Mark Latham Commodity Equity Intelligence Service

Friday 22nd April 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro
    Oil and Gas
    Alternative Energy
    Uranium
    Precious Metals
    Steel, Iron Ore and Coal

    Macro

    China's Great Ball of Money Is Rushing Into Commodities Futures


    Chinese speculators have a new obsession: the commodities market.

    Trading in futures on everything from steel reinforcement bars and hot-rolled coils to cotton and polyvinyl chloride has soared this week, prompting exchanges in Shanghai, Dalian and Zhengzhou to boost fees or issue warnings to investors. While the underlying products may be anything but glamorous, the numbers are eye-popping: contracts on more than 223 million metric tons of rebar changed hands on Thursday, more than China’s full-year production of the material used to strengthen concrete.

    “The great ball of China money is moving away from bonds and stocks to commodities," said Zhang Guoyu, a Shanghai-based analyst at Tebon Securities Co. “We’ve seen a lot of people opening accounts for commodities futures recently."

    The frenzy echoes the activity that fueled China’s stock market last year before a rout erased $5 trillion, and follows earlier bubbles in property to garlic and even certain types of tea. China’s army of investors is honing in on raw materials amid signs of a pickup in demand and as the nation’s equities fall the most among global markets and corporate bond yields head for the steepest monthly rise in more than a year.

    Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong, says the improvement in fundamentals and the availability of leverage to bet on commodities is making them irresistible to traders.

    “These guys are going nuts," Hong said. “Leverage exaggerates the move of the way up, but also on the way down - much like what margin financing did to stocks in 2015.”

    The gain in steel prices isn’t just on the futures market, with spot prices for the physical product also rallying amid a sudden shortage as construction activity accelerates. Rebar prices have risen 57 percent this year on average across China, according to Beijing Antaike Information Development Co., a state-owned consultancy. Even after output of steel increased to the highest monthly volume on record in March, rebar inventory is still falling, signaling a supply deficit.

    To cool activity, the Shanghai Futures Exchange increased transaction fees while the Dalian Commodity Exchange raised iron ore margin requirements. The bourse in Dalian also tightened rules on what it called abnormal trading, which now includes frequent submission and withdrawal of orders and self-trading. The Zhengzhou Commodity Exchange urged prudent investment on cotton futures amid "relatively large price fluctuations."

    “There’s a lot of liquidity and there are people looking for opportunity," said Ben Kwong, a director at brokerage KGI Asia Ltd. in  Hong Kong. “Investors are just boosted by recent rebound in those commodity prices and it’s speculative behavior."

    Futures slid Friday after the exchange clampdown, with contracts on rebar closing down 4.8 percent at 2,619 yuan a ton, its biggest daily decline in six weeks. A gauge of materials shares sank 2.7 percent on the mainland as the benchmark Shanghai Composite Index advanced 0.2 percent.

    http://www.bloomberg.com/news/articles/2016-04-22/china-s-great-ball-of-money-is-rushing-into-commodities-futures
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    Most hated rally?

    There is, of course, repetition, and a lot of it. One of the lines I'm hearing more and more is that this is "the most hated rally ever." I'm fairly sure I heard that line used following strong rallies in equity ETFs like the S&P 500 SPDRs SPY, -0.33% I don't know what evidence people have to make such a claim, but, wow, does it sound like a powerful statement and a reason for equities to keep pushing higher.

    It’s hard to backtest such a statement with actual buys and sells, but viewers seem to love how it sounds. It makes us feel more bullish because the contrarian in us gets excited that markets are hated on the upside. After all, that means stocks have more room to run on the upside, right?

    I find it curious that a rally is so hated after such a powerful move in broad indices. More likely, the real hatred comes from those parts of the marketplace that investors left for dead. Gold miners and material stocks more generally fit the bill there. Into this quarter, our top-quartile-ranked ATAC Beta Rotation FundBROTX, +0.31%  will be overweighted the materials sector using ETFs like the Materials Select Sector SPDR ETF XLB, +0.21%  based on our dynamic momentum weights and risk triggers. I'm excited for that on a personal basis, regardless of the fact that everything we do is quantitative. The contrarian in me believes that the commodity move is real and has legs.

    You want a hated rally? It's the one going on in the Market Vectors Gold Miners ETFGDX, +1.97%  which has had an immense rally thus far in 2016, but in the context of the last few years, looks like a blimp in positive returns (vertical axis shows price).

    Does this continue? Your guess is as good as mine, but after so much real hate and bearishness toward commodities for a prolonged period of time, the contrarian in me says the bias remains higher for anything gold and materials related. The quant in me agrees.

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    The economy since 2008.

    Image titleImage titlehttp://www.nytimes.com/interactive/2014/06/05/upshot/how-the-recession-reshaped-the-economy-in-255-charts.html?action=click&contentCollection=The%20Upshot®ion=Footer&module=WhatsNext&version=WhatsNext&contentID=WhatsNext&moduleDetail=undefined&pgtype=Multimedia&_r=1
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    China allowing bankruptcy's?

    China laid out measures to choke off bank credit to the heavily leveraged steel and coal industries, the latest attempt to tackle inefficiencies weighing on the economy.

    A proposal circulated by the central bank and other agencies Thursday called on lenders to stop making loans to new steel or coal projects that don’t already have government approval, and slow or stop lending to unprofitable companies that can’t repay.

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    Volkswagen Reaches Deal With U.S. Authorities Over Diesel Emissions Scandal


    Relief is on the way for U.S. drivers of nearly 500,000 Volkswagen AG2-liter diesel vehicles equipped with devices meant to trick emissions tests.

    A San Francisco federal judge said Thursday that Volkswagen has reached the broad outlines of a deal with U.S. authorities that includes buybacks of cars and compensation for U.S. drivers. The company didn’t specify the cost of the deal or the specifics of the proposal.

    The approximately 80,000 3-liter vehicles equipped with the devices weren't included as part of the plan.

