Mark Latham Commodity Equity Intelligence Service

Tuesday 8th September 2015
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    China's August import slump raises concerns over sharper slowdown

    China's August exports fell less than expected but a steeper slide in imports pointed to continuing economic weakness, adding to concerns over the health of the world's second-largest economy that have been rattling global markets.

    Exports dropped 5.5 percent from a year earlier, slightly less than a 6.0 percent decline forecast in a Reuters poll, and improving from an 8.3 percent drop in July.

    Imports shrank for a 10th consecutive month, falling 13.8 percent, far more than the poll's expected 8.2 percent, after an 8.1 percent decline in July, reflecting both lower global commodity prices and persistently sluggish demand at home.

    That left the country with a trade surplus of $60.24 billion for the month, the General Administration of Customs said on Tuesday, far higher than forecasts for $48.20 billion.

    "I'm not optimistic about the prospect of exports and it's unlikely China can achieve the export target this year," said Nie Wen, analyst at Hwabao Trust in Shanghai. "There will be at least three more reserve requirement rate cuts this year to counteract capital outflows."

    Global investors will be combing China's August data over the coming weeks to see if the economy is at risk of a hard landing.

    Though most economists believe a gradual and prolonged slowdown is more likely, a stock market crash and the unexpected devaluation of the yuan currency in August have heightened concerns about stability and policymaking in China.

    On Aug. 11, the People's Bank of China jolted markets by devaluing the yuan by nearly 2 percent. Economists say the devaluation may give a mild boost to Chinese exports eventually, but most did not expect it to have any impact on the August data.

    China's top economic planning agency said on Monday that exports from some sectors had seen improvement in August.

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    Japan second-quarter GDP shrinks less than expected on inventory gains

    Japan's economy shrank less than expected in the second quarter although capital expenditure fell more than originally forecast, revised data showed, keeping policymakers under pressure to do more to energize the fragile recovery.

    Analysts expect any rebound in July-September growth to be feeble as factory output unexpectedly fell in July and China's slowdown dampened prospects for a solid recovery in exports.

    "Factory output lacks strength in July-September due to sluggish exports of cars and electric machinery," said Junichi Makino, chief economist at SMBC Nikko Securities.

    "If consumer spending fails to pick up, the government may compile a supplementary budget" to prop up growth, he said.

    The world's third-largest economy shrank an annualized 1.2 percent in April-June, less than the initial estimate of a 1.6 percent contraction, Cabinet Office data showed on Tuesday.

    The median market forecast was a revision to a 1.8 percent contraction.

    Capital expenditure fell 0.9 percent from the previous quarter, more than a preliminary 0.1 percent drop, clouding the outlook for the world's third-largest economy.

    But the weakness in capital spending was offset by gains in inventories, which contribute to economic growth.

    Inventory gains added 0.3 percentage point to growth, more than a preliminary 0.1 percent contribution, the data showed.
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    Iran Sanctions Seen Lifted in Early 2016 by Nuclear Envoys

    Oil and financial sanctions on Iran will probably be lifted within the first three months of 2016, according to four western diplomats familiar with the nuclear monitoring process.

    Under the terms of a July 14 accord between world powers and Iran, sanctions imposed internationally on the Persian Gulf nation will be lifted in return for restrictions on nuclear work. The Vienna-based International Atomic Energy Agency will assess when Iran has fulfilled the terms of deal, paving the way for the removal of restrictions.

    The monitoring necessary for that to happen will probably be in place by January or February, according to three of the envoys. A fourth saw restrictions lasting as late as March. All of the officials have knowledge of the IAEA’s verification regime in Iran and asked not to be named discussing confidential estimates.

    Iran, with the world’s No. 4 oil reserves, is preparing to ramp up production once sanctions are eased, and European business executives and politicians are already shuttling to Iran to lay the groundwork for investment and trade.

    All four envoys dismissed assertions made by skeptics of the deal that it doesn’t give IAEA investigators enough access to suspect Iranian facilities. The agency has already begun to receive significantly more information, one person said. The IAEA declined to comment when contacted by phone on Monday.

    The seven nation accord, already approved by the United Nations Security Council, will be officially adopted by next month and IAEA investigators will give their final assessment of Iran’s past nuclear activities by Dec. 15, according to the timeline. The U.S. Senate, which President Barack Obama has urged to back the deal, has until Sept. 17 to pass a resolution to block its implementation.
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    Transparency fears over China explosion - FT

    Details of an explosion that destroyed an adhesives plant in eastern China, including a mounting death toll, are only slowly emerging despite pledges for greater transparency made in the wake of last month’s Tianjin disaster.

    The local government of Dongying in Shandong province has gradually raised the number killed to 13 after an initial assessment of one when a single blast destroyed the Binyuan Chemicals plant on August 31. “The bodies were blown to pieces, making the investigation difficult,” it said in an explanation that was deleted from the Dongying government website after being picked up by Chinese media.

