Mark Latham Commodity Equity Intelligence Service

Thursday 14th January 2016
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    China supply-side reform's positive impact on growth to show in long run

    China's supply-side reform -- cutting overcapacity, deleveraging, and reducing housing inventories -- sounds painful, but growth will be seen in the long run, Xinhua reported, citing an investment bank's report on January 12.

    The direct negative impact on GDP of cutting overcapacity in five key industries will be 0.3 to 0.4%, while tax cuts, also a key measure of supply-side reform, will boost GDP by 0.4%,
    China International Capital Corporation (CICC), a Chinese investment bank, was quoted as saying.

    The estimate was based on the assumption that the five industries, namely iron and steel, coal mining, cement, ship building, and aluminum and flat glass, will reduce 10% of their production capacity annually over the next three years.

    In the short-term, tax cuts will raise private investment and stimulate consumption, thus giving GDP growth a 0.4% boost if fiscal deficits rise to 3% in 2016, CICC said.

    CICC earlier said overcapacity cuts will slightly push up the unemployment rate, but considering the number of people that will be re-employed, the impact is very limited.

    Credit risks will also rise as the implicit guarantee by the government to cover non-performing companies' debt will be withdrawn, but in the long run, supply-side reforms will help achieve market-based pricing of credit risks and encourage the flow of funds to more efficient industries, according to the report.
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    Overcapacity may lead to 3m layoffs

    Layoffs in industries plagued by overcapacity are expected to reach 3 million in the next one or two years, according to a Chinese investment bank.

    However, this figure will only lead to a "marginal increase" in unemployment, the bank predicts.

    The estimate from China International Capital Corp is based on the assumption that the five industries mired in overcapacity will shed 30 percent of their capacity.

    As a result, 3 million jobs would be cut from the 10 million currently available in the coal, steel, electrolytic aluminum, cement and glass industries.

    However, real job losses are expected to be much lower. During the 1997-98 downturn, 21 million workers at struggling State-owned enter-prises were sacked. Of these, 13 million found new jobs, more than 1 million were transferred internally, while a third lost their jobs.

    If that ratio was applied today, one-third, or 1 million, would lose their jobs, according to the bank's estimate.

    Liu Liu and Liang Hong, authors of the report, said: "China's unemployment rate has remained steady in recent years - despite the downturn - at 5.1 percent. The 1 million job losses would only be the equivalent of 0.3 percent of the entire urban employment."

    The report comes as Beijing prepares to tackle increased unemployment by shedding excess capacity-a top priority for this year.

    Yang Weimin, deputy director of the Office of the Central Leading Group on Financial and Economic Affairs, said if so-called zombie firms were allowed to continue operating through hefty subsidies, profitable companies would be "dragged to their deaths".

    "The right approach is to tackle zombie companies resolutely. Only when excess capacity is shed, can price falls be stopped and good companies see hope," Yang said.

    While declaring its resolve to tackle the problem, Beijing has vowed repeatedly to minimize the social pain.

    At a meeting of top leaders in December, local governments were told to turn to mergers and acquisitions and to avoid bankruptcy and liquidation when dealing with firms that are unviable.

    Li Pumin, spokesman for the National Development and Reform Commission, pledged on Tuesday to put social policies in place to ensure against layoffs.

    A special fund will be set up at central government level to reward local governments that succeed in cutting overcapacity. The money will be used chiefly as compensation for layoffs

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    Iran Sanctions Seen Lifted by Monday Once Nuclear Deal Verified

    A decade of sanctions imposed on Iran’s nuclear program may come to an end by Monday, unlocking billions of dollars in frozen accounts and paving the way for a surge in oil exports from the Islamic Republic.

    The International Atomic Energy Agency is expected to report on Friday that Iran has fulfilled its commitments under July’s nuclear accord with world powers, Iran’s Deputy Foreign Minister Abbas Araghchi said in Tehran. That would enable a joint announcement by Sunday implementing the deal and lifting sanctions, he said.

    Iran’s foreign ministry on Tuesday sent its director of political and international affairs, Hamid Baeedinejad, to Vienna, where the IAEA is based.

