Mark Latham Commodity Equity Intelligence Service

Wednesday 30th March 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    China Gas price cuts lure customers away from coal


    China's natural gas demand has been boosted by price cuts aimed at switching users from coal to the cleaner fuel, according to one of the country's biggest gas distributors.

    ENN Energy Holdings Ltd has seen its sales rise more than 15 percent in January and February as lower prices encouraged customers to switch, Vice-Chairman Cheung Yip-sang said in Hong Kong. ENN expects full-year sales to rise 15 percent, following last year's 11.5 percent jump to 11.3 billion cubic meters.

    "The movement really picked up a lot of momentum," Cheung said. "The higher burning efficiency of gas and government pressure for better emission standards will help convert more industrial users from coal to gas."

    The government adjusted gas prices twice last year to stimulate demand and shift consumption from coal, which makes up 64 percent of the country's energy mix. The share of natural gas may rise from its current 6 percent, the company said last week, adding that users switching from coal made up 39 percent of new commercial and industrial customers last year.

    China's gas demand expanded 3.3 percent in 2015, while coal consumption dropped 3.7 percent, declining for the second year, according to the National Bureau of Statistics.

    Coal use will slip further this year amid tepid demand from industrial users, according to the China Coal Industry Association.

    The country's liquefied natural gas imports in the first two months of 2016 jumped more than 14 percent and shipments by pipeline rose 15 percent to a record.

    http://en.chinamining.com.cn/News/2016-03-30/1459301076d75868.html

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    China's Shenhua in talks with CNNC, CGN on stakes in nuclear projects


    China's Shenhua Group is in talks with leading Chinese nuclear developers on taking stakes in domestic nuclear projects, as the country's biggest coal firm tries to diversify into cleaner forms of energy, Shenhua President Zhang Yuzhuo said on Wednesday.

    The nuclear companies Shenhua is in talks with include China National Nuclear Corporation (CNNC) and China General Nuclear Power Corporation (CGN), Zhang told a conference.

    http://www.reuters.com/article/china-energy-shenhua-group-idUSB9N16V00M
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    Oil and Gas

    Hedge funds establish near-record bullish bet on rising oil prices


    Hedge funds and other money managers have amassed a near-record number of bullish bets on increasing oil prices, helping push the main international benchmark well above $40 per barrel.

    By the close of business on March 22, money managers held a net long position equivalent to almost 579 million barrels in the three largest crude oil futures and options contracts .

    Hedge funds have more than doubled their net long position from just 242 million barrels at the end of last year, according to an analysis of data published by regulators and exchanges.

    The net long position has passed the previous peak of 572 million barrels, set in May 2015, and is closing in on the record of 626 million, set in June 2014, when Islamic State fighters were racing across northern Iraq.

    Hedge funds have established a record net long position in Brent crude futures and options traded on ICE Futures Europe equivalent to 364 million barrels of oil (tmsnrt.rs/1WU25t8).

    At the same time, hedge fund managers have largely closed out their previous record short position in U.S. oil futures and options and started to accumulate long positions instead.

    Combined WTI short positions on the New York Mercantile Exchange and ICE Futures Europe have been cut from 261 million barrels at the start of February to 112 million barrels.

    The net long position in WTI has surged from just 60 million barrels in early February to 215 million barrels on March 22 (tmsnrt.rs/1WU2dsx).

    The accumulation of a near-record net long position has coincided with a sharp rise in oil prices, with U.S. crude up from $26 per barrel to more than $41, and Brent up from $30 to $42.

    The closing out of the previous record short position in U.S. crude futures and options has been accompanied by a predictable short-covering rally.

    There has been a close correspondence between hedge fund positions and the movement of oil prices since early 2014 (tmsnrt.rs/1WU2Kuy).

    Just as record shorting of U.S. crude futures and options helped push oil prices to multi-year lows below $30 per barrel in January and February, so the unwinding of those positions has sent prices sharply higher.

    This is the third time that hedge funds have established a large short position and then unwound it since the start of 2015 and each cycle has ended with a sharp short-covering rally (tmsnrt.rs/1LWsXbs).

    But the current short-covering rally now appears over with hedge funds now fully exited from the record short position established since October 2015.

