Mark Latham Commodity Equity Intelligence Service

Thursday 23rd March 2017
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    Fred Money Velocity hitting new lows.

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    BHP buys back $2.5bn in bonds

    Mining major BHP Billiton has repurchased $2.5-billion worth of bonds, allowing the miner to extend its average debt maturity profile and enhancing its capital structure.

    BHP this week announced the expiration of its tender offers for its $1.25-billion, 3.25% senior notes due in 2021, its $1-billion 2.875% senior notes due in 2022, and its $1.5-billion 3.85% senior notes due in 2023.

    Meanwhile, the group said its $500-million 2.05% senior notes, due in 2018, will be redeemed on March 23 at a “make-whole” redemption price equal to $1 020.28 per $1 000 principal amount of 2018 notes, which will include an accrued principal interest of $9.85.

    After the redemption date, the 2018 notes will no longer be deemed outstanding and interest on these notes will cease to accrue.

    With the redemption of the 2018 notes, BHP has now repurchased some $2.34-billion of outstanding notes.
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    Huaneng Power Int'l 2016 net profit down 36.06% YoY

    Huaneng Power International, Inc., a listed subsidiary of China Huaneng Group, saw its net profit slump 36.06% from the previous year to 8.81 billion yuan ($131.89 million) in 2016, the company said in a statement on March 22.

    The company posted a year-on-year decrease of 11.71% in operation revenue to 113.81 billion yuan last year.

    As of December 31, 2016, total assets of the company valued at 309.42 billion yuan, up 3.23% from the year-ago level. Net assets attributable to shareholders witnessed a year-on-year increase of 2.26% to 81.52 billion yuan.

    By the end of 2016, the company's installed power generation capacity stood at 83.9 GW. The company generated electricity of 313.69 TWh, ranking first among its Chinese peers. It owned 102 ultra-low emission power generation units, totaling 45.8 GW in capacity.

    Over half of coal-fired power generation units had capacity surpassing 600 MW, including 12 world-class advanced units, the company said. Installed natural gas power generation capacity reached 7.9 GW; while installed onshore wind power capacity exceeded 2.4 GW.

    The company's power plants were distributed in 22 provinces, cities and autonomous regions, mainly in coastal and riverside cities, coal-rich regions and high power load areas with convenient transportation, which could help guarantee coal supply and cut cost .

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    EU Council approves law on energy contract information mechanism

    The EU Council on Tuesday approved the establishment of a mechanism that will allow Brussels to assess intergovernmental energy contracts with non-EU member states before they are signed.

    The policy is designed to make sure intergovernmental agreements -- such as natural gas supply deals between Russia and an EU member state -- are in line with EU energy law.

    The approval from the Council followed an informal agreement reached in December with the European Parliament.

    The legislation now only requires to be published in the EU's Official Journal to become law, expected later this year.

    "The aim of the decision is to correct shortcomings in the existing information exchange mechanism on energy contracts in order to enhance the transparency and consistency of the EU's external energy relations and to strengthen the EU's negotiation position vis-a-vis third countries," the Council said Tuesday.

    "It will enter into force in the course of 2017," it said.

    The rules will allow the European Commission to assess intergovernmental agreements before they are signed, and give an opinion as to whether they are in line with EU rules.

    "This decision will strengthen transparency in negotiations with third countries on energy agreements, ensuring that such agreements are fully compatible with Union law, thus contributing to energy security," said Konrad Mizzi, the energy minister of Malta, which currently holds the rotating EU Council presidency.
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    Europe's traditional power utility business model in profound transformation: Vattenfall

    Europe's traditional power utility business model is undergoing a revolution across Western Europe as the continued drop in the costs of renewables, batteries and new technology drive decentralization of the power system, a key Vattenfall official said Wednesday.

    "The smaller scale and lower required investment of many RES technologies make them more attractive for smaller parties such as cooperatives," Markus Prass, responsible for strategy and business development at Vattenfall's energy trading unit, told the Platts Power Generation conference in Brussels.

    In Vattenfall's core markets -- Germany, the Netherlands and Sweden -- the cost of renewables and equipment including batteries is already below retail power prices with falling RES costs and rising retail prices set to further increase that trend.

    At the same time, wholesale power prices remain at historically low levels, discouraging investment in new power generation but with "security of supply" still a key concern for traditional utilities.

    During that transformation, utilities can also play a vital role in traditional areas with aggregating, optimizing, dispatching into wholesale power markets as well as utility scale generation and flexibility services through large-scale batteries, Prass added.

    Future regulation and especially the question of grid fee financing remains uncertain not just for utilities, but also consumers.

    "[Retail] pricing mechanisms are not in any way reflective of costs. Unless governments do something to change retail pricing soon, you're going to end up with a lot of misallocation of capital...when prices have to be fixed and you end up with stranded assets," Deutsche Bank equity analyst Martin Brough said.

    "Maybe I'm thinking about putting in a solar-battery system in my home, for instance, reducing my electricity bill by 80%. Then in three or four years [domestic tariffs are changed] to a standing charge with a very low unit charge. I'm still paying for my solar battery, but I'll be paying most of the bill as well [ie the standing charge to cover system costs]," Brough said.

    National and EU regulation currently supports self consumption with new technology also potentially enabling so-called 'prosumers' with energy consumers playing a more active role in areas were new technologies overlap.

    There are more challenges ahead for utilities amid increased competition from new players emerging with the overlap of technology, mobility and energy with traditional utility models potentially more likely in line with the traditional incumbent players in the telecoms industry during the mass roll-out of mobile phones, many industry participants at the Platts Power Summit said.

    The Swedish state-owned utility which is also a major player in Germany and the Netherlands, has avoided the fate of Germany's two leading utilities RWE and E.ON, which split into a traditional conventional power generation and energy company and a new consumer-services focused energy provider.

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    Master Drilling boasts strong order book

    The launch of new projects in the Democratic Republic of Congo, Sierra Leoneand Tanzania, paired with increased investment in human resources, has resulted in a 12.1% drop in JSE-listed Master Drilling’s gross profit to $23.5-million for the 2016 financial year.

    However, the company noted that conservative provisions for taxation in some jurisdictions in previous years, as well as raising of deferred tax assets on historically loss-making entities that returned to profitability, have led to a decrease in taxation, supporting a 5.7% increase in profit after taxation to $22.3-million.

    "We delivered a satisfactory performance in 2016 following a difficult first half marked by severe operational and economic issues. As indicated at half-year, the improvement in our operating environment, including in the commodities sector, supported an uplift in overall performance for the year,” CEO Danie Pretorius said in a statement.

    He added that a more stable environment was setting in, with the company encouraged by the intensified market activity. “This is highlighted by a committed order book of $196.6-million and our strong pipeline of $320.8-million,” he noted.

    Master Drilling’s earnings a share and headline earnings a share rose by 22.1% and 19.4% respectively to 210c apiece.

    Net cash generation was lower at $26.5-million, owing to significant investments in working capital, while debtor days increased as a result of longer payment cycles.

    "The corrective measures implemented in key markets to support market position and performance are bearing fruit and we will continue to balance investments in technologyand people that support growth with the need to drive efficiencies and productivity ratios across the group,” said Pretorius.

