Mark Latham Commodity Equity Intelligence Service

Tuesday 31st January 2017
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    Republicans take first steps to kill Obama-era regulations

    Republicans on Monday continued their drive to loosen U.S. regulation, taking the first step to kill five Obama-era rules on corruption, the environment, labor and guns under the virtually untested Congressional Review Act.

    The House Rules Committee sent to the full chamber three regulations enacted under former President Barack Obama, a Democrat, to ax.

    They were the Stream Protection Rule, the Securities and Exchange Commission's "resource extraction rule," and one on gun buying.

    Republicans put as much urgency on limiting what they consider over-regulation that stifles economic growth as they do on overhauling the tax code and dismantling the Affordable Care Act, according to House Majority Leader Kevin McCarthy.

    This is the first time the Republican-led House of Representatives has targeted specific rules since convening on Jan. 3. Earlier this month it passed bills to limit regulatory agencies and Republican President Donald Trump is cutting regulation through executive orders.

    Under the law, Congress can use simple majority votes to stop recent regulations in their tracks. Agencies cannot create a new rule to replace any part of an overturned regulation. Timing in the law means any rules enacted in the final months of Obama's administration are eligible for axing.

    The law has been used effectively only once, in 2001. Both sides consider this week a test of its powers.

    On Tuesday the Rules Committee will send two more regulations to the full chamber, which is expected to vote to kill all five on Wednesday and then hand them off to the Senate.

    Senate Republicans on Monday prepared to act quickly after the House vote, with Majority Leader Mitch McConnell and Environment Committee Chairman James Inhofe introducing companion measures on the stream and extraction rules.

    The Interior Department took years to craft the stream rule, hoping to prevent coal-mining waste from contaminating water sources in areas near mountain-top removal mining sites. Critics say it is unnecessary and goes too far, wiping out jobs and usurping state rights.

    The extraction rule is required in the 2010 Dodd-Frank Wall Street reform law, but was only approved six years later this summer. It requires companies such as Exxon Mobil Corp to state publicly how much they pay governments in taxes and other fees. Opponents say it hurts U.S. energy companies, while human rights groups argue it reduces corruption.

    Meanwhile, the gun rule requires extra scrutiny of purchasers who receive Social Security benefits and also have a history of mental illness.

    Liberal groups are outraged by the rollbacks, but their traditional allies, Democratic lawmakers, have limited means to stop them in the Republican-dominated Congress.

    Those on the Rules Committee said important protections were being rushed to the chopping block and pleaded for hearings on the regulations, to no avail.

    This week House Democrats and activists are planning to rally the public, hoping to persuade Republicans to vote no. Senate Democrats cannot filibuster the measures but congressional aides expect them to slow the process by taking the full five hours they are allowed to speak against each measure on the chamber's floor.
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    New Rasmussen Poll Reveals Silent Majority Approves Of Immigration Ban

    A new Rasmussen Reports national telephone and online survey finds that 57% of Likely U.S. Voters favor a temporary ban on refugees from Syria, Iraq, Iran, Libya, Somalia, Sudan and Yemen until the federal government approves its ability to screen out potential terrorists from coming here. Thirty-three percent (33%) are opposed, while 10% are undecided.

    Similarly, 56% favor a temporary block on visas prohibiting residents of Syria, Iraq, Iran, Libya, Somalia, Sudan and Yemen from entering the United States until the government approves its ability to screen for likely terrorists. Thirty-two percent (32%) oppose this temporary ban, and 11% are undecided.

    This survey was taken late last week prior to the weekend protests against Trump’s executive orders imposing a four-month ban on all refugees and a temporary visa ban on visitors from these seven countries.
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    Strike cuts French electricity production by nearly 4 GW

    A strike by electricity and gas sector workers in France has cut nuclear and hydro power production by nearly 4 gigawatt, French grid operator RTE and utility EDF said on Monday.

    RTE said on its website that unplanned outages due to the strike had cut output at eight of France's 58 nuclear reactors, while EDF said on its website that the strike had cut hydropower production by 656 megawatts.

    RTE said the eight reactors were expected to be back on full capacity by Tuesday evening.

    French energy sector unions called for a strike in the gas and electricity sector to protest a wage freeze in 2017, CGT trade union said in a statement earlier on Monday.
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    Oil and Gas

    GasLog Partners posts highest ever quarter profit

    GasLog Partners, the New York-listed spinoff of LNG shipper GasLog reported increased profits for the fourth quarter and the full year of 2016.

    According to the company’s latest quarterly report, the net profit in the three months ended December 31, reached $24,8 million 22.3 percent up from $20.3 million during the corresponding period in 2015.

    Net profit for the year 2016 increased to $77.3 million, 18.8 percent up from $65 million in 2015.

    Speaking of the results, Andrew Orekar, GasLog Partners’ CEO said that the company delivered its highest-ever quarterly and annual results.

    The report notes that with a significant forecast increase in LNG supply and a growing number of new demand centers, GasLog’s demand outlook for LNG carriers with long-term charters remains positive.

    The company added that new LNG volumes will create demand for additional ships over and above those currently available in the market.

    In the shorter-term shipping market in the fourth quarter, brokers reported that spot rates in the Atlantic Basin increased to approximately $45,000 per day, with one end of year fixture reported above $50,000.

    The catalyst was greater ton-mile demand with many cargoes going from the US to Asia through the Panama Canal. Spot charter terms have also improved with round trip economics now seen on some short term voyages. In the Pacific Basin, reported rates were lower at around $38,000 per day than the Atlantic, largely due to the greater availability of vessels during the period.

    During the quarter, U.S. natural gas prices increased 30 percent to $4 per million British thermal units. However, Northeast Asian LNG prices rose by 60 percent to approximately $10 per mmbtu due to a cold start to winter in key demand centers such as Japan, China and Korea.

    Destination flexibility allowed offtakers to send more LNG cargos to Asia which increased ton-mile demand.

    For 2016 in total, there were approximately 275 short-term fixtures, an increase of more than 50 percent over 2015.

