Mark Latham Commodity Equity Intelligence Service

Friday 24th July 2015
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    Caixin China PMI drops sharply, surprising markets

    The preliminary China Caixin purchasing managers index (PMI) surprised markets by dropping to a 15-month low in July, with analysts pinning the hit on the recent stock market crash and weak export demand.

    The index, released Friday, fell to 48.2, coming in well below the 49.7 forecast from a Reuters poll and the 50-mark separating growth from contraction.

    "The PMI came as a big surprise for the market, which was expecting an increase," Dariusz Kowalczyk, senior economist at Credit Agricole private bank, said. "I believe the reading reflects the negative impact of the stock market crash, the weaker outlook for consumption and the worsening of availability of funding for investment," he said, noting that initial public offerings (IPOs) were suspended in the wake of stock market turmoil.

    The data mark a sharp contrast to China's quarterly gross domestic product (GDP) data released last week, which beat forecasts by showing 7.0 percent growth, renewing long-standing concerns over data accuracy.

    "Recent improvements in economic momentum may have been derailed this month by weaker foreign demand," Julian Evans-Pritchard, a China economist at Capital Economics, said in a note Friday, adding that the export orders component of the data posted the largest decline. "Today's PMI reading suggests that the improvement in momentum seen at the end of the second quarter may not have extended into the start of the third quarter and that downside risks to growth remain."
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    Age of Abundance: No price for scarcity.

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    Gold at new low.Image title
    Copper breaks to five year low

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    Freeport-McMoRan posts Q2 loss as metal, oil prices drop

    Diversified U.S. miner and energy producer Freeport-McMoran Inc reported an unexpectedly strong adjusted profit on Thursday as sales of the metals and oil it produces rose, but its hefty debt load swelled and it also posted a big net loss.

    The Phoenix, Arizona-based company's net loss of $1.85 billion, or $1.78 per share, resulted from writedowns on its oil and gas properties. Freeport shares were down 3 percent at $14.58 on the New York Stock Exchange after an opening gain.

    Excluding one-time charges of $2 billion, Freeport's adjusted profit was 14 cents a share, well above analysts' consensus expectation of 7 cents a share, according to Thomson Reuters I/B/E/S.

    "The outperformance versus our estimate was due to higher copper, gold, and oil sales than expected, combined with lower copper net cash costs, partially offset by weaker realized oil and gas prices," RBC Capital Markets analyst Fraser Phillips said in a note to clients. Phillips had expected adjusted earnings of 7 cents a share.

    Debt notched higher to $20.9 billion at quarter's end from $20.3 billion at the close of March. Freeport increased its debt in 2013 as it acquired two oil and natural gas producers, seeking to diversify from copper, gold and molybdenum mining.

    The company said it will continue to squeeze costs and capital spending as it tries to improve the health of its balance sheet.

    Freeport maintained its full-year sales forecast of 4.2 billion pounds of copper, 1.3 million ounces of gold, and 52.3 million barrels of oil equivalent. It trimmed its molybdenum output estimate to 93 million pounds from 98 million pounds.

    The average realized copper price in the quarter was $2.71 a pound, down from $3.16 in the year-before quarter. Sales of 964 million pounds largely matched last year's 968 million pounds.

    Sales of 13.1 million barrels of oil equivalent were down from 16 million barrels a year earlier, and average prices fell to $67.61 a barrel from $95.50.

    Gold production more than doubled to 352,000 ounces from 159,000 ounces, at an average price of $1,174 per ounce, down from $1,296.

    Freeport maintained its 2015 capital spending estimate of $2.8 billion for its oil and gas unit and $2.5 billion for mining projects.

    Cash totaled $466 million as of June 30, Freeport said.
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    North American mining stocks fall on debt fears despite strong results

    North American mining stocks slumped on Thursday, stripping two global producers of hundreds of millions of dollars in value, as market-beating results failed to appease investors fed up with bloated debt and hefty capital commitments.

    The selloff, led by Freeport-McMoRan and Teck Resources, set the stage for a rough reporting season, as miners trudge through the fourth year of a commodity downturn.