    "This approach coupled with our diversification strategy across regions, commodities, currencies and industries will see our revenue and margins stabilise further,” he added.

    In the year ahead, Master Drilling will continue to set its sights on opportunities in advanced economies such as Australia, Canada and the US.
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    Oil and Gas

    Oil cost curve and 'short cycle' shale.

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    Saudi Arabia may insist on Iran oil output cuts to continue OPEC deal: sources

    Geopolitical rivals Saudi Arabia and Iran may be headed for another OPEC showdown, as the producer group enters negotiations over extending oil production cuts in force since January.

    Saudi Arabia may demand that Iran, which is allowed a slight rise in output under the deal, commit to an output reduction as a condition of continuing the cuts, people familiar with the kingdom's thinking told S&P Global Platts.

    The provision is among several that Saudi Arabia, tired of seeing its market share eroded as it bears most of the burden of OPEC's agreed cuts, is likely to come to the table with, sources say. These include stipulations on members who have exceeded their quotas and exempt members nearing full production capacity, notably Nigeria.

    But it is Iran that is likely to be the biggest sticking point given historic distrust between the two countries, as talks among OPEC members ramp up amid signs that the global inventory glut remains stubbornly high.

    "We do expect that the Saudis will have demands on both poorly complying deal participants and those exempted like Iran for the second half," said Bob McNally, president of energy consultancy Rapidan Group.

    "We expect some tension ahead of the May 25 meeting, but as we have seen ministers will temper disgruntlement with supportive public comments so as not to spook investors," he added.

    Saudi energy officials declined to comment on their plans, with one telling Platts on condition of anonymity that "it is too early" to discuss the particulars of negotiations that have yet to start. Iranian energy officials did not respond to requests for comment.

    Any move to rein in Iran's production is likely to be met with significant resistance, experts say.

    Oil minister Bijan Zanganeh last week, in remarks viewed as conciliatory towards a deal extension, said Iran would be willing to hold production at 3.8 million b/d for the remainder of the year.

    That is right around its quota under the deal of 3.797 million b/d and ahead of its February production level of 3.75 million b/d, according to the latest S&P Global Platts OPEC survey.

    Cutting below that "would be a non-starter especially since the Iranian leadership is unlikely to be in a compromising mood in advance of their May presidential elections," said Helima Croft, head of commodity strategy with RBC Capital.

    The deal, which called for OPEC to cut 1.2 million b/d and freeze output at 32.5 million b/d, will be up for review at the organization's May 25 meeting in Vienna. The participation of 11 non-OPEC producers, who pledged cuts of 558,000 b/d in concert, may also be decided then.


    An OPEC/non-OPEC monitoring committee meeting this weekend in Kuwait may provide the first signs of whether the pact will survive past its June expiry.

    The committee is chaired by Kuwait and also includes OPEC members Algeria and Venezuela, along with non-OPEC Russia and Oman. Saudi Arabia, which holds the rotating OPEC presidency, will also attend Sunday's meeting.

    Saudi Arabia has cut its production by 140,000 b/d below its requirement under the agreement with a January-February average output of 9.92 million b/d, according to the Platts survey. That has helped cover for its less compliant counterparts.

    The kingdom has made its displeasure with non-compliant participants known, warning against "free riders." It is likely to demand stricter adherence for the deal to continue, sources said.

    Matthew Reed, senior vice president of Middle East consulting company Foreign Reports, said given how Iran is pumping near its maximum capacity, the Saudis may feel Iran should participate in an "all hands on deck" effort to reduce global inventories, as OPEC has said is the goal of the cuts.

    "These days Iranian officials are bragging about producing more oil than at any time since the shah, so a conversation about what Iran can contribute is obligatory," Reed said.


    Diplomatic sparring between Iran and Saudi Arabia scuttled OPEC's first attempt last April in Doha to forge a production cut deal, as Iran's insistence on an exemption while it recovered from sanctions prompted Saudi Arabia to withdraw from negotiations.

    At a September extraordinary OPEC meeting in Algiers, with Saudi Arabia more eager for a deal and despite Iran having ramped up its production in the intervening months, Iran came away from the talks with a political victory -- an allowance to increase output by 90,000 b/d to 3.797 million b/d.

    From Iran's viewpoint, the country is already in compliance with its quota, making it unlikely to acquiesce to any demands to cut production, said Sara Vakhshouri, president of consultancy SVB Energy International.

    Vakhshouri estimates that Iran may be able to raise its production capacity by the end of 2017 to a total of 3.78 million b/d, but no further due to financial constraints.

    Keeping the current ceiling on Iranian oil output may be all Saudi Arabia can hope for, she said.

    "Iran's production capacity by the end of 2017 is very close to what they agreed to produce in the first half of the year," said Vakhshouri, who is also a senior fellow at the Atlantic Council. "Hence, even if there are political disagreements, Iran can't technically produce much higher."
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    NOC given no money to pay salaries, let alone invest: Mustafa Sanalla

    Salaries are going unpaid because National Oil Corporation (NOC) is not getting the $2.5 billion allocated it by the Presidency Council,  Mustafa Sanalla the oil company’s chief complained today.

    The Ministry of Finance was not only delaying salary payments, he said, but also failing to produce funds for projects which are considered essential to boosting production by maintaining and repairing oil fields and ports that have been damaged in fighting.

    It seems clear from this that Sanalla has not yet achieved the financial independence he wants by being given control over a proportion of oil revenues. NOC is still having to go cap in hand to the finance ministry, even for salaries, as in the days of Qaddafi.

    The good news however was that Sanalla said output had recovered rapidly after the interruption from the Benghazi Defence Brigades attack on the Sidra and Ras Lanuf terminals earlier this month.

    “Our production today is 700,000 bpd and we work hard in order to reach 800,000 bpd before the end of April,” he said in a statement, “We will, God willing, reach 1.1 million barrels/day next August.”

    “We are doing our best to increase production despite all the obstacles and circumstances that face us and despite all those who try to obstruct production or decrease it in addition to spreading rumours and lies that affect NOC’s work” he said, “By doing so, they want to destroy what is left from the Libyan economy and hold it a hostage to aids and international loans.”

    One lie he may have had in mind was the surprise news this morning of his resignation. What was said to be a letter in which he announced he was quitting was presented in the House of Representatives in Tobruk. The circumstances are unclear, but one report says that Sanalla’s rival, the chairman of eastern NOC Nagi Maghrabi was present when the letter was delivered.

    The news is likely to have brought anxious calls from international oil traders but it quickly emerged that the letter was a fake.
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    China Feb gasoline exports jump to 2nd-highest on record, imports plunge

    China's gasoline exports in February climbed to their second-highest monthly level on record as refiners increasingly turn to exports to Asian markets to drain a domestic supply glut that almost wiped out imports altogether.

    Gasoline exports rose 77 percent in February compared with the same month a year earlier to 1.06 million tonnes, just short of the monthly record of 1.1 million tonnes set in June last year, data from the Chinese customs authority showed on Thursday.

    Meanwhile diesel exports jumped 67 percent compared with February 2016 to 1.32 million tonnes, climbing from 965,000 tonnes in January.

    Strong exports of refined fuel products reflected persistence excess in the domestic market as China's refiners maintain a record pace of crude oil buying and high rates of operation.

