Mark Latham Commodity Equity Intelligence Service

Friday 29th January 2016
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    Oil and Gas


    Vedanta defies commodity price collapse to post surprise profit

    Vedanta posted an unexpected profit in the third quarter as India’s biggest producer of aluminium and copper countered a slump in commodity prices by cutting costs. The shares surged the most in more than three months.

    Group net income slumped to 179.1 million rupees ($2.63 million) in the three months to December 31 from 15.9 billion rupees a year earlier, the unit of London-listed Vedanta Resources said in a statement on Thursday. Analysts projected on average a loss of 1.04 billion rupees. Sales tumbled 23% to 148 billion rupees in the quarter, beating analysts’ estimates of 144.9 billion rupees.

    Shares of Vedanta have slid 25% this month as the rout in commodities from base metals to crude oil and iron ore deepened amid forecasts for the Chinese economy to grow at the slowest pace in a generation. The parent company has cut costs and reduced overall expenditure by as much as 25% to counter the slump while betting on a recovery, chairman Anil Agarwal said last week.

    “In the weak commodity price environment, we remain committed to optimising our operations, leveraging our high quality asset base, and pro-actively managing our balance sheet,” Vedanta’s chief operating officer Tom Albanese said in the statement.

    Vedanta’s total costs fell 12% to 135.4 billion rupees in the quarter, while other income rose 35% to 5.79 billion rupees, the company said. Gross debt stood at 809.52 billion rupees at the end of December, while cash and liquid investments totaled 506 billion rupees, it said. The shares rallied 5.5% to 67.30 rupees by 3:30pm close in Mumbai, the biggest gain since October 12.

    Vedanta’s inability to mine enough bauxite has forced its aluminium smelters to operate below capacity, while courts have limited the amount of iron ore it can mine. Three-month copper prices on the London Metal Exchange fell for a sixth straight quarter to cap a third annual loss in 2015. Aluminium tumbled 19% last year while an index of six metals on LME declined 24%.
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    Sharp decline in US durable goods orders

    New orders for long-lasting U.S. manufactured goods tumbled in December as lower oil prices and softer global demand put more pressure on factories, the latest sign that economic growth weakened significantly at the end of 2015.

    Stock market futures prices turned negative on the news. 

    The Commerce Department said Thursday that durable goods orders declined 5.1 percent last month, likely also weighed down by a strong dollar, after slipping 0.5 percent in November.

    Economists polled by Reuters had forecast durable goods orders, which cover goods meant to last three years or more ranging from toasters to aircraft, falling 0.6 percent last month.

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    Anglo American says fourth-quarter copper production rises 23%

    Anglo American said copper production increased 23% in the fourth quarter, while it also mined more nickel than a year earlier.

    Copper output from its retained operations rose to 181 400 metric tons from October through December, the London-based company said on Thursday. Nickel output increased to 10 500 tons, while coking-coal output increased to 5.5 million tons. Production of platinum, diamonds and iron ore from its Kumba operations in South Africa all declined. Kumba plans to cut about 3 900 jobs as part of plans to reduce costs.

    Global mining company Anglo American produced more iron ore last year after increased production at its Minas-Rio mine in Brazil offset lower output from its Kumba subsidiary in South Africa.

    Production at Kumba Iron Ore fell 7% to 44.9 million tonnes last year while output at Minas-Rio rose to 9.2 million tonnes from 0.7 million tonnes, the company said on Thursday.

    Iron ore is one of the biggest earners for Anglo American, which also produces coal, copper, platinum and diamonds.

    It said annual production of thermal coal, nickel, copper and diamonds all fell last year though platinum output rose 25 percent to 2.3 million ounces as the company ramped up output following strikes in 2014.

    Like its rivals, Anglo is battling with low commodity prices and slowing growth in top copper consumer China.

    Anglo said last month it would sell more assets, suspend dividends until the end of 2016 and whittle its business down to three divisions to cope with severe falls in commodity prices.

    Kumba Iron Ore said on Thursday it would scale back operations, cut costs and planned to reduce jobs at its Sishen mine, the largest iron ore operation in Africa.

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    Manufacturing Depression Enters Uncharted Territory: Caterpillar

    Moments ago Caterpillar reported its latest monthly retail sales statistics and the numbers have never been worse.

    Image title

    Not only is the fourth, feeble and final dead CAT bounce in US sales officially over, with December US retail sales tumbling -10% Y/Y, after "only" a -5% decline in November and hugging the flatline for the past few months, but sales elsewhere around the globe were a complete debacle: Asia/Pacific (mostly China) was down -21%, EAME dropping -12%, and Latin America (i.e. Brazil) continuing its free fall dropping by -36%, but global retail sales just posted a massive -16% drop in the past month, tied for the worst annual decline since the financial crisis.

    Putting the annual drop in context, CAT sales dropped 12% a year ago, another 9% in 2013, and -1% in 2012, or four consecutive years of declines!

    But where the manufacturing depression as seen from the perspective of heavy industrial machinery operator has never been worse is shown in the chart below: CAT has now suffered a record 37 months, or over 3 years, of consecutive declining annual retail sales - something unprecedented in company history,and set to surpass the "only" 19 months of decling during the great financial crisis by a factor of two in January!

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    China Sharpens Efforts to Halt Money Outflow

    China is ramping up efforts to halt a flood of money leaving the country in response to an economic slowdown, moves that risk undermining Beijing’s ambition to elevate the yuan’s profile on the world stage.

    Its latest steps involve curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans and banning yuan-based funds for overseas investments, said people with direct knowledge of the matter.

    The measures, most of which haven’t been publicly disclosed, follow a series of efforts by China’s central bank to discourage investors from betting against the yuan and cracking down on overseas money transfers.

    “They’re sparing no effort to prevent capital outflows,” said a senior Chinese banking executive close to the central bank. “All the measures are the most aggressive I’ve seen in recent history.”

    The central bank, which didn’t respond to requests for comment, also is considering ways to lure money back to the country. Among them: letting foreign residents and companies open longer-term bank accounts.

    The unusual moves come as China burns through hundreds of millions of dollars in foreign exchange reserves to prop up its currency and stem an increasingly vicious cycle of easing credit, weakening currency and fleeing capital. Too much outflow, Chinese officials say, could threaten the stability of the country’s financial system.

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    Brazil Police Widen Petrobras Probe to Offshore Money Laundering

    Brazil’s federal police carried out search and arrest warrants in four cities on Wednesday to probe allegations of money laundering related to a corruption scheme at state oil company Petrobras.

    The latest phase of the investigation, dubbed Car Wash, focuses on offshore operations that sought to conceal proceeds from the corruption scheme, the police said in a statement.

    The corruption scandal rattled Brazil’s business and political elites for the better part of last year with the arrest of leading businesses executives and legislators including the government’s former leader in the Senate, Delcidio Amaral.

    Prisoners from Wednesday’s police raid will be held in the southern city of Curitiba. Federal police are scheduled to hold a press conference at 10 a.m. local time.

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    Iraq Kurds Agree on Independence Vote, Official Says

    Iraqi Kurdish leaders plan to hold a referendum on the region’s independence, an official said on Wednesday, in a move that could lead to the break-up of OPEC’s second-biggest oil producer.

    Massoud Barzani, president of the semi-autonomous Kurdish Regional Government, and other Kurdish leaders have all agreed to hold the referendum, said Kifah Mahmoud, an adviser at the president’s office.

    While they all agreed to hold the referendum, the vote “doesn’t mean independence. It is the decision of the people,” Mahmoud said.

    The Kurds, who historically have resisted control by Arab-dominated governments in Baghdad, are independently developing oil reserves they say may total 45 billion barrels -- equivalent to almost a third of the deposits in the rest of Iraq, according to BP Plc data.

    Saad Al-Hadithi, a spokesman for Iraqi Prime Minister Haider Al-Abadi, said “any unilateral position from any party without coordination or approval will be against the constitution and illegal.”

    The Kurds have been holding back crude produced in their enclave in northern Iraq and exporting it independently since June via a pipeline through Turkey, as they exercise greater control of their own affairs. KRG finances have been eroded by a budget impasse with Baghdad, the collapse in crude prices, and the cost of a war against Islamic State militants.
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    Russia hints at OPEC talks.

    Oil futures surged on Wednesday after Russia indicated there was a possibility of co-operation with OPEC, fanning hopes for a deal to reduce a global oversupply that sent prices to the lowest levels in over a dozen years last week.

    A statement from Russia's energy ministry left the door open to talks with OPEC, moments after the head of Russia's pipeline monopoly said officials have decided they should talk to Saudi Arabia and other OPEC members about output cuts.

    The top non-OPEC producer, Russia has in the past been unwilling to cut oil output, as it battles for market share with OPEC output leader Saudi Arabia.

    "I remain sceptical, at the end of the day, about that happening as the oil producers are looking at the other guy to cut production while maintaining their own levels," Andrew Lipow of Lipow Oil Associates said.

    "I think the geopolitical factors in the Middle East are playing a bigger part in the actual oil production than the statements from energy ministers who'd like to see higher prices."

    Hints of a possible deal between OPEC members and rival producers had already helped oil rally 4 percent on Tuesday.

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    Tesla vs Toyota hybrid. So which actually has higher mpg?

    Losses From Generation To Distribution

    Generation Losses

    This is a table of heat rates for electricity generation. To express the efficiency of a generator or power plant as a percentage, we must divide the equivalent Btu content of a kWh of electricity (which is 3,412 Btu) by the heat rate. The average heat rate for all types of turbines, if you average them together, is about 10,134. This is a rough calculation and does not scale as dispersed.

    Efficiency = [(3,412)/(10,134)]*100 = 33.7%

    This means that 66.3% of the energy in the raw materials themselves are lost due to heat. Think about that! 1,000 kWh worth of fuel dumped into a generator will leave you with 337 kWh of electricity on average!Image title

    Transmission and Distribution Losses

    Electricity needs to make it from the generator to your home. As an electrical engineer who works for an electrical contractor, I can briefly speak to how it works.


    The EIA estimates that approximately 6% of all electricity is lost - 2% for transmission and 4% for distribution - from the generator to your meter. This is due to the real-world inefficiencies of the infrastructure and can vary wildly from state-to-state. Older infrastructure, of course, will likely perform worse. Please note these are US figures - we have some of the most efficient electricity transmission and distribution infrastructure in the world thanks to our rigorous standards - countries like India are estimated to incur losses of up to 30% in transmission and distribution (significant amounts are from theft), so EV's will perform remarkably worse in poorer countries, further lessening their efficiency.Image title

    dding It All Up

    If you've made it this far, we need to calculate the real energy cost of an EV like the Tesla Model S 70, factoring in losses in generation, transmission, distribution and charging.

    Generation Efficiency: 33.7%

    Transmission/Distribution Efficiency: 94%

    Charging Efficiency: 90%

    [[(70)/(0.337)]/(0.94)]/(0.90) = 245.53 kWh

    Because electricity is such an inefficient utility, it actually takes more like245.53 to charge a 70 kWh EV battery. This drops the real efficiency of a Tesla Model S 70 to 0.977 miles/kWh.

    According to the EPA, one gallon of gasoline has an energy equivalent of 33.7 kWh. If a Tesla Model S 70 goes 240 miles on 245.53 kWh of electricity, then we can say a Tesla Model S 70 goes 240 miles on 7.29 gallons of gasoline. In other words, the Tesla Model S 70 gets an equivalent of 32.94 mpg. That is only 58.8% as efficient as a 2016 Toyota Prius Eco for nearly three times the price. ( estimates a 2016 Toyota Prius ECO gets a combined fuel rating of 56 mpg.) Depending on which state you live in, a Toyota Prius could get even better mileage by comparison if your transmission and distribution networks see above average losses, or if your state gets more energy from coal than natural gas, which is less efficient in the generation.

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    Freeport-McMoRan pledges to cut up to $10 billion debt, questions smelter deposit

    Freeport-McMoRan Inc, the U.S. mining and oil group, on Tuesday made its strongest pledge yet to reduce its massive debt, saying it wants to lop off as much as $10 billion through proceeds from a mix of asset sales and joint ventures.

    Freeport also reported a lower-than-expected fourth-quarter loss, and the shares jumped as much as 12 percent.

    At one point, the stock fell on concerns about securing an important Indonesia copper export permit before Thursday's deadline.

    Freeport faces "serious challenges" because of weak copper and oil prices and the massive debt on its balance sheet, Chief Executive Officer Richard Adkerson said on a conference call.

    "We are addressing this seriously and with a degree of urgency and we're very focused on it," he said, mentioning a debt restructuring target of $5 billion to $10 billion for the first time.

    Freeport's shares have tumbled 80 percent in the past year from the double whammy of falling oil and copper prices and $20 billion in debt.

    Credit default swaps showed investors pricing in slightly less risk of a Freeport default after the results. Still, the massive premium demanded to insure Freeport debt implies a better-than-85 percent chance of default within five years.

    Freeport was in talks with a number of parties on joint ventures or sales involving its copper assets, any of which could be sold at the right price, he said.

    The company continues to weigh alternatives for its oil and gas assets.

    Freeport expects to make "significant" progress on debt reduction in the first half of 2016, Adkerson said, but declined to give a time frame for the $5 billion to $10 billion target.

    Freeport, the biggest U.S.-listed copper producer, suspended its annual dividend last year and made cuts to capital spending and copper output.

    Adkerson did not rule out another equity issue but said Freeport was focusing on assetsales and joint ventures.

    Excluding charges of $4.1 billion, Freeport reported an adjusted net loss of $21 million, or 2 cents a share, better than analysts' estimates of a loss of 17 cents.

    Freeport questions Indonesia's demand for smelter deposit


    Indonesia's demand that Freeport McMoRan Inc pay a deposit for a new smelter to continue exporting copper concentrate is "inconsistent" with an agreement reached between the two sides in mid-2014, the firm's CEO said on Tuesday.

    Indonesia's government has said the U.S. mining giant must provide a $530 milliondeposit by Thursday to prevent a possible halt in copper concentrate exports from its massive Grasberg mine in the province of Papua.

    A halt in exports would deal a blow to Freeport's profits and deny the Indonesian government desperately needed revenue from one of the country's biggest taxpayers. It would also buoy global prices of the metal that have slipped 6 percent so far this year on worries over a glut.

    The U.S. firm's six-month export permit for its Indonesian unit is due to expire on Thursday, said Didi Sumedi, an official at the trade ministry, correcting a statement earlier this week that said the deadline was Tuesday.

    "Certain officials with the ministry of energy and mines have suggested that we should continue to pay an export duty and that we should make a sizeable escrow deposit to support the smelter development," Freeport CEO Richard Adkerson said on a call following the announcement of its Q4 financial results.

    "These points are inconsistent with the arrangements that we had worked with the government in mid-2014."

    Those agreements said Freeport must sell the government a greater share of the Grasberg copper and gold mine and invest in domestic processing to win an extension of its contract beyond 2021.

    Adkerson said discussions with the government were ongoing, and he was confident a new export license would be issued.

    Jakarta wants the $530-million deposit as a guarantee

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    US energy leverage

    Image title@zerohedge

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    The man in charge of China's economic data is under investigation

    The man in charge of safeguarding China's economic statistics is under investigation for potential corruption.

    China's Central Commission on Discipline Inspection announced Tuesday that Wang Bao'an, party chief and director of the country's National Bureau of Statistics, is under investigation for "serious violations of party discipline."

    Beijing uses the phrase "violations of party discipline" as a euphemism for graft or corruption.

    The surprise announcement, which is bound to raise new questions about the accuracy of Beijing's economic statistics, came just hours after Wang briefed reporters on the state of China's economy.

    China's economic statistics have come under fire in recent years from analysts and economists who say they are artificially inflated. Some are convinced that China is outright cooking its books. Others debate the accuracy of certain data and point to more meaningful alternatives like electricity consumption or rail freight.

    In the past, criticism of GDP calculations was mostly tied to "GDP worship." One way for officials to get a promotion, be it at the village or provincial level, was to hit -- or exceed -- growth targets, and then send the good news along to Beijing.

    "China does not have an independent statistics bureau," Andy Xie, an independent economist, told CNN last year. "It depends on local governments reporting the numbers from the bottom up, and local governments do have an incentive to distort numbers."

    President Xi Jinping has waged a three-year crackdown on graft since taking office in 2012. The campaign has targeted officials at state-owned companies, as well as top Communist Party officials. The investigations often result in convictions.

    Before leading the National Bureau of Statistics, Wang worked in China's Ministry of Finance and held positions related to tax administration.

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    Freeport-McMoran Posts Q4 Adj-Loss of $0.02/Share

    Freeport-McMoran (NYSE: FCX) reported Q4 EPS of ($0.02), $0.11 better than the analyst estimate of ($0.13). Revenue for the quarter came in at $3.8 billion versus the consensus estimate of $3.89 billion.

    - Net loss attributable to common stock totalled $4.1 billion, $3.47 per share, for fourth-quarter 2015 and $12.2 billion, $11.31 per share, for the year 2015. After adjusting for net charges totalling $4.1 billion, $3.45 per share, for fourth-quarter 2015 and $12.1 billion, $11.23 per share, for the year 2015, adjusted net loss totalled $21 million, $0.02 per share, for fourth-quarter 2015 and $89 million, $0.08 per share, for the year 2015.

    - Consolidated sales totalled 1.15 billion pounds of copper, 338 thousand ounces of gold, 20 million pounds of molybdenum and 13.2 million barrels of oil equivalents (MMBOE) for fourth-quarter 2015 and 4.07 billion pounds of copper, 1.25 million ounces of gold, 89 million pounds of molybdenum and 52.6 MMBOE for the year 2015.

    - Consolidated sales for the year 2016 are expected to approximate 5.1 billion pounds of copper, 1.8 million ounces of gold, 73 million pounds of molybdenum and 57.6 MMBOE, including 1.1 billion pounds of copper, 200 thousand ounces of gold, 19 million pounds of molybdenum and 12.4 MMBOE for first-quarter 2016.

    - Average realized prices were $2.18 per pound for copper, $1,067 per ounce for gold and $48.88 per barrel for oil (including $11.39 per barrel for cash gains on derivative contracts) for fourth-quarter 2015.

    - Consolidated unit net cash costs averaged $1.45 per pound of copper for mining operations and $16.17 per barrel of oil equivalents (BOE) for oil and gas operations for fourth-quarter 2015. Consolidated unit net cash costs are expected to average $1.10 per pound of copper for mining operations and $15 per BOE for oil and gas operations for the year 2016.

    - Operating cash flows totalled $612 million for fourth-quarter 2015 and $3.2 billion (including $0.4 billion in working capital sources and changes in other tax payments) for the year 2015. Based on current sales volume and cost estimates and assuming average prices of $2.00 per pound for copper, $1,100 per ounce for gold, $4.50 per pound for molybdenum and $34 per barrel for Brent crude oil, operating cash flows for the year 2016 are expected to approximate $3.4 billion (net of $0.6 billion in idle rig costs).

    - Capital expenditures totalled $1.3 billion for fourth-quarter 2015 (including $0.6 billion for major projects at mining operations and $0.5 billion for oil and gas operations) and $6.35 billion for the year 2015 (including $2.4 billion for major projects at mining operations and $3.0 billion for oil and gas operations). Capital expenditures for the year 2016 are expected to approximate $3.4 billion, including $1.4 billion for major projects at mining operations and $1.5 billion for oil and gas operations, and excluding $0.6 billion in idle rig costs.

    - In response to further weakening in market conditions in fourth-quarter 2015 and early 2016, FCX today announced additional initiatives to accelerate its debt reduction plans and is actively engaged in discussions with third parties regarding potential transactions. These initiatives follow a series of actions taken during 2015 to reduce costs and capital spending to strengthen FCX's financial position.

    - Since August 2015, FCX has sold 210 million shares of its common stock and generated gross proceeds of approximately $2 billion under its at-the-market equity programs.

    - At December 31, 2015, consolidated debt totalled $20.4 billion and consolidated cash totalled $224 million. At December 31, 2015, FCX had no amounts drawn under its $4.0 billion credit facility.

    Richard C. Adkerson, President and Chief Executive Officer, said, "As we enter 2016, our clear and immediate objective is to restore FCX’s balance sheet and position the Company appropriately to enhance shareholder value in the current market environment. We are responding swiftly and decisively to achieve this objective. Our high-quality asset base provides opportunities for significant debt reduction while retaining a substantial business with attractive low-cost, long-lived reserves and resources that will enable our shareholders to benefit from improved conditions in the future. We achieved several important operational milestones during the fourth quarter while taking aggressive actions to adjust our plans in response to the decline in prices for our primary products.”$0.02Share/11246126.html

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    Correlations become binary: bull or bear?


