Mark Latham Commodity Equity Intelligence Service

Thursday 17th November 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    China Oct power use down 1.5 pct on mth


    China's power consumption stood at 489.0 TWh in October, up 7.0% on year but down 1.51% from the previous month, showed data from the National Energy Administration (NEA) on November 16.

    Over January-October, the country's power consumption totaled 4,877.6 TWh, expanding 4.8% year on year.

    Of this, 684.7 TWh was consumed by the residential segment, gaining 11.6% from the corresponding period last year.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 92.6 TWh in the first nine months this year, rising 5.3% from the previous year.

    The secondary industries – mainly the industrial sector, consumed 3,435.1 TWh, increasing 2.3% on year.

    Power consumption by tertiary industries – mainly the service sector – increased 11.6% on year to 665.2 TWh.

    Meanwhile, the average of utilization of power generating units across the country was 3,122 hours, 188 hours lesser than the same period last year, according to the NEA data.

    Of this, hydropower plants logged average utilization of 3,069 hours, an increase of 80 hours; the average utilization of thermal power plants decreased 197 hours on year to 3,405 hours.

    In addition, China added 79.72 GW of power generating capacity in the same period, including 8.67 GW of new hydropower and 30.67 GW of new thermal power capacity.

    http://www.sxcoal.com/news/4549299/info/en
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    2,200 officials in 3 provinces held accountable for lax environmental efforts


    Insufficient pollution control efforts and deterioration in some regions caused by over-exploitation of resources were found by top inspectors in Heilongjiang, Jiangsu and Henan provinces, China Daily reported, citing the inspection results released on November 15 by the environmental protection authority.

    More than 2,200 officials in the three provinces, where top-level inspections by the central government began in mid-July, have been held accountable for the lax environmental efforts, according to the Ministry of Environmental Protection.

    In Zhengzhou, the capital of Henan, air quality has worsened since 2013. Despite its poor environmental performance, the city was assessed as excellent last year for economic growth, which shows that the leadership did not attach great importance to environmental protection, said Wang Wanbin, head of the inspection team for Henan.

    In Jiangsu province, inspectors also found high risk of contamination, noting that only 30% of the more than 6,300 chemical plants were located in industrial zones where the government has installed equipment to reduce pollution.

    The provincial government has required more than 2,700 companies to improve their facilities for environmental protection, and polluting companies in Jiangsu were fined more than 97.5 million yuan ($14.2 million).

    Harbin, the capital of Heilongjiang, was warned about its ineffective restrictions, after nine of its 16 coal-fired power plants discharged pollutants excessively for a long time, said Yang Song, head of the inspection team for Heilongjiang.

    The three provincial governments are to release their plans of environmental protection within a month.

    http://www.sxcoal.com/news/4549292/info/en

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    China gives nod to five railway projects worth $30 bln


    China's top economic planner has approved five railway projects with a total investment of close to 200 billion yuan ($29.23 billion) so far this month, China Business News reported.

    The Ganshen railway, with a total investment of 64.13 billion yuan, connects Ganzhou city of Jiangxi province and Shenzhen city of Guangdong province. The project, with a total length of 432 km and 14 stations, is expected to complete in 2020, according to the National Development and Reform Commission (NDRC).

    The NDRC also approved the Beijing-Tangshan intercity railway, a key part of Beijing-Tianjin-Hebei intercity rail transit network. The 148.7-km rail link has a total investment of 44.9 billion yuan.

    Meanwhile, another three approved projects, Zhangjiajie-Jishou-Huaihua railway, Mudanjiang-Jiamusi railway and a new freight rail line, Shenmu North (Hongliulin) - Fengjiachun section of the Shenwa railway, involved an investment of 38.24 billion, 38.56 billion and 8.75 billion yuan, respectively.

    The government has sought ways to increase investment in infrastructure projects in a bid to shore up the economy.

    The commission approved 15 fixed-asset investment projects with total investment reaching 218.8 billion yuan in October, official data showed on November 11.

    The projects covered transportation and energy, said Li Pumin, secretary general of the NDRC, during a news conference.

    China's fixed-asset investment in the first nine months grew 8.2% year on year, slightly up from the 8.1% registered during the January-August period, according to data released by the National Bureau of Statistics.

    Of this, investment on environment protection, clean energy and transportation among 11 fields reached 7,000 billion yuan, a rise of 400 billion yuan from a month ago.

    http://www.sxcoal.com/news/4549232/info/en
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    French Pollsters Spooked by Trump But Still Don’t See Le Pen Win


    A plain-speaking candidate with a business background was running for president and the polls gave him little chance after a series of outbursts decried as racist. But it was the pollsters who ended up with egg on their faces.

    It’s not just the story of Donald Trump in 2016 America, but also France’s Jean-Marie Le Pen in 2002.

    Far-right leader Le Pen pulled off a surprise by qualifying for the second round of the presidential election where -- this time correctly forecast by pollsters -- he was routed by incumbent Jacques Chirac. Polls had all expected Chirac to face off against Socialist candidate Lionel Jospin.

    France holds presidential elections again in 2017 and after two major political upsets in recent months -- Trump’s U.S. victory followed Britain’s Brexit vote in June -- eyes are on Jean-Marie’s daughter Marine who is on track to repeat her father’s achievement and is promising a referendum on whether to pull France out of the European Union.

    France’s main pollsters are all projecting the National Front leader will take one of the top two spots in April’s first round. But they also see her losing in a run-off to the center-right Republicans’ candidate by a wide margin. Though bookmakers have cut the odds on a Le Pen presidency sharply since Trump’s upset, pollsters say they are confident that snapshot is accurately reflecting the national mood six months out from the vote.

    “I’d never say ‘never’ but I do think we have some advantages that our U.S. colleagues don’t,” said Bruno Jeanbert, deputy managing director at pollsters OpinionWay. “A Trump-style surprise is less likely here.”

    Polls vs Bookies

    According to a BVA poll carried out between Oct. 14 and Oct. 19, Le Pen would win between 25 percent and 29 percent of the vote in next April’s first round. If she faces Bordeaux mayor Alain Juppe -- the favorite to win the Republicans primary -- she’d lose the May 7 run-off by more than 30 percentage points. If it’s former President Nicolas Sarkozy, the margin would be 12 points.

    That’s a much wider advantage than Hillary Clinton held over Trump in days before the U.S. election on Nov. 8, so the chances of an upset are more remote, according to Holger Schmieding, chief economist at Berenberg Bank. All the same, the bookmaker Ladbrokes Plc has cut the odds on Le Pen to 7-to-4 from 5-to-1 before the U.S. election, implying a 36 percent chance of victory.

    “We are fairly confident that Le Pen will not win,” Schmieding wrote in a note to clients Nov. 11. “Still, we need to monitor the political risks very closely.”

