Mark Latham Commodity Equity Intelligence Service

Friday 7th April 2017
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China launches new year-long inspection into air pollution in north

China's environment ministry said it will send 5,600 inspectors on a year-long investigation into the sources of air pollution in major northern cities.

The Ministry of Environmental Protection (MEP) said in a notice posted late on Wednesday on its official website ( that inspections into 28 northern cities in and around the Beijing-Tianjin-Hebei region will focus on improving the way the country's standards and laws are enforced.

The 28 cities have already pledged to draw up detailed action plans to address smog, promising to shut small polluting enterprises and halve coal and steel production in the winter.

The region is a frontline in China's "war on pollution", but despite improvements last year it saw average concentrations of breathable particles known as PM2.5 rise 48 percent in the first two months of 2017.

The notice said the latest campaign, described as the largest ever undertaken, would seek to "normalize compliance" in a region frequently accused of turning a blind eye to polluters in order to protect jobs and revenues.

The ministry has routinely named and shamed local governments and enterprises in northern China for failing to comply with anti-smog regulations.

China is also launching a new round of inspections that will focus on overall environmental compliance in 15 provinces and regions, including the city of Shanghai, Liaoning in the northeast and the island of Hainan on the southeast coast.

The first round of inspections last year, which covered big coal-producing regions like Inner Mongolia, Ningxia and Shanxi, showed that progress had been made in the battle against air pollution, but water quality in some areas had deteriorated sharply.
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Shale and China: Q2 Presentation.

I am in China for a week, but will return for a q2 presentation round mid April.

We're taking dates for the calendar.

Attached Files
Commodity Intelligenceshaleand china (3).pdf
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China vows fresh smog crackdown as toxic air shrouds capital

China's smoggiest cities have pledged to ramp up the battle on pollution after air quality deteriorated in the first few months of this year, the China Daily reported on Monday, as smog blanketed the capital, Beijing, and the surrounding region.

Top officials from seven districts in Beijing, Tianjin and cities in Hebei and Shanxi provinces were scolded at the weekend by the environmental watchdog for lax control of pollution this year, the paper said.

The officials promised to submit plans to the Ministry of Environmental Protection (MEP) to resolve the problem within 20 days, it said. In the first quarter, air quality deteriorated in the districts and cities, according to the ministry.

The news came as toxic smog blanketed the capital and surrounding cities on Monday, forcing some to issue an orange alert, the second-highest level after red, as pollution reached hazardous levels.

On Saturday, Hebei, the northern province home to six of China's 10 smoggiest cities in the first two months of 2017, said it would take more action to shut "backward" coal-fired power plants, promote new energy vehicles and shift industries.

The province is on the frontline of a three-year "war on pollution", and has already promised to slash coal consumption and close inefficient industrial plants.

The ministry's weekend warning followed a month-long inspection that turned up severe violations, such as poor adherence to restrictions on smoggy days, said Liu Changgen, its head of inspections, according to the paper.

Gao Nan, head of Zhaoxian county, said it would invest 1.3 billion yuan ($188.9 million) to build a road to divert diesel vehicles from downtown areas.

The ministry will make random checks in April to ensure air pollution measures are being followed, the paper said.

China's "war on pollution" aims to reverse the damage done to its skies, soil and water after decades of untrammeled economic growth.

On Monday, an orange alert was in effect in Tianjin, Tangshan and Langfang in Hebei province and Puyang and Anyang in central Henan, state news agency Xinhua said.

The orange alert means the air quality index (AQI), a measure of air pollutants, is forecast to exceed 150 for three consecutive days.

In Beijing, where the authorities issued a yellow alert, the AQI reading was 264, the city's environmental protection agency said.

Attached Files
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Henan Energy & Chemical signs swap deals with three banks

Henan Energy and Chemical Group signed debt-to-equity swap deals with Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC) and Bank of Communications (BoCom) on March 30, local media reported.

The group, together with the ABC, ICBC and BoCom, will jointly set up a fund worth 35 billion yuan ($5.08 billion), in order to lower asset liability ratio, optimize debt structure and bring vigor into sound development.

It was another breakthrough of debt-to-equity swap agreement in Henan province, after China Construction Bank signed a similar deal with the State-owned Assets Supervision and Administration Commission of Henan, Henan Energy and Chemical Group, China Pingmei Shenma Group and Anyang Iron and Steel Group on January 11.

In the first quarter this year, Henan Energy and Chemical Group achieved operating revenue of 33 billion yuan, surging 64% year on year, while its profit totalled 330 million yuan.
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China says pollution inspectors find firms falsifying data

China's air quality inspectors found problems at more than 3,000 companies in the first three months of this year, of which a large proportion were found to be falsifying data, the environment ministry said on Friday.

The Ministry of Environmental Protection said it checked more than 8,500 firms in six municipalities and provinces including Beijing and central Henan, and found that many were not implementing air pollution control measures strictly or were still violating environmental regulations.

Some companies, including a firm owned by Foxconn subsidiary FIH mobile in Hebei province's Langfang city, tried to stop inspectors from making checks, the ministry said. Others were found to be deliberating reporting false data, it said in an online statement.

A representative for Apple supplier Foxconn said the company was not able to comment immediately in response.

China says it is winning its "war on pollution" after strengthening legislation, beefing up its monitoring capabilities and cracking down on hundreds of polluting firms, and says average air quality improved noticeably in 2016.

However, official data published last week showed that air quality was markedly worse in the first two months of the year than the same period of 2016.

Throughout January, high winter coal consumption combined with unfavorable weather conditions to create heavy smog build-ups throughout northern China, especially in heavily industrialized Hebei province that surrounds Beijing.

That forced dozens of cities in the region to issue "red alerts" designed to curb industrial activity and thin traffic.
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China 2017 energy consumption may reach 4.4 bln T of standard coal equivalent

China's energy consumption may reach 4.4 billion tonnes of standard coal equivalent in 2017, said the Electric Power Planning &Engineering Institute in the latest report on March 30.

In 2017, China's primary energy output may reach 3.65 billion tonnes of standard coal equivalent, along with 150 billion cubic meters of natural gas and 1.9 trillion KWh of electricity, the report said.

China consumed 3.23 billion tonnes of standard coal equivalent in 2016, according to the report.

Among this, the transportation sector used 500 million tonnes of standard coal equivalent last year, up 3.9% year on year; building sector consumed 520 million tonnes of standard coal equivalent, up 7%.  

The share of coal dropped 2% in the total energy consumption last year, while that of non-fossil energy and natural gas increased 1.4% and 0.3% year on year respectively.
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Former Brazil house speaker Cunha sentenced to 15 years for graft

A federal court sentenced Brazil's former speaker of the lower house, Eduardo Cunha, to more than 15 years in prison on Thursday for corruption, making him the highest-profile political conviction yet in the "Operation Car Wash" scandal.

The former politician's defense team said they would appeal the decision. Cunha will remain imprisoned pending appeal.

Cunha, who drove the successful impeachment of former President Dilma Rousseff, was forced from his position as speaker in July and arrested in October on accusations he received millions in bribes from the purchase of an oil field in Benin by state-controlled oil company Petróleo Brasileiro SA.

Over 200 people have been charged in the "Operation Car Wash" probe, a far-reaching investigation that centers on bribes and political kickbacks from contracts at Petrobras and other state firms. The Supreme Court is likely to approve soon the investigation of dozens of sitting politicians.

In February 2015, Cunha, a member of President Michel Temer's Brazilian Democratic Movement Party (PMDB) that for a decade was the main member of left-leaning Workers Party (PT) governments, defied the wishes of his own coalition to run for and win the speakership of the lower house of Congress.

Just six months later, he officially broke with the Rousseff administration, saying that she was using the Petrobras investigation as a tool of "political persecution" against him.

As speaker, only Cunha could allow impeachment proceedings to begin against Rousseff, whom critics accused of breaking budgetary laws.

He did just that in December 2015, just hours after PT deputies cast deciding votes for him to face an investigation by the House's ethics committee for lying about bank accounts he and his wife held in Switzerland.

By May, Rousseff was impeached and Temer installed as successor. But Cunha could not shake free of corruption allegations that eventually led to his downfall.

Once he was kicked out of congress, Cunha lost the privilege given to sitting politicians that only the badly overburdened Supreme Court can try them.

His case was instead sent to crusading anti-corruption judge Sergio Moro, who has been the driving force behind Brazil's fight against graft. Moro has a reputation for plowing through cases efficiently, with over 98 percent of his convictions in Car Wash cases being upheld by higher courts.

Cunha faces another trial for allegedly receiving $5 million skimmed from Petrobras contracts for two drillships in 2006 and 2007.

Separately on Thursday, federal prosecutors leading the Car Wash probe for the first time accused a party of the civil crime of "misconduct in political office" for taking part in the Petrobas scheme.

The authorities said they are seeking 2.3 billion reais ($731 million) from the Progressive Party (PP) for bribes its members received and for fines. Prosecutors are also demanding six sitting PP congressmen and four former deputies lose their offices and rights to run for office in the future.
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Zuma’s night of the long knives

President Jacob Zuma has fired FinanceMinister Pravin Gordhan in his biggest Cabinet reshuffle yet since assuming office in 2009.

In a brutal display of power, the president fired five ministers, including former tourism minister Derek Hanekom, who asked for Zuma to be recalled last year.

He also appointed six new deputy ministers.

Zuma now faces a revolt in his own party, with senior ANC leaders opposing his dramatic cuts to the executive authority. Former Cosatu leader Zwelinzima Vavi has called for a peaceful march to National Treasury in Pretoria on Friday at 10:00.

Zuma has replaced Gordhan with Malusi Gigaba, the former home affairs minister, ANC Youth League leader and known Zuma loyalist.

ANC MP Sfiso Buthelezi replaces Mcebisi Jonas as deputy finance minister.

Buthelezi was advisor to Zuma during his years as MEC in KwaZulu-Natal, and former chairperson of the embattled Prasa.

Zuma axed Gordhan and Jonas, despite opposition from his party and alliance partners Cosatu and the SACP.

This week Zuma recalled Gordhan from an investor roadshow in London, stoking speculation that he was planning to recall the finance minister.

Gordhan has been a vocal opponent of Zuma’s family friends, the Guptas, and was embroiled in three ongoing court cases with the family's companies.

The ministers who lost their jobs are Gordhan, Lynne Brown (public enterprises), Dipuo Peters (transport), Tina Joemat-Pettersson (energy) and Ngoako Ramatlhodi (public service and administration).

Both Gordhan and Brown were embroiled in litigation against the Gupta family.
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Oil and Gas

Market Currents: Floating storage holding up, despite Iran drop

While total global floating storage is ticking lower, it is still holding above 100 million barrels. Two areas where we are seeing it gradually drawn down is off Singapore / Malaysia, and in the Persian Gulf. After being over 30 million barrels as recently as October, Iranian floating storage has been siphoned to supplement exports – underscoring the Persian Gulf state’s struggles to boost domestic production.

This week we have seen Iranian barrels drop to 5 million barrels, while barrels offshore of United Arab Emirates have halved in the last week, dropping to just under 10 million barrels.

We have seen a distinct change in appetite from China, as March deliveries of medium and heavy crude have increased considerably, while light imports have dropped off.  As imports from the Middle East have dropped by half a million barrels per day, arrivals from West Africa have reached the highest on our records, close to 1.5mn bpd.

This record volume has been led by a rebound in Angolan arrivals, but also by rising imports from Nigeria, Equatorial Guinea, Gabon and Ghana. Over 70 percent of this crude is medium or heavy.

While on the topic of China, there have been a number of developments this week. One is that the Chinese government has granted import quotas to two independent refiners – to Henan Fengli Petrochemical Company (for just over 16 million barrels) and to Shandong Zhonghai Chemical Group Co (for 13.6mn bbls), which will serve to boost import demand in the coming months.

Another is that it has issued a second batch of 2017 product export quotas, but has slashed them to three of the country’s leading oil companies: Sinopec, CNOOC and Sinochem Quanzhou. The first batch of product export quotas for the three companies were ~70 million barrels. The second batch is considerably lower at ~28 million barrels. What is peculiar, however, is that PetroChina has not received a quota in this second batch, after receiving a ~32 million barrel allocation in the first round. The total product export quota last year was ~360 million barrels.
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Oil prices jump 2 percent after U.S. launches missile strike in Syria

Oil prices surged more than 2 percent on Friday after the United States launched dozens of cruise missiles at an airbase in Syria.

U.S President Donald Trump said he had ordered missile strikes against a Syrian airfield from which a deadly chemical weapons attack was launched earlier this week, declaring he acted in America's "national security interest" against Syrian President Bashar al-Assad.

After tepid trading before the news, Brent crude futures, the international benchmark for oil, jumped to $56.08 per barrel before easing to be up 1.6 percent at $55.75 per barrel at 0310 GMT.

U.S. West Texas Intermediate (WTI) crude futures also climbed by over 2 percent, to a high of $52.94 a barrel before receding to be up 1.8 percent at $52.61.

Both benchmarks hit their highest levels since early March.

The strikes rattled global markets. While oil prices surged as traders priced in what has in the past been called a Middle East risk premium, and safe-haven products like gold jumped, stock markets and the U.S. dollar slumped.

"The U.S cruise missile strikes have seen crude oil jump over two percent in a straight line," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

Halley said the strikes had potentially big implications for oil markets.

"What will be the response of Iran and Russia, two of the world's largest oil producers and staunch allies of the Assad regime?... We will have to wait for these answers as the day moves on," he said.

U.S. officials said the military had fired 59 cruise missiles against a Syrian airbase controlled by Assad's forces, in response to a poison gas attack on Tuesday in a rebel-held area.

Officials said the United States had informed Russia ahead of the strikes. The strikes did not target sections of the Syrian base where Russian forces were believed to be present.
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Bangladesh approves inking agreements for second floating LNG terminal

A cabinet committee Wednesday approved the signing of two agreements to advance the development of Bangladesh's second floating LNG terminal, State Minister for the Ministry of Power, Energy and Mineral Resources Nasrul Hamid told S&P Global Platts Thursday.

The cabinet committee on government purchases approved the January 4 signing of a terminal use agreement and an implementation agreement between Summit LNG Terminal Co., a subsidiary of local business conglomerate Summit Group, and state-owned Petrobangla for the building of a floating LNG import terminal at Moheshkhali island in the Bay of Bengal.

Summit has agreed to develop the facility on a build own operate transfer or BOOT basis within 18 months of signing the final contract to facilitate supply of around 500,000 Mcf/d of gas from imported LNG. Summit will transfer the facility to Petrobangla after 15 years of operation.

Petrobangla will pay 45 cents/Mcf to Summit for the service. This is 2 cents/Mcf less than US Excelerate Energy is charging Petrobangla under a similar contract signed in July last year to develop Bangladesh's first floating LNG import terminal at Maheshkhali Island.

The cost of the second project is estimated at $400 million-500 million, which Summit will implement jointly with US based General Electric as an equity investment partner.

Bangladesh expects to start importing LNG in 2018 through the first floating LNG import terminal being developed by Excelerate.

The country is currently grappling with an acute natural gas shortage, with output of around 2.7 Bcf/day against demand for over 3.3 Bcf/day, according to Petrobangla.
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Traders cancel light cycle oil cargoes ahead of China tax: sources

Traders are rushing to cancel loadings in North Asia of a range of oil products for sale to China, ahead of a planned Chinese consumption tax that will make the trade uneconomic.

At least two light cycle oil (LCO) cargoes have been canceled for late April loading from South Korea ahead of the planned tax on the refinery by-product, two sources familiar with the matter said on Thursday. They declined to be named as they were not authorized to speak with media.

The cargoes were purchased by Chinese companies who have in turn canceled their requirement, one of the sources said, adding that another Chinese oil trader is trying to cancel a third cargo.

Interest for May-loading LCO cargoes has also disappeared, a Japanese refining source said.

China plans to impose consumption taxes on oil by-products such as mixed aromatics, light cycle oil and bitumen blend, an import market that has swelled to nearly 20 million tonnes a year.

The move, expected in coming months, will close a loophole that allowed Chinese buyers to import light cycle oil, then on-sell it locally as low-grade diesel, avoiding the import tax that would normally be levied on diesel.

A consumption tax of 1,400 yuan ($203) per tonne could be levied for LCO, the sources said, with traders expecting the tax in May or June.

The tax advantages of LCO have led refiners to maximize production of the oil product over other fuels, the sources said.

LCO was selling at a premium to Korea gasoil prices of about $6 a barrel on a free-on-board (FOB) Korea basis at its peak earlier this year, which in turn attracted cargoes from as far away as Europe, traders said.

The premium for LCO has since dropped to about $2 to $3 a barrel, but volumes of the fuel into China have soared.

State-owned refiner Sinopec, in a proposal to the Chinese government on tightening LCO tax scrutiny, cited customs data showing LCO imports of 3.22 million tonnes from January to September 2016, up 194 pct on a year earlier.

This is equivalent to an average of about 350,000 tonnes a month. Imports swelled to as much as 600,000 tonnes a month by March, two traders familiar with the market said.
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Nigeria LNG starts talking to buyers on new contracts

Nigeria LNG starts talking to buyers on new contracts

Contracts for gas supplies from Trains 1, 2 and 3 - which together produce 9 million tonnes of LNG a year - are being discussed, said the official who requested anonymity. He was attending the Gastech trade conference in Chiba outside Tokyo.

"Trains 1-3 are coming back to the market as they are out of contract by 2022. We started to remarket today," he told Reuters late on Wednesday at the conference. The units that freeze natural gas into liquid form for export on ships are known as trains in the industry.

Initial responses from buyers have been positive, he said.

"There are some who are guaranteed to buy," the official said, though he provided no further details.

Nigeria LNG is a venture between state-owned Nigerian National Petroleum Corporation (NNPC), Royal Dutch Shell , Total and Eni.

Its Bonny Island LNG plant on Nigeria's southern coast has six trains with a total capacity of 22 million tonnes a year.
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Saudi crude price cut to add to Asia light oil glut

Saudi Aramco's decision to cut prices for lighter grades of oil for customers in Asia is a sign of just how seriously the world's top crude exporter is taking its battle with U.S. shale and other producers outside last year's move to cut output.

The Saudi Arabian state oil company lowered the official selling price (OSP) of its benchmark Arab Light grade by 30 cents a barrel for May cargoes destined for Asia, which buys about two-thirds of the kingdom's exports.