    With the hedge funds switched from a record short position to a near-record long one, the balance of risks in the market has shifted to the downside.

    http://www.reuters.com/article/oil-hedgefunds-kemp-idUSL5N1712FK

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    Russian minister says Rosneft set to lower oil output


    Rosneft is set to lower oil output, Russian Natural Resources Minister Sergei Donskoi said on Tuesday, ahead of a meeting of leading global oil producers in Doha on April 17 to discuss an output freeze to support weak oil prices.

    Russia, Saudi Arabia, Qatar and Venezuela are keen to prop up falling oil prices, which have fallen almost two thirds from a peak in June 2014. These countries have said they are ready to freeze production at January levels if other producers do the same.

    Qatar has invited all OPEC members and other major producers to attend the Doha talks next month on a deal to freeze output.

    Asked to comment on how a global oil production freeze would impact Russia, Donskoi said Russia's energy firms had adjusted their production plans: "Rosneft, as it told (us), is planning to lower (output)".

    Rosneft, Russia's biggest oil producer, has been producing at the pace of around 3.8 million barrels per day (bpd), more than a third of Russia's total 10.88 million bpd, one of the world's highest.

    Earlier this month, industry sources told Reuters that the company floated the idea of a domestic production cut to balance the global market and as it faces a natural decline this year.

    Donskoi said Lukoil, which is not state-owned, did not plan to decrease production as yet. The minister also said he hoped that state-controlled Rosneft would resume drilling for oil in the Arctic next year after having no plans to do that this year.

    Rosneft suspended Arctic drilling in 2014 after its partner ExxonMobil withdrew from the Kara Sea project because of Western sanctions imposed on Moscow over its role in the conflict in eastern Ukraine.

    http://www.reuters.com/article/russia-oil-rosneft-idUSL5N171358

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    Iran Said to Attend April Doha Talks Without Joining Oil Freeze


    Iran will attend talks with fellow OPEC members and Russia in Qatar next month without joining their proposal to freeze crude oil production, according to a person familiar with the nation’s policy.

    Oil Minister Bijan Namdar Zanganeh will attend the discussions in Doha on April 17, said the person, who asked not to be identified as the talks are private. Iran will maintain its policy of regaining market share lost during years of sanctions so won’t accept limits on its output, the person said. Most OPEC members, including Saudi Arabia, have said they will go to the meeting.

    “By attending the freeze meeting, and yet still being able to say they managed to escape the freeze, Iran earns some brownie points with its domestic audience,” said Olivier Jakob, managing director at consultant Petromatrix GmbH in Zug, Switzerland.

    The proposal to cap production will help global markets gradually re-balance as rising demand whittles away a surplus, according to Saudi Arabia’s Oil Minister Ali al-Naimi. Brent crude, the international benchmark, has risen about 40 percent from 12-year low of $27.10 a barrel in January. Zanganeh dismissed any freeze agreement that would apply to Iran as “ridiculous” because the nation aims to revive production after nuclear sanctions were lifted in January.

    With Iran’s attendance, that means all 13 members of the Organization of Petroleum Exporting Countries except Libya are scheduled to take part.

    http://www.bloomberg.com/news/articles/2016-03-29/iran-said-to-attend-april-doha-talks-without-joining-oil-freeze-imdh4c85
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    Kuwait Agrees with Saudis to Resume Oil Output at Shared Field


    Kuwait agreed with Saudi Arabia to resume production at an offshore oil field shared by the two OPEC members, the official Kuwaiti news agency reported, without giving a specific time for the restart.

    The two countries are preparing to start maintenance at Khafji, Kuwait News Agency reported, citing the nation’s acting oil minister, Anas al-Saleh, speaking in parliament. Production will start initially in “small quantities, which would be increased taking into consideration environmental concerns” before returning to normal levels, according to KUNA. Production at Khafji halted in October 2014 because of environmental concerns.

    The plan to restart Khafji comes as Saudi Arabia and Kuwait are set to attend a meeting of OPEC members and other producers in Doha, Qatar, next month to discuss a proposed freeze in output. The participants including Russia are seeking to prop up prices that have slumped since mid-2014.

    “I’m skeptical until I see some confirmation from the Saudi side or some signs that work is being done at the field,” said Robin Mills, chief executive officer at Qamar Energy in Dubai. The plan to restart Khafji won’t affect the Doha meeting because production probably won’t have started in major quantities by then, Mills said.