    France Is Different

    French pollsters have the benefit of experience. Trump’s candidacy had no precedent in U.S. politics so pollsters had no reference point to gauge whether voters were reluctant to admit they were backing him. The French have had a chance to re-calibrate since 2002.

    “We missed the rising support for Jean-Marie Le Pen,” said Yves-Marie Cann, director of political studies at pollster Elabe. “But we have adjusted our methods and in past elections we were pretty close to the final outcome. That does argue for some confidence in our work.”

    http://www.bloomberg.com/news/articles/2016-11-16/french-pollsters-spooked-by-trump-but-still-don-t-see-le-pen-win?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social
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    Zijin Mining exec sees M&A opportunities in Australian copper, gold sector


    China's Zijin Mining sees more acquisition opportunities in gold and copper in Australia as the country's miningsector restructures after years in the doldrums, director Qixue George Fang said on Wednesday.

    "M&A is still going on, but how much...depends on the opportunity, it depends on the price and how much (companies) are willing to pay," the executive said, speaking on the sidelines of Metal Bulletin's Cesco copper conference in Shanghai.

    "In Australia, because the mining industry is restructuring, the opportunities will come," he said.

    http://www.miningweekly.com/article/zijin-mining-exec-sees-ma-opportunities-in-australian-copper-gold-sector-2016-11-16
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    Oil and Gas

    Libya to Nearly Double Oil Output as OPEC’s Task Gets Harder


    Libya plans to almost double crude production next year even as the producer group tries to implement a deal to trim production and ease a global supply glut.

    The country with Africa’s largest crude reserves currently produces 600,000 barrels a day, state-run National Oil Corp. Chairman Mustafa Sanalla said in a statement posted on the company’s website. It’s seeking to boost output to 900,000 barrels a day by the end of 2016 and about 1.1 million barrels next year, he said.

    Libya, a member of the Organization of Petroleum Exporting Countries, has been working to boost production and exports since the NOC reached an agreement in September with Khalifa Haftar, the commander of armed forces controlling important oil ports. As a result of that deal, the country was able to ship781,000 barrels from the port of Ras Lanuf on Sept. 21, the first international cargo from the terminal since force majeure was declared in December 2014. The country’s largest port, Es Sider, may resume exports within days.

    The North African country’s production recovery highlights the efforts OPEC must make to achieve production cuts needed to rein in the oversupply that has pushed down prices. Brent crude, which traded at more that $115 a barrel in June 2014, has dropped to about $47.

    Libya, along with Nigeria and Iran, has been exempted from the deal OPEC reached in September in Algiers. The more those countries pump, the greater the pressure on other members of the group to make even bigger curtailments of their own if production is to be brought under control. OPEC meets Nov. 30 in Vienna to discuss proposals to limit supply.

    ‘Economic Revival’

    Sanalla said Libya is ”heading toward economic revival” but warned against any military attacks on oil installations that could disrupt plans to increase output.

    Libya produced 1.6 million barrels a day before the 2011 uprising that ousted longtime leader Moammar Al Qaddafi. Output shrank after international oil companies withdrew amid fighting between rival governments and armed groups over the nation’s oil fields, ports and pipelines. The conflict also halted exports from the nation’s main oil ports.

    Es Sider hasn’t exported crude since force majeure, a legal status protecting a party from liability if it can’t fulfill a contract for reasons beyond its control, was declared on loadings almost two years ago. The curbs were lifted in September.

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    Oil Options Traders Buy Record Bullish Contracts Amid OPEC Moves


    Oil investors traded a record number of bullish options contracts for benchmark U.S. crude, a signal that the market is positioning for a potential OPEC deal to limit production and boost prices.

    The total volume of calls giving investors the right purchase West Texas Intermediate crude rose to the equivalent of 303 million barrels on Tuesday, according to preliminary CME Group Inc. data compiled by Bloomberg. That far exceeded a prior record of 221 million, set five and a half years ago. The heaviest trade was concentrated in the first half of next year, with several individual contracts setting all-time highs.

    “There is definitely somebody that thinks that there is a risk of having higher prices in the first half of 2017,” Olivier Jakob, managing director of Petromatrix GmbH in Zug, Switzerland, said by phone. “It’s saying that somebody in the market is either hedging for potential higher prices in 2017, or somebody is taking a bet that prices will be higher next year.”

    Oil prices on Tuesday had the biggest one-day surge since April as the Organization of Petroleum Exporting Countries embarked on a final diplomatic effort to secure an oil-cuts deal. Its top official is heading on a tour of member states while Russia scheduled informal talks in Doha this week with nations including Saudi Arabia. The producer club, meeting formally on Nov. 30 in Vienna, is under pressure to formalize a deal it set out in September that’s supposed to limit supply.

    The surge in calls trading also helped lift the total number of lots traded to an all time high. A total of 434,879 were transacted, the preliminary data show. The prior all-time high was 430,867 contracts, set in May 2011. Each one represents 1,000 barrels. Of the 10 most active contracts on Tuesday, nine were calls.

    West Texas Intermediate for December jumped 5.7 percent to $45.81 on Nymex on Tuesday. The advance was the largest since April 8. The grade was down 39 cents at $45.42 at 10:06 a.m. in London.

    http://www.bloomberg.com/news/articles/2016-11-16/oil-options-traders-buy-record-bullish-contracts-amid-opec-moves
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    Assessment of undiscovered continuous oil and shale-gas resources in the Bazhenov Formation

    Assessment of undiscovered continuous oil and shale-gas resources in the Bazhenov Formation 

    of the West Siberian Basin Province, Russia, 2016

    Fact Sheet 2016-3083

    By:Timothy R. Klett, Christopher J. Schenk, Michael E. Brownfield, Heidi M. Leathers-Miller, Tracey J. Mercier,Janet K. Pitman, and Marilyn E. Tennyson

    Using a geology-based assessment methodology, the U.S. Geological Survey estimated mean continuous resources of 12 billion barrels of oil and 75 trillion cubic feet of gas in the Bazhenov Formation of the West Siberian Basin Province, Russia.

    More details:
    https://pubs.er.usgs.gov/publication/fs20163083
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    Oil demand won't peak before 2040, despite Paris deal: IEA


    The International Energy Agency expects global oil consumption to peak no sooner than 2040, leaving its long-term forecasts for supply and demand unchanged despite the 2015 Paris Climate Change Agreement entering into force.

    The Paris accord to cut harmful emissions seeks to wean the world economy off fossil fuels in the second half of the century in an effort to limit the rise in average world temperatures to "well below" 2 degrees Celsius (3.6 Fahrenheit) above pre-industrial times.

    But while demand for oil to power passenger cars, for example, may drop, other sectors may offset this fall.

    "The difficulty of finding alternatives to oil in road freight, aviation and petrochemicals means that, up to 2040, the growth in these three sectors alone is greater than the growth in global oil demand," the IEA said in its annual World Energy Outlook.