This took the OSP to a discount of 45 cents a barrel to the regional benchmark Oman-Dubai. It was the second straight month that Aramco cut the price, even though the Saudis are the major player in the agreement between producer group OPEC and its allies to cut output by 1.8 million barrels per day (bpd) in the first six months of the year.

Aramco also reduced the OSP for its Arab Extra Light grade by 35 cents a barrel to a premium of 60 cents over Oman-Dubai for May-loading cargoes for Asian customers, and for Super Light by 20 cents. In contrast, the OSPs for Arab Medium and Heavy were left unchanged.

It's worth noting that Arab Light isn't actually a light crude in the mould of global benchmark Brent, as its API gravity of 32-33 degrees makes it a medium grade, compared with Brent's light 38.3 degrees.

But Arab Extra Light and Super Light are more directly comparable to Brent, and they both saw price reductions.

It's appears that Aramco, mainly a producer of medium to heavy grades, is responding to the light grades of crude swamping Asian markets as U.S. producers ramp up shale output and West Africa increases production.

Another way of looking at it is by noting the difference between light and heavy prices in Asia.

The main way of doing this is via the Dubai-Brent exchange for swaps, which measures the premium of the lighter grade over its heavier Middle Eastern counterpart.

This has been on a narrowing trend this year as heavier grades became more scarce following output cuts by OPEC and its allies, including Russia.

The premium commanded by Brent dropped from $4.65 a barrel in January 2016 to just $1.08 on Feb. 28, a 17-month low.

When the premium of Brent over Dubai is declining, Aramco has in the past adjusted its Asian OSP lower as well, which acts to keep its crude prices relatively constant between regions.

However, since the Feb. 28 low, the Brent-Dubai swaps have been trending modestly higher, reaching $1.28 a barrel on April 4.

In theory, this should have resulted in a small increase in the Saudi OSP, or perhaps steady prices, rather than the price cuts actually delivered.

-For graphic on ' Saudi OSP vs Brent-Dubai swaps' click:


This indicates that the Saudis are pushing their lighter grades into Asia at competitive prices. Physical oil traders also report that there is no shortage of light crude and cargoes are trading at discounts to their OSPs.

It seems that in Asia the output cuts by OPEC and its allies have shifted the battleground to lighter grades of crude, and the reason is starting to show up in import figures.

Data compiled by Thomson Reuters Supply Chain and Commodity Forecasts indicates that Middle Eastern producers are losing ground in Asia.

The Middle East's share of Asia's crude imports in March was 61.5 percent, down from as high as 65.9 percent as recently as January, according to vessel-tracking and port data.

In contrast, the share from exporters in the West, which includes U.S. shale, Canada, Brazil and even cargoes from Europe's North Sea, rose to 19.7 percent, up from 17.9 percent in January, and the second-highest share in the past year, behind only December's 19.9 percent.

It appears as if the Saudis are attempting to maintain market share in Asia by trying to match the pricing and availability of lighter crudes from producers outside the output agreement between OPEC and its allies.

At the same time, they are reducing shipments of heavier grades of crude to meet their commitments to reduce overall output.

If this trend continues, it's possible that Asian markets will end up with a surplus of lighter crudes and a deficit of heavier grades, which could conceivably send the Brent-Dubai swaps into a discount for the first time in seven years.
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Global LNG trade reaches record 258 million mt in 2016: IGU

Global LNG trade in 2016 reached a record 258 million mt, up 5% from 2015, according to the International Gas Union's 2017 World LNG Report published Wednesday.

LNG trade expanded by an average of only 0.5% a year over the previous four years, the IGU said.

Short- and medium-term LNG trade grew by only 0.56% in 2016 to 72.3 million mt, accounting for 28% of total trade.

The report said: "the share of LNG traded without a long-term contract as a percentage of the global market has tapered off since 2013. Short and medium-term trade, as a share of total traded LNG, fell by 4%."

This reflects partly the existence of long-term contracts for the new LNG capacity that has come on stream in the last 12 months, as well as the spike caused in short- and medium-term LNG trade in the aftermath of the 2011 Fukushima nuclear disaster in Japan and the later onset of drought conditions in Latin America.

The increase in overall LNG trade can be attributed to a significant rise in new supply, said the IGU, owing to the start of exports from the US Gulf of Mexico and Australia Pacific LNG, among other projects.

The report also notes significant rises in demand, most notably from Asian markets; China's LNG consumption rose by roughly 35% to 27 million mt in 2016, the report said.

However, it also notes that some markets, including Japan and South Korea as the two largest, may have passed peak LNG demand as other forms of energy come to the fore.

A resurgence in hydropower in Brazil reduced demand for LNG there by 80%, it added.

Total liquefaction capacity was put at 339.7 million mt/year in 2016, an addition of 35 million mt. The IGU estimates that 114.6 million mt of new capacity was under construction as of January 2017, indicating LNG supply will continue to rise rapidly in coming years.

However, the capacity of projects entering the construction pipeline have slowed. Two projects entered the construction phase of development in 2016: a brownfield expansion of Tangguh LNG (3.8 million mt/year) in Indonesia, and an additional US project, Elba Island LNG (2.5 million mt/year).

The report estimates proposed LNG capacity at 879 million mt, down from 890 million mt in January 2016, noting that there is insufficient demand for most of these projects to go ahead.

Global regasification capacity was put at 794.6 million mt/year as of January 2017, up from 776.8 million mt/year in January 2016, added mainly in existing markets.

In contrast, 2016 mainly saw the addition of new gasification capacity in new markets, such as Egypt, Jordan and Pakistan.

Floating facilities account for 83 million mt/year of regasification capacity globally, the IGU said.
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Iran struggles to expand oil exports as sea storage cleared

Iran has sold all the oil it had stored for years at sea and Tehran is now struggling to keep exports growing as it grapples with production constraints, shipping and oil sources say.

Since the easing of international sanctions in January 2016, Iran tried to make up for lost sales by releasing millions of barrels parked on tankers offshore.

Tanker tracking and oil sources said Iran had sold its last stocks from the floating storage in the past two weeks. Much of the oil stored was condensate, a very light grade of crude.

With no more stocks at sea, Iran has lost a vital resource that had propped up exports.

"We do think that (floating storage) has been the primary cause of the boost in exports," Energy Aspects analyst Richard Mallinson said, adding that now floating storage had ended total exports of crude and condensate were likely to slip.

"We see a very difficult path for Iran to raise crude output until it can get the Western expertise and investment back into the upstream, which has been notably slow to materialize," he added.

After Western sanctions were eased, Iran's output jumped from about 2.9 million barrels per day (bpd) to about 3.6 million bpd in June.

But it has barely risen since - fluctuating between 3.6 million and 3.7 million bpd - even though Iran fought hard with fellow OPEC members to be excluded from production cuts that came into effect on Jan. 1 and will last till June.

The Organization of the Petroleum Exporting Countries pledged to reduce output by about 1.2 million bpd, but Iran was allowed a small increase to compensate for years of isolation. Yet it has produced less in the past three months than it was allowed.

Iranian Oil Minister Bijan Zanganeh said last month Tehran was prepared to produce 3.8 million bpd if OPEC agreed to extend cuts to the second half of 2016, effectively signaling there was little hope of a steep rise in Iranian output.


Prior to the lifting of sanctions, Iran stored unsold oil on ships, which peaked in 2015 at 40 million barrels on around 25 tankers. The country has up to 60 oil tankers in its fleet.

Iran's drawdown of floating storage gathered pace in September. By the start of 2017, Iran still held an estimated 16 million barrels of oil on ships. Since then, they have emptied.

While the EU and United Nations lifted sanctions on Iran over its nuclear program more than a year ago, the United States has held separate measures in place and President Donald Trump's administration has promised a tough line.

This has increased concerns among Western banks about offering finance to Iran, slowing energy investment decisions.

French oil company Total said in February it planned a final investment decision on a $2 billion gas project in Iran by the summer, but said this hinged on a renewal of U.S. sanctions waivers.

"The uncertainty over the U.S. position on further sanctions is casting a huge shadow on the oil trade with Iran," said Paddy Rodgers, chief executive of tanker company Euronav.

In addition, the oil minister's efforts to secure deals with Western firms has run into internal opposition in Iran, which holds the world's fourth biggest oil reserves. The plans have now been postponed until after a May presidential election.

"Iran needs billions of dollars of investment to boost crude oil production and natural gas capacity," said Mehdi Varzi, a former official at state-run National Iranian Oil Company and now an independent consultant.

"Most of the fields were discovered many decades ago and are way beyond their production capacity," he said.
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US oil inventories up, production up

DOE CRUDE: +1.57M V -0.15ME; CUSHING: +1.41M V +0.13ME; GASOLINE: -0.60M V -1.75ME; DISTILLATE: -0.50M V -1.0ME

US oil production increased for the 6th week in a row. It rose 52k to 9199M bd (highest since Jan. 2016).

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Chevron pivots to Permian shale as mega-project era fades

Nearly a century after Chevron Corp amassed the No. 2 stake in America's largest oilfield, Chief Executive John Watson is hitting the accelerator on developing the company's vast Permian Basin holdings.

In an interview, Watson made clear his desire to put the West Texas to New Mexico expanse in the ranks of Chevron's biggest ventures. That is a stark change from just five years ago, when Chevron executives rarely mentioned the shale basin.

But with low oil prices, the company is now spending more than it makes to cover its prized dividend and find new reserves. Now, those 2 million Permian acres have emerged as to way to help fund both goals.

"Some of the best things we have in our portfolio are the shales," Watson said during an interview on the 48th floor of the company's Houston office tower. "My employees in the Permian know I'm featuring it as something very important."

Gone, for the next few years at least, are plans for any new multi-billion-dollar mega-projects, he said. To survive and grow, San Ramon, California-based Chevron is turning to acreage it has always controlled and that largely is free of royalties to landowners.

"We're just in a period now where markets are weak and everyone is focused on controlling costs," Watson said.

Within a decade, Watson expects Chevron's production in the Permian to grow eightfold to more than 700,000 barrels of oil per day. By the end of next year, nine drilling rigs will join the 11 that Chevron already has poking holes into Permian land.

It is all part of Watson's plan to methodically pump Chevron's more than 9 billion barrels of Permian oil, most of it owned outright by the company. That gives Chevron a cost advantage over rival Permian producers as the region in the past year has become the epicenter for the U.S. shale resurgence.

Chevron's Permian portfolio, which was acquired in stages by predecessor companies, is worth at least $43 billion, Chevron believes, greater than the market value of Pioneer Natural Resources Co, Concho Resources and other Texas producers.

Watson bristles at critics who say the company is moving too slowly in the Permian. "We're growing our portfolio in the Permian as fast as anyone," said Watson, an economist by training who has worked at Chevron his entire career.

"We're focused on growing value and growing the dividend over time."

Chevron is valued more highly by investors than rival Exxon Mobil Corp partly because of that dividend, which has risen annually for the past 29 years. Watson has called protecting the $1.08 quarterly payout his top priority.

"We like inexpensive, recurring revenue streams" such as the Permian, said Oliver Pursche of wealth manager Bruderman Brothers LLC, which holds shares in the company.

Chevron, which does not hedge oil production, is boosting spending in the Permian by 67 percent this year to $2.5 billion, an implicit bet that oil prices will rise and lift the company to a profitable year after an annual loss in 2016.

That makes the Permian the second-largest area for spending this year for Chevron after the Tengiz project in Kazakhstan, which is not expect to come online until next decade.


Watson said he is not worried about demand for oil hitting a ceiling for at least the next 20 years, despite the rising popularity of electric cars. Rising petroleum needs for air travel and petrochemical production should buffer any drop in demand from the automobile sector, he said.

"There is no sign of peak demand right now," Watson said.

Like Exxon, BP and other oil peers, Chevron supports the Paris climate accord, a 2015 agreement between nearly 200 nations that aims to limit the rise in global temperatures to "well below" 2 degrees Celsius (3.6 degrees Fahrenheit).

"We have said that Paris is a first step, but we need to understand what that translates to in terms of policy," Watson said.

Watson, however, has spoken out against a tax on carbon, something that Exxon supports.

President Donald Trump had considered a carbon tax as part of his proposed budget, but the White House on Tuesday said it was not under consideration. It could still be resurrected by Congress, where it has some support.

"A carbon tax will have the effect of adding cost on the people who can least afford it," Watson said. "If you increase energy costs you are going to make it more difficult here for industrial activity."

Watson said he is not opposed to renewable energy, just government financial support for it through subsidies and other means. He said he would be open to buying a Tesla or another electric vehicle.

"I have no particular aversion" to electric cars, he said. "I'll buy a car that meets all my needs, particularly around size and other characteristics."
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Woodside considers fixed-priced LNG sales as market evolves

Woodside Petroleum is considering sales of some of its liquefied natural gas (LNG) on a fixed-price basis, the chief executive of Australia's largest independent oil and gas producer told reporters on Tuesday at a conference in Japan.

LNG supply contracts need to evolve by diversifying their pricing basis, particularly for new entrants into the market, said Peter Coleman at a Gastech press briefing.

"We've talked about a lot of innovation in our business models but the reality is that the way we contract hasn't changed very much at all," he said, adding that most supply contracts were still linked to oil prices.

Woodside has been considering the fixed-price structure, especially for buyers in developing markets as it gives these new participants surety of supply and price, Coleman said.

"It is something we are looking at for parts of our portfolio," he said. Coleman said he would be comfortable having between 20 and 30 percent of Woodside's LNG portfolio being sold on a fixed-price basis, but with shorter contract periods to mitigate risk.

The need for more diversity in LNG pricing comes amid an overall push for contract flexibility in the industry.

Last month, the biggest buyers in the world's top three LNG consuming countries - Japan, South Korea and China - clubbed together to push for more flexible supply contracts that drop cargo destination clauses.

Other producers are also toying with the idea of fixed pricing in supply contracts.

Tellurian Inc Chairman Charif Souki on Tuesday said at the gas conference that his firm could guarantee deliveries of the supercooled fuel to Japan for $8 per million British thermal units all inclusive from 2023.

The cargoes that would come from its planned Driftwood terminal in Louisiana would be sold under five-year contracts.


Woodside and its partners are expecting to reach a decision on how to develop their Browse LNG project within the next two years, Coleman also said.

"We are looking for decisions on Browse before 2020, (and) we are targeting to get Browse flowing into the North West Shelf around 2025," he added.

Woodside is planning to use its liquefaction capacity at the North West Shelf project to bring the gas to market.

"The Browse concept at the moment, if it goes through the North West Shelf, is now just simply an offshore development with a long pipeline ... All the infrastructure, the big expensive part of it, is already there. It is de-risked," Coleman said.
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AG&P Announces Integrated Plug-and-Play Solutions for LNG Supply Network in Asia

New, standardized solutions will drive down production costs and accelerate delivery

AG&P’s scalable LNG platforms have a flexible design. The 4,000 m3 to 8,000 m3 vessel is designed for shallow water delivery and the 6,000 m3 to 16,500 m3 platform has scalable capacity which is suitable for open water delivery cost-efficiencies and uptake. (Graphic: Business Wire)

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AG&P (Atlantic, Gulf and Pacific Company), the global leader of infrastructure solutions, today announced two standardized modular products for the LNG supply network that will drive down costs, accelerate schedule and enable last-mile delivery to LNG demand centers scattered across Southeast Asia, South Asia and the Caribbean.

“While there is increasing preference for small-scale and mid-scale LNG solutions in emerging economies like Indonesia and India, uptake remains slow with few projects underway. Standardization and modular solutions will be the circuit-breaker that will bring projects online, enabling the switch to LNG as a clean and affordable energy source”

Speaking at Gastech 2017, the company presented designs incorporating standardized equipment to deliver a scalable LNG delivery platform and a fit-for-purpose, onshore modular regasification unit. These ‘plug and play’ packages, based on standard solutions, are built in AG&P’s dedicated, state-of-the-art, 150-hectare modularization facilities, which helps speed delivery times and significantly reduces the cost of customized engineering and project man-hours while increasing productivity and quality. Cost-effective and built for transportation across the world, AG&P believes these off-the-shelf products have the potential to bolster the small and mid-scale LNG market.

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New US Gulf fields add to oil production; operators eye exploration

It may be more than a year before US Gulf of Mexico oil exploration begins to ramp up in any noticeable way, but several new deepwater fields are adding to production and there seems to be sparks of interest in developing recent offshore finds.

Platts Analytics Bentek Energy is forecasting a rise in US offshore production to 1.868 million b/d by year-end and to 2.296 million b/d by end-2022 from 1.669 million b/d at end-December 2016.

The reason? Several new fields are slated to come online this year, including Barataria and South Santa Cruz, operated by small privately held Deep Gulf Energy, and Crown and Anchor by LLOG Exploration. Those will bring a combined 15,000 b/d of oil equivalent production.

But the Tornado Field, at around 9,000 boe/d, came onstream in November and other large fields that came on in 2016 such as Anadarko Petroleum's Heidelberg, Shell's Stones, ExxonMobil's Julia and Noble Energy's Gunflint, are still ramping up, sources said. Also, new wells are expected this year from Anadarko's Lucius Field (online since early 2015), and Hess' Tubular Bells (online since late 2014).

Even though sanctioning of large projects are few in number these days, some are still being advanced. For instance, Chevron's long-awaited Big Foot development will come online in late 2018. And Shell's Appomattox field is set to come online in 2020. Shell's Kaikias Field, to be tied back to its Ursa production hub, comes on in 2019.

"I've said for the past few years that things should be more active [in the Gulf] in 2018 and 2019, and I'm still hopeful that's the case," Trevor Crone, analyst for Platts unit RigData, said. "We should see a modest but steady increase in drilling in 2019."

RigData shows just six semisubmersible rigs and 22 drill ships under contract in the US Gulf of Mexico as of the end of March, down from 10 and 29, respectively, year on year.

"It won't go gangbusters anytime soon. I think there will be gradual improvement from here on out," Crone said.


As for new exploration, last month's Central Gulf of Mexico lease sale, which captured nearly $275 million in total high bids -- up from the $156 million seen in last year's comparable sale -- "is an early sign that offshore exploration and production spend is likely to come back," UBS analyst Amy Wong said in a post-sale investor note.

Mexico also held its first deepwater auction on its side of the Gulf in December 2016, where eight of 10 blocks received bids and Australia's BHP won a separate bidding to develop the Trion deepwater find jointly with state company Pemex.

