Mark Latham Commodity Equity Intelligence Service

Friday 20th November 2015
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    India, not China, powering growth in fuel demand


    China's fuel usage tends to gather headlines as an indicator of the strength of global crude oil demand, and while this has been justified, the real growth action is happening over the Himalayas in India.

    India's total demand for oil products is about one one-third of that in China, but the South Asian nation is powering up as China's growth moderates.

    This isn't entirely unexpected given that the slowdown in China's economic growth is well known, as is the rotation towards a more service- and consumer-oriented economy from one reliant on heavy industry.

    India's rapid gains in fuel consumption have seen it overtake Japan to become Asia's second-largest crude oil importer behind China, and this growth trend appears likely to continue.

    India's fuel demand in October grew at its fastest pace in almost 12 years, rising 17.5 percent from the same month a year earlier, according to data from the Petroleum Planning and Analysis Cell, a unit of the oil ministry.

    Total consumption of refined oil products was 15.2 million tonnes, which equates roughly to 3.6 million barrels per day (bpd).

    This is using a conservative conversion rate, the crude oil factor of 7.3 barrels per tonne, while the factors for the main products India consumes, diesel and gasoline, are 7.5 and 8.5, respectively.

    If the pace of fuel demand growth for the first seven months of India's April to March fiscal year is maintained, it puts the nation on track for consumption of at least 3.6 million bpd for the 2015-16 year.

    If this is achieved, it will mean that India's fuel demand growth was 8.7 percent higher in 2015-16 over the prior year, equivalent to a gain of about 290,000 bpd.

    China's apparent oil demand was 10.14 million bpd in October, a gain of 0.9 percent from the same month a year earlier, but only 0.1 percent higher than in September.

    Detailed figures for October aren't yet available, but it's likely that the apparent demand number will be below the moving 12-month average, which stood at 10.67 million bpd in September.

    Assuming China's apparent demand for the whole of 2015 comes in around 10.6 million barrels, this represents a gain of about 5.9 percent over 2014's 10.06 million bpd.

    But it's here that one runs into difficulty with China's fuel figures, as apparent demand is a derived number that doesn't include changes in inventory levels, data which isn't disclosed by the authorities.

    China has been filling strategic and commercial storage sites, and looking at the difference between crude available from domestic output and imports and what's processed through refineries shows that at least 200,000 bpd appears to have headed into oil tanks so far this year.

    This would cut China's actual rise in fuel consumption to something closer to 4 percent, or a growth rate of less than half what India is likely to achieve in the 2015-16 fiscal year.


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/column-russell-india-oil-idUSL3N13E2FJ20151119#ApuI2CcmM7IPM6wM.99
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    China just uncovered a $64 billion 'underground bank'


    Chinese authorities just uncovered a massive "underground bank" in the country's eastern Zhejiang province, according to a report in the People's Daily, the official Chinese Communist Party newspaper.

    The scale of the operation reported is astonishing. The report suggests 410 billion yuan ($64 billion, £42 billion) in foreign exchange transactions were made by the unnamed illegal organisation. 370 people have reportedly been arrested.

    China's currency is tightly regulated by the government, so even multinational firms have struggled with large foreign exchange deals. An underground bank effectively smuggles money in and out of China for investors.

    According to Bloomberg, a man named Zhao Mouyi transferred billions of yuan through bank accounts meant for international companies, which are not usually available to Chinese citizens.

    Here's a snippet from their report of the People's Daily piece:

    Zhao circumvented the capital controls by directly transferring yuan overseas and then exchanged the money into foreign currencies at banks including HSBC Holdings Plc in Hong Kong, the People’s Daily said. Zhao then allegedly transferred it to his clients’ accounts, the report said, citing the local police.

    The size of the bank means that it makes up over half of the underground financial activities that have been identified since earlier this year.

    The Chinese government is engaged in a major crackdown on corruption, which is paired with attempts to stem the flight of capital from the country. Up until recently, the world was buying the yuan (or renminbi) on net, as people battled to invest in China. Now, that's changing:

    With Chinese growth slowing and investment opportunities elsewhere, people are trying to get money out of the country, but the strict capital controls stop that from happening through official channels. That's why the illegal or "underground" banks crop up.

    http://uk.businessinsider.com/chinese-64-billion-underground-bank-in-zhejiang-2015-11

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    China state firms' profit decline worsens in Jan-Oct, down 9.8 pct


    Profits at China's state firms fell 9.8 percent in the first 10 months of this year, the Ministry of Finance said on Friday, with commodities-linked companies bearing the brunt of the pain.

    The near double-digit fall in profits in January-October from a year earlier was worse than the 8.2 percent drop in the first nine months of the year.

    Combined profits of state-owned enterprises totalled 1.88 trillion yuan ($294.51 billion) in the January-October period, the ministry said in a statement published on its website.

    "The downward pressure on economic operations remains relatively big," the ministry said.

    Excluding financial firms, revenues of state firms for the first 10 months fell 6.3 percent from a year earlier to 36.79 trillion yuan, the ministry said.

    Companies in transportation, electronics and power sectors reported a rise in profit in the January-October period, while coal, steel and non-ferrous metal sectors continued to suffer losses.

