Mark Latham Commodity Equity Intelligence Service

Monday 12th September 2016
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    Germany: Beginning Of The End Of The Merkel Era?

    The anti-immigration party Alternative for Germany (AfD) surged ahead of Angela Merkel's Christian Democratic Union (CDU) in elections in her home state of Mecklenburg-West Pomerania.

    The election was widely seen as a referendum on Merkel's open-door migration policy and her decision to allow more than one million migrants from Africa, Asia and the Middle East to enter Germany in 2015.

    Merkel rejected any course correction on migration policy: "I am very unsatisfied with the outcome of the election. Obviously it has something to do with the refugee question. I think the decisions that were made were correct." She went on to blame German voters for failing to appreciate her government's "problem-solving abilities".

    Many of the AfD's positions were once held, but later abandoned, by the Merkel's CDU.

    A September 1 poll showed Merkel's popularity rating has plunged to 45%, a five-year low. More than half (51%) of those surveyed said it would "not be good" if Merkel ran for another term in 2017.

    Observers from across the political spectrum seem to agree that the election in Meck-Pomm marks a turning point for Merkel, who has been head of the CDU since 2000 and chancellor since November 2005. Some say her political career may effectively be over if the CDU suffers heavy losses to the AfD in state elections in Berlin on September 18.

    "This was a dark day for Merkel," said Thomas Jaeger, a political scientist at the University of Cologne. "Everyone knows she lost this election. Her district in parliament is there, she campaigned there, and refugees are her issue."

    The CDU's secretary general, Peter Tauber, agreed: "The strong performance of AfD is bitter for many, for everyone in our party. A sizeable number of people wanted to voice their displeasure and to protest. And we saw that particularly in discussions about refugees."

    The leader of the AfD, Frauke Petry, said: "This is a blow for Merkel, not only in Berlin but also in her home state. The voters made a clear statement against Merkel's disastrous immigration policies. This put her in her place."

    German Chancellor Angela Merkel (left) suffered a major blow on September 4 when the anti-immigration party Alternative for Germany, led by Frauke Petry (right), surged ahead of her Christian Democratic Union in elections in her home state of Mecklenburg-West Pomerania.

    Local AfD leader Leif-Erik Holm told supporters: "We are writing history. Perhaps this is the beginning of the end of Angela Merkel's chancellorship. This must be our goal."

    Gero Neugebauer, a professor of political scientist at Berlin's Free University, said:

    "People will see this defeat as the start of the 'Kanzlerdämmerung' (twilight of the chancellor). If a lot of CDU members start seeing this defeat as Merkel's fault, and members of parliament start seeing her as a danger for the party and their own jobs next year, the whole situation could escalate out of control. If the AfD defeats the CDU again in Berlin in two weeks, things could get ugly fast."

    In an interview with Der Spiegel, Ralf Stegner, the vice president of the SPD, said the CDU was in a "state of panic" over the rise of the AfD and that Merkel has become a liability to her party:

    "Merkel has clearly passed her zenith. It is a disaster for her that the CDU has fallen to third place with under 20% in her own state. This is a serious crisis for the CDU and it bears the names of Merkel and Seehofer. Some people now believe that Merkel no longer leads the debate with Seehofer about her 2017 candidacy. Throughout its history, the CDU has been merciless to its chancellors if there was the impression that the party was facing a massive loss of votes."

    Stegner was referring to an August 27 report by Der Spiegel which said that Merkel has postponed an announcement about her candidacy due to opposition from the CDU's Bavarian sister party, the Christian Social Union (CSU), which has been increasingly vocal in its criticism of her migration policy:
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    The End of Central Planning.

    The Era of Central Planning is Crumbling... and the Elite Are Terrified

    Phoenix Capital Research's picture by Phoenix Capital... Sep 10, 2016 1:09 PM 0 SHARESTwitterFacebookReddit

    The biggest issue in financial political power structure today is the End of Centralization.

    In the post 2008 era, the Globalists made a major push to hold the system together. The multi-billionaire class, particularly those who made fortunes from crony capitalism and bubble economics joined forces with the Keynesian media shills to convince the world that the only way we would survive would be if trillions of Dollars were given to those who were deemed “systemically important.”

    Warren Buffett was a prime example of this. Buffett amassed a fortune by being a raging capitalist who prided himself on never losing money on an investment. But by the time 2008 rolled around, he faced the very real prospect of seeing his fortune halved.

    Somehow he managed to convince the public that he was still a great guy while pushing for bailouts in the very firms in which he had taken large stakes: Goldman, Wells Fargo, etc.

    Buffett was not the only one. He’s just the best known.

    Let’s be blunt here: the 2008 bailouts and money pumps completely betrayed capitalism. The outcome was precisely what you’d expect from Central Planning:

    1)   Economic stagnation.

    2)   The creation of low quality jobs that offer little upward mobility.

    3)   Concentration of wealth.

    Today, eight years later, the elites are terrified that the game is ending.

    You can see this in many ways. The architects of this mess (Ben Bernanke, Alan Greenspan, Larry Summers and others) have resurfaced with revisionist narratives in which they are not responsible.

    Similarly, those currently at the helm of the Central Banks have begun abdicating their responsibility for what’s coming.

    This is most evident in Central bank Presidents like Draghi and Yellen dropping all pretenses of being able to hit their goals/ targets and instead passing the blame onto political bodies such as Congress.

    ·      Bank of Japan Head Harihiko Kuroda confessed in January that Japan has a limited GDP potential no matter what policy he employs.

    ·      European Central Bank President Mario Draghi admitted that despite FOUR NIRP cuts and €1 trillion in QE the ECB won’t hit its inflation targets for a decade.

    ·      Federal Reserve Chair Janet Yellen has begun implicitly pushing for Congress to step up in terms of policy because the Fed is effectively out of ammunition.

    These are very critical “tells” from those at the top of the Central Planning economic structure. These individuals know the game is about up and they know what is coming. They also know that politically the tides are now against them.

    BREXIT, Trump, Le Pen, Duterte, are all part of a larger global trend away from Centralization towards Nationalism. Whether you like or despise these people/ issues is irrelevant. Their popularity is the product of the last eight years of Cronyism/ Central Planning.

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    German Exports Plunge in July

    Germany’s exports plummeted in July, the latest in a string of weak economic data from Europe’s industrial powerhouse that will further fan discussions about tax cuts in Berlin.

    Coming hot on the heels of weak manufacturing production and orders data at the start of the third quarter, the Federal Statistical Office said on Friday that exports dropped 2.6% from June.

    Exports were down a startling 10% from July last year—their sharpest decline since the fall of 2009. But a statistician at Destatis said this was probably down to “a base effect.” July 2015 was one of the strongest months of the entire year for Germany’s exporters, he said, which is “unusual” for the summer holiday season.

    Nevertheless, Germany’s exports haven’t made much progress over the last 18 months. At €71.1 billion ($80.2 billion) in July, adjusted exports are back to their January 2015 level. Germany’s imports paint a similar picture.