    Investors must scrutinize mining stocks and their debt loads, said Darren Lekkerkerker, co-manager of the Fidelity Global Natural Resources Fund, which has only about 4 percent of its investments in mining.

    "You need to really be careful about owning those stocks, because as the commodity price comes down, when they have a lot of leverage, cash flow is really going to come down too," said Lekkerkerker.

    "No one wants to own stocks where they may need to do an equity issue in order to shore up the balance sheet."

    The stock of U.S.-based diversified miner and energy producer Freeport closed down 9 percent at $13.64, while Teck fell 4.6 percent to C$9.93. Both slid to six-year lows earlier, slashing $1.8 billion in market value from Freeport and C$600 million ($460 million) from Teck.

    Freeport said Thursday its debt rose 3 percent in the June quarter.

    "With a debt load of $20.9 billion and a market cap of $15.7 billion, it's out of line," said Maison Placements Canada Chief Executive John Ing.

    Freeport's stock slide reflects "the lack of any plan to really de-lever the balance sheet in any significant way," said BB&T Capital Markets analyst Garrett Nelson.

    On Monday, shares of Barrick Gold, the most levered North American gold producer, plunged 16 percent when bullion fell to five-year lows.

    The most significant change for the gold sector over the past four years is climbing debt levels at North American producers, RBC Capital Markets analyst Stephen Walker said in a note.

    Despite Teck's better-than-expected quarterly profits, investors worry about the Canadian miner's C$2.9 billion contribution to the Fort Hills oil sands project and a possible writedown of its coal assets due to weak prices, Haywood Securities analyst Kerry Smith said.

    There are also concerns that Teck's credit rating could fall below investment grade.
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    France Passes New Energy Law Quadruples Carbon Price

    French lawmakers adopted a long-delayed energy law that will reduce the country’s reliance on nuclear reactors and raise carbon prices almost fourfold.

    Lawmakers late Wednesday passed legislation that included a last-minute amendment initially rejected by the government to increase the target price of carbon to 56 euros ($61.48) a ton in 2020 and 100 euros a ton in 2030, according to the National Assemblywebsite. The rate, now 14.50 euros a ton, climbs to 22 euros a ton in 2016 and is integrated in a levy on fossil fuels.

    The rise provides “visibility” to the business community on how carbon prices will evolve, Environment Minister Segolene Royal said. Higher taxes on fossil fuels will be offset by lower levies on other products, she also said.

    The new energy transition law, passed by a show of hands with no count to be published, reflects a campaign pledge three years ago by President Francois Hollande to cut France’s nuclear-energy reliance in favor of renewables.

    The law stipulates that nuclear reactors should provide half of all power output “by around” 2025. Electricite de France SA’s 58 reactors currently provide about three-quarters of French electricity production.

    Engie Chief Executive Officer Gerard Mestrallet said Thursday on France Inter radio that he favors a carbon price. Business leaders including six European oil majors had come out in recent months for a carbon-pricing mechanism as an incentive to move to cleaner energies and cut climate-changing emissions.

    The law, which also caps nuclear capacity at today’s 63.2 gigawatts, had been delayed by industry resistance and ministerial changes. The opposition-led Senate watered down nuclear provisions and backed the higher carbon price.
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    Anglo American posts 30% drop in profit after commodities rout

    Anglo American Plc reported a 30% drop in first-half profit after a collapse in commodity prices.

    Underlying earnings fell to $904 million from $1.28 billion a year earlier, Anglo said in a statement today. The company maintained its interim dividend at 32 cents.

    Slumping commodity prices have undermined Chief Executive Officer Mark Cutifani’s efforts to turn around the fortunes of a business that mines African platinum and diamonds to Brazilian iron ore. The company fell to a 13-year low this week.

    Anglo American said it would take a non-cash impairment charge of $3.5 billion after tax, which includes a hefty $2.9 billion writedown on its Brazilian Minas-Rio iron-ore, facility following a warning earlier this month.