    Production in the shared area between Kuwait and Saudi Arabia, known as the Neutral Zone, reached 600,000 barrels a day in 2011, including output from Khafji and the onshore Wafra field, according to data compiled by Bloomberg Intelligence. The Khafji shutdown led to a loss of 300,000 barrels of daily output, Prince Abdulaziz bin Salman, Saudi Arabia deputy oil minister, said last year.

    http://www.bloomberg.com/news/articles/2016-03-29/kuwait-agrees-with-saudis-to-resume-oil-output-at-shared-field

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    Total triples power of supercomputer in search for savings


    Total has tripled the power of its Pangea supercomputer, making it one of the world's most powerful and helping the French oil and gas company to speed up exploration studies and cut costs amid low oil prices.

    The computing power of the Pangea has been increased to 6.7 petaflops from 2.3 previously, Total said on Tuesday, the equivalent of around 80,000 laptops combined and making it the most powerful in the oil and gas sector.

    A prolonged fall in oil prices since mid-2014 has pushed companies in the sector to look for new ways to cut costs and make savings as they reduce investments.

    "This power will help us to improve our performance and to reduce our costs," said Arnaud Breuillac, Total's exploration and production president. "In the era of big data, state-of-the-art data-intensive computing is a competitive advantage."

    Total did not say how much the upgrade cost, nor how much it expected to save.

    The supercomputer at Total's research centre in the southwestern French city of Pau was designed by California-based Silicon Graphics International.

    According to www.top500.org, which ranks supercomputers twice a year, Tianhe-2 in the National Super Computer Center in Guangzhou, China, is the world's most powerful at over 33 petaflops.

    http://www.reuters.com/article/total-supercomputer-idUSL5N1712OH
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    Ecopetrol seeks $2 bln from CB&I on refinery costs



    Colombia's state oil company Ecopetrol will seek $2 billion in damages from contractor Chicago Bridge & Iron Company for additional costs during the renovation of Colombia's Reficar refinery, Ecopetrol said late on Monday.

    Ecopetrol has said bad management at CB&I increased spending on the project by $4 billion, double the original $3.99 billion price tag. Ecopetrol said it filed the suit against CB&I before the International Chamber of Commerce.

    CB&I was not immediately available for comment by telephone.

    The Reficar refinery, part of Ecopetrol's operations near the northern coast of Colombia, reopened late last year after a multi-billion overhaul meant to more than double capacity to 165,000 barrels per day.

    http://www.reuters.com/article/ecopetrol-colombia-refinery-idUSL2N1710DL
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    Sinopec Full-Year Profit of $5 Billion Beats Estimates


    China Petroleum & Chemical Corp. earnings beat analyst estimates as profit from turning crude oil into fuels offset the plunge in energy prices and more than $1 billion in writedowns by Asia’s biggest refiner.

    Net income last year fell 30 percent to 32.4 billion yuan ($5 billion) from 46.5 billion yuan, according to a statement to the Shanghai stock exchange. That compares with a 29.97 billion yuan mean of 19 analyst estimates compiled by Bloomberg. The company reported impairments of 8.8 billion yuan. Sales dropped 29 percent to 2.02 trillion yuan.

    “It’s got a defensive downstream business model, so the company actually benefited from the decline of oil prices,” Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Hong, said by phone. “If you compare earnings with PetroChina and Cnooc, Sinopec has done the best and will remain to be the most defensive oil stock.”

    While the collapse in prices has hammered producers -- the global benchmark Brent dropped to an average of about $54 a barrel last year from $99 the year before -- refiners have benefited as cheaper crude boosted profit margins. India’s Reliance Industries Ltd.’s earnings surged to the highest in eight years in the quarter ended December as lower feedstock costs supported gasoline and diesel margins.

    Refining, Chemicals Gains

    Operating income from refining at the Beijing-based company, known as Sinopec, rose to 20.96 billion yuan, flipping from a loss of 1.95 billion yuan the previous year. Chemicals gained 19.68 billion yuan from a loss of 2.18 billion yuan. Petroleum exploration and production lost 17.42 billion yuan, from a 47.06 billion yuan gain the year before.

    Refining helped cushion Sinopec from the profit tumbles felt by its state-owned rivals, PetroChina Co. and Cnooc Ltd., which both saw net income drop by at least 66 percent. The company slipped 1.5 percent to close at HK$4.72 in Hong Kong before the earnings were released, compared with a 0.1 percent gain in the city’s Hang Seng Index.

    Sinopec reported in January that oil and gas output fell for the first time in 16 years as a slump in domestic crude production outweighed record volumes of natural gas. The company is reducing costs by closing high-cost oilfields. Sinopec Shengli Oilfield, a production arm, shut down four oilfields for the first time in the unit’s 50-year history to cut losses amid the price plunge.