    “Either the entire industry took an early and long summer break, or Brexit and a general weakness in Germany’s main export partners left another mark on the economy,” said Carsten Brzeski, an economist at ING in Frankfurt. “A further cooling of the economy in the months ahead should give more support to just started discussions about fiscal stimulus.”

    Finance Minister Wolfgang Schäuble earlier this week floated limited tax relieffollowing next year’s national elections—a concession of sorts after years of pressure from the U.S. and other governments to loosen the purse strings. In a speech to parliament, Mr. Schäuble promised €15 billion in tax cuts starting in 2018.

    A string of weak industrial data already fanned growth concerns earlier this week. Official data showed that German industrial output in July dropped 1.5% from June and the economics ministry cautioned that manufacturing orders “lack zing.”

    Most private-sector economists expect a slowdown in German economic growth in the second half of the year.

    “The unusually-high number of flashpoints is leaving its marks,” said  Anton Börner, president of the BGA federation of exporters and wholesalers. “This creates an enormous uncertainty, attended by a lack of investment.”

    On Thursday, meanwhile, Economics Minister Sigmar Gabriel reiterated the government’s forecast of 1.7% gross domestic product growth in 2016.

    But signs of cooling aren’t confined solely to Germany’s economy. France’s Insee statistics agency said on Friday that industrial production in the eurozone’s second largest economy dropped 0.6% from June, when it already fell 0.7%. Manufacturing output of equipment dropped 3.3% in July from June and transport materials production fell 1.4%.
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    China Aug PPI edges up slightly on month

    China's Producer Price Index (PPI), which measures inflation at wholesale level, edged up 0.2% month on month but down 0.8% year on year in August, showed the latest data released by the National Bureau of Statistics (NBS) on September 9.

    In August, prices of coal mining and washing industry rose 1.5% on month but down 2.3% on year; prices of oil and natural gas mining industry slid 6.2% on month and 15.6% on year.

    Meanwhile, prices of ferrous metal industry increased 1.8% from July but fell 0.5% from a year ago; and that of nonferrous metals metal industry gained 1.2% from the previous month and 8.6% from the year-ago level.

    During the first eight months this year, China's PPI dropped 3.2% on average from the previous year.

    Of this, the average price of coal mining and washing industry fell 11.7% on year; while the price of oil and natural gas mining industry decreased 25.8% on year; price of ferrous metal industry dropped 9.3% from the previous year; and price of nonferrous metals metal industry fell 2.2% compared to the corresponding period last year, data showed.

    The data came along with the release of the Consumer Price Index (CPI), which rose 0.1% on month and climbed 1.3% from the year prior in August.
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    India seeks to transform govt-owned companies into ‘resource majors’

    India is preparing a blueprint for the transformation of government-owned and -operated companies into "resource majors" with each straddling the entire chain of miningoperations.

    Government has identified power generation major NTPC,Steel Authority of India Limited (SAIL), Hindustan Copper Limited (HCL), NMDC, National Aluminium Company(Nalco) and NLC (formerly Neyveli Lignite Corporation) as the companies set for a transformation, a government official with knowledge of the drafting of the blueprint has said.

    While this is a preliminary list, the goal will be to develop integrated resource companies with operational and managerial scope stretching across exploration, mining, extraction, processing and production of products.

    The purpose of such a transformation is to have governmentmining and mineral companies be at the forefront of implementation of the National Mineral Exploration Policy 2016 (NMEP).

    This will enable the mining industry to ramp up yearly mineral production by 20% by 2020, which is the stated objective, which in turn, should increase the sector’s contribution to the national gross domestic product to 2% from 1%.

    Elaborating on the various categories of government companies, the official said that while some, such as SAIL,Nalco and HCL, had their own operational mines, these were solely focused to operate as captive raw material sources.

    However, this group of companies would need backward integration into exploration to supplement exclusiveexploration agencies such as Geological Survey of India andMineral Exploration Corporation.

    At the other end of the spectrum, power utility NTPC is venturing into coal mining for captive consumption and, as such, will enter coal exploration projects along with current efforts to secure proven coal reserves through the auction route.

    The NMEP envisioned the Mines Ministry auctioning identified exploration blocks to private and government sector companies on a cost-sharing basis. If such explorationleads to viable resources the exploration cost will be borne by the successful bidder for those blocks.

    However, if the exploring company does not discover any viable resources, the government will reimburse the expenditure incurred on exploration project.

    A former CEO of a government-owned metal company said that the transformation of government companies into resource major was “desirable” as exploration projects did not yield immediate returns and were unlikely to attract private exploration companies, including international majors.

    However, in sharp contrast, a former Mines Ministry bureaucrat said that the model of integrated resource companies that the government was envisaging would take decades to evolve, citing examples of international majors such Rio Tinto and BHP Billiton. Much of their growth has been as players in global mergers and acquisition.

    Instead, he advocated greater focus on debottlenecking and operationalising existing mines with government companies taking a lead, citing data which show India has 3 900operational mining leases with only 1 800 operating mines.

    Indian mineral production, barring coal, was pegged at 495-million tons in 2015/16 with a growth rate of 9% over the previous year.
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    China vice-premier urges solid efforts to propel supply-side reform

    Chinese Vice-Premier Zhang Gaoli on September 9 called for solid supply-side reform efforts in a bid to adapt to the current economic climate, known as the "new normal", state media Xinhua News Agency reported.

    The reform is a "major innovation" to meet new changes following the global financial crisis and an "inevitable choice" of China to fit into new economic circumstance that features slower but higher quality growth, Zhang said.

    Given a prolonged slowdown and entrenched economic problems, China's policymakers are counting on structural reform to inject vitality into the economy.

    Zhang described the reform as a "significant and urgent" matter, stressing five major tasks of the reform -- cutting excess industrial capacity, reducing housing inventory, lowering corporate leverage, relieving corporate burdens and fixing economic weaknesses.

    Overcapacity reduction in bloated coal and steel industries should be highlighted, Zhang said, adding that governments should make proper arrangements for laid-off workers and handling corporate debt.
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    This doomsday clock tells you when Japan's sex problem will cause the country to go extinct

    According to a countdown clock put together by researchers at Tohoku University, that's the date Japan's population will dwindle to one.

    For 25 years, the country has had falling fertility rates, coinciding with widespread aging. The worrisome trend has now reached a critical mass known as a "demographic time bomb."

    When that happens, a vicious cycle of low spending and low fertility can cause entire generations to shrink — or disappear completely.

    The doomsday clock developed by Hiroshi Yoshida and Masahiro Ishigaki, economists at Tohoku University, relies on population and fertility data from 2014 and 2015. In April of 2014, there were 16.32 million children. By the following year, the total had fallen to 16.17 million, a drop of approximately 153,000.

    Yoshida and Ishigaki's model estimates there are fewer than 16 million children alive in Japan today; the number only continues to fall. Within the next 1,750 years, the Japanese people could be no more.
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    Oil and Gas

    Oil Bears Dominate Market as Doubt Grows Over Output Limits

    Oil Bears Dominate Market as Doubt Grows Over Output Limits

    Money managers increased wagers on falling prices by the most in three months as a meeting between Russia and Saudi Arabia ended without specific measures to support prices. Producers have pledged to discuss action in Algiers later this month.

