Mark Latham Commodity Equity Intelligence Service

Monday 9th May 2016
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    A Panicked China Orders Media To Stick To "Positive Reporting" Or Risk "The Stability Of The Country"

    A Panicked China Orders Media To Stick To "Positive Reporting" Or Risk "The Stability Of The Country"

    If China's recent record surge in loan creation, and its revision of a key PBOC capital outflow "data" wasn't sufficient proof that the world's second largest economy is on the verge of panic, then the explicit propaganda directive issued to the the local press by China's president Xi Jinping late on Friday should certainly seal it.

    As SCMP reports, according to a commentary published by a leading mouthpiece online "having public opinions that are different from the official ones will shake the foundation of the rule of the Communist party and the country."

    Xiakedao, a social media account operated by the overseas edition of People’s Daily, said in a commentary on Friday’s high-profile tour by President Xi Jinping to the three largest state media outlets – People’s Daily, Xinhua and Central China Television — "that the party was alarmed by how different public opinion is from official media."

    And in the starkest warning to the uncontrolled media to toe the party lines, the Friday commentary warned that “if the gap lasts, it will erode the legitimacy of the rule, and destabilise the root of the party and the state,” it said.
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    China Iron ore coal and copper imports slip in April from March

    Improving margins for steel production starting this quarter pushed iron ore imports higher, with deliveries rising 4.6 percent from a year ago to 83.92 million tonnes in April, a monthly record, customs said. However, that was down 2.2 percent from March imports.

    Iron ore shipments from Port Hedland in Australia, China's biggest supplier, slipped 0.9 percent on the month to 32.6 million tonnes in April, official data showed.

    Chinese coal imports slipped last month, dropping 5.8 percent from a year ago to 18.8 million tonnes. Expectations had been for an increase as power plants sought to replenish stockpiles with cheaper foreign supplies ahead of the summer peak power consumption period.

    The total volume over the first four months reached 67.25 million tonnes, down 2.5 percent compared to the same period of 2015. Imports over the whole of 2015 dropped 30 percent.

    Copper ore and concentrates imports stood at 1.26 million tonnes, down 8 percent on the month, though they were up 21 percent from a year ago, the customs data showed.
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    US Large Truck Orders Continue To Plunge, Down 39% In April

    Last month, trucking fleets ordered just 13,500 Class 8 trucks, the big rigs used on long-haul routes, down 16% from March and 39% from a year earlier. It was the fewest net orders in any April since 2009, FTR said.

    DAT Solutions, an Oregon-based transportation data firm, reported that loads available for dry vans, the most common type of tractor-trailers used for shipping consumer goods, fell 28% in April while capacity on the market was up 1.7% on a year-over-year basis.

    Eaton Corp. , the sales leader in heavy-duty truck transmissions, predicted that organic sales from its vehicles unit will fall 10%-12%, after earlier predicting that sales would drop 7% to 9%. The company lowered its outlook for the business after concluding there are at least 20,000 heavy-duty trucks built last year that are still sitting on dealer lots.

    Engine maker Cummins Inc. said on Tuesday it doesn’t expect any improvement in the truck market later in the year. It now expects heavy-duty truck production in North America to be at 210,000 vehicles this year, down 5% from its earlier view and down 28% from 2015’s actual volume. Cummins’ first-quarter sales of diesel engines to the heavy-duty truck market dropped 17% from a year earlier to $631 million.
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    Japan's Itochu says willing to buy natural resource assets

    Japanese trading house Itochu Corp is willing to buy natural resource assets, taking advantage of a plunge in commodity prices, its president said on Friday. "We are standing by to make purchases of resource assets," Itochu President and CEO Masahiro Okafuji told a news conference. 

    "We are determined to buy assets with China's CITIC if prices are low," he said, without mentioning the size of possible investments or targets. Itochu has been focusing on iron-ore and coal, but the company may invest in other metals or energy assets, he said. 

    Okafuji also said, however, that he did not expect a sharp recovery in resource prices for the next decade. "We need to be selective," he said. Itochu invested in CITIC, part of China's oldest and biggest conglomerate, last year. The investment was Itochu's biggest ever.
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    Australia's Orica slashes sales volume forecast, dividend

    Orica Ltd, the world's largest maker of mine explosives, slashed its forecast sales volumes and halved its dividend to weather a prolonged mining slump after reporting a 10-percent fall in half-year profit.

    After predicting a year ago that 2015 would mark the trough for the mining downturn and earnings would rise modestly this year, the Australian company said on Monday that conditions had worsened sharply in January and February.

    "Market conditions deteriorated more than we anticipated during the half, marked by increased volatility. It is expected that the market will remain challenged for the foreseeable future," Chief Executive Alberto Calderon said in a statement.

    Orica's shares fell as much as 7 percent after the results were released in a broader market down just 0.1 percent.

    Underlying profit for the six months to March dropped to A$190 million ($140 million) from A$211 million a year earlier, in line with a forecast of A$191 million from Macquarie.

    The change in Orica's dividend policy was expected and the magnitude of the dividend cut just reflected that shift, said CLSA analyst Scott Hudson.

    "Of more concern is the downgrade to the volume guidance," he said.