    From 2020, the European Union will impose much tougher legislation to control vehicle emissions, which many expect to quickly erode use of traditional fuels such as gasoline and diesel, a major source of oil demand.

    In the report, the IEA looks at three scenarios for oil supply and demand. Its central, or "New Policies", scenario assumes signatory countries will attempt to meet the requirements set by Paris, as well as existing environmental legislation, while its "450 scenario" assumes signatories will adhere to the agreement and oil demand will fall off sharply and the "current policies" scenario does not factor in the Paris deal.

    The IEA's central scenario assumes demand will reach 103.5 million barrels per day by 2040 from 92.5 million bpd in 2015, for which India will be the leading source of demand growth and China will overtake the United States to become the single largest oil-consuming nation.

    Overall, under the New Policies scenario, the IEA said it sees non-OECD oil demand growth running at the slowest pace for more than 20 years, but this would still be enough to offset a continued fall in OECD country demand, which will be tempered by policies aimed at improving vehicle fuel efficiency.

    "In the New Policies Scenario, balancing supply and demand requires an oil price approaching $80 a barrel in 2020 and further gradual increases thereafter," the IEA said, leaving its price forecast under this scenario unchanged from last year's World Energy Outlook.

    DROP-OFF IN DEMAND

    The IEA's "450 scenario" forecasts rising use of electric vehicles and consumption of biofuels that will cut oil demand.

    "In the 450 Scenario, global oil demand peaks by 2020, at just over 93 million bpd. The subsequent decline in demand accelerates year-on-year, so that by the late 2020s global demand is falling by over 1 million bpd every year," the IEA said.

    "Oil use in passenger vehicles in the 450 Scenario falls from just under 24 million bpd to 15 million bpd in 2040, nearly 10 million bpd lower than the 2040 level in the New Policies Scenario," the agency said.

    Without factoring in implementation of the Paris Agreement and only assuming the measures adopted by mid-2016 will apply, the IEA's "current policies" scenario forecasts a rise in demand to 117 million bpd by 2040.

    On the supply side, in both the New Policies and 450 scenarios, the IEA expects the Organization of the Petroleum Exporting Countries (OPEC) to maintain its strategy of controlling output in order to support prices.

    It sees a gradual decline in OPEC production out to 2040, when it expects the group's output to be around 10 percent lower than its current level of 33.8 million bpd, but says this drop will be much slower than the decline in non-OPEC production, which it expects to fall by nearly a third in this time.

    In the New Policies scenario, global oil output is expected to rise to around 100.5 million bpd by 2040, from 2015's 92.5 million bpd, while under the 450 scenario, supply is expected to fall to around 71 million bpd.

    In its Current Policies outlook, the IEA estimates global supply will rise to 113.6 million bpd by 2040.

    "OPEC provides an increasing share, approaching 50 percent of global production by 2040 – a level not seen since the 1970s – while unconventional production more than doubles between 2015 and 2040," the agency said.

    http://www.reuters.com/article/us-oil-outlook-iea-idUSKBN13B0OP

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    China's Generals Won't Back OPEC Forever


    At the risk of stating the obvious, China matters for oil prices. But its role this year and next is less obvious than you might think.

    We all know China was the engine of the bull market in oil for much of the past decade:

    As You Know...

    China has accounted for 46 percent of global oil demand growth since 2005

    Where it gets a little more complicated is beneath those headline figures for oil demand; "oil" isn't always oil.

    For example, while the world used 95 million barrels a day in 2015, according to data from the International Energy Agency, refiners only processed about 79 million barrels a day of crude oil. That gap of 16 million barrels a day -- roughly equivalent to the combined output of Saudi Arabia and Iraq -- was filled via a combination of natural-gas liquids, direct burning of crude oil and biofuels; all stuff that doesn't go through refineries (see this for a more detailed discussion.)

    Here is a different picture of global oil demand, courtesy of Kristine Petrosyan of the IEA's Oil Industry and Markets Division:

    A Refined View

    Demand for products like gasoline hasn't kept pace with output from refineries in the past couple of years

    The thing to notice there is the big disparity between the amount of stuff being pumped out by refiners in 2014 and 2015 -- when cheap crude was boosting margins -- and how much consumers were actually taking. Altogether, it added up to perhaps 400 to 500 million barrels of refined products heading into storage.

    That inventory acts as a source of swing supply, ready to be drawn upon if prices justify it -- and thereby making refiners very sensitive to market moves.

    In its latest monthly report on the oil market, published last week, the IEA went out of its way to note how volatile refinery runs have been this year, with January's year-over-year gain of 1.8 million barrels a day flipping to a 1.8 million-barrel  drop as of May. For the full year, the IEA expects refiners to process just 270,000 barrels a day more crude oil than they did in 2015, the weakest growth since the global financial crisis.

    The good news for oil bulls is that demand for refined products has risen faster than that. So the glut is being drawn down, something that can be seen most frequently in falling, but still bloated, U.S. gasoline and distillate stocks.

    The bad news is that crude-oil production is rising faster than refinery runs. OPEC supply is up as its members jockey for position ahead of this month's supposed deal on a coordinated cut. Moreover, the biggest cuts in non-OPEC supply appear to be behind us, as output from countries such as Russia and Brazil keep climbing and U.S. production shows signs of bottoming out.

    Where is that extra crude going, if not to refiners? The IEA estimates some 700,000 barrels a day has been going to China -- but not for processing into fuels. Rather, all that oil is believed to have gone into the country's strategic petroleum reserve. Like America's SPR, this oil is designed to stay put until there's a war or some other crisis, so it functions like real demand by sucking up barrels from the market.

    Still, it should worry oil bulls that, in terms of growth, Chinese strategic stockpiling has been taking more than two barrels this year for every one taken by the world's refiners to feed underlying demand. China's growth in real oil demand this year is forecast to be just 259,000 barrels a day.

    Beijing has no doubt been taking advantage of relatively low prices to build strategic reserves while it can. Having kept a floor under prices during the crash, though, the flip-side is that stockpiling will likely slow if prices rise too much.

    With China's generals a bigger force than its drivers in this year's oil market, the pressure on OPEC to deliver this month is even greater than you might have thought.

    https://www.bloomberg.com/gadfly/articles/2016-11-15/opec-oil-demand-china-s-generals-won-t-help-forever
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    Some OPEC ministers likely to meet in Doha on Friday: Algerian source

    Some OPEC ministers likely to meet in Doha on Friday: Algerian source

    A number of energy ministers from OPEC oil-producing countries are likely to meet informally in Doha on Friday to try to build consensus over decisions taken by the full group in September in Algiers, an Algerian energy source said.

    At the September meeting, OPEC agreed on modest, preliminary, oil output cuts in the first such deal since 2008, with special conditions given to Libya, Nigeria and Iran, whose output has been hit by wars and sanctions.