    Chief executive Mark Cutifani told CNBC the outlook for metals was set to deteriorate even further in the second half of the year as the group confirmed that it would be culling thousands of jobs in the coming years.

    The group also said it would cut some 6,000 overhead indirect jobs, which comes as platinum producer Lonmin also announced that it was planning to shut down several mining facilities, putting 6,000 jobs at risk.

    "It is a very tough environment, we have reduced our numbers by 10,000 in South Africa in platinum already, we still have a long way to go, we try and do it in the most sensitive way we can. In the end we have to make sure we are competitive. We have to take the long-term view, but we have got to do it in the right way," Cutifani told CNBC.

    Speaking on the continued decline in the demand for commodities, Cutifani said the data is a concern, and since February the firm has seen a $1.7 billion price impact on its products.

    "At the moment I am not sure we are at the bottom, I hope we are but one can never be sure and one has got make sure that your business can handle whatever the market throws at it," he told CNBC.

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    Dow Chemical profit beats estimates as margins continue to expand

    Dow Chemical Co reported a better-than-expected quarterly profit as the company's operating margins rose for the eleventh quarter in a row, helped largely by low raw material costs at its plastics-making business.

    The U.S. chemical maker's plastics business has benefited from easy access to cheap shale gas, which is stripped down into ethane to make ethylene - a key component of plastics and many chemicals.

    Global crude oil prices have halved in the past year, narrowing the price difference between crude oil-derived naphtha and natural gas-based ethane cracking, which erased the competitive advantage U.S. chemical firms had over their European rivals.

    Still, Dow's margins have held steady due to its cost-cutting efforts. The company's margins rose nearly to 19 percent in the second quarter ended June 30 from 15 percent a year earlier.

    The company cut 3 percent of its global workforce in May as part of a broader plan to reduce costs by $1 billion over three years.

    Dow has moved its focus to more lucrative businesses such as performance plastics and electronics to lower its exposure to commoditized chemicals.
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    Oil and Gas

    Iranian officials say condensate and fuel oil on ships

    As traders speculate over what type of oil is being kept by Iran in floating storage, two Iranian oil officials said on Thursday that the oil was condensate and fuel oil.

    The millions of barrels on ships could be delivered quickly to Iran's customers once sanctions are lifted and some traders believe a substantial part is crude, making them concerned about its impact on a global market already suffering a supply glut.

    "There is no crude oil in our floating storage, only condensate and fuel oil," said one of the officials, who declined to be identified due to company policy.

    Another official also said no crude was being stored.

    World powers and Iran reached a landmark deal last week, paving the way for sanctions on Iranian oil exports to be lifted in exchange for curbs on its nuclear programme.

    Brent crude has fallen about 4 percent since the deal on concerns of the impact of a prompt release of the estimated 40 to 50 million barrels of Iranian crude and condensate from floating storage.

    "Iran oil storage concerns are likely overblown," Morgan Stanley analysts led by Adam Longson said in a note.

    "Industry sources suggest that a large portion of the Iranian crude stored on floating tankers is condensate."

    Some traders, however, say Iran has stored crude on tankers and is reluctant to let the market know because of concerns it could depress prices.

    "If it's a known fact that they have so much crude floating, the market will react by demanding discounts to help clear it," said a senior trader who deals with Iranian oil.

    Iran sells most of its fuel oil from storage tanks in Fujairah, traders said, adding that they do not see an incentive for the producer to store the product.

    "It would be surprising if they stored fuel oil as they had a mechanism of pushing it into the market, so why store it if you need the cash?" a fuel oil trader with a western firm said.

    Asian trade sources have said that most of the oil held in Iran's floating storage, or about 30 million barrels, was condensate, and the rest crude oil.

    Iran's stockpile of the ultra light oil is building up each month as Dragon Aromatics, the biggest buyer of South Pars condensate in China, has been shut since April after a fire.