    The explosion comes less than a month after the Tianjin blast killed at least 162 people and destroyed thousands of apartments, unsold cars and other facilities. Insurance claims could reach $3.3bn, making it one of Asia’s most expensive man-made disasters for insurers, according to risk and reinsurance specialists Guy Carpenter.

    Despite the high profile of the Tianjin explosions — mobile phone videos of the blasts went viral worldwide on social media and journalists flocked from Beijing — and the fact dozens of firefighters did not return that night, the city government took days to raise the casualty count.

    Similarities in the two cases — including accusations that explosive chemicals were improperly stored — may explain Dongying authorities’ desire to avoid scrutiny over the accident. It also occurred shortly before a Beijing military parade to mark the end of the second world war. Chinese authorities are usually under orders to play down any incidents that might mar such an event.

    Local authorities initially attributed the blast to the explosion of a benzene tank stored too close to the factory.

    “Because the materials they produce are highly flammable, it’s very likely that fire first broke out in the storage house,” said a Chinese oil industry analyst who declined to be identified due to the potential sensitivity of the case. “But we noticed that the benzene tank was not mentioned in lots of state media reports, and I know why that is. Benzene is highly poisonous, and it will affect water and air nearby. 500 cubic meters is not a small amount.”

    The Lijin government attracted criticism from state media over its weekend statement, which said that some of the dead had been cremated and that “the emotions of their relatives are stable”.

    “How can emotions be stable when bodies are blown to pieces?” Xinhua asked, in an article on its mobile platform that was also subsequently deleted.

    The city of Dongying, at the mouth of the Yellow River, is dominated by Sinopec, the nation’s second-largest state-owned oil company, which operates the Shengli oilfield there. In recent years, as output from the field has declined, the local government has set up petrochemical complexes to attract downstream investors.

    Binyuan Chemicals is owned by a local chemicals entrepreneur, Li Peixiang. He also owns Dongying Luyuan Sci-Tech and Trade Co, which makes and trades chemicals used in fracking and oil drilling, a Financial Times search of online records shows. Dongying Luyuan is a shareholder in at least one company that is a services contractor to Sinopec and is a supplier to both Sinopec and state-owned PetroChina, according to information it posted online.

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    Icahn-targeted Freeport said to work with JP Morgan on strategy

    Management turns to advice from investment bank before things turn ugly.
    Dinesh Nair and Matthew Monks (Bloomberg) | 7 September 2015 12:40

    Freeport-McMoRan Inc. is working with JPMorgan Chase & Co. to review its strategy after billionaire activist investor Carl Icahn bought a stake in the company, people familiar with the matter said.

    Freeport, the world’s biggest publicly traded copper producer, may consider options including cost cuts and capital reduction plans, as well as asset sales, the people said, asking not to be identified as the information is private. Freeport’s discussions with its advisers are at an early stage and no decisions have been made, the people said.

    Representatives for Freeport and JPMorgan declined to comment.

    Icahn amassed about an 8.5 percent stake in Freeport, the investor disclosed in a filing with the U.S. Securities and Exchange Commission last month. The activist may seek board representation and intends to hold talks with the Phoenix-based company on “capital expenditures, executive compensation practices and capital structure as well as curtailment of the issuer’s high-cost production operations,” according to the filing.

    Icahn’s investing firm filed a Hart-Scott-Rodino Act notice about a week before it went public with an activist 13D, alerting regulators and Freeport that he intended to buy as much as 25 percent of the company, two people familiar with the notice said at the time.
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    Oil and Gas

    Arab Gulf producers to meet Wednesday to discuss unified priceng

    Arab Gulf countries will meet Wednesday to discuss possibility of unifying oilproducts pricing, says Kuwait's oil ministry...Platts Oil

    Gulf oil ministers to meet on Thursday amid price slide

    Gulf oil ministers are due to meet this week in Qatar for an annual meeting, in the first gathering by the heavyweight crude producers since the latest slide in oil prices.

    But while the price drop is not on the agenda for the scheduled meeting of the six-nation Gulf Cooperation Council (GCC) - Saudi Arabia, United Arab Emirates, Kuwait, Qatar, Bahrain and Oman, it will be a chance for oil ministers to air views on the market.

    Comments by Saudi Arabia Oil Minister Ali al-Naimi, in particular, will be closely scrutinised. The oil minister of the world's top crude exporter has made no public comment on prices since June 18, when the oil price was above $63 and he said he was optimistic about the market in coming months.

    Oil prices have more than halved since peaks hit in summer last year due to abundant supplies and a policy change by producer group OPEC to defend market share and discourage competing supply from rival producers, rather than cut its own output. Saudi Arabia and its Gulf allies led the policy shift.

    "The Doha meeting is central given what the international petroleum industry is going through from volatility and to push towards stability," Kuwait's oil ministry tweeted in a statement on Monday.

    The ministry's statement did not say crude prices would be discussed during the ministerial meeting on Sept. 10, where topics such as unifying domestic gasoline prices, climate change and cooperation in renewable energy sector are on the official agenda.