    “The more they talk, the less people listen,” said Michael D. Cohen, an analyst at Barclays Plc in New York. “If you look at the actual statements from the Saudis, there’s not a lot of enthusiasm. They’re saying that either they don’t believe a substantial intervention is needed right now or that if other producers want a freeze, they’ll go along.”

    Saudi Arabia’s Energy Minister Khalid Al-Falih said on Sept. 5 that he’s optimistic producers will agree to cooperate in Algiers. He spoke after meeting with his Russian counterpart, Alexander Novak, at the G-20 summit in China. Novak said that a freeze in production by OPEC and Russia would be the most effective way of stabilizing the market.

    The International Energy Forum, including 73 countries that account for about 90 percent of the global supply and demand for oil and natural gas, will meet in the Algerian capital Sept. 26-28. The Organization of Petroleum Exporting Countries will hold informal talks on the sidelines of the gathering.

    Parsing Words

    “Everyone is sifting for clues on whether OPEC will reach an agreement to limit production or leave it uncapped with the potential for higher output,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “At this point we’re waiting for the outcome of the talks. A lot of people are standing to the side while others are building positions with a specific view in mind.”

    A freeze deal between OPEC members and other producers was proposed in February. A meeting in April ended with no accord because Iran refused to join, while Saudi Arabia insisted that its rival take part. Iran has said it’s too soon to cap output as it’s still restoring production curbed by sanctions.

    Speculators bolstered their short position in West Texas Intermediate crude by 34,954 futures and options during the week ended Sept. 6, according to the Commodity Futures Trading Commission. Bets on rising prices declined.

    Prices Drop

    WTI futures dropped 3.3 percent to $44.83 a barrel in the report week and prices lost 1.6 percent to $45.17 at 1:12 p.m. Singapore time Monday.

    Futures surged Sept. 8 after the Energy Information Administration reported U.S. crude inventories fell 14.5 million barrels in the week ended Sept. 2, the biggest drop since January 1999. Prices retreated the next day as speculation grew the supply drop was a one-off caused by a tropical storm that disrupted imports and offshore production.

    Money managers’ short position in WTI climbed to 130,274 futures and options. Longs fell 1.9 percent. The resulting net-long position dropped 19 percent.

    In other markets, net-bullish bets on gasoline declined 32 percent to 11,148 contracts. Gasoline futures dropped 9.1 percent in the report week. Net-long wagers on U.S. ultra low sulfur diesel tumbled 56 percent to 9,840 contracts. Futures declined 4.3 percent.

    Gambling Momentum

    “There’s a lot of gambling taking place,” said Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania. “A lot of money managers are betting that a bottom has been put in but I’m skeptical.”

    U.S. crude stockpiles remain at their highest seasonal level in more than 20 years. Refineries plan maintenance programs for September and October when fuel demand is lower. Over the past five years, refiners’ thirst for oil has dropped an average of 1.2 million barrels a day from July to October.

    “The market will probably yo-yo in a range through the maintenance season but there’s downside risk,” Schork said. “If demand isn’t a strong as hoped and crude inventories rise, the market could take another leg lower.”
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    Iranian oil output stagnates for third month amid OPEC bargaining

    Iran's steep oil output growth has stalled in the past three months, new data showed, suggesting Tehran might be struggling to fulfill its plans to raise production to new highs while demanding to be excluded from any OPEC deals on supply curbs.

    Iran's oil output soared to 3.64 million barrels per day in June from an average of 2.84 million bpd in 2015 following the easing of Western sanctions on Tehran in January, adding to a global crude glut which has slashed oil prices.

    But since June, output has stagnated and reached just 3.63 million bpd in August, according to fresh OPEC data based on secondary sources, which include consultants and industry media, and seen by Reuters. Iran also told OPEC it produced 3.63 million bpd in August, according to an OPEC source.

    Iran became the main stumbling block to an initiative by OPEC and non-OPEC Russia earlier this year to freeze output globally. Tehran said it needed to first regain market share lost while it was under sanctions.

    OPEC's largest producer Saudi Arabia insisted all nations should join and the freeze deal collapsed in April.

    As Russia and Saudi Arabia are trying to revive the effort to prop up prices again, Iran has signaled it was more willing to cooperate when OPEC and non-OPEC producers meet in Algiers on Sept. 26-28. But it stopped short of saying it would join the freeze.

    "This (production levels) is a million-dollar question," said a source familiar with Iranian thinking. "The shuttle diplomacy is going on to clear which level is considered an aim for Iran."


    Iran has repeatedly said it needs to reach a level of output of at least 4 million bpd before it agrees to any deal, but one OPEC source said on Thursday the latest request from Iran was to set a target as high as 4.2-4.3 million bpd.

    The difference between requested levels and current production would amount to over 0.5 million bpd or half a percent of global oil consumption.

    And even if Iran were unable to produce it immediately, it would give Tehran an upper hand in dialogue with OPEC in the future - if and when Iran manages to bring on board global oil companies to help it develop its massive oil fields.

    Meanwhile, Gulf producers led by Saudi Arabia are insisting that for any deal OPEC members should stick to OPEC's secondary sources data to put everyone on a level playing field, the source added.

    "If we could not do that and accept one system - which is to use secondary sources - it would complicate things further," the source said.

    However, it might be a tough task as those figures show Iran has already returned to pre-sanctions output levels, pumping today as much as it was pumping back in late 2011.

    That chimes with estimates from the International Energy Agency which believes Iran's production capacity is very close to what it is already producing.

    For some in OPEC, the issue is settled. Saudi Energy Minister Khalid al-Falih said on Monday Iran's production has already reached pre-sanctions levels.

    Attached Files
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    Forces loyal to eastern Libyan commander claim control over key oil ports

    Forces loyal to eastern Libyan commander claim control over key oil ports

    Forces loyal to eastern Libyan commander Khalifa Haftar took control of key oil ports in Ras Lanuf, Es Sider and Brega on Sunday, said Ahmed al-Masmari, a spokesman for the forces.

    But an official from the force that previously controlled the ports, the Petrol Facilities Guard, said there was still fighting at Ras Lanuf.

    Masmari said clashes were continuing at another oil port, Zueitina, and around the nearby town of Ajdabiya.
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    India's Hindustan Petroleum aims 60 mln T refining capacity by 2030

    India's third biggest crude oil refiner, Hindustan Petroleum Corp (HPCL), plans to expand its refining capacity to more than 60 million tonnes annually, or about 1.2 million barrels of oil per day by 2030, according to a senior company official.

    This will not only help the company fill the yawning gap between the volume it refines and the volume it markets through its retail outlets, but also help in meeting the burgeoning fuel demand in the country, said HPCL Chairman Mukesh Kumar Surana at a conference late on Thursday.

    While Hindustan Petroleum, which is largely known as a marketer of fuel products, currently sells 34.20 million tonnes of fuel products every year through its retail outlets and bulk sales, its refining capacity is only about half that.

