Mark Latham Commodity Equity Intelligence Service

Monday 20th July 2015
Background Stories on www.commodityintelligence.com

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    Macro

    Senior Iranian cleric challenges nuclear deal with world powers

    A senior cleric challenged Iran's historic nuclear deal with world powers on Friday, echoing a cautious early assessment of the accord by Supreme Leader Ayatollah Ali Khamenei, an arch-conservative who has the last word on matters of state.

    Ayatollah Mohammad Ali Movahedi Kermani did not dismiss the accord in his remarks at Friday prayers in Tehran, but his language was sufficiently tough -- some terms of the deal were an "insult" and "excessive", he said -- to indicate significant unease about the accord within Iran's clerical establishment.

    His remarks will be seen by Iranians as reflecting Khamenei's views and contrast with the praise given to the accord by President Hassan Rouhani and Foreign Minister Mohammad Javad Zarif, who plan to use the deal as the basis for a charm offensive among Iran's wary Arab neighbours.

    Kermani said Iran would accept a deal only if sanctions were lifted immediately, frozen revenues were returned and Tehran's revolutionary ideals, including its fight with "global arrogance" - a term for the West and Israel -- were preserved.

    "They have some excessive demands," he said, objecting to restrictions placed on the number of centrifuges Iran can operate, on its nuclear research and development and on its handling of enriched uranium.

    Political analysts said the comments by Khamenei and Kermani allow conservative clerics the political space to make further criticisms of the deal and could also absolve the Supreme Leader of responsibility if the accord, which will last for years, falls apart at some future stage.

    At the same time their criticism is not so severe as to torpedo the deal and block a lifting of sanctions - something ordinary Iranians are desperate to see happen to restore a normal economy.

    http://www.reuters.com/article/2015/07/17/iran-nuclear-prayer-idUSL5N0ZX1OQ20150717
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    Gold: Surrender?

    A lot of investors have become disillusioned with gold,” says Suki Cooper, head of metals research at Barclays in New York. “Safe-haven demand hasn’t been strong enough to lift prices, but has only been strong enough to keep them from falling.”

    Many people may have bought gold for the wrong reasons: because of its glittering 18.7% average annual return between 2002 and 2011, because of its purportedly magical inflation-fighting properties, because it is supposed to shine in the darkest of days. But gold’s long-term returns are muted, it isn’t a panacea for inflation, and it does well in response to unexpected crises—but not long-simmering troubles like the Greek situation. And you will put lightning in a bottle before you figure out what gold is really worth.

    With greenhorns in gold starting to figure all this out, the price has gotten tarnished. It is time to call owning gold what it is: an act of faith. As the Epistle to the Hebrews defined it forevermore, “Faith is the substance of things hoped for, the evidence of things not seen.” Own gold if you feel you must, but admit honestly that you are relying on hope and imagination.

    Recognize, too, that gold bugs—the people who believe in owning the yellow metal no matter what—often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance.

    When you are in the grip of cognitive dissonance, anything that could be regarded as evidence that you might be wrong becomes proof that you must be right. If, for instance, massive money-printing by central banks hasn’t ignited apocalyptic inflation, that doesn’t mean it won’t. That means it is more likely than ever to happen—someday.

    You don’t want to be one of these people, spending years telling reality that it is wrong. There is a case to be made for owning gold, but it speaks in a whisper, not in the shouts of doomsday so customary among gold bugs.

    Because gold, unlike stocks, bonds, real estate and other financial assets, generates no income, valuing it is all but impossible. “It’s intrinsically worthless or intrinsically priceless,” says Paul Brodsky, a former hedge-fund manager who now is a strategist at Macro Allocation, an investment-research and consulting firm in New York. “You can build a financial model to value it, but every input is going to be your imagination.”


    'China released data on its gold holdings for the first time in about six years, but investors say the guessing game about the country’s actual inventory continues.

    The People’s Bank of China on Friday published figures on its gold reserves for the first time since 2009. Its official gold reserves stood at 53.3 million ounces, or 1,658 metric tons, in June.

    The last time China reported official figures was in April 2009. Back then, the figure stood at 1,054 metric tons, according to Ross Norman, chief executive officer at Sharps Pixley.

    The latest total is about half what the market thought it was. The market was generally expecting a total of well over 3,000 metric tons, according to Brien Lundin, editor of Gold Newsletter.'

    After yesterday's announcement by China claiming they only possess 1,658 tonnes of gold, today one of the top money managers in the world told King World News that official gold holdings in China may actually be 10X that figure.  He also discussed brilliant monetary chess move against the West.