    Sinopec and its state-owned parent China Petrochemical Corp. faced “unprecedented pressure” on operations from falling oil prices, the company said in November. The company’s refining margin may receive a boost this year after China effectively created a price floor saying in January it wouldn’t adjust retail fuel prices as long as crude is below $40 a barrel.

    http://www.bloomberg.com/news/articles/2016-03-29/sinopec-profit-exceeds-estimates-as-refining-buffers-oil-plunge

    Chinese state giant Sinopec has cut back on its capital expenditure plans for this year as it braces itself for lower crude production, while chasing increased gas flows.

    http://www.upstreamonline.com/incoming/1428058/sinopec-cuts-capex-amid-profit-drop?utm_source=twitterfeed&utm_medium=twitter

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    E.ON agrees price cut with Gazprom, raises outlook


    Russia's Gazprom on Tuesday offered E.ON a price cut on its long-term gas supplies, ending years of unsuccessful talks and allowing the German utility to raise its outlook for the current year.

    European gas firms such as E.ON are being squeezed as they buy gas under long-term deals with Gazprom linked to the price of oil while having to sell it to customers at lower retail prices linked to the freely traded spot market.

    While plunging oil prices, down by nearly two-thirds since mid-2014, have eased the burden on utilities, Russian gas supplies still tend to fetch a premium over European hubs - a situation that buyers are keen to resolve given the pressure on earnings from competing renewables in their domestic markets.

    The deal, which resolves arbitration proceedings between E.ON and Gazprom, will lead to a positive one-off effect of about 380 million euros ($425 million) on E.ON's core earnings (EBITDA) in the first quarter of 2016.

    "With this agreement the prices are adjusted on the basis of our current market conditions," E.ON said in a statement on Tuesday, adding its generation and energy trading unit Uniper had derisked its long-term gas supply contracts for the upcoming years.

    Germany, Europe's biggest gas market, is heavily reliant on supplies from Russia, which accounted for about 40 percent of German natural gas imports last year, while E.ON itself gets roughly a third of its gas needs from Gazprom.

    As a result of the agreement, E.ON now expects EBITDA of between 6.4 billion euros and 6.9 billion euros this year, compared with a previous target range of 6.0 billion to 6.5 billion euros announced earlier this month.

    Underlying net income, the source of E.ON's dividend, will reach between 1.5 billion and 1.9 billion euros, up from 1.2 billion to 1.6 billion.

    Shares in E.ON turned positive on the news and closed up 0.3 percent.

    E.ON has been active in Russia for decades, owning 9.9 gigawatts (GW) of electrical power-generating capacity and employing more than 5,000 staff in the country. The weak rouble led E.ON's core earnings in Russia to decline by 30 percent last year.

    http://www.reuters.com/article/e-on-gazprom-gas-idUSL5N1713QG

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    US Shale Oil Was Never Going To Stand Still


    Image title


    TECHNOLOGY doesn't stand still. That's the whole point about technology as any oil, gas or chemicals engineer will tell you.

    The above chart is a fantastic example of this. It shows how the efficiency of US oil rigs, thanks to improvements in the fracking process, has improved by leaps and bounds from 2012 onwards.

    The chart also tells you something else equally important: US inventories have risen to ever-greater record highs as fracking techniques have improved.

    The good news is that many analysts predicted improvements in fracking technology, and thus have assumed lower production costs. But the bad news starts with the fact that most analysts have hugely underestimated the speed of innovation.

    The even bleaker news is a widespread misunderstanding of how businesses have always worked in times of financial distress, which is just one of the reasons for the build-up in inventories:

    Why shut down altogether and have no chance of paying anything back on your debt? This just doesn't make sense - and has never been how the corporate world has worked.
    Any company in any sector will instead continue to run their assets as its lack of cash-flow rather than debt that often kills companies.
    And, anyway, banks can always be persuaded to write off debt. They often have little choice, as if they foreclosed on a company they might not get even one cent back.

    Combine this with the giant leaps in fracking technology and you have some of the important context you need to understand today's chart.

    What happens next? Production costs will keep coming down, and assets on the ground that might eventually go bankrupt will remain exactly that - assets on the ground. A private equity company might, say, come a long, buy up a shale oil asset debt free and then run it as hard as possible, as the private equity company will only have to cover variable costs.