    Whilst it is too early to predict a sustained recovery, GasLog Partners said that fundamentals continue to point to a recovery through 2017 and beyond.
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    Pertamina to go solo on Balongan refinery

    Indonesian energy company Pertamina will proceed with an upgrade of its Balongan refinery without a partner, company officials said on Monday

    The decision to go it alone on the project, which is on the north coast of Java, comes after the expiry in November of an initial agreement with Saudi Aramco from 2015 on upgrades of the Balongan and Dumai refineries. The state-owned Saudi oil company had expressed an interest in the project as recently as December.

    "The process of forming a partnership was taking a long time," Pertamina CEO Dwi Soetjipto told Reuters, when asked why the state-controlled Pertamina had decided against working with Aramco on Balongan. "This is really needed," he said referring to the upgrade.

    Soetjipto said the decision would ensure that Pertamina could avoid importing low sulphur waxy residue that would be in short supply without the upgrade.

    Pertamina's investment in Balongan, however, would be "less than initially planned," Soetjipto said. He said that the expansion at the refinery would be "linked to Pertamina's financial condition."

    The company's petrochemicals and megaprojects director Rachmad Hardadi, speaking at a briefing on Pertamina's refinery projects, said Aramco had "already accepted," Pertamina's decision.

    "(Aramco) have committed to speed up work on Cilacap," Hardadi said, referring to Indonesia's biggest refinery, which Pertamina is upgrading in partnership with Aramco and aims to complete this in 2021.

    The upgrade of the Balongan refinery, which will be completed in two stages, will roughly double its crude capacity to 240,000 barrels per day (bpd) from around 125,000 bpd at present, Hardadi said, and completion is due in 2020.

    The $1.2 billion first stage of the upgrade aims to enable Pertamina to process medium crude at the plant with a sulphur content of 0.4 to 0.5 percent, Hardadi said.

    "In the second stage we will make improvements so it can process sour crude and be more competitive on costs," he said.

    Pertamina is still considering whether to partner with Aramco in the second stage of the upgrade, Soetjipto said.

    The company is also still considering whether to find a partner for an upgrade at the Dumai refinery, he said, noting that this was not a top priority and was not expected to be completed until 2024.

    "It's also related to financial issues," he said.

    Pertamina expects to decide in April on a partner to take up to a 90 percent stake in the Bontang grassroots refinery and petrochemical plant project, which it estimates to be worth $8 billion. The company is aiming to complete this project in 2023.
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    Chevron’s Gorgon project ships 39 cargoes, first LNG from Train 3 expected in 2nd quarter

    The Chevron-operated giant Gorgon LNG plant on Barrow Island offshore Western Australia has shipped 39 cargoes of LNG up to date, Chevron’s CEO John Watson said.

    Production at the $54 billion Gorgon LNG project has been hit several times since it shipped its first cargo of the chilled fuel on March 21.

    The LNG facility faced four production interruptions in March, July, in the beginning of November, and in late November.

    Watson said during a conference call discussing Chevron’s fourth-quarter results that the Gorgon Train 1 and Train were producing at a “stable” rate, near full capacity.

    Output from the two LNG units was over 200 millions barrels of oil equivalent per day and 100 million cubic feet per day of domestic gas, the CEO said.

    Out of total 39 cargoes from Gorgon, ten have been shipped since the beginning of this year.

    “Train 1 ramp-up was below expectations as we worked through start-up issues… All learnings from Train 1 were applied to Train 2 and consequently, Train 2 ramped up to 92 percent capacity within a week and continues to exceed expectations,” Watson said.

    Construction on Gorgon Train 3 was completed and Chevron is currently commissioning the last unit.

    “We expect first LNG early in the second quarter of this year,” Watson said.

    Once in full production, the three-train plant on Barrow Island is expected to have a capacity of 15.6 million mt/year.

    The Gorgon LNG project is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).

    Chevron’s second LNG project in Australia located near Onslow is expected to ship its first cargo of the chilled fuel in the middle of this year.

    To remind, Chevron in October announced a $5 billion cost blowout for its Wheatstone LNG project blaming late arrivals of modules. Wheatstone project costs are now around $34 billion.

    Watson said during the conference call that Wheatstone’s onshore plant was making good progress with all modules for the two trains in position and the plant site was “under permanent power.”

    “Ongoing hook up and commissioning of the offshore platform is the critical path activity,” he said, adding that the company is leveraging experience from Gorgon and incorporating into ongoing activities.

    Eighty percent of the Wheatstone project’s foundation capacity will be fed with natural gas from the Wheatstone and Iago fields, which are located about 200km north of Onslow off Western Australia’s Pilbara coast. The remaining 20 percent of gas will be supplied from the Julimar and Brunello fields.
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    Japanese LNG players to offload excess

    Reuters are reporting that Asian spot LNG prices extended losses this week as oversupplied Japanese utilities sought to offload cargoes and as key European gas benchmarks softened.

    Asian prices for LNG delivery in March dropped 25 cents to approximately US$7.75/mmBtu, ranging from US$8/mmBtu to about US$7.60/mmBtu.

    Prices tailed off even more sharply into April, currently trading at around the US$7/mmBtu mark.

    Kansai Electric, Osaka Gas and LNG importing giant JERA are expected to unload at least one cargo apiece for March delivery.

    A second trader said JERA was already marketing two shipments from Indonesia's Donggi-Senoro LNG export facility and that it has likely sold one of those cargoes.

    Further weighing on Asia's March LNG contract was an 8% slide in Europe's equivalent benchmark, which settled at US$6.40 per mmBtu on 27 January.

    China's Sinopec put up for tender several cargoes for February and March delivery from Australia's AP LNG project.

    Exxon Mobil's Papua New Guinea export plant sold off one cargo for March and one for April loading, via a tender process, at a price above US$8/mmBtu.
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    Freezing Central Asia pulls low-density Russian gasoil away from Med

    Black Sea gasoil streams for export to the Mediterranean market have become more dense over the winter as Central Asia gets first pickings of Russian gasoil with better cold properties -- and by its very nature, lower densities.