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    Is the internet destructive of end demand?

    Image titleMicrosoft's Encarta shrank the Encyclopedia business from $1.2B to $600M before Wikipedia shrank the business by another 90%.


    Image titleImage title

    Print sales of adult fiction have declined by over £150m since 2009, new figures show, as ebooks take an increasingly large bite out of the market.

    A review of 2014 from book sales monitor Nielsen BookScan shows that while the decline in sales of print books in the UK slowed last year, with value sales down 1.3% to £1.39bn, and volume sales down 1.9% to 180m, the performance for printed adult fiction was markedly worse. The adult fiction market was the worst-performing of all areas of the book business, down by 5.3% in 2014 to £321.3m, with volume sales down 7.8% to 50.7m. In 2009, printed adult fiction was worth £476.16m.

    The decline is even greater when paperback fiction is removed from the picture: according to Nielsen, hardback adult fiction sales plummeted last year by 11.6% to £67.9m, with just three titles – by crime and thriller bestsellers Lee Child, CJ Sansom and Martina Cole – selling more than 100,000 copies.


    We knew this day was coming.  Self-published ebook authors are landing on the New York Times bestseller list in a big way.

    Take a look at the August 5 edition of The New York Times Fiction Ebook bestseller list, out yesterday.  Lightning struck multiple times this week.

    Congrats to Colleen Hoover (Slammed at #8, Point of Retreat at #18), R.L. Mathewson (Playing for Keeps at #16), Lyla Sinclair (Training Tessa at #17) and Bella Andre (If You Were Mine at #22, Can't Help Falling in Love at #23, and I Only Have Eyes for You at #24).

    Open Access: the future of academic publishing
    Researchers, authors and funding bodies are realising that the high price of access to academic books and journals means that only a select few can read their work. Open Access (that is, making texts free to read and reuse) helps spread research results and other educational materials to everyone, globally, not just to those who can afford it or have access to well-endowed university libraries able to pay the high prices required by commercial 'legacy' publishers. Scholars are realizing that participation in a system that confines the readership, and therefore the intellectual engagement, to the affluent few is not only morally questionable but a potential drag on the progress of their subject, and indeed of their academic careers.


    It is becoming a requirement for publicly-funded research to be made available in Open Access format and we are able to achieve this quickly and effectively.





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    GE Raises Low End of Industrial Forecast Amid Finance Exit

    General Electric Co. is getting more bullish about profit prospects from industrial operations as Chief Executive Officer Jeffrey Immelt accelerates efforts to shrink the GE Capital finance unit.

    The shares rose in early trading Friday after GE boosted the low end of its 2015 forecast for earnings from manufacturing. The new projection is $1.13 to $1.20 a share, up from a range starting at $1.10. Second-quarter adjusted profit of 31 cents a share beat analysts’ 28-cent average estimate.

    Immelt’s push to divest most of GE Capital ties the parent company’s fortunes more firmly than ever to the industrial divisions making products such as jet engines and locomotives. His April 10 plan for $200 billion in GE Capital asset sales is so sweeping that it largely overshadowed how GE’s manufacturing businesses were faring.

    “We got some better operating performance than we might have thought,” said Nicholas Heymann, a William Blair & Co. analyst. “The exit of Capital seems to continue to be on track.”

    GE’s Power & Water and Aviation units helped drive a 2 percent jump in sales of $32.8 billion, topping analysts’ $28.8 billion estimate. Industrial revenue was $26.1 billion. Industrial margins, a metric used by investors to gauge the strength of GE’s operations, rose 0.7 percentage point to 16.2 percent.

    http://www.bloomberg.com/news/articles/2015-07-17/ge-raises-low-end-of-industrial-profit-forecast-in-finance-exit-ic7idxm4
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    Franklin Hit With Losses as Billion-Dollar Energy-Bond Bets Sour

    Doubling down on the debt of drillers and miners is coming back to bite money manager Franklin Resources Inc. as those industries struggle amid a prolonged commodities slump.

    Losses are accelerating in bonds that the firm’s been buying up the past two years as prices on everything from crude to iron ore resume declines. Debt of coal producer Peabody Energy Corp., in which Franklin was the biggest public holder as of March, plunged 51 percent the past two months. A $2.3 billion junk-bond issue that the asset manager helped orchestrate in April for Australian iron miner Fortescue Metals Group Ltd. has lost 14 percent of its market value in less than a month.