    There is also my long-standing argument that one of the few genuine bright spots in the US economy is shale oil - and, of course, shale gas as well. In a deflationary world, politicians on both sides of the US divide will be keen to provide every incentive possible that encourages greater oil and gas production. A good example of this was the recent decision to lift the ban on US oil exports.

    http://www.oilvoice.com/n/US-Shale-Oil-Was-Never-Going-To-Stand-Still/0e3494fe52fc.aspx

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    Go Big or Go Home: Cabot O&G Wells Average EUR of 27 Bcf


    The indefatigable Cabot Oil & Gas continues to improve efficiency, increase production and lower costs–all at the same time.

    Last week Cabot presented at the Soctia Howard Weil Energy Conference in New Orleans. What did Cabot have to say? They plan to complete 40 wells in the Marcellus this year and grow production slightly–up to 7% in 2016 over 2015.

    We also learn that the length of Cabot’s horizontal wells–their “laterals”–are getting longer, an average 7,000 feet long in 2016 vs. 5,900 feet in 2015.

    Perhaps most astonishing is that the average Cabot well is expected to see an average EUR (estimated ultimate recovery) of 27 billion cubic feet. How much is that? That’s enough natural gas that, if used to generate electricity, would power 656,000 homes for a whole year. From one well!

    Think about 40 new such wells going online this year. Collectively those 40 wells will end up providing enough energy for 26 million homes. Coming from one small county in northeastern PA.

    That is the awesome miracle of fracking for Marcellus Shale gas…

    http://marcellusdrilling.com/2016/03/go-big-or-go-home-cabot-og-wells-average-eur-of-27-bcf/?utm_source=dlvr.it&utm_medium=twitter

    Presentation

    http://www.cabotog.com/wp-content/uploads/2016/03/Scotia-Howard-Weil.pdf
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    TransCanada Said to Raise C$4.42 Billion in Record Sale


    TransCanada Corp. raised C$4.42 billion ($3.37 billion) in the largest share sale in Canadian history, according to people familiar with the offering, sending energy financings in the country to the best start in at least two decades.

    TransCanada’s sale to help fund its acquisition of Columbia Pipeline Group Inc. eclipsed Barrick Gold Corp.’s C$4.33 billion issue in September 2009, according to data compiled by Bloomberg.

    TransCanada said it agreed to sell 92 million subscription receipts for C$45.75 each to a group of banks led by Royal Bank of Canada’s RBC Capital Markets and Toronto-Dominion Bank’s TD Securities. The banks, which resell those securities, had an option to buy an extra 4.6 million subscription receipts, or 5 percent of the offering, which lifted proceeds to C$4.42 billion.

    Mark Cooper, a TransCanada spokesman, declined to comment on the size of the share sale.

    Liquid Securities

    The sale lifts announced equity financing in Canada’s energy industry to C$8.59 billion this year, up 66 percent from a year ago and the best start to the year since at least 1994, the data show. Energy firms have been pursuing financing to fund takeovers and capital expenditure plans as the price of crude rallies from the worst downturn in a generation. Investors are only too willing to lap up shares.

    “Investor demand has been very strong on recent transactions," Kirby Gavelin, RBC’s head of equity capital markets, said in a phone interview. “They’ve been large transactions so certainly there’s a focus on large market cap, liquid securities, which attracts a broad range of global investors."

    In addition to TransCanada, other offerings included a C$2.3 billion sale by Enbridge Inc., and C$300 million offerings from Pembina Pipeline Corp. and Seven Generations Energy Ltd. Energy companies accounted for two thirds of the C$13.1 billion raised from stock sales in the country, Bloomberg data show.

    A turnaround in oil prices and lower volatility in the public markets are helping drive share sales. U.S. crude rose about 46 percent to $38.18 a barrel at 1:26 p.m. in New York on Tuesday from its lowest settlement of $26.21 on Feb. 11, marking a bounce in a price slump that has exceeded 21 months.

    http://www.bloomberg.com/news/articles/2016-03-29/transcanada-said-to-raise-c-4-42-billion-in-record-canada-sale
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    Alternative Energy

    SunEdison at risk of bankruptcy, unit says


    U.S. solar company SunEdison Inc is at "substantial risk" of bankruptcy, unit TerraForm Global Inc said, sending SunEdison's shares down 20 percent in premarket trading.