    The end to nuclear-related sanctions will mean that the Iranian economy is open for funds to flood in, with Iran set to get immediate access to as much as $50 billion of cash frozen in overseas accounts, according to U.S. Treasury estimates. Crude exports are expected to rise by half-a-million barrels a day within weeks.

    While Iran says it will need $100 billion to rebuild its energy industry and another $29 billion for mining and steel, foreign investors are expected to return only gradually as they wait to make sure the nuclear deal holds. Diplomats left escape clauses if the accord is violated. Should the deal fail, sanctions could be reimposed just as Iran’s nuclear work could return to unchecked development.

    “Iran has granted the International Atomic Energy Agency unprecedented access to make sure it is doing all the things it said it would do in this deal,” U.K. Prime Minister David Cameron said in Parliament in London on Wednesday. “We should enter into it with a very heavy heart, a very clear eye and a very hard head in making sure this country does everything it said it would.”

    Friday would be the earliest date that IAEA inspectors could verify Iran has removed nuclear equipment and material from atomic sites, two diplomats with direct knowledge of the process said earlier on Wednesday. The IAEA press office declined to comment.

    The comments about the deal’s implementation came only hours after 10 U.S. sailors were released by Iranian authorities after their boats drifted into Iran’s territorial waters. Even as U.S. President Barack Obama on Tuesday night praised the nuclear deal foraverting a war with Iran, the Persian Gulf incident underscores lingering tensions in the relationship.

    “The Americans cannot have trade relations with us, and so be it,” Araghchi said, adding that Iran understands that non-nuclear sanctions targeting terrorism and ballistic missile programs will remain in place. “Iran and U.S. relations will stay where they are -- the intention of this deal hasn’t been about trust-building.”

    It was precisely because of that lack of trust between Iran and six world powers -- China, France, Germany, Russia, the U.K. and U.S. -- that negotiations to reach a deal took more than two years. In the end, Iran agreed to eliminate virtually all of its enriched uranium and dramatically reduce its nuclear capacity. In exchange, it will receive sweeping sanctions relief that reconnects its banks to the international financial system and allows oil and gas producers to boost exports.

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    Russia seeks spending cuts to ready for low oil price era

    "New realities" including the possibility that oil prices will remain low for a prolonged period will force Russia to take hard decisions about government spending, its finance minister said on Wednesday.

    Anton Siluanov warned the country's budget would only balance at an oil price of $82 per barrel, well in excess of the $50 per barrel assumption used for this year's calculations, let alone the $30 per barrel near which oil is currently trading. Some forecasters have predicted crude, Russia's major export and main source of revenues, could fall to $20 per barrel or lower.

    Although he said oil prices could start to recover in the second half of the year, Siluanov told the annual Gaidar Forum in Moscow that the 2016 budget should be revised according to a lower assumed average oil price of $40 per barrel.

    "Our task is to adapt our budget to the new realities," Siluanov said. "Our budget will be balanced when the price is $82 per barrel so there are still a lot of decisions to be made when it comes to budget policy."

    Speaking at the same conference, Prime Minister Dmitry Medvedev also said the country needed to steel itself for tough times. "One needs to prepare for the worst scenario," he said.

    Medvedev said the budget would need to be revised if oil prices fell further. But he also said the situation was manageable given Russia's existing cash reserves.

    Russia's central bank outlined a "risk scenario" last month under which oil prices would stay at around $35 for three years.

    Siluanov said last year's budget deficit was around 2.6 percent of gross domestic product, slightly lower than forecast, but warned that did not mean Russia had adapted to an era of cheap oil.

    This year's budget envisages a deficit of 3 percent of GDP, assuming the oil price averages $50 per barrel.

    Siluanov said the first steps towards adjusting spending had been taken, after the government ordered ministries to find 10 percent cuts in "non-protected items" of expenditure.

    Officials earlier told Reuters that the planned cuts had been approved by the government last month, but would exclude areas such as public sector pay and pensions.

    The finance ministry, which typically emphasises the need for fiscal caution, is likely to face resistance to spending cuts from other government departments as it did last year.

    Economy Minister Alexei Ulyukayev also warned that Russia needed to brace for a long period of low commodity prices.

    "I am convinced that the period of low commodity prices will be protracted," he told the forum.