    If it feels as if the stock market and oil futures are moving in lockstep these days it’s because, to a large extent, they are.

    As oil futures plunged in the first two weeks of the new year to 12-year lows, U.S. equities put in the worst-ever start to a new calendar year.

    The Tuesday price action was no exception. Oil futures US:CLG6 CLH6, +3.07% surged overnight, lifting global equities and sending U.S. stock-index futures sharply higher. As those oil gains started to fade, stocks also lost altitude. As oil turned lower, U.S. equities soon followed suit, giving up gains to trade in negative territory.

    To be a little more precise, Leo Chen, quantitative analyst at Cumberland Advisors, noted that the correlation became very tight after oil fell below $40 a barrel in December. Since then, the contemporaneous correlation between Brent futuresLCOH6, +3.70%  and the S&P 500 SPX, +1.19%  is “unbelievably high” at 91.39% (see chart below), Chen said, in a note.Image title

    That’s pretty close to lockstep, and on par with the correlation between U.S. gross domestic product and the S&P 500, Chen wrote.

    Such a close correlation isn’t the norm. In fact, over a five-year period, the correlation was negative 71.8%—meaning stocks and oil tended to move in opposite directions (see chart below), Chen said. And over the last 20 years, the correlation between the two assets, while positive, is only 25%, he said, citing Barclays data.

    Image title

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    Global stocks fell sharply Tuesday as Chinese markets plunged and oil prices fell back below $30 a barrel.


    Investors sold equities in Europe and Asia and favored traditional havens such as the yen, gold and U.S. Treasurys after the Shanghai Composite plummeted 6.4%.

    “People are scared to death about China,” said John Manley, chief equity strategist forWells Fargo Funds Management.

    Compounding investors’ concerns, Brent crude oil fell 3.5% to $29.43 a barrel, weighing on energy shares, amid concerns about oversupply.
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    Cities across Brazil cancel carnival celebrations because of economic woes

    Rio de Janeiro's Carnival has more than just samba this year as group's pay tribute to Motown, hard rock and even Michael Jackson.

    At least 48 cities in eight states across Brazil have cancelled their carnivals due to the recession, which has eroded municipalities' financial resources, media reports said.

    Nearly 50 cities in the states of Goias, Minas Gerais, Paraiba, Rio de Janeiro, Rio Grande do Norte, Rondonia and Tocantins decided at the last minute to scrap their carnivals to save money needed for other programs, the G1 news Web site said.

    Other cities, the majority of them in the interior of São Paulo state, cancelled carnival celebrations, considered the biggest festivals of the year, electing to use the funds in the fight against dengue, whose cases have spiked in the past year, along with chikunguña and zika cases.

    All three diseases are spread by the Aedes aegypti mosquito.

    Other municipalities in São Paulo are using funds initially intended for carnivals to deal with the damage caused by the recent torrential rains that hit parts of the state.

    Even cities still planning to hold carnivals are scaling back the celebrations due to the severe economic downturn in Brazil.

    Brazil's gross domestic product (GDP), according to analysts, will contract 2.99 percent this year after falling 3.71 percent in 2015, while the inflation rate is expected to top 10 percent.
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    Saudi Arabia can sustain low prices for a long, long time, Saudi Aramco boss says

    LONDON (ShareCast) - (ShareCast News) - Crude oil futures weakened in afternoon trading following remarks from Saudi Aramco chairman Khalid al-Fatih that his country would maintain its investment plans. Saudi Arabia, the world´s main producer of oil could sustain low prices for "a long, long time," al-Fatih told a conference in Riyadh, Bloomberg reported.

    Earlier in the day, the Secretary General of the Organisation for the Petroleum Exporting Countries, Abdalla El-Badri, had called on producers from outside the group to assist in braking the glut of oil around the world.

    Figures showing a 5.6% drop in Chinese diesel use in December and gasoline use at its lowest in two years were seen by some as adding to Monday´s decline in prices.

    As of 18:48GMT front month Brent crude futures were off by 4.1% to $30.92 per barrel on the ICE.

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    As Japan's oil, gas, power use stalls, coal imports hit new record

    Japan's 2015 oil imports fell to the lowest since 1988, reflecting the country's declining population and low economic growth while at the same time its natural gas imports fell for the first time since the Fukushima nuclear disaster.

    Yet in the same year that the world agreed to combat climate change, Japan's utilities continued to increase the use of the cheapest but dirtiest fossil fuel, ramping up coal imports to a record.

    Continuing a steady decline since the mid-1990s, Japan's crude oil imports last year fell 2.3 percent to 3.37 million barrels per day (195.499 million kilolitres), official figures released on Monday showed.

    Similarly, Japan's power generation fell for a fifth straight year in 2015 to 866.26 billion kilowatt hours, the lowest since at least 1998.

    The declines reflect deep changes in Japanese society since an asset bubble burst in the 1990s and its population declines and people change the way they consume energy.

    Young Japanese drive less than their parents, and many new cars are electric-gasoline hybrids, cutting oil demand.

    "The fall in consumption in Japan is mainly down to slower economic growth," said Jeremy Wilcox, managing director of consultancy Energy Partnership.

    "At the same time, increased focus on energy efficiency is really starting to constrain imports," he added.

    "Japan's energy market is entering a new phase.... Utilities are having to become more cost competitive. Running old steam turbine gas and oil units no longer makes sense," said Michael Jones, senior analyst at energy consultancy Wood Mackenzie.

    Japan's changing energy profile has hit LNG the hardest, of which it is the world's biggest consumer, using it mainly for power generation and heating.

    LNG imports fell 3.9 percent to 85.046 million tonnes in 2015 from a record 88.51 million tonnes the year before, marking the first drop in six years and the lowest since 2011.

    LNG usage should fall further as overall energy demand declines and the country reopens nuclear reactors.

    This will put further pressure on LNG prices that have already tumbled by two-thirds to under $6 per million British thermal units since 2014 LNG-AS as supplies soar from newexports from Australia and the United States.

    "LNG demand is getting hit from all sides," Jones said. "Power demand is weak, solar capacity is increasing at breakneck speeds, nuclear capacity is returning, and coal-fired generation is rising."

    As a result, LNG imports are expected to fall to a five-year low of 79.6 million tonnes in the year starting in April, according to the government-associated Institute of Energy Economics Japan.

    Japan's LNG imports surged following the meltdowns at the Fukushima Daiichi nuclear plant in 2011 and the ensuing shutdown of all reactors, pushing utilities to the brink of financial ruin as gas prices surged.

    To save cash, Japan's utilities are increasingly switching to cheap coal.

    In 2000, Japan's coal demand was only slightly bigger than LNG consumption, around 60 million tonnes a year versus some 55 million tonnes for LNG, but gas use has now stalled while coal imports have nearly doubled since then.

    Thermal coal imports rose 4.8 percent to a record 114.145 million tonnes in 2015, the same year as the world reached a climate deal to combat global warming caused in large part by coal burning.

    "The rise in coal imports comes down to economics," said Energy Partnership's Wilcox.

    "The figures are consistent with the government's 2030 basic energy plan which aims to reduce LNG usage and maintain coal," said Tom O'Sullivan of energy consultancy Mathyos Japan.

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    Bernanke: Don't Worry, China's $28 Trillion Debt is a domestic issue

    Bernanke: Don't Worry, China's $28 Trillion Debt is an "Internal Problem"

    The blue ribbon award for ridiculous comment of the day goes to Ben Bernanke who dismissed China's $28 trillion debt pile as an "internal problem" only.

    This revelation came from the Asian Financial Forum held in Hong Kong where Bernanke Downplayed China Impact on World Economy.
    "I don't think China's economic slowdown is that severe to threaten the global economy," said Bernanke at the Asian Financial Forum held in Hong Kong.

    Bernanke argued that the global economy was more troubled by a global savings glut, which had long been a drag on investments.

    Bernanke also said the $28 trillion debt pile facing China was an "internal" problem, given the majority of the borrowings was issued in local currency. According to consultancy McKinsey & Co., government, corporate, and household debt in China had already hit 282% of the country's gross domestic product as of mid-2014.

    Bernanke said the correlation between different markets is higher than that between markets and the economy. He pointed out that worldwide market selloffs in times of distress was natural due to global asset allocations. "The U.S. and China are not as closely tied as the market thinks," Bernanke said.

    Contrary to Bernanke's views on the global impact of a Chinese slowdown, the IMF said in its latest World Economic Outlook Update released on Tuesday that "a sharper-than expected slowdown in China" was a significant risk that would bring "international spillovers through trade, commodity prices, and waning confidence."
    Savings Glut Question

    Actually, I have to ask: Which is more ridiculous: Dismissing $28 trillion debt as an "internal problem" or proposing $28 trillion debt is indicative of a "savings glut"?

    Mike "Mish" Shedlock

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    Moody's puts 175 commodity firms on review over bleak outlook

    Moody's has placed 175 oil, gas and mining companies on review for a downgrade due to a prolonged rout in global commodities prices that it says could remain depressed for some time.

    Warning of possible downgrades for 120 energy companies, the rating agency said there was a "substantial risk" of a slow recovery in oil that would compound the stress on firms already pummelled by a 75 percent drop in prices since June 2014.

    It said it was likely to conclude the review by the end of the first quarter which could include multiple-notch downgrades for some companies, particularly in North America.

    Moody's also cut its oil price forecasts. In 2016, it now expects the global benchmark Brent crude and the West Texas Intermediate (WTI) crude, the North American benchmark, to average $33 a barrel. This marks a $10 a barrel cut for Brent from its previous forecast and a $7 a barrel reduction for WTI.

    Both contracts are expected to rise by $5 a barrel on average in 2017 and in 2018.

    The sweeping global review includes all major regions and ranges from the world's top international oil and gas companies such as Royal Dutch Shell and France's Total to 69 U.S. exploration and production (E&P) and services firms.

    It nevertheless does not include the two top U.S. oil companies ExxonMobil and Chevron.

    "We see a substantial risk that prices may recover much more slowly over the medium term than many companies expect, as well as a risk that prices might fall further," Moody's said.

    "Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows," it said.

    Oil, gas and mining companies have been forced to cut thousands of jobs, scrap new projects and slash spending.

    Rival credit rating agency Standard & Poor's signalled in an interview on Friday that oil-exporting countries also face fresh downgrades and that it could repeat last year's move when it made a big group of cuts all at once.

    Multi-notch downgrades are particularly likely among issuers whose activities are centred in North America, where natural gas prices have declined dramatically along with oil prices, Moody's said.

    Moody's also placed 55 mining companies on review for downgrade as they battle a slump in commodity prices due to oversupply and slowing growth in China.

    "Moody's believes that this downturn will mark an unprecedented shift for the mining industry. Whereas previous downturns have been cyclical, the effect of slowing growth in China indicates a fundamental change that will heighten credit risk for mining companies."
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    Oil and Gas

    Iranian oil tanker leaves sea storage fleet for China

    An Iranian oil tanker sailed from Iran headed for China, becoming the second ship in days to be despatched from the country's floating storage fleet, Reuters ship tracking showed on Thursday.

    The Sinopa tanker - capable of carrying a maximum of 1 million barrels of oil - left Iranian waters bound for the Chinese port of Dalian, the data showed. The sailing comes after the larger Serena, which can carry up to 2 million barrels of oil, left for South Korea around Jan. 15.

    A tanker tracking source confirmed the Sinopa had left and was likely to be carrying condensate, a very light grade of crude.

    Earlier this month, international oil sanctions imposed on Iran were lifted, although the pace of exports is likely to be slower than Tehran expected partly due to difficulties in securing insurance especially for foreign tankers.
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    Glencore storing crude?

    Glencore Plc is said to be storing oil on ships off the coast of Singapore and Malaysia as a market structure known as contango allows traders to benefit from holding on to supplies for sale later.

    The commodities trader has at least 4 very large crude carriers, each of which can hold about 2 million barrels, floating at sea off the nations’ coast in Southeast Asia, people with knowledge of the matter said, asking not to be identified because the information is confidential. When a market is in contango, prices for supplies today are lower than those in future months, allowing traders with access to stored crude to potentially lock in a profit.

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    BG shareholders give Shell's $52 bln acquisition final nod

    BG Group shareholders overwhelmingly approved Royal Dutch Shell's $52 billion takeover on Thursday, clearing the way for the two firms to create the world's biggest trader of liquefied natural gas (LNG).

    BG will now merge with Shell on Feb. 15, nearly two decades after the company was born from British Gas and just a few months after it reached record oil and gas output thanks to new projects in Australia and Brazil.

    At a meeting in London, 99.53 percent of BG shareholders voted in favour of the merger, a day after 83 percent of Shell's shareholders approved the deal first announced on April 8 last year.

    Shell shareholders are putting their faith in CEO Ben van Beurden's decision to focus the Anglo-Dutch company's operations in liquefied natural gas (LNG) and deep water oil production over the coming decades as the industry undergoes one of its worse downturns in decades.

    Low oil prices will remain a challenge for the combined company in the short term, however, as crude has fallen 75 percent over the past 18 months to around $30 a barrel.

    While the oil price is expected to stage a gradual recovery, Shell has said the combined group needs crude to be above $60 a barrel to break even.

    "I very strongly believe in what Shell is trying to do long term ... The idea that they try to specialise in their strengths being deepwater and LNG is absolutely the right thing to do," BG Chairman Andrew Gould told reporters.

    The acquisition will boost Shell's oil and gas production by 20 percent and bring it closer to challenging the world's top international oil company ExxonMobil.

    Combined, Shell and BG will overtake Chevron as the world's second-biggest publicly-traded oil and gas company measured by market value.

    Shell has promised to find $3.5 billion from cost savings and overlaps by 2018, from various areas including its corporate, administrative and IT operations.
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    Oasis Petroleum raises stock to fund lowered capex for 2016

    North Dakota oil producer Oasis Petroleum Inc launched a new stock offering to partly fund its 2016 capital expenditure of $385 million-$435 million, even though its budget is about 30 percent lower than last year.

    Oasis said on Thursday it would offer 34 million shares, with a 30-day option for underwriters to purchase an additional 5.1 million shares.

    Based on Wednesday's close of $5.32, Oasis can raise as much as $208 million from the offering, including the underwriters' option.

    Oasis Petroleum shares fell as much as 15 percent in premarket trading to $4.51. The stock has more than halved in the past year.

    The company said it expects to produce 46,000-50,000 barrels of oil equivalent per day (boepd) in 2016, compared with 50,477 boepd last year.

    About 60 percent of Oasis's oil output has been hedged at an average price of $53.36, the company said in a statement.
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    Oil Spikes On Confusion Whether Saudis Propose 5% Production Cut

    Headline hockey continues in the energy complex as earlier confirmation of a pending OPEC meeting possible in February has seen more color added, via Reuters, that Saudi Arabia made a proposal that OPEC members cut production by a maximum of 5%. There remains confusion however as Bloomberg reports simply that Russian energy minister has said they "may discuss it," as opposed to being a specific proposal.


    Headlines about "oil production cuts" are the new "Greece is saved" trial balloon.

    Following today's dizzying surge in crude oil on speculation by the Russian energy minister that the Saudis have proposed a 5% supply cut, which was subsequently trimmed to merely a statement that a "meeting may be called where a production cut could be discussed" we asked how long until the denial:

    The answer: 15 minutes when the following rejection hit:


    And now that the squeeze is over, oil can resume tumbling.
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    Kremlin says 'nothing tangible' yet on possible coordination with OPEC

    The Kremlin said on Thursday that the situation on oil markets was being actively discussed among producers, but that there was "nothing to talk about in a tangible sense" when it came to possible coordination with the OPEC group.

    "It is too early to talk about the outcome of these active discussions," Dmitry Peskov, a Kremlin spokesman, said of the talks about what action, if any, oil-producing countries might take to boost low prices.
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    Penn West cuts 2016 capex by 90 pct, sees 30 pct lower output

    Canadian oil and natural gas producer Penn West Petroleum Ltd cut its 2016 capital budget by as much as 90 percent from a year earlier, to weather a steep plunge in crude oil prices.

    The company, which cut its capex to C$50 million ($35 million), said it expects to produce 60,000-64,000 barrels of oil equivalent per day this year, about 30 percent lower than its 2015 production estimate.

    Penn West had cut its 2015 capital budget three times, eliminated about 35 percent of workforce in September and stopped paying dividend from October.

    "Given the present state of the commodity price environment, our 2016 capital budget reflects the reality of living within our means at current price levels and managing thebusiness on a week-to-week basis," Chief Executive Dave Roberts said in a statement on Thursday.

    Penn West said it continued to be in talks with potential buyers to divest non-core assets.

    The Calgary-based company said proceeds from any asset sale would be used to cut debt rather than to fund capital program.

    Up to Wednesday's close of 98 Canadian cents, Penn West shares had more than halved in 12 months on the Toronto Stock Exchange.

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    Valero Energy's profit falls on lower refining margins

    U.S. refiner Valero Energy Corp reported a 74 percent decline in quarterly profit, hurt partly by lower refining margins.

    Net income attributable to Valero's stockholders fell to $298 million, or 62 cents pershare, for the fourth quarter ended Dec. 31, from $1.16 billion, or $2.22 per share, a year earlier.

    Operating revenue fell 33 percent to $18.78 billion.
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    Russia-Saudi-OPEC Deal> CNBC

    The chances of a deal between Russia and OPEC are viewed as very slim, despite an intraday spike Thursday in crude prices on talk of a proposed production agreement.

    "There's nothing new. It's another part of a stream of news that comes out of Russia and there's no indication that the Saudis have any desire to do anything," said Edward Morse, global head of commodities research at Citigroup.

    News services reported that OPEC and producers from outside the cartel would meet to discuss production cuts. There was also a report that Russian Energy Minister Alexander Novak said Saudi Arabia had proposed each country cut oil production by 5 percent to support prices. 

    Read MoreWhy oil glut not going away soon

    Dow Jones later quoted a senior Gulf OPEC official as saying that the Saudis did not ask Russia to cut output by 5 percent. The official also said the proposal was an old suggestion from Algeria and Venezuela.

    Read MoreWhy Russia and Saudi could cut output

    "I really don't think that has any legs. I don't expect we will see any talks coming from these, and the other reason I think the Saudis would not really pursue this is because the real target of the Saudis is the U.S. shale producers," said Chris Weafer, senior partner at Macro-Advisory in Moscow. "Unless they are also part of an agreement, I can't see Russia or Saudi cutting their own production to help the shale industry."

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    Kinder Morgan to partner with private equity on $3 billion in investment

    Kinder Morgan plans to sell partial stakes in two projects representing $3 billion in investment to private equity groups, executives said Wednesday.

    The deals, which would carve off parts of the planned $2 billion Elba Island liquefied natural gas facility and the $1.1 billion Palmetto refined products pipeline, are part of Kinder Morgan’s push to slash capital spending amid an oil bust that has sharply limited its access to capital.

    In a presentation to analysts Wednesday, Kinder Morgan Chief Financial Officer Kimberly Dang said the company was already in talks with potential partners and was budgeting under the assumption they’d be sharing the cost of the projects.

    Dang also opened the door to cooperating on other joint ventures, saying that Kinder Morgan would shop around some of the planned projects that weren’t directly linked to the company’s core network of pipelines.

    “It’s not going to make sense for projects that are on our existing network,” she said. “It needs to be projects that are stand-alone… and it needs to be projects that are attractive generally to infrastructure funds, because that’s where the most firepower is today.”

    Kinder Morgan’s Elba Island liquefied natural gas plant export project is a $2 billion venture that will put about 350 million cubic feet per day of export capacity on the coast of Chatham County, Georgia. Kinder Morgan expects the project to be completed by 2018 and is currently working its way through permitting.

    Originally, Elba Island LNG was a 51-49 percent joint venture between majority owner Kinder Morgan and international major Royal Dutch Shell. Kinder Morgan bought Shell’s interest in July 2015, though Shell has still hung onto the 20-year contracts for 100 percent of the facility’s capacity.

    The second project Kinder Morgan is shopping around is the $1.1 billion Palmetto pipeline, which would carry gasoline and other products from the northern part of South Carolina through Georgia and into Jacksonville.

    Construction on the pipeline is expected to commence in spring 2016. Kinder Morgan faced regulatory hurdles late last year when Georgia denied the company the permit that would grant the power to use eminent domain to clear the route. Kinder Morgan appealed the decision, and CEO Steve Kean said Wednesday that the company may be able to finish the project without eminent domain. The company would likely wait until there’s more clarity on the permitting issue before signing on a partner, he said.
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    Repsol Books $3.2 Billion Charge as Provision for Oil Drop

    Repsol Books $3.2 Billion Charge as Provision for Oil Drop

    Repsol SA, Spain’s largest oil company, said it will book an impairment charge of about 2.9 billion euros ($3.2 billion) for 2015 as a provision after crude prices collapsed.

