Mark Latham Commodity Equity Intelligence Service

Tuesday 25th October 2016
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    First use of Blockchain: Cotton from TX to China

    YDNEY (Reuters) - The first cross-border transaction between banks using multiple blockchain applications has taken place, Commonwealth Bank of Australia and Wells Fargo & Co said on Monday, resulting in a shipment of cotton to China from the United States.

    Australian cotton trader Brighann Cotton Marketing bought the shipment bound for the port city Qingdao from U.S. division Brighann Cotton in Texas, the companies and their banks said in a joint statement. The blockchain trade, for 88 bales, totalled $35,000, Commonwealth Bank told Reuters.

    Blockchain is a web-based transaction-processing and settlement system whose efficiency banks say could slash costs. It creates a "golden record" of any given set of data that is automatically replicated for all parties in a secure network, eliminating any need for third-party verification.

    "Existing trade finance processes are ripe for disruption and this proof of concept demonstrates how companies around the world could benefit from these emerging technologies," Michael Eidel, Commonwealth Bank's executive general manager for cashflow and transaction services, said in the statement.

    The transaction is not the first involving the decentralised database, used since 2009 for the digital currency bitcoin. But it is a milestone for the traditional banking industry which at first shied away from the technology, partly because it makes money flows harder for law enforcement agencies to track.

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    Brazil's police seek corruption charges against ex-finance minister

    Brazil's federal police on Monday sought corruption charges against former finance minister and presidential chief of staff Antonio Palocci and accuse him of running a bribery scheme that funneled money to the former-ruling Workers Party's (PT).

    Police said in their investigation sent to federal prosecutors that Palocci conspired with construction firm Odebrecht SA to pay 128 million reais ($41 million) from 2006 to 2013 to the party, politicians and other officials in return for winning bloated contracts from state-run oil company Petrobras.

    Police are also seeking corruption charges against former Odebrecht Chief Executive Officer Marcelo Odebrecht and powerful political strategist Joao Santana, the force behind the PT's presidential campaigns.

    Odebrecht is already serving a 19-year sentence for a separate case in the Petrobras probe, while Santana faces other corruption charges in the investigation.

    Under Brazilian law, only prosecutors can file charges, a process that can typically takes a month or longer.

    Palocci's lawyer Jose Batochio said in a statement that his client was innocent and that the police accusation amounted to "literary fiction."

    Reuters was not immediately able to reach lawyers for Odebrecht. It was not clear if Sanata had an attorney.

    Nearly 200 executives and former politicians have been charged and 83 have already been found guilty in the Petrobras probe. Prosecutors are seeking 38 billion reais ($12 billion) in damages from companies and individuals involved.

    Brazil's top prosecutor Rodrigo Janot is investigating 66 politicians - many sitting lawmakers - for participation in the scheme, a number that could grow significantly as more of those charged turn state's witnesses.

    Palocci, a medical doctor by training, was former President Luiz Inacio Lula da Silva's finance minister and a key player in the 2002 election campaign that put the PT leader in the presidential seat.

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    UK Electricity touches £260 yesterday evening.

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    Oil and Gas

    Russian energy minister says cooperation with OPEC intensifying

    A short-term cap in oil output would reduce market volatility, Russian Energy Minister Alexander Novak said on Monday at a meeting with OPEC Secretary-General Mohammed Barkindo, as both are looking at ways to stabilize prices.

    Russia is the world's largest oil producer but not a member of the Organization of the Petroleum Exporting Countries and its budget has been hit by low oil prices, the same as for many OPEC nations.

    Novak, in Vienna after visiting Saudi Arabia over the weekend for talks with Saudi Energy Minister Khalid al-Falih, said sharp falls in the price of crude threatened to trigger an oil deficit and unpredictable volatility in prices.

    "That's why ... (an oil output) freeze or even a cut for a certain period of time is a right decision for global energy ... Being a short-term measure, an oil output cap may help to lower volatility in the market and make it more stable," Novak said.

    Last month in Algiers, OPEC agreed modest output cuts that are due to be set in stone in coming weeks. The goal is to trim production to a range of 32.50-33.0 million barrels per day (bpd).

    OPEC's Barkindo said before Monday's meeting, which also included Qatar Energy Minister Mohammed al-Sada, that Russia and OPEC were "committed to stable and predictable markets".

    "While there are signs that the rebalancing of the fundamentals is under way with overall non-OPEC supply contracting this year and demand ... at healthy levels, the large stock overhang continues to be a major concern," Barkindo said.

    Neither Novak nor Barkindo said at which levels Russia could cap its production, which reached a record-high 11.1 million bpd in September.

    Novak has repeatedly said Russia would prefer to freeze output rather than cut but would consider specific steps after OPEC members reach agreement.
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    Iran is Open for the Oil Business - Sort Of

    Hunger for Iran's cheap oil will lure some foreign companies, but questions remain on how much it will cost commodity prices.

    Long a nation rich in oil but short on relative wealth, Iran is gearing up to offer its oil patch projects under a new contract model designed to entice foreign investment.

    Two years in the making, the Iranian Petroleum Contracts (IPC) sets an average contract duration for 20 years and replaces the buyback clause that decimated foreign interest with a more user-friendly fee-per-barrel.

    As Wood Mackenzie analyst Homayoun Falakshahi explained, the buybacks left foreign investors with lacking returns. The new contract terms aren’t great, he told Rigzone, but, “Still, they are much better than before. It’s a big opening.”