    Venezuelan President Nicolas Maduro said on Saturday he had suggested to the Emir of Qatar a summit of heads of state of OPEC countries to defend oil prices.

    Last year, the GCC oil ministers held their meeting in Kuwait. Oil prices were trading then at slightly below $100 a barrel, a level which had long been favoured by OPEC members before last year's policy shift.

    Saudi Arabia, Kuwait, UAE and Qatar are the main Gulf OPEC members. Oman and Bahrain are both non-OPEC members.

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    Oil Extends Decline as Russia Rules Out Deal With OPEC on Output

    Oil declined for a second day after another Russian official ruled out cooperation on production cuts with OPEC, adding to signs that a global oversupply will persist.

    Futures lost as much as 2.4 percent in London. Russia won’t join the Organization of Petroleum Exporting Countries and isn’t able to cut production in the same way, said OAO Rosneft Chief Executive Officer Igor Sechin. Russia’s Deputy Prime Minister Arkady Dvorkovich said last week there is no way the country can artificially reduce supply.

    Oil has fluctuated the past three weeks as concerns over slowing demand in China fueled volatility in global markets. Prices are down more than 25 percent from this year’s closing peak in June on signs the surplus will persist. OPEC members are sustaining output and U.S. crude stockpiles remain almost 100 million barrels above the five-year seasonal average.

    “Russia’s comments on the market are having some impact on prices today,” Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB, said by phone. “There’s some positive data coming from U.S. rig count for example, and that could be positive for oil prices this week.”

    Brent for October settlement lost as much as $1.19 to $48.42 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $3.41 to West Texas Intermediate. Prices have decreased 15 percent this year.
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    CNPC adds more than 160 Bcm of shale gas reserves in Sichuan basin

    As examined and approved by the Ministry of Land and Resources, CNPC has added 207.87 sq km of new shale gas bearing areas in well blocks of Wei-202, Ning-201 and YS108 in Sichuan basin.

    The areas have been added with proven original gas in place of 163.53 Bcm and technically recoverable reserves of 40.88 Bcm. All the three well blocks are located in the national shale gas demonstration zone in the Sichuan basin.

    By Aug. 27, 47 wells have been put into production in the newly proved areas, producing 3.62 MMcmd, enough for domestic gas use of 2.8 million families.

    This is the first time for CNPC to submit proven shale gas reserves to the Ministry of Land and Resources. It marks a new breakthrough in China's unconventional gas explorationand development, and is significant to promoting the rapid development of China's gas industry and ensuring national energy security.
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    Woodside bids for Oil Search in Asia’s biggest energy offer

    Woodside Petroleum Ltd. offered A$11.65 billion ($8.1 billion) in stock for Oil Search Ltd. as it aims to take advantage of a collapse in oil prices in what would be the biggest energy deal between non-related companies in the Asia-Pacific region.

    Woodside offered one share for every four Oil Search shares, which amounts to a premium of about 14 percent based on Oil Search’s closing price on Monday. Oil Search rose 16 percent to A$7.835 and Woodside slid 2.9 percent to A$29.68 as of 1:12 p.m. Sydney time. Oil Search was one of the few oil and gas companies to report a jump in profit in the first half, driven by its Papua New Guinea liquefied natural gas project.

    “The market is sending a pretty clear signal that Woodside’s offer is undervaluing the Oil Search stake in the PNG LNG project, which is really one of the most competitive LNG investments in the whole Asia Pacific region,” Angus Nicholson, a market analyst at IG Markets Ltd. in Melbourne, said by phone. “Not to mention Woodside will need PNG government support, so that could be tricky.”

    Papua New Guinea’s government holds a 9.8 percent stake in Oil Search, according to data compiled by Bloomberg. Woodside Chief Executive Officer Peter Coleman identified the nation as a prospective target area in May last year after he pulled out of a planned investment in Israel. Oil Search has a 29 percent interest in the PNG project, which is operated by Exxon Mobil Corp.

    “While Oil Search will consider the proposal, it should be noted that Oil Search has a material equity position in the world class PNG LNG project and attractive, low cost, LNG development opportunities,” the company said in a statement. “Oil Search shareholders are entitled to an offer which adequately reflects this value potential.”

    The implied premium of 13.6 percent compares with the average 13.7 percent premium of three similar-sized global oil exploration and production acquisitions in the past year, according to Bloomberg data.

    Companies have announced $172 billion of oil and gas acquisitions this year, up from $123 billion a year earlier, data compiled by Bloomberg show. Brent crude, the benchmark for half the world’s oil, has tumbled more than 50 percent in the last year.

    The proposal sparked a rally in the shares of other Australian energy companies, with Santos Ltd. rising as much as 13 percent in Sydney trading and Origin Energy Ltd. surging as much as 6.6 percent.

    Oil Search appointed Morgan Stanley and Allens as advisers. Woodside is being advised by Bank of America Corp., Gresham Advisory Partners Ltd. and Herbert Smith Freehills LLP.