    The charge will lead to a net loss of about 1.2 billion euros for the year, Madrid-based Repsol said Wednesday in a regulatory filing following a board meeting. Excluding one-time items, net income of about 1.85 billion euros for the year will surpass the higher end of the company’s estimates, driven by refining profits and a cost savings, Repsol said. Adjusted fourth-quarter net income will rise 20 percent from a year earlier to about 450 million euros.

    As the global oil industry struggles with a price crash, Repsol is faced with the additional task of integrating Talisman Energy Inc., the Canadian oil producer it acquired last year, while also reducing its debt load. Oil this month reached the lowest level since 2003, driving companies globally to cut projects and write down the value of assets.

    Together with the impairment, Repsol also plans to cut investments in 2016 by an additional 20 percent to 4 billion euros, according to the filing. It will also accelerate efforts to seek cost savings from the Talisman assets. The company now identifies potential synergy gains of about $400 million a year, compared with $220 million when Talisman was acquired.

    While provisions are “not a complete shock, we are a little surprised that the impairments already include Talisman," Jefferies Group Plc analysts Marc Kofler and Jason Gammel said in a note to clients Wednesday. The analysts expect all the impairments to be in the exploration and production division.

    For the entirety of its assets, the Spanish company intends to reach synergies and efficiency savings of about 1.1 billion euros this year, or more than 50 percent of the target set through 2018 in its business plan.

    In Wednesday’s announcement, Repsol also said that its fourth-quarter refining margin will probably stand at $7.30 per barrel, compared with $5.50 per barrel a year ago. The margin is a gauge for refining profitability. The company also said production reached an estimated 697,000 barrels of oil equivalent per day in the period.
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    Oil Surges After Russia Says Will Discuss "Possible Production Cuts With OPEC"

    ... one just one piece of news: moments ago both Reuters and Bloomberg cited the CEO of Russia's Transneft, who said that Russia and OPEC will discuss possible output cuts:

    BREAKING: Russia's Transneft says Russia and OPEC will discuss possible output cuts -TASS

    It appears that Russian oil chiefs discussed coordination w/ OPEC at meeting with Energy Minister Alexander Novak, Bashneft head Alexander Korsik, a participant, tells reporters after event. Bloomberg notes that discussions will continue, no decision yet.

    Russia needs to discuss cuts, coordination with OPEC, Transneft CEO Nikolay Tokarev, another participant at meeting said cited by Bloomberg.

    The response: every risk asset is now soaring, tracking the bounce in oil tick for tick. At least until Saudi Arabia issues a statement denying that it has any intention of cooperating with Russia on production cuts.

    For now, however, those record WTI and Brent shorts are feeling the heat.
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    US Oil production drops slightly from previous week

                                                    Last Week   Week Before  Last year

    Domestic Production '000......... 9,221            9,235            9,213
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    Summary of Weekly Petroleum Data for the Week Ending January 22, 2016

    U.S. crude oil refinery inputs averaged over 15.6 million barrels per day during the week ending January 22, 2016, 551,000 barrels per day less than the previous week’s average. Refineries operated at 87.4% of their operable capacity last week. Gasoline production decreased last week, averaging 9.4 million barrels per day. Distillate fuel production decreased last week, averaging about 4.5 million barrels per day.

    U.S. crude oil imports averaged 7.6 million barrels per day last week, down by 170,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.8 million barrels per day, 7.2% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 576,000 barrels per day. Distillate fuel imports averaged 186,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 8.4 million barrels from the previous week. At 494.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 3.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 4.1 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 6.2 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 1.0 million barrels last week.

    Total products supplied over the last four-week period averaged 19.5 million barrels per day, down by 1.7% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 8.7 million barrels per day, down by 2.5% from the same period last year. Distillate fuel product supplied averaged 3.4 million barrels per day over the last four weeks, down by 14.8% from the same period last year. Jet fuel product supplied is up 4.8% compared to the same four-week period last year.

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    Gasoline cargoes sail to Iran, crude exports still tough

    Major oil firms and trade houses are gradually resuming energy trading with Iran but efforts remain very cautious and often face huge legal obstacles, meaning a post-sanctions return to full-scale activity will take weeks if not months.

    Trading sources told Reuters major trading houses Gunvor and Vitol have each delivered several cargoes of gasoline into Iran in the past few weeks. Gunvor and Vitol declined to comment.

    Meanwhile, Swiss trading house Litasco of Russian oil major Lukoil (LKOH.MM) had to cancel a booking of a tanker to transport oil from Iran to Italy in early February due to what trading sources described as ship insurance difficulties.

    Trading sources on Wednesday cited preliminary fixtures being made by Glencore and Total for tankers to lift Iranian crude in February although it was still unclear if the deals had been concluded partly due to insurance issues.

    "It is still very difficult despite the sanctions removal. Dollar clearing is an issue, banks' letters of credit is an issue, ship insurance is an issue. Loads of people are still very cautious," said a senior trading executive.

    Leading shipping players say efforts by Iran to start exporting oil to Europe are being held up as tanker owners are still struggling to secure insurance for cargoes.

    A nuclear deal between world powers and Iran earlier this month led to the removal of European sanctions on the country.

    But many foreign firms remain wary of violating other sanctions that were imposed by the United States and have not been lifted. Measures still in place from Washington prohibit most business between U.S. persons, U.S. companies and Iran as well as no dollar trades.

    Third-party liability insurance and pollution cover for vessels is provided by P&I clubs - marine insurers owned by shipping clients and reinsured internationally. The umbrella International Group of P&I clubs is still unable to confirm payments under re-insurance contracts.

    "Gasoline exports to Iran are a bit easier as tankers are much smaller, insurance is easier and there are banks which are willing to do this as non-dollar transactions," one senior trading source familiar with the matter said.

    Iran is a gasoline importer despite being the third largest producer within the OPEC group as its outdated refining industry cannot meet rising petrol needs in the country.

    The country has continued to import gasoline regardless of sanctions but the biggest names stayed out of the game for the past few years.

    Iran's oil exports have fallen to just over 1 million bpd, from a peak of more than 2.5 million bpd before the imposition of tougher European sanctions in 2012.

    Since the sanctions' removal this month, Iran has ordered a 500,000 barrel per day (bpd) increase in oil output, of which it said some 200,000 bpd will initially go to Europe. Prior to sanctions, Europe was importing as much as 800,000 bpd.

    Greece's Hellenic Petroleum (HEPr.AT) on Friday became the first European refiner to agree to restart crude imports from Tehran and pre-sanctions buyers Italy, France and Spain are expected to follow.

    Oil and gas condensate held by Iran on its domestic tankers in floating storage is estimated by shipping sources to be at least 40 million barrels and the country has said it is keen to offload volumes into the market to boost revenues.

    "It will take weeks if not months to return to full-scale crude exports to Europe. Tonnes of papers will need to change hands between inhouse risk officers, lawyers and banks before the picture is fully clear," said a trading executive involved in the discussions.

    But ultimately oil should flow at full steam.

    "It's just a matter of price. If the price is good, we'll buy it," Marco Schiavetti, director of supply and trading with Italy's Saras said of Iranian oil. "Obviously we will talk to them soon, and we will consider."
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    Spread between Henry Hub, Marcellus natural gas prices narrows as pipeline capacity grows

    Image title

    Natural gas spot prices around the United States are often compared to prices at the Henry Hub in Louisiana. At trading points in and around the Marcellus and Utica shale plays in Pennsylvania, West Virginia, and Ohio, natural gas prices consistently trade below the Henry Hub national benchmark price. However, the difference between these pricing points and the Henry Hub has narrowed in recent months as new pipeline projects have come online.

    Most of the natural gas produced in the region is consumed in other areas of the country. With limited infrastructure to deliver natural gas to consumers, the Marcellus region can quickly become oversupplied, causing prices within the Marcellus region (especially Pennsylvania) to be discounted. In times of high demand for heating in the winter, natural gas spot prices can rise substantially in market areas such as New York and Boston. New infrastructure projects have come online to alleviate the disconnect between prices in producing and consuming areas around the country.

    Although prices in the Marcellus region are still relatively low, trading under $1.50 per million British thermal units (MMBtu), the gap between Marcellus region price points and Henry Hub has narrowed. The price at Transcontinental Pipeline's (Transco) Leidy Hub in central Pennsylvania, for example, averaged 93 cents per MMBtu below the Henry Hub price from December 1 through January 15. In July 2015, this differential was much larger, averaging $1.65/MMBtu for the month.

    Bentek Energy noted that the effect of these new pipeline projects was somewhat limited in November and the beginning of December because of a warm beginning to winter. As heating demand increased in late December and into January, natural gas production in the region increased as well, setting records in December and January, likely because producers had access to new takeaway capacity.

    In the Marcellus and Utica plays, production has grown rapidly over the past several years, and infrastructure growth has not kept pace. This is partly because pipeline projects are costly and may take several years to bring online. As a result, there is a large backlog of wells that have been drilled but won't produce until there is available infrastructure or until the price of natural gas increases. These wells allow Marcellus production to ramp up quickly when new infrastructure comes online. According to Bentek estimates, from January 1 through January 20, natural gas production in the Northeast (which includes production from the Marcellus and Utica) was 17% higher than during the same period in 2015.

    An upcoming Today in Energy article will discuss several new pipeline projects and expansions that have recently begun operation, along with several projects now under development. As these projects and other pipeline expansions come online, the difference between Marcellus region prices and the Henry Hub price should continue to narrow.

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    Hess Reports First Annual Loss Since 2002 Amid Oil Slump

    Hess Corp. reported its first annual loss in 13 years as it cut spending to weather a prolonged slump in oil prices.

    The oil and gas producer posted a net loss of $1.82 billion, or $6.43 a share, in the fourth quarter compared with a deficit of $8 million, or 3 cents, a year earlier, the company said in a statement Wednesday. For the full year, the loss was $3.06 billion. Excluding one-time items, the per-share loss was $1.40, beating the average estimated loss of $1.47 from analysts in a Bloomberg survey.

    Hess will cut spending by 40 percent this year to $2.4 billion as it pulls back in all regions and seeks further cost reductions and efficiency gains, it said Tuesday in a statement. Oil prices have tumbled more than 70 percent from a June 2014 peak.

    “Looking forward, our top priority is to continue to keep our balance sheet strong," said Chief Executive Officer John Hess in the statement. "Our 2016 capital and exploratory budget is 40 percent below our 2015 spend and we will continue to pursue further cost reductions. At the same time, we plan to continue to invest in future growth.”

    The company reduced its estimate of proved oil and gas reserves to 1.086 billion barrels of oil equivalent as of Dec. 31, down from 1.431 billion a year earlier, as a result of lower crude prices and reduced drilling plans.

    The company will hold a conference call with analysts and investors at 10 a.m. New York time.

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    Shell shareholders approve $49 bln BG takeover

    Shareholders of Royal Dutch Shell approved the company's $49 billion takeover of BG Group on Wednesday, clearing one of the final hurdles for a deal that will create the world's biggest liquefied natural gas (LNG) trader.

    As many as 83 percent of shareholders voted in favour and 17 percent against the deal, one of the largest in the energy sector in the past decade.

    BG shareholders will cast their votes in London on Thursday.

    "Our immediate focus is on the successful completion of the transaction and we now await the results of tomorrow's BG shareholder vote," said Shell Chief Executive Ben van Beurden in a statement.

    Over 40 percent of Shell's shareholders also own around half of BG's stock, according to Reuters data.

    If the deal is approved by all shareholders on both sides, the two companies will merge on Feb. 15. Shell will then become the world's most powerful LNG trader and gain access to valuable oil resources offshore Brazil and in Australia.
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    Angola LNG project begins recommissioning

    According to Reuters, the Angola LNG project has started recommissioning. A series of technical faults, and an eventual rupture on the flare line, forced the plant into shutting down in April 2014.

    The project is owned by Chevron, which holds a 36.4% stake, Sonangol (an Angolan state oil firm), which holds a 22.8% stake, as well as Total, ENI, and BP.

    Reuters reports that traders have said that they expect LNG exports from the Angola LNG project to resume by April 2016.
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    Cheniere delays Sabine Pass completion date

    U.S.-based LNG player Cheniere Energy has postponed the completion date for the first liquefaction train at its Sabine Pass LNG export terminal in Louisiana.

    “Actual project progress supports the achievement of substantial completion for Trains 1 and 2 by May 2016 and August 2016, respectively,” Cheniere said in the latest construction report filed with the U.S. FERC.

    These dates are two months later than the company predicted in the November report.

    Houston-based Cheniere has also delayed the first cargo from the Sabine Pass liquefaction project to late February or March 2016.

    The first commissioning cargo from the liquefaction and export facilty in Cameron Parish, Louisiana was initially expected to occur by late January.

    Cheniere also delayed the substantial completion date for the second Sabine pass liquefaction train to August from June.

    Trains 3 and 4 targeted substantial completion dates remained April 2017 and August 2017, “with schedule recovery expected in the summer of 2016 as labor resource is transitioned from Stage 1 onto Stage 2″, Cheniere said in the report.

    Cheniere is building liquefaction and export facilities at its existing import terminal located along the Sabine Pass River on the border between Texas and Louisiana.

    The company plans to construct over time up to six liquefaction trains, which are in various stages of development. Each train is expected to have a nominal production capacity of about 4.5 mtpa of LNG.

    Cheniere’s Sabine Pass liquefaction facility will be the first of its kind to export cheap and abundant U.S. shale gas to overseas markets.
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    Lower prices hits Oil Search bottom line

    Despite reporting strong production in the December quarter, ASX-listed Oil Search reported a 10% decline in revenue for the fourth quarter, on the back of lower oil prices. 

    Total production during the quarter under review reached 7.51-mllion barrels of oil equivalent, which was up 1% on the 7.42-million barrels produced in the previous quarter. The Papua New Guinea liquefied natural gas project delivered 5.73-million barrels of oil equivalent, while the base LNG oil and gas business contributed 1.79-million barrels of oil equivalent. 

    “Following a strong performance from both the PNG LNG project and our operated oil fields during the fourth quarter, 2015 full-year production was 29.3-million barrels of oil equivalent, which was an all-time record for the company and above the top-end of our 27-million to 29-million barrels equivalent guidance range,” said Oil Search MD Peter Botten. 

    The PNG LNG project produced at a yearly rate of 7.6-million tonnes a year, up from the 7.4-million tonnes in the third quarter, and some 10% higher than the nameplate capacity of 6.9-million tones. Despite the increase in production, total revenue for the fourth quarter reached $342.9-million, which was 10% lower than the third quarter, largely owing to the drop in global oil and gas prices. 

    Product sales for the fourth quarter was also 3% lower than the September quarter, owing to timings of liftings. “Oil Search is in the very fortunate position of having a range of producing assets with low operating costs and small sustaining capital requirements. 

    Based on the current cost structure, the company would generate positive operating cash flow even if oil prices fell to $20/barrel,” Botten added. He pointed out that a number of changes had been made to the company’s organisational structure and internal processes in 2015, to improve efficiencies and reduce costs. Further, almost all third-party contracts have been renegotiated or were being reviewed, in line with reduced forward work programmes and current market conditions.

    “Given the recent further sharp decline in oil prices, we are using the information gained through the 2015 business optimisation programme to actively prioritise further cost reduction opportunities across our business. Our overall strategy, however, remains unchanged, with a strong focus on Papua New Guinea, where we have a major competitive advantage, and our high-value growth projects,” Botten said. 

    Given the downturn in oil prices in recent months, the company was also carrying out a review of impairment across all of its assets.
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    API data show U.S. crude supplies jumped 11.4 million barrels

    The American Petroleum Institute late Tuesday reported that crude supplies climbed by 11.4 million barrels for the week ended Jan. 22, according to sources who reviewed the report. The more closely watched EIA report is due Wednesday. On average, analysts polled by Platts show expectations for a crude supply increase of 3.5 million barrels.
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    Continental Resources slashes 2016 budget by 66 percent

    Continental Resources Inc, North Dakota's second-largest oil producer, said on Tuesday it would slash its 2016 capital budget by 66 percent as it tries to preserve cash amid tumbling crude prices.

    Led by billionaire wildcatter Harold Hamm, Continental plans to spend $920 million this year, down from $2.7 billion in 2015.

    The cut comes just after rival Hess Corp (HES.N) and Noble Energy Inc (NBL.N) slashed their own 2016 budgets, adding to a chorus of company executives chanting that the plunge in oil prices has made it all but impossible to turn a profit.

    Oklahoma City-based Continental, for instance, said it would not become profitable until oil prices CLc1 return to $37 per barrel.

    Hamm famously cancelled Continental's oil hedges in the fall of 2014, a bold bet that now appears misguided as the price of crude has only tumbled since then, dragging down Continental's profitability.

    Yet Hamm showed little sign of remorse on Tuesday, betting that oil prices will jump before 2017.

    "We are dedicated to preserving the value of our premier assets and building operational efficiencies in preparation for crude oil prices to stabilize and start recovering later this year," Hamm said in a statement.

    The company does plan to cut its oil output this year by 10 percent from 2015 levels to roughly 200,000 barrels of oil equivalent per day (boe/d), a recognition that it can no longer afford to extract and sell oil from the more-than 1 million acres it controls at depressed prices.

    The largest plurality of Continental's 2016 budget spending will be in North Dakota's Bakken shale, which the company helped make a global oil play.

    Oklahoma's SCOOP shale formation will receive the next-largest share of the budget, followed by other Oklahoma fields and well repair projects.

    Overall, Continental plans to complete 71 wells this year, a sharp drop from 2015. The company said it will delay bringing online most of its North Dakota wells this year, increasing its count of drilled-but-uncompleted wells from 135 in December to 195 at the end of 2016.

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    Noble Energy Cuts Spending, Dividend to Preserve Cash

    Noble Energy Inc. said it will cut spending and investor payouts to save cash as oil has slumped about 70 percent since mid-2014.

    The Houston-based producer is reducing its capital spending program 50 percent for 2016 to $1.5 billion, according to a statement Tuesday. Its quarterly cash dividend will be reduced by 8 cents to 10 cents per common share.

    “The decision to adjust the quarterly dividend, along with a substantially reduced and flexible capital program for 2016, is part of a comprehensive effort to spend within cash flow and manage the Company’s balance sheet,” Chief Financial Officer Kenneth M. Fisher said in the statement. “We also intend to reduce leverage in this environment.”

    The investment level the producer is planning for 2016 is expected to deliver annual sales volumes of approximately 390,000 barrels of oil equivalent per day, which is consistent with the full-year 2015 pro-forma amount, the company said.

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    Canada to set climate change tests in pipeline reviews: Trudeau

    Canadian Prime Minister Justin Trudeau pledged on Tuesday to require that environmental reviews of oil pipelines and LNG export projects consider greenhouse gas effects, and said it was not his role to be a cheerleader for such projects.

    The Liberal government said the new rules would be rolled out within days, and that they would take into account not just the greenhouse gas emissions from a proposed pipeline or liquefied natural gas terminal but also its "upstream" effects, meaning the impact of oil and gas production.

    Trudeau did not make clear how much weight would be applied to the emissions. U.S. President Barack Obama rejected TransCanada Corp's Keystone XL pipeline from Canada last year, citing the effect it could have on climate change.

    "The federal role is to put into place a process by which TransCanada and any other company could demonstrate that their projects are in the public interest and could have public support," Trudeau told reporters after meeting Montreal Mayor Denis Coderre, who opposes TransCanada's Energy East pipeline.

    Energy East would carry 1.1 million barrels of crude oil from Alberta and Saskatchewan across numerous provinces to refineries and export terminals in eastern Canada.

    "What we are going to roll out very soon, as we promised in our election campaign, is to establish a clear process which will consider all the greenhouse gas emissions tied to a project, which will build on the work already done."

    The Liberals have pledged to strengthen Canada's environmental process and have been working on a transition plan for projects currently under review to ensure they adhere to a higher standard without having to return to square one.

    The new rules would apply to major pipeline and LNG projects like TransCanada's Energy East, Kinder Morgan's Trans Mountain expansion and the Petronas-led Pacific NorthWest LNG export terminal.

    Projects with existing environmental certificates and pipelines regulated on a provincial level would not be impacted.

    Ali Hounsell, spokeswoman for the $5.4 billion Trans Mountain project, said it was too soon to comment on the impact of the new rules but added the company would be eyeing changes to timing.

    "When you look at additional process, the key issue for us is timeline," she said. "A small delay in timeline can result in a longer delay on the other end."