    The world's second-largest economy is on track this year to grow at its slowest pace in more than two decades.

    Annual growth in profits of China's state-owned firms slowed to 3.4 percent in 2014 from 5.9 percent the previous year as factories struggled to cope with falling prices amid an economic slowdown.


    Read more at Reutershttp://www.reuters.com/article/2015/11/20/china-economy-profits-idUSL3N13F30220151120#lG6BMJpQUdsC1DdK.99

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    Iran Sanctions Might Be Lifted in January as Atomic Gear Removed


    Oil and banking sanctions against Iran might be lifted by mid-January based on the pace at which technicians are removing and mothballing nuclear equipment at the country’s uranium-enrichment facilities.

    Iran removed 4,530 centrifuges during the 28 days ending Nov. 15, a rate of 162 machines per day, according to an International Atomic Energy Agency report issued late Wednesday. Based on current work rates, Iran may be able to fulfill its part of the nuclear deal agreed with world powers by Jan. 12.

    “By the time you have this down to a routine, it’s not much more difficult than changing a set of tires,” said Robert Kelley, a nuclear engineer and former IAEA director who has supervised centrifuge disassembly projects. “There’s no reason the Iranians cannot continue at the same pace.”

    The July 14 deal agreed with world powers requires requires Iran to reduce the number of its installed centrifuges -- the fast-spinning machines that enrich uranium -- to 5,060 from about 19,000. Once IAEA monitors have verified that Iran has met its commitments, oil and banking sanctions that have dragged on the economy of 77 million people will be lifted.

    Nuclear monitors have been present during every stage of the removal process, according to two senior diplomats familiar with the IAEA’s role in Iran. The agency is recording the serial number of every machine that is being removed to ensure nothing goes missing, they said, asking not to be identified in exchange for discussing details of the work.

    Before sanctions are removed, Iran also has to eliminate about 8,000 kilograms (17,600 pounds) of enriched uranium, either by exporting it to another country or diluting it with inert material. The core of a heavy-water reactor in Arak also has to be disabled.

    The IAEA “has begun conducting preparatory activities related to the verification and monitoring of Iran’s nuclear-related commitments,” it said in the 22-page document. The agency is setting up remote monitoring technologies and will be prepared to implement its commitments whenever the Iranians are ready, the diplomats said.

    http://www.bloomberg.com/news/articles/2015-11-19/iran-sanctions-might-be-lifted-in-january-as-atomic-gear-removed
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    Venezuela's foreign income down 64 pct this year -president


    Venezuela's foreign income fell 64 percent this year due to the global fall in oil prices, President Nicolas Maduro said on Thursday.

    The decline has led to major shortages and an economic crisis ahead of legislative elections on Dec. 6 that will be the toughest test yet for the socialist leader.

    "Revenue in dollars entering the country from oil and other things this year decreased 64 percent, nearly a financial catastrophe," Maduro said, speaking in the eastern coastal city of Cumana.

    "If there were an oligarch sitting here, what would he have done? Frozen salaries, pensions? Would he have maintained (housing, welfare)? He would have said 'No, there are no more houses.'"

    Maduro went on to announce in detail the number of houses built for the poor in various parts of the country, to cheers from the crowd.

    However, Venezuela is suffering from the lack of foreign income. Imports have dwindled, leading to shortages of the most basic goods.

    Inflation is thought to be in triple figures and the local currency has tanked 80 percent on the black market this year alone.

    The OPEC nation receives 96 percent of its foreign income from oil.

    The country's oil on Thursday sold for $34.25 per barrel, slightly up from the previous day at $34.10, Maduro added.


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/venezuela-economy-idUSL1N13E30L20151119#RuzA7s3JhIiuXh5K.99
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    Baltic Dry Shipping Index drops to All Time Low on Thursday


    The Baltic Exchange's main sea freight index BDI slumped to a new record low of 504 on Thursday as slowing activity, especially in China which is translating into weakening demand for imported iron ore that's used to make the steel, took its toll.

    The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry;s biggest source of cargoes.

    Shipping market is looking like a disaster and the rates are a reflection of that. It is looking scary for the market and it doesn't look like there is going to be any life in the market in the near term

    http://steelguru.com/steel/baltic-dry-shipping-index-drops-to-all-time-low-on-thursday/439574#tag
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    Kirchner foe in lead in Argentina vote — and markets are excited


    Argentinians will head to the polls once again on Sunday, in a second-round of voting that will likely see the pro-business opposition trump the incumbent socialists.

    It is less than a month since the first vote, on October 25, produced no outright winner. It is also the first time that an election has gone to a runoff in Argentina.

    "We are in uncharted territory in Argentina's political history. This will be the first runoff since the current election system was instituted under the 1994 constitutional reform (the 2003 election would have gone to a runoff between Carlos Menem and Nestor Kirchner, but Menem withdrew) and indeed, the first runoff ever," Stuart Culverhouse, global head of research at Exotix Partners in London, said in a report last week.

    Sunday's vote will pit the two leading candidates against one another — that's Daniel Scioli, who is backed by fiery President Cristina Kirchner and pro-business opposition candidate, Mauricio Macri. The Argentinian constitution bars Kirchner from running for a third term.