But most of these are long-lead exploratory projects that could take up to a decade to produce -- and that's after a discovery is made, which could take several years as seismic is analyzed, drilling locations selected and other prepatory work is done.

Terms for US Gulf deepwater tracts are seven to 10 years, meaning operators have until 2024 (for tracts in 2,600-5,250 foot water depths) or 2027 (for blocks in water depths greater than 5,250 feet) to drill them.

Analysts have said $60/b is roughly the oil price operators likely want to see before embarking on wildcat exploration. With many deepwater wells costing well over $100 million each in remote locations 150-200 miles offshore and at total depths 30,000 feet and greater, operators have shied away from the risk -- especially when shale wells onshore yield more immediate benefits.

"Broadly speaking, our view is that we're not going to see any kind of full-scale return to exploration until oil prices go back up," Gordon Loy, Gulf of Mexico upstream oil and gas analyst for energy consultants Wood Mackenzie, told S&P Global Platts.

Still, Loy said breakeven oil prices for many Gulf of Mexico deepwater projects are "sub-$50" per barrel now, down from the $60s/b and $70s/b a few years ago.

In a report last week, Wood Mac said investment decisions on global deepwater oil and gas projects will likely see a recovery this year as drilling costs in the sector have fallen to a level making them more competitive with US shale plays.


Noting that cost inflation in the US tight oil industry was back "with a vengeance," the report estimated that, in contrast, deepwater costs could fall further, helped by leaner development principles and improved well designs.

"A lot of projects we classify as probable [for development] are undergoing a rescrubbing," Loy said. "They are being optimized, and operators are right-sizing facilities to be able to produce from a field they have now, not over-designing and not building in extra capacity [for the] future."

On the other hand, "we're still seeing appraisal activity at some high-profile discoveries" in the Gulf of Mexico, including Chevron's 2015 Anchor discovery (not related to a similar-named LLOG field), Anadarko Petroleum's Shenandoah and Cobalt's North Platte, he said.

"Those will still move forward. But a majority of Gulf of Mexico exploration will focus on lower-risk subsea tiebacks for the near future," Loy said.

Subsea tiebacks connect fields relatively near a production hub to the facility. They allow operators to capture value from smaller discoveries that may not be economic enough to warrant stand-alone production hubs.

In addition, top energy officials such as Saudi's oil minister Khalid Al-Falih and even Chevron CEO John Watson recently said shale alone will not be enough to fill a needed crude supply gap into the 2020s.

Speaking at the Howard Weil conference in New Orleans last week, Paal Kibsgaard, CEO of oil services provider Schlumberger, said production is holding up well despite under-investment despite a global industry downturn now into its third year.

Even so, "the current situation is not sustainable," Kibsgaard added.

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Oil Traders Said to Drain Caribbean Hoards as OPEC Impact Hits

During the oil price rout, islands in the Caribbean were exhibit A for the longest-lasting glut in three decades, with millions of barrels stored there. Now, that oil is flowing again, a sign the market is rebalancing.

Since mid-February, between 10 million and 20 million barrels have left the Caribbean, according to estimates from traders who asked not to be named because their data is proprietary. The draw, hardly noticed by most in the market, reflects the impact of the output cuts orchestrated by OPEC and Russia.

Low taxes and the Caribbean’s proximity to U.S. and Latin America oil centers have made it into one of the world’s largest oil storage centers, holding as much as 140 million barrels. While a lack of official data can make the area invisible to some, the information is key in framing a full picture of global supply and demand at a time of market uncertainty.

"Caribbean and other storage has drawn down rapidly over the past weeks," said Amrita Sen, chief oil analyst at Energy Aspects Ltd., in a note to clients. "The first indications that the rebalancing has begun are here."

On Sunday, Mohammad Barkindo, OPEC’s Secretary-General, said he remained "cautiously optimistic” the gap between supply and demand was starting to tighten. The Organization of Petroleum Exporting Countries and the 11 countries that agreed to trim production in the first half of the year are now weighing whether to extend the cutbacks to the end of 2017.

West Texas Intermediate oil fell 0.7 percent to $50.24 a barrel in New York on Monday. Oil prices have fallen about 10 percent this year as crude stockpiles in the U.S. have since December grown by almost 55 million barrels to 534 million barrels, the highest since 1929.

Grand Bahama, Aruba, Bonaire, Curaçao, St. Eustatius and St. Lucia, mostly known for the beaches that draw sun-chasing visitors from around the world, all have significant depots to store crude and refined products.

Chinese oil companies, which lease millions of barrels of storage in the southern Caribbean sea, are leading the stock-draw from those islands, the traders said. PetroChina Co. used the super-tanker Nectar last month to remove stored crude from Aruba and Curaçao, according to ship-tracking data compiled by Bloomberg. It also loaded the Maxim, another very-large crude carrier (VLCC), with crude from storage in the Caribbean Sea.

Indian oil refiners are also taking crude out. In a rare shipment, Reliance Industries Ltd. received Ecuadorian crude stored in the island of Grand Bahama in the DHT Condor super-tanker. More recently, another giant tanker, the Amphitrite, took Venezuelan crude from a terminal in St. Eustatius, also for Reliance.

"Globally, crude stocks are coming down," said Mike Loya, the Houston-based top executive at Vitol Group BV, the world’s largest independent oil trader.

The Caribbean outflows also reflect a change in the relationship between spot and forward oil prices. For much of 2015 and 2016, the shape of the oil curve showed spot prices below forward prices. In a contango market, traders can buy barrels, place them on storage and lock in a profit by selling them forward in the futures market.

The price difference between Brent crude oil for immediate delivery and the one-year forward, a key contango yardstick, reached more than $11 a barrel in January 2015. But after OPEC and Russia announced their output cuts in late last year, the contango has all but dissipated, with the one-year Brent price spread at just about 80 cents a barrel on Monday.

"Less visible inventories have been drawing," Martijn Rats, oil analyst at Morgan Stanley in London, said in a note to clients.

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Shell's Wetselaar says LNG contract destination clauses

Royal Dutch Shell's integrated gas and new energies director, Maarten Wetselaar, said on Tuesday that destination clauses in long-term liquefied natural gas (LNG) supply contracts that have linked suppliers and customers for decades are "not really crucial".

"They're not really crucial in contracts anyway, once you've delivered LNG into a tank, it is quite expensive to get it out again and ship it to someone else," Wetselaar said, speaking on the sidelines of a gas conference in Chiba, Japan.

The Shell executive was responding to questions on efforts made by the world's biggest buyers of the fuel to club together last month to push for more flexible supply contracts that drop cargo destination clauses.

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Brazil's black market pipeline: Gangs hijack Petrobras' oil, fuel

Brazil's black market pipeline: Gangs hijack Petrobras' oil, fuel

In September, police investigating a wave of killings in the northern Rio de Janeiro suburbs followed a tip to the isolated scrubland near the massive Duque de Caxias oil refinery.

Police presumed the killings were linked to turf battles between criminal gangs in the run-up to municipal elections the following month.

They found a different explanation buried beneath the grass: a system of tubes to siphon fuel from underground pipelines leading from the refinery, owned by state-run oil company Petrobras.

Some of the killings, police said, were part of a power struggle between rival gangs earnings millions of dollars a year from stealing crude oil, diesel and gasoline and selling it on a thriving black market.

The discovery highlighted a fast-growing criminal enterprise in Brazil's oil heartland, between Rio de Janeiro and Sao Paulo. From just one recorded incident in 2014, the number of thefts and attempted thefts from Petrobras rose to 14 in 2015 - before jumping five-fold to 73 last year, the company told Reuters.

The racket is part of a larger crime wave in Brazil, and especially Rio, amid the country's worst recession on record.

Investigators believe the oil and fuel thefts were masterminded by the city's powerful militias - often made up of retired or off-duty cops - as they seek to move away from terror and violence to lower-profile crimes following a crackdown by authorities in recent years.

The thieves' methods range from hijacking tanker trucks to tapping the company's more than 11,000 kilometers of pipelines - and processing stolen crude at their own secret refineries.

"Not even Petrobras knows exactly how much is being stolen," said Giniton Lages, the Rio police chief who led the investigation at Duque de Caxias. "It's a huge business, moving millions of reais."


While oil theft - often with environmental damage from the accompanying spills - is commonplace in regions like the Niger Delta of Nigeria, it has not traditionally been a problem in Brazil.

The thefts add to the steep challenges facing Petroleo Brasileiro SA, as the Rio-based firm is formally known. Amid weak oil prices, the company is scaling back under new CEO Pedro Parente and trying to emerge from a $100 million pile of debt.

For the past three years, the state-run company has been hit by a sprawling investigation into corruption and political kickbacks in its dealings with construction firms.

Police suspect corruption in the oil thefts as well. The taps and pipes near the Duque de Caxias refinery were so precisely engineered that investigators concluded the thieves must have had help from inside Petrobras.

"They knew what type of fuel was inside each pipe and what was the ideal point to place a tap without the change of pressure in the tube raising the attention of the company's security system," Lages said.

Petrobras, whose production of about 2.8 million barrels a day makes it one of the world's top 10 oil companies, said it was working with police to identify any employees or ex-employees that may have been involved in the crimes.

"In 2016, there was a startling increase in theft from our pipelines," said Rodrigo Spagnolo, head of pipeline maintenance at Transpetro, Petrobras' transport subsidiary.

The company, however, said the robberies had no material impact on its earnings. Petrobras reported revenues of $81 billion last year.

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Genscape: small Cushing build

Genscape Cushing: +762,000bbls in last week

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Mediterranean gas pipeline could be built by 2025

European and Israeli governments gave their support on Monday to moving forward with a Mediterranean pipeline project to carry natural gas from Israel to Europe, setting a target date of 2025 for completion.

The planned 2,000 km (1,248 mile) pipeline aims to link gas fields off the coasts of Israel and Cyprus with Greece and possibly Italy, at a cost of up to 6 billion euros ($6.4 billion).

"This is an ambitious project, which as the Commission, we clearly support, as it will have a high value in terms of security of supply and diversification targets," said European Climate and Energy Commissioner Miguel Arias Canete.

Israel has discovered more than 900 billion cubic metres (bcm) of gas offshore, with some studies pointing to another 2,200 bcm waiting to be tapped. Along with the European market, it is exploring options to export to Turkey, Egypt and Jordan.

Cyprus' Aphrodite natural gas field holds an additional 128 bcm, and Cypriot waters are expected to hold more reserves.

After a meeting in Tel Aviv between energy ministers from Israel, Cyprus, Greece and Italy, Canete told reporters he believed the project would "meet all relevant requirements" to make financial commitment possible.

Israeli Energy Minister Yuval Steinitz said the pipeline could be completed in 2025. "But we will try to speed up and to shorten the timetable," he said.

A feasibility study has been completed and the next few years would focus on "proper development activities", with a final investment decision expected by 2020, said Elio Ruggeri, chief executive of IGI Poseidon, the project owners.

IGI Poseidon is a joint venture between Greece's DEPA and Italian energy group Edison.

"Our estimate today is for the pipeline to cost 5 billion euros to (reach) the Greek system and 6 billion euros to (reach)the Italian system," Ruggeri told Reuters.

The energy ministers said they would next meet in Cyprus in six months to further advance the project.
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Vitol's 2016 profit rises 25 pct

World's largest independent energy trader Vitol's profit rose 25 percent last year, the Financial Times reported on Monday, citing people familiar with the matter.

The Swiss-based company had a net income of $2 billion in 2016, up from just over $1.6 billion in 2015.

The 2016 net income included $500 million of gains from asset sales and a $100 million tax bill, the newspaper reported.

The results are unaudited and subject to revision, according to the FT.

Vitol said last month that annual traded volumes rose 16 percent in 2016 to a new record as it sold more gasoline and diesel in markets such as the U.S. and Australia.

Vitol's turnover, however, fell to $152 billion in 2016 from $168 billion in 2015 as a result of lower energy prices.
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Qatar restarts development of world's biggest gas field

Qatar has lifted a self-imposed moratorium on development of the world's biggest natural gas field, the chief executive of Qatar Petroleum said on Monday, as the world's top LNG exporter looks to see off an expected rise in competition.

Qatar declared a moratorium in 2005 on the development of the North Field, which it shares with Iran, to give Doha time to study the impact on the reservoir from a rapid rise in output.

The vast offshore gas field, which Doha calls the North Field and Iran calls South Pars, accounts for nearly all of Qatar's gas production and around 60 percent of its export revenue.

"We have completed most of our projects and now is a good time to lift the moratorium," QP Chief Executive Saad al-Kaabi told reporters in Doha.

The new development will increase production of the North Field by about 10 percent, adding about 400,000 barrels per day of oil equivalent to Qatar's output, he said.


Qatar is expected to lose its top exporter position this year to Australia, where new production is due to come on line.

The LNG market is undergoing huge changes as the biggest ever flood of new supply is hitting the market, with volumes coming mainly from the United States and Australia.

President Vladimir Putin said on Thursday Russia aimed to become the world's largest LNG producer.

The flurry of LNG production has resulted in global installed LNG capacity of over 300 million tonnes a year, while only around 268 million tonnes of LNG were traded in 2016, Thomson Reuters data shows.

That has helped pull down Asian spot LNG prices by more than 70 percent from their 2014 peaks to $5.65 per million British thermal units (mmBtu).

Qatar's decision to lift the moratorium on new gas development now could help the Gulf monarchy maintain a competitive edge after 2020, when the global LNG market is expected to tighten.

"With global activity levels and costs low, now is a good time to add new capacity, even if the LNG market does presently look over supplied," said Giles Farrer, research director of Global LNG at Wood Mackenzie.

"It's a signal that Qatar intends to increase its market share, which has been falling as other regions have built new capacity."

An energy advisor to the Qatar government said he saw it as a preemptive step to warn competitors who are considering LNG investments that Qatar would remain an aggressive seller.

"It will certainly give rivals something to chew on. It's like when Saudi develops future oil capacity even when there is a glut - it shows you mean business," he said, declining to be named as he was not authorized to speak publicly.

The announcement coincides with the start of a major LNG industry conference this week in Japan, attended by many of its competitors and potential new customers.

Kaabi said low prices would not pressure Qatar.

"By the time this project comes online in five years or so it should be a good market for gas," he said. "We don't see that the pricing pressure has affected us as much as some."


Iran, which suffers severe domestic gas shortages, has made a rapid increase in production from South Pars a top priority and signed a preliminary deal with France's Total in November to develop its South Pars II project.

Total was the first Western energy company to sign a major deal with Tehran since the lifting of international sanctions.

Kaabi said the decision to lift the moratorium was not prompted by Iran's plan to develop its part of the shared field.

"What we are doing today is something completely new and we will in future of course ... share all this with them (Iran)."

The economy of Qatar, a future World Cup host with a population of 2.6 million, has been pressured by the global oil slump and in 2015 QP dismissed thousands of workers and has earmarked a number of assets for divestment.

QP is merging two LNG divisions, Qatargas and RasGas, to save hundreds of millions of dollars.

In February, Kaabi said Qatar would focus on seeking international opportunities by exploring for oil and gas in Cyprus and Morocco.

But the current low LNG price environment may deter investment in new supply projects, bringing tighter supplies and price spikes in the future.

New production from Qatar's North field is seen starting within 5-7 years, targeting gas exports of 2 billion standard cubic feet per day, Kaabi said.

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Recovery in Libyan oil production

Libya's Sharara oil field, the country's largest, resumed production on Sunday after a week-long disruption and state-owned NOC lifted force majeure on loadings of Sharara crude on Monday, sources told Reuters.

The field was producing around 80,000 barrels per day (bpd) on Sunday and about 220,000 bpd prior to the March 27 shutdown.

"The main development over the weekend is the restart of Sharara," managing director of PetroMatrix Olivier Jakob said.

Uncertainty about how Libyan output would fare in the months ahead added short-term volatility to oil prices, he said. "(It) is a swing factor that can make it move both ways if one looks at the balances for the second half of the year." he added.
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NAmerico unveils natural gas pipeline plan to relieve Permian glut

NAmerico Partners LP is proposing a multibillion-dollar pipeline to ferry natural gas from fast-growing fields in West Texas to the Gulf Coast, the company said on Monday, angling to match plans by rivals such as Kinder Morgan Inc (KMI.N).

The pipeline, one of at least three being considered to ease a looming gas glut in the Permian producing region, would link to existing lines, including those that export gas to Mexico and to a Cheniere Energy Inc (LNG.A) liquefied natural gas export facility under construction.

The pipeline would be the first major project by NAmerico Partners, founded two years ago in Houston. The company is backed by private equity fund Cresta Energy LP, whose management includes former executives from Regency Energy Partners LP, a large energy infrastructure company that was bought by Energy Transfer Partners (ETP.N) in 2015.

NAmerico Managing Partner Jeff Welch told Reuters in an interview this week that discussions with prospective shippers were at an advanced stage, and the pipeline would begin operations in 2019 if enough of them committed to supplying gas.

He declined to identify the shippers but said the company was confident the project would proceed.

NAmerico's 468-mile (753-km) pipeline, named the Pecos Trail Pipeline, would transport some 1.85 billion cubic feet per day of natural gas to the major Gulf Coast refining and petrochemical hub in Corpus Christi.

Last month, Kinder Morgan, which operates the largest natural gas pipeline network in North America, outlined a plan to build a 430-mile (692-kilometer) pipe traveling a similar route. It would be able to move 1.7 bcf per day of gas.

Enterprise Products Partners (EPD.N), another large pipeline operator, has said it may build a gas line to Corpus Christi, Texas, from the Permian.

"We've got this gigantic gas supply in West Texas, and big exports southbound and eastbound," Rick Smead, managing director of advisory services for consultancy RBN Energy, said in a telephone interview.

Kinder Morgan has also said its pipeline would begin operations in 2019 if enough shippers commit.

Analysts said the potential for new supplies could allow multiple projects to proceed.

The projects are being planned as big producers including Exxon Mobil, Apache Corp, and Chevron Corp are expected to pour billions of dollars into drilling in the Permian, a vast shale play in West Texas known for its low production costs and massive reserves.

Demand for natural gas in south Texas and the Corpus Christi area is expected to soar in the coming years. Cheniere Energy has said it has customers for 8.42 million metric tons a year of LNG from its site, which is expected to begin operations around 2018.

Exxon and Saudi Basic Industries Corp 2010.SE, an arm of Saudi Aramco, the state-owned energy company, also have proposed building a multibillion-dollar chemical and plastics plant outside of Corpus Christi. That plant would use natural gas as a raw material.