    TransCanada said it is prepared to work with government to ensure the "safe and environmentally sound" transport of resources to market.

    Trudeau has promised the new process would give the various levels of government, scientists and indigenous people the opportunity to take part in decision-making.
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    Distress in the Shale Oil Patch Spurs New Type of Joint Venture

    Joint ventures between oil and gas explorers in the U.S. and their foreign counterparts helped fuel the shale boom. They’re coming back in a new iteration for the bust.

    The difference this time: Shale explorers are partnering with Wall Street financiers to raise money for drilling, instead of overseas rivals.

    Typically, private equity firms invest in energy by buying entire companies or providing capital to startups. Last year, U.S. oil and gas companies struck a half-dozen joint venture deals with private equity firms totaling at least $1.4 billion. In December, an affiliate of Fortress Investment Group agreed to provide National Fuel Gas Co. with as much as $380 million to fund wells in Pennsylvania, while Blackstone Group LP’s credit arm closed a similar deal in July with Linn Energy LLC.

    Such transactions could accelerate this year as explorers face a cash crunch amid a rout in commodity prices. They are essentially a source of off-balance sheet financing for producers with good land but less than stellar credit. The way they are structured makes such deals akin to a homeowner renting out a room to keep the lights on.

    “It’s tough times in the oil patch,” said Ron Gajdica, co-head of energy acquisitions and divestitures with Citigroup Inc. in Houston. “The traditional ways of raising money are not available.”

    Joint ventures with private equity firms are fairly complex but have a simple premise. The investor pays for a certain number of new wells in exchange for a temporary majority stake in each well it funds. After booking a specified return, the financier surrenders most of its ownership interest back to the explorer.

    They make sense right now because low commodity prices means producers are facing budget shortfalls, and they’re losing access to other types of funding.

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    Painted Pony announces capital reductions while maintaining forecast production profile

    Painted Pony Petroleum Ltd. is pleased to announce that due to further realized capital efficiencies, the 2016 capital spending program has been reduced by 8% to $197 million from a previous estimate of $215 million. Forecast 2016 production volumes remain unchanged and are expected to average approximately 138 MMcfe/d (23,000 boe/d) with daily production volumes expected to exceed 240 MMcfe/d (40,000 boe/d) by year end 2016. Painted Pony also anticipates a reduction in estimated 2017 capital spending of 15% or $52 million to $298 million from a previous estimate of $350 million. Painted Pony maintains previously forecast 2017 average daily production volumes of approximately 288 MMcfe/d (48,000 boe/d).

    Further Improved Capital Efficiencies

    The efficiencies achieved over the six most recent completions have contributed to a reduction in drilling, completion and equipping costs per well to $5.4 million from previous budget estimates of $5.9 million per well. This reduction is the result of a significant increase in the number of frac stages completed per operational day, reduced water usage, and other efficiencies. Painted Pony has been able to complete the most recent four net wells in three days per well versus the previously estimated four days per well resulting in significant cost savings. The benefits of this operational effectiveness is expected to continue to provide cost reductions going forward.

    As a result of these efficiencies, the Corporation has been able to further reduce its 2016 capital spending forecast to $197 million, which represents a reduction of 31% from the original five-year plan capital spending estimate in early 2015 of $287 million and a reduction of 8% from the 2016 capital budget of $215 million announced in November 2015. Similarly, the lower drilling, completion and equipping costs have positively impacted the Corporation's 2017 capital spending forecast. When combined with reduced infrastructure costs, the revised forecast of $298 million represents a reduction of 31% from the original five-year plan capital spending estimate in early 2015 of $435 million and a reduction of 15% from the 2017 capital spending estimate in November 2015 of $350 million.

    AltaGas Propane Export Facility

    AltaGas Ltd. recently announced plans to build a propane export terminal in the Prince Rupert area at Ridley Island, British Columbia. (Please see AltaGas press release dated January 20, 2016.) As part of Painted Pony's strategic alliance with AltaGas, Painted Pony has the right to be a supplier for a portion of the Ridley Island Propane Export Terminal's capacity. This will allow Painted Pony's propane to access world prices. AltaGas indicated it is working towards reaching a final investment decision in 2016.
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    Hess to Cut Capital Spending 40 Percent on Low Oil Prices

    Hess Corp. said it will cut capital spending on exploration and production this year 40 percent from 2015 to $2.4 billion on low oil prices.

    The New York-based oil and natural gas producer previously said it would spend between $2.9 billion and $3.1 billion in 2016, according to a statement Tuesday. The company affirmed its production forecast of between 330,000 barrels of oil equivalent a day and 350,000 barrels for 2016.
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    Oil Slump Wipes $2.3 Billion Off Dong as IPO Plans Continue

    Dong Energy, the Danish state-backed utility preparing for an initial public offering, said the rout in oil markets will force it to write down the value of a unit that had been the focus of spin-off speculation.

    Dong will write down its exploration and production division by 16 billion kroner ($2.3 billion), but said it will keep the unit as it continues to prepare for an IPO that is due to take place early next year.

    The decision follows a strategic review by JPMorgan of the E&P unit. Several analysts had speculated that Dong’s owners, which besides the Danish state include Goldman Sachs and pension funds ATP and PFA, would opt to spin off the E&P unit in order to offer potential Dong shareholders a company focused on green energy.

    “It’s natural that Dong Energy, as is the case with other companies in the industry, adjusts to the market conditions for oil and gas,” Finance Minister Claus Hjort Frederiksen said in an e-mail.
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    Russia beats Saudis as top China crude supplier for 4th month in 2015

    Russia beat out Saudi Arabia as China's top crude oil supplier for the fourth month in 2015 in December due to robust demand from independent Chinese refiners that prefer shipments from the Far East over high-sulphur barrels from the Middle East.

    Russia strengthened its position in Asia by supplying nearly a quarter more crude to the region in 2015, shifting the balance of power in one of the few bright spots in the global market and blunting the Organization of the Petroleum Exporting Countries' high-profile drive to win customers.

    China is one of the top targets for Russian oil after small, independent oil plants nicknamed "teapots" won the right to import crude for the first time just several months ago and hectically started placing orders towards the end of last year.

    "These new plants were in a rush to use new quotas. But logistically they are not equipped to buy larger shipments from the Middle East or West Africa," said a Beijing-based official involved in marketing Middle Eastern oil.

    "Russian cargoes, like ESPO, suit them."

    China's December imports from Russia hit a record of 4.81 million tonnes, or 1.13 million barrels per day (bpd), up 29 percent over a year ago, Chinese customs data showed.

    Imports from Saudi Arabia, the world's top exporter, were down 1.2 percent on year last month at 1.05 million bpd.

    "It's not quite unexpected that Russia has surpassed Saudi Arabia in becoming the largest crude supplier to China once again. This has been partly driven by greater demand from teapots," said Wendy Yong of FGE Consultancy.

    Russia outpaced most of the top suppliers last year in boosting sales to China, with volumes up 28 percent or nearly 186,000 bpd over 2014, partly attributable to increased sales via the ESPO pipeline and also shipments by rail.

    That compared with Saudi Arabia's 1.8-percent growth last year and the 12.3-percent rise in Iraqi supplies.

    As China's No.2 supplier last year, Russia could further narrow the gap with the Saudis in 2016, as demand is expected to grow from the teapots that have together won 1.45 million bpd in crude quotas, or about 20 percent of China's total imports.

    China, Iran's largest oil client, bought 12 percent less Iranian crude oil in December versus a year ago at 530,600 bpd, taking imports for the whole of last year down 3.1 percent over 2014, according to data from the General Customs Administration.

    The 3.1 percent fall in 2015 imports, averaged at around 532,300 bpd, was largely because of an outage at one of Iran's regular clients, a private petrochemical maker that was forced to shut its plant after a fire in April for safety checks.

    Iran, which emerged from years of economic isolation earlier this month, has extended annual contracts with its top two Chinese buyers - Sinopec Corp and Zhuhai Zhenrong Corp - at steady volumes for 2016, and is discussing ramping up exports with other potential buyers in China.

    Sinopec, Asia's top refiner, and state trader Zhuhai Zhenrong are together contracted to lift around 505,000 bpd of Iranian crude in 2016, roughly half of the Islamic Republic's total current exports.
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    Sichuan gas field delivers its first supplies

    A natural gas project jointly developed by Chevron Corporation and PetroChina Company Ltd delivered its first gas on Monday-a significant move toward increasing domestic supplies of the cleaner-burning fuel.

    The Luojiazhai gas field, also the first phase of the Chuandongbei project in the Sichuan Basin, has an annual production capacity of 3 billion cubic meters, according to a statement by the Chinese oil and gas company, which is the listed arm of State-owned China National Petroleum Corporation.

    Chevron, the American multinational energy corporation, is the operator of the project and holds a 49 percent stake, with PetroChina holding the rest.

    The companies have signed a 30-year deal to develop the tricky sour natural gas field, that contains a high level of hydrogen sulfide, meaning higher risk and standards in the technical processes being used.

    The complexity of the project has meant the gas is coming on stream around eight years later than expected, coupled with what have been a series of disagreements on how to develop the fields.

    Despite the slowing economy, gas consumption in China, the world's largest energy consumer, is expected to hit 205 billion cu m this year, a growth rate of 5 to 6 percent, a report by SCIG said.
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    China Energy Giant Signals Nation's Fuel Oversupply Is Worsening

    Image titleChina Energy Giant Signals Nation's Fuel Oversupply Is Worsening

    China’s biggest energy company predicted the nation’s refineries will increase output in 2016, exacerbating a fuel glut and boosting exports of the surplus to regional markets.

    Net export of oil products -- which strips out imports -- will rise by 31 percent this year to 25 million metric tons, China National Petroleum Corp. said in its annual research report. The country’s refineries will increase oil processing by 5.3 percent while net crude imports will rise 7.3 percent to 357 million tons.

    “China is set to ship record oil products overseas amid its slowing domestic demand,” Jean Zuo, an analyst at ICIS China, said by phone from Guangzhou. “The country will remain enthusiastic for crude imports this year amid low prices and as strategic crude stockpile facilities are due to come online.”

    China exported a record amount of diesel, kerosene and gasoline last year and for the first time shipped more products abroad than it imported amid the slowest economic expansion in 25 years. Meanwhile, its crude purchases increased to a record in 2015 as the world’s second-biggest oil consumer sought to fill its strategic oil reserve and the government allowed small private processors called teapots to buy foreign supplies.

    Teapot Expansion

    The teapots, clustered around the eastern Chinese province of Shandong, will account for the bulk of the increase in oil processing this year as the country’s bigger state-owned processors decrease output, CNPC said in its report.

    "China’s fuel glut is in its worst shape," Dai Jiaquan, director of CNPC’s oil market department, said Tuesday. "This is mainly due to weak demand and fast growth of refining projects in recent years. Now low oil prices have boosted refinery operating rates, especially for teapots, who are snatching market share rapidly from major refineries.”

    The country’s oil consumption will rise 4.3 percent to 566 million tons this year, with imports satisfying 62 percent of total demand, according to CNPC.

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    Iraq's Oil output from central and southern fields exceeded 4.0 mln bbls day in December

    Iraq's oil ministry told Reuters on Monday that the country had record output in December, with its fields in the central and southern regions producing as much as 4.13 million barrels a day. A senior Iraqi oil official said separately the country may raise output even further this year.

    "There's more oil coming into the market, and there's no reason to expect oil prices to go up," said James Williams, energy economist at WTRG Economics in London, Arkansas.

    "If you look at the supply-demand situation, prices have not bottomed. We're probably going to go lower again through March in the absence of an OPEC meeting."

    A preliminary Reuters survey showed on Monday that commercial crude oil and gasoline inventories probably rose last week, while distillate stocks likely fell.
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    Indian state oil refiners plan 1.2 mln bpd plant on west coast

    Three Indian state-run oil refiners will jointly build a 60 million tonnes a year, or 1.2 million barrels per day (bpd), refinery on the country's west coast, the federal oil minister said on Monday, adding the investment for the first phase of the refinery could exceed 1 trillion rupees ($14.8 billion).

    Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd along with another state-run company, Engineers India Ltd, will design for an 800,000 bpd capacity in the first phase of the refinery in Maharashtra state, Dharmendra Pradhan said on Twitter.

    India is seen as the most important driver of energy demand growth in the world in the years to come with its oil consumption seen rising by 6 million bpd to about 10 million bpd by 2040, according to the International Energy Agency.

    Reliance Industries Ltd, controlled by India's richest man Mukesh Ambani, currently operates the world's biggest single-location refinery complex, in the western Gujarat state, with a capacity to process about 1.2 million bpd of crude.

    The planned refinery will produce gasoline, diesel and other products as well as feedstock for petrochemical plants, Pradhan said, adding his ministry would work with the provincial government for early identification of land and finalising project details.

    The minister did not give a timeline for setting up the refinery.
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    Quicksilver Resources announces winning bid for sale of certain US assets

    Quicksilver Resources Inc. and its U.S. subsidiaries announced today that they have successfully completed a Bankruptcy Court-approved auction for their U.S. oil and gas assets located primarily in the Barnett Shale in the Fort Worth basin of North Texas as well as assets in the Delaware basin in West Texas, which are concentrated in Pecos County, Texas and to a lesser extent Crockett and Upton Counties, Texas. The completion of the auction follows a months-long marketing process of all of Quicksilver's and its U.S. subsidiaries' U.S. assets that began in September 2015. At the auction, which was held on January 20 and 21, 2016, Quicksilver and its U.S. subsidiaries declared an all-cash bid from BlueStone Natural Resources II, LLC in the amount of $245 million the highest or otherwise best bid for the oil and gas assets, and the successful bid.

    Regarding the outcome of the auction, Glenn Darden, President and CEO of Quicksilver, said, 'We believe that the marketing and sales process was thorough and resulted in a successful outcome. This sale maximizes value for the benefit of our creditors in the face of difficult market conditions.'

    Quicksilver and BlueStone executed the asset purchase agreement for the sale of the oil and gas assets on January 22, 2016. Quicksilver and its U.S. subsidiaries will seek final approval for the sale from the United States Bankruptcy Court for the District of Delaware on January 27, 2016. Quicksilver and its U.S. subsidiaries intend to continue normal operations pending the consummation of the sale.

    Quicksilver and its U.S. subsidiaries filed voluntary petitions under chapter 11 of title 11 of the United States Code on March 17, 2015, in the United States Bankruptcy Court for the District of Delaware. The chapter 11 cases are being jointly administered under the case number 15-10585. Quicksilver's Canadian subsidiaries were not included in the chapter 11 filing and are not subject to the requirements of the Bankruptcy Code. The assets of Quicksilver's Canadian subsidiaries are not included in this sale, and the sale process for those assets remains ongoing.
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    Exxon Sees Energy Demand Rising 25% by 2040 as Population Grows

    Energy demand will climb 25 percent worldwide by 2040, an increase equivalent to all the power and fuel consumed currently in the Americas, according to Exxon Mobil Corp.

    Crude oil will retain its dominant position among energy sources a quarter century from now as population growth and rising standards of living in much of the world more than offset energy-saving efficiency gains, Exxon said in its annual long-term outlook released on Monday. Demand for natural gas will grow more than any other source and will account for 40 percent of the overall increase, according to the report.

    Oil demand will grow by 20 percent to 112 million barrels a day in 2040, the Irving, Texas-based explorer said. The base year was 2014 for all the figures cited in the report, which Exxon relies on for long-term business and strategic planning. Those crude supplies will come increasingly from shale, oil-sands mines and deepwater fields, Exxon said.

    Venezuela will emerge as a major producer of crude from oil sands in coming decades, the company predicted. Globally, output from oil sands will more than double by 2040, according to the report.

    China and India will account for half of the global increase in demand for all types of energy going forward, Exxon said. Another 30 percent of the worldwide growth will be driven by just 10 countries: Brazil, Mexico, South Africa, Nigeria, Egypt, Turkey, Saudi Arabia, Iran, Thailand and Indonesia, according to the report.

    Coal use for power generation will drop to about 30 percent in 2040, from 40 percent in 2014, while natural gas will pull even with coal. Wind and solar will provide more than 10 percent of the world’s electricity, up from about 4 percent, Exxon said.
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    Lukoil says Russia needs to work with OPEC to limit oil supply

    Russia needs to start working with OPEC to cut oil supplies to the world market to try to support prices, Leonid Fedun, vice-president of Lukoil , Russia's second largest oil producer, was quoted as saying on Monday.

    "In my opinion, if such a political decision is taken, Russia should jointly work with OPEC to cut supply to the market... It's better to sell one barrel of oil at $50 than two barrels at $30," Fedun told TASS news agency in an interview.

    OPEC and Russia, the world's top oil producers, have refused to cooperate to help buoy global oil prices as they were defending their market share from each other and the United States, where shale oil output had taken off over recent years.

    As a result, Brent has fallen to around $31 per barrel from $115 in the middle of 2014, on the oversupply and a weaker Chinese economy, causing shale oil production to decline in the United States.

    Weak oil prices are also hitting Russia's commodity-dependent budget and the rouble, which touched all-time lows of around 86 per U.S. dollar last week.

    OPEC has always said it would agree to cuts if other producers such as Russia joined such a move.

    However, Russian officials have said severe weather conditions do not allow a manageable production cut and that they expected the global market to rebalance on its own after the most costly producers cut output.

    The Russian Energy Ministry has slightly revised down data on oil production in the country in December to 10.80 million barrels per day (bpd) from a preliminary reported 10.83 million bpd, still its post-Soviet high.

    Lukoil Chief Executive Vagit Alekperov told Reuters last week that total oil production in Russia could decline by 2-3 percent this year and possibly more if the government raises taxes.

    Lukoil's own oil output exceeded 100 million tonnes (2 million bpd) last year,the company said earlier.

    It did not give a break down by regions, although energy ministry data showed it was pumping an average of 1.7 million bpd in Russia alone.

    Fedun, a mastermind of Lukoil's expansion abroad, said the company's output was unlikely to remain as high as last year but did not give a figure.

    "The practice of filling the market with cheap oil at any cost is wrong -- half a year or a year later it could be sold at twice as high," he said.

    Fedun added Lukoil was preparing to cut production at its West Qurna-2 project in Iraq.

    "Earlier, the Iraqi government said that they are ready to take out 300,000-500,000 bpd from the market. Our share will be proportional," Fedun told TASS.

    Iraq was pumping an average of 4.2 million bpd in December, according to a Reuters survey, with production at West Qurna-2 last reported at 450,000 bpd.

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    Lithuania negotiates LNG price cut with Statoil

    Lithuania’s prime minister Algirdas Butkevicius informed the LNG supply deal with Statoil of Norway has been amended.

    According to the newly agreed terms, the contract has been extended from five to 10 years while the volume Lithuania will import from Norway increased from 2.7 billion cubic meters to 3.7 bcm. Annual sales volumes will decline from 540 million cubic meters to 350 mcm as Lithuania’s gas consumption declines.

    Dalius Misiunas, head of Lietuvos Energijarevealed that the price was reduced by 15-20 percent. Misiunas hinted at the new deal in November 2015, due to Lithuania’s falling demand.

    The reviewed price is forecast to be in the range between €16-20 per megawatt-hour, closer to the price of gas supplied by Gazprom.

    Lithuania’s gas supply deal with Russian Gazprom expired at the end of last year but the contract left an option for Lietuvos Energija to buy a certain amount of gas from Gazprom in 2016, Misiunas told Reuters following the conference with the prime minister.

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    China Diesel Use Slumps as Natural Gas, Gasoline Demand Gains

    China’s diesel consumption contracted for a second year as its economy shifts away from industrial investment toward consumption-led growth. Gasoline and natural gas demand rose.

    Diesel use in 2015 dropped 3.7 percent from the previous year, National Development and Reform Commission said in a statement on its website. The contraction is greater than the 1.5 percent decline in 2014. Gasoline and natural gas consumption rose 7 percent and 5.7 percent, respectively.

    China’s fuel use reflects divergent economic trends as gasoline demand in the world’s largest automobile market is rising while cooling industrial production damps diesel consumption. Industrial output grew at 6.1 percent last year, the slowest pace on record since at least 1999. China’s total vehicle sales are expected to increase 6 percent this year after rising to a record in 2015.

    “China has adopted an economic development shift away from industrial-intensive drivers toward being more services oriented,”  Lin Jiaxin, a Guangzhou-based analyst with research company ICIS-China, said by phone.“Diesel demand is damped as industrial activities slow.”

    Diesel consumption, a barometer of the country’s industrial activity, will stay flat or fall in 2016, while gasoline use will rise by 200,000 barrels a day, according to an International Energy Agency forecast last month. The country’s diesel exports surged 75 percent last year to a record.