    Doha this week is hosting a meeting of the Gas Exporting Countries Forum (GECF). Industry sources said on Tuesday that the Saudi Arabian and Russian energy ministers might meet on the sidelines of the forum.

    The GECF unites 12 countries including Russia and OPEC members Algeria and Iran. Saudi Arabia is not a member but Energy Minister Khalid al-Falih was due to travel to Doha this week for meetings with peers.

    The agreement made in Algiers is expected to be finalised at the next meeting of the Organization of the Petroleum Exporting Countries on Nov. 30 in Vienna, but disagreements persist among OPEC members and non-OPEC Russia on the details of the deal.

    Iran, which remains one of the main stumbling blocks to a final deal, has refused to cap production below 4 million barrels per day as it seeks to regain market share lost under sanctions.

    Russia has said it prefers to freeze output while OPEC wants Moscow to contribute to cuts.

    http://www.reuters.com/article/us-opec-meeting-doha-idUSKBN13B0KM

    Nigeria's Oil minister Emmanuel Kachikwu is the latest to skip this week's Doha meeting scheduled for November 17 and 18. Earlier today we found that Iraq’s oil minister would likewise bypass the energy talks this week in Qatar. Iraqi Oil Minister Jabbar Al-Luaibi won’t be traveling to Doha this week, the ministry’s spokesman, Asim Jihad, said Wednesday by phone. Hamed Al-Zobaie, Iraq’s deputy minister for natural gas affairs, will represent the country instead, Jihad said.
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    In matters of energy security, gas could be the new oil


    In July, the Greek tanker Maran Gas Appollonia set off on a month-long voyage from the Louisiana Gulf Coast, filled with more than 3 billion cubic feet of liquefied natural gas from Cheniere Energy's Sabine Pass terminal.

    Bound for a port in southern China, the gas - which equaled about half the daily output of Oklahoma - was scheduled for delivery at an auspicious time for the Chinese government. Two years earlier, Beijing had signed a major pipeline deal with the Russian energy company Gazprom, but with economic growth slowing, so were the nation's energy needs. Chinese officials eyed LNG shipped from abroad as a flexible and lower cost alternative to Russian gas.

    This competition for China's business is part of a dramatic change in the workings of natural gas markets and potentially the beginning of fundamental shift in the way the world buys, sells and consumes energy. For decades, natural gas has been bought and sold in a murky realm in which prices are determined in long-term contract negotiations between buyers and sellers and supplies essentially limited to what could be produced in areas close enough to be connected by pipeline.

    But with the development of liquefied natural gas projects here and abroad, countries are gaining access to gas supplies long out of reach, in some cases forcing long-time suppliers to compete on price in a way they never had to in the past.


    That has raised the promise of something that American political leaders -- Republicans and Democrats alike -- and U.S. allies have sought for years: a global, free-flowing and transparent gas market like the one for oil. In the process, that could reduce prices for trading partners in Asia and Europe and cut carbon emissions by replacing coal-fired electricity with gas -- all while undercutting the stranglehold that petro-states such as Russia, Saudi Arabia, and a handful of countries in Middle East, Africa and South America have on energy markets.

    "We have tended to think of energy security as synonymous with oil supplies," Paula Gant, principal deputy assistant secretary of the Department of Energy's Office of International Affairs, told natural gas executives at a conference in Washington last month. "Oil supplies remain core to our thinking, but we also have the opportunity to meet our energy security challenges with a variety of resources, including natural gas, renewables, and efficiency."

    Betting big

    The world has run almost exclusively on oil and coal for more than century. Both are abundant and cheap to transport and store – important factors for countries with limited energy sources of their own. But with climate change regulation taking hold internationally, oil giant BP is projecting that demand for cleaner burning natural gas demand will increase at twice the rate of oil over the next two decades.

    Gas is forecast to make up about 25 percent of the world's energy supply by 2035, exceeding the share of coal and only a few percentage points below that of oil. For Houston and Texas, such a shift could mean an ugly fall out for those oil companies that don't take steps to adjust. But for those that do, it could create incredible opportunity.

    The Eagle Ford and the Barnett are not the only shale deposits in the world - China, Argentina, Algeria and Mexico are among countries with significant fields containing natural gas. With so much of the world's brain power on freeing gas from rock concentrated in Houston and Texas, companies here could play a significant role in helping those countries tap their deposits.

    "We're just about the only country in the world with the necessary infrastructure to provide all the things you need to frack, like chemicals, equipment, expertise and sand," said Charles McConnell, executive director of Rice University's Energy and Environment Initiative. "We have a tremendous lead on the rest of the world."

    To gauge the growing importance of gas, look no further than nearly $50 billion Shell paid earlier this year for the LNG giant BG Group, formerly known as British Gas. Or to the $36 billion Exxon Mobil paid for the Fort Worth-based gas giant XTO Energy in 2010.

    "In terms of future resources there's probably more gas than oil, and climate policy impacts gas differently than oil," said Edward Chow, a former Chevron executive and now a senior fellow at the Center for Strategic and International Studies, a Washington think tank. "So, there's a lot to be said for gas in the long run."

    BP estimates the world's proven gas reserves at more than 600 trillion cubic meters, enough to run the world at current consumption for more than 50 years. But what worries U.S. officials is where the natural gas is located.

    By far the largest share of those reserves are in Russia and Iran, two countries that have strained relations with the United States. Tensions reached their peak in early 2014, when Russia sent troops into neighboring Ukraine, eventually shutting off a natural gas pipeline that not only supplied Ukraine but much of Europe as well.

    Swimming in gas

    In May of that year, leaders from the United States, Canada, France, Germany, Italy, Japan and the United Kingdom met in Rome to discuss the problem of Europe's outsized dependence on Russia for gas. The countries signed on to an agreement to improve global energy security by both diversifying the mix of countries from which energy comes and developing "flexible, transparent and competitive energy markets, including gas markets."

    Fortunately for Europe, the United States and some allies were swimming in natural gas. With the advent of hydraulic fracturing, U.S. natural gas production has increased 50 percent since 2005. Even as domestic prices remain at historic lows for years, U.S. production keeps increasing, hitting a record high last year.

    In addition to Sabine Pass, which opened earlier this year, three more U.S. LNG terminals are under construction on the Texas and Louisiana Gulf Coast - in addition to one on Maryland's Atlantic coast. With more under construction in Australia and Malaysia, countries in Asia and Europe have a an increasing number of gas sources from which to choose.

    The shift is already having an impact across the world's highly regionalized gas markets – where prices have historically been determined by the price of oil or long-term contracts negotiated between buyers and sellers. Three years ago, the average price of LNG on markets across South America, Europe and Asia ran close to five times that on the U.S. Gulf Coast. By last month, the spread had narrowed to less than two times the Gulf price.