Natural gas production in West Texas is expected to more than quadruple by the middle of the next decade, Scott Sheffield, chief executive of Pioneer Natural Resources Co (PXD.N), a large Permian producer, said last month.

Gas production in the Permian is projected to reach 7.9 Bcf/d in April, up from 5.4 bcf/d the same month in 2014, according to the U.S. Energy Information Administration.

The number of drilling rigs operating in the region has more than doubled in the last year to 319 as of March 31, according to energy services provider Baker Hughes (BHI.N).

While companies are primarily drilling in the Permian for crude, natural gas comes up along with it. The EIA estimates each new rig in March added in the Permian increases the field's gas production by 1.1 million cubic feet a day.

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LNG trio to test leverage in push to free-up purchases

The world’s gas industry is descending on Tokyo this week with something other than cherry blossoms on its mind: a trio of Asian LNG buyers testing their collective muscle in a push for more flexible long-term contracts for the fuel.

Korea Gas Corp (KOGAS), Japan’s JERA and China National Offshore Oil Corp (CNOOC) – whose joint liquefied natural gas volumes account for a third of global LNG trade – are attempting to cement a shift in power from producers to importers amid a supply glut that is expected to persist into the early-2020s.

Developing responses from LNG producers to the group’s alliance may also soon start to give clues as to who will win advantage as the fuel surplus puts pressure on suppliers to give buyers greater contractual freedom than they have had since the industry first began to ramp up in the 1970s.

Destination clauses will probably die soon under the pressure of buyers and the growing needs for flexibility,” said Anne-Sophie Corbeau, a research fellow at the King Abdullah Petroleum Studies and Research Centre (KAPSARC) in Saudi Arabia.

No meetings between the three buyers and major producers such as Royal Dutch Shell, Chevron and Qatargas have yet been confirmed at the Gastech biannual industry gathering, but representatives of all are certain to be in attendance, and other delegates are sure to be watching to see what happens when their paths cross.

North Asian LNG buyers – including those agreeing last month to explore joint purchases of supplies – have for decades relied on rigid long-term contracts that prevent cargo resales because the main priority was security of supply as energy demand soared amid double-digit economic growth.

But a slowdown in Asian growth over the past few years, especially in top two buyers Japan and South Korea, and impending liberalisation of gas and power markets mean dominant utilities are now often stuck with surplus cargoes they cannot resell amid stagnant or shrinking demand at home.

Last year for instance, global installed LNG capacity was over 300 million tonnes a year, while only about 268 million tonnes of LNG were traded, according to Thomson Reuters data.

JERA and KOGAS have both indicated they aim to ink only future contracts that have more flexible terms, but it remains unclear if they or other Asian buyers plan to force existing contracts into arbitration.

Many LNG producers have so far declined to comment on the rising threat from more aggressive buyers, although Australia’s Woodside Petroleum; suggested last week that flexibility in long-term contracts would eventually lead to a more liquid market.


Another disrupting force in the LNG market could be the emergence of importers like Pakistan that utilise floating storage and regasification units, who would also be small-scale buyers seeking shorter-term contracts.

“There are more new types of players coming into the market so it’s no longer the long-term bilateral type of dedicated deals between utilities and exporters, but we’re seeing a more flexible and liquid market developing,” Keisuke Sadamori, director of energy markets and security for the International Energy Agency, told Reuters.

Asia, which accounts for about 70 percent of the world’s LNG demand, is poised as well to benefit from rising U.S. exports that are on track to make the United States the third-largest exporter of LNG next year.

U.S. LNG is attractive to Asian buyers as cargoes have no destination restrictions that prevent them from being resold when domestic power demand is weak.

“This growth (in spot and short-term contracts) is driven by several factors including … the Japanese gas and power sector deregulations, (and the) uncertainty of LNG demand in Japan and Korea given potential nuclear power plant re-starts,” said Marc Howson, LNG Senior Managing Editor at Global Platts.

The emergence of price-sensitive buyers in India and China is also driving the market towards more spot trade, Howson said.

India does not rule out the possibility of joining the China, Japan and Korea grouping to jointly buy LNG to extract better deals, the country’s Oil Minister Dharmendra Pradhan said last month, adding that the market was gradually becoming more consumer-centric.

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Where have drilling costs dropped the most? Midland Basin, of course

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The costs of producing oil in the major U.S. shale fields have dropped by almost half over the past two years, but none as much as West Texas’ Midland Basin, a part of the prodigious Permian.

Drillers in the Midland, the eastern section of the Permian Basin, used to produce oil for about $71 a barrel, according to a new report by the Norwegian energy research firm Rystad Energy. Last year, that cost dropped by half, to $36 a barrel.

More than half of that savings — 57 percent — comes from lower drilling prices, as operators have squeezed oil field service companies during the two-year-old oil-price crash, Rystad said. Efficiency improvements have cut another one-quarter of the costs.

And the last one-fifth come from a practice known as “high-grading,” when oil companies move drilling operations to their best land.

Essentially, as oil prices crashed in 2014, companies stopped drilling. When they restarted, they picked spots with the most oil, where they knew they’d get their best returns — what they call “core” acreage.

In 2014, according to Rystad, companies drilled in core acreage about 60 percent of the time.

Last year? 80 percent.

Moreover, as companies moved into core acreage, wellhead breakeven prices dropped.

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Iraq plans to reach 5 mln bpd oil output capacity before year-end

Iraq plans to increase its oil output capacity to 5 million barrels per day before the end of the year, Oil Minister Jabar al-Luaibi said on Sunday.

Iraq will proceed in parallel with exploration plans to increase its reserves by 15 billion barrels in 2018, to reach 178 billion barrels, Luaibi told an energy conference in Baghdad.

Among the plans to increase output capacity from existing fields is a sea water injection plan which is in process of being tendered, he said.
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Rig count up 15; Louisiana, Texas lead

Rig count up 15; Louisiana, Texas lead

The number of oil and gas rigs in U.S. fields rose for the 11th straight week as oil companies, especially in Texas and Louisiana, continue to drill despite a recent dip in oil prices.

This week’s U.S. count jumped 15, a boom of 420 rigs since its recent low last spring. U.S. oil drillers collectively sent 10 more rigs into the patch this week, the Houston oilfield services company Baker Hughes reported Friday. Gas drillers rose by five.

Texas added seven rigs, mostly in West Texas’s prolific Permian Basin, and Louisiana added six.

The total rig count rose to 824, up from a low of 404 in May, and up 374 year over year.

The number of active oil rigs jumped to 662 this week. Gas rigs rose to 160. The number of offshore rigs is up four, down four year over year.

Outside of Texas and Louisiana, Alaska added three rigs and New Mexico two. Colorado lost two; North Dakota and Utah lost one.

Drilling activity has continued to rise despite a recent dip in oil prices.
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India to cut Iranian oil purchases in row over gas field

Indian state refiners will cut oil imports from Iran in 2017/18 by a fifth, as New Delhi takes a more assertive stance over an impasse on a giant gas field that it wants awarded to an Indian consortium, sources familiar with the matter said.

India, Iran's biggest oil buyer after China, was among a handful of countries that continued to deal with the Persian Gulf nation despite Western sanctions over Tehran's nuclear programme.

However, previously close ties have been strained since the lifting of some sanctions last year as Iran adopts a bolder approach in trying to get the best deal for its oil and gas.

Unhappy with Tehran, India's oil ministry has asked state refiners to cut imports of Iranian oil.

"We are cutting gradually, and we will cut more if there is no progress in the matter of the award of Farzad B gas field to our company," one of the Indian sources said.

Indian refiners told a National Iranian Oil Co (NIOC) representative about their plans to cut oil imports by a fifth to 190,000 barrels per day (bpd) from 240,000 bpd, officials present at the meeting said.

Indian Oil Corp and Mangalore Refinery and Petrochemicals Corp will reduce imports by 20,000 bpd each to about 80,000 bpd. Bharat Petroleum Corp and Hindustan Petroleum Corp will together cut imports by about 10,000 bpd to roughly 30,000 bpd, they said.

In turn, NIOC threatened to cut the discount it offers to Indian buyers on freight from 80 percent to about 60 percent, the officials added.

No comment was available from the Indian companies or NIOC.

Cutting imports from Iran amid an OPEC-led supply cut aimed at propping up the market exposes India's refiners to the risk of struggling to find reasonably priced alternatives.

"We expect that the market is currently undersupplied and that the draws in inventory are coming," U.S. investment bank Jefferies said in a note to clients this week, adding it expected crude prices of around $60 a barrel by the fourth quarter.

Despite this, Indian oil industrials said they saw no major impact from cutting Iranian imports, mainly due to their specific requirements.

"Their main requirement is lighter oil, and light oil will remain in oversupply despite OPEC cuts, as OPEC cuts are mainly medium heavy sour," said Ehsan ul Haq of KBC Energy Economics.

Prices of light crude have fallen recently, thanks largely to soaring output in the United States, which is not involved in the production cuts led by the Organization of the Petroleum Exporting Countries.

From April last year to February 2017, India imported 542,400 bpd from Iran, compared to 225,522 bpd a year earlier. Average oil volumes supplied by Iran over this period were the highest on record.


At the heart of the spat is that a group of Indian oil companies headed by Oil and Natural Gas Corp wants to develop Iran's Farzad B gas field.

Iran has yet to hand out a concession that would allow its development.

ONGC Videsh has submitted a $3 billion development plan to Iranian authorities to develop the offshore field estimated to hold reserves of 12.5 trillion cubic feet, with a lifetime of 30 years.

Under sanctions, Iran was banned from the global financial system, preventing the field's development.

India was one of a few countries still supplying Iran with goods, devising a complex payment mechanism to help Tehran access non-sanctioned items including medicines.

As new options have opened up for Tehran since the lifting of sanctions, Iran may now be awaiting better bids for Farzad B.

"They (Tehran) are playing hardball ... We don't see any forward movement on that (Farzad B)... So we have reduced (crude) imports," the Indian official said.
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SGX, Tullett Prebon launch spot LNG index for Dubai, Kuwait and India

SGX, Tullett Prebon launch spot LNG index for Dubai, Kuwait and India

Singapore Exchange and London-based interdealer broker Tullett Prebon have launched a liquefied natural gas (LNG) spot index for Dubai, Kuwait and India.

The collaboration, that was announced earlier this year, seeks to “enhance price discovery and risk management” in one of the fastest-growing regions for spot LNG trading.

“The DKI Sling offers a transparent and trusted reference price for LNG Delivered Ex-Ship under flexible terms to key ports in the three countries, complementing an increase in spot trading volumes,” SGX said in a statement on Friday.

The new offering will seek to provide an independent physical price marker as the industry moves away from oil-linked pricing and towards gas-on-gas pricing.

SGX’s wholly owned subsidiary, Energy Market Company (EMC), as the index administrator, will publish the DKI Sling every Monday and Thursday. The first print on 30 March was $5.421/mmBtu.

The DKI Sling is the third in the SGX LNG Index Group or Sling series of indices.

It follows the Singapore Sling launched in October 2015, which serves as a reference point for the developing South-East Asian market, and the North Asia Sling introduced in September 2016, which delivers a price for the traditional centre of global LNG demand.
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Hyundai Heavy Industries develops new LNG regas system

South Korean shipbuilding giant Hyundai Heavy Industries said it has developed a new liquefied natural gas (LNG) regasification system.

The shipbuilder on Friday held a demonstration ceremony for the installation of the regasification system using glycol at a 170,000-cbm floating storage and regasification unit (FSRU) at its Ulsan shipyard.

“Since the glycol regasification process is free from saltiness unlike a system that uses seawater, it can minimize corrosion in major equipment including heat exchangers, and it can also lower the risk of explosion that a system using propane may be exposed to,” Hyundai Heavy said in its statement.

The statement notes that an LNG regasification system is a key part of an LNG FSRUs that receives the chilled fuel from offloading LNG carriers and provides natural gas send-out through pipelines to shore.

Hyundai Heavy has secured an approval in principle (AIP) for its regasification system from Lloyd’s Register last month and has applied for a patent at home and abroad.

The shipbuilder said it was also in the process of receiving the recognition for the system from other major classification societies as well.

Hyundai Heavy had delivered the world’s first newbuilding LNG FSRU to Norway’s Hoegh LNG back in 2014. It also claims that it is the only Korean shipbuilder that can both build membrane and moss-type LNG carriers.
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Glencore in talks to sell global oil storage stakes - sources

Glencore in talks to sell global oil storage stakes - sources

Swiss-based trading and mining giant Glencore is selling a bundle of its global oil storage stakes, sources told Reuters, following similar moves by rivals as a boom period for storage shows signs of nearing to an end.

Demand for storage exploded following the oil price plunge in 2014 because the abundance of crude for immediate delivery meant traders could make millions by buying oil cheaply and storing it to resell later as prices recover.

As the Organization of the Petroleum Exporting Countries (OPEC) decided to cut oil output at the end of 2016 to prop up prices and help ease the global glut, the market balance began to change.

Today, future prices are no longer trading at a steep premium to immediate prices, thus reducing the appeal of storing oil and prompting some of Glencore's rivals to reduce exposure to storage assets, including Vitol and Gunvor.

If the sale reaches completion, Glencore will likely end up with minority stakes in the assets. The company owns much of its storage terminal interests via joint ventures and is selling half of these stakes, the sources familiar with the sale said.

A spokesman for Glencore declined to comment.

"It's an exotic combination of assets with a variety of functions, mainly storage. It's most, if not all, of Glencore's global liquid storage," one source said.

The portfolio includes assets in Argentina, Belgium and Madagascar, the source said.

"As a bundle it would appeal to someone looking for an entry point to certain countries," the source added.

The source said the assets were generating EBITDA or core earnings of around $75 million a year.

Glencore and other trading houses with large storage assets compete with listed storage firms such as Vopak NV, Magellan Midstream Partners LP and Kinder Morgan Inc.

Given a limited number of listed storage firms, price to earnings (P/E) ratios in the sector tend to vary significantly between as low as 7 and as high as 15, which in theory could give Glencore's storage assets a value of between $0.5-$1.1 billion.

Lately, some of Glencore's competitors have been divesting similar assets. Vitol, the world's largest independent oil trader, sold a 50 percent stake in its terminal and infrastructure company VTTI to Buckeye Partners in October last year.

Swiss trader Gunvor is looking to sell a stake in a Rotterdam storage terminal and Trafigura is considering an IPO for downstream company Puma Energy, in which it holds a major stake.
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Shell shuts Bonny Light oil export line to remove theft points

The Nigerian subsidiary of Royal Dutch Shell Plc said it had shut down the Nembe Creek Trunk Line, which exports Bonny Light crude oil, in order to remove theft points.

The managing director of Shell Petroleum Development Company (SPDC) said the company was working to "remove a significant number of oil theft connections and repair any leaks on pipeline."

The line is one of two, along with the Trans Niger Pipeline, that carries Bonny Light crude oil to the export terminal. Exports of roughly 232,000 barrels per day (bpd) were planned in April, according to loading programmes, but it was not immediately clear how much of this would be impacted by the pipeline shutdown.

"SPDC will work with the security forces during shutdown to clear illegal connections on NCTL," SPDC said.
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$ 20b investment in South Pars to be put to use soon: Minister

Minister of Petroleum Bijan Zangeneh said here on Thursday that 20 billion dollars of investment made in oil industry will be put to use in near future.

He made the remarks on the sidelines of a visit to South Pars projects in the southern province of Bushehr.

Zangeneh told reporters that in the new Iranian year (which began on March 21), big developments and historic events will take place in the country’s oil industry.

He said that phases 12, 15, 16, 17, 18, 20, 21 and 19 of South Pars were among priorities of Petroleum Ministry and now all of them have been launched.

With new phases of South Pars being operational, we successfully passed winter time without any gas shoratge although gas imports decreased compared with the previous year.
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Deepwater emerging as competitor to tight oil plays - Wood Mackenzie

According to a recent Wood Mackenzie report, a leaner and more cost-competitive deepwater industry is emerging from the downturn, with the most attractive projects now competing with US tight oil plays.

This year should see a noticeable pick-up in deepwater project sanctions, with three projects – Mad Dog Phase 2, Kaikias, and Leviathan – already fully approved.

The analyst firm estimates that on average global deepwater project costs have fallen just over 20% since 2014. Assuming a 15% internal rate of return hurdle (NPV15), 5 Bbbl of pre-sanction deepwater reserves now breakeven at $50/boe or lower.

By comparison, there are 15 Bbbl of tight oil resource in undrilled wells with breakevens of $50/boe or lower at a 15% hurdle rate in Wood Mackenzie’s dataset. However, the playing field between tight oil and deepwater is about to get a lot more level. There is still considerable scope to drive deepwater breakevens lower through leaner development principles and improved well designs, but in tight oil cost inflation is back with a vengeance.

Wood Mackenzie estimates that a further 20% cut in current deepwater costs would bring 15 Bbbl of pre-FID reserves into contention, on par with tight oil. The deepwater value proposition will strengthen as tight oil cost inflation returns. A 20% rise in tight oil costs would mean that the two resource themes effectively have the same opportunity set measured by volume in the money at $60/boe.

Angus Rodger, Asia-Pacific upstream research director at Wood Mackenzie, said: “We are at last beginning to see the first signs of recovery in deepwater, driven primarily by cost reduction and portfolio high-grading. Projects in the US Gulf of Mexico in particular have made significant strides, with many reducing NPV15 breakevens from above $70/boe to below $50/boe.

“This is not just a result of cheaper rig day rates. Of far greater impact are the steps the industry in the Gulf of Mexico and elsewhere have taken to re-evaluate project designs and improve well performance. We are now seeing scaled-down projects emerge with less wells, more subsea tiebacks, and reduced facilities and capacities – and this all translates into lower breakevens.”

The slowdown has also changed the structure of the deepwater industry. While it is slowly getting leaner, it is also getting smaller. More than 70% of the 45 pre-FID projects targeting sanction over the next few years are operated by just eight companies – Brazil’s Petrobras and the seven majors (ExxonMobil, Chevron, Shell, BP, Total, Eni, and Statoil). This is due to the exit of many independents from the sector because of either cost pressure or a re-allocation of capital to tight oil plays.

In a capital-constrained world, fewer operators inevitably mean less deepwater projects flowing through to sanction. Only the most cost-competitive projects and regions will attract new investment.
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Angola heavy-light crude spreads widen as Asian oil demand softens

After a couple of months of increasing values, Angola's heavy crudes, which had been outperforming lighter barrels, have seen demand falter, allowing the heavy-light spread to widen again.