    Ammonium nitrate sales volumes fell 8 percent to 1.71 million tonnes in the first half. The company said it now expects full-year volumes of 3.45 million tonnes, down from an earlier forecast of 3.8 million and down from last year.

    The company's weaker forecast for this year was well below UBS estimates.

    "(The) outlook for challenged markets for the foreseeable future is also likely to result in consensus downgrades beyond current year, in our view," UBS said in a note.

    Orica sliced its interim dividend to 20.5 cents a share from 40 cents a year ago, and said it would pay out 40 to 70 percent of underlying earnings each year, looking to protect its investment-grade credit rating.

    It also slashed planned capital spending for this year to A$320 million from an earlier forecast of around A$450 million.

    Standard & Poor's said the more flexible dividend policy and cut in capital spending should help preserve Orica's 'BBB' rating.
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    Oil and Gas

    Al-Falih steps forward as Saudi Energy minister.

    Saudi Arabia’s health minister, Khalid Al-Falih, a favorite to take over the oil ministry from his mentor Ali Al-Naimi, was not panicking.
    Al-Falih told an audience of oil executives, bankers and policymakers at the World Economic Forum in Davos that the world’s top oil exporter might benefit from oil below $30 per barrel.
    It could help to speed up reform and restructure the economy, and move Saudi Arabia to a smaller and more effective government and unleash its private sector, he said.
    For decades Saudi Arabia had targeted certain oil price levels.
    Things were different this time. For the first time in decades, output cuts were not on the agenda to fix the growing global glut that Saudi Arabia helped create by ramping up supply to drive higher-cost producers such as US shale firms out of the market.
    Also for the first time in decades, a royal rather than a non-royal — Deputy Crown Price Mohammed bin Salman — had been appointed a few month earlier to oversee Saudi oil policies and drive the massive change.
    Do you not think the deputy crown prince is doing it all a bit too fast for the Saudi society, Al-Falih was asked.
    “The Royal Highness is very ambitious where he wants Saudi Arabia to be sooner rather later. I can assure you that everybody who works around him is very excited by his vision and energized by his energy,” Al-Falih told the audience.
    “Some people were concerned that we were too slow in the past.. As a former runner, I can tell you that it helps to go through sprints at times to develop your muscular strengths. We are accelerating reform.”
    The writing was on the wall, said the executives leaving the Davos conference. Al-Falih would soon become oil minister reporting to the deputy crown prince.
    “It is an end of an era when Al-Naimi fought hard and struggled to create a price environment which would have been good for both consumers and producers,” said Gary Ross, a veteran OPEC watcher and founder of New York-based consultancy PIRA.
    “We are moving to a new era where OPEC will no longer be managing the market while supply and demand will determine the price. The new Saudi oil leadership believes the market will dictate the price and that means higher volatility. We will see higher highs and lower lows,” Ross said.


    Al-Naimi, born in 1935, had backed several OPEC oil output cuts and increases since taking on the oil minister job in 1995.
    The former Saudi Aramco chairman saw oil priced as low as $9 per barrel during the Asian financial crisis at the end of 1990s, as high as $147 in 2008 and back to $36 several months later after the collapse of Lehman Brothers.
    Rumors about Al-Naimi being finally allowed to retire have been hitting the market periodically in the past four years.
    But even though the Riyadh-born and US-educated Al-Falih has long been tipped to replace Al-Naimi, his fortunes and career kept zigzagging from Saudi Aramco’s chairman to health minister until finally securing the job on Saturday — combining energy, industry and mineral resources in a new super ministry.
    Al-Falih takes the job in a much better market environment compared to January — oil prices have indeed recovered from their January lows of $27 per barrel to trade at around $45 last week on the prospect that the market has began to rebalance thanks to lower US output.
    Born in 1960, Al-Falih joined Aramco in 1979, and went to study engineering at Texas A&M University in 1982 on an Aramco sponsorship program.
    Al-Falih probably knows every oil CEO in the world as he was the key negotiator behind a Saudi initiative to jointly develop gas resources with oil majors in early 2000.

    Over the past year, when Al-Naimi was carefully choosing his words or not commenting at all, Al-Falih has become more vocal about his views that the oil market needs to rebalance through low prices and that the Saudi Arabia has the resources to wait.
    “That doesn’t really point to somebody who would invest a lot of time and energy in trying to reconcile different OPEC members,” said Richard Mallinson from Energy Aspects.
    Al-Falih says job creation and economic reforms are top worries for the Saudi government these days, not an obsession with oil price levels.
    “Those transitions sometimes takes years, sometimes decades. The current low oil prices will give us an impetus to accelerate this,” Al-Falih said in Davos in January.
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    Nigerian Oil Output Plunges to 20-Year Low as Attacks Escalate

    Nigeria is suffering a worsening bout of oil disruption that has pushed production to the lowest in 20 years, as attacks against facilities in the energy-rich but impoverished nation increase in number and audacity.

    Chevron Corp. said on Friday it had shut down about 90,000 barrels a day of output following an attack on an offshore platform that serves as a gathering point for production from several fields. Even before that strike on Wednesday night, Nigerian oil production had fallen below 1.7 million barrels a day for the first time since 1994, according to data compiled by Bloomberg.

    “This is some very, very sophisticated brazen attack,” said Dolapo Oni, the Lagos-based head of energy research at Ecobank Transnational Inc. “It is a resurgence of militancy. These guys don’t seem to be after money. They just want to frustrate the government.”