    According to a 2015 report by the International Energy Agency (IEA), India will require up to 329 million tonnes of oil products annually by 2030. As of last year India consumed 183 million tonnes of fuel products, government data showed.

    Analysts have often pointed out the heavy reliance on outside purchase of fuel products as a double-edged sword for the company. While HPCL is not directly exposed to crude oil fluctuations, it misses out on the refining margins that its peers clock.

    "We would like to have 60 plus (million tonnes) refining capacity by 2030," Surana said.

    Separately, a company official said the internal target is to have not more than 15 percent reliance on outside purchase of fuel by 2030.

    A major chunk of this refining capacity is expected to come from a joint venture project for a 60-million-tonne proposed refinery in the western state of Maharashtra.

    Hindustan Petroleum will own a 25 percent stake in this JV. India's biggest state-owned refiner Indian Oil and No. 2 player Bharat Petroleum will hold 50 percent and 25 percent stakes respectively.

    India's Oil Minister Dharmendra Pradhan said in June that it would also like to bring in a strategic partner in the refinery and Saudi Arabian oil giant Saudi Arabia Oil IPO-ARMO.SE has shown interest in it.

    To meet the 60-million-tonne target the company will have to set up yet another greenfield refinery, HPCL's director of refineries, B K Namdeo, said.
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    GLOBAL LNG-Prices edge up as old and new buyers seek spot supplies

    GLOBAL LNG-Prices edge up as old and new buyers seek spot supplies

    Asian liquefied natural gas (LNG) prices edged up on a crop of fresh tenders expected to add to already brisk demand from Indian and Middle Eastern importers.

    Prices for October and November delivery traded at around $5.55 per million British thermal units (mmBtu) this week, up from $5.30 per mmBtu for October delivery last week.

    India's GSPC and Kuwait are seeking one cargo each for November delivery, while Egyptian Natural Gas Holding wants three cargoes in total spread across October, November and December, trader sources said.

    On top of that, traditional buyer Korea Gas Corp, stung by oversupply and weak domestic demand in recent years, has re-emerged to scout for winter spot shipments, helping tighten supply outlooks.

    Egypt is also gearing up to launch its keenly-awaited 120-cargo buy tender catering for deliveries across 2017, now expected after the Muslim religious holiday Eid al-Adha on Sept. 12, traders said.

    Pakistan plans to issue two tenders for 750,000 tonnes per year of LNG each in the coming month, the head of the country's state-owned LNG company said.

    Adnan Gilani, head of Pakistan LNG, said the specifics of the tenders are being finalised, but they will probably be a five-year and a 15-year offer, as well as a possible spot purchase.

    Russia and Bahrain agreed to expand cooperation in LNG on Tuesday, with Moscow considering LNG supplies to the kingdom.

    Loadings from Nigeria's Bonny Island liquefaction plant resumed normal pace after Shell lifted force majeure on natural gas supplies to the plant earlier this week.
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    Oil rig count grows after Hurricane Hermine

    The nation’s oil rig count rose by seven this week as more drilling rigs returned to the Gulf of Mexico after evacuating for Hurricane Hermine.

    The overall count of rigs actively seeking oil or natural gas increased by 11 this week with eight of them offshore and just three on land. Those three came in the gas-rich Marcellus and Utica shale in the Northeast. Texas and Oklahoma offset each other with Texas gaining four rigs and Oklahoma losing the same amount, according to the weekly count from the Baker Hughes oilfield services firm.

    Nearly half of the nation’s active rigs are in Texas — 245 out of 508 rigs. The Permian Basin alone accounts for 200 active rigs.

    The total count of more than 500 rigs is up from an all-time low of 404 in May, according to Baker Hughes. Of the total, 414 of them are primarily drilling for oil. But the oil rig count is down 74 percent from its peak of 1,609 in October 2014, before oil prices began plummeting.

    Oil prices have fluctuated throughout this week, soaring on Thursday but falling Friday. The benchmark for U.S. crude topped $46 a barrel early Friday afternoon, down about $1.50 for the day.
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    Halliburton, Baker Hughes See Rocky, i.e. Shale, Road Leading Recovery

    The oil and gas services industry has begun to pick itself up from the muck and mire from a "100-year low in activity," but it has found its bottom, according to top Halliburton Co. and Baker Hughes Inc. executives.

    Oilfield services are "on the road to recovery," Halliburton President Jeff Miller said at this week's Barclays CEO Global Energy-Power Conference in New York City. "But at the same time, I would describe this as sorting through the wreckage of the worst downturn that we've ever seen. We see the after-effects just about everywhere that we look. There have been more than 350,000 layoffs in the industry, mostly weighted toward oilfield services, some companies laying off as much as 80% of their workforce." Halliburton has laid off about 40% of its global staff.

    "So fundamentally, we've found bottom...We are in the early innings of a recovery." The starting point "is from a 100-year low in activity. But nevertheless, that's 'Step Zero.' That's what it looks like as we begin to climb back."

    Schlumberger Ltd.'s operations chief Patrick Schorn in late August said the global oil supply was tightening, trending to balance by the end of this year, but North American basin pricing remained unsustainable.

    If current global oil production decline rates are conservatively at about 3%, a 14 million b/d gap will grow over the next five years, Miller predicted. "What this model does not consider is what I like to describe as almost capex starvation, which would only serve to exacerbate that gap, meaning more than 14 million b/d." Meanwhile, global oil demand remains steady, growing at a rate of 1-1.5% a year.

    Outlook for Strong Demand Increase

    "If we roll that out over the next five years, what we see is about 6 million b/d in growing demand by 2020," Miller said. "All of this, when added up, adds up to about 20 million b/d in terms of gap...That's what I believe is out ahead of us. To put 20 million b/d in perspective, that's the equivalent of adding two Saudi Arabias between now and the year 2020."

    The takeaway is that the market will recover, "but what may be a more important question than whether the market where does that happen first?" In Halliburton's view, unconventional drilling will lead the recovery, followed by mature field development overseas and finally the most expensive endeavor of all, deepwater.

    "The unconventional barrel is simply put, the fastest incremental barrel of oil to market," Miller said. "That means it will be the first to fill demand, to fill the imaginary supply bucket...In addition though, the unconventional barrel is the shortest cycle return barrel, which makes it an attractive barrel, not only for filling demand, but from a return standpoint.

    "And finally, that unconventional barrel has what I like call the best glide path. I say that because we continue to see efficiency gains in terms of lowering cost. But even more important is the potential gains to be had with respect to recovery factors, which we're in the very early innings of understanding how much can be produced if we consider recovery factor is around 8%. Just moving to 10% is a dramatic move...And we're right in the middle of how to improve recovery factors from a technology perspective."

    Mature fields, the lowest risk opportunities and the largest market in the world, already are well understood. However, they are difficult to ramp up at scale similar to low-cost unconventionals.

    Halliburton views North America's onshore as a mixed bag, as the relationship between the rig count and fracture (frack) crews has changed. The rig count is up about 10% since the beginning of July, "but it's not sufficiently significant to change the underlying market dynamics...It's still a brawl in the market place...The bottom line is, it just doesn't take as many rigs as it used to, to drive frack activity."