    "One needs to fear that there will be (an oil price) of $20 or $15. By the logic of markets the bigger the fall today, the larger the rebound tomorrow, and this isn't the biggest risk.

    "The biggest risk is that there will be low prices for a long time -- that is for years, for decades," Ulyukayev said.

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    BHP Spinoff South32 Said Interested in $1 Billion Anglo Sale

    South32 Ltd., the aluminum, coal and manganese producer spun out of BHP Billiton Ltd. last year, is considering bidding for Anglo American Plc’s $1 billion niobium and phosphate business in Brazil, according to three people familiar with the situation.

    South32 sent out requests to investment banks as it seeks to hire an adviser to assist in the bidding process, the people said, asking not to be identified because the information is confidential. Goldman Sachs Group Inc. and Morgan Stanley are managing the sale for Anglo, the people said.

    First-round bids are due by the middle of next month, and Anglo is seeking to complete the sale in one transaction, rather than split the niobium and phosphate assets, they said. Large North American fertilizer companies are also likely to participate in the auction, two of the people said. Anglo confirmed last month that it would work to sell the business this year.

    South32 was created last year in the mining sector’s biggest spinoff in about a decade as BHP narrowed its focus to copper, coal, iron ore and oil. Shares of Perth, Australia-based South32 plunged 56 percent in Sydney trading since listing in May.

    A spokeswoman said the company doesn’t comment on market speculation. South32 has a strong balance sheet and will look at acquisition opportunities, Chief Executive Officer Graham Kerr said in August.

    “Our primary focus is on optimizing the performance of our existing operations and maximizing the value of those assets,” the company said in an e-mailed statement.

    The assets are among several that Anglo is trying to sell as it seeks to raise $4 billion to cope with the collapse in commodities. The London-based miner already generated about $2 billion by offloading its tarmac business, two copper mines in Chile and platinum assets in South Africa.

    Anglo is set to become the world’s second-largest producer of niobium, a material used in high-temperature alloys for jet engines and lightweight steel for cars, when it completes the ramp up of its $325 million Boa Vista Fresh Rock plant in Brazil’s Goias state by mid-2016.

    It produced 2,934 metric tons of niobium in the first half of 2015, and the business contributed $35 million to earnings before interest, taxes, depreciation and amortization. The phosphates unit had output of 513,000 tons with Ebitda of $52 million.
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    Oil and Gas

    Oil price rout forces companies to slash $170 billion in projects from 2016-2020

    Oil and gas projects worth $380 billion have been postponed or cancelled since 2014 as firms slash costs to survive the oil price crash, including $170 billion of projects planned between 2016 and 2020, energy consultancy Wood Mackenzie said.

    Crude oil prices have fallen by 70 percent since mid-2014 to just over $30 per barrel as soaring global production leaves hundreds of thousands of barrels a day without a buyer, while demand - especially in once-booming Asia - is slowing markedly.

    Oil and gas firms were being forced into survival mode as oil prices fell to levels last seen in 2004, Wood Mackenzie (WoodMac) said in a report on Thursday.

    "The impact of lower oil prices on company plans has been brutal. What began in late-2014 as a haircut to discretionary spend on exploration and pre-development projects has become a full surgical operation to cut out all non-essential operational and capital expenditure," said Angus Rodger, WoodMac's principal upstream analyst.

    The report comes the same week as Barclays bank said global oil and gas companies planned to cut spending on exploration and production by as much as 20 percent in 2016.

    WoodMac said a total of 68 major projects with combined reserves of around 27 billion barrels of oil equivalent had been deferred since 2014, with $170 billion of cuts falling between 2016 and 2020.

    In terms of production, a total 2.9 million barrels per day (bpd) of liquids production would be deferred into next decade, more than OPEC-member Venezuela produces, it said.

    "Against a backdrop of overwhelming corporate pressure to free-up capital and reduce future spend - to the detriment of production growth - there is considerable scope for this wall of output to get pushed back further if prices do not recover and/or costs do not fall enough," the report said.

    The average break-even cost for delayed new projects was $62 per barrels of oil equivalent, WoodMac said, adding that deepwater projects had been hit hardest.

    These accounted for over half of the total "as companies are forced to rework projects with high breakevens, large capital requirements and high costs."