    As a consequence, the remaining gasoil streams offered to traders that operate in the Mediterranean basin have increasingly been higher-density material.

    Sources say the cold weather across Central Asia has resulted in a shift for heating fuel which has driven the recent redistribution of product across end consumer markets.

    With more higher density streams on offer to the Mediterranean market, blenders have needed to rethink their blending economics, and the streams used to meet certain consumer requirements.

    Occasional issues have arisen when meeting tailored requirements, market sources reported.

    The science of blending becomes ever more important as bespoke grades within the Mediterranean basin become increasingly prevalent.

    In particular there has been an increase in demand from North Africa for 0.1% gasoil, in recent months, including the addition of Tunisia to the 0.1% sulfur-content pool.

    The premium of Mediterranean 0.1% gasoil cargoes to ICE low-sulfur gasoil futures was assessed 50 cents higher on the day Thursday at $5.00/mt.

    The Tunisian grade applies a cap on the density, which is lower than standard tenders issued elsewhere in the region. A maximum density of 845 kg/cu m, required by the Tunisian tenders, means blenders need to carefully consider the gasoil streams used for blending.

    On trading with Tunisia, deliveries are done on an "as is" basis; meaning that no density escalator or de-escalator is applied as in other shorts in the regions.

    "It is a really difficult specification that Algerian...and Tunisian specifications," the trader said.

    While some results have missed the mark after attempts at blending, on the whole, there are healthy supplies of gasoil streams available for blending. The optionality from the Black Sea makes blending for North Africa a feasible proposition, a second trader said.
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    Shell finances Chrysaor?

    The total sale price of up to $3.804bn comprises three key elements:

    • An initial consideration of $3.024bn.
    • Up to $600m contingent on Brent oil prices being above $60 per barrel in 2018-19 and above $70 per barrel in 2020-21.
    • Up to $180m subject to the achievement of certain exploration milestones.

    Shell will make a payment to Chrysaor of up to $25m a year between 2018-21 should the average oil price during that time fall in or below the range of $47.50 - $52.50 per barrel.

    Shell is providing a vendor loan to Chrysaor as part of the transaction and has signed hydrocarbon lifting and sales agreements for oil and gas produced from the assets being sold.

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    Shell sells Thailand gas field stake to Kuwait's Kufpec for $900 million

    Royal Dutch Shell said on Tuesday it would sell its stake in Thailand's Bongkot gas field to Kuwait Foreign Petroleum Exploration Company for $900 million (719.5 million pounds).

    The move is the latest stage of the Anglo-Dutch company's push to reduce debt after buying smaller rival BG Group for $70 billion, bringing its total divestments since April 2015 to 8.7 billion.

    The transaction will include Shell's 22.2-percent equity stake in the Bongkot field and adjoining acreage off the coast of Thailand consisting of Blocks 15, 16 and 17 and Block G12/48, Shell said in a statement.

    "This transaction shows the clear momentum behind Shell's global, value-driven $30 billion divestment programme," the company said.

    Kufpec said in a separate statement that the acquisition would provide it with 68 million barrels of oil equivalent in proved and probable reserves and approximately 39,000 barrels of oil equivalent per day of production.

    Kufpec expects the acquisition to be completed in February while Shell gave a timeline of the first quarter of 2017.

    PTT Exploration and Production PCL (PTTEP.BK) operates the offshore Bongkot field with a 44.445-percent equity while Total has a 33.333 percent stake.

    Shell is also nearing the sale of a large part of its North Sea oil and gas assets to private equity-backed Chrysaor for $3 billion.
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    InterOil urges shareholders to back ExxonMobil deal

    Papua New Guinea-focused player InterOil on Monday called on shareholders to vote for the proposed $2.5 billion takeover by the US-based energy giant ExxonMobil.

    InterOil said in a statement it urged shareholders to follow the recommendations of proxy advisory firms, Institutional Shareholder Services, and Glass Lewis & Co., by voting “FOR” the proposed transaction with ExxonMobil in connection with the upcoming special meeting scheduled for February 14, 2017.

    Shareholders are encouraged to vote “FOR” the ExxonMobil transaction on Monday, but no later than February 10.

    In its report issued on Friday, ISS said that “a vote ‘FOR’ the proposed arrangement is warranted based on a review of the terms of the transaction, in particular, the reasonable strategic rationale, the superior transaction terms (compared to the Oil Search agreement), and the improved disclosure and transaction review process.”

    The report noted that it appears that the board conducted an adequate strategic review process that resulted in significant disclosure improvements and that addressed concerns raised by the Court of Appeal.

    Glass Lewis added in its report that the board received a new fairness opinion in connection with the Amended Arrangement that provides meaningful disclosure, saying that the proposed consideration implies a significant premium to the unaffected closing price of InterOil shares prior to the announcement that the company had agreed to be acquired by Oil Search.

    “Based on the foregoing factors and the support of the board, we believe the proposed transaction is in the best interests of shareholders,” the advisory firm said.
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    Genscape Cushing inventory week ending 1/27

    Genscape Cushing inventory week ending 1/27: -1.5mm bbls w/w.

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    U.S. operators plan major drilling boost as industry shakes off downturn

    The North American upstream industry is set to stage a comeback, according to new data presented by World Oil, the premier trade publication for the international upstream industry.

    According to proprietary survey data—gathered from U.S. operators, U.S. state agencies and international petroleum ministries/departments—World Oil forecasts the following for 2017:

    • U.S. drilling will jump 26.8% higher, to 18,552 wells
    • U.S. footage will increase 29.8%, to 151.5 MMft of hole.
    • U.S. Gulf of Mexico E&P activity, focused on deepwater projects, will go up approximately 9.4%, with increasing well depths and footage.
    • Canadian activity will begin to improve, gaining 21.6% to 4,212 wells.
    • Global drilling should increase moderately to 39,742 wells, for a 6.1% pick-up.
    • Global offshore drilling, reflecting stagnant capex outside North America, will only increase 1.4%, to 2,604 wells.