"The heavies have to come off now -- the spread has to return to where it was," said a West African crude trader.

The price spread between the two ends of the complex had reached multi-year lows on strong Chinese demand for heavy grades during the past two trading cycles in March and April.

This came as Chinese buyers looked to find alternatives to heavy, sour Middle East crudes whose supply has been limited by OPEC's production cut agreement and with strong fuel margins in the region.

But the heat has dissipated from the market for the heaviest Angolan grades such as Dalia, which has seen spot offers from state-owned company Sonangol drop from an initial offer of Dated Brent plus 10 cents/b to Dated Brent minus 20 cents/b.

Other medium-light grades such as Girassol and Cabinda, have not seen the same pressures, said traders, with both grades grades clearing cargoes at a faster pace than Dalia.

Dalia was assessed Wednesday at a discount of 80 cents/b FOB to the 30-60 day Dated Brent strip, S&P Global Platts data showed.

Girassol, a light grade, was assessed at a discount of 5 cents/b to the 30-60 day Dated Brent strip. The spread is currently at a 70 cents/b discount, but reach its narrowest point during January 26-February 2, when it was at a 20 cent/b spread.

The Dalia-Cabinda spread was seen to be 55 cents/b discount on Wednesday, a 35 cents/b drop from its narrowest point at 20 cents/b during the period February 28-March 6.

Similarly, other heavy-light Angolan grade spreads have also tightened. The discount of heavy grade Hungo -- currently assessed at a discount of 60 cents/b to the 30-60 day Dated Strip -- to Girassol is at 60 cents/b, 30 cents wider than where it was during the period of March 2-March 22.

The one exception to the heavy-light spread story is Nemba, the lightest of Angola's crude oil grades assessed on spot, which has struggled to find buyers in May, according to traders.
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Alternative Energy

UK Solar Record

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Li-ion is a transition technology!

Many of you won't agree, and this is necessarily a thought piece.

Fact remains: Li-ion is the best battery technology we have today in commercial production. 

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Whywearscepticalonliion (4).pdf
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ERCOT sets record wind output Friday

The Electric Reliability Council of Texas set a wind-output record of 16,141 MW Friday night, it reported on Saturday in its daily wind integration report.

ERCOT said the record was set at 8:56 pm CDT Friday and wind accounted for about 39.5% of the total power demand at that time.

In the real-time market, for the 15 minutes interval ended 9 pm Friday, the price for ERCOT West Hub was about $5.50/MWh, while prices for all other hubs averaged near $13.50/MWh.

The US National Weather Service office in San Angelo, Texas, reported the local peak gust speed registered was around 42 mph while the average wind speed was around 19 mph on Friday. Meanwhile, the average wind speed has been 13 mph in March.

ERCOT's prior record was 16,022 MW, set on December 25, 2016. The grid operator reported earlier a new wind penetration record of 50% on March 23.

The latest ERCOT data showed installed wind capacity totaled 18,358 MW as of March 1, while a total of 26,510 MW was in queue for study. It expects another 5,584 MW to be added to the grid by the end of 2017, to bring the total across its footprint to 23,942 MW.

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Australian state says 90 firms interested in supplying grid-scale batteries

Dozens of companies from 10 countries are vying with Elon Musk's Tesla Inc to install Australia's largest grid-scale battery to help keep the lights on in the country's most wind-dependent state.

The South Australian state government said on Monday it had received 90 expressions of interest to set up a battery by December with about 100 megawatts of capacity to store wind and solar power.

That would be used to stabilize the grid at peak times, which tend to be when the sun and wind are low.

Grid stability has become a hot-button political issue in Australia since a state-wide blackout in South Australia paralyzed industry for up to two weeks last September, and outages during a severe heatwave over the past summer.

If successful, the storage project could deliver a political windfall to South Australia's government, vindicating their investment in renewables, and give Tesla a high-profile platform to demonstrate their product.

Musk was first to say he could supply 100 MW of battery storage for the state at $250 per kilowatt hour, in a social media exchange with the co-founder of Australian software firm Atlassian Corp, Mike Cannon-Brookes.

"Tesla's interest and enthusiasm in this goes beyond just the Australian market. It is proving a concept and providing a solution," said Gero Farrugio, managing director of renewables consultancy Sustainable Energy Research Analytics.

The South Australian government did not name the companies who had expressed interest in the project.

A handful of companies have publicly said they would consider supplying the battery: Zen Energy, privately owned Lyon Group, working with U.S. power company AES Corp, and Carnegie Clean Energy, using batteries from Samsung SDI Co Ltd.

Lyon Group said last week it would go ahead with a A$1 billion battery project this year, with or without funding from the South Australian government, but the configuration would depend on whether it won any state funding.
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China builds first large scale carbon capture facility

On March 30, China started to build its first large scale carbon capture, utilization and storage (CCUS) facility, owned by Shanxi Yanchang Petroleum (Group) Co., Ltd.

Located in Xi'an, Shaanxi province, this facility captures 400,000 tonnes of carbon dioxide (CO2) from coal-fueled power plants. This is the first large scale carbon CCUS facility in China even across the Asia.

The captured CO2 will employ Enhanced Oil Recovery to enhance production at the exploited oil field. This technology has the potential to enhance the long-term viability and sustainability of coal-fuelled power plants.
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Hanergy seeks trading resumption as parent pays down overdue cash

Hanergy Thin Film Power Group, the solar panel maker being investigated by Hong Kong's securities regulator, said its parent had paid down some overdue debt, part of a push to end an almost two-year share trading suspension.

Parent Hanergy Holding paid 1.5 billion yuan ($218 million) in overdue trade receivables on March 10, reducing the overdue amount owed to about HK$3.2 billion ($412 million), Hanergy said in a securities filing late on Thursday.

Founder and former Chairman Li Hejun also signed a "deed of guarantee" committing to pay the remainder of the funds over a period of two years after shares in Hanergy resume trading. Li pledged 1.4 billion Hanergy shares as collateral on the payment agreement.

Hanergy has been engulfed in controversy since it asked the Hong Kong stock exchange to suspend trading in its shares on May 20, 2015, after the company lost half its $40 billion market value in just 24 minutes. Eight days later, Hong Kong's Securities and Futures Commission (SFC) said it was investigating Hanergy's "affairs" and subsequently directed the bourse to extend the suspension indefinitely.

The regulator has set two requirements to allow trading to resume: one that Li and four Hanergy directors "not contest liability" and court orders barring them from managing any corporations in the city, and another for Hanergy to release detailed information about its finances.

Li and the four directors said in January they would not contest the SFC's suit, while Hanergy also reiterated it was working on the disclosure document detailing information on its business, financial performance and prospects to address the SFC's concerns.

The company said in the filing it posted HK$251.6 million of profits in 2016, reversing a HK$12.2 billion loss in 2015 that was weighed down by a plunge in revenue and HK$9.7 billion in goodwill impairments after it failed to deliver a production line to its parent and controlling shareholder.

The company had HK$248.7 million in cash and equivalents at the end of 2016. It also had HK$6.8 billion worth of trade receivables, with HK$3.9 billion of those owed by its parent Hanergy Holding and other affiliates and the vast majority more than one year past due, according to the filing.

Hanergy's auditor, Ernst & Young, issued a so-called "qualified opinion" on the 2016 results, because it was "unable to obtain sufficient appropriate audit evidence about the recoverability of the group's remaining trade receivables and gross amount due from contract customers" worth about HK$6.2 billion, the company said.

Auditors typically issue a qualified opinion when they believe the financial information is not complete.
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A New Wave of Renewable Energy Revolution in Europe

The Northumberland coast near Blyth is poised to be linked to Norway by the world’s longest undersea power cable of around 450 km in length. The Norwegian mountain has a tunnel being constructed that would cross national borders and link to a new grid. The major project would connect the massive hydroelectric power supplies of Norway to Britain via passing of power lines drilled through the mountain near Kvilldal.

The project is still under way and would take years to complete. But on completion, it is reported that the UK would be able to import around 1,400 megawatts of electricity that would be sufficient to power over 750,000 homes. The project would also allow Britain to export surplus wind energy to Norway.

A new wave of revolution in renewable energy across Europe is evident with this. There is a steady development of an international power grid across national electricity networks by using power interconnectors, to trade surplus energy by allowing prime wind power producers in northern Europe. This includes trading electricity with large solar energy generators in southern Europe.

It is reported that the UK would be plugged into the network by using interconnectors to Belgium, Ireland, the Netherlands, and France. A highly ambitious project involves the use of a subsea cable of around 1,000 km in length to connect Britain to the profuse supply of geothermal and hydroelectric power of Iceland.

The international power grid is featured with dependable supplies, smoothening out of intermittent power that is produced from renewable sources like wind and solar energy. It is also poised to give Britain more secure power sources with the shutting down of nuclear and coal plants.

This, in theory, can also help to decrease the wholesale energy price due to the high availability of low-cost renewable power generated.

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Areva faces "uranium-gate" in Niger

French nuclear power giant Areva is reportedly cooperating with a legal enquiry by activists who say the company cheated Niger out of $3.25 million in uranium exports.

The scandal known as "uranium-gate" resulted from a 2011 transaction between Areva, and companies in Niger and abroad:

Their complaint alleges embezzlement of public funds, money laundering, forgery and conspiracy to defraud.

The legal action centres on the allegation that Areva in 2011 bought a stock of uranium from Niger at a discounted price.

Back in 2014 Areva reached a deal with Niger's government to continue uranium mining as it pledged to pay more taxes and to indefinitely postpone a large project over profitability concerns.

At the time, opponents to Areva’s proposed Imouraren mine in Niger, the world's fourth-largest uranium producer, claimed the country's riches haven’t been translating into wealth for its citizens. According to Associated Press, critics have accused the state-owned French company of exploiting Nigeriens since it began operations in 1971.

The country provides 7.5% of the world's uranium through two significant, high-grade uranium mines, according to the World Nuclear Association.
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Destructive weed threatens U.S. corn fields

A U.S. government program designed to convert farmland to wildlife habitat has triggered the spread of a fast-growing weed that threatens to strangle crops in America's rural heartland.

The weed is hard to kill and, if left unchecked, destroys as much as 91 percent of corn on infested land, according to the U.S. Department of Agriculture (USDA). It is spreading across Iowa, which accounts for nearly a fifth of U.S. corn production and in 2016 exported more than $1 billion of corn and soy.

The federal Conservation Reserve Program pays farmers to remove land from production to improve water quality, prevent soil erosion and protect endangered species.

The destructive weed - Palmer amaranth – has spread through seed sold to farmers in the conservation program, according to Iowa's top weeds scientist, Bob Hartzler, and the conservation group Pheasants Forever.

"We are very confident that some of these seed mixes were contaminated," Hartzler said.

Hartzler, an Iowa State University agronomy professor, said one seller was Allendan Seed Company, the state's largest producer of local grass and wildflower seeds for conservation land.

In written responses to questions from Reuters, Allendan said it was "possible that pigweed seed ... was present in some mixes."

Palmer amaranth is a type of pigweed. Allendan did not confirm it had found the seed in any of its supplies. It said outside labs that the firm hires to test seed quality had been unable to distinguish Palmer amaranath from other pigweeds.

The company said it started using a new DNA test in February to check its seed for Palmer amaranth.

Many farmers joined the conservation program in the past year as prices for their crops tanked amid a global grains glut. The weed can be killed, but the cost of clearing it would be another hit to the cash-strapped farming community in the United States, the world's top corn supplier.

The program is managed by the Natural Resources Conservation Service (NRCS) and the Farm Service Agency (FSA), units of the USDA. NRCS officials have acknowledged that contaminated seed mixes for conservation land have spread Palmer amaranth.

In another state, Minnesota, authorities are also investigating whether the conservation program inadvertently introduced the weed to that state.

Keith Smith, a corn and soybean farmer in Gladbrook, Iowa, said he yanked Palmer amaranth out of land he set aside in the conservation program after finding the weeds last year.


The NRCS and FSA denied responsibility for the infestation because they do not supply or test the seed that farmers use to turn cropland into a refuge for wildlife. Landowners are responsible for finding their own seed.

None of the companies or organizations involved in the program should be blamed, said Jimmy Bramblett, the NRCS's deputy chief of science and technology. "It's just something that happened," he said.

The NRCS is nonetheless considering giving financial assistance to Iowa farmers to help control the weed and is working with the farming community and other government agencies to control it, Bramblett said.

Palmer amaranth, which is native to the southwestern United States, grows up to 2 inches (5 cm) a day and can reach a height of 10 feet. It produces up to 500,000 seeds the size of a pepper grain, which travel easily on the wind, in manure or stuck to farm equipment and vehicles.

Midwest farmers now face increased costs for the herbicide and labor to eradicate the weed. Fighting Palmer amaranth has doubled or tripled annual herbicide and labor costs to between $60 and $80 per acre for cotton farmers in Georgia, said Stanley Culpepper, a weed science professor for the University of Georgia.

Iowa farmers currently spend between $35 to $40 per acre on herbicides, Iowa State University research shows. If Palmer amaranth is firmly established, costs could increase by up to 50 percent, Hartzler said.

Corn and soybeans can compete better with weeds than cotton plants, so the expense of controlling it could be less than on cotton farms.


Palmer amaranth first arrived in Iowa in 2013 but exploded across the state last year, spreading from 5 to 48 of the state's 99 counties, according to Iowa State University.

In at least 35 of those counties, the weed was found on land in the conservation program.

The rapid rise in the incidence of the weed came after landowners in Iowa signed more contracts to put fields into the program than any other state - 108,799 out of the 637,164 total U.S. conservation program contracts, according to the USDA.

An Iowa landowner contacted Iowa State's Hartzler after Palmer amaranth infested 70 acres of farmland he planted with the conservation seed mix.

"The Palmer amaranth was uniformly distributed across those 70 acres, so that was a good sign that it came in the seed," Hartzler said.

Hartzler said he and his intern found the tiny black Palmer amaranth seeds in samples they took from seed bags the landowner purchased from Allendan.

He then grew some of the seeds in a greenhouse, he said, and they produced Palmer amaranth.
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Global grain supply to cross 2.5 billion mt on large carryover: IGC

Global grain supply to cross 2.5 billion mt on large carryover: IGC

The world's total grain (wheat and coarse grain) supply in 2016-2017 and 2017-2018 will cross 2.5 billion mt amid record harvest and high carryover stocks, according to a report released by the International Grain Council.

Despite a 3% drop in 2017-2018 production and strong projected demand resulting in a lower estimated carryover, stocks are expected to reach the second highest level of more than 2.5 billion mt for the second consecutive year, IGC said.

Wheat production in 2017-2018 is forecast at 735 million mt, down 2.52% from the 2016-2017 estimate.

Meanwhile, wheat carryover is estimated at 513 million mt in 2016-2017, up 5 million mt from the volume forecast a month ago. In 2017-2018, wheat stocks are estimated at 484 million mt, down 5.65% from the latest estimates for 2016-2017.

In terms of demand, wheat consumption by the food sector is expected to remain robust, up 1.35% at 502.9 million mt in 2017-2018.

India is expected to reduce imports from 5.1 million mt in 2016-2017 (April-May) to 2 million mt in 2017-2018 amid expectations of higher local production.

The world's second-largest wheat producer, India is expected to produce 95.5 million mt of wheat in 2017-2018, up 11% from last season, on higher acreage and expectations of improved weather compared with previous two season.

Feed sector, on the other hand, is expected to contract 3.16% at 147.3 million mt in 2017-2018, according to the IGC.
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DuPont in asset-swap deal with FMC, delays close of Dow merger

DuPont said on Friday it would swap some assets with FMC Corp to get clearance from the European Commission for its merger with Dow Chemical Co (DOW.N), and pushed back the closing date of its merger again.

DuPont said it would sell part of its crop protection business to FMC and buy nearly all of FMC's health and nutrition unit in a deal that will fetch DuPont about $1.6 billion because of the difference in the value of the assets.

DuPont said its $130 billion merger with Dow Chemical Co, which was expected to close in the first half of 2017, is now anticipated to close between Aug. 1 and Sept. 1.

This is the third time that Dow and DuPont have had to push back the expected completion.

The deal, which also includes DuPont divesting some of its research and development facilities to FMC, includes a cash portion of $1.2 billion and working capital of $425 million.

The European Commission had been concerned that the merger of two of the biggest and oldest U.S. chemical producers would leave few incentives to produce new herbicides and pesticides in the future.
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Turkmenistan opens potash plant, targets Chinese, Indian markets

Turkmenistan opened a $1 billion Belarussian-built potash plant on Friday, aiming to export 1.2 million tonnes of fertilisers to China and India a year as part of its drive to diversify away from natural gas exports.

The Central Asian nation has faced foreign currency shortages after its gas exports were hit hard by declining prices and volumes, and the government is banking on the start of potash production and other projects to make the economy more resilient.

As a potash exporter, Turkmenistan will compete with its former Soviet overlord Russia, home to the world's biggest producer Uralkali, and Belarus, also a major global player.

Belarussian companies have built the plant and Minsk has said it would help Turkmenistan market the product.

Belarussian President Alexander Lukashenko attended the opening ceremony in eastern Turkmenistan and said most of the plant's production would be exported to China and India - the world's biggest potash importers.

"This is Central Asia's biggest potash plant, one can confidently say it will produce 1.5 million tonnes a year," Lukashenko said, adding that Berdymukhamedov had told him about plans to build two more potash plants.

Russia's Uralkali said this month it expected total global potash demand to rise by 1-2 million tonnes this year to 62 million to 63 million tonnes, driven by China.
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Precious Metals

Chinese buying 50% of Barrick Veladero, Pascua Lama-report

China's Shandong Gold Mining is said to be "advanced talks" to buy 50% of Barrick Gold' Veladero gold mine in Argentina after Zijin Mining, another Shanghai-listed mining firm apparently walked away from a deal.

Reuters reports that the mine which last year produced 544,000 ounces of gold and is considered one of Barrick's five core mines could fetch in excess of $1 billion.

Last week a pipe carrying a cyanide-bearing slurry burst at the mine in the San Juan province in what was the third such event at the operation in less than 18 months. Veladero resumed operations in October after having been suspended for almost a month following the previous incident.

According to the report Shandong would also pick up half of Barrick's halted Pascua Lama project straddling the border between Argentina and Chile. The controversial project high in the Andes was put on hold in 2013 after a budget blowout and political opposition from the Chilean side and environmental protests.