    U.S. District Judge Charles Breyer, who is overseeing the case, said in open court that Volkswagen plans to offer consumers the option of having their vehicles bought back or modified to meet emissions standards. Those with leased cars can cancel the lease. “Substantial compensation” on top of the buyback or fix will also be awarded to consumers, Judge Breyer said.

    The deal comes as part of litigation consolidating more than 500 federal lawsuits filed against Volkswagen in the wake of its September admission that it knew its diesel vehicles weren’t as “green” as advertised and were violating pollution laws. Some 11 million vehicles are affected world-wide.

    Judge Breyer, who is overseeing the case, has pressured Volkswagen since February to produce a fix for the cars. Judge Breyer made it clear last month that if no solution was offered by this week, he would consider a request by the plaintiffs to set a summer trial. An attorney for Volkswagen said at the time that engineers were working around the clock on a fix.

    A bevy of U.S. authorities have put pressure on the company, including the U.S. Justice Department, Environmental Protection Agency, Federal Trade Commission and California Air Resources Board.

    The mushrooming fallout from the scandal has cost Volkswagen’s chief executive and top U.S. manager their jobs and led to plunging U.S. sales. Dealers have been left with expensive inventory they are unable to unload, and some have sued, alleging that Volkswagen defrauded them.

    Volkswagen for years touted its diesel line as environmentally friendly vehicles with good fuel economy. The FTC sued the company for false advertising last month, pointing to alleged misleading taglines like “Diesel. It’s no longer a dirty word,” and “Green has never felt so right.”

    The company continues to face a criminal probe in the U.S. and litigation abroad.

    http://www.wsj.com/articles/volkswagen-reaches-deal-with-u-s-authorities-over-diesel-emissions-scandal-1461252731
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    Sinopec opens new industrial platform


     Asia's largest refiner, China Petroleum & Chemical Corp, known as Sinopec, is pushing big into a market-oriented transformation with the launch of the country's largest online industrial supply system on April 18, teaming up with e-commerce giant Alibaba Group Holding Ltd.

    It is the latest in a string of moves by state-owned enterprises to diversify their business and enhance profitability.

    Sinopec, teaming up with Alibaba Group Holding Ltd, launches the country's largest online industrial supply system on April 18. 

    The online industrial product system - www.epec.com - used to be Sinopec's internal procurement platform, but the company decided to open up its access to the public as part of a restructuring amid weak oil prices.

    Alibaba provides services to Sinopec in terms of internet safety, big data and technology upgrading.

    Wang Yubing, president of Sinopec's procurement division, says the company plans to build the platform into an industrial version of Taobao.com, the country's largest online shopping marketplace, owned by Alibaba.

    "The market value of online retail business rose to about 3 trillion yuan ($464 billion; 409 billion euros), but the market potential for online sales of industrial products is much larger than that," he says, expecting the transaction value on the platform to reach 500 billion yuan.

    Currently, 90 percent of the transactions on the platform have come from Sinopec, but Wang says more companies will join the purchasing system since it will reduce their sourcing budget and increase efficiency.

    "This platform will benefit not only large industrial enterprises but also those small and medium-sized companies through sharing our resources in suppliers and experience in supply chain management, because it will optimize their sourcing process and reduce the procurement cost," says Jiao Fangzheng, Sinopec's deputy general manager.

    The website provides a huge array of products from more than 60 industries, including coal, steel, petrochemicals and oil equipment, the company says.

    Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, says that it is a laudable attempt, but it may take quite a long time to make the platform a real success.

    http://en.chinamining.com.cn/Companies/2016-04-22/1461287501d76207.html
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    Miners spending again: $50 billion capex in five months


    SNL Metals & Mining tallied the value of planned capital spending announced by mining companies in November. The industry research firm based in Charlottesville, Virginia did the same thing again April 7.

    Outlays on new mines, sustaining capital, expansions and projects like mine life extensions had surged by nearly $50 billion to $108 billion over the duration of just five months.

    Of course, some of this money may never be spent and many projects announced now may only result in actual spending years down the line or get substantially revised.

    Nevertheless, it paints a picture of a measure of confidence returning to the sector.

    And even more encouraging, initial capital spending on greenfield projects rose 216% in the first quarter compared to end-2015.

    At $12.3 billion of projected capex it was the highest three-month period  since Q4 2014, although it still pales in comparison to the heady days of 2012 when quarterly initial capex topped out at more than $50 billion.

    According to SNL data between November and April, the bulk of announced capital spending shifted to Latin America and copper.

    The region accounted for $32.4 billion in committed or actual spending while copper attracted $34.9 billion worth of new money.  Copper projects in Latin America attracted nearly two thirds of total new projects focused on the red metal.

    NGEx Resources 60%-owned Constellation copper project is by far the biggest new project announced. The late-stage project in Chile will need more than $7.4 billion with an estimated $3.1 billion to build the mine and  roughly $4.4 billion for sustaining capital over a life of 48-years.

    Other Latin American projects include $1.9 billion for Vale's Salobo copper project in Brazil and $725 million for Hot Chili.'s 49.9%-owned Productora copper project in Chile.

    During the previous period SNL data showed most money were going to Canada and the US, and towards gold projects which are still a close close second globally with $32.12 billion of announced spending, a 113% jump since November.

    Investment in gold projects was led by Harmony Gold and Newcrest teaming up on the late-stage Wafi-Golpu project in Papua New Guinea. The South African miner and Australia's top producer projected investments of $2.7 billion in initial capex, and an additional $3.7 billion for expansion work.

    SNL forecasts that Latin America and copper would continue to attract the most investment.  More than $100 billion of planned capital spending over the next six years will flow into the region

    Copper is projected to account for 30% of the estimated $258.7 billion in global capex through 2012. Initial capital costs account for $152 billion, or 59%, of the projected total for the next six years according to SNL.

    http://www.mining.com/planned-mining-capex-jumps-50-billion-over-5-months/
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    Finland's Metso profit and orders hit by mining slump


    Finnish engineering group Metso posted a lower-than-expected quarterly profit and new orders on Friday as miners delayed buying its grinding mills and crushers.