    Speaking to about 400 attendees at a Friday morning breakfast briefing, Kurt Abraham, World Oil’s chief forecaster and editor, noted that U.S. production—which averaged 8.9 MMbopd in the fourth quarter, up from 8.7 MMbopd in the third quarter—appears to be on the rise. However, he warned, North America may have to continue in its new role as swing producer, and thus may be required to remain flexible.

    Texas. Drilling in the Lone Star State will rise 26.4%, with double-digit increases expected for all 12 of the Railroad Commission districts. While the gains are being led by the Permian, with some additional recovery in the Eagle Ford, there is also significant improvement underway in conventional activity.

    Permian basin. In 2016, operators drilled 3,198 wells in Railroad Commission Districts 8 and 7C, more than originally anticipated. For 2017, World Oil expects to see 3,999 wells drilled in these districts. For 2017, the industry projects a 10% increase in average lateral length for the Permian.

    Eagle Ford. In the Eagle Ford’s predominantly oil portion, concentrated in District 1, activity should increase 28.3%. World Oil predicts that operators will drill 802 wells with an average TD of 14,250 ft. In the gas-heavy Railroad Commission District 2, operators have said they plan to drill 638 wells to an average TD of 15,400 ft, a gain of 23.9%. Activity in District 4 is also forecast to increase 19.1%.

    Gulf of Mexico. Activity has been at historically low levels in the Gulf over the last several years, and 2016 was the lowest yet, with just 117 wells tallied. However, a core of deepwater development activity has continued, and it will continue to form the bulk of work in the Gulf. World Oil projects that drilling will increase about 9%, to 128 wells.

    Oklahoma. During 2017, drilling in the state, home to the emerging SCOOP and STACK plays, is expected to increase 38.5% overall, with 1,809 wells scheduled for an average TD of around 11,600 ft.

    North Dakota. Based on figures from state officials and a proprietary survey of operators, World Oil forecasts that drilling in North Dakota will total 925 wells in 2017, accounting for 18.7 MMft of hole. Average well depth, including lateral sections, will be approximately 20,250 ft.

    Louisiana. Drilling in the northern half of the state is expected to be up a stout 31.2%. Meanwhile, in the state’s southern half, featuring conventional oil and deep gas wells, activity is recovering at a more measured pace. Wells drilled are forecast to increase 12.8%, to 123.

    Northeastern states. In Pennsylvania, operators plan to drill 774 wells for a 29% increase. In Ohio, drilling should increase 19.1%, to 380 wells. And in neighboring West Virginia, gas-targeted activity is on the rebound, with about half of the wells in the Marcellus. Total wells should reach 245, up 21.9%.

    Rocky Mountain states. As operators boost drilling in the prolific Niobrara shale, particularly in the DJ basin, Colorado will see its wells drilled rise 34.0%, to 1,012 wells. New Mexico should see its wells drilled total 710, for an impressive 40.6% increase.

    California/Alaska. Drilling in California, the bulk of which is accounted for by just four firms, is expected to improve about 30%, to 892 wells. Meanwhile, in Alaska, drilling is forecast to increase 15.2%, to 167 wells.
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    Petrogas buys interest in wells in Oklahoma, Texas

    Houston-based oil and gas exploration company Petrogas Co., Inc., now has fractional interest in six wells across southern Oklahoma and Central Texas.

    The producing oil and gas wells are scattered across Carter and LeFlore counties in Oklahoma and Brazos and Fayette counties in Texas. BP America, Montgomery Exploration and Enervest operate the wells, according to a company statement.

    “The market is very ripe for acquisitions at the moment, and we are trying to close as many good deals as possible, as quickly as possible because we expect asset prices to rise by the end of Q1,” Petrogas CEO Huang Yu said in a statement.

    Petrogas recently bought a stake in 11 reactivated oil wells in East Texas.
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    Feds approve Atlantic Bridge natural gas project with compressor station in Massachusetts

    Feds approve Atlantic Bridge natural gas project with compressor station in Massachusetts

    Federal pipeline regulators this week approved the construction of Atlantic Bridge, a $450 million project designed to expand the transport of natural gas from the Marcellus shale basin into New England and the Canadian Maritimes.

    The Federal Energy Regulatory Commission on Jan. 25 issued a certificate of public convenience and necessity to Spectra Energy for a set of proposed upgrades and new construction spanning four states.

    Plans includes 6.3 miles of 42-inch pipeline in New York and Connecticut, new and expanded compressors -- including a major facility in Weymouth -- and various meter station upgrades, including one in Westbrook, Maine.

    The Atlantic Bridge would beef up the Algonquin Gas Transmission and Maritimes & Northeast systems to boost capacity by around 133 million cubic feet per day. The Maritimes pipeline, which now pushes gas southward from Canada to Massachusetts, would be reversed to head north.

    The Weymouth compressor station has face stiff opposition. Mayor Robert Hedlund last summer rejected a $47 million siting deal from Spectra. In December he filed a lawsuit challenging the underlying real estate transaction for the 7,700-horsepower project. Hedlund said Wednesday that Weymouth will appeal the FERC decision.
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    Alternative Energy

    Saudi Aramco Said to Weigh Up to $5 Billion of Renewable Deals

    Saudi Aramco, the world’s largest oil company, is considering as much as $5 billion of investments in renewable energy firms as part of plans to diversify from crude production, according to people with knowledge of the matter.

    Banks including HSBC Holdings Plc, JPMorgan Chase & Co. and Credit SuisseGroup AG have been invited to pitch for a role helping Aramco identify potential acquisition targets and advising on deals, the people said, asking not to be identified as the information is private. The energy company is seeking to bring foreign expertise in renewable energy into the kingdom, the people said, adding that first investments under the plan could occur this year.

    Saudi Arabia is planning to produce 10 gigawatts of power from renewable energy sources including solar, wind and nuclear by 2023 and transform Aramco into a diversified energy company. The kingdom also plans to develop a renewable energy research and manufacturing industry as part of an economic transformation plan announced by Deputy Crown Prince Mohammed bin Salman in April.