    Rigs v. Horsepower

    Improved drilling efficiencies mean it takes more frack crews to keep up with the rigs now running, Miller said. Increasing completion intensity is about three times higher than three years ago too, which means each frack stage uses more horsepower, and in general, there's more horsepower per job.

    "We estimate that there's 3 million to 7 million hp that's leaving the marketplace, either because of attrition or cannibalization, but in both cases increasing demand on remaining horsepower. The point is, it doesn't take 1,900 rigs to get to equilibrium. In fact, there's probably a path toward equilibrium that happens well before that just because of the demand on equipment and the activity."

    As to when OFS pricing might increase, or when more equipment will need to be added, Miller said it's questionable before 2017.

    "Bringing new horsepower into the marketplace for the industry is going to require better pricing than we see today just because it's unsustainable," he said. "The supply of equipment is about where it is until something changes."

    Meanwhile, the oil and gas business in the rest of the world is going to get tougher before it gets better, according to Miller. "The slowest recovery will be deepwater...That’s really a duration question. It’s seven to 10 years from discovery to barrels in the tank...And from an efficiency perspective, we just don't get as many at-bats in deepwater...We get a lot of at-bats onshore, and we're able to drive efficiency quickly."

    Baker CEO Martin Craighead during his presentation at Barclays this week said oil prices would need to be sustainable "in the upper $50s" for a recovery to begin in North America. Current North America activity growth has become limited to the "tier one," or core acreage for most producers. Meanwhile, price recovery is being "dampened by shale producers' ability to quickly ramp up production."

    2017 Outlook “Opaque”

    Craighead elaborated in detail during an investor dinner in New York hosted by Evercore ISI. It's been four months since a mega-merger with Halliburton was terminated, and Baker has since begun to simplify its global organization (see Shale Daily,May 27). The Houston-based operator has moved swiftly to reduce costs and is ahead of an initial $500 million target, in part by shrinking the workforce (see Shale Daily,Sept. 2;July 28). The company expects to achieve more cost savings by flattening the organization, muscling up the core portfolio and developing trade secrets/intellectual property on new business channels.

    "Notably, the company's technology agenda did not slow during the merger process," Evercore analysts led by James West said in a note. "While much recent attention has focused on the 'era of mega-completions' and the increase in fracking horsepower on the well site, the massive increase in sand usage per well and continued increases in lateral lengths and the number of stages, there has been little emphasis on the potential for increases in artificial lift.

    "Transitioning to longer laterals can produce dramatic increases in workover costs, gas processing abilities and chemical demands. As a result, the lift demand is improving significantly...This shift is clearly in Baker's favor."

    The current operating environment may underwhelm, but it pales in comparative importance to the 2017 outlook, which remains "opaque" with respect to when the ramp up may begin, said West. For constructive customer conversations to transition into higher activity levels, commodity pricing needs to improve further, while exploration and production (E&P) spending needs to respond in kind."

    Reports that members of OPEC, the Organization of the Petroleum Producing Countries, may freeze output have dominated the headlines, while rampant merger activity has governed E&P discussions.

    "It's only a matter of time before these conversations shift toward improving oil fundamentals and necessary increases in E&P spending," West said. "We continue to preach patience in this market, as unsustainable market dynamics continue to pave the way for an elongated upcycle."

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    Mammoet wins LNG project contract

    Mammoet has announced that it has received a contract for an LNG project in Freeport, Texas, US.

    The scope of the contract includes transporting a substantial number of pieces to two different sites located three miles apart. Mammoet has optimised the transport process by using two different methods of transport, by barge and over the road, depending on the various weights and sizes of the pieces.For this LNG project, Mammoet will utilise barges at three different docks, self-propelled modular transporters (SPMTs) and trailers with a range of axle lines. Transport of the first pieces began in April 2016 and will continue through 2017.

    Pierre Mille, Mammoet USA Sales Director, said “With the project taking place at two different locations and multiple teams responsible for coordination, communication will be the key to success.”

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    CONSOL Energy Scales 52-Week High on Shift to Natural Gas

    CONSOL Energy has shifted its focus to the production of natural gas. Keeping with this, the company continues to acquire acreage in regions that may have a large volume of natural gas reserve. However, the company has lowered its E&P capital budget guidance for 2016 by 25% to the range of $195 million to $205 million from its earlier projection of $205 million to $325 million. On the other hand, 2016 E&P division production guidance has been raised to the 380–385 billion cubic feet equivalent (“Bcfe”) band from the prior expectation of 378 Bcfe.

    CONSOL Energy is presently focusing on the Marcellus and Utica plays. The company currently controls 436 thousand net acres in the Marcellus Shale and approximately 622 thousand net acres in the Utica Shale. In the second quarter of 2016, production volumes and operating costs in both these shales fell from the year-ago levels. CONSOL Energy’s focus on these two plays will drive production and help the company achieve its new production goals.

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    Judge allows Dakota pipeline to move ahead, Obama then stops construction.

    The Standing Rock Sioux Tribe’s attempt to halt construction of the four-state Dakota Access oil pipeline near their North Dakota reservation was denied Friday by a federal judge.

    The tribe had challenged the Army Corps of Engineers’ decision to grant permits at more than 200 water crossings for Dallas-based Energy Transfer Partners’ $3.8 billion pipeline, saying that the project violates several federal laws, including the National Historic Preservation Act, and will harm water supplies. The tribe also says ancient sacred sites have been disturbed.

    U.S. District Judge James Boasberg in Washington denied the tribe’s request for a temporary injunction in a one-page ruling that included no explanation. It ordered the parties to appear for a status conference on Sept. 16.

    The ruling said that “this Court does not lightly countenance any depredation of lands that hold significance to the Standing Rock Sioux” and that, given the federal government’s history with the tribe, “the Court scrutinizes the permitting process here with particular care. Having done so, the Court must nonetheless conclude that the Tribe has not demonstrated that an injunction is warranted here.”

    Attorney Jan Hasselman with environmental group Earthjustice, who filed the lawsuit in July on behalf of the tribe, said in the days before the ruling that it’ll be challenged.

    “We will have to pursue our options with an appeal and hope that construction isn’t completed while that (appeal) process is going forward,” he said. “We will continue to pursue vindication of the tribe’s lawful rights even if the pipeline is complete.”

    Energy Transfer Partners officials didn’t return The Associated Press’ phone calls or emails seeking comment.

    The 1,172-mile project will carry nearly a half-million barrels of crude oil daily from North Dakota’s oil fields through South Dakota and Iowa to an existing pipeline in Patoka, Ill.

    Thousands gathered Friday at the protest over the pipeline, which will cross the Missouri River near the Standing Rock Sioux reservation in southern North Dakota. Judith LeBlanc, a member of the Caddo Nation in Oklahoma and director of the New York-based Native Organizers Alliance, said before the decision that she expected the protest to remain peaceful.