    The Chinese petrochemical producer used to buy 2 million barrels of South Pars condensate, out of the 9 million barrels Iran produces each month.
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    FLNG capex to reach $58.3 billion to 2021

    Capex for FLNG vessels is estimated by Douglas-Westwood to reach $35.5 billion during 2015-2021. FSRU capex is forecast at $22.8 billion for the same time period. That makes the overall FLNG spending $58.3 billion for the period as predicted in World FLNG Market Forecast 2015-2021.

    The delivery of Petronas’ PFLNG 1, also known as the PFLNG SATU, will put the world’s first FLNG vessel into operation by the end of 2016.
    This will be followed by Shell’s Prelude FLNG vessel, a significantly larger project and one that is likely to shape future FLNG developments.

    Construction of the 488 m- (1,601 ft) long facility started in 2012 at Samsung in Korea and is expected to start up by 2017.

    Following these projects is a second wave of new projects that are yet to be sanctioned but are expected to drive a growth in expenditure from 2019 onwards. This includes major projects in frontier regions such as East Africa.

    DW anticipates more floating regasification units are to be sanctioned, with Asia and Latin America being the dominant regions. Upcoming projects are visible in Indonesia, China, Pakistan, India, Vietnam, Bangladesh, and Sri Lanka, mostly led by national oil companies. Latin America will see deployments of floating regassification units in Chile and Puerto Rico.
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    Petrobras union may follow 24-hour strike with September walkout

    Brazil's main oil workers union is considering an open-ended strike in September if a 24-hour walkout scheduled for midnight Thursday fails to stop moves to shrink state-run oil company Petrobras, a senior union official said.

    FUP, which represents platform, refinery and other workers, is fighting plans by Petroleo Brasileiro SA, as Petrobras is known, to sell $15.1 billion of assets by the end of 2016.

    Petrobras wants to pay down debt, which at about $120 billion is the largest of any oil company, as well as generate cash for investment and revive investor confidence after a giant corruption scandal.

    FUB also opposes a bill before Brazil's Senate seeking to strip Petrobras of its right to all new development work in a giant offshore area known as Subsalt Polygon and end a requirement that Petrobras take a minimum 30 percent stake in exploration and production rights in the area.

    "If our demands aren't met, we are ready for an open-ended strike in September," said Simão Zanardi, a member of the national directorate of FUP, Brazil's largest federation of oil workers union. "We will not let them sell off what belongs to all Brazilians."

    FUP opposes any non-government involvement in Petrobras and wants the company, which has had non-government shareholders since the 1950s, totally nationalized.

    While most Petrobras strikes have had little or no impact on production, FUP wants to revive the spirit of a 31-day strike in 1995.

    That strike ended due to the government threatening mass lay-offs, but Zanardi believes it helped avert a privatization of Petrobras in 1997, when it was stripped of its monopoly on exploration, production and refining in Brazil.

    Under Brazilian law, unions must cooperate in the safe operation or shutdown of dangerous facilities. The 24-hour strike will leave many union members on the job. Petrobras officials have said it would take five to 10 days for a strike to start having a significant impact on oil or fuel output.
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    Houston: We have a problem!

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    Chesapeake 5 year CDS credit protection cost.

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    Drillers Patterson-UTI, Precision gain from high-tech rig demand

    Two North American land drilling-rig operators - Patterson-UTI Energy Inc and Precision Drilling Corp - issued positive outlooks on Thursday, highlighting the competitive advantage of drillers using newer, high-tech rigs.

    Snyder, Texas-based Patterson-UTI said its margins were improving and its U.S. rig count was stabilizing, while Calgary-based Precision Drilling said it expected its market share to improve due to demand for high-tech rigs.

    Modern, faster rigs are cheaper to run and drill more efficiently than the older rigs still used by many drillers.

    That makes them a must-have for oil and gas companies trying to rein in spending in the face of weak oil prices. Crude oil prices have more than halved since June last year.

    Cost-cutting is also helping the drilling companies protect their margins. Precision Drilling said in April it had 2,200 fewer employees than at the end of 2014.

    "Although we have no visibility into a recovery at this time, we believe that our rig count appears to be stabilizing," Patterson-UTI Chief Executive Andy Hendricks said in a statement accompanying the company's second-quarter results.