    While the country is inviting foreign oil investment at a level not seen since 1979, it’s still a mixed message Iran is sending. The country doesn’t have political parties; rather, stakeholders exist as various factions within the regime. Politically, it’s been a challenge to get the new concessions approved, and the current iteration of the IPCs is dramatically different from the first, experts have said.

    But, Iran wants foreign investment for a number of reasons. From the outset, the country has significant infrastructure needs. That recognition comes largely from the return of current oil minister Bijan Zanganeh, who was initially responsible for opening Iran to foreign oil and gas investment in 1995. And Zanganeh is back in power with the election of Hassan Rouhani in 2013, who triggered the outreach for foreign investment in Iran’s oil fields. Iran is eager reclaim its position as a top OPEC producer, and to do so, the country needs outside technology and cash.

    Zanganeh is more technocrat than politician, Falakshahi said, and he grasps the situation in Iran. The country needs investment and access to modern technology to enhance recovery from its aging oilfields.

    “To increase the crude oil production capacity, they need investors. In some cases, (foreign investment) is not even to increase production capacity, it’s to keep the production capacity steady. They need investors from the outside,” Falakshahi said.

    Post-Sanction Iran

    Released from economic sanctions that battered Iran’s crude production returns less than a year ago, the country is eager to ramp up its production to pre-sanction levels. In April, U.S. Energy Secretary Ernesto Moniz said the country was close.

    Wood MacKenzie has estimated the sanctions cut Iran’s crude exports to 1.1 million barrels per day, which forced the national oil company to shut in its southern fields. And with the recent consensus OPEC deal capping crude production to help stabilize commodity prices, Iran has an exemption so it can realize and maintain its pre-sanction market share.

    Of the 49 projects being offered to both local and foreign investors Oct. 21, 29 of them have 11 billion barrels of oil, according to analyst reports.

    The overture to foreign companies is part of Iran’s efforts to re-establish a leadership position in the region and in global markets, said John J. Maresca, former U.S. Ambassador to the Organization for Security and Cooperation in Europe, an entity responsible for drafting agreements that effectively ended the Cold War, former vice president of Unocal and an independent advisor on energy-related issues.

    “The country is gradually opening up to normal relations with the world community, and is welcoming tourism and investment as part of that evolution,” he told Rigzone.

    While progress in that evolution will be protracted, it will happen, Maresca said.

    “The fact is that the developing world has growing needs for energy, and there will always be efforts to meet such demands,” he said. “There are always some companies that are unwilling to go into risky areas, but there are also always companies that decide to invest, and that produces job opportunities. It is an area to watch.”

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    Psabrjam reduces the cost of implementing the second phase of North Azadegan

    مجری طرح توسعه آزادگان شمالی با اشاره به مذاکره با شاخه بین المللی شرکت ملی نفت چین (سی‎ان‏‎پی‎سی‎آی) برای فاز دوم این میدان گفت: با توجه به شرایط پسابرجام انتظار داریم هزینه اجرای پروژه کاهش یابد.

    Behbahani dignity in an interview with SHANA said the current harvest of crude oil from North Azadegan oil field to 75 thousand barrels per day and 11 million barrels of cumulative production in the field of frontier past.

    طرح توسعه میدان مشترک آزادگان شمالی در ٢ فاز و هریک با ظرفیت تولید ٧٥ هزار بشکه نفت در روز اجرا می‌شود که با بهره‌برداری از آن‎ها، برداشت نفت خام از آزادگان شمالی در مجموع به ١۵٠ هزار بشکه در روز می رسد.

    Branch of China National Petroleum Corporation International (CNPCI) contractor for the implementation of the first phase of development of the North Azadegan oil field is in the form of buyback contract. According to the initial agreement, in the event of agreement between the National Iranian Oil Company and the Chinese company, the second phase of the field's development company "CNPC-Fi" will be assigned.

    Behbahani said that negotiations with "CNPC-Fi" for the second phase of the field development continues, said most discussions about underground studies, in situ reserves and the amount of withdrawals from the second phase of the field.

    Preliminary studies of the second phase of the Petroleum Engineering and Development Company (text) shows the final reserves of about 6.3 billion barrels.

    مجری طرح توسعه آزادگان شمالی با اشاره به شرایط پسابرجام و تاثیر آن در اجرای فاز دوم این میدان، اظهار کرد: بدون شک شرایط همکاری در فاز دوم به‎واسطه شرایط پسابرجام متفاوت خواهد بود.

    He continued: Accordingly, we expect to reduce project costs and easy access to modern technology and if necessary use of new technologies.

    Behbahani said foreign contractors for development of joint oil fields of Iran are required to cooperate with local companies.

    North Azadegan oil field of Azadegan oil field is located about 120 kilometers West of Ahvaz (West Karun River) in the region bordering Iran and Iraq, Iran is located in the South West.

    Join the official channels and energy Shana (Shana) in the telegram
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    Petrobras says forming alliance with Total for oil and gas projects

    Brazil's Petroleo Brasileiro SA and France's Total SA agreed on Monday to study opportunities for joint developments in the exploration and production of oil and gas, in Brazil and abroad, Petrobras said in a statement.

    Initially, the strategic alliance signed in Rio by CEOs Pedro Parente and Patrick Pouyanné will focus on potential natural gas and electric energy projects in Brazil, it said.
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    Pemex says crude oil exports up more than 20 pct in Sept

    Mexico's state-owned oil company Pemex said on Monday that crude oil exports rose nearly 22 percent in September compared to the same month last year, the highest level of shipments in more than five years.

    The Mexican oil giant exported an average of 1.425 million barrels per day (bpd) during the month, the highest volume since August 2011, according to Energy Ministry data.