    “There’s never been a coming together of tribes like this,” she said of Friday’s gathering of Native Americans, which she estimated could be the largest in a century. People came from as far as New York and Alaska, some bringing their families and children, and hundreds of tribal flags dotted the camp, along with American flags flown upside-down in protest.

    A rally against the Dakota Access pipeline is scheduled for Friday afternoon at the North Dakota Capitol, and many of those gathered at the protest site are expected to make the about 45-mile trek.

    State authorities announced this week that law enforcement officers from across the state were being mobilized at the protest site, some National Guard members would work security at traffic checkpoints and another 100 would be on standby. The Great Plains Tribal Chairman’s Association has asked the federal Justice Department to send monitors to the site because it said racial profiling is occurring.

    Nearly 40 people have been arrested since the protest began in April, including tribal chairman Dave Archambault II, though none stemmed from Saturday’s confrontation between protesters and construction workers. Tribal officials said workers allegedly bulldozed sites on private land that Hasselman said in court documents was “of great historic and cultural significance.” Energy Transfer Partners denied the allegations.

    Four private security guards and two guard dogs were injured, officials said, while a tribal spokesman said six people — including a child — were bitten by the dogs and at least 30 people were pepper-sprayed. The state’s Private Investigation and Security Board received complaints about the use of dogs and will look into whether the private security personnel at the site are properly registered and licensed, board attorney Monte Rogneby said Friday, adding that he would not name the firms.

    On Thursday, North Dakota’s archaeologist said that piece of private land was not previously surveyed by the state would be surveyed next week and that if artifacts are found, pipeline work still could cease.
    The company plans to have the pipeline completed this year. In court papers, ETP said stopping the project would cost it $1.4 billion the first year, mostly due to lost revenue in hauling crude.

    “Investor appetite for the project could shift and financing may no longer be available,” the company said. “Construction of the entire project would cease and the project itself would be jeopardized.”

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    New technology test centre could be a 'big deal' for Sask heavy oil production

    A new Saskatchewan Research Council (SRC) initiative aimed at developing and commercializing new extraction technologies could provide oil producers with access to the billions of barrels of crude buried deep beneath west-central Saskatchewan that can’t be extracted using traditional methods.

    The main method of extracting heavy oil, known as Cold Heavy Oil Production with Sand (CHOPS), has an average recovery rate of about seven per cent, according to Mike Crabtree, head of SRC’s energy division.

    That leaves roughly 23 billion barrels of oil, or about 90 per cent of the 26 billion barrels estimated to reside beneath West Central Saskatchewan inaccessible to producers, he said.

    While new tools are available, risk-averse companies often don’t have the time to experiment with new methods and prefer to optimize existing methods, Crabtree said.

    SRC’s new post-CHOPS Well Test Centre aims to develop technologies to address some of the oil left in the ground, and incentivize producers to adopt it, Crabtree said.

    A Ministry of Economy spokeswoman said in an email that producers will get a royalty incentive to give the Well Test Centre access to their wells. Crabtree said the tax break is vital to taking the riskout of new technologies for producers.

    Funded by the Crown corporation’s existing budget, the Well Test Centre will employ a handful of people to examine new extraction methods and connect technology companies with oil producers working in the province, he said.

    It typically takes years for producers to adopt new techniques, but the Well Test Centre’s incentives could cut that down to months, Crabtree said.

    Even if the tools it helps introduce allow producers to access an additional three billion barrels of heavy crude, it would be a “big deal” for the province and extend its resource base significantly, Crabtree added.  

    “There are literally thousands and thousands of these wells in Saskatchewan … so it’s going to be about mobility, sustainability and economic viability of these technologies, and that’s what we’ll be testing.”
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    Alternative Energy

    U.S. utility solar enjoys building boom in second quarter but residential slows

    U.S. utility solar enjoys building boom in second quarter but residential slows

    Solar panels are shown on top of a Multifamily Affordable Solar Housing-funded (MASH) housing complex in National City, California, U.S. on November 19, 2015. REUTERS/Mike Blake/File Photo

    U.S. solar installations rose 43 percent in the second quarter, according to a new report, as sharp gains in large projects for utilities offset slowing growth in residential systems in top solar market California.

    The United States installed 2,051 megawatts of photovoltaic solar in the second quarter, according to a report by research firm GTM Research and the Solar Energy Industries Association trade group. Systems for utilities made up 53 percent of the market in the first half of this year thanks to sharply lower system prices that are competitive with fossil fuels and state mandates to source more electricity from renewable sources.

    A federal tax credit worth 30 percent of the cost of a solar system has also underpinned the utility market's growth. The credit had been expected to expire at the end of this year, leading to a building boom in 2016. The credit, however, was extended by Congress for five years at the end of last year.

    That means 5.7 gigawatts of projects that had been expected to come on line this year will spill over into 2017, the report said. Nearly 8 GW are expected to come online later this year.

    Meanwhile, residential solar had its largest quarter ever, installing 650 MW. But growth slowed to 29 percent over the same period last year, a significant drop from the more than 50 percent growth rates the sector has enjoyed annually since 2012.

    In California, growth slowed to 19 percent. Throughout 2015, that market had grown more than 50 percent every quarter.

    "Fewer early mover customers remain, and this challenge is limiting growth, especially in California," the report said. California "will provide the rest of the U.S. with an important precedent for how rooftop solar can continue to scale in a more mature market."

    Strength in newer state markets like Utah and Texas helped boost the residential market.

    Overall solar system pricing fell by up to 7.5 percent during the quarter, but increased competition for customers in the residential market drove up the cost of winning new customers during the quarter. Those costs could continue to rise next quarter, the report said.

    The cost of a utility-scale system ranged from $1.17 per watt to $1.30 per watt during the quarter, compared with $3.14 per watt for a residential system. About 65 percent of the cost of a residential system comes from labor, customer acquisition and other non-hardware costs.

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    Bids received for SQM stake worth up to $2.5bn – reports

    The sale of a stake in Chile'sSQM, one of the world's biggest lithium and iodine suppliers, has attracted widely differing offers, with the highest worth up to $2.5-billion, local media reported Friday.

    An indirect stake in SQM has been for sale since December, when holding company Oro Blanco invited buyers to make an offer for its entire 88% interest in Pampa Calichera.

    Pampa Calichera in turn owns about 23% of SQM, a major producer of lithium, potash and fertiliser chemicals.

    On Thursday, Chinese lithium producer Tianqi said in a statement that it had submitted a non-binding offer for the entire Pampa Calichera stake, without saying how much it had offered.

    Chinese battery material company Ningbo Shanshan had also been mulling a bid but said recently that the transaction was too "complex and uncertain."

    Newspaper La Tercera said Oro Blanco, which had a board meeting Thursday to consider the offers, had received two bids from unidentified Chinese companies worth between $2-billion and $2.5-billion.

    Separately, newspaper Diario Financiero, citing unnamed sources with knowledge of the process, said that one bidder had offered $35 per share, which would value the stake at around $1.8-billion. But this offer would be dependent onSQM resolving a dispute with the state over royalty payments, it said.

    Another bid was worth a much lower $22 per share, without such a condition attached, it said, adding that a third offer had also been received.