    Ongoing cost-cutting efforts in the company's contract drilling business, especially in the pressure pumping unit, have resulted in better-than-expected margins, he said.

    Patterson-UTI, which had an average 122 rigs in operation in the United states in the quarter, said it expected the average rig count in July to be consistent with the second-quarter U.S. exit rate of 110.

    Patterson-UTI's revenue fell nearly 38 percent to $472.8 million in the three months ended June 30. The company reported a net loss of about 13 cents per share, compared with a year-earlier profit of 37 cents per share.

    Precision Drilling posted a loss of 10 Canadian cents per share, compared with the loss of 2 cents per share it reported in the second quarter of 2014.

    Revenue fell nearly 30 percent to C$334.5 million.
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    As pump prices drop, U.S. motorists splurge on premium gas

    U.S. motorists' habit of filling up with costlier "premium" gasoline when pump prices drop is delivering extra profits to refiners, such as Royal Dutch Shell and traders like Noble Group.

    For the second time in the past decade, a sharp fall in pump prices has triggered a spike in demand for the higher-octane fuel that has far outpaced the overall rise in consumption.

    In the first four months of the year, sales of premium grade gasoline - which makes up around a tenth of the market - surged by 12.6 percent, according to the latest data available from the U.S. Energy Information Administration. Regular grade sales rose by only around 3.7 percent during the period.

    The extra demand combined with a supply squeeze in California, where cleaner fuel that uses similar additives as high-octane gas is the norm, has widened the price difference between regular and premium fuels and sent the price of specialized components used to make premium gas soaring.

    "Premium can be very lucrative for refiners when the spread between regular and premium are high," Neil Earnest, an energy expert with energy consultants Muse Stancil, said.

    By mid-July, premium gasoline was selling at 38 cents more than regular grades, EIA figures show, compared with just under 32 percent last year. Premium gas was still 40 percent cheaper than regular gas a year ago. (graphic:

    Companies that make or import niche fuels, such as alkylate and reformate that are blended with ordinary gasoline to increase its octane rating, are reaping additional returns even if some experts question whether premium fuel offers any considerable benefits for most motorists.
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    Cameron profit falls by one-third

    Oil service firm Cameron said Thursday a downturn in drilling ate into its second-quarter profits.

    Houston-based Cameron, which provides equipment to offshore producers, reported a net income for the three months ending June 30 of $155 million, down from $233 million in the same period last year. Revenues fell to $2.2 billion from $2.5 billion.

    In its earnings release, the company said that orders were on the rise from the first quarter of 2015.

    “We believe the pace of the decline in customer spending has begun to moderate,” said Cameron CEO and Chairman Jack Moore.

    But the company said it would remain on the defensive. Cameron reported a $13 million facility closing and severance charge on the quarter.

    “In this environment, we remain focused on the things we can control: the ongoing systemic reduction in our cost structure, execution, customer relationships and technology advancement,” Moore said in a statement.
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    Offshore driller Hercules says weeks from bankruptcy

    Hercules Offshore Inc, stung by slumping demand for drilling services in older Gulf of Mexico oilfields, said on Thursday it plans to file for creditor protection in about three weeks and emerge several months later with a restructured balance sheet.

    The small company, which rents out jackup rigs to drill shallow water wells that tend to yield less than giant deepwater ones, has been struggling for months because of an oversupplied rig market and slumping oil prices that have forced producers to slash spending.

    In November it cut 15 percent of its workforce, or 324 jobs, and last month started talks with creditors for an orderly bankruptcy filing.

    Hercules said on Thursday it has support for the filing from holders of over two thirds of its collective outstanding debt. It added that the prepackaged process will reduce the time it spends in bankruptcy protection, which it hopes to leave early in the fourth quarter.

    The company's balance sheet lists $266 million in current assets and $1.35 billion in current liabilities.
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    Alternative Energy

    SunEdison inks pact with Tata to supply solar power in Delhi

    US-based Solar SunEdison signed a long-term power purchase agreement (PPA) with Tata Power Delhi Distribution Ltd (TPDDL), to provide 180 MW solar power for latter’s consumers in New Delhi.