    China became a net exporter of fuel products in late 2016. Gasoline imports last month slumped to just 7,245 tonnes, tumbling 94 percent from the same period last year, leaving net exports at 1.05 million tonnes.

    Diesel imports in February dropped 52 percent from a year ago to 50,000 tonnes, while liquefied natural gas imports rose 29 percent year on year to 2.37 million tonnes, the customs data showed.

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    Sinopec to boost capacity of China's largest shale gas project to 10 bcm

    China's Sinopec Corp expects to boost production capacity of China's largest commercial shale gas project to 10 billion cubic meters, up from 7 bcm, it said in statement on March 21.

    This signals that China's shale gas industry has been on the way towards large-scale commercialization, which will help promote energy structure adjustment as well as energy conservation and emission reduction.

    Sales of the clean fuel from Sinopec's Fuling Project near Chongqing in southwestern China hit 16 million cubic meters on a daily basis, equivalent to the need of 32 million households, the company said.

    Sinopec launched operations of three wells recently, it stated.

    Total shale gas supply of the Fuling project has surpassed 10 billion cubic meters.

    The Fuling shale gas field had proved reserves of 380.6 billion cubic meters by end-2015.
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    Chevron confirms sale of its South African assets to Sinopec

    Chevron Global Energy confirmed on Wednesday that it had signed a sales and purchase agreement with a wholly-owned subsidiary of China's Sinopec  for Chevron's assets in South Africa and Botswana.

    Chevron said in a statement the deal hinged on regulatory approval. Sinopec said earlier on Wednesday it has agreed to pay almost $1 billion for a 75 percent in Chevron's South Africa assets and unit in neighbour Botswana, securing its first refinery on the continent.
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    Nigerian crude oil emerges from South Africa storage amid flattening structure

    Nigerian crude from South Africa's Saldanha Bay storage site has come into the market, adding to the glut of Nigerian crude available in the April program, according to trading sources.

    "Everyone is trying to empty storage with the structure where it is and diffs coming off; everyone is trying to do it and you are seeing offers out of Saldanha, but everyone is in same boat," said one West African crude trader.


    Nigerian crudes Qua Iboe and Escravos have been offered out of storage, by trading house Vitol and oil major Total. Market sources estimated that around 10 million-11 million barrels of stored oil has been offered out. Additionally, around 15 million barrels of the April program were still available, with the May programs expected to be released later this week.

    As a result, trading sources said that due to the overhang, crude differentials started to see pressure, particularly Qua Iboe and Escravos, with the former seeing its offer levels fall 40 cents/b over the course of the past two weeks, reflecting a tougher market for sellers.

    "Values remain stable but pressured," a second crude trader said.

    Vitol was heard to have fixed the VLCC Astro Chloe to take a 270,000 mt crude cargo from storage in Saldanha Bay in South Africa to Singapore with March 28-31 loading dates at w58.

    "Vitol may be looking to lift another VLCC with April dates as well because the storage economics are not making sense down there at the moment," a shipbroker said.

    Rumblings of South Africa storage being emptied have been seen in the market for a few weeks, although these are the first signs of volumes actually leaving Saldanha Bay.

    At the end of February, Vitol was seen offering up to 4 million barrels of Qua Iboe crude, basis DES Rotterdam/Lavera, arrival April 20-30, in the Platts Market on Close process. At the time, several trading sources said the oil being offered by Vitol was volumes being stored in South Africa.

    While there has not yet been a ship fixed by Total, last week the company for two consecutive days -- on March 15-16 -- offered a VLCC comprised of 2 million barrels of Escravos crude, which was confirmed as coming out of Saldanha Bay.

    The Total indication was basis CFR Singapore, arriving May 15-25.

    A shipping report on Monday also reported that Total was seeking a VLCC for a Saldanha Bay April 20-22 load, with East discharge options, although an update on Tuesday showed that the fixture was on hold at the moment.


    There has been a growing incentive for traders to move crude oil out of storage in recent weeks, with a noticeable flattening emerging in the structure of the BFOE Contracts for Difference curve (CFD).

    S&P Global Platts Monday assessed the contango of the eight-week CFD curve at 46 cents/b, down from 75 cents/b a week earlier. Indeed, certain parts of the curve have been particularly strong, with backwardation emerging between April 3-7 and April 10-14.

    According to market participants, the strength at this point in the curve is attributable to traders hedging on VLCCs that may have been fixed to move Forties crude to the Far East in the third decade of April.

    "That period [of backwardation] is the period in which people are hedged for a physical move on VLCCs. They have bought three-week rolls and hedged," a North Sea trader said.

    "Dated/Dubai is very narrow and VLCC freight is very cheap," a second North Sea trader said. "The market probably expects barrels to move to the East."

    The flatter structure of the curve means there is less incentive for traders to keep physical oil in storage. "It has been a big theme this year. Anytime we come close to backwardation people begin to unwind their hedges and move oil out of storage," the first trader said.


    Saldanha Bay is a particularly popular destination for traders looking to store crude oil. Given its location between the demand centers of Asia and Europe, barrels can be sent either east or west depending on the prevailing economics of the Brent/Dubai EFS spread.

    "You can go into any direction -- you have all optionality, and that makes [Saldanha Bay] interesting," a third trader said. However, most grades coming out recently would likely be headed to Asia due to the stronger demand seen in that region and the narrower EFS, traders said.

    Crude from as far as the North Sea, the Mediterranean and Latin America has been placed into storage in this location in recent years. The majority of crude stored there is Nigerian, according to trading sources.

    Saldanha Bay's storage capacity is around 40 million-50 million barrels of oil, and it emerged as a very popular spot for storing crude oil from July 2014 when the crude oil market flipped into a contango structure.

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    US oil production up 20,000 bbls

                                                    Last Week  Week Before  Last Year

    Domestic Production '000........ 9,129           9,109         9,038
    Alaska ............................................ 528             .528       .     507
    Lower 48 .................................... 8,601           8,581    .     8,531
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    Summary of Weekly Petroleum Data for the Week Ending March 17, 2017

    U.S. crude oil refinery inputs averaged 15.8 million barrels per day during the week ending March 17, 2017, 329,000 barrels per day more than the previous week’s average. Refineries operated at 87.4% of their operable capacity last week. Gasoline production increased last week, averaging about 9.8 million barrels per day. Distillate fuel production increased last week, averaging over 4.8 million barrels per day.

    U.S. crude oil imports averaged 8.3 million barrels per day last week, up by 902,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.9 million barrels per day, 3.0% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 325,000 barrels per day. Distillate fuel imports averaged 127,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.0 million barrels from the previous week. At 533.1 million barrels, U.S. crude oil inventories are at the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 2.8 million barrels last week, but are near the upper half of the average range. Finished gasoline inventories remained unchanged while blending components inventories decreased last week. Distillate fuel inventories decreased by 1.9 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories fell 0.1 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories increased by 1.3 million barrels last week.

     Total products supplied over the last four-week period averaged over 19.5 million barrels per day, up by 0.5% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.1 million barrels per day, down by 2.9% from the same period last year. Distillate fuel product supplied averaged 4.1 million barrels per day over the last four weeks, up by 14.1% from the same period last year. Jet fuel product supplied is up 6.8% compared to the same four-week period last year.