    Macri is seen winning — and Argentina's benchmark stock index, the Merval, has rocketed on the prospect of an end to 14 years of socialist rule. It has risen around 22 percent since the first vote in October and is around 60 percent higher on the year.

    Both Macri and Scioli have pledged to resolve Argentina's long-standing dispute with so-called holdout creditors, which has dragged on since a massive default in 2002. This could allow the country to re-access the international capital markets and raise much needed funds.

    Macri is seen more likely, however, to scale back the swathes of interventionist measures that cripple the Argentinian economy at the moment. These range from capital controls to subsidizing electricity prices far below the market rate.

    "A Macri victory would be positive for markets and investors, with the candidate pledging to end currency controls and bring about currency convergence," Nicholas Watson, senior vice president at Teneo Intelligence, said in a report this week.

    http://www.cnbc.com/2015/11/20/kirchner-foe-in-lead-in-argentina-vote--and-markets-are-excited.html?utm_source=twitterfeed&utm_medium=twitter
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    Finland's Outotec to axe jobs as miners cut spending


    Finnish mining technology company Outotec said on Friday it was planning to cut up to 650 jobs, or 13 percent of its workforce, and save 70 million euros ($75 million) annually in a bid to protect profitability amid deteriorating markets.

    "The global market in minerals and metals processing has further weakened during recent months," chief executive Pertti Korhonen said.

    Shares in the company, which are down 17 percent this year, rose 3 percent in early Helsinki trade.

    Outotec is struggling as miners have cut spending due to low metal prices, and recent uncertainty regarding China's growth prospects has further hit its business.

    Earlier this month, the firm trimmed its full-year sales and profit forecast.

    Outotec is 14-percent owned by Solidium, the government's investment arm, which has recently increased its stake in the firm.

    Out of the global job cut target, up to 160 positions are expected to be cut from Finland, the company said.


    Read more at Reutershttp://www.reuters.com/article/2015/11/20/outotec-redundancies-idUSL8N13F0RH20151120#AzI8Wm0gHjP00IZK.99

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    Oil and Gas

    Iraqi oil selling at $30 as OPEC readies for new battles


    Iraq may increase oil output further in 2016, although less dramatically than this year, intensifying a battle for market share between OPEC members and non-OPEC rivals that has forced Baghdad to sell some crude grades for as little as $30 a barrel.

    Iraq's output in 2015 has jumped almost 500,000 barrels per day (bpd), or 13 percent, according to the International Energy Agency (IEA). That has made Iraq the world's fastest source of supply growth and a key driver of surging OPEC production.

    At most, that growth is likely to give way to a modest rise next year, easing downward pressure on prices that are close to a 2009 low. But a lifting of sanctions on Iran or an easing of violence in Libya could further boost OPEC supplies, without cutbacks by Saudi Arabia or other members.

    "Stable to limited growth in output from Iraq would give some potential for an uptick in prices - if it were not for Iran," said Eugene Lindell, analyst at JBC Energy in Vienna. "Libya is another big wild card."

    The southern fields produce most of Iraq's oil. Located far from the fighting in other parts of the country, they have kept pumping and seen record exports, most recently in July, when 3.064 million bpd was sold abroad.

    Iraq plans to export 3.0-3.2 million bpd from the south in 2016, an Iraqi oil source told Reuters. He declined to forecast exports from Iraq's north, which restarted in late 2014 and have grown to about 600,000 bpd, despite tension between Baghdad and the Kurdistan region.

    The scale of Iraq's growth this year surprised many observers. Moreover, the extent of any slowdown in 2016 and Iran's growth are on the minds of OPEC delegates heading into the group's Dec. 4 meeting on output policy.

    "The Iraqis need to tell OPEC their plan for next year and the Iranians so far haven't told anyone how much they really can pump," an OPEC delegate said. "Production from these two countries is important for OPEC to make a decision."

    Nonetheless, the delegate added, the Organization of the Petroleum Exporting Countries is unlikely to cut output.

    Iraq has every incentive to keep pumping all it can as its actual oil prices are even lower than the benchmarks. The official selling price of Basra Heavy in Europe is $10.40 a barrel below Brent for December, and trade sources say cargoes are being sold a dollar or more below OSP - or less than $30. BASH-OSP1-E.

    In Europe, Iraq has overtaken Saudi Arabia as the second-largest seller after Russia, and Iran has already lined up buyers to purchase its crude when sanctions are lifted, the IEA says, likely keeping prices under pressure.

    "For this reason, producers are likely to grow still more competitive on pricing," the IEA said.

    Smooth progress in Iraq's exports is not certain. An escalation of the dispute between Baghdad and Erbil could affect northern shipments, although supplies have risen despite some sabotage attacks and tensions. In purely technical terms, this growth could continue next year, traders say.

    "Out of Basra, we don't see more than 3.2 million barrels a day of exports," JBC's Lindell said. "From the north, that's where the surprise could come from."


