grosso to northern ports, the main lobby for Brazil's soy business said.

    Some vehicles have been pulled through with the help of heavy earthmoving equipment, but the bulk of the trucks cannot advance, according to the highway police in Santarém in Pará.

    "Things are still critical. Work on the road has improved the situation somewhat, but the rain really complicates the work," highway police officer Bruno Bittencourt told Reuters.

    Weather permitting, the national highway department DNIT expects to free the traffic flow of loaded trucks heading north on BR-163 by Friday with the help of Army engineers.

    Southbound traffic heading for Mato Grosso has been moving forward since Tuesday on the swamped 37 km (23 mile) section, the DNIT said in a statement.

    Thomson Reuters' Agriculture Weather Dashboard, however, forecast continued heavy rainfall in the area for the next two weeks.

    The BR-163 highway, which the government says will be fully paved in Para state by next year, is a vital route for shipping out Mato Grosso soy through port terminals on the Tapajós River in Itaituba, in the Miritituba district.

    Major grain companies Cargill, Bunge and Hidrovias do Brasil have terminals that load barges on the river for transshipment in ports down river near Belém.

    But no soy has arrived in Miritituba since Feb. 18, according to Daniel Furlan Amaral, manager of Abiove, the lobby for companies that export and process soy in Brazil.
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    Precious Metals

    China closing 150 gold mines

    China's official news agency Xinhua is reporting that the country is set increase annual gold output to 500 tonnes by the end of the decade from around 450 tonnes currently.

    China overtook South Africa as the number one miner of the metal in 2007. China's Ministry of Industry and Information Technology (MIIT) expects gold output to grow by an average 3% annually through 2020.

    Last year output rose less than 1% to 453.5 tonnes according to the ministry:

    [The MIIT] aims to consolidate and upgrade the industry by reducing the number of gold miners to around 450 from more than 600, and shutting down 40 tonnes of outdated production capacity by the end of 2020.

    Last year, global gold demand increased 2% to 4,309 tonnes, the highest since 2013, but the improvement was mainly on the back of investment purchases in the West as physical demand from top consumers China and India fell data from the World Gold Council showed.
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    India's Feb gold imports surge on pent-up demand-GFMS

    India's February gold imports surged to 50 tonnes, up more than 82 percent from a year ago, on pent-up jeweller demand and as retail consumers ramped up purchasesfor weddings, provisional data from consultancy GFMS  showed on Wednesday.

    The rise in imports by the world's second-biggest consumer of the precious metal will support global prices that are trading near their highest level in 3-1/2 months, but could widen the South Asian country's trade deficit.

    "Pent-up demand on the ease of the cash crunch and wedding related demand lifted imports in February," said Sudheesh Nambiath, a senior analyst at GFMS, a division of Thomson Reuters.

    In November, Prime Minister Narendra Modi scrapped 500- and 1,000-rupee banknotes, notes that were 86 percent of the value of cash in circulation, as part of a crackdown on corruption, tax evasion and militant financing.

    India's gold imports had fallen to 27.4 tonnes in February 2016 as buyers postponed purchases in anticipation of a reduction in the import duty in the budget at the time.

    This February, retail demand improved due to the wedding season and as cash supplies became normal, said Bachhraj Bamalwa, a jeweller based in the eastern Indian city of Kolkata.

    But imports in March could fall as a recent rally in prices has started deterring buyers.

    "Consumers are struggling to adjust with higher prices. They are postponing purchases expecting a correction in prices," said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler based in Kolkata.

    In the local market, gold futures were trading at 29,380 rupees ($439) per 10 grams on Wednesday, up more than 9 percent since falling to 26,862 rupees in December 2016, its lowest in 10 months.

    India's gold imports in 2016 had fallen nearly 44 percent versus 2015 to 510.4 tonnes, the lowest level in 13 years.

    "Last year was an unusual year. This year consumption and imports will rise as jewellery demand has been recovering," said Bamalwa.
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    De Beers raked in $545m in latest sales cycle

    Diamond giant De Beers raked in $545-million in its second rough diamond sales cycle for this year.