    In 2014, the Baltic nation of Lithuania, which had long relied on Russia for all its gas, announced it had renegotiated a 20 percent rate cut with Gazprom – not coincidentally at the same time Lithuania was awaiting delivery on a new floating terminal that would convert LNG back into gas for us by factories and power plants.

    "Even before Sabine Pass opened, the prospect of U.S. LNG exports had already enabled European and Asian purchasers to renegotiate [gas] contracts," said Tim Boersma, director of global Natural Gas Markets at Columbia University's Center on Global Energy Policy. "What we're hoping is natural gas becomes a global commodity, and you'll have a global market, more like crude oil."

    Right now LNG represents about 10 percent of the global gas supply. Even with all the new LNG terminals coming online in the years ahead, that share is only expected to reach 15 percent by 2020.

    The challenge is that liquefying natural gas and putting it on to a tanker is fairly expensive And between all the new LNG and a weaker economic forecast for China, the high prices in Asia that set off the LNG construction boom are moderating.

    Even with increased demand due to climate change regulation, any LNG project not already under construction will struggle to find investors for at least the next few years, said Robert Ineson, managing director of global LNG for the research firm IHS Markit.

    "Oversupply, especially as it grows, will put a lot of pressure on everybody in the market," he said.

    In the meantime, countries are rushing to establish future markets for their gas. Despite U.S. opposition, plans for Russia's Nord Stream II pipeline, which would run beneath the Baltic Sea connecting Russia with Germany, have the support of Western European countries eager to get as much available gas supply as possible. In addition to the pipeline to China - the future of which remains in question - Russia is constructing its own LNG export facility in the northern reaches of Siberia.

    As competition for gas customers intensifies, Cheniere is investing in an LNG import terminal in Chile to support a new power plant project there. In a presentation to investors in September, the company said it would pursue "similar LNG to power projects to stimulate new LNG demand," pointing to small but developing markets as diverse as Panama, Bangladesh and Ireland.

    http://www.houstonchronicle.com/business/article/In-matters-of-energy-security-gas-could-be-the-10615523.php?t=1be02fabe0438d9cbb&cmpid=twitter-premium

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    Japan regulator starts formal probe of LNG shipping restrictions: source


    Japan's Fair Trade Commission (JFTC) has ordered the country's liquefied natural gas (LNG) buyers to provide details on contract requirements that prevent them from reselling the fuel to third parties, according to a source with direct knowledge of the inquiry.

    The move suggests the powerful anti-monopoly regulator has launched a formal investigation into whether the so-called destination clauses limit competition and could lead to hundreds of billions of dollars LNG contracts being renegotiated.

    Japan, the world's biggest LNG buyer, and other Asian buyers have complained that the long-established practice of adding the clauses to LNG contracts places unfair restrictions on trading the fuel when it would make more economic sense to sell to other markets.

    The JFTC inquiries were made under the country's anti-monopoly law and companies failing to comply with the order could be subject to penalties, said the source at one of country's main LNG buyers.

    "It looks like the FTC began making a move on destination clause late last month," said the source, who added his company received the order in October.

    The deadline for responses is the end of this month, the source said.

    A spokesman at the JFTC declined to comment, when contacted by Reuters.

    Producers have rebuffed objections to the clauses, but that is changing as U.S. LNG supplies, which are linked to gas prices instead of the traditional connection to oil prices, have become available.

    In the last decade, the European Commission forced through the renegotiation of billions of dollars of LNG contracts after finding destination clauses hurt competition.

    Japan's trade ministry issued a report in May recommending Japan should abolish or relax destination clauses in the future so that the utilities can take advantage of reselling and arbitrage trading opportunities in pursuit of more reasonable prices.

    Japan, Europe, South Korea, China and India, which together account for about 80 percent of the world's total LNG imports, have jointly called for relaxing or abolishing the destination clause, the trade ministry said.

    http://www.reuters.com/article/us-lng-japan-investigation-idUSKBN13B180

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    Russian joke making the rounds about Rosneft


    "You've reached Rosneft. If you have oil assets and want to sell, press *. If you don't want to sell, press #." (# = behind bars in Russian)

    @pmrly
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    Small fall in US oil production


                                                         Last Week     Week Before    Last Year

    Domestic Production'000............ 8,681              8,692                9,182
    Alaska ............................................    514                  517                   519
    Lower 48 ........................................ 8,167              8,175                8,663

    http://ir.eia.gov/wpsr/overview.pdf
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    Summary of Weekly Petroleum Data for the Week Ending November 11, 2016


    U.S. crude oil refinery inputs averaged over 16.1 million barrels per day during the week ending November 11, 2016, 309,000 barrels per day more than the previous week’s average. Refineries operated at 89.2% of their operable capacity last week. Gasoline production decreased last week, averaging about 10.2 million barrels per day. Distillate fuel production increased last week, averaging 5.0 million barrels per day.

    U.S. crude oil imports averaged over 8.4 million barrels per day last week, up by 981,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.0 million barrels per day, 12.6% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 821,000 barrels per day. Distillate fuel imports averaged 169,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.3 million barrels from the previous week. At 490.3 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 0.7 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 0.3 million barrels last week and are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.2 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories increased by 7.1 million barrels last week.

    Total products supplied over the last four-week period averaged about 20.0 million barrels per day, up by 1.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.2 million barrels per day, down by 0.3% from the same period last year. Distillate fuel product supplied averaged 4.0 million barrels per day over the last four weeks, down by 1.4% from the same period last year. Jet fuel product supplied is up 3.0% compared to the same four-week period last year.

    Cushing up 700,000 bbls

    http://ir.eia.gov/wpsr/wpsrsummary.pdf
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    North Dakota crude output drops to lowest since February, 2014


    Oil production in North Dakota dropped more than 10,000 barrels-per-day (bpd) in September, the state Industrial Commission reported on Wednesday, citing continued weakness in oil prices.

    The state pumped nearly 972,000 bpd in September, the lowest level since February 2014, data showed. In August, output dropped below the 1 million bpd mark for the first time in over two years.

    The latest figures from November show North Dakota's current drilling rig count is 38, up from 33 in October.

    Going forward, "operators are shifting from running the minimum number of rigs to incremental increases throughout 2017 as long as (U.S.) oil prices remain below $60/barrel," Lynn Helms, head of the state's Department of Mineral Resources (DMR), said in a statement.

    U.S. crude prices hovered just below $46 a barrel on Wednesday.

    The state issued 82 drilling permits in October, a large increase from 63 in September, although down from 99 in August, data showed.

    "Operators are maintaining a permit inventory that will accommodate a return to the drilling price point within the next 12 months," Helms added.

    http://www.reuters.com/article/us-north-dakota-oil-production-idUSKBN13B2J5
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    Alternative Energy

    Tesla: crony capital?

    From Enron to Bernie Madoff, at the end of every great American financial scandal, the totality of the perpetrators’ greed seems to be matched only by the public’s incredulity at how such a thing could be allowed to happen.