    While Franklin’s not alone in feeling the pain of steep declines in commodity prices since the peak last year, few mutual-fund managers have been as aggressive in staking their fortunes to the industry’s debt even as defaults begin to mount. In some cases the asset manager is cutting its losses, selling the senior debt of coal producer Walter Energy Inc. before its bankruptcy filing this month, according to people with knowledge of the trades. In others, it’s been swapping its holdings for debt that would recover more in a restructuring.

    “This is a difficult time in the market, especially for anyone who’s had a meaningful energy exposure,” said Ed Perks, who manages the $90 billion Franklin Income Fund, which has had about 20 percent of its holdings in energy-related assets in 2015. “We’re always kind of evaluating our outlook for different companies and the best way forward.”

    Franklin’s funds owned more than 15 percent of oil explorer Energy XXI Ltd.’s $4.5 billion of bonds through March, according to data compiled by Bloomberg. The debt has lost 33 percent this year, according to Bank of America Merrill Lynch index data. It owned more than a third of the $1.5 billion of securities issued by CHC Group Ltd., a helicopter company that shuttles offshore oil and gas workers. That debt has lost 32 percent.

    The firm was also the biggest holder of Arch Coal Inc. notes, which have declined 46 percent; SandRidge Energy Inc., which are down 39 percent; and Linn Energy LLC, which have lost 19 percent.

    Franklin and Capital Group Cos. bought almost half of Fortescue’s $2.3 billion bond offering in April in a so-called reverse inquiry, a person with direct knowledge of the matter said at the time. The sale allowed the money managers to swap lower-ranking unsecured notes for the new secured debt, which paid more, a second person said.

    http://www.bloomberg.com/news/articles/2015-07-20/franklin-hit-with-losses-as-billion-dollar-energy-bond-bets-sour
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    Oil and Gas

    Saudi Arabia Crude Exports Fall to Five-Month Low on China

    Saudi Arabia’s crude oil exports slumped to a five-month low in May as local refineries used more supplies and some plants in China closed for maintenance.

    The world’s biggest oil exporter shipped 6.94 million barrels a day in May, down from 7.74 million in April and the lowest since December, according to data published Sunday on the website of the Joint Organizations Data Initiative, or JODI. The drop in exports is more than Qatar produces in one month. New refineries in Saudi Arabia are leaving less crude available for overseas at a time when the market is in surplus.

    Chinese refineries had almost 1 million barrels a day of capacity offline in May, almost twice the total in April, according to London-based Energy Aspects. Brent crude futures declined for the past two months as U.S. drillers added more rigs and OPEC production exceeded its monthly output target for more than a year.

    “It’s very clear that if China sneezes, Saudi oil exports will get a cold,” Mohammed Ramady, professor of economics at King Fahad University for Petroleum and Minerals at Dhahran, Saudi Arabia, said by phone on Sunday. “The fall in Saudi crude exports in May illustrates the tight rope of opportunities facing major oil exporters with their dependence on a single market like China for sustaining their growth.”

    Saudi refineries used 2.4 million barrels a day for their own operations in May, up from 2.2 million in April and the most since at least January 2002, according to JODI data. The nation is building refineries to diversify its economy and add more jobs. Refineries usually boost output in hotter summer months in the Middle East when air conditioning demand peaks.

    “The numbers are alarming knowing that we are still in May and the summer demand will keep rising until August,” Ramady said. “This means that less crude will be available for exportation.”

    Exports fell for a second month even with output at 10.33 million barrels a day, the most since at least 2002, according to JODI, which compiles data provided by oil-exporting countries.

    Crude oil imports in China, the world’s biggest energy consumer, declined 11 percent in May from a year earlier, according to the Beijing-based Customs General Administration. Some of China’s stockpiling probably came to an end that month, according to Energy Aspects.

    http://www.bloomberg.com/news/articles/2015-07-19/saudi-arabia-crude-oil-exports-fell-to-6-94m-b-d-in-may
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    Russia to maintain oil extraction at the level of 520-525 mln tons in 2016

    The Minister of Energy of Russia, A. Novak, thinks that oil extraction in Russia in 2016 will stay at the current rate of 520-525 mln tons.

    'None of the major companies plans to reduce oil extraction next year... I don't expect a general fall', he said.

    He says that in H1 the volumes of operational drilling rose by 10.3%.

    Previously this week Fitch reported that it expects oil extraction fall in Russia in 2016 due to the EU and US sanctions that have restricted the access to the International financial resources to Russian producers of raw materials as well as due to low prices in the world hydrocarbons market.