    Oil Search “is not in a hurry with a manageable balance sheet and some of the lowest-cost LNG in the region,” Cristobal Garcia, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in a report, adding that he sees potential for a 27 percent premium. “This could turn into a bidding war” with Total SA and Exxon Mobil involved, he wrote.

    The premium offered by Woodside is probably too low, and the bid faces a number of hurdles, Nik Burns, a Melbourne-based analyst at UBS Group AG, wrote in a research note. Oil Search’s LNG expansion projects rank in the top two or three undeveloped conventional developments globally, according to UBS.

    “The transaction makes sense for Woodside,” implying an oil price of about $68.30 a barrel, Burns wrote. “We don’t see Oil Search accepting an offer at this level.”

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    Gazprom Boosts Defense of EU Market Share With First Auction

    Gazprom PJSC will this week hold auctions to sell gas in Europe as the world’s biggest exporter of the fuel takes unprecedented steps to defend its market share in the region.

    The Moscow-based company started the sales at 10 a.m. Moscow time Monday and will hold three auctions for delivery into Germany, complementing its decades-long practice of long-term contracts mainly linked to oil. Gazprom is seeking to boost supplies to Europe and Turkey by 7 percent this year to make up for an anticipated 30 percent drop in the price it will receive for its fuel, Valery Nemov, a deputy department head at the company’s export arm, said on a conference call Sept. 1.

    Gazprom faces falling prices in Europe, its biggest market by revenue, and plunging deliveries to the former Soviet Union after Ukraine stopped imports from Russia in July. While Europe’s appetite for the company’s fuel rebounded after the oil drop was priced into contracts, competition from sources including liquefied natural gas has intensified amid stagnating demand.

    “The move represents a fairly historic shift in Gazprom’s marketing of gas to Europe,” Trevor Sikorski, head of gas, coal and carbon at Energy Aspects Ltd., a London-based consultant, said by e-mail Sept. 2. “It is one of the most high profile interactions Gazprom has had with the concept of putting spare gas into the spot market. There are some good reasons why Gazprom is making this change now.”

    The Russian state-owned company, which supplies about 30 percent of Europe’s gas, will through Sept. 10 seek buyers for 3.24 billion cubic meters (114 billion cubic feet) for delivery in the six months from Oct. 1, according to documents published on the website of Gazprom Export. The price will be fixed and determined by the auction.

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    Gazprom, Shell talk Sakhalin third LNG train

    Gazprom’s Alexey Miller, and Ben van Beurden, Chief Executive Officer of Shell met in Vladivostok where they discussed a variety of issues of the strategic cooperation development.

    During the meeting, particular attention was given to the project for constructing the third LNG train within the Sakhalin II project as well as the asset swap deal-related issues, Gazprom said in a statement.

    Within the signed agreement of strategic cooperation a decision was made to form a joint coordination committee for reviewing a whole range of issues on the priority lines of activity, according to the statement.

    As part of Sakhalin II, Russia’s first LNG plant with the annual capacity of 9.6 million tons of LNG was commissioned in 2009.

    Sakhalin Energy is the Sakhalin II project operator with the ownership distributed among Gazprom (50 per cent plus one share), Shell (27.5 per cent minus one share), Mitsui (12.5 per cent) and Mitsubishi (10 per cent).

    On June 18, Gazprom and Shell signed a memorandum on implementing the project for constructing the third train at the LNG plant within Sakhalin II.
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    Statoil declares Smørbukk South extension in operation – producing from 'tight' reservoir

    Statoil declares Smørbukk South extension in operation – producing from 'tight' reservoir

    Two and a half years after project sanction, production commences from Smørbukk South Extension. The offshore project at the Åsgard field is a world class project in production from tight formations.

    Through a combination of wells with long well sections and new completion technology, oil and gas are now produced from a reservoir previously regarded as not feasible. This pioneer project opens up for other similar developments.

    The reserves in the Smørbukk South Extension project are estimated to be 16.5 million bbl oil equivalent and will contribute significantly to the production from the Åsgard A FPSO in the times ahead.

    The field was discovered in 1985, but due to low permeability, the volumes were regarded as not economical to develop. The hydrocarbons in the Smørbukk South Extension project are located in reservoirs with varying porosity ranging from “bricks to tiles”.
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    Islamic State takes Syrian state's last oilfield - monitor

    Islamic State takes Syrian state's last oilfield - monitor

    Islamic State fighters have seized the last major oilfield under Syrian government control during battles over a vast central desert zone, a group monitoring the conflict said on Monday.

    The Jazal field was now shut down and clashes were ongoing east of Homs, with casualties reported on both sides, the Britain-based Syrian Observatory for Human Rights said, without giving dates or more details.

    Syria's army said it had repulsed an attack in the same area but did not mention Jazal or comment on how much of the country's battered energy infrastructure remained under its sway. It said it killed 25 fighters, including non-Syrian jihadists.

    "The regime has lost the last oilfield in Syria," said the Observatory, which tracks violence through a network of sources on the ground.