    TerraForm Global, citing SunEdison's liquidity issues, said it would join its parent and fellow SunEdison "yieldco" TerraForm Power Inc in delaying its annual report for the year ended Dec. 31. (1.usa.gov/22X8xDu)

    TerraForm Global's annual report was due by March 30.

    However, TerraForm Global said it did not rely substantially on SunEdison for funding or liquidity and that it would have sufficient liquidity to support its operations even if its parent sought bankruptcy protection.

    The Wall Street Journal reported on Monday that the U.S. Securities and Exchange Commission was looking into SunEdison's disclosures to see if it exaggerated its liquidity last year when it said it had more than $1 billion in cash.

    SunEdison said on March 16 it had delayed filing its annual report for the second time after identifying "material weaknesses" in its financial reporting, which it said related primarily to problems with a newly implemented IT system.

    http://www.reuters.com/article/us-sunedison-inc-terraform-global-risk-idUSKCN0WV160

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    Mexico First Power Auction Awards 1,720 Megawatts of Wind, Solar


    Renewable energy developers won contracts to produce 1,720 megawatts of power in Mexico during the country’s first-ever private auction, after the government ended a decades-long state electricity monopoly in 2013.

    Seven wind and solar companies including Enel Green Power, SunPower Systems Mexico and Recurrent Energy won 15-year contracts to rights to provide the state-owned Comision Federal de Electricidad with power beginning in 2018, Cesar Emiliano Hernandez, Mexico’s deputy electricity minister, said in Mexico City. The contracts are expected to generate more than $2.1 billion in investment by 2018, he said.

    “The results were better than some of the most successful auctions in the world,” Hernandez said in a press conference in Mexico City. “Many top level international companies competed and Mexico will receive a very important amount of investment.”

    Mexico is restructuring its energy markets in an effort to spur billions in investment after a historic overhaul approved in 2013 to open state-run monopolies in the oil and electricity industries. The government has set a goal of getting 35 percent of its energy from clean sources by 2024, up from 25 percent now.

    Eleven packages of wind and solar projects and certificates were sold at an average price of $41.80 per megawatt-hour. Prices for solar averaged $40.50 per megawatt-hour, while prices for wind averaged $43.90. Solar energy accounted for 1,100 megawatts sold, and 620 megawatts of wind projects were awarded long-term contracts.

    The auction met 84.66 percent of the state utility CFE’s demand. In order to buy the remaining power the company still needs, Mexico’s government will hold another power auction in April, said Hernandez.

    Clean-energy projects were able to sell more than 5 million 20-year clean-energy certificates. Large electricity consumers will buy the certificates to meet an obligation to get 5 percent of their energy from sustainable sources by 2018.

    Mexico is seeking to add 20 gigawatts of clean energy in the next 15 years, according to the National Electricity System Development Program released in June. The country has forecasted as much as $62.5 billion in private investment in the energy industry by 2018.

    “The auction was an important signal to Mexico’s energy market,” said Lilian Alves, a New Energy Finance analyst in Sao Paulo. “The government was able to buy a lot of capacity.”

    http://www.bloomberg.com/news/articles/2016-03-29/mexico-first-power-auction-awards-1-720-megawatts-of-wind-solar

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    The Two Most Striking Charts in the Megacaps.


    Image titleFirst Solar.

    Image title
    Vestas

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    Agriculture

    Facing losses and grain glut, U.S. farmers to plant more corn


    Three years into a grain market slump, U.S. farmers are set to plant more corn, taking a calculated gamble that higher sales will help them make up for falling prices without triggering even more declines.

    Forecasts suggest that at current prices growers will be able to cover their variable expenses such as seed and fertilizer. By planting more and scrimping on everything from labor to crop chemicals, farmers hope to cover a portion of hefty fixed costs, including land rents.

    Their strategy marks a reversal from the last time that prices for corn, soybeans and wheat fell for three years running in mid-1980s. At that time, farmers cut production and prices began rising.

    Illinois farmer Dave Kestel said he would be lucky to break even on the corn he planned to start planting in April on his farm in Manhattan, an hour's drive southwest from Chicago. He aims to plant roughly the same area as last year, about 500 acres (202.34 hectares), despite lower prices.

    "It's a vicious circle, but you still do it," Kestel said, about planting corn.

    Barring a weather disaster, more corn planted means a bigger harvest that will add to massive global crop inventories that have kept prices below break-even levels. The swollen stockpiles also make any price recovery unlikely even if U.S. output were to decline.

    With no rebound in sight, cranking up production might be the best shot U.S. farmers have at balancing their books in a falling market, economists say.