    Novak plans to discuss in late July the situation in the global oil market with the head of OPEC, A. Salem al-Badri, including the elimination of sanctions.

    There won't be a great influence with the additional volumes from Iran on the market as the market has already assessed this effect and the prices will be formed based on the prime cost of shale oil.

    Novak said that Saudi Arabia and Russia have a common opinion that oil extraction should not be artificially reduced - the market will correct the oil price itself.

    http://www.oilvoice.com/n/Russia-to-maintain-oil-extraction-at-the-level-of-520525-mln-tons-in-2016/edc7b63dfc2b.aspx
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    Lower oil prices? Not for Europe's gasoline consumers

    Crude oil prices may be falling, but things are not so rosy for European gasoline consumers.

    Gasoline pump prices in the 28-member European Union hit their highest since early November this week, according to the EU's statistics office.

    Benchmark Brent crude oil, on the other hand, dropped more than 30 percent over the same eight-month period to around $57 a barrel.

    Behind the divergence are robust global demand for gasoline and a stronger dollar, which makes dollar-priced commodities like oil more expensive for buyers using other currencies, said analyst Oliver Jakob at Swiss-based Petromatrix.

    "The price for the consumer in Europe looks very different than if you look at the Brent price in dollars," Jakob said.

    By contrast, average diesel pump prices in Europe were this week at their lowest since March 30, according to Eurostat.

    Unlike gasoline, diesel supplies have risen steadily in recent months as huge refineries in the Middle East, Asia and the United States increase their output while demand has remained relatively stable.

    The drop in oil prices over the past year sparked strong demand for gasoline across the world from China's rapidly expanding middle class to the United States, where consumers are driving more and buying bigger cars.

    This demand has also offered Europe's embattled refiners a rarely seen run of profits as dozens of tankers filled with gasoline and blending components leave Europe for Asia, the Middle East, Africa and the Americas monthly.

    http://www.reuters.com/article/2015/07/17/eu-gasoline-consumers-idUSL5N0ZX1LI20150717
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    Chevron's Gorgon LNG project faces fresh strike risk

    Chevron's $US54 billion ($73 billion) Gorgon liquefied natural gas project being built off Western Australia is facing a fresh threat of industrial action after unions won official approval to ballot workers on a potential strike just months before exports from the massive venture are finally due to begin.

    The latest development risks further delaying the start of production at the troubled project, Australia's biggest single resources venture, beyond its second-half 2015 target, which has already slid by more than a year from the original schedule.

    Chevron Australia boss Roy Krzywosinski had issued several warnings that the lagging competitiveness of the LNG construction sector in Australia was threatening to deter about $100 billion of potential further investment in the sector, and sounded an alarm about inflexible industrial relations systems.

    The Fair Work Commission on Friday ruled the Construction, Forestry, Mining & Energy Union and the Australian Manufacturing Workers' Union could hold a protected ballot of employees of CB&I, the United States engineering company carrying out a $US2.3 billion contract on mechanical, electrical and instrumentation work at the onshore LNG plant under construction on Barrow Island.

    In the last month CB&I workers have several times rejected a proposed replacement enterprise agreement, driven by a desire to see a shorter work roster introduced. A pay increase included in the new agreement, which would replace an EA that expired on January 20, was on hold awaiting resolution of the dispute.

    Chevron, which owned almost 50 per cent of the Gorgon venture and was the operator, declined to comment. CB&I could not be contacted.

    A hard-line group of construction workers had been pushing for the work roster at the remote Gorgon site to be switched to a 20:10 cycle, consisting of 20 days of work followed by 10 days off. That compared with an existing work cycle of 28 days on and nine days off. The shorter cycle would further increase costs at the Gorgon project, which was already a substantial $US17 billion over its original $US37 billion budget.

    http://www.afr.com/business/energy/gas/chevrons-gorgon-lng-project-faces-fresh-strike-risk-20150719-gifmai?stb=twt
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    Schlumberger CEO expects weak pricing for the rest of the year

    Schlumberger Ltd, the world's No. 1 oilfield services provider, expects little improvement in pricing levels in the near future as customers continue to keep a tight lid on budgets, it said on a conference call on Friday.

    The company on Thursday reported a quarterly profit well ahead of expectations as it managed to cut cost of revenue by more than a fifth, softening the impact of reduced global drilling activity.

    Schlumberger, which provides drilling technology and equipment to oil and gas companies, expects exploration and production investment in North America to fall by more than 35 percent versus its forecast, in April, of a 30 percent drop.