    And thanks to Elon Musk, there’s a good chance we may all be asking this question again soon.

    The Senate Finance Committee and the House Ways and Means Committee have launched a probe into tax incentives paid to solar companies, according to The Wall Street Journal. The committee probes, led by their respective Republican chairmen, Rep. Kevin Brady of Texas and Sen. Orrin Hatch of Utah, have found an appropriate and disturbing target to begin this work.

    SolarCity, a solar installation company set to be purchased by Tesla Motors Inc., is one of the seven companies named in the initial investigation.

    Already grossly subsidized, Musk’s SolarCity has become an albatross of waste, fraud, and abuse of tax payer dollars. As legitimate earnings and cash become even scarcer for SolarCity, its entanglement in the Tesla empire suggests that a drastic reckoning not only is imminent, but in fact emboldening Musk to become more outlandish and reckless.

    Notably, SolarCity is run by Musk’s cousins, Lyndon and Peter Rive. During his chairmanship at SolarCity, Musk’s family enterprise has taken in billions of taxpayer dollars in subsidies from both the federal and local governments. But the subsidies and sweetheart deals were not enough, as losses and missed projections continued to mount.

    Ultimately, rather than endure the embarrassment of collapse and further damage to the public image of Musk and Tesla, the cousins conspired to have Tesla simply purchase SolarCity this year. The conditions of the deal screamed foul play.

    To say nothing of what sense it might make for an automaker to purchase a solar installation company, Tesla stockholders were being forced to absorb a failing, cash-burning company and pay top dollar to do so.

    While cost cutting and corporate restructuring should have been the priority for a company swimming in debt and burning through available cash, SolarCity in fact has been doubling down on the failed model of taxpayer support. The desperate thirst for handouts has manifested itself in some of the murkiest political waters imaginable.

    Thanks to Musk’s cozy relationship with New York Gov. Andrew Cuomo, a Democrat, the state has granted at least $750 million of its taxpayers’ money to SolarCity, building the company a factory and charging it only $1 per year in rent.

    It would be hard to imagine such an operation would not be lucrative for its shareholders. And yet somehow, SolarCity never has made a profit.

    It’s not just in New York. In this year’s race for Arizona Corporation Commission, the state’s public utilities overseers, only one outside group funneled cash into the contest.

    All of the $3 million donated by that group, Energy Choice for America, came from SolarCity. The beneficiaries are candidates who have signaled their willingness to be part of the “green machine” that greases the skids for lucrative government subsidies.

    Burning through taxpayer dollars, buying elections, and expanding a network of crony capitalism has become so inherent to the SolarCity model that $3 million to a public commissioner’s race, brazen though it may be, is only a drop in the bucket for Musk and SolarCity.

    In 2013 alone, SolarCity received $127.4 million in federal grants. The following year, in which it received only $342,000 from the same stimulus package, total revenue was just $176 million and the company posted a net loss of $375 million.

    Despite an expansion of operations and claims to be the leader in the industry, SolarCity never has been able to survive without serious help from government subsidies and grants. The failure to responsibly turn taxpayer dollars into a profitable renewable energy provider has led to SolarCity’s collapse into the welcoming arms of Tesla.

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    First Solar to slash 1,600 jobs


    First Solar Inc, the largest U.S. solar equipment maker, said it would slash about 1,600 jobs, or 27 percent of its global workforce, to cut costs as it transitions to production of Series 6 modules.

    The company also forecast on Wednesday 2017 net sales of $2.5 billion-$2.6 billion, well below analysts' average estimate of $2.98 billion, according to Thomson Reuters I/B/E/S.

    First Solar said the restructuring is expected to result in pretax charges of between $500 million-$700 million, anticipated primarily in 2016. (bit.ly/2givx1p)

    The company warned earlier this month of significant challenges next year due to a 30 percent slide in prices, driven by lower demand in China and the resulting oversupply of panels globally.

    http://www.reuters.com/article/first-solar-restructuring-idUSL4N1DH4TW
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    Uranium

    Unfinished US nuclear power plant sold at auction


    The Tennessee Valley Authority has sold an unfinished nuclear power plant in north-east Alabama for 111 million dollars (£89 million).

    Nuclear Holdings purchased the Bellefonte Nuclear Plant at auction, with a sale price more than three times the minimum bid. The company plans to finish the twin-reactor as a nuclear power plant and bring it online, which could mean billions of dollars in spending and hundreds of jobs in the Tennessee Valley.

    Work began at the site in the mid-1970s, but the TVA never finished the two-reactor plant as demand for electricity waned. The utility said it has spent about 5 billion dollars at the plant. The purchaser gets two unfinished reactors, several buildings and 1,600 acres of land on the Tennessee River.

    https://www.energyvoice.com/other-news/124273/unfinished-us-nuclear-power-plant-sold-auction/
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    Precious Metals

    Cash goes in Australia?

    Less than a week after India’s surprise move to scrap its highest denomination cash notes, another front in the War on Cash has intensified down under in Australia.

    Yesterday, banking giant UBS proposed that eliminating Australia’s $100 and $50 bills would be “good for the economy and good for the banks.”

    (How convenient that a bank would propose something that’s good for banks!)

    This isn’t the first time that the financial establishment has pushed for a cashless society in Australia (or anywhere else).

    In September 2015, Australian bank Westpac published its “Cash Free Report”, suggesting that the country would become cashless by 2022.

    In July 2016, Australian payments firm Tyro published an enormously self-serving blog post touting the benefits of a cashless society and saying, “it’s only a matter of time.”

    Most notably, two days ago, Citibank (yes, THAT Citibank) announced that it was going cashless at some of its Australian branches.

    The media and political establishments have chimed in as well.

    In February of this year, the Sydney Morning Herald released a series of articles, some of which were written by officials from Australia’s Department of the Treasury, suggesting that eliminating cash will “save billions”, and that “moving to a cashless society is the next step for the Australian dollar”.

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    India's gold traders on edge as Modi fights 'black money'


    Some Indian gold traders are placing bulk, short-term import orders on fears that Prime Minister Narendra Modi might soon add curbs on overseas purchases of the metal to his withdrawal of high-denomination banknotes in his fight against 'black money', traders and jewelers said.

    India is the world's second biggest gold buyer, and it is estimated that one-third of its annual demand of up to 1,000 tonnes is paid for in black money - untaxed funds held in secret by citizens in cash that don't appear in any official accounts.

    Modi has said he may not stop at the shock currency move that has led to a massive cash shortage, but has not made clear what his next step would be in his drive to uncover the wealth. That uncertainty is likely to create sharp swings in purchases, affecting world prices.

    "We're uncertain about what the government will do next," said Daman Prakash Rathod, a director at MNC Bullion in Chennai. "No legal business trader is willing to risk very big quantity. (Some) want to buy 2-3 kgs extra so that in future they could conduct their business for a month or two until the situation is sorted out."