    “We continued to see good demand across our product range in the second sales cycle, which was in line with expectations at this time of year. Sentiment remains positive heading into the Hong Kong International Jewellery Show this week – an important barometer of trade confidence,” CEO Bruce Cleaver said on Tuesday.

    Sales were, however, lower than the $729-million achieved in the first sales cycle of this year, as well as the $617-million achieved in the second sales cycle of 2016.
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    De Beers seeks to bolster defenses against impostor diamonds

    Diamond specialists De Beers has rolled out a new machine to prove the authenticity of diamonds to ward off the threat of synthetic stones masquerading as real ones.

    At an event in Hong Kong, the International Institute of Diamond Grading & Research (IIDGR), part of the De Beers diamond group that parent Anglo American has said is central to its operations, launched new equipment that can screen thousands of tiny diamonds, known as melee, and determine whether they are genuine.

    It says it expects over the next two years to sell around 500 of the machines at $45,000 each.

    The devices, which screen diamonds 10 times faster than the previous model, are sold to jewelers across the world as De Beers seeks to set industry-wide standards and prevent anyone passing off a laboratory-grown stone as natural.

    It could in theory be easy to conceal small synthetic stones in a melee.

    Jonathan Kendall, president of IIDGR, said synthetic stones were still only a small percentage of global diamond production, but De Beers needed to be ahead of any reputational threat.

    "We are making sure we cover any future issue that may arise," Kendall told Reuters by phone. "Confidence is everything in the diamond sector."

    The rough diamond market, in which De Beers is the biggest player by value, fell sharply in 2015 in line with a wider commodity price collapse, but recovered in 2016.

    On Tuesday, De Beers said its latest sale of rough stones achieved $545 million, down from $617 million the same time a year ago.
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    Base Metals

    Freeport sees 'no return to business as usual' at Grasberg mine: document

    Freeport sees 'no return to business as usual' at Grasberg mine: document

    Freeport-McMoRan's Indonesian unit sees "no returning to business as usual", an internal company memo said, as the miner cut output and laid off workers at its giant Grasberg copper mine in a battle with Jakarta over mining rights that has paralyzed its operations.

    Freeport's Indonesian unit has shelved plans to invest $1 billion a year in long-term underground expansion at the world's second-biggest copper mine, the company said in a memo to all staff on Feb. 28, citing a stoppage to Grasberg exports since mid-January resulting from changes to Indonesian mining rules.

    Copper ore output from the Grasberg mine in Papua will be cut to 95,000 tonnes a day in 2017 from 140,000 tonnes previously estimated, it said in the document reviewed by Reuters.

    "This is not the direction we want to go, as these investments are needed to build our future business and would provide continued economic growth in Papua and thousands of job opportunities for decades, beyond the completion of the Grasberg open pit," it said.

    Copper concentrate production at Grasberg has been stopped since Feb. 11, and ore output is currently limited to stockpiling for future processing. A transition from open pit to underground mining at Grasberg may now be postponed to beyond late 2018.

    Freeport, the world's biggest publicly listed copper producer, warned last week it could take the Indonesian government to arbitration and seek damages over the dispute.

    The company's chief executive, Richard Adkerson, said on Monday that regulations Indonesia issued on Jan. 12 requiring Freeport to forfeit its long-term mining rights before resuming exports, were "in effect a form of expropriation".

    Asked about the memo, a Freeport Indonesia spokesman said Grasberg's "operation and production is reduced to adjust to Smelting Gresik capacity".

    Operations at Freeport's sole domestic buyer of copper concentrate, PT Smelting in Gresik, East Java, resumed briefly on Wednesday after a six-week halt that has limited Grasberg's output options. Operations stopped again due to a technical glitch.


    In the memo, Freeport said that over the past month it has revised its operating plans, slowed its underground expansion and announced "drastic reductions" to manpower levels in efforts to cut costs.

    "These are painful but necessary measures the company needs to survive while it works with the government to achieve a mutually acceptable solution to resume exporting copper concentrate," it said.