    The company's crude production, however, slipped 7 percent in September to an average of 2.113 million bpd.

    Pemex expects oil production this year to settle at 2.13 million bpd due largely to spending cuts resulting from low international oil prices.

    Mexico's oil output has fallen for a dozen years since hitting a peak of 3.38 million bpd in 2004.
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    Venezuela Wins Bondholder Relief as 39% Accept PDVSA Swap

    Petroleos de Venezuela SA, the state oil company struggling to avoid default, won near-term debt relief by moving forward with a bond swap even after falling short of the threshold it had sought.

    The oil producer said holders with 39 percent of $7.1 billion of bonds coming due next year agreed to tender their securities for new debt that matures in 2020, less than its 50 percent goal. Officials at PDVSA had repeatedly said they needed investors with at least half the debt to participate in the swap or they would struggle to meet obligations. Notes from PDVSA and Venezuela’s government edged higher.

    Years of declining output and a crash in oil prices have left PDVSA and Venezuela, which relies on crude for almost all its hard currency income, short of cash to make payments and import basic necessities for its citizens. PDVSA first announced the exchange in September and, despite extending the deadline four times and improving the terms, it was unable to persuade a majority of creditors to tender their notes.

    “This does provide them with a bit more breathing room for 2017, so mission accomplished,” said Edwin Gutierrez, the head of emerging market sovereign debt at Aberdeen Asset Management in London, which overseas $403 billion in assets. “Although by no means does it ensure that all payments will be made in 2017 as that remains a big challenge.”

    By exchanging $2.8 billion of the old bonds, due in April 2017 and November 2017, for new debt with annual payments through 2020, the state-owned oil company will reduce bond outlays that would have totaled $11 billion by the end of next year.

    PDVSA said it will issue $3.4 billion in new debt to complete the exchange.

    The company’s existing bonds extended earlier gains after the swap announcement. The notes due in November 2017, half of which are due for payment next week, rose 0.82 cent to 83.06 cents per dollar as of 11:39 a.m. in New York. Its bonds due in 2022 rose 1.4 cent to 60.73 cents per dollar. Venezuelan sovereign debt also rose.

    “The announcement is mildly positive ,” Jorge Piedrahita, the chief executive officer of brokerage Torino Capital LLC, said in an e-mailed note. "Clearly there is no desire to default and they will continue paying."

    The company pledged 50.1 percent of its stake in the holding company of U.S. refining arm Citgo Petroleum Corp. as a guarantee for the bonds created in the exchange. It had been reluctant to swap less than half to avoid devaluing its prized asset.

    Oil Minister Eulogio Del Pino last week said that if the swap failed, officials would be “evaluating all options.”

    After initially offering investors $1,000 of the new securities for every $1,000 of the old bonds offered, PDVSA on Sept. 26 sweetened the deal by pledging $1,170 for every $1,000 of the April 2017 securities and $1,220 for the November 2017 bonds.

    The fact the swap went through at all may reassure holders of other Venezuelan debt that both the company and country can avoid a default. PDVSA has $1 billion of bonds coming due next week, which trade at levels signaling some skepticism the payment will be made.

    Venezuelan bonds have lost investors 5.5 percent this month, the most in emerging-markets, as hope faded that the swap would go through. Venezuelan sovereign debt is the most expensive to insure against default with the contracts pricing in a 89 percent probability of missed payments in the next five years.
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    Egypt launches record LNG tender for 96 cargoes -trade

    Egypt launched the world's biggest tender for liquefied natural gas (LNG) on Sunday as officials from top energy companies and trading houses converged on Cairo undeterred by new rules forcing them to wait even longer to get paid.

    After months of speculation and delay, state-run Egypt Natural Gas Holding (EGAS) released tender documents on Sunday bidding to secure 96 LNG shipments in 2017 and 2018, participants in the tender told Reuters.

    An additional 12 optional cargoes were included in the tender, which EGAS may decide not to award, they said.

    It is the biggest mid-term LNG buy tender ever issued, trade sources said.

    Egypt, a major importer of commodities from wheat to diesel, helped buoy global gas markets last year after emerging as the fastest-growing new LNG consumer.

    Once an LNG exporter, Egypt turned into a net gas importer just as global spot prices plunged.

    Commodity trade houses, led by Switzerland-based Trafigura , vied to supply Egypt as the country looks to buy until new gas finds can be developed offshore.

    But Egypt's worsening credit profile has tempered initial enthusiasm as suppliers fret over payment difficulties given the country's sinking economy and shortage of U.S. dollars.

    Under the latest tender terms, LNG suppliers may have to wait as long as six months after delivery to get paid, according to two sources with knowledge of the matter.

    At a meeting with energy suppliers this month Egypt discussed extending payment deadlines to as much as 120 and 180 days after delivery to give itself more breathing room, the sources said.

    "I know that the 180-day payment terms were something agreed in Cairo a couple of weeks ago across all products and is a sign of the current situation in Egypt," one trading source said.

    LNG shippers previously got paid 90 days after delivery.

    Firms may think twice about committing to large supply positions carrying credit risks, but the tender is expected to draw large crowds given generally weak demand for LNG.

    "It's a big short in a long market - I expect participation to be huge," a trade source said.

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    Shell Among New LNG Sellers for Asia Hub Contender Singapore

    Singapore, which is vying to become a regional center for the trading of liquefied natural gas in Asia, picked Royal Dutch Shell Plc and Pavilion Gas Pte Ltd. as its next suppliers of the fuel.