    The kingdom intends to become a global “powerhouse” of renewable energy including solar, wind and nuclear power, the country’s Energy Minister and chairman of Aramco, Khalid Al-Falih, said at the World Economic Forum in Davos, Switzerland. By 2030 the kingdom wants to produce 30 percent of its power from renewable energy sources.

    Energy Program

    OPEC’s biggest crude producer is embarking on a domestic renewable-energy program costing $30 billion to $50 billion. The country’s only solar plant in operation, aside from a limited pilot project, is a 10-megawatt facility on top of a parking lot at Saudi Aramco’s headquarters. The national utility, Saudi Electricity Co., is seeking bids for two solar plants to generate a combined 100 megawatts.

    Saudi Arabia previously had longer-term targets for renewable power when crude prices were about double current levels. Its earlier solar program forecast more than $100 billion of investment in projects to produce 41 gigawatts of power by 2040. The government delayed the deadline for meeting that capacity goal by nearly a decade in January 2015, saying it needed more time to assess the relevant technologies.
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    China becomes more efficient, cleaner in energy use

    China becomes more efficient, cleaner in energy use

    China made progress in energy efficiency and clean energy in 2016.

    Energy use per unit of GDP fell 5 percent in 2016, according to the National Bureau of Statistics (NBS), a good start to reducing the figure by at least 15 percent by 2020.

    Clean energy, including hydropower, wind power and natural gas, accounted for 19.5 percent of China's total energy consumption last year, up from 17.9 percent in 2015.

    Coal accounted for 64 percent of total consumption in 2015, with the proportion to be cut to 58 percent or less by the end of 2020.

    The push for efficient, clean energy is partly a response to environmental degradation.
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    EU set to meet green energy goal; UK trails - document

    The European Union is on track to meet its goal for renewables to supply up 20 percent of its energy by 2020, the EU executive said in a report seen by Reuters, although Britain, Ireland and Luxembourg are lagging behind.

    In a stock take on the bloc's climate targets, due to be published on Wednesday, the European Commission saw renewables accounting for 16.4 percent of overall consumption in 2015.

    However, it said EU nations will have to redouble efforts to meet steeper targets in coming years and were struggling to reduce emissions in the transport sector.

    Fearing President Donald Trump will pull the United States out of a global pact to cut emissions, EU officials hope leadership in renewables will help forge ties with China to keep pushing diplomatic efforts to fight global warming.

    "Despite the current geopolitical uncertainties ... Europe will move ahead with the clean energy transition, and will look to China and many others players to push forward," Climate and Energy Commissioner Miguel Arias Canete told Reuters.

    Under the 2015 Paris climate deal, the bloc pledged to cut greenhouse gases by 40 percent compared to 1990 levels. It set a target to increase the share of renewables in energy consumption to at least 27 percent by 2030 - a goal environmental campaigners have criticised as lacking in ambition.

    As the EU seeks to decrease dependence on Russian energy imports, it said higher use of renewables such as wind, biomass, hydro and solar have led to an estimated 16 billion euros ($17 billion) in savings in 2015 on fossil fuel imports.

    As a share of renewables in Europe's power grid, onshore wind energy has grown fastest while solar photovoltaic development has been more uneven, the progress report said.

    For green energy in transport, the 2020 target is 10 percent, while the expected level for 2015 was 6 percent, due to a late uptake of advanced biofuels.

    The EU said France and the Netherlands may also need to ratchet up efforts to meet the 2020 goal.

    Government support schemes for renewables vary widely across the bloc, creating regulatory uncertainty that has slowed growth, it said.

    Late last year, EU regulators announced reforms to help adapt Europe's grid to the growth of variable wind and solar power by promoting greater cross-border cooperation.
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    Precious Metals

    Harmony shares rise on expectation of up to 255% increase in H1 HEPS

    Harmony Gold’s share price rose by 9.6% on the JSE on Monday afternoon after it announced an expected increase of between 235% and 255% year-on-year in its headline earnings per share (HEPS) for the six months ended December 31.

    Harmony attributed the higher HEPS to an increase in the average gold spot price, the recognition of a gain on the Hidden Valley acquisition and the gains recognised on goldand currency hedges.

    This, the company noted on Monday, will translate to HEPS of between 139c and 160c.

    Meanwhile, its earnings a share are expected to be between 434% and 454% higher year-on-year at between 341c and 361c. Harmony recorded a loss a share of 102c in the half-year ended December 31, 2015.

    “We achieved all we set out to in the half-year. We improved our safety performance and increased production. Safe mines are profitable mines and profitable mines strengthen our margins,” said CEO Peter Steenkamp.

    The company will publish its results on February 2.

    Harmony’s shares rose as high as R35.01 a share on Monday, compared with Friday’s close of R31.94.
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    Base Metals

    Hedge funds have never been this bullish about copper price

    Hedge funds have never been this bullish about copper price

    On Monday copper for delivery in March declined more than 1% in New York at $2.6545 per pound or $5,855 a tonne amid a general weakness on commodity and financial markets gripped by uncertainty surrounding the Trump administration's impact on the global economy and geopolitical stability. Last week copper touched its highest level since June 2015 above $2.70 a pound.

    Despite the pullback copper is still up 37% from near-six year lows struck this time last year, with most of those gains coming in the last four months. Better prospects for the bellwether metal is nowhere more evident than on derivatives markets and the shift in positioning of large-scale derivatives speculators such as hedge funds.

    While continuing to reduce bullish gold bets, on the copper market hedge funds have pushed long positions – bets on higher prices in future – to new heights. According to the CFTC's weekly Commitment of Traders data up to January 24  so-called managed money investors have taken net longs to a fresh recored high of just over 91,000 lots.

    That's the equivalent of nearly 2.3 billion pounds or more than 1 million tonnes worth around $6 billion at today's prices. It shatters the previous peaks achieved mid-2014 when the copper price was above $3.20 a pound and represents the equivalent of $9 billion swing from 2016 second quarter net short position (bets that copper can be bought back cheaper in future) of 1.2 billion tonnes.