    The bidding process was ongoing, a source with knowledge of the process told Reuters on Friday, without saying how many offers had been received or their value.

    "There is no fixed timetable," the source said. "A prudent time will be taken to analyse closely each one of the bids ... that could be a couple of months, more or less."

    Others that have been linked to SQM include Canada's Potash Corp, which already owns a 32% stake. Israel's ICL had previously expressed interest but ruled itself out this week.
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    EU regulators halt Dow, DuPont merger review to gather data

    EU antitrust regulators have halted their scrutiny of Dow Chemical Co and DuPont's proposed merger while the companies provide more information regarding their $130 billion deal.

    The European Commission opened a full investigation into the case in August, concerned that the deal to create the world's largest integrated crop protection and seeds company may reduce competition in these sectors as well as certain petrochemicals.

    "The Commission has stopped the clock in its in-depth investigation into the proposed merger between Dow and Dupont," a spokesman said.

    "This procedure in merger investigations is activated if the parties do not provide an important piece of information that the Commission has requested from them."

    The EU antitrust enforcer will set a new deadline for its investigation once it has received the required data. DuPont and Dow Chemicals, which aim to close the deal in early 2017, had previously offered concessions which regulators said were insufficient.

    The agrichemicals industry has seen a wave of consolidation in recent months. ChemChina may seek EU approval next week for its $43 billion takeover of Swiss pesticides and seeds group Syngenta, according to a person familiar with the matter.

    German pharmaceutical and crop chemicals manufacturer Bayer AG is also pursuing U.S. peer and world No. 1 seeds company Monsanto Co.
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    Precious Metals

    South African mining output falls sharply

    Statistics South Africa latest report revealed that during July, the country’s mining output contracted by 5.4% year-on-year, dragged down by:

    PGMs (-9,6% and contributing -2.0 percentage points)
    Manganese ore (-24.1% and contributing -1.7 percentage points)
    'Other' non-metallic minerals (-27.5% and contributing -1.1 percentage points)

    In detail, seasonally adjusted mining production decreased by 2.4% in July 2016 compared with June 2016. This followed month-on-month changes of 1.0% in June 2016 and 3.1% in May 2016.

    One of the reasons driving the downtrend is a labour dispute between the Association of Mineworkers and Construction Union and platinum miners, which is expected to move towards a strike action in the coming weeks. “This could potentially have a material impact on production and, in turn, prices,” say analysts at Capital Economics.

    However, seasonally adjusted mining production increased by 4.2% in the three months that ended July 2016 compared with the previous three months. PGMs (3.2%) and iron ore (1.1%) were the largest positive contributors.

    Sales, on the other hand, showed positive numbers with a 15.6% year-on-year increase in June 2016. PMGs (35.6%), gold (20.3%), ‘other’ non-metallic minerals (49.5%), and manganese ore (90.9%) were responsible for the rise.

    Nevertheless, seasonally adjusted mineral sales decreased by 6.8% in June 2016 compared with May 2016. This followed month-on-month changes of 20% in May 2016 and 1.8% in April 2016.
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    Base Metals

    Los Bronces miners down tools

    Miners at one of Chile's largest copper operations walked off the job on Friday morning after rejecting the majority-owner's final offer in collective wage talks.

    Over 1,700 workers at Anglo American's (LON:AAL) Los Bronces copper mine stopped work, after the union and the company failed to reach agreement despite a government-sponsored mediation process during contract negotiations. Anglo had reportedly offered workers a bonus of around $13,000 plus other benefits.

    "The company regrets the rejection of an offer that it considers fair and responsible in the context of the current conditions of the mining industry in general and Los Bronces in particular," the London-listed mining major said in a statement.

    Los Bronces is 50.1 percent owned by Anglo American; Chilean state miner Codelco and Japanese trading houses Mitsui & Co. and Mitsubishi Corp. also have stakes in the Anglo American Sur complex. Anglo's flagship mine is located high in the Andes mountains near Santiago. In 2015 it produced 437,800 tonnes of copper, or about 8 percent of the total output of Chile, the world's top copper producer, according to Reuters.

    Los Bronces workers also went on strike in November 2014, but the issue at the time was working conditions.

    Los Bronces is the second Chilean copper mine to be hit by labour unrest in recent days. Workers at Codelco's Salvador mine are also on strike, having failed to reach a wage agreement with their employer.

    Salvador, which is the state-owned firm’s smallest operation and produced 49,000 tonnes of copper last year, has been battling to turn a profit after dwindling ore grades pushed up production costs, affecting a plan to extend the mine's life.

    In August last year, the mine was hit by an around three-week strike by a different group of contract workers, which cost Codelco more than $15 million in lost production and damaged equipment.
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    Main border crossing for Congo copper exports closed as riots kill three

    Three people were killed in riots on Friday near a border crossing between Democratic Republic of Congo and Zambia that serves as the main export route for Congolese copper, Congo's government said.

    Authorities in both countries closed the border in response, Christabel Mulala, the mayor of the Zambian border town of Chililabombwe, told Reuters.

    Clashes between young protesters and police broke out in the Congolese town of Kasumbalesa after a money changer was killed overnight, Congo's government spokesman Lambert Mende told Reuters.

    It was not immediately clear who the three people killed on Friday were, or how they were killed.

    "The demonstrators accuse the police of being indolent," Mende said.

    Eric Monga, the local president of Congo's chamber of commerce, said trucks were being held 10 km (6 miles) away from the Congolese side of the border after rioters burned vehicles and administrative buildings.

    Congo, Africa's leading copper producer, mined nearly 1 million tonnes of the metal last year. Nearly all of the country's copper exports pass through the Kasumbalesa crossing.
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    Nevsun completes switch to zinc

    Nevsun Resources announced on Friday that it has sold and shipped the first zinc concentrate product from its Bisha mine in Eritrea.

    The ten thousand tonne lot was loaded at the Port of Massawa and sailed on September 7, 2016. The concentrate was sold on the spot market, attracting multiple offers and highly competitive treatment charges, the company said in a statement.

    Nevsun owns 60% (the Eritrean government owns the rest) of the $250 million Bisha mine which started operations as a gold-silver producer in 2010. Three years later Bisha underwent a $110 million expansion to switch to copper concentrate production from supergene ore.

    This year the company pivoted again to expand flotation capacity to produce zinc concentrate. Zinc is the best-performing metal in 2016 rising more than 44% in price since the start of the year. Measured from its six-year low struck in mid-January, the price of the metal mainly used to galvanize steel is up 58% to trade around $2,230 a tonne or $1.05 per pound.

    Cliff Davis, Nevsun CEO commented, “We are pleased to have a high quality zinc product coming to market in an environment of rising zinc prices. Bisha is the only significant new zinc concentrate coming to market in 2016 and we are being aggressively courted for offtake by various customers. We would like to congratulate our partner, the State of Eritrea, for adding another export product to the economy and thank them for their support.”

    Nevsun is scheduled to load additional shipments in the coming weeks and is ramping up to commercial production which is forecast for the fourth quarter this year, the company said.