    "The outcome of our negotiations with the government will not change this. There is no returning to 'business as usual,'"it said. The changes represented "a fundamental shift" in how Freeport operates, it said.

    Production of copper concentrate has yet to resume at Grasberg as a result of the export stoppage, a company source with direct knowledge of the matter told Reuters.

    Indonesia's director general of coal and minerals, Bambang Gatot, declined to comment on the changes in output. The government often met Freeport to discuss its mining rights "but there has been no conclusion yet," Gatot said.

    Indonesian President Joko Widodo said on Thursday that the government was seeking a solution to the Freeport issues that benefited both parties.

    Freeport CEO Adkerson said on Monday that he hoped and believed the dispute will be resolved, "but we have to plan for it not being resolved, and we're doing that."

    "This is not a sweetheart contract for Freeport,"
    he said, referring to $16.5 billion in taxes, royalties and dividends Indonesia has received from Freeport since it signed its mining contract in 1991, while the company has taken $10.8 billion.

    "We're all going to win together, or we're all going to lose together, and I believe that's going to be the dynamics that bring us to the table and reach a mutual agreement," he said.

    Freeport estimated in January that Grasberg would account for 1.3 billion pounds (589,670.081 tonnes) of its global copper sales of 4.1 billion pounds in 2017, assuming exports resumed in February. The export stoppage was expected to reduce Grasberg's copper output by around 70 million pounds per month.

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

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    Escondida strike turns violent as protesters battle police

    A three-week-long strike at Chile's Escondida, the world's biggest copper mine, turned ugly on Wednesday when a group of striking workers blocked a highway, provoking confrontations with the police.

    Escondida's approximately 2,500 unionized workers began a strike on Feb. 9 after contract talks with mine owner BHP Billiton failed, boosting global copper prices on expectations of tighter supply.

    Early Wednesday morning, around 800 workers carried out a protest on the main road that connects the regional city of Antofagasta with the mine, the union said.

    A Reuters witness said the protesters blockaded the road, burned tyres and threw rocks and sticks at the police, who responded with tear gas. By late morning, the protesters had dispersed.

    The union said a "strong police contingent" acted against the protesters and left three workers injured, adding that union leaders had calmed the situation.

    Escondida criticized the violence and said: "We reiterate the need to keep this process within the bounds of legality."

    The events reflect the increasing bitterness and division between the two sides, as the pressure to secure a deal on both ratchets up, but whose positions still appear to be far apart after three weeks of strike.

    Key differences include disagreement over the level of benefits new workers should receive, and planned changes to shift patterns and benefits.

    The union complained earlier this week that BHP had failed to make back payments to workers, while the company said that it would make the payments once the strike had ended, in accordance with Chilean law.

    A local judge ruled on Tuesday that a deferred payment from 2016 should go out to workers, and BHP said on Wednesday that it disagreed with the ruling but would comply.

    The union is keen to prevent workers from losing enthusiasm as the strike drags on, especially as after 30 days, individual miners have the right to break from the union agreement and accept the company offer.

    The company has waived the right to replace workers before 30 days, sacrificing output in an attempt to ease tensions and potentially weaken the union position.

    A government-led attempt at mediation failed last week. Although both sides say they are open to talks, there has been little concrete sign of a resumption of dialogue in the near future.

    Escondida, which produced around 5 percent of global copper output last year, is majority-controlled by BHP. Rio Tinto and Japanese companies including Mitsubishi Corp hold minority interests.
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    Copper king vows to resist rushing projects as prices surge

    Copper king vows to resist rushing projects as prices surge

    The world’s biggest copper producer has some good news for bulls: it won’t be tempted into speeding up projects as prices rally.

    What’s more, Codelco chairperson Oscar Landerretche says a series of natural obstacles facing the industry will also prevent other miners from piling in.

    “It’s going to be very difficult for the industry to respond even if it wanted to,” Landerretche said Tuesday in an interview at the BMO Capital Markets mining conference in Florida. “It’s becoming very, very hard to do new projects.”