    Panicked gold traders and jewelers have circulated messages amongst themselves saying the government could ban import of gold for domestic use from early next year to March, according to several jewelers in New Delhi and Mumbai who have seen the message. India's ongoing wedding season - traditionally a focus for gifting gold - is fuelling the disquiet.

    The All India Gems and Jewellery Trade Federation dismissed the messages among traders as a rumor, but some are nevertheless buying extra gold for the wedding season and to see themselves through the next few months, said an official with the India Bullion And Jewellers Association.

    A finance ministry spokesman did not immediately respond to a request for comment.

    '50 PCT PREMIUM'

    One senior official involved with government policy-making on gold said there has been no discussion on import curbs but that supply has gone up through "unofficial channels".

    "If you see the premiums, you know that there is demand," the official said, speaking on condition of anonymity.

    In domestic markets, jewelers are charging premiums of as high as 50 percent but have not committed to buy any new gold, said several jewelers who declined to be identified.

    The cash crunch has badly hit demand in rural areas, which account for two-thirds of total demand. But in the main gold markets of Zaveri Bazaar in Mumbai and Karol Bagh in New Delhi, there are ready buyers of the metal willing to pay in the old bills.

    The current rate in the trade - illegal since Modi's Nov. 15 move to withdraw the notes - is 45,000 rupees ($663) per 10 gms in Karol Bagh, 53 percent higher than the official price, said one jeweler who has been in the trade for 14 years. The rate is similar in Zaveri Bazaar.

    "I'm getting non-stop calls from unknown numbers from people asking for gold," the jeweler told a Reuters reporter in an interview inside his shuttered showroom.

    "A client last week left a bag full of a few lakh rupees (1 lakh = 100,000 rupees) outside our showroom saying that he had left his (dues) for us to pick up or throw out," the jeweler said.

    "If you see, 750 tonnes used to be the total import a year, this must have happened in the last few days alone."

    http://www.reuters.com/article/us-india-modi-corruption-gold-idUSKBN13B0ZR

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    Northern Dynasty Rises-- on earnings??

    What happened
    Shares of Northern Dynasty Minerals (NYSEMKT:NAK) are up 10% as of 11 a.m. EST Wednesday after the company released earnings. The thing is, the earnings report doesn't show anything that changes the investment thesis of the company.

    So what
    One thing to keep in mind is that Northern Dynasty doesn't generate any revenue right now. The company is looking to build a multibillion precious-metals mine in Alaska, but so far little progress has been made on that front. This most recent earnings report didn't really change that, either. I could get into the numbers, but they don't matter nearly as much as this statement from management, which gives a good description of what investors need to know about the company right now:

    The Group is in the process of exploring and developing the Pebble Project and has not yet determined whether the Pebble Project contains mineral reserves that are economically recoverable. The Group's continuing operations and the underlying value and recoverability of the amounts shown for the Group's mineral property interests, is entirely dependent upon the existence of economically recoverable mineral reserves; the ability of the Group to obtain financing to complete the exploration and development of the Pebble Project; the Group obtaining the necessary permits to mine; and future profitable production or proceeds from the disposition of the Pebble Project.

    Why today's share price increased is anyone's guess. The numbers the company released didn't even meet analyst expectations, if those numbers mattered much at all anyway.

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    Base Metals

    For global copper miners, era of going it alone may be over


    For global copper miners looking to develop the next big deposit, the era of going it alone may be over.

    As costs escalate to develop new finds, often in remote locations, companies should consider sharing the financial and logistical burden of building infrastructure for projects clustered near each other, a senior executive at influential miner and trader China Minmetals Corp said on Wednesday.

    "We need to be more open, we need to work with more companies when we work abroad," said China Minmetals Non-Ferrous Metals Co general manager Xiaoyu Gao, speaking in a panel discussion at the Metal Bulletin Cesco copper conference in Shanghai.

    "We need to incorporate a 'One Belt, One Road' strategy for undeveloped regions," said Gao, referring to Chinese President Xi Jinping's ambitious drive to build a network of land, sea and air links and opening new trade routes and markets.

    While miners often develop multi-billion dollar mines together, it's unusual to coordinate on the cost of building transportation links and getting power supplies to far-flung sites.

    Gao's comments came as miner MMG, in which Minmetals owns a 74 percent stake, struggles to deal with growing opposition to its Las Bambas mine in Peru where local protests have shut down transportation to the mine.

    "In Peru, we've been thinking about this issue. If we discover new reserves, we have to go to difficult regions," Gao said, adding that environmental regulations and a lack of infrastructure often pose some of the biggest challenges.

    COST CONCERNS

    The comments also reflect growing concern among miners about controlling costs after years of declining prices forced them to tighten budgets, while ore grades at ageing mines fall.

    Duncan Wanbald, head of base metals and minerals at Anglo American Plc, agreed at the Shanghai conference that in the era of constrained budgets and complex projects, miners under cost pressure should consider more partnerships to mitigate the risks.

    Five years ago, the mining industry spending was some $50 billion a year, but it's less than a third of that now, Wanbald said.

    The recent surge in metal prices on the London Metal Exchange may spur more spending new greenfield projects, said Chilean miner Antofagasta Plc's Chief Executive Officer Ivan Arriagada.

    But there have been few new discoveries of high-quality deposits that would offer the same potential as Escondida, the world's largest mine, in Chile.

    Based on annual global demand growth projections of 2 percent, Wanbald said, the market would need seven new Escondidas by 2030 in order to keep pace with customer requirements.

    http://www.reuters.com/article/us-china-cesco-copper-mining-idUSKBN13B0UZ

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    Anglo American suspending operations at Los Bronces copper mine in Chile


    Global miner Anglo American said on Wednesday it was suspending all operations at its Los Bronces copper mine in central Chile after protesters seized installations at the mine earlier in the day.

    The company said in a statement that it was implementing an evacuation plan for the 1,500 workers at Los Bronces.

    It said that it had made the decision because "the conditions were not present to guarantee the safety of the workers or operate under the necessary standards."

    Earlier on Wednesday, about 100 hooded protesters illegally entered the mine, seizing installations and setting up flaming barricades.

    Anglo American told Reuters at that time that it was still evaluating whether there would be any impact on production at Los Bronces, its flagship copper mine in Chile.

    "This situation is a serious threat to the security and physical safety of more than 1,500 people who are currently at Los Bronces and presents environmental risks if normal operational processes and controls are not restored," Anglo American said in its earlier statement.

    The company pointed out that events at the mine came as the Federation of Contract Workers union negotiates with service-provider firms that operate at the mine but said it could not confirm the identity of the hooded protesters.

    Several attempts to reach the Federation of Contract Workers at Los Bronces were unsuccessful.