    Commentators on social media said fighting had surged in the last two to three days and the rebels had taken the oilfield on Sunday.

    Jazal is a medium-sized field that lies to the north west of the rebel-held ancient city of Palmyra, close to a region that holds Syria's main natural gas fields and multi-million-dollar extraction facilities.

    The army, which has been fighting to retake the city and surrounding areas since they fell in May, had managed to secure the oil field's perimeter in June.

    The Observatory also said U.S.-led coalition bombing raids in areas in the militant's de facto capital of Raqqa had killed at least 16 militants, including five foreign jihadists.
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    Iran to use Spain’s LNG terminals for EU exports

    Iran says it has received a proposal from Spain to use its liquefaction facilities to export LNG to Europe.

    Iran’s Oil Minister Bijan Zangeneh has told reporters that the proposal was raised during his meeting with the visiting Spanish Minister of Industry, Energy and Tourism José Manuel Soria López.

    Zangeneh emphasized that discussions between Tehran and Madrid over the same issue will continue in the near future.

    Iran was previously pursuing several major LNG projects that included Pars LNG, Persian LNG and Iran LNG. But they were later abandoned as complications grew – mostly as a result of US-sanctions that prohibit investments of liquefaction enterprises in Iran.

    A recent alternative for Iran – albeit less spoken of - is to pipe its natural gas to Oman for liquefaction processing and export the LNG thus obtained to international markets.

    Spain has presently turned into a major hub for reloading LNG for re-exports to Europe and elsewhere.

    In 2013, Spain reloaded 3.8 bcm of LNG cargo (equivalent to 4% of Russian volumes to Europe) back onto ship for export to Latin America, Asia, and Europe.

    Analysts believe that Spain’s proposal – as explained by Zangeneh – may involve the same reloading scheme through which future LNG supplies from Iran will be sent to other markets in Europe and beyond through Spanish regasification terminal.

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    Israel lawmakers approve gas development deal, obstacles remain

    Israel's parliament on Monday approved a deal that would enable the development of three offshore natural gas fields, although significant regulatory hurdles remain.

    In a non-binding vote, lawmakers voted 59-51 in favour of an outline plan that would allow the large Leviathan gas field and two smaller ones to be developed by a consortium led by Noble Energy and Israel's Delek Group.

    But for the government and companies to move forward with the framework agreement, which was opposed by the competition regulator, parliament still needs to approve a measure that transfers power to override the regulator from the Economy Ministry to the cabinet.

    It was unclear when such a vote would take place since Prime Minister Benjamin Netanyahu may not have the support of enough of his coalition partners to drive through such a move. Economy Minister Aryeh Deri has said he wants to wait until a new regulator is in place.

    Netanyahu has pushed hard for the deal despite objections of the regulator, who resigned over the matter, that Noble and Delek would hold most of Israel's natural gas reserves.

    The companies also own large stakes in the Tamar field, which started production in 2013 and has reserves of 10 trillion cubic feet (tcf).

    At 22 tcf, Leviathan was initially slated to begin production in 2018 with most of the gas earmarked for exports, but that will likely not be the case.

    Noble in a statement urged Israel's government to implement the deal as quickly as possible. "After final approval we can complete the required export contracts, rebuild the work teams ... and raise the external financing needed," it said.

    Monday's vote, which could be aimed at preventing Noble from seeking international arbitration, comes just a week after Italian energy group Eni said it had found 30 tcf of gas in the Zohr field off Egypt, muddying the waters for Israel's gas sector.

    As part of the deal initially reached in June, Noble and Delek would be allowed to keep ownership Leviathan, but would be required to sell off other assets, including stakes in Tamar.

    Critics say the deal still leaves too much of the gas reserves in the hands of Noble and Delek, which could keep prices high.

    The agreement has become the focus of national debate with critics saying Netanyahu was putting energy profits above what could be a windfall for the state and citizens hoping to lower energy prices. But Netanyahu believes the more pressing issue is to get the gas out of the ground and fast-track development of Israel's natural resources.

    Netanyahu, who holds a one-seat majority in parliament, told reporters after the vote: "There is one obstacle left and we will overcome it."

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    Fort Nelson First Nation wins legal challenge stopping Nexen water license

    Fort Nelson First Nation has won a major legal challenge against the BC government and Nexen Inc., an upstream oil and gas company. The first long-term water license granted in the Horn River Basin for shale gas fracking has been cancelled, effective immediately, by the Environmental Appeal Board.

    The license, issued to Nexen in 2012, authorized the company to pump millions of cubic meters of water from Tsea Lake, a small lake in FNFN territory, each year until 2017.

    'Granting this license was a major mistake by the Province,' said FNFN Chief Liz Logan. 'Our members have always used the Tsea Lake area in our territory to hunt, trap, and live on the land. The company pumped water out of the lake, even during drought conditions. There were major impacts on the lake, fish, beavers, and surrounding environment. Water is a huge concern for us, and for all British Columbians. By approving this license, the Province demonstrated it is not protecting the public interest in water.'