    China’s diesel demand will grow at an average annual rate of 1.3 percent through 2025 as gasoline use expands 6.2 percent, ICIS-China said last week in a report. Gasoline consumption will surpass diesel for the first time in 2024, it said.

    Natural gas demand last year rose 5.7 percent to 193.2 billion cubic meters, the NDRC said Monday. A price cut in November probably helped raise sales at the end of the year, according to Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd., a research company. Consumption during the first 11 months of the year had increased only 3.7 percent, according to Tian.

    “I expected natural gas sales to see a big jump in December, so it helped cover up rather sluggish sales in the first eleven months,” Tian said by phone.

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    Saipem ‘set for large Iranian deal’

    Italy’s Saipem is set to ink a monster pipeline construction deal with Iran as the Middle East oil powerhouse moves to sign contracts with European players following the lifting of sanctions, according to a report.

    The services player is set to be awarded the deal for around 2000 kilometres of pipeline worth between $4 billion and $5 billion, Reuters reported, citing an unidentified source. The seemingly impending deal was not, however, confirmed by Saipem.

    The contract is set to be hammered out imminently as Iranian President Hassan Rouhani touched down in Italy on Monday, leading a 120-strong delegation on a European tour to sign deals.

    In total Italian firms could see deals of up to $18 billion, with Reuters also saying local steel firm Danieli is in line for deals worth up to $5.7 billion.

    Rouhani is meeting with Italian President Sergio Mattarella, Prime Minister Matteo Penzi and Pope Francis on his trip, before heading to France in mid-week, where, among others, deals for aircraft are set to be concluded.

    Upstream reported in July that Saipem and German engineering giants Linde and Siemens were set to be the first to resume business in Iran following the historic nuclear agreement on 14 July. Oil majors are also set to resume upstream operations in the country now that sanctions have been lifted.

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    Halliburton profit better-than-expected on cost cuts

    Halliburton Co, the world's No.2 oilfield services provider, reported a better-than-expected quarterly adjusted profit as deep cost cuts helped offset the impact of a drop in drilling activity.

    Halliburton, like rival Schlumberger Ltd, said 2016 would be another challenging year for the industry.

    Several oil and gas producers have scaled back drilling and slashed capital spending in response to a more than 70 percent fall in oil prices since June 2014.

    Excluding a $192 million impairment charge and costs related to its pending acquisition of Baker Hughes Inc (BHI.N), Halliburton earned 31 cents per share, higher than analysts' average estimate of 24 cents, according to Thomson Reuters I/B/E/S.

    Operating margins in the company's North America operations, which account for more than half of Halliburton's revenue, improved 1.6 percentage points in the quarter ended Dec. 31.

    Chief Executive Dave Lesar said the company, which is awaiting regulatory approval for the Baker Hughes deal, was focused on pending regulatory reviews and divestitures required to alley competition-related concerns.

    Total revenue fell 42 percent to $5.08 billion, including a 57 percent drop in North American revenue, mainly due to weak drilling activity and pricing.

    The net loss attributable to the company was $28 million, or 3 cents per share, in the quarter, compared with a profit of $901 million, or $1.06 per share, a year earlier.

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    China to grant four non-major crude oil refineries import licences

    China is set to grant another four non-major oil refineries licences to import crude, the country's commerce ministry said on Monday.

    The four firms are Shandong Huifeng Petrochemical Group, Tianhong Chemical, and Shandong Chambroad Petrochemicals Co., Shandong Shouguang Luqing Petrochemical Co., the ministry said on its website.

    The four have already obtained quotas to use imported crude oil from the country's economic planning commission.
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    Ophir brings Schlumberger on board Fortuna FLNG

    London-based Ophir Energy revealed on Monday it has partnered up with Schlumberger on the Fortuna FLNG project in Equatorial Guinea.

    According to Ophir’s statement, a non-binding heads of terms agreement has been signed under which Schlumberger will receive a 40% economic interest in the Fortuna FLNG project.

    Last week, Schlumberger joined forces with Golar LNG to develop gas reserves utilizing floating LNG technology.

    A definitive deal is expected to be signed in the second quarter of 2016, prior to the final investment decision, which would see Schlumberger reimburse 50 percent receive a 40% economic interest in the Fortuna FLNG project. This would cover Ophir’s share of capital expenditures up until first sales of LNG, the statement reveals.

    Ophir noted that it also expects to complete a shortlist of the gas off-take offers in the coming weeks.

    Ophir’s CEO Nick Cooper said, “These are tough times for the upstream sector, but this transaction will free up our balance sheet and further increase our financial flexibility.”

    The company predicts its 2016 capital expenditure to be between US$175 million and US$225 million compared to approximately US$250 million in 2015.

    Additionally, the company informed that Tanzania Petroleum Development Corporation has announced the location of the LNG site at Machenga Bay.

    Ophir also expects Shell to assume operatorship of the project upon completion of the Shell-BG Group deal. BG Group formed a partnership with Ophir in 2010 in blocks 1, 3 and 4, offshore Tanzania.
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    Beach flags impairment charge, cuts capex and output guidance

    Australian oil and gas producer Beach Energy on Monday warned of an impairment charge of between A$450-million and A$650-million for the 2016 half year, on the back of lower oil prices. 

    The company also announced a A$60-million reduction in its planned capital expenditure for 2016, to between A$180-million and A$210-million. The company told shareholders that the reduced range reflected savings of about A$20-million achieved in the first half of 2016, and a further A$40-million in reductions and deferrals identified for the remainder of the year. 

    Subject to joint venture (JV) approval, the savings would be achieved through a curtailed operated drilling programme, well inventory management, deferral of the Bauer facility upgrade and noncritical projects, and a reduced capital programme within its South Australian Cooper Basin JV and the South West Queensland JV, which were operated by fellow-listed Santos. 

    “During these challenging times it is extremely pleasing to demonstrate Beach’s ability to live within its means and maintain financial strength,” said acting CEO Neil Gibbins. “Despite lower oil prices over the past six months, we have held our net cash position relatively constant, secured increased debt financing facilities and improved terms, and identified up to A$40-million of second half savings and deferrals in our capital programme.

    ” Operationally, Beach continued to perform well, Gibbins said, adding that production levels were maintained during the second quarter of 2016, giving the company grater confidence in its full-year guidance, while the recent infrastructure projects have delivered results better than expected. 

    Beach on Monday narrowed its full-year production expectations from the previous guidance of between 7.8-million and 8.6-million barrels of oil equivalent, to between 8-million and 8.6-million barrels of oil equivalent.
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    Possible Saudi IPO wouldn’t include oil reserves

    The chairman of Saudi oil giant Saudi Aramco was quoted as saying a possible initial public offering would not include the kingdom’s oil reserves.

    Chairman Khalid al-Falih made the comments to Saudi privately owned broadcaster Al-Arabiya in an interview from Davos, Switzerland. The Dubai-based broadcaster reported the comments Sunday.

    Al-Falih also says the potential share flotation could take place on local or international markets.

    Saudi Deputy Crown Prince Mohammed bin Salman told The Economist earlier this month that the kingdom was considering an IPO involving the Saudi Arabian Oil Co., better known as Saudi Aramco. The company is the world’s largest oil producer.
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    SGX Seeks to Break LNG's Price Link to Oil With Singapore SLInG

    Singapore Exchange Ltd. wants to break the liquefied natural gas market’s reliance on oil as a pricing peg as the city-state seeks to solidify its role as Asia’s energy trading hub.

    The exchange, known as SGX, plans to launch on Monday futures and swaps linked to its index of spot prices for LNG traded in Asia. Final settlement for the contracts will be determined by average weekly assessments gathered from producers, consumers and traders in the physical LNG market.

    Natural gas can be supercooled and liquefied to transport it on tankers between areas difficult to link by pipeline. LNG traded in Asia -- where sellers such as Qatar and Indonesia ship fuel to buyers including Japan or China -- has traditionally been pegged to crude prices. That’s because the region lacks a benchmark similar to Henry Hub in the U.S., which the country’s burgeoning LNG exporters use in sales contracts.

    For Singapore to become Asia’s LNG pricing hub, it will need greater physical supplies and expanded storage facilities in addition to swaps and futures, according to Wood Mackenzie Ltd.

    “When Singapore talks about being a pricing hub, it is talking more about being a physical hub for gas where as a buyer and seller you can put gas in and take gas out,” Gavin Thompson, Wood Mackenzie’s vice president for China and Northeast Asia gas and power, said in an interview. “That price for the physical commodity is then priced into the short-term spot and long-term contracts, potentially the same way Henry Hub is priced into long-term LNG contracts.”

    Divergent Supply

    While both oil and LNG prices have tumbled since 2014, a forecast decrease in global crude output in the medium-term contrasts with LNG’s “tsunami” of new production, according to Adrian Lunt, an associate director of commodities at SGX. These divergent supply situations, and the growing share of LNG in global energy markets, “will likely reveal the increasingly blatant flaws” of pricing the fuel off oil, he said.

    Japan’s Jera Co., a joint venture between Tokyo Electric Power Co. and Chubu Electric Power Co. that’s poised to become one of the world’s biggest LNG buyers, may use the Singapore index in its term contracts, according to the company. Korea Gas Corp. isn’t actively using the index because its not purchasing LNG on a spot basis, according to spokesman Song Kyu Cheol.

    Indian Oil Corp. isn’t planning to use the swaps and futures and prefers indexing its contracts to Brent, said Debasis Sen, director of planning and business development.

    Attached Files
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    SandRidge Energy explores debt restructuring options-sources

    SandRidge Energy Inc is exploring debt restructuring options, according to people familiar with the matter, as the heavily indebted U.S. oil and gas exploration and production company struggles with the fallout from plunging energy prices.

    SandRidge has been in talks with investment banks and law firms about hiring restructuring advisors, and could make an announcement on their appointment as early as this week, the people said.

    Oklahoma City-based SandRidge, which has a debt burden of around $4 billion, has already been reaching out to some of its creditors to inform them that they should work together to prepare for likely negotiations, one of the sources said.

    The vast majority of the company's debt is in the form of bonds owned by a plethora of mutual funds, hedge funds, and other institutional investors. They do not yet have a single representative who could be reached for comment.

    One of the options that the company will consider is a pre-packaged bankruptcy with the agreement of its creditors, the people said. They said that a decision on a way forward is not imminent and that the company has access to enough cash to continue doing business for at least several more months under its current structure.

    Other avenues SandRidge could pursue would include a debt exchange or filing for bankruptcy protection without any agreement with its creditors. It is not clear whether the company currently has a preference for a particular route.

    For months, SandRidge has been caught in a bind, having just enough money to pay interest on its debt, but not enough to drill new wells or replace older ones.

    Mississippi Lime wells typically do not produce as much oil as some other shale formations, and the rock also contains a lot of water, which is costly to haul away.

    After an initially encouraging exploration phase, the shale play has not delivered the low cost production gains that SandRidge and Wall Street analysts expected.

    About 40 energy companies entered bankruptcy in 2015 and more are expected in the next few months as oil prices have dropped by 75 percent since mid-2014.

    As of earlier this month, SandRidge's shares are no longer listed on the New York Stock Exchange, and trade on the OTC Pink marketplace instead with a market capitalization of around $30 million.

    Its bonds are trading at extremely distressed levels, with its Jan. 15 2020 notes at below 5 cents on the dollar.
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    Top Oil Trader Mercuria Sees Market Bottom as Producers Bleed

    The oil market is bottoming after Brent crude, the global benchmark, dropped below $30 a barrel earlier this week, according to one of the world’s largest independent energy trading houses.

    "Oil producers are strained to the limit and some of them are pumping at a loss," Mercuria Energy Group Ltd. Chief Executive Officer Marco Dunand said in an interview at the World Economic Forum in Davos, Switzerland. "We are reaching the bottom of the oil market.”

    Dunand cautioned about expecting a quick recovery, however, saying that companies might “produce at a loss for a short time because the other option -- shutting down -- in some cases is even more expensive.”

    Mercuria is one of the world’s five biggest independent oil traders alongside Vitol Group BV, Glencore Plc, Trafigura Pte Ltd. and Gunvor Group Ltd. The company was founded by former Goldman Sachs Group Inc. bankers Dunand and Daniel Jaeggi in 2004.

    The view of Dunand is more optimistic than others at Davos, including the International Energy Agency, which earlier this week warned that oil markets could “drown in oversupply,” sending prices even lower. BP Plc CEO Bob Dudley said the market was facing a "flood of oil," while Glencore Chairman Tony Hayward said "oversupply" would keep prices around current levels "for some time".

    Dunand said Mercuria was witnessing unusual pain in the market, trading varieties of crude for as little as $10 a barrel while poor-quality fuel-oil sold for virtually nothing.

    Dunand said several factors have driven oil prices down this month, including concern about the return of Iran to the market and economic weakness in China. However, the most important -- and overlooked -- factor was "the drop in forward prices brought about by producer hedging under pressure from banks to extend their loans,” he said.

    Brent futures for delivery in five years have dropped roughly $10 a barrel this year, compared with a drop of $8 a barrel for contracts for immediate delivery.

    Dunand said prices were likely to rise in the next couple of years as the market feels the impact of the belt-tightening the energy industry is undergoing.

    "I think that about $500 billion in production projects had been shelved between 2015 and 2016 -- this would have an impact on future output," he said.
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    Cairn India Net Plunges 99% as Oil Prices Trade Near 12-Year Low

    Cairn India Ltd., a crude oil producer owned by billionaire Anil Agarwal, posted a 99 percent decline in third-quarter profit as oil prices collapsed to near 12-year lows.

    Group net income fell to 86.9 million rupees ($1.3 million) in the three months ended Dec. 31, from 13.5 billion rupees a year earlier, the company said Friday in a stock exchange filing. That fell short of the 2.08 billion-rupee mean of 15 analyst estimates compiled by Bloomberg. Sales decreased 42 percent to 20.4 billion rupees.

    Cairn India, which produced about 27 percent of the country’s domestic crude output during the financial year to March 2015, slashed spending this year and relinquished exploration rights in Sri Lanka as Brent crude dropped. Drillers globally have reduced spending on exploration and deferred new projects amid declining profit and revenue, leading to over a quarter of a million job cuts.

    “These are challenging times for Cairn India as oil prices are low and output from its fields remains flat,” Dhaval Joshi, an analyst at Emkay Global Financial Services Ltd. said before of the earnings. “In the current environment, there is no trigger for the stock unless there’s a revival in prices.”

    The company sold oil at an average price of $35 a barrel in the third quarter, compared with $68.7 a year earlier. The crude decline prompted the oil producer to cut its capital expenditureplans for the year ending March 31 to $300 million from an initialprojection of $1.2 billion.

    The company based in Gurgaon, near New Delhi, had 184.70 billion rupees of cash and cash equivalents as of Dec. 31. Total expenses at Cairn India fell about 4 percent to 22.7 billion rupees. The company produced 202,668 barrels of oil equivalent a day during the quarter. Production from its flagship Rajasthan block was 170,444 barrels a day, according to the statement.
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    Brazil maintains oil price formula for Petrobras royalties

    Brazilian President Dilma Rousseff has approved a resolution to maintain the current system for establishing the minimum price of oil on which royalty payments are paid by state-run company Petroleo Brasileiro SA to local governments.

    The resolution, announced in the official government gazette on Friday, is a victory for Brazil's oil industry, which has been worried by calls to raise its taxes to make up for shrinking royalty revenues in the wake of the collapse in global oil prices.

    The so-called "Brent Dated" index, based on a seven-day rolling average price for crude, will be used up to the price level of $50 a barrel, the National Energy Policy Council said in the government gazette.

    Brent crude has fallen to $31.29 per barrel from a 2015 peak of $67 per barrel. The plunge has dried up government revenues in many oil exporting countries.

    Although not a major oil exporter, Brazil is struggling to curb growth in federal and statespending in the face of falling revenues and a sputtering economy. For states such as Rio de Janeiro, oil revenues are vital to funding public services.

    The bulk of Brazil's oil output is pumped from the Campos Basin off the coast of Rio de Janeiro, which receives the largest share of the royalties.

    The state of Rio de Janeiro recently passed laws to levy new taxes on the oil industry in an effort to shore up the state's accounts. The courts, however, could overturn those laws.
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    Chesapeake Suspends Preferred Stock Dividends

    With Chesapeake Energy hitting its lowest stock price since 2000 earlier this week, it was only a matter of time before US gas giant Chesapeake halted all "discretionary" cash payments, which it did moments ago when it announced it would halt dividend payments on its preferred stock.

    From the release:

    Chesapeake Energy Corporation (CHK) announced today that it has suspended payment of dividends on each series of its outstanding convertible preferred stock effective immediately.

    Doug Lawler, Chesapeake's Chief Executive Officer, commented, "The board and management believe this decision is in the best long-term interest of all Company stakeholders. Today's decision to suspend our preferred stock dividends will allow the company to retain approximately $170 million of additional cash per year and use these funds to purchase debt at significant discounts in the near term. Given the current commodity price environment for oil, natural gas and natural gas liquids, we believe that redirecting this cash toward debt retirement provides better returns for the Company. We currently have senior debt securities trading at significant discounts, and we will continue to take advantage of that within the coming year."

    Suspension of the dividend does not constitute an event of default under the Company's revolving credit facility or outstanding bond indentures.

    We expect many more energy companies to follow in CHK's shoes.
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    Alternative Energy

    Germany's SMA Solar says 2016 operating profit could quadruple

    Germany's largest solar power equipment maker, SMA Solar, said on Friday that its operating profit could quadruple this year due to strong demand for its inverters in markets outside Germany, notably the United States and Britain.

    Its forecasts were not as strong as some analysts had estimated, however, and its shares fell sharply.

    SMA said it expects its earnings before interest and tax (EBIT) to rise to between 80 million and 120 million euros ($87-131 million) this year from 30-33 million in 2015, SMA said as it held its investor day on Friday.

    Analysts polled by Thomson Reuters estimate 2016 EBIT of 114 million euros.

    The company also said it expected sales of between 950 million and 1.05 billion euros this year, broadly flat from last year's 1.0 billion, and below analysts' forecasts for 1.08 billion euros.

    Following years of losses and cost cuts, restructuring has helped SMA emerge from a deep sector crisis that claimed many peers over the past five years. Its turnaround has been factored into its share price, which has more than quadrupled over the past year.

    SMA shares fell more than 10 percent at one point on Friday. They were down 6.2 percent by 0919 GMT.

    Earlier this week, the company unveiled 2015 results that beat its own targets on sales and earnings, returning the business to profitability sooner than expected.

    SMA's inverters are needed to turn direct current into alternating current and feed it into the power grid. Demand has been high as countries around the world accelerate a shift towards renewables and away from fossil fuels.

    Attached Files
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    £1bn biomass plant to bring 1,700 jobs to Anglesey

    Work is set to start on a £1bn combined food and power plant on Anglesey, which will create more than 1,700 jobs.

    The large biomass plant and eco park will be built near Holyhead after the company behind it, Orthios, bought the former Anglesey Aluminium site.

    The development will see more than 500 permanent jobs and 1,200 construction jobs brought to the area before 2018.

    The plant will process waste wood to create power, with heat generated used to farm prawns and grow vegetables.

    It is expected to generate 299MW of electricity, which is enough to power about 300,000 homes.

    Albert Owen, MP for Anglesey, said Orthios Eco Park had the potential "to be a catalyst in giving the local economy a much-needed boost".

    "The company intends to liaise with businesses, training providers and schools in the area - the benefits of which will be seen in the local and regional economy as well as providing career opportunities," he said.

    The plant is one of two planned for Wales - a similar facility will also be built in Port Talbot - after which the technology will be rolled out to China and developing countries.

    The idea is for a biomass power plant generating electricity with spare heat being used to warm indoor ponds for king prawn farming. The UK currently imports king prawns.

    Waste from the prawns can then be used as fertiliser to grow crops.

    Attached Files
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    China’s top five power producers to bet on clean energy in 2016

    China’s top five power producers—China Huaneng Group, China Datang Group, China Huadian Group, China Guodian Group and State Power Investment Group—will continue their efforts on clean energy development in 2016 and afterwards, sources learned from their annual conferences lately.

    It has become an inevitable trend for them to develop clean energies including wind power, photovoltaic power and nuclear power generation, on account of their less environment pollution.

    The State Power Investment will also inject similar energy to transfer into a provider for comprehensive energy services focusing nuclear power business.

    The company ranked the No.1 of the industry both in the profits growth and the share of clean energy in its total energy businesses, which was reported at 40%.