    “SunEdison has signed a long-term PPA with TPDDL to provide 180 MW of utility-scale solar power for the people of New Delhi,” SunEdison’s president of Asia-Pacific and Sub-Saharan Africa, Pashupathy Gopalan said.

    Mr. Gopalan said the agreement to supply solar power will be for a period of 20 years, after commissioning of the projects located in Shivpuri in Madhya Pradesh.

    He further said the solar power projects for the PPA are expected to be operational in next one and half year and the company is about 6-9 months away from the financial closure of the projects.

    On the tariff under PPA, he said the company will supply power at two rates – Rs. 5.93 per unit (Kwh) and Rs. 5.97 per unit.

    The final tariff or landing cost of power after factoring in various other expenses will be Rs. 6.49 per unit and Rs 6.52 per unit.

    About concerns that the tariff on “higher” side, Mr. Gopalan said, since the PPA is for a long period, the prices would be competitive than the rate of conventional energy in coming years, as there is no risk of fluctuation in fuel rates.

    An official of the TPDDL said this PPA will help the company meet almost 50 per cent of its Renewable Purchase Obligation (RPO).

    The official said TPDDL is under obligation to buy 9 per cent of its total power purchase from renewable energy sources and this agreement will help meet almost 100 per cent its RPO by 2017.

    Besides, the company is promoting rooftop solar panels, in the area of operation in Delhi, which has the potential of installing 400 MW of such panels.
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    China Sunergy Regains Compliance with Nasdaq Listing Requirements

     China Sunergy Co., Ltd. , a specialized solar cell and module manufacturer, today announced that it had received written notification from the Listing Qualifications Department of the NASDAQ Stock Market, on July 20, 2015 informing the Company that it has regained compliance with the continued listing requirements under NASDAQ Listing Rule 5250(c)(1) .

    On May 20, 2015, the Company received a letter from NASDAQ , indicating that, the Company failed to file on Form 20-F for the period ended December 31, 2014 in a timely manner. The Letter requires, among others, the Company to submit a plan to regain compliance with respect to the above delinquent report within 60 calendar days of the receipt of the Letter.

    On July 10, 2015, company filed its Form 20-F for the period ended December 31, 2014. On July 20, 2015, the Company received written notification from Nasdaq that by filing its Form 20-F, the NASDAQ staff determined the Company has complied with the Listing Rule, and accordingly, this matter is now closed.
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    CF Industries Continues Its Shopping Spree

    Just weeks after acquiring U.K.-based nitrogen producer GrowHow, fertilizer producer CF Industries (NYSE: CF) is looking to score another acquisition. This time, the buyout target is Dutch chemicals maker OCI.

    There is a wave of consolidation washing over the global materials industry, and CF Industries is playing its role. The company originally pursued Norwegian nitrogen producer Yara International, but when internal struggles at Yara caused the deal to be shelved last October, CF ended up turning its attention to Yara's 50% interest in GrowHow which it ultimately purchased for $580 million.

    Now, the company is turning its attention to certain unnamed businesses of OCI. Although both companies confirmed the discussions, neither cared to elaborate further on which businesses were under consideration.

    This is indicative of the rollup occurring across the industry, one which saw fertilizer giant PotashCorp recently announce it wanted to purchase German potash producer K+S and had biotech Monsanto going after its Swiss counterpart Syngenta in a bid to gain control over its $15 billion chemicals business. And earlier this year, Dow Chemical split off its chlorine production business and merged it with Olin.

    While depressed commodities pricing is helping drive some of the deals, for U.S.-based companies looking overseas, it also represents an opportunity to escape high domestic corporate taxes.

    In a process known as an inversion, a U.S. corporation buys a foreign company and reincorporates in its new partner's home country. The U.S. Treasury Department clamped down on inversions last year by cutting off access to cash that companies have accumulated overseas, making such deals unattractive if not more difficult. However, they are not impossible to arrange, and The Wall Street Journal says a few deals in the $1 billion to $2 billion range where the parties did not have much money overseas have still gone through.