    Nordic mining equipment makers are struggling as mining groups cut spending due to low metal prices and uncertainty over growth in top metals consumer China.

    Metso shares fell after it reported adjusted earnings before interest, tax and amortization were 28 percent lower than a year ago at 56 million euros ($63 million), missing the consensus of 68.5 million in a Reuters poll.

    New orders fell 10 percent to 663 million euros, compared to analysts' average expectations of 679 million euros.

    "Orders and net sales were at a low level in the project businesses during the first quarter, as uncertainties in the markets tend to slow down both the decision-making relating to new orders and the execution of ongoing projects," chief executive Matti Kahkonen said in a statement.

    Metso, which also makes valves and pumps for the oil and gas industry, said it expects demand to remain weak for mining equipment and satisfactory for other products and services.

    It did not put a figure on its profit outlook for this year. Shares in the company had fallen by 6 percent by 0745 GMT.

    "The company should give a more exact guidance. The current outlook doesn't tell enough about developments in different business sectors, and just raises more uncertainty," said Juha Kinnunen, analyst at Inderes Equity Research.

    http://www.reuters.com/article/metso-results-idUSL5N17P1AC
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    Anglo American reports lower production ahead of annual meeting


    Anglo American Plc reported lower first-quarter production across most of its mining businesses on Thursday ahead of its annual meeting, where shareholders have been urged reject CEO Mark Cutifani's pay.

    Anglo American, the world's fifth-biggest diversified mining group by value, embarked on a major overhaul in February to cope with weak prices and demand, which includes the sale or closure of its iron ore, coal and nickel businesses.

    The company said in the first quarter, iron ore production at its Kumba Iron Ore Ltd business fell 27 percent as its Sishen mine moves to a lower cost pit configuration.

    It cut diamond production at its De Beers division by 10 percent to 6.9 million carats, due to low prices, while the sale of its Norte assets in Chile last year resulted in a 15-percent fall in copper production, the company said.

    But nickel production was up 67 percent and platinum production rose 4 percent.

    "Overall, this is a weak production report, across most key commodities - production volumes for iron ore, metallurgical and thermal coal, copper, nickel and platinum were all below our estimate - typically 5-7 percent below expectation," Canaccord Genuity said in a note.

    Anglo American has been downgraded to 'junk' territory by credit rating agencies Fitch Ratings, Moody's and S&P, which cited the prolonged downturn in commodity prices, negative cash flows at many of the company's mines and uncertainty about the execution of the debt reduction.

    http://www.reuters.com/article/anglo-american-results-idUSL3N17O285
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    Secret shame of the American Middle class.

    Since 2013, the federal reserve board has conducted a survey to “monitor the financial and economic status of American consumers.” Most of the data in the latest survey, frankly, are less than earth-shattering: 49 percent of part-time workers would prefer to work more hours at their current wage; 29 percent of Americans expect to earn a higher income in the coming year; 43 percent of homeowners who have owned their home for at least a year believe its value has increased. But the answer to one question was astonishing. The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?

    Well, I knew. I knew because I am in that 47 percent.

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    Oil and Gas

    Global refining margins help lift crude oil prices


    Global refining margins have improved significantly in recent weeks which should support strong demand for crude and lend some strength to both spot prices and spreads in the short term.

    While diesel markets remain oversupplied and margins poor, gasoline consumption is booming and margins have improved sharply, improving economics for many refineries.

    There is no straightforward way to estimate the profitability of turning crude into products in real time since every refinery processes a different slate of crudes and produces a different slate of products.

    Even for the same refinery, crude and product slates can vary significantly over short periods as the refinery's planning department takes advantage of short-term opportunities in the market place.

    But the multitude of indicators on refinery margins all point to an improvement in the United States and globally since the lows hit in February, which is helping support crude oil prices.

    The most generic refining indicators compare the cost of acquiring a benchmark crude and processing it into major products such as gasoline and diesel.

    The 3-2-1 crack spread compares the acquisition cost of three barrels of crude with the selling price of two barrels of gasoline and one barrel of diesel.

    Other popular indicators are the 5-3-2 crack (five barrels of crude, three barrels of gasoline and two barrels of diesel) and the 2-1-1 crack (two crude, one gasoline and one diesel).

    The 3-2-1 crack has improved from a low of around $12 per barrel in early February to around $18 so far in April, based on futures prices for U.S. light sweet crude, gasoline and diesel.

    There have been broadly comparable improvements in the 5-3-2 and 2-1-1 crack spreads over the same period (tmsnrt.rs/1WdLqSU).

    While refining margins for making diesel and other distillates have continued to deteriorate this has been more than offset by a sharp improvement in gasoline prices and margins.

    Generic crack spreads do not capture all the complexity of turning crude into fuels, lubricants, asphalt and petrochemical feedstocks.

    But many refining companies publish their own indicators for refineries in their portfolio and they all show margins improving significantly from the lows in February.

    Indicators published by the refiners capture much more of the complexity in the refining process though still not all of it.

    Valero, the largest independent refiner in the United States, reports indicative margins for its refineries across North America, which is a good proxy for the health of the U.S. and Canadian refining sector.

    Valero's indicator for refineries along the U.S. Gulf Coast has improved from just $11.50 in February to over $17 so far in April.

    http://www.reuters.com/article/global-refining-kemp-idUSL5N17N4BF
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    Norway's Arctic a bright prospect in crisis-hit oil sector


    While the oil industry continues to cut jobs, projects and costs amid low crude prices, one region is making a surprise comeback after years of declining activity, company executives and officials say: the Norwegian Arctic.

    The search for oil and gas in mature offshore areas in the North Sea is being axed this year due to tighter budgets, but the number of exploration wells in the Norwegian part of the Barents Sea is increasing to 10 in 2016 from seven last year.

    Adding to this, the government will hand out new drilling permits by the end of the second quarter, in an oil licensing round set to open unexplored acreage in the Barents Sea, near Norway's offshore border with Russia.