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    China sets floor for retail fuel pricing

    China will not cut its domestic retail fuel prices when international oil prices fall below 40 U.S. dollars a barrel, the country's economic planner said on Wednesday.

    Previously, China set a ceiling for domestic retail fuel prices, which will not be raised if international oil prices rise above 130 U.S. dollars per barrel.

    The floor and ceiling aim to buffer the negative effects of violent fluctuations in international oil prices, according to the National Development and Reform Commission (NDRC).

    The latest reforms aim to improve China's oil pricing mechanism, which was introduced in 2013.

    Following the new rule, the NDRC on Wednesday announced cuts in the retail price of gasoline and diesel from Thursday. Gasoline prices will drop by 140 yuan (21.34 U.S. dollars) per tonne, while diesel prices will go down by 135 yuan per tonne.

    The NDRC has suspended price adjustments of domestic refined oil products twice since Dec. 15, awaiting the changes.

    Under the updated mechanism, China will adjust domestic prices of refined oil products when international crude prices translate into a change of more than 50 yuan per tonne for gasoline and diesel for a period of 10 working days, but will not do so if the international prices go below 40 U.S. dollars or above 130 U.S. dollars a barrel.
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    Asian VLCC rates fall again, down by 44% since start of the year

    Asian VLCC rates fell again Wednesday, dropping 11 Worldscale points to take the cumulative decline since the beginning of the year to w53.25 amid stiff competition from owners to snap up cargoes to avoid long waiting periods for vessels heading to the Middle East.

    The key Persian Gulf to Japan route for a 265,000 mt cargo has slumped by over 44% in the eight trading days so far this year, from 119.25 Worldscale points to w66 Wednesday.

    The weakness in the market was writ large with charterers heard to be receiving more than 10 offers on a single cargo on the Persian Gulf to East routes.

    Adding to the owners' woes, charterers were seen replacing vessels taken for the Persian Gulf to East voyages by at least 22.5 Worldscale points below initially done levels, mainly due to the ample supply of vessels including newbuild VLCCs, older tonnage and ships that are just out of the dry dock.

    "The market is dropping so quickly, much faster than I expected! There are three to four newbuild VLCCs and many owners are keen on one cargo so the market is very competitive," said a VLCC shipowner.

    "Around 40-50 vessels will roll over to the February program, and since there are lots of [competitive] vessels remaining in the market it might take some time for the market to rebound," he added.

    The drastic cut in rates was described as a "bloodbath," and market participants said that with vessels failing, owners were under pressure as charterers expected to obtain further discounts on rates.

    Among fixtures heard, Mercuria replaced the Desh Vibhor with the Ridgebury Pioneer for a PG-East voyage, loading January 15-17 at w47.5 basis 270,000 mt on 2016 Worldscale rates.

    This is the fourth vessel taken by Mercuria for this cargo, at a rate significantly lower, having dropped from w75 on the DS Commander.

    Shell took two SK Energy re-let vessels, the C. Vision and the Perseus Trader, on subjects for PG-Singapore voyages, loading January 25 and January 27 respectively, both at w57.5 basis 270,000 mt on 2015 Worldscale rates. Sources said Shell previously had the Front Ariake and the Nave Synergy on subjects at w80 for these cargoes.

    Market participants said the lowest fixture was S-Oil having placed a newbuild ship, the Gener8 Apollo, on subjects for a PG-Onsan voyage, loading January 27-29, at w44.5 basis 274,000 mt on 2015 Worldscale rates.
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    Norway's Statoil Buys Minority Stake in Lundin Petroleum

    Statoil ASA, Norway’s biggest energy company, bought a 12% stake in Lundin Petroleum AB, increasing its exposure to the giant Johan Sverdrup field.

    The Norwegian oil producer bought about 37 million shares in the Stockholm-based company, Statoil said in a statement on Thursday. Statoil is supportive of Lundin’s management, board and strategy and there is no plan to increase its shareholding in the company.

    “We consider this a long-term shareholding,” Statoil CEO Eldar Saetre said in the statement. “The Norwegian Continental Shelf is the backbone of Statoil’s business, and this transaction indirectly strengthens our total share of the value creation from core, high value assets on the NCS.”