    The companies will have exclusive rights to sell 1 million metric tons of LNG annually for up to 3 years, with imports beginning in 2017, the city-state’s Energy Market Authority said in a statement. The country will also consider spot purchases of the supercooled fuel and piped natural gas on a case-by-case basis, S. Iswaran, the Minister of Industry, said at the Singapore International Energy Week conference on Monday.

    Singapore wants to use its geography and stature as Asia’s oil-trading center to also be a leader in LNG in a region that accounted for more than 70 percent of global demand in 2015. The nation has built a receiving terminal while the state-owned investment company set up Pavilion Energy Pte in 2013 to trade the fuel. It’s drawn firms from Glencore Plc and GAIL India Ltd. to open trading desks in the country, and Singapore Exchange Ltd. has started futures and swaps linked to an index of spot LNG prices.

    Shell and Pavilion were chosen because they “offered flexible and competitive pricing not just indexed to oil but to different options on the table,” Iswaran said. “One of the considerations in looking at the next tranche was the offering of flexibility in terms of price indexation. And indeed they have put forward some flexible options, and end-users have responded to these offers.”

    The exclusive licenses will expire either after three years or if the companies import more than 1 million tons in a year, according to a statement from the Energy Market Authority. Beyond that the companies will still be able to import LNG into Singapore but will not be guaranteed exclusivity, Darius Lim, a Pavilion spokesman, said by e-mail.

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

    Demand Surge

    A previous contract to supply LNG to Singapore was won by BG Group Plc. The company was acquired by Shell in February. Under that deal, BG was to supply 3 million tons of LNG annually over 10 years starting in 2013. The island nation, which generates 95.5 percent of its electricity using natural gas, imported 1.2 million metric tons of LNG last year, a drop of 14 percent from 2014 because of lower power demand, according to Bloomberg New Energy Finance.

    LNG consumption may rise to more than 3 million tons annually from 2022, and surge to 11 million tons a year by 2030 as its contracts to receive natural gas via pipeline from Malaysia and Indonesia expire, BNEF analysts including Maggie Kuang said in a June 9 report.

    Annual imports of LNG in Southeast Asia totaled 3.8 million tons in 2015, and is expected to jump to 16.8 million tons by 2020, with growth accelerating even more thereafter as national resources are depleted, according to BNEF. By 2030, total LNG demand in the region will reach more than 50 million tons a year.

    Changing Market

    The plunge in commodity prices over the past two years hasprompted changes in the LNG market, allowing for an expansion of the spot market as some buyers seek to resell shipments and the fuel’s price relationship with oil is weakened.

    “Singapore will carry out a consultation starting this quarter on spot LNG imports,” Iswaran said. “Our hope is that we should be able to get something moving on this next year.”

    Singapore is home to more than 25 LNG trading desks and its estimated that about 2,000 cargoes transit near the country each year. Singapore LNG Corp., which operates the city-state’s first receiving terminal, has three storage tanks at its Jurong Island facility.

    Spot LNG in Singapore rose to $6.119 per million British thermal units last week, climbing to trade above $6 for the first time since January.

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    Petronet eyes 10 pct cut in Gorgon LNG price

    India’s largest importer of liquefied natural gas, Petronet LNG is reportedly looking to cut the price of the chilled fuel to be loaded at the giant Chevron-operated Gorgon LNG project in Australia.

    Petronet LNG, that has a 20-year deal in place to import 1.44 million tons per year, is looking to cut the price by 10 percent, Press Trust of India reports, citing a company official.

    The deal was signed in 2009 with ExxonMobil, the owner of a 25 percent stake in the project, and the official said that due to the changes in pricing since then the LNG deals are being signed at a lower indexation.

    Negotiations to alter the terms of the agreement have started, the official said.

    Petronet has already reworked its 7.5 mtpa LNG import deal with RasGas, cutting the price significantly.

    Under the current spot market conditions and with the oil price of US$50 per barrel, LNG from the Gorgon project would cost at around $7.25 per mmBtu with the current formula.

    As the delivery is set for the Kochi LNG terminal, added customs duty and shipping and regasification costs, bring the price up to $9.5 per mmBtu.

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    Genscape Cushing inventory week ending 10/21: -1,033,140 bbl

    Genscape Cushing inventory week ending 10/21: -1,033,140 bbl

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    Enterprise says part of Seaway Pipeline shut after Cushing, Oklahoma spill

    The Seaway Pipeline Co shut down part of its pipeline system following a leak of crude oil in Cushing, Oklahoma on Monday, said Enterprise Products Partners LP, which operates the pipeline in a venture with Enbridge Inc.

    The 500-mile, 30-inch diameter pipeline system connects the U.S. crude storage hub of Cushing to the Freeport, Texas area, and a terminal and distribution crude oil network that serves all the refineries in the Greater Houston area.

    The prompt crude spread, which often correlates to the supply-demand balance in Cushing, traded as wide as 69 cents on Monday, the biggest discount in nearly two months.

    Energy intelligence firm Genscape also reported the shutdown of its 450,000 bpd Seaway Twin pipeline, which twins the existing Seaway pipeline.

    The Seaway Pipeline system has a total capacity of about 850,000 bpd, according to the company website.

    A company spokesman said the spill occurred on the Seaway legacy line. He could not immediately confirm if the incident also resulted in the shutdown of the Seaway Twin pipeline, and did not provide an estimate of the volume spilled.

    The Seaway spill comes on the heels of a Sunoco Logistics Partners LP pipeline spill on Friday, which released about 1,300 barrels (55,000 gallons) in the vicinity of the Susquehanna River in Lycoming County, Pennsylvania.