    Oil major Statoil said it was seeking a rebound in exploration activity offshore Norway in the next few years with a focus on the Arctic..

    "We're looking to the 23rd round to trigger an uptick in activity for us," Statoil's head of exploration for Britain and Norway, Jez Averty, told Reuters on the sidelines of an industry conference, referring to the government's ongoing process.

    The head of Norway's Petroleum Directorate, Bente Nyland, said: "There have been both downturns and upturns in the Barents Sea, but now we are definitely on an upturn."

    After years of delay, Italy's Eni has finally begun production at Goliat, the first oil-producing field in the region. And this week Statoil said it would be able to cut development costs further at its Johan Castberg oilfield, a key project.

    "I am very optimistic for the Barents Sea ... When Statoil announced their work on Castberg and said they have reduced the cost of the development to such low levels, it was a huge signal to the rest of the industry," the deputy leader of trade union Industri Energi, Frode Alvheim, told Reuters.

    Swedish oil firm Lundin Petroleum and Austria's OMV reported progress in the development of two significant oil discoveries, the Alta/Gotha and Wisting.

    Challenges remain, however. Higher costs and a lack of infrastructure to transport oil and gas from the fields are a big hurdle, so oil firms are more reliant on collaboration to develop projects in tandem.

    And even though the Petroleum Directorate believes half of Norway's undiscovered resources lie beneath the Barents seabed, the geological uncertainty is higher and knowledge of the acreage lower than in mature areas.

    Shell withdrew its application from the 23rd licensing round earlier this month, while other majors such as ExxonMobil, Eni and Total did not apply, partly because they are searching for larger discoveries in other parts of the world.

    http://www.reuters.com/article/us-norway-oil-arctic-idUSKCN0XI1S2
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    Repsol to sell LPG business in Peru and Ecuador to Abastible for $335 million


    Repsol has entered into an agreement with the Chilean company Abastible to sell its LPG (Liquefied Petroleum Gas) businesses in Peru, for 980 million Peruvian soles, and in Ecuador, for 33 million dollars, totalling 335 million dollars at the current dollar/sol exchange rate, subject to the usual adjustments for these types of transactions. Both transactions are expected to close in upcoming months, once the necessary administrative authorizations are granted. The capital gain generated will be determined when the transactions are completed and the dollar/sol exchange rate that will be applied is fixed.

    The richness and diversity of Repsol's asset portfolio, especially following the integration of Talisman, has allowed the company to find more portfolio management opportunities, including in the sale of assets considered non?strategic. In recent months the company has made divestments worth close to the 3.1 billion euros outlined for the first two years of the 2016/2020 Strategic Plan.

    After this divestment, Repsol maintains its hydrocarbon exploration and production activities in Peru and Ecuador. The company also continues to operate a refinery and 410 service stations in Peru.

    http://www.oilvoice.com/n/Repsol-to-sell-LPG-business-in-Peru-and-Ecuador-to-Abastible-for-335-million/b4ea14947f87.aspx
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    Santos quarterly revenue steady as LNG output ramps up


    Australia's Santos Ltd reported a 1 percent rise in first quarter revenue as it stepped up coal seam gas sales to its Gladstone liquefied natural gas (LNG) plant, offsetting a collapse in oil and gas prices.

    Sales volumes in the March quarter rocketed 40 percent to 21.3 million barrels of oil equivalent (mmboe).

    Revenue inched up to A$835 million from A$825 million in the period a year earlier, roughly in line with a forecast from RBC, as its average realised price fell 28 percent.

    Train 1 at Gladstone LNG, which shipped its first cargo last October, produced at an annual rate of 3.8 million tonnes a year in the March quarter, and Santos said it expects to begin producing LNG from the second unit at Gladstone this quarter.

    Santos' chief executive, Kevin Gallagher, who took the reins in February, days after the company's shares hit a 23-year low, said he remained focused on how to position the company to withstand weak oil prices.

    "We will continue to look for opportunities to lift productivity and reduce costs to drive long-term value for shareholders," he said in a statement.

    The company reaffirmed it expects to sell between 76 and 83 mmboe this year.

    http://www.reuters.com/article/santos-ltd-results-idUSL3N17O5KX
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    Schlumberger CEO Sees `Full-Scale Cash Crisis' in Oil Industry


    Schlumberger Ltd. cut another 2,000 jobs in the first quarter as the world’s largest provider of oilfield services sees the industry in an unprecedented downturn.

    The global headcount dropped to 93,000 at the end of the first quarter with the reduction, Joao Felix, a spokesman for the company, said by e-mail. More than a quarter of Schlumberger’s workforce, or roughly 36,000, has now been cleaved off since the worst crude-market crash in a generation began in late 2014.

    “The decline in global activity and the rate of activity disruption reached unprecedented levels as the industry displayed clear signs of operating in a full-scale cash crisis,” Chairman and Chief Executive Officer Paal Kibsgaard said in an earnings report Thursday. "This environment is expected to continue deteriorating over the coming quarter given the magnitude and erratic nature of the disruptions in activity."

    The oilfield service providers were the first to feel the pain when crude prices began falling in the middle of 2014. Of the more than 250,000 jobs cut globally in the energy industry during the downturn, the service providers continue to be the most heavily impacted after customers slashed more than $100 billion in spending last year, with promises of more cuts to come.

    Schlumberger’s profit fell in the first quarter as the company, which helps explorers find pockets of oil underground and drill for it, adjusts to shrinking margins in North America as customers scale back work. Customers are slashing spending by as much as 50 percent in the U.S. and Canada.

    Net income declined to $501 million, or 40 cents a share, from $975 million, or 76 cents, a year earlier, the Houston- and Paris-based company said in a statement Thursday. The profit was 1 cent more than the 39-cent average of 37 analysts’ estimates compiled by Bloomberg.

    "It’s a weak beat mainly because they guided estimates down," Rob Desai, an analyst at Edward Jones in St. Louis, who rates the shares a buy and owns none, said in a phone interview. "North America came in weaker than we expected."