    Copper's recent strength has been spurred by worries over supply disruption from Indonesia where top listed copper producer Freeport's Grasberg mine facies an export ban and in the globe's main producing region in Chile. Platts reports on Monday rough seas have closed ports in northern Chile which services some of the biggest copper mines in the country for the fourth day:

    The affected ports include Patache, which handles exports of copper concentrates from the giant Collahuasi mine, and Iquique, through which Collahuasi, Teck's Quebrada Blanca and BHP Billiton's Cerro Colorado mines export copper cathode.

    The weather has also forced the closure of Mejillones, which handles copper cathodes from many copper mines in the region, including state-owned Codelco and Freeport McMoRan's El Abra.

    The Port of Antofagasta used by BHP Billiton's Escondida mine, the world's largest copper operation, remains open

    The Port of Antofagasta used by BHP Billiton's Escondida mine, the world's largest copper operation, remains open according to the report. The copper price has also been boosted by a possible production outage at Escondida.

    The current collective agreement with the main union at the mine expires at the end of January and according to a Reuters report workers have rejected BHP's latest revised offer and union leaders have told members "to vote for a strike and prepare for an extended conflict."

    The previous labour deal was signed four years ago when copper was trading around $3.40 a pound. BHP expects full-year production at Escondida of 1.07 million tonnes, which gives the mine a nearly 5% shares of global mine production. Given Escondida's size a prolonged outage could have a meaningful impact on the price.

    BHP's copper production for the half year to end December fell 7% to 712,000 tonnes due to a power outage at its Australian Olympic Dam operations in September-October. BHP also cut full year guidance by 40,000 tonnes to 1.62m tonnes.

    Chile produces 28% of the world's copper and the country's output dropped by 3.9% in 2016, mainly due to lower production at Escondida and Anglo American Sur.

    Production in the South American nation is expected to grow by 4.3% according to the Chilean government forecaster adding that Escondida would account for almost all of the expected increased output.

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    Freeport may resume copper exports from Indonesia in ‘a day or two’ — authorities

    Freeport McMoRan Inc, the world's largest listed copper miner, were down on Monday despite reports indicating that Indonesia may issue a temporary permit valid for up to six months to the company's local unit, which could pave the way for the mining giant to resume exports of concentrate from its Grasberg mine in Papua.

    The temporary permit, valid for up to six months, would pave the way for Freeport to resume exports of copper concentrate from its Grasberg mine in Papua.

    The temporary authorization could be issued "in one or two days", Energy and Mineral Resources Minister Ignasius Jonan said according to Reuters. Such permit is being considered to avoid a stoppage to Freeport's exports while it completes the requirements for a new special mining licence, he noted.

    Indonesia’s fresh ban on concentrate exports kicked in on January 12 as part of the South East Asian nation's comprehensive change to mining regulations and ownership rules.

    Some of the freshly introduced legislation require Freeport to obtain new mining rights before being allowed to resume exports.

    The Grasberg mining complex in the remote Papua region of Indonesia is responsible for more than a quarter of Freeport's total output. Before the current troubles, it was set contribute an even greater proportion in 2017 as copper grades improve and gold production is boosted.

    But in light of the export ban the company has said it may have to suspend planned spending of around $1 billion per year through 2021 to transition the mine to underground operations.

    Last year, the iconic mine produced more than 500,000 tonnes of copper and over 1 million ounces of gold.
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    Oz Minerals lifts copper production forecast

    Copper/goldminer Oz Minerals has flagged a 30 000 t increase in copper production over the next two years, but gold production is will be lower than previously thought.

    The miner on Monday maintained its copper output guidance for 2017 at between 105 000 t and 115 000 t, but increased its guidance for 2018 and 2019 to between 90 000 t and 100 000 t each.

    This is up from the previous guidance of 85 000 t to 95 000 t for 2018, and 65 000 t to 75 000 t for 2019.

    Meanwhile, gold production expectations have declined from the previous estimate of between 125 000 oz and 135 000 oz of gold during 2017, to between 115 000 oz and 125 000 oz.

    For the longer term, gold production expectations have declined from the previous 140 000 oz to 150 000 oz targeted in 2018 and 150 000 oz and 160 000 oz in 2019, to between 120 000 oz and 130 000 oz for both years.

    Meanwhile, Oz Minerals on Monday reported that copperproduction for the December quarter had increased slightly to 29 758 t, from 28 756 t in the previous quarter. Goldproduction increased to 32 205 oz, from 28 466 oz in the September quarter.

    “The actions we’ve taken in the last 12 months in executing our strategy have positioned us strongly for the year ahead and beyond,” said CEO Andrew Cole.

    “Prominent Hill demonstrated its operating discipline delivering on copper guidance in the face of a major state-wide power outage, which resulted in 15 days of lost production during the second half of 2016.”

    In addition to meeting production targets, Oz Minerals also extended the mine life of Prominent Hill following a 40% increase in the project’s underground reserve. The project’s life has now been extended to 2028.
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    Nickel price picked as 2017 winner

    New report forecasts 20% improvement in nickel price by end-2017 – copper, lead and zinc to retreat

    Nickel fell to a 13-year low of $7,725 a tonne ($3.50 a pound ) in February last year; then rallied to more than $11,700 by mid-November only to fall back nearly 20% to trade at a six-month low on Friday.

    Nickel, mainly used as an anti-corrosive in steel alloys, rallied in 2016 on the back of a clampdown on mines in the Philippines which took over as the main supplier to China following an ore export ban in Indonesia in place since 2014.

    The market was rocked earlier this month when Indonesia abruptly announced a partial lifting of the ban allowing exports of up to 5.2 million tonnes of nickel ore this year.

    In a new report Capital Economics, a London-based independent research house, believes of all industrial metals, the nickel price has the best prospects to improve adding that "the market is tightening [following years of underinvestment in new mines] and it is still too soon to say what the partial lifting of Indonesia’s ban on ore exports will mean for supply."

    In addition supply from the Philippines may remain constrained. Final results of an audit of the mining sector in the Asian nation ordered by President Duterte is expected this week.