    Cushing up 1.5 Mln bbls
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    Major oil companies open their wallets in Gulf of Mexico bidding

    Royal Dutch Shell plc, Chevron Corp and Exxon Mobil Corp signaled the oil industry's return to the Gulf of Mexico's deep waters with high bids in a government auction up 76 percent over a year ago.

    The auction of offshore oil and gas parcels received nearly $275 million in high bids, compared with $156.4 million a year ago. The year-ago auction drew the fourth lowest total bids for leases in the central Gulf.

    The oil industry had moved away from deep water projects as oil prices fell and regulatory scrutiny increased following the Deepwater Horizon disaster in April 2010, the largest accidental marine oil spill.

    The five-month-long spill, which spewed some 210 million U.S. gallons (780,000 m3) into the Gulf, caused extensive damage to marine and wildlife habitats, as well as to the area's fishing and tourism industries, forcing BP to sell assets worth of billions of dollars.

    Wednesday's auction was the first under President Donald Trump, who has promised to cut permitting and regulatory hurdles in support of energy exploration.

    Shell and Chevron each had 20 high bids, and Shell's $55.8 million total was the largest among the 26 companies submitting offers. Norway's Statoil ASA was the second-largest total bidder with $44.5 million, followed by Hess Corp, Chevron and Exxon.

    "Today's strong sale reflects continued industry optimism and interest in the Gulf's Outer Continental Shelf, Department of Interior Secretary Ryan Zinke said in a statement.

    The highest bid on a single block this year, from Shell, was for $24 million, almost twice last year's $13.6 million top offer. Among other top bidders, Exxon submitted 19 high bids totaling nearly $22 million, and Anadarko Petroleum had 16 high bids totaling nearly $19 million.

    The bids will be evaluated for the next 90 days by the Bureau of Ocean Energy Management and winners disclosed following the review.

    Interest in new deep-water projects is heating up with more favorable costs for drilling rigs, services and production equipment. Shell has cut its well costs by at least 50 percent and reduced logistics costs by three quarters, helping make deep-water projects affordable at crude prices under $50 a barrel.

    Last month, the Anglo-Dutch oil giant gave final approval to go ahead with its Kaikias deep-water project in the Gulf. In December, BP said it planned to move ahead with a previously delayed expansion project known as Mad Dog Phase 2, the first new platform sanctioned for the Gulf in a year and a half.
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    China's Biggest Oil and Gas Producer Seen Ready to Unleash $85 Billion Spinoff

    China's Biggest Oil and Gas Producer Seen Ready to Unleash $85 Billion Spinoff

    As China’s biggest oil and gas producer prepares to report what may be its worst-ever earnings, investors are focused on billions of dollars that could be unlocked by a spinoff of its massive pipeline network.

    PetroChina Co.’s natural gas and crude oil transportation system, stretching from the country’s remote borders with Central Asia to major coastal cities, could be worth at least $85 billion dollars, according to analysts at Sanford C. Bernstein & Co. and Jefferies Group LLC. As President Xi Jinping’s government prepares to unveil long-awaited energy industry reforms, speculation has grown that the company and its parent, China National Petroleum Corp., may spin off the pipelines into an independent company as soon as this year.

    “While timing is unclear, there is a sense that management is in favor of such a spinoff,” said Neil Beveridge, Bernstein’s head of Asia-Pacific oil and gas research, who has a buy rating on the stock and estimates the assets are worth 585 billion yuan ($85 billion). PetroChina’s preferred option is an initial public offering that would leave it with a controlling stake, he said.

    PetroChina, which Goldman Sachs Group Inc. estimated this month trails only Exxon Mobil Corp. and Rosneft PJSC as the world’s biggest oil company by reserves, is suffering depressed prices and slumping domestic production from the country’s aging fields. While output is unlikely to rebound without a surge in prices, investors are hungry for a spinoff to unlock cash that may be used to fund fatter dividends.

    The future of PetroChina’s pipelines has been unclear since 2015. The central government originally planned to strip the company, as well as its domestic rival China Petroleum & Chemical Corp., known as Sinopec, of the assets to create a new state-owned entity. That idea has since been scaled back, though regulators are still pushing for greater independence of the pipeline operations and easier access for all users.

    Timing Unclear

    The company may spin off the unit as soon as the end of this year, the Hong Kong Economic Journal reported in February, citing people it didn’t identify. Gordon Kwan, head of Asia-Pacific energy research at Nomura Holdings Inc., sees oil prices needing to rebound to $60 before any such move. Bernstein’s Beveridge sees it delayed until the pipeline segment accounts for less than half PetroChina’s revenue, which may not happen until next year.

    Bernstein values the pipeline business at HK$3.60 per share, more than half PetroChina’s current stock price. The company in Hong Kong gained 0.7 percent to HK$5.83 as of 10:53 a.m. local time Thursday, compared with a 0.3 percent rise in the city’s benchmark Hang Seng Index.

    Monetizing pipeline assets is one of the few options PetroChina still has to raise funds and attract investors under the current low oil price environment, according to Laban Yu, head of Asian oil and gas equities at Jefferies, who sees the pipelines worth 597 billion yuan. Brent crude, the international benchmark, averaged about $45 a barrel last year, down almost 16 percent from 2015.

    Sprawling Asset

    PetroChina holds a 71 percent market share of the country’s oil and gas pipelines, analysts at Goldman Sachs wrote in a March 7 report. Its network stretches more than 77,600 kilometers (48,200 miles), with almost two-thirds of that used for natural gas, according to its latest 20-F filing to the U.S. Securities and Exchange Commission.

    The main natural gas network has been built in three parallel sections, known as the West-East Gas Pipeline. Those assets were consolidated into PetroChina Pipelines in December 2015, in which PetroChina holds 72.26 percent.

    The company, which barely broke even in the first half of the year although it booked a 24.5 billion yuan one-time gain from selling pipelines, warned in January that it expects full-year profit to fall by as much as 80 percent because of the slump in international oil prices and low domestic natural gas rates. That means profit may decline to as low as 7.1 billion yuan, down for a third year to the weakest in data going back to 1996.

    Sinopec, which may report earnings as early as Friday, may post an 18 percent rise in net income, including one-off items, to 38.3 billion yuan, according to the mean estimate of 8 analysts surveyed by Bloomberg. The company last year sold 50 percent of its Sichuan-to-East China pipeline for 22.8 billion yuan, though it’s unclear when it will account for that gain.

    China’s biggest offshore explorer, Cnooc Ltd., may report Thursday its first annual loss since its Hong Kong trading debut in 2001. Net income is forecast to have swung to a 3.22 billion yuan loss, according to the mean estimate of 10 analysts surveyed by Bloomberg.
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    Oil's Bad Timing Pressures Drillers as Banks Review Loans

    The rally in global oil prices has stalled at the worst possible time for explorers, just as banks reassess credit lines crucial to their growth.

    This year’s reviews, due to start next month, will arrive with the industry nursing a nasty case of whiplash. Spot prices surged late last year on OPEC’s pledge to cut output, hitting $54.06 a barrel in New York. Since then, they’ve fallen 12 percent, undercut by rising U.S. rig counts. Futures contracts show longer-term prices deteriorating as well.