    Still, many will fall short of covering the outlays they cannot change, and paying for land and the cost of depreciating machinery will drag operations into the red, they warn.

    Variable expenses often make up roughly half of a corn farmer's costs, economists say, although those vary from farm to farm and state to state.

    "There still is a fixed cost out there no matter what you do, so the incentive is to go out there and get the variable cost covered and eat into the fixed cost," said Gary Schnitkey, a University of Illinois economist.

    In major grain-producing states of the Midwest, losses from growing corn this year could top $100 per acre, according to forecasts from economists and academics.

    In central Illinois, for example, planting corn will bring in gross revenues of $777 per acre, according to University of Illinois estimates. After variable and fixed costs of $858 per acre, farmers are expected to lose $81 an acre.

    http://www.reuters.com/article/usa-grain-downturn-idUSL2N1701IJ

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    Precious Metals

    Russian gold producer Polymetal returns to profit in 2015


    Polymetal returned to profit in 2015 helped by a weaker rouble and the absence of certain write-offs which had pushed the gold and silver producer to a net loss in 2014.

    Polymetal, which competes with other Russian precious metals producers such as Polyus Gold, has benefited from the weakening in the rouble, which reduced its total costs in 2015 by 15 percent to $538 per gold equivalent ounce, which is a mix of gold and other metals.

    The rouble depreciation against the U.S. dollar "more than offset the combined negative impact of domestic inflation and change in the gold/silver price ratio," Polymetal said in a statement on Tuesday.

    The company made a net profit for 2015 of $221 million following a net loss of $210 million in 2014. Its 2015 revenue fell 15 percent to $1.4 billion as average gold and silver prices declined 8 percent and 17 percent, respectively.

    Adjusted earnings before interest, taxation, depreciation and amortisation fell 4 percent to $658 million.

    Its underlying net earnings, adjusted for after-tax impairment charges and reversals and foreign exchange loss, were at $296 million compared with $282 million in 2014.

    The company said its board of directors recommended a final dividend payment of $0.13 per share ($55 million in total). This will bring the total dividend for 2015 to $0.51 per share, or $216 million in total, up 25 percent from a year ago, Polymetal, part-owned by businessman Alexander Nesis, said.

    Polymetal also forecast total costs for 2016 of between $525-$575 per gold equivalent ounce. The company said it was on track to produce 1.23 million ounces of gold equivalent this year, compared with 1.27 million ounces in 2015.

    At the current exchange rates, its capital expenditure for 2016 is expected to be $340 million, up from $205 million last year.

    http://www.reuters.com/article/russia-polymetal-intl-results-idUSL5N1710O2
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    Base Metals

    China discovers first 10-million-ton porphyry copper deposit


    According to the exploration and evaluation of China's first ten million tons of porphyry copper deposit which was finished recently, the long-term copper resources in the Southern Tiegelong deposit are predicted to surpass 15 million tons.

    From 2013 to 2015, a total of 10.98 million tons of copper were discovered at the Southern Tiegelong deposit in Gaize county, Tibet, which makes it China's largest single million-ton copper deposit.

    The long-term copper deposit is estimated to exceed 15 million tons, marking a breakthrough in mine exploration in the region.

    http://en.chinamining.com.cn/News/2016-03-30/1459304656d75884.html
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    Steel, Iron Ore and Coal

    Glencore, Tohoku yet to finalize talks on FY 2016 contracts


    Australian coal producer Glencore and Japanese utility Tohoku Electric Power Co. are yet to finalize talks for Japanese fiscal year contracts starting April 1, sources said.

    http://en.sxcoal.com/0/143574/DataShow.html
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    Hubei to cut coal capacity of 8 mln T in 3-5 years


    Central China’s hubei province pledged to cut coal production capacity of 8 million tonnes per year in the next three to five years, with 80-100 coal mines expected to be closed, local media reported.

    All the small coal mines with annual capacity below 90,000 tonnes across the province would be shut by 2020, accounting for 72.8% of the coal mines presently operating in the province, it said.

    The province now has 320 coal mines, compared to as many as 2,800 mines in 2000, thanks to successive mines merger & regrouping and elimination in the past years. All of them were small coal mines with annual capacity below 300,000 tonnes, and their capacity combined at 23.58 million tonnes per year.

    Most of coal mines in Hubei suffered great losses amid the market downturn. In 2015, the province produced 7.5 million tonnes of raw coal, accounting for only 40% of the total capacity.