    Challenges from the collapse in crude prices can be seen in the world’s largest hydraulic fracturing market, North America, where Schlumberger reported a loss of $10 million, before taxes. Elsewhere, the company announced earlier this month plans to cut back activity in Venezuela, holder of the biggest oil reserves of any country, due to unpaid bills.

    The company was expected to generate a North America operating profit margin at break-even, according to Capital One Southcoast. That’s better than smaller competitors reporting margins as low as negative 30 percent.

    "Break-even is the new up," Luke Lemoine, an analyst at Capital One in New Orleans who rates the shares the equivalent of a buy and owns none, said in a phone interview before the results were released. "In this environment, it’s hard to defend the 5 percent margins in North America they had talked about."

    The second quarter is expected to get worse for Schlumberger, with North American margins dipping as much as 4 percent into the red, Lemoine said.

    "A lot of it is carrying excess costs," he said. "Service companies have cut personnel and facilities, but they’re unwilling to cut to the bone. So, they are maintaining some slack in capacity."

    http://www.bloomberg.com/news/articles/2016-04-21/schlumberger-cuts-2-000-more-jobs-in-full-scale-industry-crisis
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    China May Raise Fuel Prices for First Time in Six Months on Oil


    China may increase local fuel prices for the first time in six months following a rally in oil prices.

    The nation may raise gasoline and diesel retail rates by 175 yuan ($27) a metric ton on April 26, ICIS China, a Shanghai-based commodity researcher, said in an e-mailed report. Brent oil, the international benchmark, has surged more than 60 percent from a 12-year low in January. China last increased fuel prices in October.

    The Chinese government decided in January not to adjust fuel prices when oil falls below $40 a barrel to support oil companies and curb pollution. The policy resulted in refining margin for Chinese plants increasing 68 percent to $16 in the first quarter of this year from the previous 12 months, according to ICIS China. Exports slipped in the first two months as it became profitable to sell oil products at home.

    “If oil can stay above $40 a barrel, China will return to its normal fuel-adjustment cycles, which is every 10 working days,” Lin Jiaxin, an analyst with ICIS China, said by phone from Guangzhou. “Refiners’ processing margins will probably fall from the first quarter’s high.”

    China’s diesel exports surged to a record 1.25 million tons in March as the oil rally boosted overseas fuel prices. Once China resumes raising prices, domestic and international rates will equalize and refiners’ exports will be driven by their stockpile levels, Lin said.

    http://www.bloomberg.com/news/articles/2016-04-22/china-may-raise-fuel-prices-for-first-time-in-six-months-on-oil
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    Alternative Energy

    Britain's National Grid to pay firms to use power this summer


    A dozen British companies will be paid to use electricity under a scheme National Grid will launch next month aimed at balancing the system in summer, when output is high from renewable energy sources such as wind and solar.

    National Grid said 12 companies have won contracts for the Demand Turn Up scheme which will run from May until September.

    "For the 2016 service period we have procured 309 megawatts of Demand Turn Up," National Grid's Nick Blair, senior account manager of the scheme, said in an email.

    Under the scheme, companies will conduct some operations at night or at midday when there is a lot of electricity generation from wind farms and solar power plants.

    As a part of the tender, companies were required to prove they need to carry out such operations and that the electricity would not be wasted.

    National Grid declined to name the winning companies but said an example could be a water firm shifting their pumping processes to a time when supply is high but demand is low.

    The scheme was also open to small scale power generators that can also reduce their output at short notice, such as combined heat and power units, which generate electricity as a by-product of heating.

    The companies will be paid 1.5 pounds per megawatt hour (MWh) for participating in the scheme. They will be paid a further 60-75 pounds/MWh if called upon to act.

    British spot electricity prices currently trade around 37 pounds/MWh.

    In 2014 National Grid paid 10 million pounds ($14.43 million) to wind power generators to stop production when electricity demand was low to ensure the system was not oversupplied.

    National Grid forecasts electricity demand will hit a record low this summer.

    Meanwhile renewable electricity output in Britain is rising. It accounted for a record 25 percent of the country's generation in 2015.

    http://www.reuters.com/article/britain-energy-national-grid-idUSL5N17N4T8
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    SunEdison Files For Bankruptcy


    It's over. After months of arguing that everything will be ok as investors flee the troubled company, it is now officially over:

    Terraform Power and Global are not part of the filing.

    The company reported between $10-50 billion in assets and $10-50 billion in debt.

    As part of its filing, SunEdison reports its has obtained a $350MM DIP loan:

    WHEREAS, the Company, as borrower, has requested that one or more potential financing sources (which may include certain lenders or noteholders under certain of the Company’s existing secured indebtedness) (collectively with any agent, arranger and letter of credit issuer under any DIP Facility (as defined below), the “DIP Lenders”) arrange, backstop and/or provide one or more debtor-in-possession superpriority credit facilities, including (i) a new money term loan facility (the “DIP NM TL Facility”), which may include a roll-up of up to $350 million aggregate principal amount of the Company’s existing second lien loans and second lien convertible notes, to the extent required by the applicable DIP Lenders and authorized by the Bankruptcy Court (the “DIP TL Roll-Up Facility”), and (ii) a roll-up or refinancing of the Company’s existing first lien letter of credit facility (up to an amount equal to the full principal amount outstanding thereunder, any unused commitments thereunder and the face amount of issued and undrawn letters of credit thereunder) to provide for the extension and renewal of existing letters of credit (and, to the extent agreed by the applicable DIP Lenders, the issuance of new letters of credit thereunder) and/or additional letter of credit facilities to provide for the issuance of new letters of credit and/or backstop or replacement of existing letters of credit (collectively, the “DIP LC Facility” and collectively with the DIP NM TL Facility and DIP TL Roll-Up Facility, the “DIP Facilities”) subject to exceptions and limitations to be set forth in any orders of the Bankruptcy Court concerning any of the DIP Facilities (the “DIP Financing Orders”);

    http://www.zerohedge.com/news/2016-04-21/sunedison-puts-investors-out-misery-files-bankruptcy
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    Copper mine glut puts brakes on Latin America’s clean-power boom


    The global copper slump is helping to tap the brakes on Latin America’s fastest-growing renewable-energy market.