    After three weeks of hearings involving expert reports, scientific literature, and other evidence, the EAB has rejected the license on two grounds:

    The EAB found that the science behind the license was fundamentally flawed in both concept and operation.
    The EAB found that the Province failed to consult FNFN in good faith and breached its duty to consider the potential impacts on FNFN.

    The EAB said that BC government officials showed a lack of good faith in their dealings with FNFN on the license, and that the consultation process was 'seriously flawed.' The EAB found that the Province breached its constitutional duty to consider the potential adverse effects on FNFN.

    The EAB also rejected the Province's conclusion that the license would have no significant environmental impacts, finding that the license was fundamentally flawed in concept and operation. It found that the company's water withdrawal scheme was not supported by scientific theory or adequate data as it was based on incorrect, inadequate, and mistaken factual information and modelling results.
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    Precious Metals

    Russian crisis prompts Polyus Gold co-owner to eye buyout offer - sources

    The economic crisis in Russia has persuaded a co-owner of Polyus Gold to consider a $5.4-billion buyout, which could end the top Russian gold producer's premium listing in London after just three years, say three sources close to the possible deal.

    Said Kerimov, the 20-year-old son of tycoon Suleiman Kerimov, already controls a 40 percent stake in the gold miner along with the 'Suleyman Kerimov Foundation'.

    His father, who Forbes magazine estimates is worth $3.4 billion, is not allowed to hold assets directly because of his membership of the Federation Council, Russia's upper house of parliament.

    In a low key announcement, Said Kerimov and the foundation announced last week, via their companies Sacturino and Wandle, that they were now considering making an offer to buy the remaining 60 percent of the firm by the end of September.

    Sources told Reuters the move reflected a view among the secretive Kerimov family that a London listing was less attractive now because of tighter access to Western capital, sanctions imposed over Moscow's role in the Ukraine crisis, and the Kremlin's attitude to overseas listings.

    "Wandle believes that it is better for Polyus to be developed as a private company," one of the sources told Reuters.

    Sacturino, a subsidiary of Wandle, is in discussions with VTB, the country's second-largest bank, about financing the possible offer, the source added.

    Suleiman Kerimov displeased the Kremlin in 2013, when he decided to end a joint potash trading venture between Russia's Uralkali, a firm he previously co-owned, with a Belarussian partner, a step that ignited a political row between Moscow and Minsk.

    Despite a fall in the gold price and Western sanctions, the market value of Polyus in London has not been as volatile as some of its peers.

    That was due to demand from large shareholders, something which eventually meant its shares were thinly traded, according to two sources.

    Delisting from London would make it easier for Polyus' large shareholders to manage their loans, under which Polyus shares are pledged as collateral, the two sources added.

    "The liquidity of Polyus Gold shares has been low for quite some time for now, and the potential buyout of the company was widely expected," Sberbank CIB said in a recent note.

    Other Polyus shareholders include Gavril Yushvaev, who has a 19.3 percent stake, and Oleg Mkrtchan who has an 18.5 percent stake.

    The official free float is around 22 percent. However, many minority investors have sold out in recent months, according to a former Polyus minority shareholder, who said they were attracted by their better-than-average value.

    The company also has a Russia-registered subsidiary, which bears the same name, and would be able to keep its listing in Moscow if the buyout went ahead, according to two sources.
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    Diamond cuts: India's global hub fears more job losses as China slows

    A year ago, India's diamond capital hit the headlines when one of the largest polishing companies in the western city of Surat treated hundreds of employees to bonuses in the form of Fiat cars, apartments and jewellery.

    This year, there's no sign of a repeat bonanza in a city that by some estimates polishes about 80 percent of the world's diamonds.

    More than 5,000 Surat polishers have lost their jobs since June and thousands more could be left without work, as Chinese consumers pull back from luxury purchases, leaving jewellers with stocks of unsold jewellery and gems. Polishers say Chinese jewellers have defaulted on deals worth millions of dollars.

    Nearly half a dozen large diamond companies in the city have closed down: a significant hit for an industry that employs nearly a million people in India, two-thirds of them in Surat.

    Jobs are a critical issue for India's government, struggling to revive economic growth to a rate that will create employment for millions joining the workforce every year.

    Sunilkumar Rajput spent 25 years cutting gems in this coastal city, where streets are lined with workshops of all sizes, bustling with craftsmen huddled under desk lamps, preparing to carve rough diamonds into multi-faceted gems. He lost his job in June.

    "I am ready to work even at half the salary I was getting in my previous job, but no one will listen," says Rajput, 45, speaking in a quiet side street of Surat. He has sent his children back to his home state of Uttar Pradesh, in India's north, to save money.

    Distress in Surat's warren of polishing houses comes at a time of unrest across the state of Gujarat - Prime Minister Narendra Modi's home base - where hundreds of thousands of members of the Patidar, or Patel, community have held protests to demand changes to India's affirmative action policies, which they say hurt them.