    A drop below $45 would likely spur credit-line reductions, raising the specter of cuts that crippled drillers a year ago, said Kraig Grahmann, a partner in Houston for law firm Haynes & Boone LLP. Between the end of 2015 and October, when credit lines were last reassessed, the average borrowing base for U.S. explorers fell 16 percent, according to data compiled by Bloomberg.

    “The next month is going to be absolutely critical from an oil price standpoint," said Paul Grigel, a Denver-based analyst at Macquarie CapitalUSA, by telephone. “If you see prices retrench further, clearly the banks are going to have to re-evaluate. They are going to say, ‘Should we be pulling back?’"

    Credit reviews are “a combination of art and science," Grigel said, with banks taking into account a company’s reserves, production trends and the future outlook for the market as well as current prices. Lenders can also be reluctant to cut credit lines if it would mean mortally wounding a borrower and raising the risk of default.

    Industry budgets this year call for spending about $25 billion more collectively than in 2016, an 11 percent increase, according to a report last week from Wood Mackenzie Ltd. EOG Resources Inc. said it will increase capital spending 44 percent in 2017 to about $3.9 billion, while Continental Resources Inc. will elevate spending 68 percent to $1.95 billion.

    For many companies, credit lines remain a major determiner of how much growth they can achieve, said Spencer Cutter, a Bloomberg Intelligence analyst. The reassessments are traditionally done in April and October, when bankers will review both commodity prices and reserves, which are put up as collateral.

    The start of the year “was definitely not a good time for a price drop," Grahmann said. “The pause that the market has taken recently has caused some bankers to be a little bit more cautious about assuming that every run-up will last."
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    USGC refiners set to win from the new bunker fuel spec

    US Gulf Coast refiners look well positioned to cash in on the earlier than expected 2020 deadline for ship operators to start using lower sulfur bunker fuel. That seems to be the consensus among most analysts attending the 2017 American Fuel and Petrochemical Manufacturers conference in San Antonio, Texas this week.

    Although the drop to 0.5% sulfur from the current 3.5% sulfur limit was widely anticipated, the timing was not. In a surprise move in October 2016, the International Maritime Organization agreed to implement the 0.5% sulfur limit for marine fuels in 2020, instead of the 2025 deadline which many expected.

    "It's always been 10 years away and now it's three years out," said David Hackett, a transportation fuel expert at California-based consulting firm, Stillwater Associates.

    Hackett made his comments Monday during the conference as a panel member at the Platts Barrel Talk Lunch, sponsored by S&P Global Platts.

    USGC refiners invested heavily over the past decade or so to build coking units capable of processing heavy crude at their plants, with an eye to handling the heavy Canadian crude expected to flow down the Keystone XL pipeline from the oil sands of Alberta to the USGC.

    While the XL has yet to materialize, the money was well spent, creating a world class center of complex and sophisticated refineries with the flexibility to handle most any crude.

    USGC coking capacity rose to 1.58 million b/d in 2016, almost double the region's 2007 capacity of 798,700 b/d, according to Energy Information Administration data.

    Conversely, residual fuel output from these refiners fell during the same time period, to an average of 292,000 b/d in 2016 from the 319,000 b/d in 2007, EIA data shows.

    In terms of global bunker fuel market share, "the US is under-represented," Alan Gelder, Wood Mackenzie's vice president of refining, chemicals and oil markets, said in a presentation to AFPM attendees Monday.

    "Bunker fuel is an opportunity for USGC refiners," he said, noting that North America has about 10% of the global bunker market, compared with Asia's 47% and Europe's 22%.


    While technology in the form of scrubbers exists to clean emissions from high sulfur fuels on board, the upfront costs mean it is tough for ship owners to fund fitting them to existing ships.

    Shippers are "making material progress" in taking steps to meet tighter specs, but they are "truly broke" due to the deep and prolonged downturn in demand and shipping rates, Gelder said.

    He estimated that only about 14% of all vessels will have scrubbers in place in time to meet the tighter specs by 2020.

    The alternative to scrubbing high sulfur fuels is burning new, low sulfur fuels -- which puts the onus on refiners and blenders.

    Texas-based refinery consultants Turner, Mason & Company anticipate slightly higher scrubber installations -- about 20% by 2020 -- but said the fact there have been virtually no announcements of construction of new residual hydrotreaters to make the cleaner bunker fuel is a concern.

    The consultancy, which tracks refinery construction in its annual Worldwide Construction Report, expects lower sulfur fuel specs to be achieved by blending equal parts of very low sulfur distillates, such as ULSD, into the bunker fuel.

    This in turn will back out a nearly equal amount of high sulfur fuel oil, cause a spike in global distillate demand, and result in rising distillate prices, it said.

    "In 2020, 2021, 2022, we expect to see a big bump in distillate demand," Turner, Mason executive vice president John Auers said, speaking as a panelist.

    It will also leave HSFO with out a home, which could have a knock-on effect for light/heavy crude spreads and prices, although some is likely to find its way into asphalt markets.

    But most of the surplus fuel oil is likely to be blended with lighter crude oil, creating a synthetic heavy crude oil. Increased heavy crude supply will depress prices, while light sweet crude oil will get renewed life along the USGC as a blendstock for the surplus fuel oil. While USGC refiners have options given their coking capacity, regions without cokers will suffer.


    "This is bad news for Europe," said Auers, noting that there is a lot of fuel oil made there and virtually no coking capacity. ExxonMobil's project to build a coker at its Antwerp refinery is about the only project on the books, he said.

    Wood MacKenzie's Gelder concurred. Almost 250,000 b/d of European fuel oil will be displaced, he said, while there is less than 100,000 b/d of spare upgrading capacity to process it.

    Gelder expects the price for clean bunkers to be set by Chinese "teapot" refiners, because of the closer ratio of upgrading capacity to refinery throughput.

    He estimates that in 2015 these independent refiners processed about 2.5 million b/d of crude, with spare upgrading capacity of about 2 million b/d.

    "It is an interesting dynamic," he said, adding that he expects to see a wider differential between fuel oil and gasoil.

    Nevertheless, North America's ratio of spare upgrading capacity to fuel displaced by bunkers is also favorable, at 300,000 b/d and 150,000 b/d, respectively, due in part to their deep conversion.

    "They will be printing money," he said.

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    Base Metals

    Peru's minerals railway to take 2-3 weeks to resume: government

    A railway used by copper, zinc and silver mines to transport concentrates from Peru's central Andes to port is likely be out of action for at least two to three weeks following deadly floods and mudslides, a minister said on Wednesday.

    Repairs should take about two weeks, but work in the field was unlikely to start until next week once dangerous river levels had eased, transportation minister Martin Vizcarra told Reuters.

    The railway has been closed since Friday, when torrential downpours triggered flooding and mudslides that killed at least 75 people and ruptured the rail line in several places.

    "The damage wasn't mild, it was seriously damaged," Vizcarra said by phone. "It'll take at least two to three weeks."

    Even after the railway resumes operations, exports from the port of Callao near Lima could be delayed by two to three weeks if ships wait for more concentrates to arrive in order to send full loads, said Deputy Mines Minister Ricardo Labo. "It's going to depend on where stock levels are in Callao," Labo said.

    The situation could put pressure global mineral prices.