    Existing mine reserves are deteriorating while the industry has yet to experience its own “shale gas moment,” in which technology unlocks supply previously deemed unfeasible, Landerretche said. Meanwhile, the global regulatory environment has become tougher.

    At the same conference, BHP Billiton CEO Andrew Mackenzie said copper tightness could be exacerbated by a reluctance to invest after years of low prices. That sentiment was echoed by Swedish-Canadian commodities entrepreneur Lukas Lundin, who called the industry “gun shy.”

    Supply constraints, coupled with healthy demand -- which he sees increasing 3.5% this year compared with a 2% projection six months ago – should support prices of $2.60 to $2.70 a pound this year, he said. Longer-term, the Santiago-based miner sees copper closer to $3 as the market moves into a deficit, starting with a 100 000 to 200 000 metric ton shortfall in 2018.


    For most of his time at state-owned Codelco, Landerretche has had to deal with conditions that were less than ideal. The Massachusetts Institute of Technology-trained economist was appointed to Codelco’s board by President Michelle Bachelet in 2014, the second of three years when prices fell.

    Landerretche and Chief Executive Officer Nelson Pizarro have overseen cost and budget cuts to cope with a slump in metal prices at a time when the state producer was engaged in a record investment program to overhaul its aging deposits after years of under-investment. A multiyear investment plan has been whittled back to $18 billion from $25 billion.

    In the past six months, copper futures have risen more than 30% and they traded at $2.7580 a pound on Wednesday. A strike at BHP’s Escondida in Chile and a dispute at Freeport-McMoRan Inc.’s Grasberg mine in Indonesia have been restricting shipments at a time when increased infrastructure spending in China and US President Donald Trump’s spending pledges boost the demand outlook.


    Now that prices are rising, Codelco still plans to keep to its current course by advancing a series of initiatives aimed at replacing depleting orebodies, Landerretche said. Over the next 20 years, production should be flat at 1.6-million to 1.7-million tons a year, he said. Before trimming its project budgets, the company had projected getting to 2 million tons.

    “The balancing act has to do with realizing the investments that the company needs to do to continue to be a leader in copper production,” he said. “But we want to do it without increasing our debt.”

    Along with cost reductions, the board under Landerretche has worked to ease what had been one of the heaviest debt burdens in the industry. Codelco’s debt now sits at about $14.3 billion, and his intention is to have it stable at that level when his term ends in May 2018.

    Codelco would only increase it if the Chilean government failed to fulfill its recapitalization promises, copper prices fell significantly below $3 a pound, or efforts to reduce costs failed, Landerretche said.

    Projections are for copper to move up, not down. At the BMO conference, executives including Mackenzie and Lundin opened the door to the market posting a small deficit this year, its first in six years.

    Prices of the metal, often seen as a guide to the world economy’s health, may climb above $8 000 a ton before the end of the decade amid rising demand, waning output and a lack of investment in new operations, Citigroup forecasts, from about $6 000 now. BHP sees a deficit emerging in the 2020s, and David Lilley, co-founder of RK Capital Management, this week threw his weight behind bets on a growing shortage.

    Last month, Landerretche was the victim of a letter bomb at his residence in Santiago, escaping with minor injuries. The incident – responsibility for which was claimed by a little known group of environmental extremists – shook a country where attacks on executives or politicians are rare, and where the murder rate is the second-lowest in the Americas, after Canada.

    The attack is still under investigation but it increasingly looks to have been caused by a sophisticated operation, Landerretche said, adding that he believes it is highly improbable it was the work of amateur environmentalists. A logical motive would seem to be Codelco’s efforts to improve corporate governance, Landerretche said. “We have implemented an enormous amount of reforms to assure our citizens that Codelco is not captured by special interests.”

    As part of efforts to reduce debt, Landerretche also spearheaded the latest push to repeal a law requiring Codelco to give 10% of its sales to the military. Asked if the mail bomb could have been in response to that, he declined to speculate, but said Codelco will continue the process of ensuring it represents the best interests of the Chilean people by resisting pressure from special interests.