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/iraq-oil-idUSL8N13D3NM20151119#30yiZ46MYELWIFT8.99
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    Oil traders prepare for next big price drop in March 2016


    Oil traders are preparing for another downward turn in prices by March 2016, market data suggests, as what is expected to be an unusually warm winter dents demand just as Iran's resurgent crude exports hit global markets after sanctions are ended.

    Crude futures have already lost around 60 percent of their value since mid-2014 as supply exceeds demand by roughly 0.7 million to 2.5 million barrels per day to create a glut that analysts say will last well into 2016.

    Goldman Sachs said on Thursday that there was a substantial risk of a "sharp leg lower" in oil prices.

    "Mild winter weather over the coming months could see weak heating demand in the U.S. and Europe," it said. This "would likely be the trigger for adjustments through the physical market, pushing oil prices down to cash costs, which we estimate are likely around $20 per barrel," the bank added.

    A recent steep rise in March put option positions tied to a $35-per-barrel strike price in Brent and West Texas Intermediate (WTI) crude suggests traders agree with the bank and expect the major benchmarks to slump in coming months.

    For WTI, put positions at the $30 strike price have more than doubled since Nov. 10, but have stayed flat at a more modest level for Brent.

    This is in accord with a broadly held view that while oil prices in general will remain under pressure over the medium term, WTI prices may fall faster and further than Brent.

    Goldman and other analysts say persistently high U.S. shale oil output that producers aren't allowed to export could overwhelm the country's storage tanks, which are already filled with near-record inventories. C-STK-T-EIA

    Compounding the production glut is an expectation of a mild winter as a result of an El Nino weather pattern, which is expected to limit heating oil demand.

    The market may also have to accommodate a rapid rise in Iranian oil exports if sanctions are lifted, which many analysts say could happen in the first half of 2016.

    One option to deal with the glut would be to use crude oil tankers for storage. But this requires a price curve in which oil is sufficiently more expensive in the future than for immediate delivery - a market structure known as contango - so that holding costs can be covered.

    High tanker rates and a relatively flat price curve make floating storage unattractive for now, however, so analysts say spot prices would have to drop further to make storing crude on ships a viable market strategy.


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/oil-prices-outlook-idUSL3N13D2DW20151119#z3bfpxwhg5WEblXa.99

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    In Shell-BG review, China wants concessions on huge gas deals


    Chinese regulators vetting Royal Dutch Shell's proposed merger with BG Group are pressing the Anglo-Dutch company to sweeten long-term gas supply contracts in a move that could cast new doubt over the near-term benefits of the $70 billion tie-up.

    For China, the opportunity to re-negotiate existing liquefied natural gas (LNG) supply contracts with Shell, which combined with BG would supply around 30 percent of its imports by 2017, comes at an ideal time because the world's top energy consumer faces a large surfeit over the next five years.

    For Shell, any revision of the contracts with China could dilute the near-term financial benefits of a merger that has already raised concern among some investors and analysts because of stubbornly low oil prices.

    Shell declared it wanted to become the world's top trader of LNG when it agreed a takeover of BG in April.

    It expects global demand for LNG to grow by nearly 5 percent per year by 2030. Power plants, industries and vehicles are shifting to the less polluting gas, which once extracted from the ground is cooled and liquified, loaded onto ships before being turned back into gas at its destination.

    The proposed Shell-BG tie-up has already won mandatory approvals from Brazil and the European Union. It secured clearance on Thursday from one of two Australian regulators but still requires the green light from China.

    Senior Shell officials, who have held closed door discussions in recent months, had expected China's anti-trust authorities to put forward some demands before approving the deal just as they did ahead of Glencore's $29 billion merger with Xstrata in 2013.

    As the Chinese regulatory approval process entered its third and final 60-day phase earlier this month, Beijing broached with Shell a request to review prices in LNG contracts worth tens of billions of dollars annually with its energy champions China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC) and Sinopec, industry sources close to the talks told Reuters.

    Negotiators from China's ministry of commerce (MOFCOM) are also seeking to lower import volumes by extending the term of the existing deals with Shell as well as other suppliers in order to thin out deliveries given low demand, according to several sources.

    Some Shell officials fear that a revision of the terms of the contracts could create a ripple effect around the world, further eroding gas prices.


    The combined Shell-BG group is planned to sell around 15 million tonnes of LNG per year by 2018 to China's major importers, around one third of China's contracted volumes.

    Read more at Reutershttp://www.reuters.com/article/2015/11/19/bg-ma-shell-china-idUSL8N13B47720151119#kSfHpdvgDC3fCGYt.99

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    IEA Says Natural Gas to Play Key Role in Climate Talks


    Natural gas, the “least carbon-intensive fossil fuel,” could play a key role in reaching global climate goals, an issue at the center of upcoming talks in Paris, said the head of the International Energy Agency.

    Fatih Birol, the agency's new executive director, noted that energy production and use account for two-thirds of global greenhouse gas emissions, so energy policies will be key at the Paris talks starting Nov. 30, which have the aim of achieving a global deal to fight climate change, largely through commitments to cut carbon dioxide emissions.