    Like many of Gujarat's largest industries, diamond polishing is dominated by Patels, who make up 14 percent of the state and a nascent but disgruntled middle class.

    Hiren Patel, 35, says his salary has halved since June: "We have work only for three days a week."

    Last month, he joined a rally of at least half a million people which turned violent, leaving at least seven dead.

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    Base Metals

    Global copper market to see shortage in 2-3 years – Rio Tinto

    Global copper markets could flip into a structural shortage within two to three years as demand from power stations makes it the first commodity to come out of a glut, Rio Tinto said. 

    Copper is expected to be the first commodity to shake the glut off, Rio Tinto's chief executive of copper and coal, Jean-Sebastien Jacques, told Reuters on the sidelines of the Financial Times Commodities Retreat in Singapore on Monday. "Market conditions are challenging but copper is an attractive commodity. In the next two to three years we could move into a shortage," he said. 

    Tighter supply would help underpin global copper prices that have plunged 20% in the past two years and hit a six-year low of $4,855 per tonne last month. Analysts in a Reuters poll conducted in July forecast an oversupply of 194,000 tonnes this year and 262,500 tonnes next year. 

    Despite the current oversupply and low prices, Rio Tinto's Jacques reinforced the policy of mining majors of keeping output high in order to squeeze out smaller higher-cost competitors. "We are in the business of mining for the long run. We need to create revenue. We are getting through the current challenging phase by saving costs through improving efficiency, not by cutting output," he said. 

    Anglo-Australian Rio Tinto plans to produce more than 500 thousand tonnes of copper this year, accounting for about 15% of its total revenues. Growth in demand for the metal will be primarily driven by the power sector, where it is used as a conductor, Jacques said.
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    Financing crunch leaves Codelco's investment plans in pieces

    The ambitious investment plans of Chile's state-run copper producer Codelco are in tatters as it faces delays to mine expansions and keeps at least one unprofitable project running with global copper prices plumbing multi-year lows.

    Expansion of the key Andina mine has been delayed by two years and a plan to take the century-old Chuquicamata mine underground is behind schedule, hampered by operational setbacks and financing and environmental concerns, company insiders say.

    Meanwhile, Codelco, the world's No. 1 copper supplier, is keeping unprofitable mines like Salvador open, apparently to protect jobs and save President Michelle Bachelet's leftist government more confrontations with unions.

    "The juncture at this moment is awful," Carlos Caballero, head of Codelco's new Ministro Hales mine, told Reuters.

    Codelco's troubled outlook raises doubts over whether it will be able to bolster production to a targeted 2 million tonnes per year by 2026, from 1.67 million tonnes in 2014.

    It also puts Bachelet in a difficult position because Codelco, hit by an end to the commodities boom, is generating less of the income she needs to finance ambitious and long-promised social programs.

    Codelco says it needs to invest $25 billion over five years to dig deeper at new and existing sites and keep production flowing. With copper prices at a six-year-low, the cash-strapped government has so far pledged just $4 billion in returned profits between 2015 and 2020.

    Codelco hands its profits to the state, and is funded in part by the return of some profit and in part by issuing debt.

    Last year, the government received some $3 billion profit from Codelco, the lowest level since 2003. In 2012, the company paid $7.5 billion into Chile's coffers.

    Bachelet's government and Codelco now face a financing quandary. The government has pledged billions of dollars for an overhaul of the education system and other social initiatives and is reluctant to promise more funds to Codelco at a time when the economy is struggling and copper prices are low.

    But issuing more debt would hit Codelco's investment grade and returning the company to private hands is politically unpalatable.

    The government says it is taking its cue from the company.

    "We will have to see what decisions Codelco makes to see what path the government will take," Mining Minister Aurora Williams said.

    "The most sensible and profitable thing to do would be to close Salvador now and open it if Rajo Inca is viable," a senior Codelco executive told Reuters.

    Former Codelco executives said Salvador should be a low priority and that optimistic announcements on Salvador's future were "intended to keep people's hopes up".

    Closing the mine would entail job losses and could be politically damaging to Bachelet, who is already struggling with low approval ratings.

    Some question if Codelco's overall investment plans will deliver a return, even if prices recover.

    "When they are completed it will have cost $40 billion and how much will production increase? How much could be produced elsewhere with that money?" said one copper market trader.

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    Luanshya Copper Mines to cut 1600 jobs at Baluba mine in Zambia

    Zambia's Luanshya Copper Mines, owned by a Chinese firm, said on Monday it would suspend operations and cut jobs at its Baluba mine due to plunging copper prices and power shortages.

    The firm said “This decision was arrived at after considering the escalating cost structure for Baluba Mine owing to the plummeting copper price, coupled with the energy deficit the country is currently experiencing.”

    The Mineworkers Union of Zambia said about 1,600 members were affected by the decision.

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    Centrum Broking sees aluminium climbing back to USD 2000

    Image Source: centrumEconomic Times reported that Centrum Broking said that it expects aluminium prices to recover sharply to USD 2000 per tonne by first half of 2016 from USD 1700 per tonne price currently, citing expected supply cuts due to large unviable capacity at present prices and steady demand.