    Enterprise said on Monday there was no threat to the public and no evacuations were ordered following the spill, located near the intersection of Lynnwood Avenue and Texaco Road in Cushing.

    The company was working with emergency responders and law enforcement to address the situation.
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    Carrizo Oil & Gas Eagle Ford acquisition and prices public offering of 6 mln shares

    * Carrizo Oil & Gas announces Eagle Ford shale acquisition and estimated third quarter production

    * Deal for $181 million

    * Estimated production volumes during Q3 of 2016 were 3,750 MBOE, or 40,762 BOE/D

    * Carrizo plans to fund acquisition with proceeds from a separately-announced equity financing

    * Believe transaction is accretive on a variety of financial metrics, including cash flow and earnings per share

    * Carrizo Oil & Gas prices upsized public offering of common stock

    * Priced public offering of 6 million shares of its common stock, upsized from previously announced offering of 5 million shares

    * Also granted underwriters an option to purchase up to 900,000 additional shares

    * Total gross proceeds of offering will be about $225.0 million
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    Stone Energy Enters Bankruptcy, Sells Marc/Utica Assets for $350M

    Stone Energy, an independent oil and natural gas exploration and production company (E&P) headquartered in Lafayette, Louisiana drills mainly in the Gulf of Mexico but also has a presence in the Marcellus/Utica Shale with 90,000 acres of leases.

    Last year Stone quit drilling in the northeast and actually shut-in part of their production due to low prices. In June Stone cut a new midstream gathering agreement with Williams to return some of their shut-in Marcellus wells to full production.

    In April MDN told you Stone was (in our opinion) inching toward bankruptcy. In August MDN tipped you off that Stone is looking to unload their Marcellus/Utica assets. Both bits of news have come true.

    Last Thursday Stone issued an announcement that the company, like others before it, has cut a deal to file a “prepackaged” bankruptcy AND sell it’s Marcellus/Utica assets to Tug Hill for $350 million…

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    ChemChina has not offered concessions over Syngenta deal -EU

    Chinese state-owned chemical company ChemChina has not offered concessions over its $43 billion bid for Swiss pesticides and seeds group Syngenta, the European Commission said on Monday.

    Syngenta shares fell after the comments from the EU competition enforcer. They were down 7.6 percent at 390 Swiss francs in early trade.

    The companies met with the EU antitrust authority a week ago in a bid to allay competition concerns about China's largest-ever foreign investment. They had until Oct. 21 to do so.

    "No commitments," Commission spokesman Ricardo Cardoso said in an email. This means either the Commission will clear the deal unconditionally or open a full investigation, a process can take up to five months.

    Syngenta said discussions with the EU were ongoing and that it would issue an update on the progress of the ChemChina deal with its third quarter trading statement on Tuesday.
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    Precious Metals

    Gold price: Hedge funds abandoning market at record pace

    On Monday gold continued to trade sideways with December futures trading on the Comex market in New York exchanging hands at $1,265.90 an ounce in European trade, down $1.80  from Friday's close.

    Gold has been on the defensive since the start of October and is still down nearly $50 after falling to a four month low of $1,243 on October 7.

    Year to date the metal is still managing gains of nearly 20% or more than $200 an ounce, one of its best annual performances since 1980.

    But there are signs that hedge funds active on the derivatives market have lost confidence in gold's ability to claw back losses suffered since mid-July when the metal touched a two-year high near $1,380 an ounce.

    During the previous two weeks speculators dumped more than 10 million ounces, the most rapid reduction since 2006, when government first started to collect the data

    Bullish bets placed by hedge or so-called managed money on gold futures and options are down by just over 50% from the July high and  below the net position reached in May, when gold came close to falling through the $1,200 an ounce level.

    According to the CFTC's weekly Commitment of Traders data up to October 18 released on Friday speculators added to short positions – bets that gold could be bought cheaper in future – and cut longs pushing bullish bets down to a net 13.7 million, the lowest since the beginning of March.

    During the previous two weeks speculators dumped more than 10 million ounces long gold, the most rapid reduction since 2006, when government first started to collect the data.

    Hedge funds dramatically raised bearish bets on gold during the final months of 2015 pushing the overall market into a net short position – bets that gold could be bought back at a lower price in the future – for the first time on record.

    The trend was thoroughly reverse this year however with investors building large bullish positions culminating in an all-time record number of net long contracts – bets that gold will be more valuable in future – in the first week of July of 28.7 million ounces.

    That was more than managed money investors' holding on the gold derivatives market in New York of August 2011 when gold was peaking at an all-time high of $1,900.

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    Base Metals

    Protest ends at MMG’s Las Bambas copper mine in Peru, exports to resume

    Copper exports from MMG’s giant Las Bambas mine in Peru, which came online this year, are set to resume later this month or early November after a 10-day stoppage caused by protests against the operation came to and on Monday, the company said.

    “The Government of Peru and local communities have agreed a framework for future dialogue and cooperation in the region,” MMG said in the statement. “The process of restoring calm in local communities and the re-opening of essential infrastructure is now underway.”

    Copper exports from Las Bambas have driven economic growth in Peru as domestic demand remains weak.

    The miner also said it expects key road transport logistics to be restored progressively via an alternate route and people and supplies have begun to again move freely on local roads.

    Concentrate trucking, in turn, is expected to resume progressively in the coming days, MMG said.

    The news comes as supplies needed to keep operations at Las Bambas, one of the world's largest copper mines, were about to run out because of the main access roads being blocked by protesters.
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    Steel, Iron Ore and Coal

    Coking coal, coke 'set to rise further' on strong demand

    Domestic prices of coking coal and coke, crucial raw materials for the steel sector, will continue rising because of shortages, experts told the Global Times on Monday.