    Here is a selection of comments from chief executive Paal Kibsgaard from Friday's conference call:

    "The dramatic reduction in activity in US land has created a massive capacity oversupply in the service industry with pricing quickly plummeting to unsustainable levels, in particular for pressure pumping."

    "There's going to be a further impact of pricing in the second half of the year. We haven't seen the full impact of that."

    "There will be little to no improvement in pricing levels in North America and hence the market will still remain very challenging for the foreseeable future."

    "On the supply side of the oil market, the global market share battle between OPEC and the high cost producers is still playing out with the first signs of flattening North America production starting to show."

    "We do expect that any improvement in oil prices in the second half of the year will potentially lead to increased investment levels in 2016, both for exploration and development related activity."

    On offshore projects: "Going forward in terms of sanctioning new projects, I think it's going to be very important for the industry to be able to ... come up with technical solutions and field development plans that significantly reduces cost per barrel."


    "We have fully exited Iran. When the sanctions are lifted and when it is permissible, we will evaluate going back in."

    http://www.reuters.com/article/2015/07/17/schlumberger-nv-pricing-ceo-idUSL4N0ZX45T20150717

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    Shale 2.0: The Next Productivity Revolution



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    US rig count falls 6 units to 857

    The US drilling rig count fell 6 units to reach 857 during the week ended July 17, essentially cancelling out the last 3 weeks’ worth of gains, according to data from Baker Hughes Inc.

    The losses came from rigs drilling on land and in inland waters. Land rigs were down 3 units to 824, while those drilling in inland waters also fell 3 units to reach 2 rigs working.

    During the week, rigs targeting oil fell 7 units to 638. Gas-directed rigs, meanwhile, were up 1 unit to 218. Rigs considered unclassified were unchanged at 1 rig working.

    Rigs engaged in horizontal drilling fell 4 units to 650. Directional drilling rigs lost 4 units to 84.

    Rigs drilling offshore and in the Gulf of Mexico were both unchanged this week, both maintaining counts of 31.

    Canada’s rig count continued its upward climb, jumping 23 units to 192. Its count has now risen in 8 of the last 10 weeks. This week’s gain was spurred by a rebound in gas-directed rigs, which were up 16 units to 94. Oil-directed rigs, meanwhile, were up 7 units to 98 rigs working. Canada’s overall count is still down 189 year-over-year.

    Among the major oil- and gas-producing states, Louisiana lost 3 units to reach 69 rigs working. Texas, North Dakota, and Pennsylvania each were down 2 rigs, reaching respective totals of 366, 68, and 43. Oklahoma, at 105, and California, at 11, were each down 1 unit. Unchanged from a week ago were Wyoming, 21; Ohio, 19; West Virginia, 18; Utah, 7; and Arkansas, 4. Four states gained a single rig this week: New Mexico, 50; Colorado, 39; Alaska, 11; and Kansas, 11.

    At 98 units, there were 4 fewer rigs drilling in the Eagle Ford this week, while the Marcellus area lost 3 units to 59.

    http://www.ogj.com/articles/2015/07/bhi-us-rig-count-falls-6-units-to-857.html

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    Whiting Petroleum Updates Production and Capex Guidance

    -Q2 Production Estimated at 15.5 MMBOE or 170,245 BOE/d, Above the High End of Prior Guidance Net of 8,300 BOE/d Asset Sales
    -FY 2015 Production Guidance Increased to 7% Growth, Equates to 10% Growth Adding Back Asset Sales
    -Capital Budget Forecast Increased to $2.3 Billion from $2.0 Billion
    -$185 Million of Additional Q2 2015 Non-Core Property Sales; $300 Million of Total Asset Sales in 1H 2015
    -Enhanced Completions Deliver 40% to 50% Production Increases Across Multiple Williston Basin Areas

    Operations Update

    We have been testing larger sand volume completions across our acreage in the Williston Basin. These completions incorporated sand volumes of four to six million pounds with well costs ranging from $6.5 million to $7.5 million. Production from enhanced completions in all three areas discussed below is outperforming our 700 MBOE type curve for the production periods cited.

    Enhanced completions at Polar field result in 40% productivity increase. We have completed two higher sand volume slickwater wells at our Polar field in Williams County, North Dakota. On average, these wells had 60-day rates of 935 BOE/d, 40% greater than 12 offsetting wells completed with lower sand volumes.

    Enhanced completions at Walleye field result in 50% productivity increase. We have completed two higher sand volume slickwater wells at our Walleye field in Williams County, North Dakota. On average, these wells had 60-day rates of 1,095 BOE/d, 50% greater than three offsetting wells completed with lower sand volumes.