    Power output of the company in 2015 reached 380.79 TWh, with profits at 13.97 billion yuan ($2.12 billion), posting a record high. The newly-added power installed capacity stood at 10.77 GW per year in 2015, boosting the total installed capacity to 107 GW per annum.

    China Huaneng Group saw the power installed capacity from low-carbon clean energy exceed 46 GW per year or 28.8% of the company’s total capacity by end-2015, which was 160 GW.

    China Huadian Co., Ltd witnessed its installed capacity reach 135 GW per year last year, and its total profits during the “12th Five-Year Plan” (2011-2015) posted a tenfold rise.
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    California upholds critical solar policy

    California regulators on Thursday upheld a key policy that makes rooftop solar systems affordable by allowing homeowners to sell the electricity they don't use back to their local utility.

    In a 3 to 2 vote, the California Public Utilities Commission approved a proposal that continues the state's net metering policy, with few changes.
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    Intelligent Energys miniature fuel cell to be used in drones

    CES showstopper Intelligent Energy has signed a Letter of Intent (LOI) with a major drone manufacturer to develop hydrogen fuel cell powered drones. The deal will see the two companies work together in the first quarter of 2016 to develop technological solutions to increase drone flight time. The goal is for the deal to lead to a formal commercial arrangement for the solutions’ rollout.

    “Our embedded fuel cell technology was well received at CES and we have had huge levels of interest from manufacturers so we are, of course, absolutely delighted to be signing our first letter of intent on the back of the show”

    Intelligent Energy was the subject of substantial international interest at CES, which is a high profile international consumer electronics show held in Las Vegas earlier this month, when it unveiled its fuel cells embedded in a range of consumer electronics devices to dramatically increase the flight time between charges. Pain points for drones, particularly for commercial use, are known to be short flight times and long periods of downtime due to battery limitations and recharging. Intelligent Energy showcased its ultra-light weight fuel cell stacks at the event, which it has developed specifically for the drone market, as well as miniaturised fuel cell stacks that can be embedded into smartphones, laptops and notebooks.

    Powering a drone with a hydrogen fuel cell could enable it to fly for hours, as opposed to minutes. Although the exact improvements to flight times will not be known until the production drone is finalised, the expectation is that a fuel cell could more than double or even triple the time a drone could remain airborne. In addition, fuel cells would reduce the downtime significantly as re-fuelling takes a matter of minutes.

    “Our embedded fuel cell technology was well received at CES and we have had huge levels of interest from manufacturers so we are, of course, absolutely delighted to be signing our first letter of intent on the back of the show,” said Julian Hughes, Acting Managing Director for Intelligent Energy’s Consumer Electronics Division. “Major shortcomings to drone development are range and flight time. Using fuel cells to power a drone can markedly increase the flight time. A longer flight time and, therefore, increased range means drones become much more viable for commercial use. We see the signing of this LOI as a very important step to the commercialisation of fuel cells in drones.”
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    Brazil's Gerdau, Japan's Sumitomo, JSW form wind power joint venture

    Brazilian steelmaker Gerdau SA will form a joint venture with Japan's Sumitomo Corp and Japan Steel Works Ltd  to compete in the wind power sector in Brazil, Gerdau said on Wednesday.

    With 280 million reais ($70 million) in investment for new equipment, the joint venture would use Gerdau's mill in Pindamonhangaba in the state of Sao Paulo to supply parts for wind turbines from 2017.

    In the midst of a downturn in Brazilian steel because of a collapse in the construction and auto sectors, Gerdau said the wind power sector in Brazil was set to grow in coming years.

    "We are working to transform Gerdau into a more efficient and more profitable company, considering the current and future challenges in the global steel market," Chief Executive Andre Johannpeter said in a statement.

    Sumitomo and JSW have extensive experience in supplying the wind power industry, Gerdau said. It said Gerdau would have a stake of more than 50 percent stake in the joint venture, which would create 100 jobs.
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    Einhorn's Greenlight seeks sale of solar company SunEdison

    David Einhorn's hedge fund Greenlight Capital said it has been in talks with SunEdison Inc regarding a board seat and that it is looking to sell the solar company's assets or even the company itself.

    SunEdison has been under pressure from investors and hedge funds, including Appaloosa Management LP, who are against the solar company's decision to buy Vivint Solar Inc's assets.

    Shares of SunEdison, valued at about $840 million, rose 1 percent in extended trading on Monday. They have plummeted 91 percent since the Vivint deal was announced in July last year.

    Einhorn had a 6.8 percent stake in SunEdison as of Jan. 15, while Greenlight had a 4 percent stake, according to a regulatory filing on Monday. 

    Greenlight said it held talks with SunEdison between Jan. 15 to Jan. 25 regarding a board seat and changes in the company's senior management team.

    No agreement has been reached, the hedge fund said.

    Einhorn lost 20.6 percent in 2015 as a bet on SunEdison cratered in November, extending Greenlight's losses.

    The Wall Street Journal reported on Sunday that SunEdison would give Greenlight a board seat.
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    Orocobre completes major capital raise

    ASX- and TSX-listed Orocobre has completed an A$85-million capital raise through a share placement to institutional and sophisticated investors. The company on Friday announced that it had placed more than 40.4-million shares, at a price of A$2.10 each

    The issue price represented a 10.7% discount to the company’s five-day volume-weighted average price, prior to a trading halt on January 20. More than 25.3-million shares would be issued under the company’s current capacity, while the balance of the shares would be issued subject to shareholder approval at a general meeting scheduled for February 29.

    Orocobre would use the proceeds of the placement to service financing costs related to the Olaroz project, including principal and interest payments due in March and September this year, and payments to the debt service reserve accounts.

    Meanwhile, Orocobre noted that production ramp up at the Olaroz lithium facility, in Argentina, continued during the three months to December, with the operation producing 1 108 t of lithium carbonate during the quarter. This was an increase of 616 t over the previous quarter.

    A production rate of 20 t/d was achieved towards the end of December, and Orocobre was confident that it could produce between 600 t and 650 t during the month of January.

    Debottlenecking work would also be completed during January, allowing the plant to achieve the operating cost breakeven run rate, and enter the final stages of the production ramp up. The Olaroz project had a nameplate capacity of 17 500 t/y.
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    China on course to meet 2020 nuclear capacity targets -official

    China is on course to meet its target to raise its total installed nuclear capacity to 58 gigawatts (GW) after a resumption in new project approvals last year, an official with the country's nuclear agency said on Wednesday.

    Xu Dazhe, the chairman of the China Atomic Energy Authority, told reporters that China now had 30 reactors in operation, with a total capacity of 28.3 GW. Another 24 units are now under construction, with a total capacity of 26.7 GW, following the approval of eight new reactors last year, Xu said.

    "At this speed, the targets to put 58 GW into operation and have another 30 GW under construction by 2020 are still within our plans," he said at a briefing on nuclear safety.

    Of the total now in operation, 28 are commercial nuclear projects. According to the China Nuclear Energy Association, they generated 169 billion kilowatt-hours of power last year, up 29.4 percent from 2014.

    China suspended new reactor approvals and launched a nationwide inspection of all its nuclear projects in 2011 after a massive earthquake and tsunami sparked meltdowns at an ageing nuclear plant in Japan's Fukushima.

    While some countries have vowed to phase out their nuclear reactor fleet as a result of safety concerns and growing public opposition, China is now embarking on the world's biggest nuclear construction programme as part of its efforts to ease its dependence on coal.

    China also aims to become a leading global reactor builder, and has signed preliminary agreements with countries such as Argentina and Romania to export technology, including its flagship "Hualong I" reactor design.

    Chinese state nuclear firms are also set to help finance a controversial reactor at Britain's Hinkley Point after signing a deal with France's EDF last year.

    Two of China's key advanced reactor projects - the world's first Westinghouse-designed AP1000 at Sanmen in Zhejiang province and an Areva EPR reactor at Taishan in Guangdong province - have been repeatedly delayed due to safety concerns.

    Similar EPR units in Flamanville in France and Finland's Olkiluoto are both years behind schedule. Xu said that despite the delays at Taishan, construction was still the fastest of all the world's EPRs.

    "Why has it been delayed? Because safety has been put in an important position," he said. "As soon as there is a problem, we must resolve it and carry out follow-up work."
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    Potash Corp's profit misses estimates, slashes dividend

    Potash Corp of Saskatchewan reported a lower-than-expected quarterly profit and slashed its quarterly dividend, hurt by weakening fertilizer prices.

    Potash prices have fallen sharply over the past year, under pressure from bloated capacity, soft grain prices and weak currencies in major consumers such as India and Brazil.

    "Weaker fertilizer prices late in the year reduced our earnings for the quarter, giving rise to a more cautious outlook for all three nutrients as we begin 2016," Chief Executive Jochen Tilk said in a statement on Thursday.

    The company forecast 2016 earnings of 90 cents to $1.20 per share. Analysts on average were expecting $1.33, according to Thomson Reuters I/B/E/S.

    The world's biggest fertilizer company by capacity said average realized price for potash fell 16 percent to $238 per tonne in the fourth quarter, while nitrogen prices fell 29 percent to $288 per tonne.

    Net earnings fell to $201 million, or 24 cents per share, in the quarter ended Dec. 31, from $407 million, or 49 cents per share, a year earlier

    Revenue decreased nearly 29 percent to $1.35 billion.

    Analysts on average expected earnings of 30 cents per share and revenue of $1.44 billion, according to Thomson Reuters I/B/E/S.

    The company lowered its quarterly dividend by 34 percent to 25 cents per share.

    Attached Files
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    China to delay signing potash contracts

    As prices continue to slide, China may hold off on signing potash deals until April and rely on its own stockpiles of the fertiliser.

    The country, which is the world’s largest potash consumer, has enough stockpiled material to tide it over for the time being, allowing it to defer agreements with major potash producers, including Uralkali PJSC, Belaruskali...
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    DuPont forecasts higher 2016 earnings, helped by cost cuts

    DuPont forecast higher 2016 earnings, helped by aggressive cost-cutting to offset continued pressure from a strong dollar and weakness in its farm business.

    The company forecast full year operating earnings of $2.95-$3.10 per share, including an expected benefit of 64 cents per share from its cost cutting and restructuring plan.

    DuPont and Dow Chemical Co (DOW.N) are in the process of a merger that would create a company with an estimated combined market capitalization of about $130 billion as of Dec. 11, when the deal was announced. The companies plan to then break up into three separate standalone businesses.

    "Our merger process is on track," DuPont Chief Executive Edward Breen said on Tuesday.

    "We are meeting key milestones and have begun our planning to create three strong, highly focused, independent businesses in agriculture, material science and specialty products."

    The company reported a quarterly profit of 27 cents per share, excluding items, that slightly beat analysts' average estimate of 26 cents.

    However, including restructuring and other charges of $622 million, the company reported a quarterly net loss.

    Net loss attributable to the company was $253 million, or 29 cents per share, in the fourth quarter ended Dec. 31, from $683 million, or 74 cents per share, a year earlier.

    Net sales fell 9.4 percent to $5.3 billion.
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    Putin says government looks into export duties on mineral fertilisers

    Russia's government is looking into introducing duties on exports of mineral fertilisers to make them more affordable for the country's farmers, President Vladimir Putin said on Monday.

    Meeting his loyalists from the pro-Kremlin public movement, The All-Russia People's Front, Putin heard compalints from a farmer saying that massive exports of mineral fertilisers meant Russia's agricultural producers were forced to buy pricey fertilisers for hard currency.

    "As for such a measure as raising export customs duties, yes, it is one of the solutions, and it is also being studied now," Putin said during a visit to the region of Stavropol in southern Russia.

    "But according to the estimates by the agriculture ministry and the industry ministry, it may not lead to the desired result."
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    Precious Metals

    Something Snapped At The Comex

    There had been an eerie silence at the Comex in recent weeks, where after registered gold tumbled to a record 120K ounces in early December nothing much had changed, an in fact the total amount of physical deliverable aka "registered" gold, had stayed practically unchanged at 275K ounces all throughout January.

    Until today, when in the latest update from the Comex vault, we learn that a whopping 201,345 ounces of Registered gold had been de-warranted at the owner's request, and shifted into the Eligible category, reducing the total mount of Comex Registered gold by 73%, from 275K to just 74K overnight.

    Image titleThis took place as a result of adjustments at vaults belonging to Scotia Mocatta (-95K ounces), HSBC (-85K ounces), and Brink's (-21K ounces).

    Meanwhile, the aggregate gold open interest remained largely unchanged, at just about 40 million ounces.
    Image title
    This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the "coverage ratio" that shows the total number of gold claims relative to the physical gold that "backs" such potential delivery requests, - or simply said  physical-to-paper gold dilution - just exploded.
    Image title
    As the chart below shows - which is disturbing without any further context - the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday's close there was a whopping 542 ounces in potential paper claims to every ounces of physical gold. Call it a 0.2% dilution factor.


    To be sure, skeptics have suggested that depending on how one reads the delivery contract, the Comex can simply yank from the pool of eligible gold and use it to satisfy delivery requests despite the explicit permission (or lack thereof) of the gold's owner.

    Still, the reality that there are just two tons of gold to satisfy delivery requsts based on accepted protocols should in itself be troubling, ignoring the latent question why so many owners of physical gold are de-warranting their holdings.

    Considering there are now less than 74,000 ounces of Registered gold at the Comex, or just over 2 tonnes, we may be about to find out how right, or wrong, the skeptics are, because at this rate the combined Registered vault gold could be depleted as soon as the next delivery request is satisfied. Or isn't.

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    China Dec gold imports through Hong Kong highest since 2013

    China's net gold imports for December via main conduit Hong Kong surged to the highest in more than two years, data showed on Tuesday, as investors lost faith in collapsing stock markets and a weakening currency and snapped up bullion.

    Net gold imports by China, the world's top consumer, jumped to 129.266 tonnes last month from 79.003 tonnes in November, according to data emailed to Reuters by the Hong Kong Census and Statistics Department.

    That was the highest monthly number since October 2013 when imports stood at 131.190 tonnes.

    As China's equities slumped and its yuan currency finished 2015 with a record yearly loss, "people looked at other investment alternatives that's why there was huge demand for gold," said Brian Lan, managing director at gold dealer GoldSilver Central in Singapore.

    China's gross gold imports via Hong Kong reached 152.158 tonnes in December, the highest since March 2013.

    For all of 2015, China's net gold imports rose to 861.7 tonnes from 813.1 tonnes in 2014.

    China's gold imports this year might approach the all-time high of 1,158.16 tonnes hit in 2013, said Lan, but are unlikely to top that.

    "We expect to see a pickup in the China market especially in the first quarter. (This year) will be better than the past two years but is unlikely to beat 2013 when there was a big crash in prices," said Lan.

    Spot gold ended a 12-year rally in 2013, with prices tumbling 28 percent, and the values have fallen further in the two following years to their lowest levels since 2010.

    Gold touched a 12-week high on Tuesday of $1,117.60 an ounce, benefiting from safe-haven bids as stocks and oil tumbled again.

    China does not provide trade data on gold, and the Hong Kong figures serve as a proxy for flows to the mainland.

    The Hong Kong data might not provide a full picture of Chinese purchases as imports through Shanghai and Beijing, for which no data is available, gathered pace last year.
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    Harmony guides 3rd consecutive quarter of increased production

    Harmony Gold Mining Company Limited (‘Harmony’ or ‘the Company’) is pleased to advise that it continued to increase its gold production for a third consecutive quarter. Underground grade was up close to 7% and overall gold production was 2% higher quarter on quarter.

    Newly appointed chief executive officer, Peter Steenkamp, commented: “The production teams kept their momentum, with the majority of the operations delivering both higher kilograms and higher grades.  Combined with the current higher R/kg gold prices, the past quarter has been very rewarding for Harmony.”

    The company reports second quarter and half year results to the end of December on the 4th of February.
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    Petra Diamonds H1 revenue falls 28 percent

    Diamond miner Petra Diamonds Ltd said its first-half revenue fell 28 percent as the price of diamonds continued to fall.

    Revenue for the six months to Dec. 31 fell to $154 million from $214.8 million a year earlier, the company said in a statement.

    The price of rough diamonds fell about 9 percent, hurt by slowing demand for the precious stone.

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    Base Metals

    BHP Billiton set to fund Aston Bay's Storm copper project

    The Canadian arm of mining giant BHP Billiton (BHP.AX) has signed a letter of intent to help fund exploration at Aston Bay Holdings Ltd's (BAY.V) Storm copper project, Aston Bay said on Thursday.

    Under terms of the preliminary deal, BHP could earn a 75 percent interest in Storm, located in Canada's far north territory of Nunavut, if it spends a minimum of C$40 million on exploration over the next few years.

    Vancouver-based Aston Bay, a small exploration company, will have no required exploration expenses for four years from the date a definitive agreement is signed. The two sides expect to finalize a deal in the second quarter, said Aston Bay.

    A definitive deal would be a huge boost for Aston Bay, which like many of its small peers has seen its share price pummeled amid the rout in commodity prices. The price of copper CMCU3 continues to languish around levels not seen since the tail end of the financialcrisis in 2009.

    Such earn-in agreements allow mining majors to secure stakes in promising early-stage projects for relatively limited up-front risk. They were fairly common when metal prices soared through much of the last decade, but have become rare in the last few years for both base metal and precious metal assets.

    The latest move by BHP comes close on the heels of similar moves by rival Rio Tinto which recently inked similar deals involving the copper assets of two Canadian juniors.

    The developments indicate the majors are beginning to be concerned about their long-term copper project pipeline as supply-demand fundamentals in the commodity remain fairly tight despite the slide in the price of copper.

    In November, Avala Resources Ltd  announced an earn-in agreement with Rio on its Lenovac project, located in Serbia, coming days after Rio signed a similar deal with Reservoir Minerals Inc on its Timok Magmatic Complex in Serbia.

    Both assets are located near the promising Cukaru Peki deposit in Serbia, part of a joint venture Reservoir has with Freeport-McMoRan Inc. That deposit has shown promising results, leading to heightened interest in the region.
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    Freeport Indonesia’s export permit expires without extension

    Freeport-McMoRan’s export license in Indonesia, allowing the US copper producer to ship concentrates from its Grasberg mine, has expired without extension, said Bambang Gatot Ariyono, director general of minerals and coal at the Energy & Mineral Resources Ministry.

    The government is waiting for the company to give a detailed response to requests regarding the permit, Ariyono told reporters in Jakarta. Freeport had asked for a license to ship 1 million tons over the next six months. The miner’s existing permit was set to expire on Thursday.

    The Phoenix-based producer is struggling to contend with the collapse in metals prices. Moody’s Investors Service lowered its credit rating four levels to junk on Wednesday, while chief executive officer Richard Adkerson has said he would consider selling any operation, in full or in part, to weather the slump. The company’s stock is down 75% in the past year, compared with a 30% average decline among peers tracked by Bloomberg.

    Indonesia has asked for a $530 million deposit toward building a new smelter in exchange for prolonging the permit, a request that Adkerson said this week was inconsistent with the company’s previous understanding with the government. Ariyono didn’t elaborate on the issue on Thursday.

    Energy and Mineral Resources Minister Sudirman Said told reporters on Wednesday that the government’s priority was to ensure operations continue so that the local economy is unaffected. He said the money would be proof of Freeport’s commitment to the smelter, as the government bids to reap more value from the nation’s mineral trove.

    Freeport, which mined $2 billion of copper and $1.4 billion of gold in 2014 from Grasberg, also wants to extend its contract to operate in Indonesia. That expires in 2021, and the company has agreed to sell shares as part of the negotiation. An Indonesian official said this month that Freeport had offered the government an 11% stake in its local unit for $1.7 billion. Freeport confirmed an offer had been made though it didn’t give details.

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    China's MMG output plan for Peru copper mine tops forecasts

    China's MMG Ltd flagged on Thursday that its $10 billion new copper mine in Peru was set to ramp up production faster than some analysts had expected, which could weigh on copper markets already mired at more than six-year lows.

    MMG, the Melbourne-based arm of China's state-owned Minmetals Corp, said it expected to produce 250,000 to 300,000 tonnes of copper in concentrate at the Las Bambas mine in 2016.

    That's well above two analyst forecasts for up to 200,000 tonnes this year from the project, which shipped its first cargo earlier in January and is set to be the world's third largest copper mine when it reaches full capacity.

    Worries over a global supply glut have hit copper markets hard, with benchmark London prices falling 27 percent since the start of last year to their lowest since mid-2009.

    "At this stage, it is expected that commercial production will be achieved during the second half 2016," MMG said in its quarterly report.

    The company expects production costs at the mine to be between 80 and 90 cents a pound once it reaches a steady state.