    The move comes as oil companies cut costs to adapt to a plunging oil price, with Brent crude falling below $30 a barrel on Wednesday. Lundin holds the second-largest stake in the Johan Sverdrup field, Norway’s biggest offshore project in decades. The field is estimated to hold 1.7 billion to 3 billion barrels of oil.

    Statoil owns a 40 percent stake in the field, which is scheduled to start production at the end of 2019. Lundin Petroleum AB holds a 23 percent stake, Petoro AS 17 percent, Det Norske Oljeselskap ASA 12 percent and A.P. Moeller-Maersk A/S 8 percent.
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    Premier Oil confirms deal to acquire E.ON’s North Sea assets for $120m

    Premier Oil has confirmed it will acquire E.ON’s North Sea assets in a $120million deal.

    The company said the deal had been funded from existing cash resources.

    Earlier today the company confirmed it had suspended share on the London Stock Exchange.

    Premier will acquire interests in licence in the Central North Sea, West of Shetland and the Southern Gas Basin.

    This includes shares in Elgin-Franklin, Huntington, Babbage and Tolmount.

    Speculation had begun building earlier today that E.ON was the subject of the reverse takeover.

    The company said the deal would add significant production and associated cash flow this year and in 2017 even with the current low oil price.

    It also said the deal would allow Premier to share the abandonment cost of exposure on Ravenspurn North and Johnston with E.ON.

    Premier Oil chief executive Tony Durant said:”In this challenging macro environment, maximising production whilst cutting costs is critical; both were achieved in 2015 and will continue in 2016.

    “Selling our cash negative Norwegian business and re-investing in cash positive UK assets through the proposed E.ON acquisition, is value accretive and materially improves both our current and future financial position.”

    Premier Oil said it had “significant liquidity” with cash and undrawn bank facilities of $1.2billion and a year-end covenant headroom in excess of $900million.

    It added that the E.ON acquisition would be “materially covenant accretive”.

    The company also said the acquisition requires approval from the company’s shareholders, US private placement holders and banks.

    It is expected a shareholder circular and notice of meeting will be published in due course.

    Yesterday, Broker Jefferies cut Premier’s rating to hold and target price to 33p from 120p.

    The firm’s shares fell 33% from 19p to 9.5p – a fraction of May 2014’s high of 358.6p.

    Premier Oil’s debt is thought to be more than £1.83billion.

    Its current market capitalization is £155million.

    The company said progress was also continuing on its Solan project, with first oil now expected in February due to challenging weather conditions which Premier descirbed as “unprecedented”.

    The deal comes days after the firm confirmed an oil find in the North Falkland basin.

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    Summary of Weekly Petroleum Data for the Week Ending January 8,

    U.S. crude oil refinery inputs averaged over 16.4 million barrels per day during the week ending January 8, 2016, 194,000 barrels per day less than the previous week’s average. Refineries operated at 91.2% of their operable capacity last week. Gasoline production increased last week, averaging over 8.8 million barrels per day. Distillate fuel production decreased last week, averaging about 4.8 million barrels per day.

    U.S. crude oil imports averaged 8.2 million barrels per day last week, up by 678,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.7 million barrels per day, 4.1% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 446,000 barrels per day. Distillate fuel imports averaged 154,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.2 million barrels from the previous week. At 482.6 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 8.4 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 6.1 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 4.5 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 10.0 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.3 million barrels per day, down by 3.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 8.8 million barrels per day, down by 4.3% from the same period last year. Distillate fuel product supplied averaged about 3.4 million barrels per day over the last four weeks, down by 12.1% from the same period last year. Jet fuel product supplied is down 3.4% compared to the same four-week period last year.


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    Small increase in US domestic oil output

                                         Last Week    Week Before    Last Year

    Domestic Production 000'....... 9,227              9,219            9,192
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    Diamondback offering near doubled on strong demand: Wells economic at $30?