    Enhanced completions at Pronghorn field result in 50% productivity increase. We have completed nine higher sand volume slickwater wells at our Pronghorn field in Stark County, North Dakota that have at least 120-days of production. On average, these wells had 120-day rates of 755 BOE/d, 50% greater than 42 offsetting wells completed with lower sand volumes. Based on these results, we recently moved a drilling rig back to the Pronghorn field.

    http://www.businesswire.com/news/home/20150717005362/en/Whiting-Petroleum-Corporation-Updates-Production-Capex-Guidance#.VakVC6RVhBc
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    Rosetta Resources Inc. Announces 2015 Second Quarter

    -Delivered total daily oil equivalent production volumes of 63.0 MBoe/d, exceeding the high end of the quarterly guidance range for the quarter.
    -Achieved record Permian daily production of 9.0 MBoe/d, an increase of 23 percent from the first quarter 2015.
    -Successfully completed three South Gates Ranch and four Reeves County horizontal wells.

    Rosetta Resources Inc. today reported adjusted net income (non-GAAP) for the second quarter 2015 of $11.8 million, or $0.16 per diluted share, versus adjusted net income of $50.5 million, or $0.82 per diluted share for the same period in 2014. The decrease in adjusted net income was primarily driven by lower commodity prices, partially offset by higher production volumes. Net income for the quarter, which included a non-cash impairment of $245.2 million, was a loss of $341.7 million, or $(4.52) per diluted share, versus net income of $14.4 million, or $0.23 per diluted share, in 2014. Adjusted EBITDA (non-GAAP) was $125.9 million in the second quarter of 2015, compared to $181.5 million in the second quarter 2014.

    http://finance.yahoo.com/news/rosetta-resources-inc-announces-2015-111000858.html
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    Alternative Energy

    India to award 15,000 MW of solar projects this year

    Live Mint reported that as part of the National Democratic Alliance government’s green energy push, India will award contracts for the supply of 15,000 MW this year.

    A senior government official, requesting anonymity, said that according to the plan, Solar Energy Corporation of India will shortly call for bids from solar project developers for buying 2,000 MW.

    The procurement by SECI will be done through a reverse bidding process and it will provide a purchase guarantee, making such projects bankable and help solar power eventually cost the same as that purchased from the grid.

    The official quoted above said that “The states have already tendered for around 3000 MW. Also, NTPC has already tendered 2600 MW. We are confident that by March 31st 2016, a capacity of 15,000 MW will be awarded.”

    While the present installation cost of a solar project is around INR 6 crore per MW, economies of scale are expected to drive down the cost to INR 4.5 crore per MW. The plan to reduce solar power tariffs comes in the backdrop of state electricity boards increasingly showing reluctance to buy power on account of their poor financial health. With a debt of INR 3.04 trillion and losses of INR 2.52 trillion, SEBs are on the brink of financial collapse.

    http://steelguru.com/power/india-to-award-15-000-mw-of-solar-projects-this-year/429819#tag
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    Rare metal exchange in Kunming denies it can't pay investors

    The Kunming-based Fanya Metal Exchange (FYME) in Southwest China's Yunnan Province, which claims to be the world's largest rare metal exchange, on Thursday denied rumors that liquidity problems have caused it to default on 40 billion yuan ($6.44 billion) owed to investors.

    "The FYME actually has no payment obligation to investors since it is just a trading platform that provides buying, selling and financing services for enterprises, as well as minor metal investment services for investors," Deng Siji, brand director at the FYME, told the Global Times on Thursday.

    "But the FYME has been working with investors and companies, and seeking government support, to solve a crisis caused by a high level of investor redemptions," Deng said.

    The FYME, a minor metals spot trading exchange that began operating on April 4, 2011, has 14 tradable varieties of listed commodities including indium, germanium and cobalt. It accounts for nearly 95 percent of the world's indium stocks, according to its official website.

    The exchange said that it had cumulative turnover of 325.7 billion yuan as of the end of June, with total trading volume of 440,000 tons.

    Rumors began circulating earlier this month that about 220,000 individual investors from at least 22 Chinese provinces have experienced difficulties in getting back the money they invested via the FYME's platform. The amount is said to be about 40 billion yuan.

    More than 800 investors from around the country turned up at the exchange's premises on Monday.

    "The main business that most investors participate in is supply-chain financing, which provides direct financing for enterprises based on 100 percent collateralization for minor metals and rare -earth assets," the FYME said.