    Speaking at the agency's Nov. 17–18 ministerial meeting, which brought together energy ministers from the Paris-based agency's 29 members, including the world's advanced economies and many of its biggest energy users and carbon dioxide emitters, Birol said IEA ministers approved his three-pillar plan for modernizing the agency's strategy to face today's “transformed” global energy landscape.

    That starts with doing more to bring emerging economies into the IEA's work, Birol said.

    IEA's members now account for less than 50 percent of global energy consumption, but including non-IEA emerging economies, that rises to over 75 percent, according to Birol.

    The meeting included representatives from the biggest emerging economies: Brazil, China, Indonesia, India, Mexico, Morocco, South Africa and Thailand, with Mexico and Chile announcing plans to join the agency. Some 30 leaders from business and the energy industry also attended.

    U.S. Energy Secretary Ernest Moniz, who chaired the meeting, said natural gas will play an important part in shorter term U.S. efforts to cut power sector greenhouse gas emissions, but special technologies could be needed to “really squeeze down” on emissions from gas in the very long term.

    http://www.bna.com/iea-says-natural-n57982063725/
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    Tanker rate spike dents efforts to store oil glut at sea


    Record high freight rates are creating more headaches for traders looking to house millions of barrels of unsold crude oil and who already face potential losses due to record high stocks.

    They have to decide on whether to use tankers for longer term storage until they can sell their cargoes, or dump them at even more discounted prices in order to keep wells running.

    This is expected to come at a bigger cost as rates for supertankers have soared - reaching their highest since 2008 at over $100,000 a day last month and currently around $70,000 a day.

    Some have already been caught out with extra oil, and had no choice but to keep it on vessels. Trade sources said the expensive freight meant this was not a money-making play - and is unlikely to become one any time soon.

    "They're losing money, and they want to place the vessel as fast as possible," said Eugene Lindell, senior crude market analyst with JBC. "It's putting pressure on anyone who has to take a vessel out."

    Booking a supertanker on a one-year time charter has also spiked to over $50,000 a day - double the rate last year - with the overall monthly cost of storing oil on a vessel estimated at just over $2 million.

    A combination of bargain buying by oil importers and refineries and fewer new vessel deliveries this year meant that the tanker market was having its best year since the 2008 financial crisis, Omar Nokta with Clarksons Platou Securities said.

    "Capacity utilisation has jumped sharply as a consequence, nearly reaching 90 percent, the highest level since 2008," Nokta said. "As seasonal factors now turn up, we expect to see more of the above with floating storage possibly becoming an even bigger factor."

    Placing crude in storage is only profitable if prices for delivery in the future are at a large enough premium to the current levels - a market structure known as contango. The contango also has to be large enough to pay for the cost of storage, which is usually much higher on ships than land tanks.

    Earlier this year, as much as 50 million barrels of oil was estimated to have been earmarked for sea storage options with traders looking to sell the cargoes later on at a profit.

    That speculative play fizzled out as the contango flattened quickly.

    "If it (a wide contango) gets there, it would be a very, very small amount of time ... before the freight rate goes up and it closes," one oil trader said. "(Tanker) owners are notoriously bad at hiking the rates in no time at all."

    The trading strategy was last used in 2009, when slumping prices led traders to park more than 100 million barrels of oil on tankers at sea before stocks were sold off. At the time, oil tanker rates were at rock-bottom levels, and owners were keen for long-term leases.

    This time round, tanker owners have the upper hand, with worldwide bottlenecks and heavy traffic to oil refineries keeping vessels fully booked.


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/oil-tankers-storage-idUSL8N13D42B20151119#mj8lAovUm0oAwKdO.99

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    Brazil Said to Study Hybrid Securities for Petrobras: Estado


    Brazil is studying the possibility of using hybrid securities to boost capital at struggling state-controlled oil producer Petroleo Brasileiro SA, Agencia Estado reported, citing government officials it didn’t name.

    The operation is being discussed between Brazil’s Treasury and Petrobras’s management, and no amount has been defined yet, Estado said. The government and Rio de Janeiro-based Petrobras aren’t considering a share sale to minority investors as an option to raise cash at this time, Estado said. Petrobras declined to comment.

    Hybrid securities like contingent convertibles -- or Cocos, as they are known -- provide companies with a way to raise money without immediately diluting shareholders, as is the case when a firm issues new stock.

    The instrument, which doesn’t impact the country’s surplus or the public net debt, was used by former Finance Minister Guido Mantega to fund state-controlled banks in recent years, the paper said.

    In Brazil, the securities have been used by banks only and the government would still need to find an intermediary to transfer the money to Petrobras, as the producer is not a financial institution, Estado reported.

    The government could use Brazil’s Treasury to get Petrobras an advance payment for a capital increase, Eliseu Martins, a former securities regulator and accounting specialist, said by phone. The Treasury would issue securities without a firm deadline to convert them into Petrobras shares, he said.

    “When market conditions improve, the company could then call investors for a capital increase,” Martins said, adding he isn’t aware of the government’s discussions.