    Peru is the world's second biggest copper producer and third biggest zinc and silver producer. The railway usually transports about half of the country's zinc and silver output, about 60 percent of its lead production and about 10 percent of its copper output, according to the energy and mines ministry.

    Vizcarra said the only available road routes took too long to be a practical alternative for transporting the minerals.

    "That's why we have to make a strong effort to make the railway operative again," Vizcarra said.

    Mines in central Peru, from Chinalco's Toromocho copper deposit to Buenaventura's polymetallic mine Brocal, have been stockpiling their concentrates while they wait for the railway to be fixed.

    The recent round of heavy rains has prompted Peruvian miners Milpo and Volcan to declare force majeure and led Brazil's Votorantim to halt zinc smelting at its Cajamarquilla plant on the outskirts of Lima.

    Labo said any impacts on production would be minimal or made up for later, since miners tend to use stoppages to undertake routine maintenance.

    "So far no mine has halted production," Labo said. "That's the good news. And we don't believe they would stop production for another three weeks."

    Mines could eventually be constrained by a lack of supplies, such as explosives or fuel, or storage space.

    Warehouses at Callao have enough supplies to fulfill companies' commitments for up to 30 days, the country's mining association said Monday.

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    Union leaders at BHP's Escondida mine to meet with workers

    Leaders of the striking union at BHP Billiton's Escondida mine in Chile will meet with the rank-and-file before making any additional decisions about negotiations, a union spokesman said after exiting a meeting with BHP on Wednesday.

    BHP and leaders of the 2,500-member union at Escondida, the world's largest copper mine, left the meeting in the city of Antofagasta without offering additional comment, or saying when the parties would next sit down.

    "No comment, we're going to meet with the base," union spokesman Carlos Allendes told reporters.

    Since workers walked off at the massive deposit on Feb. 9, copper production has been stopped, sending global copper prices higher amid supply concerns.

    Talks have since been tense, and various attempts to return to the negotiating table have failed. The two parties finally returned to the table on Monday for the first time in weeks, and met again on Wednesday afternoon.

    Earlier on Wednesday, BHP decided to suspend work indefinitely at projects linked to Escondida, such as construction work at its Coloso desalinization plant and its Los Colorados concentrator, citing continued blockades by the union.

    Throughout the process, workers have maintained three core demands: that the benefits in the previous contract not be reduced; that shift patterns not be made more taxing; and that new workers get the same benefits as those already at the mine.

    The union has also said in recent days that it could invoke an article of Chile's labor code that would stop the current negotiations and send the miners back to work for 18 months under the previous contract. They said that would allow them to start negotiations again under new labor laws set to go into effect in Chile in April, strengthening their hand.
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    Africa’s biggest copper find keeps giving as Ivanhoe hits mineralisation 3.8 km west of Kakula

    The TSX-listed stock of Africa-focused explorer Ivanhoe Mining on Tuesday rose 12% after it announced that it had encountered more shallow, high-grade mineralisation at Africa’s largest copper deposit ever – the Kamoa-Kakula copper discovery, in the Democratic Republic of Congo (DRC).

    A new hole has intersected a shallow, 3.8 km extension (now known as Kakula West) of the Kakula discovery, essentially doubling the Kakula mineralised system to more than 10 km, while it remains open for expansion.

    “In the mining exploration business, the very idea that a crew would drill a step-out hole almost 4 km away from the last known mineralisation is virtually unheard of. Nonetheless, our geologists and independent advisers have become so confident in the proven consistency of Kakula’s chalcocite-rich mineralisation that they expected we would find more thick, near-surface, Kakula-style mineralisation in the vicinity of where it actually was discovered. The remarkable success with DD1124 is further validation of our team’s judgment and expertise,” executive chairperson Robert Friedland stated.

    The target area where hole DD1124 was drilled was selected by the Kamoa-Kakula geological team at the intersection of the axis of the interpreted Kakula trend, with a southwesterly-northeasterly-trending antiform (the Kakula West antiform). DD1124 intersected 16.3 m of visually moderate-strong chalcocite copper mineralisation, like the mineralisation encountered within the core of the chalcocite-rich Kakula deposit, beginning at a downhole depth of 422.2 m (410 m below surface), which included a 4 m zone of strong to very strong mineralisation beginning at a downhole depth of 432.4 m.

    Ivanhoe said it expects assays for DD1124 in about two weeks. The current resource estimate for Kakula, announced last October, only covers about 40% of the presently defined 10.1 km strike length of Kakula’s mineralised trend.

    Up to five rigs are being mobilised to fast-track drilling at the Kakula West discovery, the company said.

    The Kakula discovery remains open along a westerly-southeasterly strike. Importantly, the chalcocite-rich zone of mineralisation in DD1124 was intersected at a depth of about 400 m, indicating that the Kakula mineralised zone extends significantly closer toward the surface in the area around the new discovery hole.

    Ivanhoe's TSX-listed stock gained C$0.52 a share to C$4.82 at the height of trading Tuesday.

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    Global zinc market deficit may continue in 2017: analyst

    The zinc market was in deficit in 2016, even though demand was modest, while fundamentals remain positive and global zinc demand is expected to grow 2.5% in 2017, CRU analyst Helen O'Cleary said Monday.

    Mine closures and cutbacks led the market into deficit last year, however "producers may require some further restraint in order for the deficit to be repeated in 2017," O'Cleary told Metal Events Ltd.'s 9th International Zinc Conference in London.

    The consultancy believes that new mines might be developed in China within 2016-2021, but that will depend significantly on environmental standards imposed by the Chinese government, while mining growth in the West will be slower in the medium term, she said.

    The recent labour strike at Noranda Income Fund's CEZinc smelter in Quebec will hasten metal market tightness, according to CRU.

    The 265,000 mt/year plant is the largest zinc smelting facility in northeastern America, where many zinc consumers are based.

    Last week, market participants told Platts that it a zinc deficit in the US was not impossible, adding that as stocks were consumed, European zinc might end up in the US.

    While global zinc demand is expected to grow by 2.5% this year, European zinc demand will remain flat in 2017, O'Cleary said.

    Market participants told Platts last week that even though spreads had improved, demand remained flat in Europe, with physical premiums moving higher, but slowly.

    Global demand faces a couple of challenges, mainly from the automotive industry due to the substitution of zinc metal with aluminum in body sheets in the shift to lighter vehicles. "The substitution will be permanent," O'Cleary said.

    "A wholesale switch to Galvalume (45% Zn, 55% Al) or Galfan (a zinc- aluminum alloy coating) may lead to a 40% fall in zinc demand," she added.

    Meanwhile, zinc prices on the London Metal Exchange rose sharply in 2016 and, if they move above $3,000/mt, this might put some pressure on galvanizers who could find it hard to pass on surcharges, O'Cleary suggested.
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    First Japan Q2 aluminium settlement at $128/mt plys LME CIF, up 35% from Q1

    A Japanese consumer and an aluminium producer have agreed to set the second-quarter aluminium contract premium at $128/mt plus London Metal Exchange cash CIF Japan, up 35% from $95/mt plus LME cash CIF Japan for Q1, seller and buyer sources said Wednesday.

    The deal was for the supply of over 500 mt/month of P1020A aluminium ingot for loading over April to June 2017.