    But experts also warned that with the country apparently poised to take more measures to combat steel overcapacity, steel mills' demand for these raw materials might fall.

    From October 11 to 20, the price of coking coal, a key raw material in steel manufacturing, was up 5.2 percent to 893.8 yuan ($131.96) a ton compared with the previous 10 days, the National Bureau of Statistics (NBS) said on Monday.

    The price of coke was up 3.9 percent to 1,481.5 yuan per ton during the same period, also compared with the previous 10 days, NBS said.

    "Several coking plants said their supplies of coking coal and coke are quite limited," Jiang Haihui, a senior analyst at Shanghai-based SHZQ Futures, told the Global Times on Monday.

    "The supply shortage mainly leads to recent price hikes," Jiang said, noting that shortages are likely to persist, meaning prices will rise further.

    Domestic coal mines, except those that have specific safety requirements, can only produce at most 276 days a year, a limit that aims to cut coal output and maintain the sound development of the coal industry, according to a statement posted on the website of the National Development and Reform Commission in March. Previously, coal mines could produce 330 days per year.??

    In the first nine months of 2016, output of China's coking coal sector was down 1.6 percent at 331.74 million tons, according to data released by the NBS on October 19.

    "Domestic steelmakers' demand for coking coal and coke is still increasing. They don't want to reduce or stop output as they want to maintain a stable market share for the long term," Wang Guoqing, research director at Beijing Lange Steel Information Research Center, told the Global Times on Monday.

    From October 17 to Friday, among the 100 small and medium-sized steelmakers tracked by Beijing Lange, 89.65 percent were in operation.

    The overall market outlook remains positive in the near term as steelmakers still maintain high production levels, so they will have a strong demand for coking coal and coke, said Wang, noting that coking plants had benefited from price hikes recently.

    However, for the longer term, China's drive to cut steel overcapacity means the demand for raw materials might decline, which may drive coking coal and coke prices down, Wang said.

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    China sets another meeting to boost coal supply as prices surge – sources

    China's State planner has called another last-minute meeting to discuss with more than 20 coal mines more steps to boost supplies to electric utilities and tame a rally in thermal coal prices, according to two sources and local press.

    The National Development and Reform Commission (NDRC) has convened a meeting with 22 coal miners for Tuesday to discuss ways to guarantee supply during the winter while sticking to the government's long-term goal of removing excess inefficient capacity, according to a document inviting companies to the meeting seen by Reuters.

    The hastily-arranged meeting, the latest in a series of gatherings since early September, will discuss "how to reduce capacity, guarantee market supply as well as making sure the industry grows in a healthy way," according to the document.

    Local media reported earlier on Monday that the heads of some of China's largest coal producers, including Shenhua Coal and ChinaCoal, were invited to the meeting.

    The NDRC did not respond to requests for comment.

    The frequency of the meetings reflects growing concern about the spiralling cost of coal for utilities, which could lead to higher corporate and residential energy bills ahead of the winter, the highest electric demand period of the year.

    Steps to boost output have done little so far to tame the wild price rally.

    Coal futures on the Zhengzhou Commodity Exchange soared again today amid speculation about more cutbacks. The most-active January contract rose 3% to 614.8 yuan ($90.79) per tonne, the highest since the launch of the contract in May last year.

    Miner China Shenhua Energy Company rose 7.3% on Monday while China CoalEnergy Co jumped more than 10% to close at 6.57 yuan per share.

    Earlier this month, the NDRC dismissed the months-long rally in coal prices as unsustainable, saying output from local mines would further replenish the country's stockpiles.

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    Glencore secures 48 percent hike in thermal coal price

    Glencore and Japanese power utilities have settled quarterly thermal coal contract prices at $94.75 a metric ton, up from around $64 last quarter, sources confirmed on Tuesday, reflecting a surge in spot prices.

    The Japanese buyers agreed to pay the higher price to secure supplies of high quality thermal coal from Australia, the Financial Times reported overnight.

    Glencore reached the settlement with Japan's Tohoku Electric following two months of negotiations, an industry source with knowledge of the matter said.

    "We were told it came in at $94.75, which was not unexpected given the surge in spot," added a coal trader in Sydney.

    Australian Newcastle spot cargo prices for November have almost doubled since June to $100.25 per metric ton, the highest since 2012.

    The price rally for thermal coal, used to generate electricity, was triggered by a Chinese government decision to cap its mining output to address labor issues and pollution, forcing its utilities to import more coal.

    The intervention cut China's mining output by around 15 percent and sent buyers back to global markets to meet the shortfall.

    Glencore is the world's biggest supplier of sea-traded thermal coal and typically sets pricing for the sector.

    Glencore declined to comment, citing a policy against speaking publicly about price negotiations with its customers.

    Japan's thermal coal imports remained stable year-on-year in the first six months of 2016, reflecting a slower-than-expected restart of nuclear power capacity and steady use of coal-fired power generation as a substitute.

    Australia's thermal coal exports in fiscal 2017 ending June 30 are forecast to increase 1.6 percent year-on-year to 204 million tonnes, with China's spike in import demand in the first half of the year more than offsetting declines in India, according to Australia's Department of Industry and Science.

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    China's Zhengzhou exchange to raise fees for coal futures

    China's Zhengzhou Commodity Exchange will hike transaction fees for its thermal coal futures contracts, it said on Monday, which may act to reduce trading activity amid a historic price rally and a surge in speculative investment in the volatile market.