    China’s central government has allocated 100 billion yuan ($15.4 billion) as special subsidies and incentive funds to deal with the resettlement of laid-offs during the process of capacity elimination.

    http://en.sxcoal.com/0/143465/DataShow.html
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    Datong Coal halts mines after accident, boosting market sentiment


    Datong Coal Mine Group, one major coal producer in northern China’s Shanxi province, halted production at all of its consolidated coal mines in the wake of a mine accident at its subsidiary Anping Coal Industry Co., Ltd last week.

    http://en.sxcoal.com/0/143567/DataShow.html
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    CEO up for prison

    U.S. prosecutors are urging a judge to give convicted ex-Massey Energy CEO Don Blankenship the maximum penalty of a year in prison and a $250,000 fine, for its participation in a 2010 West Virginia coal mine explosion that killed 29 men.

    In an 11-page court filing Monday evening, Assistant U.S. Attorney Steve Ruby said that “only a sentence of many years in prison could truly reflect the seriousness” of Blankenship’s crime and provide “just punishment.”

    The former mine executive was convicted of conspiracy in December, originally facing a sentence of up to 30 years in jail.

    He also noted that federal laws state that willfully violating mine safety and health standards “is worth, at most, a year in prison.”

    The former mine executive was convicted of conspiracy in December, originally facing a sentence of up to 30 years in jail. However the penalty was reduced after he was found not guilty on counts of securities fraud and making false statements.

    But Blankenship's attorneys say he shouldn't receive more than probation and a fine. The former CEO denied any wrongdoing, and his legal team has restated their intention to appeal as they believe prosecutors unfairly sought to portray their client as some kind of a monster who cold-heartedly sent miners to their deaths by denying requests to equip the mines with necessary safety gear., and then lied to authorities about it.

    Sentencing for the man once known as West Virginia's “King of Coal,” is slated for April 6, which marks the sixth anniversary of the Upper Big Branch mine disaster. Prosecutors are also trying to force Blankenship to pay $28 million in restitution to Alpha Natural Resources, a now-bankrupt coal company that bought Massey in 2011. The money would cover legal fees, investigative expenses and fines incurred by Alpha.

    The closely watched case has been one of the most high-profile cases in West Virginia in decades, and the explosion at Massey’s Upper Big Branch mine is considered the worst U.S. coal mining disaster in almost 40 years.

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    Tata Steel puts British business up for sale


    India's Tata Steel, Britain's largest steelmaker, put its entire UK business up for sale to stem heavy losses, a move that would draw a line under its almost decade-long foray into Britain's declining steel industry.

    After a marathon board meeting in Mumbai, the steel giant said the financial performance of its UK arm had deteriorated sharply in recent months, following years of weak conditions which have already forced it to shed hundreds of jobs.

    Blaming high manufacturing costs, domestic market weakness and increased imports into Europe from countries like China, Tata saw little change in the competitive position of its UK operations, which employ about 15,000 people and include Port Talbot, Britain's largest steel plant.

    As a result, Tata said in a statement its European arm would "explore all options for portfolio restructuring, including the potential divestment of Tata Steel UK, in whole or in parts".

    "Given the severity of the funding requirement in the foreseeable future, the Tata Steel Europe Board will be advised to evaluate and implement the most feasible option in a time-bound manner," it added.

    Tata Steel bought Anglo-Dutch steelmaker Corus in 2007 and has since struggled to turn the giant around.

    The company said it remained in talks with the UK government, which has expressed concern about job losses in the industry. Port Talbot, though far from its 1960s peak, still employs about 4,000 people, and Tata is one of the most significant private companies in Wales.

    Unions welcomed the decision not to shutter the plants but called on Tata to be a "responsible seller" and on the government to play its role.

    "We don't want just want more warm words, we want a detailed plan of action to find buyers and build confidence in potential investors in UK steel," Roy Rickhuss, general secretary of steelworkers' trade union Community, said.

    For the year ending March 2015, the company took a write-down of a little over a billion dollars in its consolidated numbers. However, the tide seems to be turning for the India operations, and many analysts expect it to post an improved operating profit from the next fiscal year.

    Tata also said in its statement that it was still in talks with investment firm Greybull Capital over the sale of its British long products unit, which makes steel for use in construction. Talks with Greybull were announced last year.

    http://www.reuters.com/article/tata-britain-steel-idUSL3N17219H
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