    A second producer has also agreed with a Japanese buyer to set the Q2 premium at $128/mt plus LME cash CIF Japan as well, said the buyer source, but the producer could not be reached for confirmation.

    Five producers and 10 to 15 Japanese buyers have been in negotiations since late February for Q2 aluminium contracts.

    The producers first offered $135/mt plus LME cash CIF Japan, while some buyers counterbid at $115-$120/mt plus LME cash CIF Japan.

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    Steel, Iron Ore and Coal

    Indonesia port graft investigation disrupting coal shipments

    Indonesia is cracking down on corruption and widespread graft at some of its top coal export hubs, disrupting shipments to destinations across Asia.

    Indonesia is the world's top exporter of thermal coal, still the main feedstock for global power generation. Interruptions to coal's output and shipment can impact seaborne prices of the fuel as well as wholesale electricity markets.

    The investigations that began on Friday are targeting port operations along the large anchorage area off Samarinda in East Kalimantan, officials said on Wednesday, delaying ships waiting to load new supplies from the region's mines.

    Police initially raided four port facilities, including the Samudra Sejahtera Stevedores Cooperative (Komura) office, a Transportation Ministry statement said, based on allegations of "blackmail, corruption, money laundering, and thuggery".

    "We are cracking down on patterns linked to illegal fees," Transportation Ministry spokesman J. A. Barata told Reuters.

    Almost 30 large dry-bulk ships are waiting offshore Samarinda to load coal, according to shipping data in Thomson Reuters Eikon. The data shows that some of the ships have been waiting to load coal since late February.

    The office of the stevedores' cooperative did not answer calls seeking comment.


    East Kalimantan Police spokesman Ade Yaya Suryana told Reuters that authorities were targeting stevedores that were asking coal companies in the Mahakam area to pay extra fees to load ships.

    One coal mining company had been asked by stevedores to pay 3 billion rupiah ($225,000) per month in illegal fees based on tonnage, Suryana said, adding that such fees had been charged on shipments since last year and that police estimated Komura had amassed several hundred billion rupiah from the illegal charges.

    Komura chairman Jaffar Abdul Gaffar told local media outlet that 6.1 billion rupiah confiscated by police in the raid on the cooperative was for wages and not from illegal fees.

    "I just took it out of the bank," Gaffar said, according to

    Transportation Minister Budi Karya Sumadi said in the ministry statement he had asked police "not to hesitate in cracking down on all forms of illegal fees."

    The crackdown follows coal shipment disruptions that occurred last month, when authorities put up road blocks in investigations that prevented workers from accessing ports.

    Indonesian Coal Mining Association chairman Pandu Sjahrir told Reuters that several coal producers had reported shipping and logistics delays resulting from the investigations.

    The police investigations are preventing many ports from arranging staff for loading and unloading coal, said one coal trader on the condition of anonymity, as he was not authorized to talk to the press.

    "It's very chaotic, delays in loading are common anyway, so these (investigations) have further disrupted coal operations," he said.

    East Kalimantan Transportation Agency, which oversees port authorities and marine transportation, declined to comment on the investigations. Coal miners in the region include Banpu unit Indo Tambangraya Megah (ITM), and Bayan Resources.

    The two mining companies could not be reached for comment

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    Chinese utilities urge regional government to curb soaring coal prices

    China's top power groups are lobbying the local government in the western region of Ningxia to require their main thermal coal supplier to cut prices as they are bleeding cash due to surging coal costs and falling power prices, two sources said.

    A glut of renewable and coal-fired power capacity in the Ningxia Autonomous Region has pushed down electricity prices, forcing utilities to sell their power at a discount after the government liberalized its power market. Prices in the region are the lowest in the country.

    Seven of China's largest electricity generators including the Ningxia subdivision of China Datang Corp, China Guodian Corp, China Huadian Group, China Huaneng Group and Chinalco Ningxia Energy Co asked Ningxia regional authorities to force China's largest miner Shenhua Group Corp to lower its coal price to 260 yuan ($37.79) per ton from 320 per ton.

    The companies submitted the proposal in a document, seen by Reuters, to the Ningxia government on March 17.

    In the proposal, the companies also asked the government to temporarily suspend the region's new wholesale power trading market and increase the volume of coal to the region from Inner Mongolia.

    The move follows a months-long rally in thermal coal prices in China, the world's top consumer of the fuel, amid fresh concerns about tighter supplies and robust demand even as winter draws to an end.

    An official from the Ningxia Economic and Information Committee, which is handling the matter, told Reuters that he met with representatives from the companies on Tuesday.

    He confirmed the authenticity of the proposal, but declined to be named because he is not authorized to speak to media.

    The seven companies and Shenhua were not immediately available for comment.

    "The cost of producing coal-fired electricity has reached 0.27 yuan per kWh, which is higher than our sales price," the seven companies said in the proposal. "Right now we are fully unprofitable."

    Though this seems isolated to the region, the move illustrates the challenges for utilities, who are facing a double whammy of weak electricity prices and soaring raw material costs even as the peak demand season nears an end.

    It also highlights the balancing act that regional authorities must perform between the interests of coal miners and utilities. Coal-fired power accounts for the majority of China's supplies.

    The issue has also fueled concerns about the country's ambition to reform its power market by liberalizing power prices through the trading scheme.

    Power company profitability is a major interest for the central government, which intervened last year to prevent a winter heating crisis when thermal coal prices soared to multi-year highs and forced mining cutbacks tightened supplies.

    The Ningxia official said the local government is hesitant to intervene in the coal market again, chastened by last year's experiences. Earlier this month, the central government said it would not intervene as long as prices are stable, handing oversight to the regional governments.

    "We will consider bringing together the power companies as well as coal producers to negotiate coal prices," the official said.

    "But coal prices are not the only reason that these utilities are not profitable."

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    New Hope coy on buying Wesfarmers' stake in Bengalla

    New Hope Corp wouldn't rule out buying Wesfarmers' stake in the Bengalla coal mine, as it continues to review acquisition opportunities in the coal industry, the Sydney Morning Herald reported , citing the coal producer.

    New Hope and Wesfarmers, the conglomerate with interests ranging from Coles and Bunnings in retailing, through to chemical and fertiliser manufacturing, each hold a 40% stake in the Bengalla mine in the Hunter Valley.
    A year ago, New Hope paid Rio Tinto $865 million for its 40% shareholding in Bengalla, just before the price of coal surged, which has helped to rewrite New Hope's fortunes.
    "The timing of the Bengalla acquisition has been crucial to the result," New Hope's managing director Shane Stephan said when commenting on his group's profit surge in the six months to January, which was released earlier on March 21.
    Wesfarmers is believed to have its coal interests in the market, which include its stake in Bengalla and full ownership of the Curragh mine, producing coking coal and steaming coal.
    Stephan said his company is only interested in acquiring open-cut mines, instead of underground mines.
    New Hope is also seeking approvals to begin development of the New Acland mine in southern Queensland, a $900 million development that could be in production within 18 months after receiving all government approvals. Much of the capital cost of this project would be incurred in the latter stages of its proposed development.
    The surge in the coal price since mid-2016, coupled with the purchase of the stake in the Bengalla mine has pushed the earnings of New Hope sharply higher in the six months to the end of January. In February, it flagged a January half net profit of $50 million – $54 million, with an extraordinary profit of $14 million after tax.
    The outcome was to exceed the top end of the forecast, with a net profit after extraordinary items of $68.4 million, up from $2.7 million a year earlier. Earnings were boosted by a $13.9 million refund on rail charges.
    In March, 2016, the benchmark spot price for Newcastle steaming coal was around $51 a tonne, rising to $70/t by the middle of last year. The price has continued to firm, about $81.75/t to $83/t in recent dealings according to McCloskey/IHS data.
    Stephan said Chinese government policy appeared to be aimed at holding the price of steaming coal stable at around $75/t to $85/t as it seeks to shut down uneconomic domestic mines and lift its reliance on renewable energy sources and nuclear energy.
    In the first half, saleable output hit 7.4 million tonnes, up 45% with tonnes sold rising 47% to 3.95 million tonnes. The outlook is for continued strong earnings, thanks to the elevated coal price, the company said.
    Pointing to the shift towards higher efficiency, lower emissions coal-fired power stations in north Asia, New Hope expressed this will "attract ongoing premiums to alternative lower quality coals in the future", it said, highlighting the outlook for its output from mines in southern Queensland and the Hunter Valley.
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    South Korean utilities fulfill plan to book US thermal coal cargoes