    The brokerage said 30-40 per cent of aluminium capacity was presently unviable and supply cuts would accelerate globally with China's smelter margins being at multi-year lows right now.

    Centrum Broking analyst Mr Abhisar Jain said “We believe that current depressed levels in aluminium are driven by a mix of speculation and unfavourable currency movements rather than demand-supply and ignore the support of current global cost curve which makes one-third of global capacity unviable and is triggering sharp supply cuts.”

    The brokerage said Hindalco will benefit from its low cost of production and capital expenditure plan coming to an end, while Vedanta's diversified asset base will help the company tide through tough times.

    Hindalco and Vedanta shares have lost half their value in last six months on BSE.
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    Vedanta to ramp up aluminium production after OERC order

    Economic Times reported that even as it warns of a possible shutdown of its Kalahandi refinery in Odisha in the face of raw material issues and sliding global aluminium prices, Vedanta hopes to step up metal production at its Jharsuguda smelter.

    This has been made possible by an interim order of the Odisha Electricity Regulatory Commission (OERC), which allowed the company to use for now a fourth of capacity from its 2,400 megawatt independent power plant (IPP) at Jharsuguda without paying cross subsidy - this subsidy is payable when power is bought from an IPP in Odisha.

    Mr Abhijit Pati, chief executive of Vedanta's aluminium business said “A few formalities remain to be completed with the state and regulators before we can ramp up smelter production from 0.5 to 0.8 million tonne.”
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    Steel, Iron Ore and Coal

    China coking coal prices further slide in September

    China’s coking coal prices have further slid since September, due to coke producers’ strong bargains as coke prices decreased 20 yuan/t in general at major production bases in late-August.

    Many coking plants and steel mills have reduced coking coal purchase prices recently, industry portal China Coal Resource learned.

    Northern large steel mills cut 10-30 yuan/t on purchase price of locally-produced coking coals, with one cutting purchase price of Liulin low-sulphur material by 30 yuan/t.

    Most coking plants were in talks with miners about adjusting down prices by 10-30 yuan/t, source said.

    Sources learned that Hebei’s coking plants were running at low capacities, impacted by stricter checks before the Beijing military parade, thus they reduced coking coal purchase.

    Few Shanxi-based coal washing plants reported a rapid increase in stocks in early-September.

    Stocks at large miners were at medium or high level, but downstream buyers slowed efforts to press down prices due to previous big price cuts and discounts.

    Some analysts said large miners may keep prices stable due to already very low prices; some predicted further price drop, as some miners could be forced to cut prices due to high stocks and falling coke prices.

    China’s steel market was also on the downward trend this month. The largest private steelmaker Shagang Group reduced the price of its steel products for construction by 100-130 yuan/t, ex-plant basis, starting from September 1.
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    CIL ponders lower output as buyers dry up

    Coal major Coal India Limited (CIL) may be forced to halt supplies to its financially distressed bulk customers. Higher production, rising coal stocks at thermal power plants, falling electricity demand and the financial distress of electricity distributors have forced large coal consumers to call off the acquisition of fresh fuel supplies. 

    “It is not that we are stopping supplies on our own. But several of CIL’s operational mining subsidiaries have been approached by consumers, mostly power distribution companies controlled by provincial governments, seeking stoppage of fresh supplies,” a CIL official said on Monday. “These distribution companies feared that, given their current crippling debt burden, they would not be able to make payment for fresh coal purchases nor clear past dues,” the official said. 

    He was, however, quick to add that, considering that both CIL and power distributors were controlled by federal and provincial governments, the halt in fresh coal supplies was "unofficial" as neither could afford to be seen making such a “tough decision”. 

    Power distributors from the provinces of Madhya Pradesh, Rajasthan and Jharkhand, were the first to seek a halt in buying new supplies, with officials expecting the list to grow as more power distributors started to feel the pinch of their growing indebtedness. 

    The inability to commit to buying fresh coal supplies was evident from the staggering losses of power distribution companies of provincial governments. For example, distribution companies in Rajasthan, in central India, have notched an accumulated loss of about $12-billion. Those in Tamil Nadu in southern India notched up $2.12-billion in losses. 

    The losses were so pronounced that the country’s central banker Reserve Bank of India in a recent note on financial stability said the $8-billion worth of combined loans of distribution companies, which had been recast by government-owned commercial banks, were now at risk of becoming nonperforming assets on the books of these banks. 

    Besides the financial health of these coal consumers, thermal power companies' rising coal stocks, a direct fall-out of low electricity demand and falling plant load factor (PLF), were contributing to the market moving from a shortage to a surplus. According to Central Electricity Authority data, thermal power companies had estimated average coal stocks sufficient to supply 23 days of consumption, up from about 6 days of consumption in 2014. 

    Meanwhile, the average PLF of thermal power plants had fallen to around 58%, from 65% in 2013/14 and 73% in 2011/12, indicating a slowdown in energy demand.

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