    “When I’m talking about special interests, I mean all sorts,” he said. “We’re talking about businessmen that have contracts with us, we’re talking about labour leaders, we’re talking about communities, we’re talking about institutions that believe they own the company.

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    Chile's January copper output slips 3% on year to 452,035 mt

    Chile produced 452,035 mt of copper in January, down 2.6% from the same month of last year, government figures showed Tuesday.

    The monthly figure also marked a fall of 12.6% from December last year.

    Chile is the world's largest producer of copper, although mine output was impaired last year by a series of accidents, strikes and stoppages. Production fell 3.5% year on year in 2016 to 5.642 million mt.

    The recent figure does not reflect the impact of a strike which has halted production at the BHP Billiton-controlled Escondida mine, the world's largest copper operation.

    Around 2,500 unionized workers began the indefinite strike on February 9. Despite government efforts, the two sides have yet to begin talks to diffuse the conflict.

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    LME stocks raid opens new chapter in zinc bull narrative

    The next chapter of zinc's bull market story has just opened with a mass raid on metal sitting in London Metal Exchange (LME) warehouses.

    More than 100,000 tonnes of exchange stocks have been canceled in the space of a couple of weeks, meaning the metal is no longer available for trading purposes and can be physically loaded out of warehouses.

    The remaining "open" tonnage, as it's termed on the LME, has now fallen to 203,350 tonnes, the lowest since December 2008.

    This can be seen as another sign that tightness in the zinc raw materials market is starting to feed through into the refined metal part of the supply chain.

    That's good news for the many zinc bulls out there, who have already seen the price of London zinc rise from under $1,600 per tonne to $2,860 over the last year.

    There are two key questions that need to be answered, though, if the price is to rise further.

    Is this slump in available LME stocks for real or just another false signal emanating from the smoke-and-mirrors financing trade?

    And when will this evolving bull story start affecting China, the world's biggest producer and consumer of zinc?


    Most of the cancellation activity has taken place at New Orleans. This should come as no big surprise since the U.S. port has long held the lion's share of LME zinc stocks.

    Total LME-registered inventory in New Orleans currently stands at 340,400 tonnes, or 89 percent of the global total, of which just over half is now sitting in the canceled metal "departure lounge". <0#MZNSTX-LOC>

    This, however, is not the first time New Orleans has seen mass cancellations of zinc.

    Back in 2013 the ratio of canceled tonnage to open tonnage in the port spiked to over 65 percent but subsequent drawdowns proved a false signal as large amounts of the metal miraculously reappeared in the system over the ensuing months.

    The zinc was essentially on a merry-go-round between exchange and non-exchange storage, with stocks financiers looking to lower their costs by moving the metal to cheaper non-LME registered sheds.

    There are two big differences between now and then, though.

    First, there were more than 800,000 tonnes of zinc in LME warehouses at the start of 2013. Today the figure is half that.

    Second, and more importantly, the market structure is very different.

    The front part of the LME zinc curve was in persistent contango over the course of 2013 with three-month metal trading at a premium of about $30-40 per tonne over LME cash prices.

    That's the sort of market structure that stocks financiers love since the return from the contango covers their costs, which are largely related to storing the metal during the financing term.
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    Steel, Iron Ore and Coal

    China to reallocate 500,000 coal and steel workers in 2017

    China to reallocate 500,000 coal and steel workers in 2017

    China needs to reallocate half a million steel and coal workers in 2017 due to capacity cuts in these industries, as the world's second-largest economy tries to combat excess in the bloated industries, Reuters reported, citing China's labor minister.

    "This year we will continue to cut capacity in coal and steel," Yin Weimin, the head of China's Ministry of Human Resources and Social Security, told reporters.

    "We will need to reallocate jobs to 500,000 workers," he said, including assigning workers different jobs within the same or a different company, early retirement or encouraging them to become entrepreneurs.

    China will introduce a policy this year to encourage the development of new industries, for example internet-related industries, that will create new jobs, he said.