    The fresh round of attacks come after President Muhammadu Buhari vowed to stamp out corruption and oil theft. They echo a campaign waged by the self-proclaimed Movement for the Emancipation of the Niger Delta between 2006 and 2009, which cost the Nigerian government billions of dollars of lost oil revenue. That violence abated after thousands of fighters accepted an amnesty from late-President Umaru Musa Yar’Adua and disarmed, in exchange for monthly payments from the government in some cases.

    Facility Breached

    Chevron said it shut down its Okan offshore facility after it was “breached by unknown persons” and had sent “resources to respond to a resulting spill.” The facility, which feeds crude and gas into Escravos, one of the country’s largest export facilities, is jointly owned by the U.S. company and state-owned Nigeria National Petroleum Corp.

    A group calling itself the Niger Delta Avengers said on its website that it was responsible for the attack. The authenticity of the claim could not be verified by Bloomberg News.

    The Nigerian government is struggling to contain the economic damage of the slump in energy prices and separate attacks in the north of the country by the Boko Haram Islamist insurgency. The country’s foreign reserves have fallen to less than $27 billion, the lowest since 2005. The International Monetary Fund expects the economy to expand 2.3 percent this year, the weakest growth since 1999.

    "Lower oil prices have meant that the poorer oil-producing countries don’t have enough money to pay for social services,” said Ehsan Ul-Haq, senior oil analyst at KBC Process Technology Ltd. “Protests are increasing as a result."

    Force Majeure

    In February, Royal Dutch Shell Plc declared force majeure -- a legal clause that allows it to stop shipments without breaching contracts -- after an attack on a pipeline feeding the Forcados terminal, which typically exports about 200,000 barrels a day.

    The International Energy Agency estimated last month that Nigeria could lose an estimated $1 billion in revenue by May, when it expects repairs on Forcados to be completed. The terminal may not restart until June, Nigerian Oil Minister Emmanuel Kachikwu said April 20.
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    China April oil imports rise 7.6 pct as teapot demand steady

    China's imports of crude oil rose 7.6 percent in April from a year ago, customs data showed on Sunday, lifted by continued strong demand from domestic private refiners.

    The high April inflows were a result of the strong appetite of small domestic independent "teapot" refineries. Beijing has granted licenses to more than 20 of them since last year to import crude for the first time.

    China imported 32.58 million tonnes of crude oil in April, data from the General Administration of Customs showed, missing a Reuters forecast.

    Thomson Reuters Oil Research and Forecasts had predicted that the total crude arrivals for April into China would reach 33.14 million tonnes, up from a March reading of 32.61 million tonnes.

    On a daily basis, April imports were 3.1 percent higher from March to 7.92 million barrels per day (bpd).

    On a net basis, after factoring in exports of 440,000 tonnes, China's April crude imports were 7.26 million bpd in April.

    Armed with quotas that could make up a fifth of total Chinese crude imports, domestic independent refineries are among the bright spots in the global crude oil market as they ramped up throughput, at the same time adding to China's swelling fuel exports.

    In the first four months of the year, China imported 123.7 million tonnes of crude oil, or 7.46 million bpd, up 11.8 percent over the same period a year earlier.

    China also imported 2.51 million tonnes of oil products in April and exported 3.68 million tonnes, leaving net oil product exports at 1.17 million tonnes, customs data showed.
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    Africa Offshore Drilling at Six-Year Low as Explorers Curb Quest

    U.S. explorers aren’t the only ones idling rigs as sub-$50 crude forces oil and gas drillers in Africa to slow their search for new reserves.

    The number of oil and gas rigs offshore Africa remained at 20 in April, the lowest since 2009, according to data published on Friday by Baker Hughes Inc. Onshore rigs fell to 70 from 71 in March, leaving the total for the continent at 90, near the lowest in four years.

    Despite a rebound in crude over the past three months from a 12-year low, prices below $50 a barrel mean only a third of potential projects in Africa have investment appeal, according to Wood MacKenzie Ltd. Tullow Oil Plc, the London-based explorer focused on the continent, cut its projection for 2016 capital expenditure by $100 million to $1 billion on April 28.

    "The exploration activity has largely dried up -- I don’t see that returning anytime soon," Anish Kapadia, a London-based analyst at Tudor Pickering Holt & Co., said in a phone interview. "The drilling you’ve got is legacy drilling from oil projects going ahead, so at some point that’s going to slow down further unless you’ve got new projects being sanctioned."

    The number of rigs in Angola and Nigeria, Africa’s biggest producers, has dropped to about half of the count when oil began its steep decline two years ago. Only Algeria among the continent’s producers has shown a significant uptick in the activity, with an increase to 55 rigs.

    Eni SpA, one of the most prolific explorers in Africa, could provide a buffer against further declines on the continent. The Rome-based company will concentrate exploration through 2019 in North and West Africa and the Far East, Chief Executive Officer Claudio Descalzi, said in a March 18 strategy presentation.

    The oil price is still the ultimate determinant of exploration, according to Chris Bredenhann, a partner at PricewaterhouseCoopers in Cape Town. Brent crude traded close to $45 a barrel on Friday, with the price rallying 60 percent from a Jan. 20 low.