    South Korean power generators are putting into action their stated plan to book more US thermal coal with approximately 1.5 million mt destined to arrive at Korean ports between July and September, said a market source Wednesday.

    All five Korean power utilities have purchased US thermal coal cargoes for Q3 delivery, and the specification of the coal involved is understood to be 4,850 kcal/kg NAR, said one source familiar with the matter.

    The shipments are coming from a port on the western seaboard of Canada, possibly Vancouver which is home to the Westshore coal terminal, said the source.

    One motivation for Korean utilities to take more US thermal coal is relatively high prices of similar calorific value Indonesian thermal coal, which have fluctuated widely since late last year.

    Indonesian 5,000 kcal/kg GAR grade coal was trading at $63/mt FOB Kalimantan on a 90-day basis this week, and peaked at $77/mt in mid-November 2015, according to S&P Global Platts data.

    US thermal coal on a 8,800 Btu/lb GAR basis, which is equivalent to 4,880 kcal/kg NAR was trading Tuesday at $56.16/mt FOB Vancouver, according to Platts prices.

    For the quickest route to Korea, across the Pacific Ocean, current Panamax cargo freight from Vancouver to Japan is $10.70/mt, indicating a delivered Japan price of about $66.90/mt CFR for US 4,850 kcal/kg NAR thermal coal.

    US thermal coal can be blended with other origins, particularly higher grades from Australia and Indonesia, according to the specifications of Korean power plants, sources said.


    Another spur to Korean buying of US 4,850 kcal/kg NAR thermal coal is the pending April 1 increase of Won 6,000 ($5.33/mt) in the Korean government's consumption tax on imported thermal coal, said the market source.

    "US thermal coal below 5,000 kcal/kg NAR will attract the lowest [rate of] consumption tax," said another market source.

    US thermal coal with a calorific value of 4,850 kcal/kg NAR would fit into the lowest tier of the Korean government's consumption tax which applies to imported coal under 5,000 kcal/kg NAR, he said.

    For the lowest band, the consumption tax rate is changing to Won 27,000/mt post-April 1, from Won 21,000/mt, currently.

    Thermal coal ranging from 5,000 to 5,500 kcal/kg NAR attracts a higher rate of consumption tax at Won 30,000/mt from April 1, up from Won 24,000/mt at present.

    And, for the upper band of the consumption tax which applies to imported thermal coal higher than 5,500 kcal/kg NAR the rate is Won 33,000/mt from April, rising from Won 27,000/mt now.

    Sources close to the Korean market flagged in January that a significant quantity of US thermal coal was expected to be delivered to the Northeast Asian country later in the year.

    One cargo of US thermal coal that arrived in Korea in January is understood to have traveled from a US port on the Gulf of Mexico via the Atlantic and Indian Oceans, said another market source in Korea.

    Korean power companies have freight agreements that provide vessels on a long-term basis at fixed prices, providing an incentive to send ships on long voyages to Colombia or the US, sources said.

    Two US coal producers with mines in the vast Powder River Basin covering the US states of Montana and Wyoming are known to have served the Korean market in the past few years, but their shipments have tailed off in recent months.

    One is Signal Peak Energy -- partly owned by commodities trading company Gunvor -- that produces bituminous thermal coal in Montana, and ships exports via Canada's Westshore terminal.

    And the other is Wyoming-headquartered Cloud Peak Energy which produces sub-bituminous coal for customers in the US and Asia, according to the company's website.

    Korea imported 1.05 million mt of US bituminous thermal coal in the 2016 year, according to Platts data.

    For the 2015 year, Korean imports were 670,000 mt for US bituminous thermal coal and 555,000 mt for US sub-bituminous thermal coal, said the data.

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    European stainless steel surcharges resume upward trend in April

    Monthly alloy surcharges on austenitic grades of stainless steel flat-rolled products in Europe are set to rise again in April, first mill announcements indicated Tuesday.

    Surcharge levels slipped for March, halting a four-month trend which had seen them hit multi-year highs.

    Finland's Outokumpu, the Continent's largest producer, set its alloy adjustment factor for type 304 (4301) flat products at Eur1,455/mt ($1,571/mt) for April, up Eur51 from the current month and marking the highest level since March 2012, according to S&P Global Platts records.

    Dollar-denominated nickel prices on the London Metal Exchange flirted with $11,000/mt in late February/early March but have slipped back as the current month has progressed.

    The LME nickel cash settlement price has averaged $10,423/mt for March to date, down 1.9% from $10,620/mt for February.

    Outokumpu's surcharge for molybdenum-bearing type 316 (4401) flat products was set at Eur2,021/mt for April, up Eur95 from March to its highest level since October 2014.

    From a low of $6.40-$6.55/lb, basis Platts assessments, in mid-December, spot molybdenum oxide prices have moved up steadily in recent weeks and are currently at their highest levels since January 2015, nearing $9/lb.

    Meanwhile, Outokumpu's surcharge for nickel-free type 430 flat products is up Eur18 to Eur808/mt for April, marginally below the February figure of Eur810/mt, which was the highest level since Platts records began in January 2007.

    The European benchmark ferrochrome price negotiated between producers and steel mills was settled at 156 cents/lb for second-quarter 2017, down 11 cents, or 6.7%, from the previous quarter but up 90% from 82 cents lb in Q2 2016.

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    Jiangsu to eliminate 6.5-8 Mtpa crude steel capacity in 2017

    Eastern China's Jiangsu province planned to shed 6.5-8 million tonnes per annum (Mtpa) of crude steel capacity in 2017, said Jiangsu Metallurgy Association on its website.

    Jiangsu aimed to eliminate 17.5 Mtpa surplus steel capacity during the 13th Five-Year Plan period (2016-2020). It closed 3.9 Mtpa of crude steel capacity and 5.8 Mtpa of steel capacity in 2016, overfulfilling the original goal by 48%.

    The province is expected to cut 11.7 Mtpa crude steel capacity within two years.

    Jiangsu will close "zombie" steel mills and make full use of resources to enhance industrial competition in the five-year period ending 2020.
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