In May last year the miner agreed to pay $140 million to resolve a US class-action lawsuit that accused the world's largest gold producer of distorting facts related to the project and its $8.5 billion price tag.

In September, Barrick appointed a new executive, George Bee, to kickstart the development of a less ambitious project focused on the Argentine side of Pascua Lama.

Lat month Barrick announced a 50-50 partnership with Goldcorp to develop projects in northern Chile, including Cerro Casale, one of the world’s largest gold-copper deposits.
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New cost-slashing platinum technology ready to roll – Pallinghurst

Years of diligent research and development has paid off for Pallinghust group platinum mine Sedibelo, which is now ready to implement an amazing new technology that will send platinum processing costs screaming down the cost curve, use a fifth of the electricity currently needed for smelting and throw caution to the wind when it comes to mining chrome-containing platinum ore.

The new Kell process route takes cutoff grades far lower, extending mine life and saving the cobalt in the platinumgroup metals (PGM) mix from the destruction it currently suffers.

By allowing an operation to go from mining to finished refined metal in a week, the process unlocks significant capital.

Construction of a plant to facilitate the commercial implementation of the patented paradigm-shift technology – which has been 18 years in the making – will begin this year.

Sedibelo in the North West province dispatched 165 000 oz of four element platinum group metals in the 12 months to December 31.

Not only is the operating cost far cheaper, but so is the capital cost.

The plant at Sedibelo, which will have a capacity to process 300 000 oz of platinum group metals (PGMs) a year, is budgeted to come in at less than $100-million.

“We’ll turn the first sod this year and cut the ribbon in two years’ time,” Pallinghurst CEO Arne Frandsen told MiningWeekly Online in an exclusive interview on Friday.

The development of Kell has accelerated in the last five years following the backing it received from Pallinghurst, South Africa’s State-owned Industrial Development and investors.

The enormous volume of data has been gathered from running two pilot plants at Sedibelo for five years.

“Without any hesitation, I can tell you that the study has firmly established that Kell is viable, technically doable and is exactly what is needed to transform the industry,” Frandsen said.

Former Mintek researcher Keith Liddell, the developer of the technology, explained that the process carries out on the mine site what normally takes place in smelters and refineries.

It does so by reconfiguring, in a slightly different way, standard unit operations that already exist in the industry.

The substantial electricity saving is brought about by avoiding heating worthless gangue, as is done currently, and only expending a fraction of usual heat on the commercially valuable metals.

Kell processes upper group two (UG2) reef Merensky reef, platreef, Zimbabwe’s Great Dyke reef, North America’s polymetallic ore and even refractory gold.

The spinoffs on the gold side are that cyanide is not required in the processing and the output is 99.99% refined gold, with the potential to unlock major synergies in locations that host both PGMs and refractory gold.

A slightly modified Kell is also successful for the reprocessing of the PGMs in recycled autocatalytic converters, which are recovered when the vehicles using them come to the end of their useful lives and are sent to the scrapyard.

Cobalt, now in a strong potential earnings position because of its growing use in electric vehicles, is recovered with the use of the Kell system.

“When you add up the numbers, cobalt is worth tens of millions of dollars a year,” Liddell noted.

Because the presence of chromite is no issue at all, UG2 concentrators can be optimised for greater PGM recovery than when being forced to meet the chrome constraints in the concentrate.
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Argentine provincial Gov’t orders Barrick to halt operations at Veladero

Argentina's San Juan province has ordered Barrick Gold to halt operations at its Veladero mine following the decoupling of a pipeline carrying gold and silver solution on the leach pad Tuesday night.

In a brief statement Wednesday, Barrick said the incident was quickly addressed and that it posed no threat to the environment.

Measure is temporary, pending more information on what happened and the possible consequences of the new incident, San Juan’s governor said.

But San Juan’s governor, Sergio Uñac, told local newspaper La Nación (in Spanish) his decision was based on a conversation with the head of the province's mining police, who personally went to the mine on Wednesday and reported to him this morning.

The authority noted the measure was just temporary, pending more information on what happened and the possible consequences of the new incident, the third issue affecting Veladero in less than 18 months.

Operations at the mine were briefly halted in September after falling ice damaged a pipe, causing a spill containing cyanide.

Earlier in the year, the Toronto-based miner had been ordered to pay a 145.7m pesos fine (about $9.8m at the time) over a cyanide spill at the same mine, which happened almost exactly a year before.

When Barrick announced the fine in March last year, it said it had undertaken a plan to strengthen controls and safeguards at the mine, including increased water monitoring.

Veladero, one of the largest gold mines in Argentina, produced 544,000 ounces last year. Proven and probable mineral reserves as of December 31, 2016, were 6.7 million ounces of gold, according to the company's website.
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Base Metals

Friedland bullish on copper

“You’re going to need a telescope to see the copper price in 2021!” -R. Friedland

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South32 cuts lead, zinc output forecast after Aus mine fire

Australian miner South32 Ltd on Thursday said its Cannington silver and lead mine in the country's northeast had been hit by a fire, forcing it to cut output forecasts.

"South32 advises that mining extraction at Cannington has been temporarily impacted by an underground fire that damaged the load-out and shaft haulage infrastructure," the company said in a statement to the Australian Securities Exchange.

"Remediation work will be undertaken over a four-week period and extraction of the higher grade (silver and lead) ... will be delayed."

As a result, South32 has reduced production forecasts for this year, cutting lead by 28,000 tonnes to 135,000 tonnes, zinc by 10,000 tonnes to 70,000 tonnes and silver by 2.55 million ounces to 16.5 million ounces.
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Chile's Antofagasta sticks to plan despite looming copper deficit

The global copper market is moving towards deficit faster than expected, but Chilean copper producer Antofagasta plc is sticking to its cautious investment plans, CEO Ivan Arriagada said ahead of the World Copper Conference in Santiago.

With China, the world's largest consumer of copper, demanding more metal than expected and a lack of new major mine projects entering production, analysts had been predicting demand to outpace production by the end of the decade.

"While we were expecting a shortfall by 2020, that has probably moved forward by a couple of years," Arriagada told Platts in an interview.

Demand has been ramped up around the world by increased investment in renewable energy and electrification while underinvestment by existing producers could mean an even tighter market than analysts predicted.

"Because of the downturn, we have not seen all of the investment required to sustain production and that will have an impact on copper production in the next couple of years," Arriagada said.

All of this should prove supporting for prices which last year slumped to their lowest level since the global financial crisis.

But Arriagada remains cautious.

"More than where it might go, we do not expect to return to the prices we saw last year and, if you push me further, I would say that I do not expect prices to be below $2.50/lb," he said, noting that significant risks remain.

While Chinese consumption has risen, he said rising internal debts remained a risk to the Chinese economy that could impact future copper demand.

But the biggest risk to global copper demand was that posed by protectionism and the risk of a global trade war, following the election of US President Donald Trump last November.

With the improvement in copper prices, Antofagasta is now preparing to develop major projects at its Chilean operations that it continued to advance through the engineering stages during the downturn.

Following the completion of its new Antucoya mine last year and the Encuentros oxides deposit which enters production later this year, the company is preparing to approve a $1.1 billion investment at its Los Pelambres mine later this year.

The capacity expansion will compensate for harder ore at the mine, allowing it to produce 400,000 mt/year of copper in concentrate from 2020, up from 355,400 mt in 2016.

The other project in the pipeline is a second concentrator at its Centinela complex, a $2.7 billion investment which would add 140,000 mt/year of concentrate production.

But Arriagada said the traditionally conservative company felt no compulsion to accelerate its investment program in the expectation of a tighter copper market.

"We do not want to embark on two big projects at the time because of balance sheet commitment and execution capability so we want to do them sequentially," he said.

Work on the new concentrator would not therefore begin until the Pelambres expansion is completed, he added.
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Nautilus to test seafloor production tools in PNG submerged trials

Marine mining hopeful Nautilus Minerals will shortly start submerged testing of its fleet of seafloor production tools, following the equipment’s arrival in Papua New Guinea (PNG).

"We are delighted to be undertaking submerged trials in PNG. The trials will result in money and investment going into the PNG economy, and the employment of Papua New Guineans in 'state of the art' technology, which are some of the key benefits of seafloor production. The trials also allow us to work closely with our partner Petromin, government officers from the various government agencies, as well as representatives from Provincial Governments of New Ireland and East New Britain,” CEO Mike Johnston stated Monday.

The submerged trials will happen in an existing facility on Motukea Island, near Port Moresby in PNG.

The company last month stated that it remains on track to achieve production from the Solwara 1 project, offshore PNG in the Bismark Sea, in the first quarter of 2019. The company’s objective is to develop the world's first commercial high-grade seafloor copper/gold mine and launch the seafloor resource production industry.

Nautilus formed a joint venture company with PNG’s nominee, Eda Kopa (Solwara), in December 2014 to mine high-grade polymetallic seafloor massive sulphide deposits. Nautilus has an 85% shareholding and Eda Kopa 15%.

Nautilus announced in September a revised work programme, pending the company successfully raising the required capital by June. It entails a more staged approach, moving the Nautilus equipment integration phase of vessel construction out until after the vessel has been delivered by Fujian Mawei Shipyard and Marine Assets Corporate in the fourth quarter of 2018, resulting in a 12-month delay to the original schedule.
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Southern Copper CEO hopes to prevent strike at Peru mines

Southern Copper Corp hopes to dissuade workers at its Toquepala and Cuajone mines in Peru from striking this month, as a second labor union this year in the world's No.2 copper producer seeks a larger share of profits.

The company's chief executive, Oscar Gonzalez, said he did not think the labor ministry would give the green light for the strike, adding that the firm could hire contract staff to protect output if its workers went against the government.

"A union in a country that's facing economic problems can't paralyze a company and keep it from generating revenues for the state," Gonzalez said in an interview on Monday at the CRU World Copper Conference in Santiago, referring to Peru's faltering growth prospects this year amid destructive flooding.

"They're the ones who are going to look bad," Gonzalez said of workers planning to strike.

The union, one of five representing Southern Copper workers in Peru, plans to hold an indefinite strike starting April 7 or 10, according to a regulatory filing.

Gonzalez said a labor agreement with workers was still in force and the company was not planning to give them a bigger share of profits, though it would seek agreement through dialogue.

Toquepala and Cuajone, both in southern Peru, together produced some 310,000 tonnes of copper last year, according to government data.

Union representatives were not immediately available for comment outside regular working hours.

Last month, workers at Peru's biggest copper mine, Freeport-McMoRan Inc's Cerro Verde, downed tools for three weeks to demand a better share of mining profits after production at the mine doubled and global copper prices improved.

Southern Copper, owned by Grupo Mexico, boosted its copper output by 21 percent to 900,000 tonnes last year on the back of an expansion at a mine in Mexico. Gonzalez said the company's cost of producing 1 pound of copper is now the world's lowest at a little under $1.

Gonzalez said former investment banker Pedro Pablo Kuczynski has improved the investment climate in Peru since replacing a former military officer as the country's president last year.

Southern is now considering expanding the capacity of its smelter in southern Peru by 40,000 tonnes, or 14 percent, a move that would boost Kuczynski's goal of bolstering local metals processing.

Gonzalez also said he hoped Kuczynski's government would this year issue a long-awaited construction permit for Southern's $1.4-billion Tia Maria copper project.

The proposed mine, which would take two years to build and would produce around 120,000 tonnes of copper per year, was derailed in 2015 by protesters who feared it would pollute a farming valley.

"We hope Tia Maria can happen but there's a question mark, it depends a lot on the government acting appropriately," Gonzalez said.

He added that Southern has offered to buy all Anglo American Plc's 81.9-percent stake in the proposed Quellaveco copper mine in southern Peru, but has not yet received an answer.

Anglo has previously rebuffed Southern's bid to buy part of its Quellaveco stake.
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Codelco output slips, but cost cuts boost earnings

Codelco output slips, but cost cuts boost earnings

Chile's state copper company Codelco posted a drop in annual copper production on Friday as ore grades declined at its key deposits, but cost cuts helped it swing to a profit for 2016.

Codelco, one of the world's largest copper miners, said it produced 1.83 million tonnes of copper in 2016, of which 1.71 million tonnes came from its wholly owned mines. The company expects a similar level of output this year, Chief Executive Nelson Pizarro said at a news conference following the results.

That 1.71 million-tonne figure is down around 1.4 percent from 2015, as the miner digs deeper and scrabbles through poorer quality ore to keep output flowing.

But costs were lower, with reported production costs per pound of copper at $1.26 in 2016 from $1.39 in 2015.

That, and a bumper fourth quarter, helped Codelco report a pretax profit for the year of $435 million, a significant rise from the previous year's historic loss of $2.19 billion.

That was good news for the Chilean government, said Pizarro. Codelco was nationalized in the 1970s and returns all its profits to the state, providing an important source of income to Chile.

"We have done what was required of us, and have not got in further debt ... despite the fall in ore grades and negative price factors until October," said Pizarro.

But while positive, the results "did not change the challenging structural scenario" ahead, he said.

Falling prices for copper in recent years have eaten into Codelco's earnings and forced it to delay some much-needed investment in ambitious projects.

For 2017, Pizarro said Codelco expected to invest some $2.8 billion, adding the company plans to go ahead with a massive desalination plant in the northern desert mining region of Antofagasta.

The project has received interest from a variety of major international actors, he said.
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Rio Tinto's copper boss sees small market deficit this year

The copper market is likely to see a small shortage as early as this year because of a lack of new supply and the removal of up to 800,000 tonnes over the past 18 months in response to modest prices, Rio Tinto's copper and diamonds chief will say on Tuesday.

A Reuters survey in January showed the copper market was expected to be in a surplus of about 80,000 tonnes this year and next.

But Arnaud Soirat, chief executive of Copper & Diamonds for Rio Tinto, will take a more bullish view, according to excerpts of a speech seen by Reuters that he will deliver to the CRU World Copper Conference in Santiago on Tuesday.

"We've seen the copper market rebalance in response to lower prices," he says.

"In the last 18 months the industry has seen around 700,000-800,000 tonnes of price-related cutbacks and we now see the market moving into a small deficit this year," he said, referring to decisions to hold back copper production because it was not economic to produce it.

After the commodity price crash of 2015, copper's recovery was less spectacular than for some commodities, such as coal and zinc.

Copper rose 18 percent last year and has extended gains in 2017, boosted by the impact of strike action that has removed supply, as well as a lack of new investment.

Rio Tinto CEO Jean-Sebastien Jacques has shifted the company's focus toward copper, saying the metal has long-term upside as the world improves electricity grids and electric vehicles gain market share.

Soirat previously said the copper market would go into deficit by 2020, just when Rio Tinto's extension to the giant Oyu Tolgoi copper mine in Mongolia comes onstream.

Before that, few new projects are foreseen.

Soirat refers in Tuesday's speech to "limited new greenfield projects" over the next three to five years.

"This - combined with grade decline and end of life closures over the next few years - means we see overall mine supply potentially plateauing before the end of the decade," he says, adding there could be "a substantial supply gap" at the start of the next decade.
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Platts assesses Q2 Japan aluminium premiums at $128/mt plus LME, CIF

Platts Friday assessed the premium for imported primary aluminium in the second quarter of 2017 at $128/mt plus London Metal Exchange cash, CIF main Japanese ports, up 35% from $95/mt plus LME cash, CIF, for Q1.

The Q2 assessment was on the basis of 12 settlements at $128/mt plus LME cash CIF Japan for seaborne P1020/P1020A ingot loading over April to June, for a volume higher than 500 mt/month.

The total volume for the 12 settlements was 9,500 mt/month or more. All of the settlements were under annual contracts in which the total volume was set for the year, but premiums are negotiated quarterly.

Platts specifications are for all quarterly settlements on a CIF main Japanese port basis, negotiated prior to Q2 between two unaffiliated counterparties, for P1020/P1020A 99.7% primary aluminium ingot, with payment in cash against documents, for volumes of 500 mt/month or more.

Three Q2 settlements were not taken into account for the assessment.

These three deals were also reported to have closed at $128/mt plus LME cash CIF Japan, but were determined to have fallen outside Platts' specifications, as they were for value-added products.

Around 20 companies, comprising Japanese trading houses, consumers and overseas suppliers, took part in the negotiations that began in February.
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Strongbow’s Cornwall-based South Crofty deemed shovel ready after completing water treatment trials

TSX-V-listed tin project developer Strongbow Exploration has completed watertreatment trials at its South Crofty project, located in Cornwall, UK and is now working on an application to the UK Environment Agency (EA) for a mine waste permit.

The company said Thursday it has hired global engineeringand project management consultancy WS Atkins to submit an application to the EA for a mine waste permit with waterdischarge consent. The application is expected to be filed within a month, and permits are likely to be issued before the end of summer this year.

Once Strongbow receives a mine waste permit with waterdischarge consent, the South Crofty project will be fully permitted, with a mining license valid to 2071; planning permission to construct new surface process facilities; and the ability to dewater the mine.

"This is an important step forward as Strongbow works to bring the South Crofty mine back into operation. The South Crofty team worked closely with the UK EA throughout the process and I am very pleased that we were able to develop a system to treat the mine water which met their very high standards. We have resounding local support in Cornwall and I look forward to updating shareholders and the local community during the summer," president and CEO Richard Williams stated in a press release Thursday.

The water treatment trials were required by the EA to demonstrate that contaminated mine water could be treated, and dissolved metals and suspended solids collected before discharging mine water from the South Crofty mine workings into the Red River. The results of the trial successfully met all treated water target contaminant levels proposed by the EA.

A February preliminary economic assessment (PEA) on the South Crofty project has calculated a net present value, at a 5% discount rate, of $130.5-million, and an internal rate of return of 23.4%, at assumed metal process of $10/lb tin, $2.65/lb copper and $0.90/lb zinc.

South Crofty has estimated pre-production capital cost, including contingency, of $118.7-million, with payback of 3.8 years and sustaining capital costs of $83.8-million over the eight-year life of mine.

The mineralised material mined in the PEA is 2.58-million tonnes containing 88-million pounds of tin equivalent, at an average grade of 1.55%.
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Steel, Iron Ore and Coal

Chinese thermal traders lower prices on lack of demand

Some traders in China reduced prices of thermal coal available at northern ports, as there was a lack of support for demand.