    Chile, the world’s biggest copper producer, has been adding solar panels and wind turbines for two years to supply power-thirsty smelters that process ore from remote mines in the sun-baked northern desert. But with metal prices half what they were five years ago,  output fell and energy demand slowed. That’s compounding an electricity glut in a self-contained power grid thousands of miles from population centers in the stick-shaped South American country.

    “The first boom of clean energy is over,” said Carlos Barria, a former chief of the government’s renewable-energy division who is now a professor at the Pontificia Universidad Catolica de Chile University in Santiago. “We are going to see fewer new projects.”

    While solar installations will triple this year, reflecting projects financed before the electricity-price slump, banks have pulled back on financing, which means the number of new panels in 2017 will plunge by 66 percent, according to Bloomberg New Energy Finance. For wind turbines, the slump will happen sooner, with installations dropping 62 percent in 2016, after developers added 900 megawatts in the previous two years, BNEF estimates.

    Most of the new capacity has been built in the northern region of a country that stretches more than 4,200 kilometers (2,600 miles) along the Pacific Ocean from Peru to the Southern Ocean of Antarctica. There are no transmission lines to connect electricity generated for the mining industry — which uses a third off Chile’s energy — to the power grid serving the more-populated areas in the central part of the country, or further south.

    Spot electricity in Chile tumbled last year to $104 per megawatt hour, down 34 percent from 2013, Energy Ministry data show. Prices in the regulated market also are falling, fulfilling a pledge by the government to reduce power costs. As recently as October, as more wind and solar plants came online, electricity was being auctioned at $79.30.

    “There is overcapacity in the north of Chile, and the prices are going down,” said Rafael Mateo, chief executive officer of the energy unit at Acciona SA, which already has a wind farm in Chile and is building solar projects in the country. Alcobendas, Spain-based Acciona wants to have 1 gigawatt of renewable energy capacity by 2020.

    Compounding the glut is the mining slump. Too much copper and slowing global demand sent the metal to a seven-year low in January, and several big producers including BHP Billiton Ltd. and Anglo American Plc have reduced operations in Chile. The country’s total production in the first two months of the year were 6.7 percent lower than the same period in 2015, according to the National Statistics Institute.

    More than 70 percent of planned spending on new production is either frozen or under review, and investments over the next decade may reach $40 billion at most, less than the $110 billion expected in 2012, according to the National Society of Mining, known as Sonami. The organization now estimates the industry’s electricity needs will rise by 54 percent in the next decade, down from a forecast of 80 percent in 2014.

    http://www.mineweb.com/news/base-metals-and-minerals/copper-mine-glut-puts-brakes-on-latin-americas-clean-power-boom/
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    Uranium

    German commission eyes 24 bln eur payment for nuclear waste storage-sources


    The commission charged with how to apportion the costs of Germany's nuclear exit wants operators to pay about 24 billion euros ($27.22 billion) into a state-run fund for the end and intermediate storage of radioactive waste, sources familiar with the plans told Reuters.

    The sources said only a minority of the 19 members of the government-appointed commission are in favour of the operators paying more than 26 billion euros.

    The Commission aims to complete its recommendations on Wednesday and make them public, said the sources.

    http://www.reuters.com/article/germany-nuclear-commission-idUSB4N16H012
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    Cameco suspends production at its Rabbit Lake operations, cuts 500 jobs


    Canadian uranium producer Cameco Corp said it is suspending production at its Rabbit Lake operation in northern Saskatchewan, while also reducing production across Cameco Resources' U.S. operations.

    The company said the changes are expected to reduce about 500 positions at Rabbit Lake, and around 85 at the U.S. operations.

    The uranium producer cited continued depressed market conditions that cannot support the operating and capital costs needed to sustain production at Rabbit Lake and the U.S. operations.

    The reduction in headcount will affect long-term contractors, as well as employees, Cameco reported on Thursday.

    "These measures will allow us to continue delivering value to Cameco's many stakeholders and support the long-term health of our company. We will provide assistance to those affected by these decisions", said Cameco President and CEO Tim Gitzel.

    http://www.reuters.com/article/us-cameco-rabbitlake-idUSKCN0XJ01W
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    Precious Metals

    Alrosa first-quarter diamond sales rise 34 pct


    Russian diamond mining company Alrosa's first-quarter sales rose 34 percent year-on-year to 12.1 million carats, the world's largest producer of rough diamonds in carats said in a statement on Thursday.

    But Alrosa's revenue from rough diamond sales climbed a more moderate 18 percent from a year earlier to $1.3 billion after prices for gem-quality diamonds fell 9 percent to $146 per carat. Its output fell 2 percent to 8.2 million carats.

    Alrosa and De Beers, a unit of Anglo American and the world's leading diamond miner in terms of value, produce more than a half of the world's rough diamonds.

    Alrosa has suffered in recent years due to weaker global demand. It posted a loss in 2014 and in 2015 sales dropped 24 percent in carat terms, though a slide in the rouble helped it report a profit.

    In 2015, Alrosa raised its inventories by 8 million carats to 22 million carats to ease pressure on the market and said then that there would be no further increase in 2016.

    To keep inventories unchanged, Alrosa is likely to prioritise volumes of sales over prices this year, VTB Capital said in a recent report.

    The company plans to produce up to 39 million carats of diamonds in 2016, compared with 38 million carats produced and 30 million carats sold in 2015. Its 2016 sales are expected at more than $3.5 billion.

    http://www.reuters.com/article/russia-alrosa-idUSL5N17O3RU
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    Steel, Iron Ore and Coal

    China to strictly control credit for new coal, steel projects


    China will strictly control credit available for new capacity additions in the steel and coal sectors, both of which are suffering from price sapping supply gluts, the government said on Thursday.