    Petrobras’s debt has surged fourfold in the past five years as the company boosted investments to tap giant oil fields deep in the South Atlantic, while at the same time subsidizing fuel imports during the commodities boom as part of a government effort to contain inflation. Standard & Poor’s cut the company’s ratings to junk in September amid rising leverage and a corruption scandal that has resulted in some of its suppliers filing for bankruptcy.

    http://www.bloomberg.com/news/articles/2015-11-19/brazil-said-to-study-hybrid-securities-for-petrobras-estado
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    Eni selling remaining Galp shares


    Italian oil company Eni has started, through an accelerated book building procedure, the sale of shares it owns in Galp Energia, a Portuguese oil and gas company.

    Eni is selling 33,124,670 ordinary shares of Galp. This means the Italian company is actually selling its entire participation it has in Galp, which is around 4% of Galp’s total share capital.

    The shares were underlying its Exchangeable Bonds under which the terms of conversion are expired. The shares will be placed with qualified institutional investors with Goldman Sachs International and Merrill Lynch International acting as Joint Bookrunners.

    Over the last few months Eni has completed the disposal on the stock exchange of approximately 4% of the share capital of Galp.

    Following the completion of the Offering, Eni will not hold any participation in Galp’s share capital, completing the disposal process of the initial 33.34% stake, sold through several transactions starting from 2012.

    http://www.offshoreenergytoday.com/eni-selling-remaining-galp-shares/
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    US natural gas in storage hits 4 Trillion cf


      Historical Comparisons
    Stocks
    billion cubic feet (Bcf)
     Year ago
    (11/13/14)
    5-year average
    (2010-14)
    Region11/13/1511/06/15net changeimplied flow Bcf% changeBcf% change
    East934  929  5  5   892  4.7  926  0.9  
    Midwest1,124  1,117  7  7   1,051  6.9  1,091  3.0  
    Mountain214  217  -3  -3   185  15.7  213  0.5  
    Pacific381  382  -1  -1   349  9.2  358  6.4  
    South Central1,347  1,340  7  7   1,119  20.4  1,205  11.8  
       Salt377  373  4  4   329  14.6  288  30.9  
       Nonsalt970  967  3  3   790  22.8  917  5.8  
    Total4,000  3,985  15  15   3,596  11.2  3,793  5.5  


    Working gas in storage was 4,000 Bcf as of Friday, November 13, 2015, according to EIA estimates. This represents a net increase of 15 Bcf from the previous week. Stocks were 404 Bcf higher than last year at this time and 207 Bcf above the five-year average of 3,793 Bcf. At 4,000 Bcf, total working gas is above the five-year historical range.


    http://ir.eia.gov/ngs/ngs.html

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    Noble Midstream Partners postpones IPO amid oil slump


    Noble Midstream Partners LP, a wholly owned unit of Noble Energy Inc, said it postponed its planned IPO amid a slump in oil prices.

    The company filed for an initial public offering on Oct. 22.

    Noble Midstream will continue to evaluate the timing for the proposed offering as market conditions develop, the company said.


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/noblemidstreampartners-ipo-idUSL3N13E4UP20151119#91qlZKEg2gJ4stmW.99
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    U.S. manslaughter charges filed in deadly 2012 oil platform blast


    Two companies involved in the deadly 2012 explosion of an oil platform in the Gulf of Mexico have been indicted on federal charges of involuntary manslaughter, the U.S. Justice Department said in a statement on Thursday.

    Black Elk Energy Offshore Operations LLC and Grand Isle Shipyards Inc. were charged on Thursday with three counts of involuntary manslaughter, eight charges involving federal safety laws and one violation of the Clean Water Act.

    Three people and a third company, Wood Group PSN Inc., also face criminal charges related to the explosion, the department said. Those charges include felony violations of the Clean Water Act and other federal safety laws.

    The 2012 fire off the coast of Louisiana ignited when workers were welding a pipe on the deck of the shallow-water platform operated by Houston-based Black Elk Energy. The explosion led to the three deaths, several injuries and an oil spill.


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/energy-oil-manslaughter-idUSL1N13E28M20151119#IfqUqwJlHyq1Ouie.99

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    Chesapeake Investors Seen Signalling Surrender as Bonds Plunge


    Credit investors who lent $11 billion to Chesapeake Energy Corp. are starting to give up on the company, the second-biggest junk-debt issuer in the U.S. energy industry.

    Nearly all of the energy producer’s bonds plummeted to their lowest levels ever on Thursday as oil dropped toward a more-than six-year low. Chesapeake notes were the second-most actively traded in the high-yield market, just behind Petrobras Global Finance BV.

    One of Chesapeake’s bonds dropped 9 cents on the dollar, while the price of credit-default swaps -- used by investors to protect against defaults -- rose to the highest ever. The company’s shares sank to a 13-year low.

    "We are seeing investors capitulate to the reality of the situation," said John McClain, a money manager at Diamond Hill Capital Management Inc. in Columbus, Ohio, which oversees $16 billion. "They have a lot of debt, they are burning through cash and their earnings profile is not getting any better. They are trading worse than their credit rating suggests, and there is almost certainly a downgrade coming."

    Chesapeake, rated two steps below investment grade with a negative outlook by Moody’s Investors Service, is making investors worry about its ability to pay back borrowings that are three times the current worth of its oil and natural-gas fields. The company, which took on most of its debt under former Chief Executive Officer Aubrey McClendon, recorded a $5.4 billion writedown in value of those fields when it reported earnings earlier this month. The recalculation wiped out third-quarter profits.