    "The consensus seems to be that there will be a slowdown in production, and we have already seen the U.S. coming off its 2015 highs," he said in an e-mailed response to questions. "The low oil price has put a dampener on the exploration activity in Africa as well, but the recent upward trend in the oil price may potentially change that."
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    Mol Net Income Surges as Downstream Unit Books Record Profit

    Mol Nyrt. more than doubled its net income in the first quarter as a record result from refining and petrochemical operations outweighed a decline from exploration and production.

    Hungary’s largest oil company booked a net income of 77.2 billion forint ($281 million) in the three months ending March, 165 percent higher than in the same period a year earlier. Earnings before interest, tax, depreciation and amortization on a clean-CCS basis, the most closely watched gauge that strips out the impact of volatile oil prices on reserve valuation, fell 8 percent to 144 billion forint, above the 137 billion-forint median estimate of eight economists in a Bloomberg survey.

    A record downstream profit for the second quarter running and widening petrochemical margins showed Mol’s ability to cushion the blow from Brent oil falling to the lowest in more than a decade in January. The company has said it is scaling down investments into production capacity to focus on assets that are still profitable in the lower oil price environment. The group remains on track to keep clean-CCS Ebitda above $2 billion this year, Chief Executive Officer Zsolt Hernadi said.

    "The company is one step closer to achieving its target for this year," said David Sandor, the head of research at KBC Groep NV’s Hungarian brokerage unit. "The earnings results are better than market expectations and we can also be satisfied with the underlying operations at the company."

    Ebitda for the company’s downstream operations rose 22 percent from a year earlier to 93 billion forint, when adjusted for stock revaluations, while upstream slumped 30 percent to 42 billion forint, according to results published on the Budapest Stock Exchange website.
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    GE Sees Oil Opportunities as Boston Move Nears

    General Electric Co. is hunting for acquisitions in the beleaguered oil and gas industry after missing an opportunity to buy assets when the merger between Halliburton Co. and Baker Hughes Inc. was scuttled.

    GE had been in talks for businesses the two companies were preparing to sell if the combination went through, Chief Financial Officer Jeff Bornstein said in a Bloomberg Radio interview with Tom Moroney and Anne Mostue. After resistance from antitrust authorities forced Halliburton and Baker Hughes to walk away, GE is looking for other deals “at valuations that make sense,” Bornstein said.

    “Virtually anything you do, you’re going to be very, very happy with” in three to five years, Bornstein said on the “Baystate Business Hour” program. “So to the extent that there are opportunities to fill out our portfolio, fill in product and service gaps, I think there’s an opportunity to create real value.”

    Any deal would advance a dramatic transformation GE is undergoing as it prepares to relocate to Boston later this year. The company has agreed to sell its home-appliances business and more than $160 billion in finance assets in just over a year to renew focus on industries such as energy and aviation. GE aims to be a more streamlined and technologically advanced industrial manufacturer by the time it moves to temporary offices in August.

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    Rig count falls by four as slowdown continues

    Oil producers set aside four more rigs this week, as low prices continued to drag on drilling activity.

    The number of active oil rigs fell by four to a total of 328, according to oil field service company Baker Hughes. Rigs seeking natural gas fell by one to 86. The U.S. combined rig count fell by five to 415, including one miscellaneous rig which was unchanged from last week.

    Oil drillers have now idled roughly 80 percent of the rigs that were once active at the Oct. 10 peak in 2014. Since this same week last year, the number of oil rigs has fallen by half. The last time the oil rig count was this low was in 1995.

    The combined oil and gas rig count is at its lowest level in recent records kept by Baker Hughes.

    U.S. oil prices, which drive oilfield activity, rose by about 1 percent Friday to roughly $44.75 per barrel in afternoon trading. Price have been buoyed in April and early May by reports that U.S. oil production has been on the decline, in part due to the falling rig count.
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    Occidental's New CEO Says Company's Transformation Shifts Gears

    After three years of spin-offs and asset sales from Brazil to California, Occidental Petroleum Corp. is ready to start growing again, said Chief Executive Officer Vicki Hollub.

    Once the world’s largest independent oil explorer finishes reducing its footprint in Bahrain and Libya, Occidental will have achieved all the goals it set out to do when Hollub’s predecessor and mentor, Stephen Chazen, began dismantling the company’s far-flung empire to focus on Texas, Colombia and a handful of Persian Gulf countries.

    “We’re almost done with all the things we wanted to do with our portfolio optimization,” she said during a conference call with analysts on Thursday, six days after taking on her new role.

    Hollub became the first female CEO of a major U.S. oil explorer on April 29 when she succeeded Chazen upon his retirement from management. She’s taking control of the company at a time when oil prices are barely off 12-year lows and investment in new projects can be a tough sell.

    New Goals

    Going forward, the goal will be to boost oil production in Occidental’s vast West Texas and New Mexico holdings and harvest more gas from rich deposits in places such as Abu Dhabi, she said. The company controls 1.4 billion barrels of crude in Texas that will take 22 years to flush out using high-pressure carbon dioxide; the cash generated from that will be funneled into higher-margin projects such as horizontal wells in nearby shale formations, Hollub said during the call.