    Beijing will also boost state support for the export of steel and coal by encouraging firms to shift capacity abroad as part of its efforts to ease domestic overcapacity, according to a joint statement issued by the central bank and several other government bodies.

    It was unclear whether the government planned to encourage greater exports of the two commodities directly from China.

    The statement said China would "strengthen financing support for enterprises 'going out'", and use loans, export credits and project financing to encourage coal and steel enterprises to build capacity abroad.

    "The details are in line with the government's overall guidelines," said Jiang Feitao, a steel researcher with the China Academy of Social Sciences.

    "China's measures to boost the economy will definitely lift demand and this will be unfavourable for the overcapacity cut."

    "I am also cautious about China's move to shift overcapacity overseas as this doesn't help, and just replaces exports," he added.

    China has been blamed for flooding world markets with cheap steel, putting overseas producers at risk of closure, though analysts say cost disadvantages make a large surge in coal exports highly unlikely this year.

    China is planning to shed 100-150 million tonnes of crude steel capacity in the next five years, and a further 500 million tonnes of surplus coal production, in a bid to tackle huge capacity overhangs that have saddled domestic firms with persistent losses.

    Local governments have been reluctant to force through bankruptcies at so-called zombie coal and steel enterprises amid fears of rising unemployment and a surge in non-performing loans.

    The government has earmarked 100 billion yuan ($15.45 billion) to handle layoffs, and it is also promising to establish mechanisms to deal with mounting debt.

    The government said in Thursday's statement that it would speed up the handling of non-performing loans in the debt-ridden sectors, and extend direct financing to support their restructuring. It would also would work to deal with possible default risks in the two sectors as soon as possible.

    It said banks would use a wide range of methods, including debt restructuring and bankruptcy settlements, to handle the problem, and it would also develop pilot projects aimed at securitising non-performing loans.

    http://www.reuters.com/article/china-overcapacity-idUSL3N17O2DY
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    South Korea Mar met coal imports soar 67pct on mth


    South Korea imported 3.05 million tonnes of metallurgical coal in March, including coking coal and PCI coal, surging 66.8% from February and up 2.07% on year, according to the latest customs data.

    Of this, coking coal imports stood at 2.29 million tonnes, 3.1% higher than the year-ago level.

    The highest volume of imported coking coal in March was 1.17 million tonnes from Australia, rising 69.57% on month, but dropped 16.41% from the year before.

    Coking coal imports from Canada stood at 437,300 tonnes in the month, slumping 15.64% on year.

    South Korea imported 50,600 tonnes of coking coal from China in March, rising 31.39% year on year, and almost doubling the volume of February.

    Shipments from Russia to South Korea stood at 254,700 tonnes, up 41.27% from the same month of 2015; while the US exported 251,600 tonnes in March, more than tripling the February tonnage.

    The Asian country imported 754,100 tonnes of PCI coal in March, up 28.96% month on month, but down 0.93% on the year.

    Australia was the largest PCI coal supplier to South Korea in March at 421,900 tonnes, down 24.53% on year, followed by Russia at 207,700 tonnes, up 127.5% year on year, and China with 65,700 tonnes, surging 83.06% from a year earlier.

    Meanwhile, data showed that in March, South Korea imported 39,600 tonnes of coke and semi-coke, up 63.24% from February and rising 71.58% on the year— mainly from China (36,300 tonnes, up 57.37% YoY), Russia (3,298 tonnes, compared with zero in the same month last year); and Germany (20 tonnes, flat on year).

    http://en.sxcoal.com/0/144732/DataShow.html
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    Rally takes iron ore close to $70 a tonne



    Iron ore has risen again with the key steel-making ingredient now trading close to $70 a tonne – a level last seen at the end of 2014.

    Benchmark Australian ore for immediate delivery into China was quoted by the Steel Index at $68.7 a tonne on Thursday, up $4.40 or 6.8 per cent on the previous session.

    It has now risen 60 per cent since the start of the year and is the best performing major commodity outpacing silver, gold and oil, much to the surprise of analysts and traders,writes Neil Hume in London.

    Thursday’s advance came as Chinese steel prices enjoyed another big day of gains, rising nearly 9 per cent to their highest level since September 2014.

    China is not only the world’s biggest producer of steel but also the largest consumer of iron ore, which is mixed with coking coal and limestone in a furnace to make pig iron. This is later turned into steel.

    Steel reinforcement bars, widely used in construction and seen as a good proxy for Chinese demand, hit $430 a tonne on Thursday. Restocking, seasonal demand and tighter supplies following a string of closures last year are said to be behind the increase in steel prices.

    But rise in Chinese steel prices and the demand for iron ore has still left many industry participants scratching their heads.

    The head of BHP Billiton in Australia — home to its major iron ore mines — said he did not expect the rise in prices to hold for more than a few months because more supply is set to hit the market.

    “As you see more low cost volume come to market, here in Australia as well as elsewhere, you would expect that prices would not be sustained as these high levels,” said BHP’s Mike Henry.

    Overnight, Murilo Ferreira, the chief executive of Vale, said the company was aiming to become the biggest supplier of iron ore to China, with plans to increase shipments to 250m tonne a year from 180m with new supply coming from its new mega project S11D.

    Iron ore is a major source of profits for BHP and Vale and rivals such Fortescue Metals Group and Rio Tinto. Analysts at UBS estimate a $10 move in the price of iron ore impacts net earnings at Rio by $1.7bn.

    http://www.ft.com/fastft/2016/04/21/rally-takes-iron-ore-close-to-70-a-tonne/?ftcamp=published_links%2Frss%2Fmarkets_commodities%2Ffeed%2F%2Fproduct&utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+MasterMetalsNews+%28MasterMetals+News+Feed%29&utm_term=MasterMetals
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    Severstal first-quarter core earnings fall 53 pct


    Severstal, one of Russia's biggest steel producers, said on Thursday its first-quarter core earnings fell 53.2 percent year-on-year, showing the impact of a steep drop in world steel prices.