Daily coal burn at utilities slid slightly and hydropower generation increased, so the demand for coal decreased to some extent, said a Jiangsu-based trader.

One Tianjin-based trader said some traders cut offer price for 0.8% sulfur 5,500 Kcal/kg NAR coal by 5 yuan/t to 680 yuan/t FOB.

Though the routine maintenance to Daqin rail line started on April 6, there would be limited impact on the coastal coal market and a rough supply-demand balance could be expected, said a Qinhuangdao port-based trader.

He said offer price for 0.6% sulfur 5,500 Kcal/kg and 5,000 Kcal/kg NAR coal was heard at 690 yuan/t and 610 yuan/t FOB, respectively.

Another Qinhuangdao-based trader said utilities were inactive in buying coal despite supply shortage. He forecast coal prices to stabilize in the near term.

One trader at a production base said Shanxi 5,500 Kcal/kg NAR coal was offered at 685-690 yuan/t FOB, 5 yuan/t lower than that of the same CV Inner Mongolia coal.

Single-mine Inner Mongolia 5,000 Kcal/kg NAR coal was offered at 620 yuan/t FOB, with cost at 610 yuan/t, he noted.

One Jiangsu-based trader reported moderate restocking demand from some low-stocked utilities, but added the growth in coal output at mines was slower than expected.

Most utilities prioritized buying contract coal, but they still had some need for spot coal, said the trader.

One eastern China-based trader said 0.6% sulfur 5,500 Kcal/kg NAR coal was available at 710-720 yuan/t FOB Rizhao port amid a wait-and-see sentiment.

On April 6, the Fenwei CCI Thermal Index assessed domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port at 686 yuan/t FOB with 17% VAT, falling 1 yuan/t day on day and down 4 yuan/t week on week.

On the same day, the price of domestic 5,000 Kcal/kg NAR coal was assessed at 604 yuan/t, FOB basis with 17% VAT, stable from the day prior but down 3 yuan/t from a week ago.
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India's JSW Steel could spend $1 billion on capacity addition, acquisitions this year: executive

India's JSW Steel Ltd could spend around $1 billion on capacity addition and acquisition this fiscal year and will bid for several iron ore and coking coal mines in upcoming government auctions to secure raw material supplies, a top company executive told Reuters.

Unlike its nearest rivals Steel Authority of India Ltd and Tata Steel Ltd, JSW does not own any iron ore mines and is forced to import the raw material from time to time. It also buys millions of tonnes of coking coal from countries such as Australia, Canada and the United States.

"Without increasing my debt, I will be able to spend 6,000 to 7,000 crore rupees ($923.72 million-$1.08 billion) in creating capacity or making acquisition," JSW Steel Joint Managing Director Seshagiri Rao said on Thursday.

"That's the strength of my balance sheet."
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EU raises import duties on Chinese steel, angering Beijing

EU raises import duties on Chinese steel, angering Beijing

The European Commission said on Thursday it had set 'anti-dumping' duties on imports of hot-rolled flat steel products from China at a higher rate than those already in place, angering Beijing.

The Commission, acting on behalf of the 28 EU countries, set final duties of between 18.1 and 35.9 percent for five years for producers including Bengang Steel Plates Co, Handan Iron & Steel Co [TANGCB.UL] and Hesteel Co.

This compared with provisional rates imposed from October of 13.2 to 22.6 percent following a complaint lodged by European steel association Eurofer on behalf of EU producers ArcelorMittal, Tata Steel and ThyssenKrupp.

China's commerce ministry said it was highly concerned by the decision and urged the EU to "correct its mistake", adding it would take "necessary measures" to protect its companies.

The EU has already imposed duties on a wide range of steel grades to counter what EU steel producers say is a flood of steel sold at a loss due to Chinese overcapacity.

China, the world's top producer and consumer of steel, said early last year it would shut as much as 150 million tonnes of annual production capacity over the next five years, although capacity actually rose in 2016.

G20 governments recognized in September that steel overcapacity was a serious problem. China has said the problem is a global one

The Commission said on Thursday that the measures should shield EU steel makers from the effects of Chinese dumping.

The Commission also said that it had decided not to impose provisional duties on the same product from Brazil, Iran, Russia, Serbia and Ukraine, although the investigation of imports from these countries would continue for another six months.

"The decision not to impose provisional measures for imports from Brazil, Iran, Russia, Serbia and Ukraine does not prejudge the final outcome of that investigation," a Commission spokesman said.
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Coking coal prices post biggest one-day gain on record amid rail damage

Coking coal prices have experienced their biggest one-day price surge on record as rail outages block up to half the world's export shipments.

Yesterday, the key benchmark price leapt by almost a third to $US241/tonne, according to commodity analysts S&P Global Platts.

The key reason for the unprecedented price increase is the lack of supply now coming from Queensland, which accounts for half the world's seaborne trade in coking coal, used for making steel.

That lack of supply has been caused by rail disruptions which are expected to last as long as five weeks on some major coal transport corridors, after Cyclone Debbie washed away tracks and triggered landslides.

Aurizon's Goonyella line appears to be the most severely damaged, and is the key rail connection between some of the Bowen Basin's biggest mines and the massive Dalrymple Bay and Hay Point coal loading terminals.

The extensive rail outages have triggered four miners to declare force majeure on their coal contracts - a legal action meaning the contracts cannot be enforced because a natural disaster has prevented the firm from meeting its obligations.

Among those firms are giant multinationals BHP Billiton and Glencore.

"We are continuing to receive updates from Aurizon about the extent of the damage and likely restart of rail operations," noted Glencore's Francis De Rosa in a statement.

With Goonyella out of action for up to five weeks and much of the Blackwater line from the southern Bowen Basin to the Rockhampton-Gladstone area still under floodwaters, it is uncertain when exports will get back to full capacity.

Lost coal exports worth up to $4 billion

In the meantime, analyst estimates of lost production range from 13 to 20 million tonnes, which would have been worth between $US2-3 billion ($2.6-4 billion) at the $US150 a tonne price that prevailed before the supply shortage.

ANZ commodity strategist Daniel Hynes was quoted by Reuters as saying that the lost production equalled about a fifth of China's coking coal imports, which were 59 million tonnes in 2016.

"While coal producers have learnt their lesson from the devastating floods in 2011, they will struggle to recover any of the lost production," Mr Hynes wrote in an analyst note.

Coking coal prices are extremely sensitive to supply fluctuations, with Chinese production cuts last year pushing prices briefly above $US300/tonne, and the record metallurgical coal price set in the aftermath of the Cyclone Yasi floods that wiped out much Bowen Basin production for months.
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Hebei PMI for steel sector slides to 48.4 in Mar

Hebei's Purchasing Managers' Index (PMI) for steel sector fell below the 50-point mark that separates growth from contraction on a monthly basis to 48.4 in March, compared with 50.2 in February, indicating a deteriorating performance of steel makers, showed the latest data from Hebei Metallurgical Industry Association.

In March, the new orders sub-index logged 50, down from a reading of 53.6 in the previous month, as traders slowed purchase activities amid a downward market.

The new export sub-index was 39.3 in the month, compared with 50 in February, signaling a continuous slackness of steel exports.

Steel mills in Hebei generally kept operating rate at a low level in March, as sales did not notably increase. The output index was 48.7 in March, sliding from 56.7 a month earlier.

Inventories of steel products in the province were further on the decrease. The stocks index stood at 40.3 in the month, down from a reading of 44.4 in February. The sub-index of raw material stocks stood at 42.1, compared with 45 a month ago, given a bearish outlook toward the future market.

The previous bullish outlook toward steel market weakened in March, mainly due to a crackdown on low-quality steel products, production curbs for environmental concerns, tightened real estate policy and currency policy and strengthened operating rate at steel mills.
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China Hebei districts to end coal sales ahead of Oct ban

China Hebei districts to end coal sales ahead of Oct ban

Eighteen districts in northern China's heavily polluted Hebei province will ban the sale of coal by end-June ahead of a complete ban on residential coal use in October, the official Xinhua news agency reported on April 5.

Hebei, home to six of China's 10 smoggiest cities in the first two months of the year, is on the frontline of China's three-year war on pollution, and has targeted cutting coal consumption by 40 million tonnes over 2013-2017.

It has identified the use of coal by households and small businesses as one of its main targets this year as it battles to improve air quality.

In a new action plan aimed at controlling coal consumption, the province said it would also strictly control the number of small businesses that burned coal directly, and crack down on the illegal production and sale of low-grade coals. The ban is likely to hurt local suppliers of low-grade coal but is not expected to have a wider market impact.

Late last year, Hebei announced that it would set up 18 "no coal zones" in the rural outskirts of Langfang and Baoding, two of China's most polluted cities, forcing more than 1 million rural residents to switch to natural gas, electricity or biomass.

However, exceptions were made for coal-fired electricity, large-scale heat providers, and industries like steel and chemicals that use coal as a raw material.

Hebei, which lags the rest of the country when it comes to switching to cleaner forms of energy, aims to extend the pilot programme to other parts of the province. But officials claim they are already struggling to pay for the conversion of millions of coal-fired boilers used for winter heating, and the central government needs to provide more support.

Vice-governor Yang Chongyong said at China's national parliament last month that the province would require at least 300 billion yuan ($43.53 billion) over the 2016-2020 period to allow rural residents to switch to gas. He called on Beijing to establish a dedicated fund to help the province make the transition, and for major policy banks to provide low-interest preferential loans.

Despite reporting improvements in 2016, Hebei, together with neighbouring Beijing and Tianjin, saw concentrations of small breathable particles known as PM2.5 rise 48% in the first two months of 2017 after several bouts of persistent smog.

It promised on April 1 to take more action against pollution, releasing 18 new "special implementation plans" to tackle "backward" coal-fired power plants and promote new energy vehicles.
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Inner Mongolia March thermal coal prices up 64.36pct on year

Inner Mongolia in northern China saw its mine-mouth thermal coal prices up 64.36% year-on-year to 206.07 yuan/t in March, data showed from Inner Mongolia Provincial Development and Reform Commission.

The surge of thermal coal price was due to the tight supply of coal and low coal stocks at ports and power plants.

Mine-mouth price for lignite in eastern Inner Mongolia averaged 152.76 yuan/t in March, increasing 3.39% from the preceding month and 39.01% year on year.  

Ordos' thermal coal price averaged 282.22 yuan/t, skyrocketing 184.43% from the year-ago level, data showed.

The purchasing price of coal for generating electricity in Inner Mongolia valued at 206.36 yuan/t, climbing 56.62% from the year-ago level and gaining 4.11% from February.

According to analysis,  tight coal supply will ease and coal price will fall with the increase of hydropower and coal supply. Additionally, heating season has finished in northern China.
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Glencore, BHP declares force majeure on cyclone-hit Australian coal exports

BHP Billiton, the world's biggest shipper of coking coal, said on Wednesday it won't meet its export commitments from cyclone-struck northeast Australia, while hard running floodwaters threaten to delay repairs to rail lines.

BHP is the fourth miner in the region to declare force majeure - a clause typically invoked after natural disasters - leaving rivals in the United States to cash in on a surge in prices as Chinese steelmakers scramble for supplies.

Landslides at a mountain pass on the railway connecting coking coal mines in Queensland state to ports have halted operations on the busiest network, called Goonyella, which line operator Aurizon said would take about five weeks to repair.

(For graphic on cyclone disrupts coal market IMG click here:

Aurizon said its second busiest coal haulage network, Blackwater, would be operational by week's end, but a miner that uses the line told Reuters a restart would likely be delayed due to floodwaters "running harder than predicted".

"Our understanding is the reopening of the rail line ... is likely to be early next week at best," said the miner, who requested anonymity.

Aurizon said on Wednesday there had been no change to its schedule.

Queensland accounts for more than 50 percent of global seaborne coking coal supplies, with prices rising on fears that stockpiles held by steelmakers will start to run down.

Chinese coking coal futures closed more than 8 percent higher on Wednesday to a four-month high, while Singapore-listed futures of Australian premium coking coal surged 43 percent over the previous two days.

ANZ Bank commodity strategist Daniel Hynes said about 13 million tonnes of coking coal from Australia will be lost due to the disruption. That would be equal to just over a fifth of China's total imports of the raw material, which reached 59 million tonnes in 2016.

"While coal producers have learnt their lesson from the devastating floods in 2011, they will struggle to recover any of the lost production," Hynes wrote in a report.

BHP has interests in 11 coal mines in Queensland's Bowen Basin. Nine are operated with Japan's Mitsubishi Corp. under the BMA joint venture and two in partnership with Mitsui, called BMC.

"BHP Billiton confirms that force majeure has been declared for all BMA Coal and all BMC Coal products as a result of damage caused by Cyclone Debbie to the network infrastructure of rail track provider Aurizon," the company said in a statement emailed to Reuters.

The Blackwater line is south of Goonyella in an area still subject to rising water levels, as floodwaters make their way through local river systems.

Levels in the main catchment, the Fitzroy River, are only forecast to peak on Thursday, even as workers try to get rail systems working again.

"We've been noticing a lot of those Landcruisers with the railway wheels on 'em as well, so they've been going up and down so I presume they've been checking the line," said hotel manager Kevin Vincent, who works in the town of Duaringa on the Blackwater line.

Global miner Glencore on Wednesday declared force majeure on coal shipments from the cyclone-hit Bowen Basin in Australia, after the storm damaged railway lines, disrupting delivery to ports.

Glencore runs five coal mines in the region and it is the fifth miner to declare force majeure - a clause typically invoked after natural disasters - leaving rivals in the United States to cash in on a surge in prices as Chinese steelmakers scramble for supplies.

A critical mountain pass on the railway connecting the world's single biggest source of coking coal to ports has been hit by landslides and buckled tracks after Cyclone Debbie pounded the northeast state of Queensland, crippling efforts to get exports of coal flowing again.

"Glencore has declared force majeure on its Queensland coal shipments impacted by flood damage to the State's coal rail network," the company said in a statement emailed to Reuters.

The line's operator, Aurizon Holdings, said it would take around five weeks to repair the worst-hit parts of the network and alternative routes were being considered.

Though with floodwaters from the deluge still traveling through river systems along many parts of the network, analysts are anticipating further delays and disruption to supply.

BHP Billiton, the world's biggest shipper of coking coal, declared force majeure earlier in the day.

Queensland accounts for more than 50 percent of global seaborne coking coal supplies, with prices rising on fears that stockpiles held by steelmakers will start to run down.
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Coking coal price surges 15%

The market for coking coal exploded on Monday with the steelmaking raw material surging more than 15% to $175.70 (Australia free-on-board premium hard coking coal tracked by the Steel Index), an 11-week high.

The met coal price spike come on the back of major disruption to Australia’s coal exports. Australian cargoes destined for China may be disrupted for as long as five weeks as flooding associated with Cyclone Debbie has caused serious damage to some of the country’s key rail lines, particularly in the north-east.

The global met coal market is around 300 million tonnes per year with premium hard coking coal or PHCC constituting more than a third of the total market. More than half of PHCC seaborne coal come from Australian producers according to TSI data.

A reduction in allowable work days at the country's coal mines last year sparked a massive rally in coal prices, lifting met coal prices to multi-year high of $308.80 per tonne by November from $75 a tonne earlier in 2016.
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US stainless sheet prices move up on mill hikes, high demand

US stainless sheet prices moved up to start April as mills lowered base price discounts and demand increased, sources said Monday.

North American Stainless kicked off the latest round of price hikes February 28, announcing it would be raising prices for all series 200, series 300 and type 430 cold-rolled stainless coil and sheet grades, effective with shipments April 1. The increase, which was followed by ATI Allegheny Ludlum, Outokumpu Coils America and AK Steel, was to be achieved through a reduction in functional discounts of two percentage points. Overall, NAS expected the discount reduction to raise cold-rolled stainless flats base transaction prices 5%-7%.

"We have seen a solid incoming orders from both manufacturers and distributors," a service center source said, adding March was a record month for their operation. "Demand seems healthy, while inventories are lean."

Sources put current lead times from US stainless mills in the range of five to eight weeks, depending on the alloy.

"We're definitely seeing strong demand," another service center source said.

US stainless flats surcharges for series-300 grades will also be up for April deliveries, according to raw material levies published by domestic mills in late March. NAS, ATI, AK and Outokumpu set surcharges for Types 304 and 316 at 60.12-60.17 cents/lb and 76.02-76.09 cents/lb, respectively. Type 304 stainless is up from 59.29-59.34 cents/lb in March, while Type 316 is up from 73.31-73.36 cents/lb.

In the near term, stainless sheet base pricing seems firm at current levels, source said.

"I don't see mills cutting deals," the first service center source said. S&P Global Platts on Monday assessed Type 304 stainless sheet transaction prices at 120-123 cents/lb, up from 116-118 cents/lb in the previous month. Type 316 stainless was assessed at 156-160 cents/lb, up from 147-149 cents/lb.

Type 430 stainless sheet transaction prices were assessed at 93-96 cents/lb, up from 90-91 cents.
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After Cyclone Debbie, China replaces Australian coal with U.S. cargoes

China, the world's biggest coking coal importer, is scrambling to cover Australian supply disruptions after Cyclone Debbie knocked out mines and rails by turning to an unusual source: the United States.

Debbie, which hit Australia's Queensland state last week, caused the evacuation of several mines and damaged coal trains supplying export terminals, triggering two miners - Yancoal Australia and QCoal - to declare force majeure on its deliveries. With other miners like BHP Billiton and Glencore also affected by the storm's fallout, more disruptions may follow.

Force majeure is a commercial term that means a buyer or seller cannot fulfill their obligations because of outside forces. It is typically invoked after natural disasters or accidents.

Australia, the world's biggest coking coal exporter, is China's largest suppliers. With markets there closed on Monday and Tuesday, its steel makers are clambering to find alternative supplies.

"Markets may be closed Monday and Tuesday, but there's certainly activity. The Chinese are fixing cargoes from the United States in order to replace the shortfall from Australia," one coal trader with knowledge of the matter said, speaking on the condition of anonymity as he was not cleared to talk about commercial deals.

"More will make its way from the U.S. to China very soon," he added.

It was not immediately clear which American miners were providing the supplies, but Thomson Reuters Eikon data shows that China has already imported over 500,000 tonnes of U.S. coking coal in 2017, ending a two-year stretch when no coking coal was shipped between the two countries.

China will require more coal, as the Australian outages far outstrip what is immediately available from the United States.