    The conference call capped a day in which Occidental boosted its full-year 2016 production target for so-called "core" operating areas by as much as 6 percent even as capital spending declined during the first three months of the year. The "core" excludes fields Occidental sold during its slimming-down phase, such as in North Dakota, or places like Libya, where civil unrest has disrupted the oil industry.

    Absent a $285 million asset sale and a $550 million payment from Ecuador stemming from a 2006 oilfield seizure, Occidental’s first-quarter loss was 56 cents, wider that the average 41-cent loss estimated by 25 analysts in a Bloomberg survey. That compared with a loss of $218 million, or 28 cents, a year earlier. Shares climbed 3 percent to settle at $76.14 in New York Thursday.

    The company said on the call it expects to receive another $300 million installment in coming months from Ecuador on the $1.1 billion the Latin American nation is ultimately required to pay under a ruling by a World Bank panel.

    Spending Cuts

    Occidental, the world’s biggest independent oil explorer by market value, has been casting off lower-profit oil and gas fields and curbing spending to conserve cash and maintain dividend payouts to shareholders. Hollub said in an interview last week that she plans to expand the company’s presence in the Permian Basin of Texas and New Mexico, one of Occidental’s largest cash-generating regions.

    While other oil companies have been burning through cash reserves to cover expenses amid the market downturn, Occidental had $3.2 billion of cash on hand at the end of the first quarter. The company also has foregone the sorts of job cuts most rivals have resorted to; Hollub said on the call that layoffs have been avoided so Occidental can retain talent.
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    EOG Resources changing strategy to get more crude out of stubborn shale

    EOG Resources says it can get “triple-digit” returns at $60 a barrel oil, a sign the company has whittled down drilling costs as it moves rigs to its most profitable spots.

    Outlining a new strategy, the Houston oil company said Friday it has pointed its drill bits at its top-shelf locations in South Texas’ Eagle Ford Shale and elsewhere that get a minimum 30 percent return at $40 oil.

    “Our shift to premium is permanent and not simply a temporary high-grading process in a low-commodity price environment,” EOG Resources Chief Executive Bill Thomas told investors. “If history is any indication, we will continue to push the oil price needed for triple-digit returns even lower.”

    It’s a sharp departure from the wild and woolly wildcatter business model that was once common among U.S. shale drillers in the days of $100 a barrel oil.

    The company’s plan is among the industry’s biggest moves to address the widespread problem of low oil-production rates in the once-booming shale plays at the center of the nation’s energy renaissance. Thomas said it’s an effort that “extends our lead as the low-cost horizontal oil producer.”

    One of the reasons the downturn has been so painful for U.S. oil companies is that squeezing oil out of shale rock is expensive, and though wells across Texas and North Dakota were gushing before the downturn, the shale business has never proven itself to be profitable.

    Oil companies took out hundreds of billions in debt to drill thousands of expensive wells that gave up only 4 percent to 8 percent of the buried crude and that lost 70 percent of their production in the first year. Scores of U.S. oil companies have gone bankrupt.

    EOG Resources has 220 drilled wells that it hasn’t brought into production but could activate once management believes the oil bust is turning into a recovery. But Thomas said the U.S. oil industry will take at least a year and $60 to $65 a barrel oil prices to restart its growth cycle after the punishing downturn.

    Still, he said, his company can start pumping money back into its “premium” assets with oil at $15 to $20 a barrel lower than the average driller. EOG Resources could boost production by completing 40 percent of its backlog of drilled-but-uncompleted wells without renting any more oil field equipment.

    “Our shift to premium drilling this year is a game changer,” he said. “We expect well productivity to improve more than 50 percent in 2016.”

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    Oil sands fared well through Canada fire, but restart a challenge

    The mass evacuation of residents from the wildfire-devastated Canadian oil town of Fort McMurray is likely to significantly delay the restart of production, even though energy facilities themselves have escaped major damage from the flames.

    The huge wildfire that entered its second week on Sunday has destroyed entire neighborhoods in the town, forcing nearly 100,000 people to flee.

    Even though Canadian officials on Sunday showed some optimism that they were beginning to get on top of the wildfire, oil prices jumped in early Asian trading on concerns over the loss of production capacity caused by the fire -- equivalent to around half of the country's oil sands production.

    Energy facilities were barely touched through the first week of Alberta's devastating wildfire, protected by fire breaks, other defenses and provincial firefighting crews.

    But thousands of evacuees -- many of whom are essential oil industry workers -- are camped out in nearby towns and stand little chance of returning soon, even if their homes are intact. The city's gas has been turned off, its power grid is damaged, and the water is undrinkable.

    "It's the human element," said Mark Routt, chief economist for the Americas at KBC Advanced Technologies in Houston.

    "When you have an operator and his family needs to be evacuated, the plant may be in good shape, but what is the operator going to do? Humans have to operate the plant, too."

    Routt estimated that production will be shut for two to three weeks, minimum. And if fires do pass through major oil operations, he said, a restart could take months:

    "Many of these plants have a fireproof control room - the problem will be equipment on the units," he said, referring to production facilities.

    Producers whose facilities are untouched may also find that their contractors fared less well.

    "If some major service operations (in Fort McMurray) are damaged, the oil sands will still get back online, but it may be at a higher cost than before, maybe having to secure service companies from much further away," said Jackie Forrest, analyst at ARC Financial.