    The company’s $700 million of 5.375 percent unsecured notes due 2021 dropped the most of the dozen Chesapeake bonds that traded Thursday, falling 9 cents to 41 cents on the dollar at 10:02 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. One of its biggest bonds, the $1.5 billion of floating-rate notes due 2019, fell 4.3 cents to 46.8 cents at 5:15 p.m., the data show.

    http://www.bloomberg.com/news/articles/2015-11-19/chesapeake-energy-bonds-plunge-to-the-lowest-ever-as-oil-falls

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    Alternative Energy

    SunSetEdison


    SUNE is down almost 8% this morning, back under $3.00, as yesterday Twitter-based "Blackstone buying SUNE Debt" rumour is dashed in the epic realization that you might be the last one in line for the exits...

    Down 40% this week alone and over 60% in 2 weeks... this is a bloodbath

    As we recently noted, a "possible credit event is looming."

    A brand new note by Axiom Capital Research titled "The Nightmare Before Christmas” – Credit Event Appears More Likely than Presaged, in which the analyst Gordon Johnson sees at least another 33% of downside before the stock finally stabilizes at something resembling a fair value of $2.00

    Lots more detail: http://www.zerohedge.com/news/2015-11-19/sunsetedison
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    Precious Metals

    Lonmin shareholders approve crucial rights issue


    Lonmin shareholders decisively approved the company's deeply discounted $400 million share issue on Thursday as the beleaguered platinum producer seeks cash to stay afloat.

    Bruised by strikes, rising costs, a weak platinum price and slowing demand for the metal, South Africa-focused Lonmin said last month it also planned to raise another $370 million in loans to refinance debt currently due in May 2016.

    Lonmin said about 88 percent of its shareholders approved the rights issue at a meeting in London after warning that if it couldn't raise the cash, shares could be suspended.

    "We had no choice but to vote in favour because we will be wiped out if this doesn't go through. But does that mean we will be with the company in the next 10 or even two years? We don't know," said Anthony Guildford, a Lonmin investor since 1969.

    The loss-making platinum producer had asked its shareholders to vote on five proposals, which also included consolidation of Lonmin shares. Shareholders also authorised its directors to allot new shares.

    The scale of Lonmin's plight was illustrated on Nov. 9 when it priced its rights issue at just 1 pence a share - a 94 percent discount to the stock's previous session closing price of 16.25 pence on the London Stock Exchange.

    Some investors, including pensioners, raised concerns about the consolidation of shares.

    "There had to be a better idea than consolidation. I will never see my money (14,500 pounds in shares) back at 6 pounds where I bought ... They were 1.70 last Christmas!," one investor said.

    Lonmin still has to convince the wider market it can be a viable business.

    "Lonmin has got its reprieve, and existing shareholders can hardly be blamed for sticking with it. But with labour costs still high and platinum still stuck, it is hard to work out where the positive investment story lies," IG analyst Christopher Beauchamp said.

    Read more at Reutershttp://www.reuters.com/article/2015/11/19/lonmin-equity-vote-idUSL8N13E2K020151119#XjIvyqVgiCIAlSV4.99
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    Base Metals

    Something odd in Shanghai?

    The flurry of new entrants into the market has coincided with a 12% slide in global copper prices, a tumble that has sent copper to its lowest levels in more than six years.

    Analysts at Goldman say that this type of trading pattern tends to precede a pullback in Chinese metal demand. China accounts for roughly 40% of global copper demand and is the world’s top copper buyer.

    “Over the past five years, periods of rising SHFE open interest and falling metals prices have been associated with concurrent or imminent weakening in China’s commodity intensive ‘old economy’,” they said in a note to clients.

    This signal has been correct on four of five occasions since mid-2011 and suggests upcoming Chinese economic data could continue to disappoint, driving copper prices even lower, they said.

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    CME plans Japan aluminium contract to rival LME


    Chicago-based CME Group said on Thursday it would launch a Japanese aluminium premium contract next month, the latest move by the world's largest futures market operator to challenge the London Metal Exchange's dominance in base metals trading.

    CME said it would list the new 25-tonne contract on its Globex electronic trading platform, with trading starting on Dec. 7. The contracts will be cash-settled against Platts' daily assessment of the premium.

    Japan is Asia's biggest importer of aluminium and supply contracts are set between the world's biggest producers like Alcoa and Rio Tinto, and consumers such as UACJ , and major Japanese trade houses each quarter. These talks set the quarterly benchmark for the region.

    "If it's useful, we may use it. We will watch how the market develops," said a source at a trade house in Japan.

    Adding Japan, with its big automotive sector, completes CME's suite of aluminium contracts - it launched a U.S. premium contract 3-1/2 years ago and a European one in September.

    The timing also underscores the growing competition between the two exchanges. The LME, the world's oldest and largest market for industrial metals now owned by Hong Kong Exchanges and Clearing Limited, will list its new aluminium premium contract on Monday.