    China reallocated jobs to 726,000 coal and steel workers in 2016 "without any major problems", he said, adding that China's overall employment outlook in 2017 is expected to remain relatively stable, despite the government facing immense pressure to create jobs.

    China's central government allocated more than 100 billion yuan ($14.54 billion) last year to help laid-off coal and steel workers and spent more than 30 billion yuan from the fund last year, Yin said.

    China created 13.14 million urban jobs in 2016, Yin said, but did not specify whether this was a gross or net figure of the number of people at work.

    China's urban registered unemployment rate will remain at around 4.5% in 2017, Yin told reporters, but many analysts believe this figure is an unreliable indicator of nationwide employment conditions.

    China's official unemployment rate has been around 4% for years, despite the rapid slowdown in the economy from double-digit growth to 6.7% in 2016, its slowest pace in 26 years.

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    Indian state ports' Jan coal imports drop 13.09pct on year

    India's 12 major government-owned ports imported 11.6 million tonnes of coal in January, rising 3.48% from last December but falling 13.09% year on year, the seventh straight decline on yearly basis, according to latest data released by the Indian Ports Association (IPA).

    Coking coal shipments received by the 12 ports in January were 3.74 million tonnes, dropping 9.66% from a year ago but up 2.49% from the month prior, the data showed.

    Thermal coal imports at the ports dropped 14.63% from a year ago but gained 3.96% from December to 7.86 million tonnes in January.

    Paradip port on the east coast handled the highest volume of thermal coal in the month at 2.32 million tonnes, dropping 20.41% from a year ago.

    Haldia port handled the highest coking coal shipments at 1.08 million tonnes, rising 11.35% from a year earlier.

    The 12 ports are Kolkata, Paradip, Visakhapatnam, Ennore, Chennai, VO Chidambaranar (Tuticorin), Cochin, New Mangalore, Mormugao, Mumbai, Jawaharlal Nehru Port Trust (JNPT) and Kandla.

    Cochin, JNPT and Chennai ports did not import any coal cargoes in January.

    In the first ten months of this fiscal year (April –January), thermal coal imports at India's 12 ports dropped 10.02% year on year to 78.4 million tonnes, and their coking coal imports slid 6.67% from the year prior to 39.99 million tonnes over the same period.
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    China Dec rail coal transport up 5.5pct on year

    China's rail coal transport increased 5.5% from the previous year and up 5.1% on the month to 184 million tonnes in December last year, showed the latest data from the China Coal Transport and Distribution Association.

    Of this, 129 million tonnes or 70.1% of the total were railed to power plants, a year-on-year decline of 4.8% and flat from the month before, data showed.

    In 2016, China's railways transported a total 1.9 billion tonne of coal, falling 4.7% year on year, with thermal coal transport at 1.34 billion tonnes or 70.5% of the total, down 2.8%.

    Coal-dedicated Daqin line transported 351.25 million tonnes of coal during the same period, down 11.5% on the year, with December volume up 16.7% on the year and up 2.2% from November to 38.41 million tonnes.
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    BC Iron moves into potash

    Junior iron-ore company BC Iron has entered into a joint venture (JV) agreement with fellow-listed Kalium Lakes over the Carnegie potash project, in Western Australia.

    Under the terms of the agreement, BC Iron could earn a 50% interest in the Carnegie project by predominantly sole-funding exploration and development expenditure across several stages, up to the completion of a feasibility study.

    In the initial scoping study, BC Iron can earn a 30% interest in the project by sole funding the first A$1.5-million expenditure. To earn a further 10% interest, BC Iron would be required to fund prefeasibility studies, requiring a further capital investment of A$3.5-million.

    During the feasibility study phase, BC Iron could elect to earn a further 10% interest in the Carnegie project by sole-funding a further A$5.5-million.

    “Through this agreement with Kalium, BC Iron has gained exposure to a highly prospective project in an agricultural commodity with attractive long-term dynamics,” said BC IronMD Alwyn Vorster.