    A prolonged shutdown will heighten concerns about supplies after three major oil firms warned on Friday they won't be able to deliver on some contracts for Canadian crude. Fires around the oil sands last summer knocked out 10 percent of capacity but the two firms affected were back up and running within 2 weeks.

    Only one oil sands production site, CNOOC unit Nexen's Long Lake facility, has sustained minor damage, and provincial fire officials said on Sunday they expected to hold flames back from Suncor Energy Inc's main oil sands plant north of Fort McMurray.

    Alberta's vast oil sands are the world's third-largest crude reserves. The fire has shut down about 1 million barrels per day or 40 percent of total oil sands production.

    The fire that some have started calling "the beast" was not the first to hit the oil sands. But the huge scale of the inferno means there is no real precedent for the challenge.
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    Cheniere post $320 million Q1 loss

    Cheniere Energy posted a first-quarter net loss of US$320.8 million compared to a $267.7 net loss during the corresponding period in 2015.

    The Houston-based company reported a $69 million revenue for the quarter, a statement issued on Thursday reveals.

    Cheniere’s Sabine Pass liquefaction project has started shipping cargoes in February and to date seven commissioning cargoes have been loaded and exported.

    “Commissioning activities at Train 2 are underway and our remaining Trains under construction continue ahead of their respective contractual schedules and on budget,” said Neal Shear, Cheniere’s Interim President and CEO.

    The company noted in its report that the construction of Sabine Pass LNG Trains three and four reached approximately 83.8 percent completion, which is ahead of schedule. Train five is approximately 28.8 percent complete.

    Cheniere also informed that the three trains currently under construction at the Corpus Christi LNG project are at various stages of completion.

    Trains one and two have reached 32.5 percent completion while the third liquefaction train is under development and the construction is expected to commence once the LNG sale and purchase agreements are in place and adequate financing is obtained.
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    Alternative Energy

    French oil firm Total to buy battery maker Saft

    French oil company Total said on Monday it plans to make a bid for battery manufacturer Saft, extending its push into new energy technologies.

    Following a signature of an agreement between the two companies, it has filed a friendly tender offer on all of the issued and outstanding shares of Saft with French market regulator AMF, Total said in a statement.

    Total will offer 36.5 euros per Saft share, ex-dividend of 0.85 per share, valuing Saft's equity at 950 million euros.

    Total said the offer price represents a 38.3 percent premium above Saft's closing share price of 26.4 euros on May 6.

    Last month Total announced the creation of a gas, renewables and power division to help drive its ambition to become a top renewables and electricity trading player within 20 years.
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    Precious Metals

    Islamic finance’s entry into gold market could send price soaring

    On the outlook for new investment opportunities, the rapidly growing Islamic finance industry has set sight on the gold market as initiatives are underway to establish a new standard to make the metal tradable under Shariah finance rules, eliminating disputes among scholars whether gold is to be treated as a currency or as a commodity.

    So far, Islamic investors have been reluctant to invest in gold because to do so, they would need the metal in physical form as an underlying asset, which is rarely the case in conventional gold trade. Because of that, broadly traded gold futures do not qualify as a Shariah-compliant investment. Other conventional gold-based financial offerings in the form of derivatives are also widely viewed as unacceptable for Islamic scholars.

    On the other hand, investment that involves a forward purchase agreement at an agreed price against future delivery (the principle of salam) would, but there is still physical gold in the play.

    London-headquartered World Gold Council (WGC), together with Kuala Lumpur-based Amanie Advisors, an independent advisory firm on Shariah investments and the Accounting and Auditing Organisation for Islamic Financial Institutions in Bahrain, now have been developing a “Shariah Standard on Gold” which aims at “providing guidance from the Shariah perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,” as WGC head Natalie Dempster puts it.

    The standard also aims to increase transparency and harmonisation of the use of gold investments and reduce unclear specifications on what’s haram and what’s halal in trading the metal.

    A respective seminar was held last December in Kuala Lumpur, and a global industry roll-out of the standard is planned later this year with regulations that could also apply to silver and other precious metals. It depends, though, on the full approval of all scholars participating in the WGC-driven Islamic gold standard initiative and the outcome of related hearings in the Middle East and large Islamic finance markets such as Malaysia and Indonesia.

    What the new Islamic gold standard will exactly define is not entirely clear yet. There are still different opinions among scholars about the classification of gold either as a commodity or a currency, referring to its previous use as gold coins.
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    Base Metals

    MMG Said Among Firms Eyeing $2 Billion Freeport Mine Stake

    MMG Ltd., the publicly traded unit of China’s biggest state-owned metals trader, is among companies in talks to buy a majority stake in Freeport-McMoRan Inc.’s copper mine in the Democratic Republic of Congo, according to people with knowledge of the matter.

    Freeport, the biggest publicly traded copper miner, is considering a sale of its 56 percent stake in the Tenke Fungurume asset, which may fetch more than $2 billion, the people said, asking not to be identified because talks are private. The mine could also attract interest from other parties including Chinese companies, such as Citic Metal Co., the people said. The talks are ongoing, and there’s no certainty an agreement will be reached, they said.

    Freeport “continues to advance discussions for the sale of certain interests in its mining and oil and gas assets to accelerate its debt reduction initiatives,” the company said in an e-mailed statement, declining to comment further.