    Diamondback Energy Announces Pricing of Upsized Common Stock Offering

    Diamondback Energy, Inc. announced today the pricing of an underwritten public offering of 4,000,000 shares of its common stock.  The 4,000,000 share offering represents a 1,750,000 share upsize to the originally proposed 2,250,000 share offering

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    Alternative Energy

    SunEdison Plunges 15%, Halted As Tepper Sues To Block Acquisition

    The ongoing drama between SunEdison and Terraform Power and Appaloosa's David Tepper just escalated yet again. The stock plunged 15% after an initial halt but is now halted once again asTepper sues the firm to block the firm's 'nepotistic' deal to acquire Vivint assets.


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    Germany wants to put 2 billion euros into encouraging electric cars

    German Economy Minister Sigmar Gabriel wants to commit two billion euros ($2.17 billion) to encourage more people to buy electric cars, the newspaper Die Zeit reported on Wednesday.

    Buyers of electric cars would receive a subsidy from the government, the newspaper said, giving no further details.

    Gabriel also wants to expand charging stations and encourage federal offices to use electric cars - an initiative that will be funded under the current German budget without tax increases, he said.

    The German government aims to put one million electric cars on the roads by 2020. Among the country's carmakers, BMW, Mercedes and Volkswagen now produce all-electric cars; Audi, Mercedes and Porsche have plans to build one.

    Sales of electric cars totaled some 19,000 in 2014, but at the end of 2014 Germany had only 2,400 charging stations and around 100 fast-charging points.

    Calls for supporting electric cars grew at the end of last year after the Volkswagen emissions scandal. Both Gabriel and his fellow Social Democrat Environment Minster Barbara Hendricks have called for a quota for electric cars.

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    EDF, Areva agree reactor business worth about 2.5 billion euro: sources

    EDF and French nuclear group Areva have agreed that Areva's reactor business is worth slightly more than 2.5 billion euros ($2.7 billion) as part of EDF's plan to take a controlling stake in the unit, two sources said on Wednesday.

    In late July, EDF agreed to buy 51 to 75 percent of the Areva NP reactor unit based on a value of 2.7 billion euros for the entire division, though it has since been the subject of tough negotiations.

    Confirming information first reported on Wednesday by Les Echos newspaper, one of the sources also said that EDF's board would meet on Jan. 27 to formally approve its offer.

    One of the sources said that the amount that EDF would pay for the unit could be adjusted with a bonus in two years depending on how well the business performs.

    Talks between the two groups have stalled over differences about the value and how to take into account risks linked to a much delayed and over budget reactor Areva is building in Finland that has plunged it deep into losses.

    Les Echos reported that once EDF makes a firm offer, the government may indicate how large a capital increase Areva would need, which may be in the range of 3.0-4.5 billion euros, according to its sources.

    The Economy Ministry declined to comment. Areva is 87 percent state-owned, EDF 84.5 percent.

    EDF has indicated that it would not accept being exposed to risks linked to the Finnish reactor as Areva and its Finnish customer Teollisuuden Voima (TVO) seek billions of euros in damages from one another.

    Les Echos said one possibility under consideration would be to transfer the Finnish contract from the reactor division to Areva the parent company, leaving the state to bear risks tied to the project.
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    Syngenta looking at different tie-ups, too early to predict result -chairman

    Syngenta is in talks about a possible merger but must be discreet before any deal is completed, the Swiss agrichemicals group's Chairman said on Wednesday.

    Michel Demare said last month Syngenta was in talks with ChemChina, Monsanto and others.

    When asked about the prospect of Syngenta possibly becoming a Chinese company, Demare said: "We are at a stage where we are looking at different combinations. I'm just saying it's one of them. Everybody has spoken to each other. I have said a few months ago that I believe within six months we will see some consolidation steps  it is too early to say how all this will finish."
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    Precious Metals

    Platinum is cheapest ever compared to gold as China woes deepen

    An ounce of platinum bought as little as 0.76 ounce of gold on Tuesday, the lowest since records began in January 1987, data compiled by Bloomberg show. Platinum has underperformed gold since 2014, as investors treated it more like an industrial commodity than a haven asset. The white metal, used in pollution-control devices for cars, suffered as China’s slowdown cut demand. Adding to the bearish picture was the emissions scandal at Volkswagen AG, which trimmed consumer demand for diesel-fueled vehicles.

    “Chinese growth prospects are very pessimistic right now and that’s hurting the demand side, even though European auto sales have been decent at least,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “You still have the VW story lingering. In the short-term, the trend can continue. But as things play out and we get better industrial demand, the ratio will reverse.”