    An inversion is said to be at least one of the reasons why CF Industries, which is based in Illinois, is going after OCI, but these are industry giants with a combined market cap of $20 billion. Regardless of the rationale, investors can expect more such deals to be made in the future.

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    Base Metals

    Nickel bucks the trend of slower Chinese metal imports

    China's pull on refined metal from the rest of the world was much diminished in the first half of this year.

    Financial demand for metal as collateral against loans has been much diminished since the Qingdao port scandal in the middle of last year.

    Manufacturing demand, meanwhile, has also softened in tandem with the broader slowdown in the Chinese economy to the point that analysts at Goldman Sachs argue that metals demand has experienced a "hard" landing in the first part of this year.("Revealing China's Commodity 'Hard Landing'", July 20, 2015).

    The stand-out exception to the first-half picture of slowing imports was nickel.

    Even here, though, there is sufficient ambiguity to be wary about extrapolating a trend from June's bumper imports.

    Net imports of refined nickel more than doubled to 78,100 tonnes in the first six months of 2015.

    In truth, imports had been running at pretty humdrum levels until June, when they went stratospheric. June's imports of 38,800 tonnes were the third highest monthly tally on record after June and July 2009.

    This, it's worth remembering, is exactly what nickel bulls had been hoping to see.

    Imports of nickel raw materials are still falling, down 37 percent in the first half, with flows of Philippine ore failing to fully fill the gap left by the Indonesian ban on exports.

    The pressures on China's nickel pig iron (NPI) producers are building as inventories of Indonesian ore run down and the current low price environment forces out marginal operators.

    Logically, the less nickel China produces, the more it will need to import, which is why bulls have seized on the latest figures as a sign of things to come.

    This process has already been playing out in ferronickel, a cheaper and more obvious NPI substitute for stainless steel mills.

    Ferronickel imports also more than doubled in the first half of this year and were running at a record pace of over 60,000 tonnes per month in both May and June.

    So is that import demand now spilling into the refined metal market, offering bulls the tantalising hope that the seemingly endless rise in London Metal Exchange stocks might be about to turn?

    The answer right now is only maybe.

    June may yet turn out to be something of an outlier month with surging refined nickel imports reflecting factors other than pent-up manufacturing demand.

    It's noticeable, for example, that imports from Russia at 21,700 tonnes hit an all-time high.

    And that may have reflected the well-flagged delivery issues around the recently-launched nickel contract on the Shanghai Futures Exchange (SHFE).
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    Alcoa to split downstream business segments as its value-add portfolio expands

    Lightweight and high-performance metals producer Alcoa will split its downstream portfolio into two segments, with one maintaining a core focus on aerospace and the other centred on the construction and commercial wheels markets. 

    NYSE-listed Alcoa had also closed the acquisition of vertically integrated titanium and specialty metal products supplier RTI International Metals in a stock-for-stock transaction with an enterprise value of $1.5-billion. 

    Alcoa had been transforming its business focus in recent years, increasingly depending on the higher-margin downstream market. Combined with its other recent acquisitions of Firth Rixson and TITAL, as well as other innovation-led organic growth investments, Alcoa continued to deepen its reach into the high-growth aerospace market. 

    The Engineered Products and Solutions (EPS) segment, led by group president Olivier Jarrault, had been streamlined to enable a core focus on Alcoa’s position as an aerospace partner. The EPS group would comprise business units that primarily catered to the aerospace market through Alcoa Titanium & Engineered Products, the designation for the newly acquired RTI business, 

    Alcoa Fastening Systems & Rings, and Alcoa Forgings & Extrusions, into which the Firth Rixson business had been integrated, and Alcoa Power & Propulsion, which now included the TITAL business. Alcoa had formed a new business segment,

    Transportation and Construction Solutions, incorporating the Alcoa Wheel & Transportation Products, and Alcoa Building & Construction Systems business units, both previously part of EPS. Alcoa said it hoped the new group structure would drive a successful expansion into emerging regional markets, where both these business units had significant opportunity, in addition to capturing continued growth in existing markets. 