    A spokeswoman for MMG declined to comment. Representatives for Citic didn’t immediately respond to an e-mailed request for comment outside of regular business hours.

    Freeport is required to alert its partner in the mine, Lundin Mining Corp., once a formal bid is on the table, which hasn’t happened so far, the Canadian company’s Chief Executive Officer Paul Conibear said in an interview. Lundin also has the right to match any offer for a stake in Tenke, though Conibear said the company is happy with its holding.

    Tenke is one of Freeport’s five so-called core mines, which also include Cerro Verde and Morenci, as well as El Abra in Chile and Grasberg in Indonesia. Canada’s Lundin owns 24 percent of Tenke, while Gecamines, the Democratic Republic of Congo’s state-owned copper producer, holds 20 percent, according to Freeport’swebsite.
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    Steel, Iron Ore and Coal

    China major listed coal firms see performance rebound in Q1

    China major listed coal firms see performance rebound in Q1

    China’s major 28 listed coal firms saw their performance rebound in the first quarter of 2016, thanks to the government’s overcapacity cut amid the supply-side structural reform.

    The average net profit ratio of these firms was -9.8%, compared with -2% from the year before but rebounded obviously from -36.1% in Q4 2015.

    However, the average net profit of these firms was 159 million yuan, falling 27.2% from the same period last year.

    In the first quarter, 12 or 42.9% of these firms posted losses, data showed.

    Ranking the top of the list based on profit, China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, realized net profit of 4.61 billion yuan ($711.8 million) in the first quarter, falling 21.4% from the year prior, said the company in its quarterly report.

    The operating revenue declined 4.6% year on year to 39.4 billion yuan during the same period.

    Shenhua said it will continue to maximum the sales of coal traded at ports, and expand the sales of outsourced and exported coal properly in 2016. Data showed that sales of coal shipped via northern ports stood at 54.4 million tonnes or 58.8% of its total sales in the first quarter.

    Besides, data showed that 16 out of these firms cut coal output in the first quarter, posting an average decline of 11.8%.

    China’s official manufacturing Purchasing Managers’ Index (PMI) was up in March, coming in at 50.2 compared with the lowest reading 49.0 in February, after consecutive eight months of decline, showed the data from the National Bureau of Statistics.

    It returned to growth for the first time since July last year, indicating the improved manufacturing activities in China.

    Shenhua will stop operating and constructing 12 mines with combined capacity at 30 Mtpa, starting from 2016. During 2016-2020, Datong Coal Mine Group will also close 12 mines with capacity at 12.55 Mtpa, with 5 mines (capacity at 6.6 Mtpa) to be shut in 2016.

    China’s continuous de-capacity campaign will prop up coal market and further benefit for the listed companies.
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    Worst week for iron ore price since October 2011

    On Friday the Northern China benchmark iron ore price fell 3% to $57.70 per dry metric tonne (62% Fe CFR Tianjin port) according to data supplied by The Steel Index, capping a brutal week of trading.

    Losses since Monday came to 11.8%, the worst weekly performance since October 2011, when prices dropped from$142 per tonne to $116 a tonne over five days of trading. Year to date the iron ore price is averaging $51.36 a tonne. Despite the bad start to May, iron ore has managed to hold onto 34% gains in 2016 and a 55% recovery from nine-year lows reached mid-December.

    Expectations are for a pullback in Chinese imports due to higher prices during the month and the inventory build-up

    Trading on the Dalian Commodities Exchange home to the world's most active iron ore price futures have quietened down from torrid levels in March and April when one billion tonnes in a single day was recorded. On Friday the most active contract settled at 412.50 yuan or $63.35 for a 9.5% decline on the week.

    While coking coal futures traded on the Dalian exchange also suffered double digit declines assessed prices have held up better  and was pegged at $97.20 a tonne for premium Australian exports on Friday after coming close to the $100 mark at the end of April. Metallurgical coal has gained nearly 20% year to date and is well up on historically low $73.40 a tonne in December on a spot price basis.
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    Vale sets May term premium at $1/dmt for Brazilian Blend iron ore fines

    Brazilian iron ore miner Vale has raised its term premium for Brazilian blended fines, or BRBF, cargoes to $1/dry mt to an IODEX-based matrix for May delivery cargoes at port stocks, term buyers said Friday.

    BRBF is sold at several ports in China. The term differential was set at parity for April when Vale started selling at quayside bonded house last month, according to market sources.

    Sources also said that minimum lifting quantity is 50,000 mt per lot for term buyers.

    Vale's Singapore office could not be reached for comment on the matter. BRBF cargoes typically contains 62.5% iron, 1.8% alumina, 5.2% silica, 0.07% phosphorus, 0.3% manganese, 2.7% loss on ignition and 7.5% moisture.

    As seaborne cargoes for mainstream fines are trading at premiums of around $2/dmt to IODEX in the spot market for June delivery, some sources felt that the term premium of $1/dmt is acceptable at the moment.

    "Supported by decent production margin, cargoes with iron content higher than 61% Fe are very popular among end-users as steel enterprises are trying to increase pig iron production rate. [The] $1/dmt premium is still acceptable so far," one of the term buyers said.