    Steel prices reached their lowest level in the last ten years at the end of 2015 and the beginning of 2016, Severstal, controlled by billionaire Alexei Mordashov, said in a statement.

    The decline in prices was only partially offset by a positive effect from a depreciation in the rouble, which decreases producer's costs in dollar terms.

    Severstal's earnings before interest, taxation, depreciation and amortisation (EBITDA) fell to $273 million. Analysts, polled by Reuters, expected earnings of $279 million.

    Its net profit fell 19.6 percent to $270 million, which took into account a foreign exchange gain of $175 million. Adjusting for non-cash items, Severstal's underlying net profit totalled $99 million.

    Two-thirds of Severstal's revenue, which fell 28.3 percent to $1.1 billion, came from Russia, hit by low oil prices and Western sanctions.

    Russian steel demand could fall almost 10 percent this year due to lower construction activity, Severstal said, citing the World Steel Association's forecast. It also said increasing protectionist trends globally would continue to put pressure on export deliveries and margins.

    http://www.reuters.com/article/russia-severstal-results-idUSL5N17O1EI
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    POSCO says China steel prices to steady; cautious on oversupply


    South Korea's POSCO, the world's No.5 steelmaker, said China's steel prices were unlikely to extend their gains after a recent sharp rally, and cautioned that rising output in a world market flush with supplies could dampen any recovery.

    Steel prices in China have soared 60 percent so far in 2016, given a pick-up in seasonal demand after the Lunar New Year break and the shutdown of some plants in 2015 when prices plunged for a sixth year. But the rally is now prompting more output to come online in the top producing nation, leading to worries over the sustainability of the price trend.

    At a conference call after POSCO reported a smaller-than-expected drop in its first-quarter operating profit, executive vice president, Son Chang-hwan, said: "Prices are unlikely to extend gains, but are expected to remain at the current levels should demand hold up and supply is well-controlled."

    Currently there is a massive supply glut in the global steel market due to soaring cheap shipments from China as well from other countries, such as Japan and South Korea.

    Recently, India's Tata Steel put its British operations up for sale, blaming the move that leaves thousands of jobs at risk on the flood of cheap Chinese supplies.

    The United States and European Union have called for urgent action to address this crippling overcapacity, after China and other major steel producers failed to agree on measures to tackle the industry crisis earlier in the week.

    "Although China steel prices are rising, the market is in substantial oversupply. If output continues to rise, the market would deteriorate eventually," POSCO's Son said on Thursday.

    As of now, however, POSCO is reaping the benefits of a "faster-than-expected" recovery in steel prices.

    POSCO's first-quarter operating profit fell 10 percent to 659.8 billion won ($581.89 million) from a year ago, beating a consensus forecast for a drop to 611 billion won from 14 analysts compiled by Thomson Reuters I/B/E/S.

    While revenue fell 18 percent to 12.46 trillion won in the quarter, net profit grew 5 percent to 352.5 billion won.

    POSCO may cut its dividend this year to invest in future growth, senior executive vice president Choi Jeong-woo said.

    POSCO, which has been selling some of its affiliates under chairman Kwon Oh-joon amid the global steel sector crisis, said it expects to improve its finances by about 4 trillion won this year by restructuring some of its units and assets.

    http://www.reuters.com/article/posco-results-idUSL3N17O2DK
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    150,000 steel workers to be resettled in Hebei Province


    Thursday. The province, China's largest steel production base, will close 60 percent of its steel plants by 2020 to cut overcapacity and reduce pollution. Photo: AFP

    Up to 150,000 steel workers will be laid off in China's largest steel producing province, Hebei, as part of the country's determination to reduce over-capacity and upgrade industries, provincial authorities said.

    But they added that all the affected workers will be properly resettled, and no one has been left jobless.

    Song Limin, Deputy Chief of Hebei's Development and Reform Commission, told a press conference in Handan, North China's Hebei on Thursday that 100,000 would need to be resettled in the next five years.

    "In the process of industry transformation and upgrading, all affected workers have been properly taken care of, through reassignments or transfers to other companies," Song said.

    Amid the international economic slowdown, China is going through a painful period of economy restructuring, including reducing excess lower-end industrial capacity. As a result, more than a million workers may need to be laid off nationwide, Premier Li Keqiang's said in March.

     According to a report released by the Hebei government on Thursday, during the 12th Five-Year Plan (2011-15), the province cut the capacity of the iron industry by 34 million tons, 41 million tons in the steel industry, 138 million tons in the cement industry, while reducing the use of coal by 27 million tons.

     "In the Handan Iron & Steel Group, employment and production are relatively stable, and the employees have mainly been reshuffled, such as being transferred from major positions to minor ones like logistics or services, or on rotation in different positions," Cao Ziyu, a member of the Standing Committee of the CPC Handan Committee, and Executive Vice Mayor of Handan, said Thursday.

    Meanwhile, the Handan government announced that the city will reduce the capacity of the iron industry by 16.14 million tons and the steel industry by 12.04 million tons.

    The Beijing Youth Daily reported in March that according to Hebei Governor Zhang Qingwei, 60 percent of steel companies would be closed or merged by 2020.

    "In Handan, the number of steel companies has been reduced from 35 in 2012 to 22 by the end of 2015," Cao said.

    Cutting overcapacity in sectors like coal and steel is part of the country's supply-side structural reform and high on the government agenda, the Xinhua News Agency reported.

    According to the Ministry of Human Resources and Social Security, in the process of cutting excess capacity in the steel and coal industries, 1.8 million workers will be reassigned and resettled, people.com.cn reported in March.

    In February, the State Council issued a guideline that no new coal mines will be approved before 2019 and that the country will shut down 500 million tons of capacity and consolidate another 500 million tons in fewer but more efficient mine operators in the next three to five years.

    Song said some of the steel workers would be transferred to non-skilled support positions, and some will be trained and transferred to a tertiary industry. He added instead of liquidating the companies, the government will absorb the employees through mergers and restructuring.

    http://en.chinamining.com.cn/News/2016-04-22/1461288046d76209.html
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