    "Anglo American reiterates its demand for the Federation of Contract Workers at Los Bronces and the service-provider firms to continue their dialogue ... and to immediately suspend the acts of violence that are affecting the operations and people," the company said in its statement late on Wednesday.

    It said the prosecutor's office and police had begun investigations and would take appropriate actions.

    http://www.reuters.com/article/us-anglo-american-protests-idUSKBN13C023
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    Gecamines 'strongly opposed' to Lundin's Tenke mine stake sale


    Congo State miner Gecaminessaid on Wednesday it is "strongly opposed" to Lundin Mining selling a 24% stake in the Tenke copper mine to a Chinese company, arguing that it has a preemptive right to buy the stake.

    Canada's Lundin announced on Tuesday it had agreed to sell its stake in the project in the Democratic Republic of Congoto BHR Partners for about $1.14-billion in cash.

    It comes after Tenke's majority owner, US copper miner Freeport-McMoRan Inc, agreed in May to sell its 56% stake to China Molybdenum (CMOC) for $2.65-billion, a deal that Gecamines also objected to because it wanted to buy the stake itself.

    "The concerted withdrawal of Lundin and Freeport, without taking into account Gecamines' rights, would obviously result in forcing Gecamines into a new partnership with totally new and non-chosen companies," Gecamines said in a statement.

    Major miners are selling assets after a global commodities rout last year left them with high levels of debt. China, whose stimulus package spurred this year's commodities rally, is the biggest potential buyer.

    The closing of the Freeport sale has been held up for months while Lundin, which had a right of first offer on Freeport's stake, weighed its options. With the sale of its stake, Lundinhas now waived that right.

    Lundin on Tuesday said the sale is expected to be completed in the first half of 2017. Its CEO Paul Conibear said he hoped it would not be challenged by Gecamines.

    http://www.miningweekly.com/article/gecamines-strongly-opposed-to-lundins-tenke-mine-stake-sale-2016-11-16
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    Steel, Iron Ore and Coal

    Shaanxi power plants see coal stocks surge at the end of October


    Stocks surged 38.4 pct month on month to 3.17 t by the end of October.

    Stock piles are enough to power plants for 27 days compared to 19 days last month.

    http://www.sxcoal.com/news/info?lang=en&id=4549254
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    Rio Tinto fires two top executives over Guinea payments


    Rio Tinto has axed two of its top 10 executives sparking a feud with one of them, amid a probe over $10.5 million in payments to a consultant who helped it win rights to develop the world's largest untapped iron ore lode in Guinea.

    There is no suggestion that the officials or consultant acted illegally. But emails detailing payments, which involve two former Rio Tinto chief executives, are a blow to a group that has campaigned for transparency even in complex countries and in projects as tough as Guinea's $20 billion Simandou mine.

    The world's second-largest miner said on Thursday it had terminated the contracts of Energy and Minerals Chief Executive Alan Davies and Legal and Regulatory Affairs Group executive Debra Valentine after reviewing the findings to date of an internal investigation into 2011 contractual arrangements with the advisor.

    It said last week it had alerted U.S., British and Australian regulators about the payments.

    Davies, with Rio Tinto for nearly 20 years, said in an emailed statement there were no grounds for his termination and that he would take legal action. "I have not been privy to Rio Tinto's internal investigation report, nor have I had any evidence of the reasons for my termination of my employment given," Davies said.

    "My rights are fully reserved, and I have been left with no option but to take the strongest possible legal action in response."

    Rio Tinto declined to comment on Davies' statement.

    Valentine, who had been due to retire in 2017 and had already stepped down, could not immediately be reached for comment.

    CHINALCO COMPLICATION?

    U.S. authorities have investigated corruption in Guinean mining before, and a former representative of a rival miner, BSG Resources (BSGR), was jailed for two years in 2014. BSGR denied allegations it paid bribes or ordered others to do so.

    Any U.S. investigation into Rio's activities and any payments in Guinea could complicate a move announced late last month to sell its 46.6 percent stake in the Simandou project to the miner's Chinese partner, Chinalco.

    The scandal erupted last week after Rio Tinto said it had become aware of emails from 2011 that referred to payments to a consultant providing advisory services on the Simandou project in the West African nation of Guinea.

    Rio's board concluded that Davies, who was in charge of the Simandou project at the time, and Valentine had failed to maintain the standards expected of them under its global code of conduct, though the decision did not pre-judge the course of any external inquiry into the matter, the company said in a statement.

    Last week Rio Chief Executive Jean-Sebastien Jacques said in an internal email that staff were "shell-shocked" by the discovery and any investigations could take several years.

    The leaked emails showed then-CEO Tom Albanese, then-iron ore boss Sam Walsh, and Davies discussed a $10.5 million payment to Francois de Combret, a former Lazard investment banker with a long history operating in Guinea.

    Albanese was replaced by Walsh in 2013, and Walsh retired in July. Albanese, now head of Vedanta Resources, declined to comment on the situation last week, when asked about it on a Vedanta earnings call.

    Davies said in his statement on Thursday Rio Tinto had made no effort to abide by due process and had given him no opportunity to answer any allegations.

    "This treatment of me and my past and recent colleagues is totally at variance with the values and behaviors of the company to which I have devoted my professional life," he said.

    Davies will be replaced by Bold Baatar as Energy & Minerals chief executive. Baatar had been managing director of marine and vice president of Iron Ore Sales and Marketing.

    Chief Financial Officer Chris Lynch has temporarily stepped in to run the legal and regulatory affairs function while the company looks for a new chief legal counsel.

    Davies and Valentine would not be paid any bonus for 2016 and it would cancel all their unvested awards from previous years, Rio said.

    http://www.reuters.com/article/rio-tinto-guinea-terminates-idUSL4N1DH4XB

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    China's Wuhan Steel says completed capacity cuts ahead of schedule


    China's steel producing giant Wuhan Iron and Steel Group said on Tuesday it has achieved next year's target to cut 3.19 million tonnes of pig iron and 4.42 million tonnes of crude steel capacity ahead of schedule.

    China has pledged to reduce crude steel capacity by 100-150 million tonnes from current level of 1.13 billion tonnes by 2020, a move designed to lift the industry out problems caused by mounting overcapacity and production. But capacity cuts so far have done little to rein in output, and Europe and the United States have accused China of dumping its excess steel overseas, hitting producers and hurting global prices.

    The world's largest steel producer ramped up output to 68.51 million tonnes in October, with high profits providing operators little incentive to make cuts. "Steel mills could make a profit of at least 100 yuan per tonne," said Liu Xinwei, steel analyst at Sublime China Information Group.

    "Profit could double if mills use steel scrap to make new steel. Money is driving them to operate under a high load and no-one is willing to shut down."

    By 2025, 60-70 percent of China's steel output will come from 10 big steel groups, Chi Jingdong, vice president of China Iron and Steel Association, said in September.

    http://www.chinamining.org/Companies/2016-11-16/1479262639d77989.html

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