    Due to its low alumina and phosphorous levels, Brazilian fines is "irreplaceable" to some blast furnaces. In this regard, some buyers said that they have to accept $1/dmt premium.

    "You cannot replace all the feedstocks by Australian fines, but just try to reduce usage of Brazilian fines in the future," a large-size steelmaker said.

    The increase in the term premium for BRBF came, after the miner set a premium of $2/dmt to an IODEX-based matrix for April-delivery Southern System fines for term contract buyers.

    But looking ahead, some sources are concerned over their term contracts with Vale.

    "As a term buyer, we have to abide by the premium set by the miner. But when steel production margin falls to negative in the future, there is no need to use medium or high grade fines as it is not cost-effective compared to the other feedstocks," said a procurement source from Shandong.

    Another term buyer added that "we can carry out current term contract at the moment, it is impossible to increase volume anymore."
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    Glencore becomes top shareholder in Australia's Atlas Iron via debt-to-equity deal

    Glencore has emerged as the top shareholder of embattled Australian iron ore miner Atlas Iron after a debt-to-equity transaction, giving the global mining and trading company its only direct exposure to production of the steelmaking ingredient. 

    Glencore has acted as an intermediary in buying and selling iron ore for third parties since 2008 but has mostly avoided, either by design or circumstances, the production side of the sector, which is dominated by Vale, Rio Tinto and BHP Billiton. 

    Glencore subsidiary Maru Sky earlier this year acquired a portion of Atlas debt as the small Australian miner negotiated with creditors to fend off collapse brought on by weak iron ore prices. 

    Atlas told the Australian Securities Exchange that Maru Sky had converted its debt ownership for 8.47% in equity, making it the single biggest shareholder. The next biggest is Commonwealth Bank of Australia with 6.36%. 

    Glencore in a statement emailed to Reuters said it did not produce any iron ore on its own, but holds rights to sell a portion of Atlas production under a supply contract. Atlas in late April agreed to a financial restructuring that transferred 70 percent of lower-grade iron ore a year to its creditors in exchange for a 48% reduction in debt. 

    The closest Glencore has come to mining its own iron ore has been through its subsidiary Sphere Minerals, which was aiming to develop a mine in Mauritania yielding 7.5 million tonnes per year - about half the projected output of Atlas. But construction work was suspended indefinitely last year due to low ore prices. 

    Glencore also owns 50% of the undeveloped Zanaga iron ore prospect in the Republic of Congo. Iron ore prices zoomed to nearly $200 a tonne in 2011, but have since fallen to as low as $37. The price stood at $57.70 on Monday. 

    Glencore has a track record of swooping on distressed assets, snapping up copper and coal assets a few years ago in Africa at prices regarded at the time as below market.
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    China helps to bolster steel price

    China is among the contributors to bolster steel price in the global market, according to a press conference held today by the Ministry of Commerce.

    Shen Danyang, a spokesman at the ministry, said China participated in the progress as the government has taken unprecedented efforts to cut supply and seek ways to expand domestic demand.

    Price of steel in the global market has surged 20 percent from US$305 per ton at the year's beginning to US$365 per ton in April.

    The State Council, China's cabinet announced in February that China plans to reduce steel production by 150 million tons over the next five years as the country aims to streamline its heavy industry.

    "Apart from limits on capacity, we are taking comprehensive measures to expand domestic demand for steel," said Shen, adding that lots of China's infrastructure constructions are still in progress to boost the needs for steel.

    Attached Files
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    Russian steelmaker MMK sees brighter outlook after poor first quarter

    Russian steelmaker MMK sees brighter outlook after poor first quarter

    MMK, one of Russia's largest steelmakers, said it expected better financial results in the second quarter after reporting a 39 percent drop in first-quarter core earnings on Friday due to weak domestic demand and low prices.

    Russian steelmakers have been hit by a collapse in global steel prices, which plumbed 10-year lows at the end of 2015 and early 2016. MMK competitor Severstal reported core earnings were down 53 percent year-on-year for the first quarter.

    MMK, controlled by businessman Viktor Rashnikov, said it expected stronger second-quarter results due to "early signs of a recovery in domestic demand and a gradual increase in rouble prices on the domestic market towards parity with export prices."

    MMK shares were up 1.7 percent at 0950 GMT, outperforming Moscow's broader MICEX index, which was down 0.7 percent.

    Export prices for hot-rolled steel out of Russia and Commonwealth of Independent States (CIS) rose to $480 per tonne in May, up almost 85 percent since January thanks to mill closures in China and improved demand.

    Still, Chinese producers have since ramped up output and once-shut plants have resumed production.

    MMK said the drop in its earnings before interest, taxation, depreciation and amortisation (EBITDA) to $287 million reflected the "challenging economic situation on the Russian market and low prices ... on global markets which bottomed in Jan 2016."

    First-quarter revenue tumbled 31 percent year-on-year to $1.05 billion, while net profit fell 20 percent to $157 million, the company said.

    "The results are weak, but likely to be ignored by the market due to the recovery in steel prices since March," Aton analysts said in a research note.

    MMK will use funds it is to receive from selling part of its stake in Australian iron ore company Fortescue to repay debt over 2017-2019, Chief Financial Officer Sergey Sulimov said on Friday.

    MMK is in the proccess of gradually selling its stake in Fortescue.

    Attached Files
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