    A source at a producer said the CME contract may have a better chance than the LME contract of succeeding if, like the U.S. Midwest contract, it is for cash settlement only, with no option on physical delivery.

    "Japanese buyers tend to have preference on brand, meaning they have a list of brands that they don't like," the source said.

    The physically deliverable London contract would mean that consumers could be allocated any LME brand of aluminium from warehouses that have opted into its premium program for the South East or East Asian contracts. The LME acts as a market of last resort, and contracts are primarily designed for hedging rather than a source of supply.

    "The LME's premium contracts are physically settled, rather than cash-settled, and so provide important price convergence to the underlying physical market," an LME spokeswoman said.

    The idea for the new contracts was conceived a few years ago due to a disconnect between surging premiums and the reality of an oversupplied market due to long queues for aluminium in LME-registered warehouses.

    Big consumers, such as can makers, asked for a listed premium contract to hedge and protect the financial risk of the soaring cost of freight and insurance and physical delivery of metal.

    Premiums have since plunged, raising questions among some traders about whether there is an appetite for such a product.

    CME has also introduced a zinc futures contract and will launch one for lead next week.


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/cme-group-aluminium-japan-idUSL3N13E1EL20151119#pyPQrFVzT797YWPh.99

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    India signals higher aluminium import tax, stoking Vedanta rally


    India is considering as much as doubling the levy on aluminum imports to counter supplies from China, according to a Mines Ministry official, stoking a rally in the shares of producers Vedanta, Hindalco Industries and National Aluminium Co.

    The proposal will be put forward for discussions with India’s Finance Ministry ahead of the nation’s budget speech, Mines Secretary Balvender Kumar said in an interview on Thursday on the sidelines of a conference in New Delhi. The budget is due around the end of February next year.

    “We’re considering the raising of duties,” he said. “It will go up to 7.5% or to 10% from 5%.”

    The prospect of a stiffer shield against imports saw Vedanta, the top Indian producer, advance as much as 3.3% in Mumbai. Hindalco jumped as much as 3.1% and Nalco 4.5%, the most in more than a month. Producers have been squeezed by a collapse in aluminum prices amid a slowdown in China’s economy and low-cost supplies from abroad.

    Vedanta’s local smelters are running at 40% of capacity, chairman Anil Agarwal said yesterday.

    Aluminum prices have slumped 27% in London in the past 12 months to a six-year low. Supply will top demand through to 2018, according to BMI Research.

    http://www.mineweb.com/news/base-metals-and-minerals/india-signals-higher-aluminum-import-tax-stoking-vedanta-rally/
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    Steel, Iron Ore and Coal

    Russia's Metalloinvest posts Q3 net loss on weaker rouble


    Russia's biggest iron ore producer Metalloinvest posted a third-quarter net loss of $110 million on Thursday due to foreign exchange losses as a result of the weaker rouble, the company said in a statement.

    The rouble has fallen 6 percent since early October, dragged down by lower oil prices and hitting Russian companies with debt held in dollars.

    "(The net loss) was mainly due to the accrual of exchange differences on the debt currency," Metalloinvest said.

    Metalloinvest, owned by Russia's third-richest man Alisher Usmanov, said revenue decreased 9.6 percent quarter-on-quarter to $1.1 billion due to lower prices for its products.

    Core earnings, or EBITDA, fell 13 percent to $361 million and net debt decreased 9 percent to $3.5 billion, it said.

    "In the third quarter, global prices for our main product types remained under pressure from oversupply and a cooling in developing markets," said Chief Financial Officer Pavel Mitrofanov.

    Mitrofanov said Metalloinvest's debt burden remained under control despite the difficult market conditions and increasing production of value-added products was a priority.


    Read more at Reutershttp://www.reuters.com/article/2015/11/19/russia-metalloinvest-idUSL8N13E28V20151119#DY4l7g3cftt3u6F4.99
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    China steel output to plunge 23 mln T in 2016: CISA


    China’s steel output may plunge 23 million tonnes in 2016, equaling more than 1/4 of American annual steel output, said Li Xinchuang, one senior official with the China Iron & Steel Association (CISA) on October 18.

    China’s key steel mills may see their output fall 2.9% from 806 million tonnes in 2015 to 783 million tonnes in 2016, impacted by weakening domestic demand and severer export resistance from overseas market.

    The CISA data showed China’s steel output was around half of the global output. China has around 300 million tonnes of excess steel capacity that should be idled completely, not simply by cutting output, said David Humphreys, previous chief economist of Rio Tinto.

    Domestic steel demand experienced the first drop in the past three decades, with steel mills suffering from losses, oversupply and falling prices.

    Li predicted a further drop in steel demand, falling from 668 million tonnes this year to 654 million tonnes in 2016.

    Meanwhile, China’s iron ore imports may slash 10 million tonnes from 2015 to 920 million tonnes in 2016, said Li.

    China’s Crude Steel output dropped 2.2% on year to 675.1 million tonnes in the first ten months, but was still not enough to offset the plunge in demand, said the CISA.

    Thus, controlling output would remain to be the key measure to save the sector; steel producers should realize transformation to form diversified competitiveness.

    http://en.sxcoal.com/news.aspx

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