    Thermal coal transaction fees will be increased from 4 yuan ($0.59) per lot to 6 yuan per lot, effective from the night session on Monday, the exchange said in a statement on its website.

    The move came as the most-active January coal futures rose 3 percent to 614.8 yuan ($90.79) per tonne on Monday, the highest since the launch of the contract in May last year. Coal prices have risen amid growing concerns about tightening domestic supplies after government-enforced cutbacks.

    Total volume on Monday for the January future was 1.3 million contracts, equivalent to 130 million tonnes of coal, an all-time high and up more than 35 percent from Friday.

    Earlier this month, Beijing dismissed the months-long rally in prices as unsustainable and without foundation.

    The government has called another meeting for Tuesday to discuss more measures to boost supplies after previous efforts have done little to deflate the surging prices.

    Earlier this year, the exchange raised trading margins for the contract and trading limits.

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    China Sept coking coal imports up 40.5pct on year

    China's coking coal imports surged 40.5% on year but down 14.3% on month to 5.56 million tonnes in September, showed the latest data from the General Administration of Customs (GAC).

    According to the GAC, value of the imports stood at $384.51 million in September, rising 26.9% on year but down 19.4% on month, which translated into an average price of $69.16/t, down $4.35/t from August.

    The surge on imports from a year ago was mainly due to limited domestic supply under the 276-workday regulation.

    Yet, fewer deals were concluded than August, because domestic buyers were reluctant to accept expensive imported material, which was mainly pushed up by robust interest from Japan, Europe and Indian users.

    By the end-September, the CFR price of premium low-vol Australian HCC was assessed at $208/t, up $62.25/t from the month-ago level; while the ex-washplant price of Liulin low-sulphur primary coking coal stood at 960 yuan/t, rising by 240 yuan/t on month, showed data from China Coal Resource (

    Over January-September, the country's coking coal imports climbed 20% on year to 43.48 million tonnes; the value of the imports was $2.91 billion, falling 3.9% year on year.

    Meanwhile, China's exports of coking coal dropped 59.7% on year and down 16.7% from the previous month to 50,000 tonnes in September, with the value at $5.17 million, falling 60% on year.

    In the first nine months of 2016, China exported 920,000 tonnes of coking coal, rising 22.9% from the previous year, with total value of the exports decreasing 0.5% on year to $82.76 million.

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    China Sept thermal coal imports up 17.3pct on year

    China imported 8.14 million tonnes of thermal coal (including bituminous and sub-bituminous coal) in September, rising 17.29% on year but down 23.57% on month, showed the latest data released by the General Administration of Customs.

    The value of the imports totaled $466.57 million, translating to an average import price of $57.32/t, rising $2.17/t from a year ago and up $7.92/t from the month prior.

    Over January-September, China imported 68.62 million tonnes of thermal coal, up 7.66% from the year-ago level. Total value stood at $3.05 billion, down 20.62% year on year.

    China imported 8.65 million tonnes of lignite in September, soaring 86.83% year on year and up 31.46% on month, with the value increased 76.65% year on year to $307.38 million.

    Total lignite imports in the first nine months this year reached 48.71 million tonnes, up 30.45% year on year, with value at $1.94 billion, up 21.82% year on year.

    Meanwhile, the country exported 150,000 tonnes of thermal coal in September, with value at $9.77 million. Thermal coal exports from January to September stood at 2.48 million tonnes, with value at $178.32 million.

    China's export of lignite edged up 1.3% on year to 30.57 million tonnes over January-September, with values at $220,000; lignite export in September dropped 81.5% on year to 40 tonnes, with value at $2,000.
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    Gladstone port Sept coal exports down 11.1pct on month

    Coal exports from Australia's Gladstone port fell 11.1% on month and down 9.1% on year to 5.46 million tonnes in September, port authority said in the latest report.

    As the largest importer, Japan took delivery of 1.92 million tonnes of coal from Gladstone in the month, down 15.5% from August and down 4.5% on year.

    India's coal purchase volumes from Gladstone port fell 18.9% on month and down 27.6% on year to 1.22 million tonnes.

    China buyers followed and took delivery of 1.07 million tonnes of coal from Gladstone port last month, surging 42.9% on month and up 71.2% on year.

    South Korea imported 577,000 tonnes of coal from Gladstone, down 40.2% from August and down 34% from a year ago.

    Taiwan's coal imports from Gladstone stood at 292,000 tonnes last month, roaring 47.5% on month but down 6.1% on year.
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    Four global mining giants set for $18 bln coal boost

    An unlikely resurgence in coal price this year, which was mainly caused by China's capacity cuts in coal industry, could deliver an $18 billion boost to the four London-listed big mining groups, including BHP Billiton, Rio Tinto, Glencore and Anglo American, The Australian reported on October 24.

    The biggest leap has been in coking coal for steelmaking purpose, with price rising to $243/t from $78/t at the start of this year, according to the Steel Index. The price of thermal coal used in power stations is up 50% during the same period.

    Chinese government relaxed production cuts this month as winter approached, bringing with it peak demand for fuel.

    Analysts at Investec recently pointed to a double-digit output increase from China Shenhua. "Such action will eventually stabilize coal prices, but it is anybody's guess where prices will settle," they said. "The Chinese government is firmly in the driving seat on this."

    The coal rally arrived at an unlikely moment. Prices were at their lowest in years and forecasters, such as the International Energy Agency, expected the slump to continue, based on the speed at which China was weaning itself off coal-fired power.