    About 43% of global demand for the metal comes from automakers, according to the World Platinum Investment Council. Sales of Volkswagen brand vehicles fell 4.8 percent to 5.8 million vehicles in 2015, their first decline in 11 years, after the company admitted it rigged emission tests on its so-called clean diesel vehicles. The outlook for jewelry demand also waned as China’s economy expanded at the weakest pace in more than a generation.
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    Base Metals

    Freeport submits $1.7bn Grasberg mine divestment price

    Freeport McMoRan Inc's Indonesian unit has submitted a divestment price to the Indonesian government for an additional stake in one of the world's biggest copper mines, an energy ministry official said on Thursday. 

    Freeport Indonesia must sell the Indonesian government a 10.64% stake of the huge Grasberg copper and gold complex in remote Papua as part of the process to extend its right to operate beyond 2021. 

    The US mining giant valued its Indonesian asset at $16.2-billion, Bambang Gatot, the ministry's director general of coal and minerals told reporters, adding that the divestment offered to the government was worth $1.7-billion. "Finance Minister will decide who will take this divestment," he said, adding that several other ministries would be involved in the decision making process. "We still continue to discuss renegotiation or amendments of contract." 

    Gatot has previously said that the government will decide within 60 days whether it will buy the stake or offer it to a state-owned enterprise or regional government. The Indonesian government is looking to increase its ownership of Freeport Indonesia to 20% from a current 9.36%. 

    A further 10% must be divested to the government by the end of 2019. Under current rules, many major miners operating in Indonesia can only apply for a contract extension two years before a concession agreement is due to end. Freeport, which is looking to invest $18-billion to transition the Grasberg complex from open pit to underground mining in late 2017, wants to finalise an extension before it signs off on the expansion. 

    Freeport has also sought certainty on the concession agreement extension or changes to the contract as part of discussing the larger divestment. Following a contract amendment or extension, Freeport has "agreed to offer at fair market value" an additional 20.64% stake in Grasberg to bring the government ownership to 30%, company spokesman Eric Kinneberg told Reuters in an email on Thursday. 

    "The government requested that PTFI (Freeport Indonesia) submit a valuation of the company to facilitate discussions and FCX (Freeport) has submitted a valuation report to the government in connection with this process," he added.
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    Ex-Barrick CEO said to offer $1bn for Glencore mine

    Mining and commodity trading giant Glencore kicked off the process to sell its Australian copper mine in Cobar, New South Wales, and its Lomas Bayas copper mine in the Atacama desert in Chile in October.

    Glencore said at the time it had received a number of unsolicited expressions of interest for the mines and that potential buyers can bid to purchase "either one or both of the mines and may or may not result in a sale". Glencore said it expects to finalize the sales in the first half of the year.

    It has emerged that one of the last bidders in the running for Lomas Bayas is former Barrick Gold Corp CEO Aaron Regent's Magris Resources.

    Regent "is competing against a small number of Chilean-focused operators that have offered Glencore close to $1 billion for the mine" according to Bloomberg.

    The Lomas Bayas open pit's output is 75,000 tonnes of refined copper per year. Glencore acquired Lomas Bayas as part of its 2013 takeover of Xstrata. Cobar produces roughly 50,000 tonnes copper in concentrate per year.

    These mines are over and above the asset sales, share offerings and other money raising efforts including byproduct forward sales detailed by the Swiss-based company as part of its plans to reduce its crippling debt load by $13 billion over the near term.

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    Australian Bauxite suspends operations, seeks buyer for maiden shipment

    Australian Bauxite said it has suspended production at its operations in the southern state of Tasmania after failing to lock in a buyer for its first shipment of the aluminium-making material.

    "ABx is taking steps to conserve cash until a sale of its maiden shipment is achieved," it said in a filing to the Australian Stock Exchange on Thursday.

    "This includes a temporary suspension of production and haulage of bauxite products from its Bald Hill Bauxite Project at Campbell Town, Tasmania at the end of this week until sales commence."

    Australian Bauxite said its negotiations in China have been frustrated by large inventories of cheap Malaysian bauxite stockpiled by Chinese refineries over the past five months, and particularly over the last fortnight in the lead up to Chinese new year in early February.