    MMG produced a total of 207,528 tonnes of copper in 2015, up 8 percent on the previous year from its mines in Australia, Laos and the Democratic Republic of Congo, and expects output to more than double to between 415,000 and 477,000 tonnes in 2016, thanks to Las Bambas.

    Annual output of zinc in concentrate fell 16 percent to 392,667 tonnes in 2015, as the Century mine in Australia came to the end of its life, but that beat the top end of MMG's forecast of 370,000 tonnes.

    Production costs for zinc were 47 cents a pound in 2015, well below the company's forecast of 60-65 cents a pound.

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    Indonesia, Freeport in last-ditch talks to prevent halt in copper exports

    Indonesia's government and Freeport McMoRan Inc are meeting on Thursday in last-ditch talks to prevent a halt in exports of copper concentrate from the U.S. mining giant's massive Grasberg mine in the province of Papua.

    A halt in exports would deal a blow to Freeport's profits and deny the Indonesian government desperately needed revenue from one of its biggest taxpayers. A stoppage would also buoy global copper prices that have slipped 3 percent so far this year on worries about oversupply.

    Freeport's six-month export permit for its Indonesian unit expires on Thursday but it is still unclear how soon a new one will be issued as the two sides have yet to resolve a government demand that the U.S. firm first pay a $530-million deposit.

    "There has been no information whatsoever from Freeport that states whether they are able to pay or not," Mohammad Hidayat, the mine's ministry director of minerals, told reporters on Thursday.

    "If an export permit extension is not issued today, that means that starting from the 29th they cannot export any more."

    Energy Minister Sudirman Said said he was certain the government would approve the export permit and was open to negotiations with Freeport on the $530 million deposit.

    "They are trying hard to fulfil requirements but asked us to consider the global commodities condition and their financial condition. Let's seek a solution together," Said said.

    Freeport officials were not immediately available to comment on Thursday. The company has previously said it was confident it would obtain a new export license.

    Jakarta wants the half-a-billion dollar deposit as a guarantee that the Phoenix, Arizona-based company will complete construction of another local smelter. The amount would add to an estimated $80 million that Freeport set aside in July 2015 to obtain its current export permit.

    Said said if Freeport does not want to provide the deposit, the company must offer an alternative to demonstrate their commitment to expanding Indonesia's smelter capacity.

    Freeport CEO Richard Adkerson said late Tuesday the government's demand for a smelter deposit was "inconsistent" with an agreement reached between the two sides in mid-2014.

    According to those agreements, Freeport must sell the government a greater share of the Grasberg copper and gold mine and invest in domestic processing to win an extension of its mining contract beyond 2021.

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    Aurubis earnings hit by weak copper scrap market

    Aurubis, Europe's biggest copper smelter, expects to post weaker than forecast first quarter earnings as a result of poor copper scrap availability and low precious metals output.

    Low copper prices mean that dealers collect less of the scrap Aurubis buys to process into new metal.

    Analysts had expected Aurubis to deliver first quarter pretax profits of 56 million euros. Thecompany said on Wednesday that its operating pretax profit slipped to 36 million euros ($39 million) in the quarter to the end of December 2015 from 39 million a year ago.

    Aurubis said in an advance release of its results that its full-year earnings guidance from December of a decline in operating pretax profit for the current financial year through to the end of September was still realistic.

    The company, which is due to release its first quarter results on Feb. 10, said good treatment and refining charges for copper concentrates, a high cathode output with "satisfactory" cathode premiums and good sales on the wire rod markets had a supported its results, as did the strength of the dollar.

    Copper ore treatment and refining charges (TC/RCs) are paid by miners to smelters to refine concentrate into metal and are a key part of the global copper industry's earnings.

    Copper prices tumbled to their lowest since May 2009 on Jan. 15, pressured by a slide in oil prices and losses in Chinese equity markets.

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    China's Copper, Zinc Imports Jump to Multiyear Highs in December

    China’s imports of copper and zinc surged last month as buyers took advantage of low prices and used the metals to hedge currency risk.

    The world’s biggest consumer of metals imported the most refined copper since at least 2008, while zinc shipments rose to the highest since May 2009, according to data from the country’s customs administration. China took in more material as prices slumped to the cheapest in more than six years and the country’s currency weakened.

    Purchases of copper increased 34 percent from a year earlier to 423,181 tons, while imports of zinc rose more than 441 percent to 94,434 tons, a volume not seen since the world was emerging from the financial crisis.

    Inbound shipments of refined nickel climbed more than sixfold in December to 34,506 tons, while they rose 125 percent for the full year to 292,095 tons.

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    Freeport yet to pay Indonesia smelter deposit as export deadline looms

    Freeport McMoRan Inc has yet to pay a $530 million deposit for a new Indonesian smelter, which the government is demanding before renewing the U.S. company's export permit for copper concentrate, a mines ministry official said on Tuesday.

    Freeport, which has seen its stock plummet over 70 percent in the last three months as commodity markets plunge, could be forced to halt concentrate exports from its massive Grasberg copper and gold mine in the province of Papua if it fails to meet government obligations.

    Freeport executives are expected to discuss the issue with the government on Tuesday.

    "So far, there has been no update," Bambang Gatot Ariyono, director general of coal and minerals in the ministry, told Reuters. "We still don't know yet whether to ban (Freeport's exports) today or not."

    A trade ministry official has said the U.S. company's export permit expires on Tuesday and that a six-month renewal would not be issued until the deposit was submitted.

    Officials from Freeport, which later on Tuesday will announce its financial results for the last quarter of 2015, were not immediately available to comment.

    A halt in exports would deal another blow to Freeport's profits, while denying the Indonesian government desperately needed revenue from one of the country's biggest taxpayers.

    Freeport, under pressure from activist investor Carl Icahn, has struggled to reduce its $20.7 billion of debt and announced in October it would cut production globally.

    Under normal conditions, Freeport Indonesia produces about 220,000 tonnes of copper ore per day, of which about a third usually goes to its domestic smelter at Gresik, with the rest exported as concentrate.

    Any reduction in exports could help buoy copper prices that have dropped around 6 percent so far this year on worries over a global supply glut. London copper was trading at $4,440 a tonne in Asia on Tuesday, below Friday's two-week high of $4,484.

    The $530 million deposit is intended to be a guarantee that the Phoenix, Arizona-based company will complete construction of another local smelter, which the government hopes will boost returns from its natural resources.

    The amount would add to an estimated $80 million that Freeport set aside in July to obtain its current export permit.

    "It is unlikely for Freeport to not pay that deposit, they certainly want to export so they will negotiate," said Helen Lau, analyst at Argonaut Securities in Hong Kong.

    A prolonged interruption to the Papua mine would impact about 24,000 people working at Grasberg, which could lead to unrest in a region where Indonesia's government is trying to increase economic activity.

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    Vedanta Resources' Lisheen mine makes final shipment

    Jan 25 Diversified mining and energy company Vedanta Resources Plc said its Lisheen mine in Ireland made its final shipment last week, completing planned closure of the site.

    Vedanta Resources, which also produces copper, coal, aluminium, lead, iron ore, and oil, said mining activity at the zinc and lead mine had stopped in November.

    The mine's closure, which was announced last April, will further tighten the supply of the metal used to galvanise steel.

    The zinc market has tightened after last year's output cuts by Glencore Plc and the closure of the Century mine in Australia.

    Vedanta Resources said Lisheen typically produced about 300,000 tonnes of zinc concentrate annually. The mine produced 150,000 tonnes of mined metal in 2015.

    Lisheen employed 360-400 people at full production, the company said.
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    Chinese tin producers jump on the cutback bandwagon

    Chinese tin producers jump on the cutback bandwagon

    China's main tin producers have joined the cutback bandwagon with an announcement they will curtail 17,000 tonnes of output this year.

    As with similar announcements by Chinese producers across the base metals spectrum, there may be more to this apparent self-discipline than meets the eye.

    But the cuts, if implemented, will help tighten further a market already facing structural supply issues even before the latest cross-commodities pricing rout.

    Proof of that tightness comes in the form of chronically low stocks in London Metal Exchange (LME) warehouses and the resulting persistent stress in nearby time spreads.

    China is the world's largest tin producer and the nine entities that have pledged to cut output account for around 80 percent of the country's output and 40 percent of global output, according to industry body ITRI.

    The 17,000 tonne cutbacks would represent a 12 percent drop from 2015 production levels and are equivalent to 4-5 percent of global output.

    But, as with similar coordinated cutbacks announced in other parts of the Chinese metals sector, these ones are in essence a cry for central government help.

    The tin market, according to the nine producers, "is detached from fundamentals", for which read, "the current low tin price is not our fault, it's the fault of speculators".
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    Lundin Mining Announces 2015 Production Results and Guidance

     2015 Highlights:

    Exceeded the high-end of annual production guidance for copper and nickel while meeting overall targets for zinc.
    Candelaria outperformed the most recent copper production guidance due primarily to higher than expected mill throughput in Q4.
    At Candelaria as previously announced, the successful exploration and mine plan optimization efforts resulted in total Mineral Reserves increasing by approximately 20% and resulted in the extension of the mine lives of all of the higher grade underground mines as well as the open pit.
    Zinkgruvan achieved new annual records relating to tonnes of ore mined and milled. Annual zinc production also constituted a new record for the operation.
    As at year end 2015, the Company had a net debt balance of $441 million, and did not have any amounts drawn on its $350 million revolving credit facility.

    2016 Capital Expenditure and Exploration Guidance

    Capital expenditures for 2016 for mines operated by the Company are expected to be $220M, which includes:

    $35M in capitalized stripping at Candelaria. This has significantly decreased from prior estimates due to a deferral of 30Mt of waste being mined from Phase 10, resulting in expected cost savings of approximately $65M in 2016.
    At Candelaria spending on the Los Diques tailings facility is expected to amount to $70M in 2016. The total capex budget for the project is expected to total $325M between 2016 and 2018, in-line with prior estimates.
    At Eagle sustaining capital costs are expected to total $10M in 2016, which represents a decrease of 50% compared to 2015 guidance levels.
    At Neves-Corvo capital costs in 2016 are expected to total approximately $55M, in-line with guidance levels provided for 2015.
    At Zinkgruvan the guidance amount of $35M for 2016 includes the spending of $8M on an expansion project which is aimed at increasing the overall mill capacity by approximately 10% by the end of 2017.
    Exploration expenditures in 2016 are expected to total $40M, which represents a decrease of approximately $20M from 2015 guidance levels due to the deferral or cancelation of most greenfields exploration work.
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    Steel, Iron Ore and Coal

    Atlas Iron boosts shipments, lowers costs

    Iron-ore miner Atlas Iron on Friday reported that December quarter had increased by 10% on the previous quarter, while its full cash costs for the three months fell by 9%. Atlas shipped 3.6-million tonnes of ore in the December quarter, compared with the 3.3-million tonnes in the September quarter, with full cash costs declining from A$58/t to A$54/t, including all contractor cost clawback and profit share. 

    A total of 3.5-million tonnes of ore was mined at Atlas’ various Western Australian assets, with more than 3.4-million tonnes of ore processed during the quarter under review. The Wodgina mine delivered 1.52-million tonnes of ore during the quarter, with the Abydos mine contributing 829 372 t, and the Mt Webber operation 1.14-million tonnes. 

    Atlas MD David Flanagan told shareholders that while iron-ore market has remained challenging going into January, the falling Australian dollar, low freight prices and further interim cost savings negotiated in December, would assist the company in remaining competitive during the completion of its debt restructure. 

    Flanagan said that the debt restructure agreement, which was struck during the December quarter, was an important step in making Atlas more sustainable, particularly in volatile iron-ore markets. Atlas in December last year miner inked agreements with more than 75% of its term loan B (TLB) lenders, and amended its existing syndicated facility agreement. 

    Under the two agreements, Atlas would make a pay down of the TLB loan of some $10-million and issue shares and options to the TLB lenders in exchange for the lenders retiring $132-million of debt. The TLB lenders would hold a combined 70% of the company’s shares and options on issue, immediately post the restructure. The issue of these shares and options would be subject to shareholder approval. 

    Furthermore, the existing syndicated facility agreement would be amended to include a covenant that cash was not to fall below A$55-million on any day during the implementation of the interim covenant. On implementation of the financial restructuring, Atlas would have reduced its term loan debt from $267-million to $135-million, extended the maturity date from December 2017 to April 2021, and reduced its cash interest expense by over 65% as a result of the lower debt balance and reduced interest rate.

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    Asia Ferrochrome: Japan Prices Fall To 10-Year Low Of 60-62 Cents/LB

    Japan's spot high-carbon ferrochrome prices fell to a 10-year low of 60-62 cents/lb CIF Japan this week as keen spot sellers emerged amid the seasonal pre-Lunar New Year holiday lull, according to Platts' assessments.

    The 60-62 cent/lb level is the lowest since March 8, 2006, when prices were assessed at 61 cents/lb CIF Japan.

    A consumer in southern Japan awarded a 280 mt tender for early March delivery this week, triggering competition among spot sellers in a market devoid of buyers in the leadup to the Lunar New Year holidays.

    One producer offered at 60 cents/lb CIF Japan for 10-50 mm sized lumps with minimum 60% chrome, maximum 8% carbon, maximum 2.5% silicon, maximum 0.03% phosphorous and maximum 0.05% sulfur for loading in February from Oman.

    Another producer offered at 62 cents/lb CIF Japan for 10-50 mm lump for minimum 58% chrome, maximum 8-9% carbon, maximum 4% silicon, maximum 0.04% phosphorous and maximum 0.05% sulfur for loading in February from India.

    There were offers at 64 cents/lb CIF Japan for similar specifications except chrome content at 56%-60%, maximum 4% silicon and maximum 0.03% phosphorous, sources said.

    The tender in southern Japan was awarded at around 60 cents/lb, basis unknown. Platts has not been able to confirm the details.

    A Japanese trader this week sold to a mill over 1,000 mt of 0-10 mm fines for prompt shipment at 57-60 cents/lb CIF Japan.

    The material contained maximum 48-49% chrome, maximum 8% carbon, maximum 6-7% silicon, maximum 0.03% phosphorous and maximum 0.05% sulfur.

    There is typically a 10 cent/lb gap between 0-10 mm fines and 10-50 mm lumps.

    "You can no longer distinguish fines from lumps," the trader said.

    Falling Chinese steelmaker bids for domestic ferrochrome, producers closing term deals on a China domestic price basis and thin spot demand amid the seasonal lull caused lump prices to plunge, traders said.

    China's largest stainless steelmaker, Taiyuan Iron and Steel Group, bid at around Yuan 4,800/mt ex-plant for domestic high-carbon ferrochrome for January delivery, which equates to 56 cents/lb without local tax.

    Some Japanese and Taiwanese steelmakers have suggested producers set term contracts on the basis of the Taiyuan monthly bid price, producer and mill sources said.

    However some producers were not in the spot market as ferrochrome demand in India remained steady.

    "We have sold out our production this month and we are not selling spot. We have been selling to Indian customers at 67 cents/lb FOB equivalent and I refuse to sell below 66-67 cents/lb CIF Japan," one Indian producer said.

    Platts assessed 58%-60% high-carbon ferrochrome at 59-60 cents/lb CIF China Friday, down from 64-65 cents/lb CIF China a week earlier, and 48%-52% charge chrome at 59-60 cents/lb CIF China, flat week on week.

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    Vale scraps dividend for 2016 as iron ore price slumps

    Brazilian miner Vale SA will recommend to its board that no dividend is paid to shareholders this year because of the slump in commodity prices, the company said on Thursday.

    The world's largest producer of iron ore has been hit hard by a dramatic fall in the price of the steelmaking raw material, with analysts predicting the company will be cash flow negative in 2016 unless it manages to curb costs and sell assets.
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    China coal giants to shut for Lunar New Year, cite sector slowdown

    In a break with tradition, 15 Chinese coal mining groups have said they will close operations and allow workers to leave their posts during the Lunar New Year holidays next month, taking some pressure off a sector burdened by massive overcapacity.

    Any suspension of output over the week-long holiday, which starts on Feb. 7, could underpin coal prices that shed nearly a third last year. Spot thermal coal in Qinhuangdao port has risen 1.4 percent to 375 yuan ($57.03) per tonne this week, not far from a multi-year low of 370 yuan. SH-QHA-TRMCOAL

    Lower demand and high supplies have led to the price rout, leaving the sector in a crisis, the miners said in a declaration released this week and published on company websites. Suspending operations over the holiday would ease the pressure, they added.

    Miners are normally expected to work through the holidays in order to guarantee supplies over the period when power and heating demand typically hit a peak. During the holiday, state leaders are often filmed visiting miners working underground.

    "On the condition that we can maintain safe production and stable supplies, and barring any special circumstances, we declare that we will cease operations during the 2016 Spring Festival holiday and workers will go on holiday," the miners' declaration said.

    China's top coal producers - the Shenhua Group, China Coal Energy Group and the China Datong Coal Group - that account for about a fifth of national output, have signed the declaration.

    China Coal Energy's Shanghai-listed unit said its losses in 2015 could have been as high as 2.8 billion yuan, while Datong Coal's listed vehicle also warned of about 1.7 billion yuan in losses, blaming the supply glut.

    Another signatory, the Longmay Group, based in northeast China's Heilongjiang province, said last year that it was planning to lay off 100,000 miners. Thousands had already been put on leave with reduced pay.

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    Chinese miners cut coking coal prices to ensure cash return

    China’s coking coal prices continued to drop recently, as some miners cut prices despite favorable sales to ensure cash return before the Lunar New Year starting on February 8.
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    China’s coal demand may maintain slow growth in 2016-20: CNCA

    China’s demand for coal may maintain a slow growth in the “13th Five-Year Plan” period (2016-2020), and yet the supply glut in domestic coal industry will continue, said Jiang Zhimin, vice chairman of China National Coal Association (CNCA), at a recent press conference.
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    POSCO's Q4 operating profit down 55 pct, misses estimates

    South Korean steelmaker POSCO posted its smallest quarterly operating profit in at least three years, as steel prices fell faster than raw materials costs, pressured by record exports of Chinese steel.

    POSCO, the world's sixth-biggest steelmaker, saw its operating profit in the October-December period slump 55 percent to 341 billion won ($282.22 million) on a consolidated basis, which includes earnings of its affiliates, according to Reuters' calculations. POSCO only provided full-year earnings.

    That was below a consensus forecast of 503 billion won compiled by Thomson Reuters I/B/E/S.

    On an annual basis, the steelmaker swung to a net loss of 96 billion won, its first since at least 2010. The loss was smaller than the 300 billion won loss forecast by POSCO in October.

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    EU to set dumping duties on Chinese, Russian steel imports

    The European Union will impose duties on imports of cold-rolled flat steel from China and Russia while its investigation into alleged dumping by the two countries continues.

    The European Commission has set provisional duties of up to 16 percent for China and of up to 26 percent for Russia, according to sources familiar with the Commission's plans.

    The Commission's investigation follows a complaint from Eurofer, the European steelassociation, which said Russia and China were dumping the steel - selling it below market prices at home or below the cost of production - on the EU market and thereby damaging the local industry.

    The provisional measures are due to be announced by Feb. 14 and definitive duties, if imposed at the conclusion of the investigation, by Aug. 12. Such duties would typically apply for five years.

    The Commission previously ordered customs authorities to register imports of cold-rolled flat steel from mid-December, meaning duties would apply to imports from China and Russia from then.

    Eurofer says that, since the investigation was launched in May, imports of steel - used in cars and home appliances - into the EU have increased.

    It said on Wednesday that overall imports of steel surged by 29 percent year-on-year in the third quarter of last year and by 51 percent in the final three months.

    Russia, China and Ukraine made up some 60 percent of total steel imports.

    For cold-rolled flat steel, Eurofer has said the average dumping margin - the amount by which export prices from the two countries undercut a normal market price - is 28 percent for China and 15-20 percent for Russian producers.

    Russian producers Severstal and Novolipetsk Steel said when the investigation was launched last May that they were in compliance with international trade rules and not carrying out dumping.

    China said then that the surge in Chinese steel product exports was "normal and also beyond reproach", reflecting a rise of demand and the strong competitiveness of its industry.

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    Yanzhou Coal Mining 2015 coal sales slump 29pct

    Yanzhou Coal Mining Co., a leading coal producer based in eastern China’s Shandong province, saw it commercial coal sales fall 29.03% on year to 87.35 million tonnes in 2015, it said in the latest report on January 28.

    The commercial coal sales in the October-December quarter last year also dropped 26.07% from the year prior to 24.02 million tonnes, data showed.

    The decline was mainly due to a slump in sales of coal bought from third parties, which plummeted 53.77% on year to 26.36 million tonnes in 2015; while sales of self-produced coals only posted a yearly decline of 7.7%.