    To build on the exciting growth prospects for Alcoa in emerging markets, Latin American regional president Jose Drummond had been appointed to lead the group as president of Alcoa Transportation and Construction Solutions. He would also maintain his regional president role.
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    Steel, Iron Ore and Coal

    Teck eyes further coal cutbacks

    Canadian miner Teck Resources Ltd said coal output could need further cutbacks if grim market conditions continue.

    The company, the largest producer of steel-making coal in North America, has begun rotating shutdowns at six Canadian coal mines and said it may take further actions in the fourth quarter if the supply-demand balance does not improve.

    That move will reduce Teck's third-quarter coal production by about 1.5 million tonnes to 5.7 million tonnes, with sales seen in the range of 6 million to 6.5 million tonnes.

    Hurt by a slowdown in Chinese demand and a glut of new supply from Australia, Teck forecasts annual coal production of 25 million to 26 million tonnes.

    With prices for all its major commodities down significantly, the company said it is focusing on cost cutting and disciplined use of capital.

    Average realized prices for coal fell 14 percent to $95 per tonne.

    Teck said it has reached agreements with the bulk of its coal customers for the third quarter, based on a quarterly benchmark of $93 per tonne.

    Teck has said it could do more so-called "streaming" deals on silver output from its mines. Analysts speculate that Teck may want to raise funds for acquisitions or to help fund its portion of the Fort Hills oil sands development.

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    Vale hits second-quarter iron-ore record

    Vale said on Thursday it produced 85.3-million tonnes of its own iron-ore in the second quarter, a record for the quarter and second highest ever for the firm. The total was 7.4% higher than the same period last year as the world's largest iron-ore producer continues to ramp up output despite a falling price for the mineral, which recently touched a decade low. 

    Vale's all-time quarterly record for the main steel-making ingredient was 85.7-million tonnes in the third quarter of 2014. 

    Vale is in a battle for market share with low-cost Australian producers Rio Tinto and BHP Billiton. On top of increasing overall output, Vale reiterated it is cutting 25-million to 30-million tonnes a year of low-quality iron-ore on which the company is no longer making enough money. Vale did not give a timeframe for the reduction in low-quality ore volumes but said it would be replaced by new, higher-quality production. 

    The company also produced 67 100 t of nickel and 2.01-million tonnes of coal in the quarter, the company said in a statement. When 4.02-million tonnes of iron-ore purchased from third parties is included, Vale produced 89.3-million tonnes in the quarter.
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    Nucor Profit Falls as Steel Prices Slump

    Nucor Corp. said Thursday its second-quarter profit fell mainly on a slump in steel prices, but predicted a better second half in part because of stronger trade protection laws.

    The Charlotte, N.C.-based firm, the biggest steelmaker in the U.S. by capacity, said earnings fell 15% to $124.8 million, or 39 cents a share, from $147 million, or 46 cents, a year earlier. Though down, the results were well ahead of the company’s guidance for earnings of 20 cents to 25 cents a share.

    Revenue decreased 18%, to $4.36 billion, reflecting a 13% drop in average sales price a ton. Shipments to outside customers dropped 5%, including a decline of 2% in steel mill shipments that reflected reduced production.

    “Pricing remains under pressure from exceptionally high levels of imports,” the company said. Imports made up an estimated 32% of the finished steel market in the first half of 2015, up from 27% in the first half of 2014. The benchmark hot-rolled coil index has fallen 23% to $464 per ton since the start of the year.

    The American steel industry is being reshaped by a global steel glut fueled by record exports from China as that economy cools. China buys roughly half the world’s steel, so any hiccup matters. Not all the imports into the U.S. come from China, but many are displaced from countries where China has grabbed market share. The environment has frustrated American steelmakers because their domestic market is relatively solid, with the exception of the oil and gas industry, which has suffered from the oil price swoon.

    Without the imports, this “would otherwise be a good environment for domestic producers,” Deutsche Bank analyst Jorge Beristain wrote in a note this week.

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