    China is the world's top producer of aluminium, and it has ramped up imports the world over since former top supplier Indonesia banned exports of the raw material in early 2014.

    As Chinese producers began a global search for new suppliers, Malaysia jumped in to fill the gap. Its shipments to China surged nearly fourfold in November, and were up by nearly 50 percent in the first 11 months of last year on the year before.

    Australian Bauxite said on Dec. 8 that its first shipments had been delayed due to low bauxite prices after Malaysia ramped shipments ahead of its rainy season.

    Malaysia this month imposed a three-month ban on bauxite mining, following alarm over its environmental impact, in a move that could dent China's stockpiles.

    The Australian company said it welcomed the suspension but uncertainty over future volumes from Malaysia remained "a confusing issue" in the Chinese bauxite market.

    The company and its marketing partner are continuing negotiations with potential bauxite customers in China, India, the Middle East, Australia and elsewhere, it said.

    Attached Files
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    Steel, Iron Ore and Coal

    Shandong shuts 9.63Mt backward coal capacity in 2015

    In 2015, Eastern China’s Shandong province closed 61 coal mines with combined outdated capacity at 9.63 million tonnes per annum, including 42 small coal mines completely shut and 19 small coal mines upgraded, local media reported on January 14.

    The province shut down a total 287 outdated coal mines from 2005 to 2015, with combined capacity at 20.6 million tonnes per annum.

    By end-2015, Shandong province had seen its average scale of single shaft rise from 402,000 tonnes per year to 1.16 million tonnes per year.

    The province’s coal market was still on the decrease in 2015, in line with an overall excess of supply in the country. The year-on-year drop of 93% and 144%, respectively, was seen in average price of commercial coal and total profits in the industry.

    Continuously sliding prices drove some 86% of local coal miners into the red last year, one of the toughest year on record.

    "Shandong aims to control coal output at 146 million tonnes this year, and then reduce to 130 million tonnes by 2020 and further down to 110 million tonnes by 2025," said Qiao Naichen, director of Coal Industry Bureau of Shandong province.

    Eastern China’s Shandong province produced a total 145 million tonnes of raw coal in 2015, registering a year on year decline of 2.14%, showed data from the Shandong Administration of Coal Mine Safety on January 6.
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    Iron ore price drops back below $40

    Vale's giant iron ore carriers are the world's largest dry bulk vessels capable of carrying 400,000 dead weight tonnes

    The price of iron ore fell below the $40 a tonne level on Wednesday with the Northern China 62% Fe import price including freight and insurance (CFR) declining 1.8% to $39.30.

    The steelmaking raw material has fallen 8.4% in value so far in 2016 after a near 40% decline in 2014. The price hit a near decade low a month ago of $37 and today's price compares to the record high of $190 a tonne hit February 2011 and an average of $55 last year.

    The ridiculously cheap iron ore and freight rates have allowed mills to keep producing steel and flood international markets

    Chinese iron ore imports surged 17% in December from the previous month to 96.3 million tonnes. Cargoes for the whole of 2015 also set a new record, up 2.2% to 952.7 million tonnes compared to 2014.

    Many smaller producers have exited the market and others are "hanging on by their fingernails," but domestic Chinese producers which struggle with low grades and high production costs have been most affected.

    Many Chinese mines are staying open only because of support from local governments pressured to keep jobs safe. The country's miners produced some 350 million – 400 million tonnes a year on a 62% Fe-basis in 2014, although reliable stats are lacking (this figure is calculated working backwards from pig iron production).

    Ralph Leszczynski, head of research at Genoa-based shipbroker Banchero Costa & Co quoted in a Bloomberg report estimates that domestic Chinese output fell 8% last year:

    “China can get iron ore from Australia and Brazil so cheaply that there’s less need for domestic supplies. The ridiculously cheap iron ore and freight rates have allowed mills to keep producing steel and flood international markets.”

    Freight rates recently fell to record lows and the Australia–China route adds less than $5 a tonne to the price, while from Brazil shipping costs for iron ore are below $10 a tonne. Chinese steel exports have nearly doubled over the past two years, hitting 112 million tonnes in 2015.
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