    The sales of outsourced coals accounted for only 30.2% of the total, compared with a 46.3% share in 2014.

    The outsourced coal sales in the fourth quarter stood at 8.92 million tonnes, down 39.15% on year.

    Meanwhile, Yanzhou Coal produced 62.51 million tonnes of coal in 2015, down 6.55% on year, with output in the fourth quarter down 7.86% at 15.23 million tonnes.
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    Fortescue Iron Ore Shipments Climb 3.8% as Costs Decline

    Fortescue Metals Group Ltd., the world’s fourth-biggest iron ore exporter, said second-quarter shipments rose 3.8 percent, beating analyst estimates, as costs fell to a record and net debt declined.

    Shipments were 41.4 million metric tons in the three months ended Dec. 31, compared with 39.9 million tons a year ago, the Perth-based producer said in a statement on Thursday. This beat the median estimate of 40 million tons among three analysts surveyed by Bloomberg. Total shipments, including third-party material, were 42.1 million tons from 41.1 million tons.

    Producers are racing to cut costs as iron ore is trading at less than a quarter of its 2011 peak and last month plunged to the lowest level in more than six years as the economic slowdown in China slows demand growth in the biggest user. Fortescue’s output costs were lowered for the eighth consecutive quarter, Chief Executive Officer Nev Power said in the statement, dropping to $15.80 a wet metric ton.

    Fortescue “continues to make good progress on costs,” David Coates, a Sydney-based analyst at Bell Potter Securities Ltd., said by phone. “I’d certainly expect them to make progress to get their" costs to, or below, $15 a ton by the end of the fiscal year, he said.

    Stock Climb

    The stock closed 4.1 percent higher at A$1.52, paring losses this year to 19 percent.

    Fortescue sees opportunities for further cost reductions this year including from lower shipping expenses helped by a 14 percent slump in oil prices this year. The company sees more scope to pare debt with a cash balance of $2.3 billion as at the end of last year. Net debt fell to $6.1 billion, from $6.6 billion the previous quarter.

    “The U.S. debt markets have been heavily oversold predominantly on the back of the oil price and our debt has been priced down,” Power said on a media call. “If the market would price our debt at those low levels, then it’s a great opportunity for us to buy back ahead of time and do it very economically.”

    Iron ore with 62 percent content delivered to Qingdao advanced 3.3 percent to $42.43 a dry ton on Wednesday after bottoming at $38.30 on Dec. 11, a record low in daily prices by Metal Bulletin back to May 2009. Fortescue’s average realized price for the quarter was $40.46 a ton, the company said.

    “Demand for Fortescue’s products remains strong and represents over 17 percent of imported iron ore into China,” the company said in the statement. It maintained full-year shipments guidance at 165 million tons and completed the early repayment of $750 million of debt during the quarter.

    “The fact that they can service and reduce their debt in a tough iron ore market like this, I think it should give the market a lot of confidence in the stock,” Bell Potter’s Coates said.

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    China's run-of-mine iron ore output falls 7.7% on year to 1.38 bil mt in 2015

    China's run-of-mine iron ore output fell by 7.7% on year in 2015 to 1.38 billion mt, latest data released by the National Bureau of Statistics Monday showed.

    The fall was less than the minimum 10% drop expected by market participants. The decline in 2015, however, was in contrast to the 3.9% year-on-year rise seen in 2014.

    China's independent iron ore miners suffered most due to the low price environment and had to shut mines towards the end of last year.

    "I shut my three mines one after another over November-December 2015, so for my own operations, [the output decline] is even more than 10%," a source at a 2 million mt/year iron ore mine in Liaoning province said Tuesday.

    With price of 64%-Fe iron ore concentrate dropping below Yuan 300/wet mt ($46/wmt) in Liaoning, the source said it was meaningless to keep mines in operation amid stiff competition from better and more affordable Australian and Brazilian iron ore imports.

    Australian and Brazilian iron ore supplies accounted for about 85% of the country's total consumption in 2015, up from around 65% a decade ago, according to official data.

    China's iron ore concentrates typically have 64-66% ferrous content and are used for either sintering or pelletizing.

    The steel mills, on the other hand, were not impacted much.

    A North China steel mill's mining operation source said their run-of-mine iron ore output had, in fact, gone up in 2015.

    "We sold all our iron ore output to our steel mills, so we have not resorted to production cuts. Most of the mines that belong to Chinese steel mills have been running more or less at full rates," he said.

    China's steel mills own 70%-80% of the country's total run-of-mine iron ore production capacity, according to industry sources. As such, most of the mines will keep operating as long as they can supply their concentrates to their own downstream processes, and will be little impacted by slump in international prices, add the sources.

    China's iron ore mining operations are mainly located in the provinces of Liaoning, Hebei, Anhui, Shandong, Inner Mongolia and Sichuan. Independent mines located in Anhui and Shandong were hurt the most by the price declines in 2015, market sources said.
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    Shandong to cap coal consumption in 2016

    Eastern China’s Shandong province planned to further cap coal consumption of 2016, which was expected to be 10 million tonnes less than that in 2012 at some 380 million tonnes, in the hope of alleviating air pollution, Xinhua News Agency reported, citing local government authorities.

    The reduction volume of coal consumption will be allocated to 17 cities of the province, mainly targeting major coal-guzzling enterprises of these cities.

    By 2017, 10 million tonnes more coal consumption will be cut in the province compared to 2016.

    In addition, environmental protection authorities will set up a quality standard for “San Mei”, the main culprit to blame for the heavy pollution in northern China.

    In 2014, Shandong consumed a total 396 million tonnes of coal, ranking the No.1 in China, and coal consumption accounted for 80.8% of the total energy use of the province, 14 percentage points higher than the national average level.

    The official data on Shandong’s coal consumption last year hasn’t been available yet.
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    Rio Tinto sells Australia coal mine to Indonesia's Salim

    Global miner Rio Tinto has agreed to sell one of its last remaining coal mines in Australia to a group owned by Indonesia conglomerate Salim Group, continuing an exit from coal as it battles a sharp slump in prices, it said on January 25.

    Rio was selling its Mount Pleasant thermal coal assets in the Hunter Valley in New South Wales to a private company, MACH Energy Australia Pty Ltd. -- an entity owned by Salim Group, for $224 million plus royalties.

    The royalties from the mine would only be paid when coal prices top $72.50/t, well above the current price of $47.37/t.

    "We believe Mount Pleasant can have a very positive future under its new owners with different priorities for development and capital allocation," Rio Tinto copper and coal chief executive Jean-Sebastien Jacques said in a statement.

    The sale of the Mount Pleasant mine, which has marketable reserves of 474 million tonnes, follows Rio Tinto's sale of its stake in the Bengalla joint venture last year for $606 million and leaves it with the Hunter Valley Operations and Mount Thorley Warkworth mines.
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    China 2015 thermal coal imports down 38pct on year

    China’s imports of thermal coal—including bituminous and sub-bituminous coals– fell 38.17% on year to 83.21 million tonnes in 2015, according to the latest data released by the General Administration of Customs.

    Total value of thermal coal imports during the same period stood at $4.85 billion

    Thermal coal imports in December stood at 7.43 million tonnes, falling 0.37% from a year ago but up 0.14% from November, data showed.

    In addition, lignite imports in 2015 reached 48.26 million tonnes, down 24.6% from the year prior.

    Lignite imports in December stood at 3.55 million tonnes, sliding 36% on year and down 6% on month.

    In addition, China exported 1.33 million tonnes of thermal coal in 2015, down 49% year on year, with December exports at 39,467 tonnes, dropping 73.5% from a year ago and down 43.4% from November.

    Lignite exports in 2015 plunged 61.5% on year to 3,858 tonnes, with December exports fell 48.6% on year and down 74.8% on month to 533 tonnes.

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    China 2015 coking coal imports down 23.1pct on year

    China’s coking coal imports slumped 23.1% on year to 47.83 million tonnes in 2015, showed the latest data from the General Administration of Customs (GAC).

    The value of the imports saw a yearly plummet of 41.2% to $3.81 billion, the GAC said.

    The average price of imported coking coal was $79.68/t in 2015, dropping 24% or $25.21/t from 2014’s $104.89/t.

    In December last year, China imported 4.45 million tonnes of coking coal, falling 41.1% on year but 9.34% higher than the month-ago level.

    The value of the December imports was $274.44 million, plunging 59.6% year on year and down 3.65% on month.

    In 2015, China exported 970,000 tonnes of coking coal, a year-on-year rise of 21.5%, with December’s exports standing at 120,000 tonnes, up 33% on year and rising 20% on month, data showed.

    The value of the exports in 2015 was $103.93 million, up 2.9% on year with December’s value at $11.08 million, down 3.4% from the year prior but up 86% on month.
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    California insurance commissioner calls for coal divestment

    California's insurance commissioner on Monday asked all insurance companies doing business in the state to voluntarily divest from coal companies and said he will also require insurance companies to disclose their coal company holdings.

    Coal use by utility companies has plummeted amid low natural gas prices and new federal regulations aimed at curbing carbon emissions, a major contributor to climate change.

    Ten years ago coal produced 50 percent of the nation's power supply but now accounts for only about 35 percent, according to the U.S. Energy and Information Administration.

    The lack of demand has driven the price of coal down and helped force Arch Coal Inc, the nation's second-largest U.S. coal miner, to file for bankruptcy protection earlier this month.

    "The movement away from coal and the rest of the carbon economy poses a potential financial risk to insurance companies investing in coal and the carbon economy," California Insurance Commissioner Dave Jones said.

    Jones is the first state insurance regulator in the United States to call on insurance companies to divest from coal and the first to require insurance companies to disclose their investments.

    California is the largest insurance market in the United States and sixth-largest in the world, with companies collecting $259 billion in premiums annually, according to the Insurance Commission.

    A representative for the Property Casualty Insurers Association of America's California office, which represents insurance companies in the state, declined to comment on the commissioner's moves.

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    ArcelorMittal idles Spain plant as EU steel crisis simmers

    ArcelorMittal has idled a steel plant in Spain due to "extremely adverse" market conditions, a company spokesman said on Monday, as the world's biggest steelmaker becomes the latest victim of Europe's steel sector crisis.

    Some 5,000 EU steel jobs were lost late last year, out of a total 330,000 jobs. Steelmakers pin much of the blame on China, whose exports rose to record levels above 110 million tonnes last year.

    An ArcelorMittal spokesman said on Monday the company's steel plant in Sestao, northern Spain, will be idled indefinitely. It has a 1.5 million tonne per year output capacity.

    "Management has taken the decision in view of extremely adverse conditions ... (namely) falling steel prices caused by record imports from China at prices below production costs," said the spokesman.

    "(It) will be idled from February," he added.

    Global steel prices ST-CRU-IDX are near their lowest since 2003 due to a steel glut, with bankruptcies and capacity closures picking up pace the world over, including in China.

    ArcelorMittal cut its 2015 profit forecast last November, saying Chinese exports had hit steel prices and customers were holding off making new orders.

    Shares in the company, which produces 5-6 percent of the world's steel, fell 57 percent last year amid several rating downgrades and have lost 15 percent this year.

    China produces half the world's 1.6 billion tonnes of steel. Its has about 300-400 million tonnes of spare capacity, roughly half of global spare capacity of about 700 million.

    Global trade friction with Beijing escalated last year, with scores of anti-dumping duties filed, as slowing growth in China prompted its mills to export record amounts of excess steel.

    The European Union is considering granting China market economy status after December, a move that would make it harder to impose anti-dumping measures. Steelmakers say granting that status would kill off nearly the entire EU steel sector.

    EU mills struggle to compete with Chinese steel due to weak post-financial crisis demand, energy costs and green taxes that are some of the highest in the world, plus steep labour costs.

    ArcelorMittal produces nearly half of Spain's steel, employing some 9,500 people. The Sestao site is one of 12 Spanish operations which the company owns.

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    China Coal Energy witnesses its first annual loss since it went public

    China Coal Energy Co., Ltd, the country’s second largest coal producer, predicted a net loss of 2.3-2.8 billion yuan ($349.6-425.68 million) in 2015, the first annual loss since its listing in 2008, according to the latest announcement of the company.

    It was the fourth straight yearly decline after reaching a record high of 9.67 billion yuan in net profit in 2011, and it slumped 399.87% from 2014’s net profit of 767 million yuan.

    This severe loss was due to plunging coal prices amid economic slowdown, weak demand, and overcapacity in coal industry, the company said.

    More than 80% of the company’s revenue was from coal business in recent two years, industry insiders said. With more than 90% of coal enterprises across the country were in red, China Coal Energy also saw a severe slump in earnings.

    In end-2015, the Fenwei CCI Index assessed domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port at 365.5yuan/t FOB with VAT, registering a decline of 27.8% from the start of the year.

    China Coal Energy’s profit was about 15 million yuan in the first quarter of 2015; the profit turned into a loss of 965 million yuan by late-June and further expanded to 1.67 billion yuan by end-September.

    In 2015, the company produced 95.47 million tonnes of commercial coal, dropping 14.6% on year -- the third consecutive yearly decline; its commercial coal sales during the same period fell 12.6% to 137.13 million tonnes, posting a second consecutive year-on-year decline.

    China Coal Energy will try its best to break through the dilemma by further deepening industrial transformation and enhancing its cost control and investment management, it said.
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    Government policies have killed iron ore trade in India

    PTI reported that alarmed by the continuous slide in the exports of iron ore, miners body FIMI has accused the government of “killing” India’s ore trade and sought immediate steps for its revival. Apprehending a sharp fall in exports of the key steel-making raw material this fiscal too, the Federation of Indian Mineral Industries has said ore units are on the verge of closure.

    FIMI secretary general Mr RK Sharma said “India is the only country in the world which has killed its flourishing iron ore trade. The trends show that exports will decline hugely this fiscal. In 2014-15, exports stood at 6.12 million tonnes.”

    The allegations come in the wake of India’s top 12 major ports witnessing a sharp 38 per cent decline in ore handling to only about eight million tonnes (mt) in April-December of the current fiscal, which includes domestic movement of cargo.

    Mineral ore exporter bodies have already sought Prime Minister Narendra Modi’s intervention for removal of export duty on iron ore, saying it will help in higher revenues of $750 million a year. Besides, industry body GMOEA has written to PMO urging it to remove the export duty on iron ore fines with Fe content below 58 per cent and on iron ore lumps.
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    Global crude steel output fell 2.8 pct in 2015- Worldsteel

    Global crude steel production fell 2.8 percent last year, marking the first annual decline since 2009, as producers succumbed to pressure from waning demand and tumbling prices.

    Figures from the World Steel Association showed on Monday output fell to 1.623 billion tonnes in 2015 versus the previous year.

    Crude steel output in China, the world's top producer and consumer of the alloy, fell 2.3 percent to 803.8 million tonnes, the data showed, the first drop in more than three decades.

    China's government is pushing to erode massive overcapacity in the steel sector as economic growth slows, falling last year to its weakest in a quarter of a century.

    The nation's massive steel sector is said to have surplus capacity of 300-400 million tonnes, roughly half of global surplus capacity of about 700 million tonnes.

    Global steel prices ST-CRU-IDX are at their lowest since 2013 on account of this glut, with bankruptcies and capacity closures picking up pace the world over.

    Steel output in the EU fell 1.8 percent to 166.2 million tonnes last year, the data showed, while output in North America was 110.7 million tonnes, down 8.6 percent.

    With its steel demand shrinking, China exported a record 112.4 million tonnes of cheap steel last year, forcing other mills to crimp output as they struggled to compete.

    The decline in global steel output accelerated towards the end of the year, the data showed. It fell 5.7 percent in December to 126.7 million tonnes, while in China, output shrunk 5.2 percent to 64.4 million tonnes.

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    Vale: Stay of execution on Tubario

    A Brazilian judge decided on Monday that miner Vale may reopen its iron-ore and coal port near Vitoria, the company's lawyer said, staving off the possibility it will have to start closing mines. The decision by federal appeals judge Vigdor Teitel gives Vale 60 days to explain how it would fix environmental problems at Tubarao port that led to a court-ordered shutdown last week, said lawyer Sergio Bermudes. Vale had only about four days to overturn the closure, which began Thursday, or risk having to start shutting mines in Minas Gerais, HSBC said in a note to clients last week. When closed the port was shipping about 200 000 t/d of iron-ore brought to Tubarao by rail from the highland state of Minas Gerais.

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    Higher defaults in coal, steel firms seen as China cuts capacity

    More companies in China’s coal and steel sectors will likely fail as the nation takes further steps in supply-side reforms aimed at curbing overcapacity and excess labour in state-owned industries, according to analysts at Hua Chuang Securities Co and Nanjing Securities Co.

    Investors should avoid putting money in weaker firms in the coal and steel sectors whose securities aren’t frequently traded, according to Yang Hao, a credit analyst at Nanjing Securities. Baotou Iron & Steel Group Co sold 3 billion yuan ($456 million) of notes last week with a coupon of 5.15%, higher than the 4% level paid by similar bonds, he said.

    Defaults are already spreading in the coal and steel sectors. Winsway Enterprises Holdings, the Chinese coking-coal importer, missed interest payment for the second time in October on a debenture due 2016. Coal miner Hidili Industry International Development didn’t repay dollar-denominated bonds due November 4. Sinosteel Co, a state-owned steel trader, on December 30 postponed a note payment a fourth time. Most of the seven onshore bond defaults last year were in sectors deemed to have too much capacity.

    “Credit risks are getting higher for the coal and steel sectors because cutting excess capacity means bankruptcies for some companies,” said Yang at Nanjing Securities. “So investors should only invest in the leaders in those overcapacity industries.”

    The cut in excess capacity will result in higher credit risks for those industries in the short term, according to a January 24 report from Hua Chuang Securities written by analysts led by Qu Qing. In the medium term, if the speed of reduction is well controlled, credit risks will likely drop as the government will come out with other measures to support the economy, they said.

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    Sinosteel wins mining rights of the largest iron-ore resource in the world

    Sinosteel Corporation of China won the bid for the mining rights of the Empresa Siderurgica del Mutun (ESM) in Santa Cruz, Bolivia.

    The ESM is the world's largest iron-ore resource situated 2,000 kilometers (1,243 miles) southeast of La Paz, capital of Bolivia, with gross reserves at 40 billion tons.

    Winning six out of seven votes in the last round of bidding, Sinosteel beat its rival, another Chinese enterprise Henan Complant Mechanical & Electrical Equipment Group Co. Ltd (HCME), with overwhelming odds.

    According to the steel project carried out by ESM, ore-dressing plants, granulation workshops and plants for direct reduction will be set up in Bolivia, stated Saisaer Nawaluo, Mining Minister of Bolivia.

    He added that a steel mill with continuous casting technology will also be established to satisfy 60 percent of domestic steel demand.

    Sinosteel will invest $450 million in the project and initiate the construction in 100 days as prescribed under the supervision of another international corporation.

    In 2007, the government of Bolivia collaborated with Jindal South West Group of India to develop ESM but failed five years later. Many corporations from Russia, Australia, Venezuela and China thereafter expressed their interest in the project.

    "We have to choose a corporation rich in experience and funds as our powerful support. Sinosteel is our best choice", said Nawaluo in a news conference.
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    China to cut crude steel capacity by 150 mln T: premier

    China will cut crude steel production capacity by 100 to 150 million tonnes, and reduce coal capacity by "a relatively large margin", according to a statement issued on January 24 after an executive meeting of the State Council chaired by Premier Li Keqiang on January 22.
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    Shandong to slash 25% coal capacity over 2016-2020

    Eastern China’s Shandong province aims to pare back coal production capacity by 42.82 million tonnes per annum over 2016-2020, accounting for nearly 25% of the province’s total capacity, said one government official on January 21.

    By the end of 2015, the province had a combined coal capacity of 172 million tonnes per annum. Its coal output in 2015 amounted to 145 million tonnes, a year-on-year decline of 2.14%, according to the Shandong Administration of coal mine Safety.

    All capacity cut will target provincially-owned coal miners, which managed to cut cost by 68 yuan/t ($10.37/t) on year in 2015 and saved 12.5 billion yuan in total, said Fanjun, Deputy Director of the Shandong State-owned Assets Supervision and Administration Commission, at a provincial meeting on deepening state-owned enterprises reforms.

    Of those miners, Yankuang Group, Shandong Energy Group, Shandong Iron and Steel Group and Shandong Gold Group last year cut staff salary by 3.9 billion yuan or 8% from a year ago.

    In response to the central government’s call for overcapacity elimination, Yankuang and Shandong Energy shut 6.85-million-tonne capacity in the past year comprising 21 mines.
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