    "Massive redemptions by investors make it difficult for enterprises to immediately produce more than 30 billion yuan in cash to repay those investors," the FYME said in a written response to China Business News, that news organization reported on Wednesday. "Investors can seize the collateralized assets as payment under the agreement, but they are unwilling to do so because these assets are illiquid."

    The FYME said the wave of redemptions had been caused by several factors. One was falling trading volume, which in turn reflected an "inefficient trading system" required to meet regulatory requirements. Another was the booming A-share market, which drained liquidity from other markets. Additionally, the exchange cited "malicious" short selling by institutions.

    http://en.chinamining.com.cn/News/2015-07-17/1437111922d72972.html
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    Lynas earns record revenues in June quarter

    Rare earths miner Lynas has reported positive free cash flow for the quarter ended June 30, on the back of increased production and record high revenues. Production for the quarter reached 2 606 t, up from the 1 973 t produced in the previous quarter, allowing for a record gross sales revenue of A$51.9-million, up 74% on the previous quarter. 

    However, market prices were, at the end of the quarter, affected by announcements by the Chinese government regarding the rare-earth export and resource taxes. Export taxes had been cancelled, as expected, reducing the cost handicap between magnet makers in and outside of China. Further, a new resource tax had fallen short of the expectations of a number of speculators, which were now realising a loss, with a negative effect on market price. 

    “The rare earths market is one that is characterised by speculative activity. Company valuations can show great volatility based on announcement and rumours. “While we expect a level of uncertainty in the rare earths market to continue in the near term, we remain focused on becoming the strongest-performing company within this market,” said CEO Amanda Lacaze. She noted that the results achieved in the fourth quarter were the next step in Lynas’s resolve to build a company whose valuation was based on actual performance rather than speculation. 

    Meanwhile, Lacaze pointed out that Lynas had successfully completed significant change programmes in a number of areas, including resetting its cost base, improving business efficiency, accelerating its production ramp-up, growing market share, acquiring customers to ensure consumption and further developing solutions to minimise and manage all waste streams.

    In addition, the company had also focused on embedding a company culture focused on continuous improvements. “Actions implemented over the last year have significantly reduced the Lynas cost base. Most initiatives have been focused on fixing a number of basic commercial elements including reducing overhead costs and reviewing supply contracts,” Lacaze noted. 

    Lynas on Friday also announced amendments to its contract with the supplier of two major chemical reagents for the Lynas Advanced Materials Plant. The company had carried a provision for onerous contracts, which represented the expected value of obligations arising under take-or-pay clauses of its supply agreement. Since signing the contract, Lynas had paid A$25.1-million in take-or-pay payments and other penalties. 

    The company said on Friday that as usage was forecast to continue at rates significantly below the original contracted qualities, the company had provided an overall liability of A$42.3-million at the end of December last year. However, the company had now successfully completed negotiations with the supplier and further penalties were not expected under the amended agreement. 

    The take-or-pay volumes had now been reduced to current and expected future volume consumption and the term of the amended supply contract would expire in January 2025. Over the next six months, Lynas was expected to pay A$460 000 a month to discharge the existing take-or-pay amount. A further existing A$4.41-million would be settled through the issue of Lynas shares.

    http://www.miningweekly.com/article/lynas-earns-record-revenues-in-june-quarter-2015-07-17
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    Base Metals

    Nevada Copper Corp update on drilling at Pumpkin Hollow copper project

    Nevada Copper Corp announced drill results at the Company's 100%-owned Pumpkin Hollow project located near Yerington Nevada. The primary objective of the drilling was to obtain additional samples for iron metallurgical testwork. The assay results however also contained several notable high grade copper intersections in the South open pit, including 230 feet (188 feet true thickness) grading 1.49% copper within a broader zone of 448 feet (367 feet true thickness) grading 1.0% copper.

    http://steelguru.com/mining/nevada-copper-corp-update-on-drilling-at-pumpkin-hollow-copper-project/429909#tag
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    Steel, Iron Ore and Coal

    Indonesia's Jul HBA thermal coal price records all-time low

    Indonesia's July thermal coal reference price, also known as Harga Batubara Acuan (HBA), was set at $59.16/t FOB, the lowest ever recorded since its inception in January 2009, said the Ministry of Energy and Mineral Resources.

    The July HBA price represents a drop of 0.7% from June, when it was set at $59.59/t -- an all-time low before the latest fall.