    “Becoming involved in an agricultural commodity has been a clearly articulated objective of BC Iron, and this JV agreement with an expert potash company in Kalium provides us with the required exposure at low risk. This move into potash, added to the pending conclusion of a scoping study on BC Iron’s Mardie Salt project, positions BC Iron well in agricultural and other commodities leveraged to a growing global population.”

    The Carnegie project comprises one granted exploration license and two exploration licence applications covering some 1 700 km2. The project is thought to be highly prospective for hosting a large sub-surface brine deposit, which could be developed into a solar evaporation and processing operation that produces sulphate of potash.

    Further strengthening the cooperation agreement, BC Iron has also given Kalium the right to acquire a 50% interest in the Mardie project, at certain development stages.

    BC Iron was hoping to develop a three-million tonne a year solar evaporation salt operation at Mardie.

    BC Iron in October of last year sold its 75% stake in the Nullagine iron-ore project to JV partner Fortescue Metals for A$1, as the a restart of the mine remained unlikely.
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    Russia's Evraz meets forecasts with 7 pct rise in 2016 core earnings

    Russia's No.2 steelmaker Evraz said on Wednesday its core earnings rose 7 percent in 2016, benefiting from a rebound in steel prices and an improving domestic economy.

    The company's earnings before interest, taxation, depreciation and amortisation (EBITDA) totalled $1.54 billion, up from $1.44 billion the previous year, it said in a statement.

    Analysts in a Reuters poll had forecast that Evraz, part-owned by Chelsea soccer club owner Roman Abramovich, would report full-year 2016 EBITDA of $1.5 billion.

    Russian steelmakers have suffered over the past two years as world steel prices plumbed 11-year lows and the country's economic crisis sapped domestic demand.

    But they expect a stronger 2017 as Russia's economy improves, buoyed by higher oil prices, and by loftier steel prices supporting profits.

    "Overall, thanks to favourable market conditions and numerous improvement initiatives, we delivered fairly strong financial results," Chief Executive Alexander Frolov said.

    Evraz narrowed its net loss to $188 million, versus a loss of $719 million in 2015, it said. Revenue slipped 12 percent to $7.7 billion.

    The company's net debt to EBITDA ratio fell to 3.1, it said in a presentation for investors. Analysts at VTB Capital have said Evraz could reduce the ratio to below two in the first half of 2017, its lowest since 2008, creating room for dividend payments.

    "We are confident enough that the (net) debt/EBITDA ratio will be less than three, but nevertheless, I think it is too early to speak about dividends right now," Frolov told a conference call with reporters.

    Frolov said the company was "cautiously optimistic" about market conditions in 2017 and hoped efficiency measures would help it boost free cash flow and reduce its debt burden. Evraz's 2017 steel production was seen flat, he added.

    Efforts to raise money by some of Evraz's competitors further point to increased confidence in the sector.

    Russia's biggest steel producer, NLMK, said in December it could issue Eurobonds this year and TMK, the country's largest maker of steel pipes for the oil and gas industry, sold a 13 percent stake through a secondary public offering in February.

    Banking sources have previously told Reuters Evraz is also considering a convertible bond issue this year.

    "At the moment, we are flexible enough and considering all possible options for debt refinancing," Chief Financial Officer Nikolai Ivanov said.

    "The market is currently extremely good, the recent issues we have seen ... were quite impressive. The market is very good and we have our finger on the pulse."
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    China Feb steel sector PMI at 55.0

    The Purchasing Managers Index (PMI) for China's steel industry was 55.0 in February, compared to 49.7 in January, showed data from the Steel Logistics Professional Committee (CSLPC).

    In February, the steel industry output sub-index was 50.4, up 1.8 from January.

    In February, the sales volume sub-index was 57.8, rising 16.8 month on month, reflecting improving sales activity.

    Meanwhile, the order sub-index was 57.0 in February, rising 16.2 from 40.8 in January.

    China's steel market has improved since the Spring Festival, with downstream orders increasing. High prices helped steel makers to actively boost output for better profit.
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