    Some 11 mines have already been shut down for failing to comply to stricter environmental rules and a further 20 are under threat. Capital Economics says ultimately 50% of the country's mining capacity could be closed:

    However, there are other sources of supply, notably from New Caledonia, that are chomping at the bit to take market share. In late December, the New Caledonia government approved requests from nickel miners to export over 2 million additional tonnes of ore to China. (The government restricts ore exports in a bid to encourage domestic processing.)

    On the demand side Capital Economics estimated growth in 2016 at a robust 6.2%, but the firm warns that China’s stainless steel production have have ran ahead of demand last year. Demand for nickel could get a bump from fiscal stimulus in the US, but given the relatively small global share of US nickel consumption, the impact may be limited.

    Notwithstanding the likelihood of slower growth in demand, Capital Economics continues to expect that the market will record another deficit in 2017 putting a floor under prices in 2017.

    Capital Economics sees the price of nickel climbing to $11,500 per tonne by the end of the year (that's a 20% jump from today's price), with further upside predicted in 2018. That makes nickel the metal Capital Economics is by far the most bullish about.
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    Iluka says expects 2016 loss after impairments

    Miner Iluka Resources said on Tuesday it expects top show a net loss of A$220-A230 million ($166 -$173 million) for 2016 as it refocuses on operations in Sierra Leone and writes off non-operating assets, mainly in Australia.

    Iluka said the decision to book A$201 million in non-cash impairments follows a review of assets in Australia, the United States and Sierra Leone, where it recently completed an A$375 million acquisition of Sierra Rutile. Iluka showed a net profit of A$53.5 million in 2015.

    The world's largest producer of zircon, and the second-largest producer of titanium dioxide feedstock rutile and synthetic rutile, said the writedown related mainly to its idled operations in Australia's Murray Basin.

    "Our review has been aimed at generating shareholder value and, with the completion of the Sierra Rutile acquisition, Iluka has added a large, long life asset with strong growth potential," Managing Director Tom O'Leary said in a statement.

    "It's against that backdrop that we've reviewed the likelihood of developing some of Iluka's mineral deposits in Australia and the United States," O'Leary said.
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    Steel, Iron Ore and Coal

    India cedes top coal importer spot back to China as growth trend stalls

    India has surrendered its status as the world's top importer of coal back to China, with its overseas purchases in 2016 falling to less than 200 million tonnes.

    The question now is whether lower Indian coal imports is the new reality, or if last year was just a blip.

    India's coal imports last year totalled 194.93 million tonnes, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

    This was 5.4 percent lower than the 206.6 million tonnes recorded for 2015, and also less than the 255.5 million tonnes imported by China last year, according to official customs data.

    It should be noted that despite the decline, India is still importing nearly four times as much as it did a decade ago, and almost double the amount from five years back.

    India's rapid growth in coal imports came amid strong economic growth and struggles by state miner Coal India to lift output to meet its ambitious targets.

    India's coal production has been rising, although Coal India may battle to reach a target of 575 million tonnes for the 2016/17 fiscal year that ends on March 31. Output for the April to December period was 378 million tonnes, a rate that if maintained for the final three months of the financial year would see production closer to 504 million tonnes.

    Nonetheless, India's Coal Secretary Susheel Kumar said on Jan. 6 that the miner is expected to raise its output to 660 million tonnes in the 2017/18 fiscal year, and to 1 billion tonnes by 2020.

    Those targets tend towards the optimistic, but even if Coal India doesn't hit them, the world's biggest coal miner is still likely to keep raising production by millions of tonnes a year.

    This alone puts a question mark over the continuing viability of coal imports into India, given that Coal India is a low-cost producer that has the backing of a government with the elimination of coal imports as a stated policy goal.

    For India's coal imports to reverse last year's slide, it is likely that two conditions have to be met.

    The first is that India's coal demand would have to rise faster than Coal India's output. This is possible but it's not a base case scenario.

    India is already starting to pull back from building more coal-fired power plants, and increasing pollution in the capital New Delhi is likely to see further pressure on the government to tackle the problem.

    India's pre-construction pipeline of coal-fired power generation dropped by 40 gigawatts (GW) last year, according to a Global Coal Plant Tracker run by non-government and anti-coal group CoalSwarm.

    Only China - battling its own pollution issues - cancelled more coal power projects, with 114 GW scrapped, CoalSwarm said.

    Still, the International Energy Agency said in a Dec. 12 report that it expects India's coal demand to rise by an annual average 5 percent by 2021.

    If this is case, and Coal India comes close to its output targets, it's likely India won't need to import much coal for power generation, although given the paucity of local reserves it will still have to buy coking coal overseas to make steel.


    The second condition for India to reverse its slide in coal imports is that global coal prices would have to remain cheap so incoming shipments could compete with Coal India production.

    It's perhaps no surprise that India's coal imports fell for the first year in six in 2016, just as global coal price benchmarks had their first increase for five years.

    Benchmark Australian thermal coal prices at Newcastle Port rose 87 percent last year to $94.44 a tonne, although they had dropped to $84.17 by the end of last week.

    India buys the bulk of its coal imports from Indonesia, taking mostly low-rank grades that can be blended with higher-quality coal prior to burning.

    Indonesian coal prices also increased last year, with low-rank 4,200 kilocalorie per kilogram fuel COAL-ECO-ID jumping 70 percent to end 2016 at $53.46 a tonne.

    These sorts of price increases will cut the appeal of imported coal, meaning cargoes from top suppliers Indonesia, Australia and South Africa will have to compete on convenience and flexibility of delivery.

    Overall, it seems that the case for India importing coal is weakening, both on a demand and price basis.

    But, and it's a big but, the outlook for imports may change dramatically if Adani Enterprises goes ahead with the construction of its $16 billion Carmichael mine in Australia's Queensland state.

    Adani remains publicly committed to the controversial project, saying on Dec. 6 that it planned to start construction around the middle of this year on the mine, which is slated to produce as much as 60 million tonnes per annum.