"The minimum impact over the coming weeks we would expect would be in the region of 14 million tonnes of coal (11.5 million metallurgical, and 2.5 million tonnes thermal)," said Rodrigo Echeverri, head of energy coal analysis at commodities trading house Noble Group, adding that the current estimate was for the outages to last around five weeks.

Shipping data in Eikon shows that around 70 ships are waiting to load coal off the Queensland ports of Abbot Point, Mackay, Dalrymple Bay, and Hay Point.

The outages caused Australian coking coal futures on the Singapore Exchange on Monday to spike by over 25 percent to $197 per tonne, the biggest one-day move ever.

China has recently turned to Russia for more coking coal, with imports rising to over 400,000 tonnes in February from 275,000 tonnes in December.

Mongolia and Indonesia are other potential sources of coking coal for China, three coal traders said. Anthracite coal shipments from North Korea to China, also used as coking coal, have dried up after Beijing ordered an import ban following missile tests of its isolated neighbor.

Overall, traders said it was unlikely that all of China's near-term demand could be met without Queensland supplies, likely requiring inventory drawdowns, which will push up prices.

"With a significant amount of the world's premium hard coking coal now marooned onsite, prices are likely to continue to push higher," ANZ said.

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Second Australia miner declares force majeure in wake of Cyclone Debbie

Australia's QCoal on Tuesday became the second miner to declare force majeure in the wake of Cyclone Debbie, as the deadly storm's damage to railway lines in the country's northeast disrupts exports and pushes coal prices higher.

The cyclone, which struck last week as a category four storm, one rung below the most damaging category five, has now left a disaster zone stretching 1,000 km (600 miles) and subsequent flooding has claimed at least four lives.

The disruption, which primarily affects steel-making material coking coal, comes after damage to Aurizon Holdings' rail lines that has reverberated around the market leading to price rises in both coking and thermal coal.

Some of Aurizon's rail network will take up to five weeks to repair, the company said, disrupting coal deliveries from mines to ports.

Privately-owned QCoal said in an emailed statement on Tuesday that it had declared force majeure on two coal shipments "due to infrastructure availability". It did not give the volume of the cargoes.

Yancoal Australia Ltd has already declared force majeure, while miners including BHP Billiton and Glencore PLC are waiting to see if they will be able to fulfil contracts with customers in Japan, China, South Korea and India.

Queensland accounts for more than 50 percent of global seaborne coking coal supplies, with the Goonyella rail line alone transporting more than half of the state's coal.

The Insurance Council of Australia has declared the cyclone a catastrophe, which could cost hundreds of millions of dollars in losses and state officials have warned recovery and repairs will take months as many areas remain subject to evacuation orders.

Floodwaters receded from many parts of New South Wales state on Monday, though last week's deluge is still flowing through river systems further north. New Zealand is bracing for heavy rain on Tuesday as the storm crosses the Tasman Sea.

BHP Billiton, the world's biggest exporter of metallurgical coal, said on Monday that crews were returning to work at its coal mines in the storm-hit region.
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Jellinbah declares force majeure on met coal shipments on Cyclone Debbie

Jellinbah Group, a significant Queensland met coal miner, which produces low ash second-tier coals and mid-tier PCI, has declared force majeure on some shipments Monday, a source with knowledge of the matter said.

This follows a declaration of force majeure by Yancoal's Middlemount mine last week, due to cyclone Debbie which hit Australia early last week.

Jellinbah's force majeure affects only a few shipments, Jellinbah PCI and Lake Vermont HCC and it was due to railway logistical issues rather than issues at the mining site, the source added.

Jellinbah Group is Queensland's third largest producer and exporter of coking coal. The company produces Lake Vermont HCC which is widely traded in the spot market due to its relatively low ash component which is favored by the Chinese.

Jellinbah's Lake Vermont HCC is the second most widely traded low ash coal in the international spot market, accounting for 23% of the trades according to S&P Global Platts spot data analysis in 2016.

The miners' PCI products are the fourth most traded in the spot market, accounting for 13% of the trades flows, according to 2016 spot data analysis by Platts.

Jellinbah produces 13.09 million mt of coking coal and PCI in 2014-15, according to latest data from their company website.
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Australia's Abbot Point coal terminal to reopen end week after Cyclone Debbie

Abbot Point Coal Terminal in the Australian state of Queensland is expected to reopen by the end of the week after weather related to Tropical Cyclone Debbie forced its closure last week, a spokesman for operator Adani told S&P Global Platts Monday.

Abbot Point port was closed last Tuesday last week in preparation for the cyclone, and vessels were given the OK to return to anchorage from the outer reef last Thursday, North Queensland Bulk Ports Corporation said.

Once reopened, exports of coal via Abbot Point will still likely be impeded as the coal rail system that connects it to mines in the region is expected to remain closed for the next 2-3 weeks.

The rail system, Newlands, which closed at 12:00 AEST last Tuesday, has a significant number of sites that have sustained minor damage, but there are no reports of major damage, operator Aurizon said Monday.

A spokesman for coal miner Glencore said export volumes from Abbot Point will be "significantly impacted" as a result of the rail system closure.

The Abbot Point Coal Terminal has a shipment capacity of 50 million mt/year. In February, it shipped its lower monthly volume of coal in 35 months at 1.79 million mt, down 1.92% year on year and down 13.73% month on month, NQBP data showed.

The Newlands system was linked to Aurizon's Goonyella Coal Rail System -- which is expected to remain closed for five weeks -- to provide Central Queensland Coal Network users with the flexibility with access Abbot Point.

Aurizon's major customers that use the Newlands system include Glencore, Jellinbah Resources and QCoal.
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Robust China iron ore imports in March may be highwater mark: Russell

China's appetite for iron ore is likely to have continued unabated in March, but it seems increasingly likely that the first quarter of 2017 may prove to be as good as it gets this year for imports of the steel-making ingredient.

China imported 90.3 million tonnes of iron ore in March, according to vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

If the estimate is matched by official customs figures, due next week, it will be only the fifth time that monthly imports have exceeded 90 million tonnes, the other occasions being January this year, November and September last year and in December 2015.

The vessel-tracking and port data is typically more conservative than customs data, undercounting by 3.5 percent over 2016, meaning that the risk is that March imports are higher than suggested by the data.

China's imports of iron ore in the first quarter of 2017 have been robust, mainly on the back of strong steel prices and optimism about the resilience of the construction and infrastructure sectors, the main steel consumers.

But there are already signs that the market is realizing it got ahead of itself, with spot iron ore prices ending last week at $80.39 a tonne, down 15 percent from the peak this year on Feb. 21.

The spot price is now virtually flat from the $78.87 at the end of last year, showing that the rally from December 2015 to February, which resulted in prices more than doubling, is starting to unwind.

Much of the focus on why the price gains were unsustainable has been on the rapid build-up of iron ore inventories at Chinese ports, with industry consultants SteelHome saying stockpiles at 46 ports reached a record 132.5 million tonnes in the week to March 31.

This is some 65 percent higher than the 80.5 million tonnes recorded in October 2015, just prior to the start of the strong rally in prices.

While an overhang of inventories was always likely to eventually cause prices to stumble, it also means that imports may be subdued in the coming months as traders and steel mills work through some of the stockpiles.


Chinese steel demand may also become a headwind for iron ore imports and prices, with the China Metallurgical Industry Planning and Research Institute estimating it will drop to 660 million tonnes in 2017, a decline of 1.9 percent from 2016.

"We think China's steel consumption will decrease step by step by step -- maybe increase some years, like last year. That's our situation," Li Xinchuang, the institute's president, told an industry conference in Perth on March 30.

Such a decline in domestic demand, coupled with likely lower steel exports, would likely lead to steel mills lowering output, thereby cutting their need for imported iron ore.

China's steel exports were 13.17 million tonnes in the first two months of 2017, down 25.7 percent from the same period last year.

If this pace is maintained for the rest of the year, steel exports will reach around 80 million tonnes, well below the 108.5 million recorded in 2016.

Steel prices in China are also feeling the pressure of possible lower domestic demand and exports, with the benchmark Shanghai rebar contract, ending last week at 3,166 yuan ($459.50) a tonne, down 6.2 percent from its recent closing peak on March 15.

For iron ore, it appears the combination of a softer demand outlook and record high inventories is finally weighing down prices.

While this has yet to show up in China's imports of iron ore, the risk is that these too start to moderate from the breakneck pace seen in the first quarter.
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SouthGobi Resources coal output up 73.3pct in 2016

SouthGobi Resources Ltd. produced 3.38 million tonnes of coal in 2016, up 73.3% from 1.95 million tonnes in 2015, it announced in its financial and operating results for the quarter and the year ended December 31, 2016 on March 31.

The company managed to increase its sales volume from 1.07 million tonnes in 2015 to 3.91 million tonnes in 2016, data showed.

In 2016, the company recorded a $38.1 million loss from operations in 2016 compared to a $166.9 million loss in 2015.

Although the coal prices generally improved in China during 2016, the impact of negotiating coal sale agreements during lower coal price periods and the depreciation of the RMB against the USD negatively impacted the overall coal prices achieved by the company.

The average realized selling price decreased from $17.66/t in 2015 to $16.44/t in 2016.

In the fourth quarter of 2016, the company produced 1.21 million tonnes of coal, compared to 0.62 million tonnes for the fourth quarter of 2015.

The company sold 1.08 million tonnes of coal during the same period, compared to 0.21 million tonnes in the fourth quarter of 2015.

During the fourth quarter of 2016, the company recorded an $11.4 million loss from operations as compared to a $105.1 million loss in 2015.

Although the general coal market remained difficult in 2016, the results were an improvement when compared to 2015 and were principally attributable to increased coal sales as well as decrease of impairment of property, plant and equipment from $92.7 million in 2015 to $1.2 million in 2016, the company said.
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Palmer’s Mineralogy loses battle for control of Cape Preston port

The Federal Court of Australia has dismissed an appeal by Clive Palmer’s Mineralogy to prevent CITIC Pacific Mining from accessing the Cape Preston port, effectively cutting off the multibillion-dollar Sino iron-ore project from its export vein.

Despite Mineralogy’s insistence that it should be entitled to control of the port, the three appeal judges found that, in 2010, the privately held company had confirmed that it did not plan to get involved in the port operations and, in 2012, only after CITIC had spent billions on the Sino project, had Mineralogy had a “change of heart”.

The judges noted that none of the proposals between the two companies had the “slightest suggestion” that Mineralogy would be carrying out the operation and maintenance of the port facilities.

“The decision is welcome news for the project, our staff and Western Australia,” a CITIC spokesperson told MiningWeekly Online.

“The appeal court has affirmed our view that Mineralogy had no right to operate our port terminal facilities. We’ve invested heavily in this infrastructure and they're critical to our operations.”

“Having to deal with such matters is a distraction from our main objective – putting Sino Iron on a sustainable footing, both economically and operationally. Mineralogy’s litigious approach continues to undermine these efforts,” the spokesperson said.

CITIC is in the midst of ramping up production at Sino, with the mine set to produce 24-million tonnes a year at full capacity.

“We still face many challenges. The cooperation and commitment of all stakeholders is vital if Sino Iron is to reach its full potential,” the spokesperson said.
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China's 90 large coal producers Jan-Feb output down 0.6% YoY

China's 90 large coal producers produced a total of 370 million tonnes of raw coal over January-February, edging down 0.6% year on year, showed data from the China National Coal Association (CNCA).

The top ten coal enterprises produced a total 220 million tonnes of raw coal over the same period, accounting for 61.1% of the total output produced by 90 coal producers, the CNCA data showed.

Of this, raw coal output of Shenhua Group, China National Coal Group and Shaanxi Coal & Chemical Industry Group stood at 71.07 million, 23.17 million and 21 million tonnes during the period.

Shandong Energy Group, Datong Coal Mine Group and Yankuang Group followed with raw coal output at 19.8 million, 18.73 million and 17.3 million tonnes.

Shanxi Coking Coal Group, the State Power Investment Co., Ltd, Lu'an Group and Kailuan Group produced 15.45 million, 14.12 million, 12.39 million and 11.77 million tonnes, respectively.

The CNCA data showed that there were 5,052 above-sized coal producers (main businesses revenue above 20 million yuan) in the first two months, 875 less than the same period last year.

The main businesses revenue of the above-sized coal firms totaled 393.7 billion yuan ($57.14 billion) over January-February, up 37.5% from a year ago. Their total profit was 43.8 billion yuan during the period, compared with a loss of 2.09 billion yuan during the same period last year.

Among them, loss-suffering enterprises reported a loss value of 5.82 billion yuan in the first two months, down 68.8% year on year. The asset liability ratio was 69.4%, compared with 69% a year earlier.

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China's PMI for steel sector falls to 50.6 in Mar, fuels oversupply fears

The Purchasing Managers' Index (PMI) for the steel sector fell to 50.6 in March, down from February's 51.4, but still above the 50-point mark that separates growth from contraction on a monthly basis, showed data from China Federation of Logistics & Purchasing (CFLP) on March 31.

It indicated that activity in China's steel industry expanded at a slower pace in March even as mills continued to ramp up output, sparking worries of oversupply in the world's top producer of the metal.

A renaissance in China's steel industry has been a major driver of the world's second-largest economy in recent quarters, helping generate the strongest profit growth in years.

Since last year, cash-starved Chinese mills have boosted production to take advantage of rising steel prices and higher profit margins, but a reading on new orders slipped to 50.6 in March from 55.3 in the previous month, suggesting a sharp cooling in demand.

Steel prices were on track for a 4% fall in March, the first monthly drop since December, on worries that supply is outstripping demand.

The purchasing price index for steel sector logged the second straight rise on monthly basis to a nearly four-month high of 62.6 in March, compared with 60.4 a month earlier. It has stayed above the 50-point mark for 13 consecutive months, indicating robust upturn of steelmaking material prices.

Inventories of finished goods expanded for the first time in March after five months of decline, rising to 53 from 47.7 in February, its highest level since July 2015.
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Coal exports disrupted in cyclone-hit Australia as floodwaters rise

Damage to rail lines in cyclone-hit north-east Australia will take up to five weeks to repair, disrupting exports of the steel-making material from the world's largest coking coal region and putting pressure on global prices.

The extent of the damage, which will hit coal mines operated by BHP Billiton Ltd and Glencore PLC, was revealed in the wake of deadly Cyclone Debbie, which left a disaster zone stretching 1,000 km (600 miles) after striking the region last week.

Four people have died in the accompanying floods in the eastern states of Queensland and New South Wales, with police still looking for another three people.

Coal hauler Aurizon Holdings said on Monday it would take up to five weeks to repair parts of its network of rail lines that connect mines to ports in Queensland, with alternative routes being considered for coal transported on the worst-affected Goonyella line.

More than half of the state's coal - mostly coking coal, used for steel making - is transported via the Goonyella line which is crucial to BHP's local operations run in partnership with Japan's Mitsubishi Corp.

Queensland accounts for more than 50 percent of global seaborne coking coal supplies, with most going to customers in Japan, China, South Korea and India.

The supply disruption could lead to a rise in the spot price of hard coking coal, currently around $159 a tonne, and to higher than expected second-quarter contract prices between miners and steelmakers, analysts said.

AME Group chief economist Mark Pervan said the export of 12 to 15 million tonnes of coal shipments could be affected by the rail outages.

"We're talking 3 to 4 percent of global coking supply with a question mark over it," Pervan said. "It is certainly a surprise announcement. The market probably wasn't expecting quite such large outages."

U.S.-based coal producer Peabody Energy Corp said its Queensland mines had restarted but it was too early to assess the impact of the rail outages on volumes and its results, as well as any price effects.

Representatives from BHP, Glencore, Anglo American PLC and Rio Tinto could not immediately comment on the impact of the rail stoppages.


While the low pressure system is moving out to the Tasman Sea, persistent rain and run-off mean floodwaters continue to rise in some areas.

"It's just debris everywhere, with piles of rubbish and desks and chairs and computers and all sort of stuff just pulled out of shops and put on the kerb," said emergency services worker Narelle Johnson, speaking to Reuters from the flooded town of Lismore.

"I think in a lot of ways today is when it's really sort of starting to hit, but the town itself is really pulling together."

The Insurance Council of Australia said nearly 20,000 claims had already been filed, with an early insured loss figure of A$224 million ($171 million), a number sure to rise.

In the cyclone-hit tropics, Australia's Defence Force was helping to deliver medical personnel and supplies, while tens of thousands of people remain without electricity.

At Rockhampton in Queensland, river levels are still rising and are due to peak on Wednesday, with major flooding predicted.
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Any U.S. border tax on steel would prompt complaint to WTO- Italy's Marcegaglia

The implementation of a proposed border tax under discussion in the United States would be a reason to file a complaint with the World Trade Organisation (WTO), the chief executive of Italian steel firm Marcegaglia said on Friday.

"A border tax would be a declaration of trade war that should be brought before the WTO, and when you start a war you don't know where you will end up," Emma Marcegaglia told reporters in Rome.

Marcegaglia said it was still possible that the proposal would not be carried out, and that the issue could be resolved through trans-Atlantic negotiations.
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CIL to maintain capital expenditure for next year despite production slowdown

Indian major Coal India Limited (CIL) will make a capital investment at around $ 1.3-billion during 2017/18, Coal Minister Piyush Goyalsaid.

He said that annual capital expenditure budget was in the final stages and that CIL had taken all measures to ensure that the entire fund earmarked for capital expenditure was used during the year, without any spillover.

As per official record, CIL’s capital expenditure for the current financial year would be an estimated $1.19-billion. This was apart from $780-million which was set aside for special projects including transportation infrastructure and planned foray into thermal power generation.

Even the marginal rise in capital expenditure for the coming fiscal was significant since the miner was expected to close the current financial year, ending March, recording a production growth of 2.5% and a sales growth of 2%.

The production growth for the current year was lower than 8.5% achieved in 2015/16.
CIL officials out off-the-record attributed the lower production growth to mounting stocks estimated as on date at 100-million tones at both mine pitheads and with thermal power plants which had forced the miner to slow down production at key large mines.

The Coal Ministry at start of the fiscal had set a production growth target of 11% for CIL based on the 8.5% achieved in the previous year.

Though figures for 12 months of current year was still to be collated, data released earlier showed that the miner produced 488-million tonnes during April 2016 to February 2017, which was lower than the 535-million tonnes target set for the same period by the Coal Ministry.

For 2016/17 the target was 598-million tonnes requiring a production growth of 11% but would be clearly be missed as the miner achieving a growth of just 2% during the year.
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