    The HBA is a monthly average price based 25% on the Platts Kalimantan 5,900 kcal/kg gross as received assessment; 25% on Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR); 25% on the Newcastle Export Index -- formerly the Barlow-Jonker index (6,322 kcal/kg GAR) of Energy Publishing -- and 25% on the globalCOAL Newcastle (6,000 kcal/kg NAR) index.

    The HBA for thermal coal is the basis for determining the prices of 73 Indonesian coal products and for calculating the royalties Indonesian producers have to pay for each metric ton of coal they sell locally or overseas.

    It is based on 6,322 kcal/kg GAR coal, with 8% total moisture content, 15% ash and 0.8% sulfur.

    http://en.sxcoal.com/0/126982/DataShow.html
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    Whitehaven Coal tips further coal price falls

    Whitehaven Coal tips further coal price falls

    AAP reported that Whitehaven Coal's sales are on the rise but it expects prices to continue to fall. The miner achieved a 46 per cent improvement in coal sales in the three months to June, due mainly to increased production at its Narrabri mine and the commissioning of its controversial Maules Creek project.

    More than 1.4 million tonnes of coal was produced at Maules Creek in the June quarter, and production will soon be ramped up to an annual rate of 8.5 million tonnes.

    But coal prices have continued to fall due to an oversupply in the market and lower Chinese demand, though Whitehaven said it had been shielded somewhat by the high quality of its thermal coal, which is used to generate electricity.

    The average thermal coal price realised by the company was USD 60.72 per tonne in the June quarter, down from USD 65.37 in the three months to March.

    The average June quarter price for its metallurgical coal, which is used by the steel industry, was $US75.90 per tonne, down from USD 87.15 in the preceding quarter.

    Managing director Mr Paul Flynn tipped prices for metallurgical coal to fall further in the three months to September, in the range of USD 70 and USD 75 per tonne.

    Mr Flynn said that "Certainly our forecast for the September quarter is a further reduction. We've all seen what the settlements have been for metallurgical coal and that will have its related impact."

    He said that But prices for thermal coal are expected to be more resilient at around USD 60 per tonne, due to Whitehaven's participation in the higher quality segment of the market.

    http://steelguru.com/coal/whitehaven-coal-tips-further-coal-price-falls/429822#tag
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    Indian domestic iron ore supply up in June - Prabhudas Lilladher

    Image Source: twimg.comEconomic Times reported that brokerage Prabhudas Lilladher said domestic iron ore supplies improved strongly on the back of re-opening of mines in Odisha and enhanced mining capacity of existing mines but this is not expected benefit the domestic producers.

    It said “Despatches of merchant miners in Odisha grew 24 per cent to 4.1 million tonnes in June 2015, the highest monthly despatch in June since 2011, according to the brokerage. Also, Karnataka's iron ore capacity rose by about 20 per cent to 24 million tonnes in June 2015.”

    Prabhudas Lilladher said the sharp fall in iron ore prices globally has eroded the advantage Indian steel players enjoyed so far because of access to cheap iron ore.

    http://steelguru.com/mining/indian-domestic-iron-ore-supply-up-in-june-prabhudas-lilladher/429894#tag
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    Mills in China's top steel city face new pollution penalties

    China's top steel producing city of Tangshan will punish firms if they fail to meet tough new pollution standards over the next three months, according to new industry guidelines, a move that could force closures and help ease a severe capacity glut.

    Already struggling with record low prices and rising environmental compliance costs, firms could now have their power prices tripled if they fail to pay for the work required to meet the new standards, analysts estimated.

    The new measures, dated July 1 and circulated over the weekend by traders and analysts, target big industrial coal and water consumers in Tangshan, including coal-fired power plants, cement manufacturers and steel producers. The measures, reviewed by Reuters, also ban the sale and utilisation of low-grade coal.

    As a result, billet prices in Tangshan have risen by as much as 60 yuan per tonne, according to analysts at Xiben New Line E-Commerce, a steel trading platform in Shanghai.

    "With the industry now facing severe losses, and with more and more steel mills cutting output, the unusual price movements in Tangshan will raise confidence among traders in other regions and see an increase in prices across the board," the analysts said in a note.

    In order to comply with the new emissions standards, 29 steel enterprises will have to upgrade a total of 104 blast furnaces, 182 converters and 22 sintering plants by the end of October, the document said. Enterprises that fail to do the work in the stipulated time will face higher power prices.

    Tangshan, which is located around 150 kilometres (90 miles) from the capital Beijing, produced around 90 million tonnes of crude steel last year, more than the whole of the United States.

    http://www.reuters.com/article/2015/07/20/china-steel-tangshan-idUSL3N1001FO20150720
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