    Adani plans to ship the mine's output to India to burn in its own power plants, arguing that the project therefore isn't exposed to global coal prices and has a guaranteed customer.

    The Adani mine, bitterly opposed by environmentalists in Australia, is the black swan for India's coal imports. With the mine, the imports can increase, without it, they are likely to continue to decline over time.
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    Metalloinvest marks high for annual iron ore pellets as Europe sales rise

    Russian mining and steel group Metalloinvest reported higher iron ore pellet output in 2016 to 25.2 million mt, up 5.9% on 2015, as it started the new No. 3 pellet plant at its MGOK complex, as it broke record annual levels for iron metallics and steel production.

    For Q4 2016, pellet output at 6.3 million mt was down on Q3's 6.5 million mt, and up from the 6.1 million mt seen in the year earlier period, according to an operations report.

    Higher group DRI and hot metal output later in the year reduced external pellet sales volumes to 3.862 million mt for the final quarter of 2016, down by 2.7% on Q4 2015 shipments. Pellet volumes were stable at 14.535 million mt over 2016.

    Metalloinvest saw an increase in sales to Europe as the share of iron ore, pellets and HBI/DRI shipments to Russia shrunk to 61% in 2016 from 66% in 2015.

    The exit of tons supplied by Samarco as the Brazilian company's operations was idled through last year led to increased market interest for alternatives, as Metalloinvest's new No. 3 plant allowed for a greater range of improvements to pellet qualities.

    Europe took a 25% share of the group's iron ore, pellets and HBI/DRI shipments, up from 19% in 2015, with an increase in supplies to the Netherlands, Slovakia and Italy. Asia took a 8% share and MENA 4%, while MENA shipments increases in Q4.

    "In full-year 2016, the company increased output of all major products, reaching all-time high results in iron ore, pellets, HBI/DRI and hot metal production," the company report said.

    "In Q4 2016, the share of shipments to the Russian and European markets was unchanged quarter-on-quarter and amounted to 62% and 27%, respectively." External HBI/DRI shipments rose 13.8% to 658,000 mt in Q4, while volumes for the year showed a 5.4% rise to 2.514 million mt.
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    Fortescue sees iron ore demand boost as China closes steel mills

    Fortescue sees iron ore demand boost as China closes steel mills

    A Chinese crackdown on inefficient steelmaking will support demand for iron ore imports, Australia's Fortescue Metals Group said on Wednesday, maintaining its forecast for record shipments this year amid a rebound in prices.

    Exports to China by the world no. 4 iron ore miner dipped slightly in the quarter to Dec. 31, quarterly production data showed, but are still on track to meet or beat the high end of its 2016/17 guidance for 165 million to 170 million tonnes.

    Iron ore was one of the best-performing commodities in 2016, defying analyst forecasts for a correction on the back of plentiful supply and an expected slip in demand from China, the world's biggest buyer.

    A push by Beijing to do away with high-polluting and low efficiency electric arc furnace steel mills, which use scrap steel rather than iron ore, will help miners, Fortescue chief executive Nev Power said.

    "This translates into 40-50 million tonnes of iron ore," Power said. "We are very confident that the substantial numbers will be replaced by integrated steel mills,"

    By some industry estimates, mini-mill steel production could be as high as 100 million tonnes a year, nearly 10 percent of China's total capacity.

    The expected increase in demand could help offset expectations that record Chinese imports of just over 1 billion tonnes in 2016 would contract this year.

    However, Power cautioned that the iron ore market would take even an additional 50 million tonnes of demand "in its stride", as Fortescue and larger rivals such as BHP Billiton and Rio Tinto operate at maximum rates

    The newly built Roy Hill mine neighbouring Fortescue in Australia's Pilbara mining district alone is getting set to produce up to 55 million tonnes this year.

    World no. 4 iron ore miner Fortescue Metals Group on Tuesday reported a slight drop in second-quarter shipments but remained on track for a bumper year as demand and prices continue to outstrip forecasters' expectations of a slowdown.

    The Australian miner shipped 42.2 million tonnes of ore in the quarter to Dec. 31, down by 4 percent from the 43.8 million shipped in previous quarter.

    For the December quarter, Fortescue's cash production costs fell by 7 percent to $12.54 a tonne from the previous quarter and were down 21 percent on a year earlier, the company said.

    The final cost for Fortescue of mining and shipping its ore to China stands at around $24 a tonne, Power said.

    Spot iron ore prices surged 81 percent last year and are currently around $80 a tonne, despite analysts' forecasts for a contraction to around $55.

    But forecasters remain concerned that millions of tonnes of additional low-cost supply from Australia and Brazil will soon send prices into retreat.

    A Reuters poll in mid-December put the average price of iron ore at $54.70 per tonne in 2017.

    Attached Files
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    Russia appeals to WTO over EU duties on Russian steel

    Jan 30 Russia said on Monday it was appealing to the World Trade Organisation to settle a dispute with the European Union over anti-dumping duties imposed on its steelmakers.

    The EU in August introduced duties of up to 36.1 percent on Russian cold rolled steel, a product used in the construction and automotive industries, following allegations Russian steelmakers were exporting at unfairly low prices. It also imposed duties on Chinese cold rolled steel.

    The Russian Economy Ministry said it had sent a request to the WTO to help resolve the dispute.

    "The reason for the suit was multiple violations of WTO rules committed by the European Commission during its anti-dumping investigation," the ministry said in a statement.

    Russia's NLMK and Severstal, two of the country's largest steelmakers, lodged formal complaints against the European Commission in June, alleging bullying by its officials during their investigation.

    NLMK, which employs over 2,000 people in Europe, said the investigation was conducted "in flagrant violation of all possible norms and standards."

    "The decision to impose anti-dumping duties is absurd and NLMK Group continues to deny accusations of dumping on the EU market," the company said in a statement.

    A spokeswoman for Severstal said the company maintained the EU investigation had been conducted improperly and it supported the economy ministry's actions.

    The WTO last week threw out a number of EU complaints in a dispute over Russian anti-dumping duties imposed on German and Italian light commercial vehicles.
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