    The British government has pledged to phase out coal power by 2025 and coal generation hit zero on one day in May for the first time in history.

    Coal's share of total energy generation is predicted to fall from 40% to 29% by 2040, according to the US Energy Information Agency. However, coal demand is still expected to rise as emerging economies in Asia see coal-fired power plants as the easiest way to start generating electricity.

    Coal use will be drastically lower if steps are put in place to limit the rise in global temperatures to 2 degrees Celsius. Wood Mackenzie, an analyst, calculated that coal's share of generation would fall to 16% by 2035.
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    Steelmaker Set to Be China’s No.1 Posts Biggest Profit Since ’12

    The listed unit of Baosteel Group Corp., the steelmaker that’s merging with a local rival to become China’s biggest, swung to its largest profit in more than four years in the third quarter, boosted by a rebound in prices in 2016 that’s aided producers worldwide.

    Baoshan Iron & Steel Co., the first of the world’s top, publicly-traded steelmakers to declare earnings for the quarter to September, posted net income of 2.13 billion yuan ($315 million), from a loss of about 920 million yuan a year ago, the company said in a statement on Monday. That’s the Shanghai-based mill’s best quarterly performance since 2012. Revenue surged 34 percent to 55.5 billion yuan.

    It also said it expects a 600 to 800 percent surge in 2016 net profit. Steel prices have rallied this year after China’s government aided demand with a credit-and-infrastructure splurge. The advance helped producers from Asia to Europe and the U.S. by resuscitating profit margins that’d been squeezed last year. State-owned Baosteel will become China’s largest mill, and the global No. 2 by output, when it takes over Wuhan Iron & Steel Group Corp. in a merger granted government approval this month.

    “The steel market on the whole picked up in the third quarter,” Baoshan Steel said in the statement. “But the industry situation of supply exceeding demand still persists.”

    Hesteel Co. Ltd., the listed unit of the group that’s still China’s top producer, will confirm third-quarter earnings Wednesday after saying this month it expects net income to be higher than any quarter since 2010. Posco, South Korea’s biggest, is due to report figures the same day, while Japan’s Nippon Steel & Sumitomo Metal Corp. will report next Monday.

    Shares in Baoshan, which bottomed at 4.83 yuan in February, rebounded in Shanghai to 5.57 yuan on Monday. Hot-rolled coil, a benchmark product used in everything from buildings to cars and machinery, has surged more than 40 percent in 2016 on the Shanghai Futures Exchange, after a 33 percent slump in 2015. The results were announced after the close of trade.

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    Chinese commodity futures are going nuts with iron ore 'limit up' for the session

    Chinese commodity futures are going nuts with iron ore 'limit up' for the session

    Chinese commodity futures, led by iron ore, are flying yet again on Tuesday.

    Yes, it’s the rally that keeps on keeping on, defying every bearish forecast that seems to come its way.

    At the lunchtime break, the most active January 2017 iron ore future on the Dalian Commodities Exchange currently sits up a whopping 6%, it’s “limit up” level for the session.

    Put another way, it cannot move any higher today based off established market rules — that’s it for the upside until the evening session begins tonight, leaving the only option in the afternoon for prices to go lower.

    That is, of course, presuming there’s any brave souls willing to sell into the enormous surge in buying momentum. It now sits at the highest level since late August.

    The moves in iron ore futures are being replicated in other steel-related futures, albeit on a fractionally smaller scale.

    Coking coal futures in Dalian sit up 5.92% while rebar futures traded separately on the Shanghai Futures Exchange have also added 3.85%. Bullish price action in anyone’s language.

    As for the reason behind the surge in buying activity, as usual, there are many hypotheses but no definitive answers.

    Continued supply shortages is one reason being cited, as is short-covering from traders. General exuberance is probably another factor.

    However, it is noteworthy that the move in futures — something that began in the overnight session — followed a huge profit being reported by Chinese steel giant Baosteel on Monday.

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    Steel giants hit by losses see hope in complementary businesses

    Chinese steel companies are managing to ride over the tough times thanks to complementary businesses, said a top official of president of China Metallurgical Industry Planning and Research Institute on Saturday.

    "Steel covers a wide range of industries, including minerals, recycling, logistics, environment management, finance and steel deep processing, which provide a lot of options for the steel smelters," said Li Xinchuang, the president of the institute.

    The major complementary businesses of steel companies include high technologies, waste gas recycle, real estate and finance.

    In 2015, large- and medium-sized steel companies in China reported 112.7 billion yuan ($6.77 billion) loss in their main business. In comparison, their complementary businesses recorded 48.1 billion yuan's profit.

    The complementary businesses of some of the super-large steel smelters, such as Baosteel Group, Shougang Group and Wuhan Iron and Steel Group, have reached or exceeded 100 billion yuan.

    Li suggested that the complementary businesses should be part of the steel smelters' long-term plans.

    "The complementary businesses can form its own cycle where real estate, trade, new energy and logistics generate sufficient cash flow and profits to support deep processing and waste management. This way, the companies' portfolio will be more diversified and less reliant on steel, which is facing overcapacity downsizing pressure," said Li.

    Li Bing, chief of the corporate reform office of the State-owned Assets Supervision and Administration Commission, said that China's urbanization will generate huge potential for steel demand.

    According to Li, China's urbanization rate, which is 55.9 percent, is far lower than the average 70 percent among developed countries.

    "The need for houses and automobiles in China has far been satisfied. The problem is that the population in large cities is stretching the limited resources because they don't want to stay in mid and small cities. As urbanization deepens, the potential demand will drive up industries in various sectors," said Li Bing.

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