    Life of mine payable metals at Bisha is put at 470m pounds of copper, 1.7 billion pounds of zinc, 240,000 ounces of gold and 8.2 million ounces of silver.

    Nevsun completed a takeover of Reservoir Minerals in June in a $440 million cash and shares deal. The agreement provided the companies 100% ownership in the upper zone of the Timok Copper Project in Serbia, which had previously been owned by Reservoir and Freeport McMoRan. Nevsun shareholders own two-thirds of the combined company.
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    Steel, Iron Ore and Coal

    China allows coal miners to adjust output in either direction over Sep-Dec

    Major Chinese coal miners will be able to temporarily adjust their coal output in either direction between September and December after an agreement with the China Coal Trade and Development Association, industry sources said Friday.

    The sources had participated in the September 8 meeting of the National Development and Reform Commission, National Energy Administration, China Coal Mine Safety Administration and CCTDA.

    Annual output of each coal miner will, however, will still need to be no higher than their mining capacity on a 276-workday basis.

    "This will mean that Chinese coal miners will be able to up their coal output during certain periods, but then they will have to cut their output some other times," a Shanxi-based trader said.

    Since May 2016, Chinese miners have been ordered to cut their coal output by about 16%, from a 330-workday basis to a 276-workday basis.

    According to a copy of the agreement obtained by S&P Global Platts, coal miners who have entered into the agreement with CCTDA will adjust their output in line with CCTDA's guidelines. Those failing to abide by the agreement will be blacklisted, it added.

    CCTDA will issue guidelines in accordance with the scheme, under which the price of domestic 5,500 kcal/kg NAR thermal coal, FOB northern China, based on the Bohai Sea coal price index, exceeds Yuan 450/mt and has been rising for two consecutive weeks, and combined coal stocks at the five major coal ports -- Qinhuangdao, Jingtang, Caofeidian, Tianjin and Huanghua -- fall below 12 million mt in a week, CCTDA will allow an increase in national coal output by 300,000 mt/day, which equates to about 9 million mt/month.

    If the price of China's domestic 5,500 kcal/kg NAR thermal coal exceeds Yuan 470/mt and has been rising for two consecutive weeks, CCTDA will allow national coal output to increase by 400,000 mt/day, which equates to about 12 million mt/month.

    If the price drops below Yuan 460/mt and has been down for two consecutive weeks, CCTDA will cancel the directive for output adjustment.

    If the price exceeds Yuan 490/mt and has been rising for two consecutive weeks, CCTDA will allow coal production to increase by 500,000 mt/day, which equates to about 15 million mt/month. If the price of domestic 5,500 kcal/kg NAR thermal coal then drops below Yuan 480/mt and has been down for two consecutive weeks, CCTDA will cancel the directive.

    If the price falls below Yuan 430/mt and has been down for two consecutive weeks, CCTDA will order a cut in output of 500,000 mt/day, which equates to about 15 million mt/month.
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    China completes 60pct of 2016 de-capacity target

    China has reduced coal capacity by 150 million tonnes in the first eight months of the year, completing 60% of its 2016 target for capacity cuts, Xinhua News Agency said on September 9, citing the National Development and Reform Commission (NDRC).

    The rate is nearly 1.5 times progress in the first seven months of 38%, Lu Junling, a senior official with the NDRC, was quoted as saying at an industry meeting a day earlier.

    It is a satisfactory result as the country has made great efforts to shift away from fossil fuels as part of a drive to curb pollution.

    China's coal producers had lobbied the government at the meeting on September 9 to approve a plan to increase output that could add 8-9 million tonnes per month of new supply from some 74 mines that produce high-quality washed coal.

    A proposal was also discussed at the meeting that would allow producers to raise output if domestic prices hit certain levels, state-media Xinhua said.
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    Panic buying sees coking coal price jump 20% in a week

    The parabolic rise in the price of coking coal showed no signs of slowing last week with the Australian export benchmark hitting $180.90 a tonne up a stomach churning 20.8% for the week. The steelmaking ingredient is now up 136% in 2016.

    The latest gap up for metallurgical coal came after a research report showing levels of "panic buying" not seen since 2011, when floods in key export region in Queensland sent the price soaring to $335 a tonne (albeit not for long).

    The rally was triggered by Beijing’s decision to limit coal mines' operating days to 276 or fewer a year from 330 before as it seeks to restructure the industry. Safety closures and weather related supply curbs in China and Australia only added fuel to the fire.

    Australian Financial Review quotes analystsfrom Macquarie warning that speculation as much as fundamental factors are driving the price with a mere half-a-million tonnes (out of a seaborne trade of 200 million tonnes a year) responsible for the most recent surge:

    "Transactions on the trading platform globalCOAL over the past month, which feed into spot price assessments from various index providers, have totalled just 510,000 tonnes in volume."

    The bank does say "current physical market conditions are very tight and there is a sense of panic amongst buyers," which "looks like it could hold for a few more weeks," but expects prices will slide in the fourth quarter.

    On top of that most producers, with the exception of BHP Billiton which set up globalCOAL a few years back, do not receive the spot price but the ruling quarterly contract price which is still in double digits.

    That will change soon. In a report The Steel Index, a market information provider, notes  speculation that the upcoming quarterly contract negotiations for the October – December 2016 period "may be rather combative."

    According to market participants, Japanese steelmakers will undoubtedly face levels “at least above US$120/t” in the final quarter of 2016.

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    Cash-strapped Mongolia puts giant coalmine back in play

    The long-delayed development of Mongolia's giant coal deposit at Tavan Tolgoi in the south Gobi desert is set to be revived as the North Asian country's new government looks for ways to stimulate its crisis-hit economy.

    Recent attempts to develop the mine were stymied by nationalists in parliament worried about the involvement of foreign firms, but a financial crisis and a change of government in June have brought it back onto the agenda.

    Slowing demand for coal and copper, Mongolia's chief exports, and a plunge in foreign investment have left the world's most sparsely populated sovereign country with soaring debts and a rapidly declining currency, forcing government to hike interest rates and slash spending.

    Executives at Erdenes Tavan Tolgoi (ETT), the state firm in charge of the project, say they are now actively evaluating bids to revive the coal mine, one of the world's most promising, with estimated coking coal reserves of 7.5 billion tonnes.

    "Currently, we're calculating the (potential) profits for Erdenes Tavan Tolgoi, and our lawyers are reviewing multiple proposals," said Samdandobji Ashidmunkh, chief economic development officer of the state firm in charge of the project.

    "We are not ruling out any possibilities," he told Reuters on the sidelines of an investment conference in Ulaanbaatar. "If it's profitable for Erdenes Tavan Tolgoi and beneficial for the Mongolian economy, we're open to cooperate with anyone."

    In 2014, the Hong Kong-listed Mongolian Mining Corp. (MMC) joined a consortium with Chinese state miner Shenhua Group and Japan's Sumitomo Corp. to develop Tavan Tolgoi, but though the deal was blocked by parliament last year amid hostility from nationalist backbenchers, another executive said the parties remained ready to revive it.

    "The consortium still holds together," said Gotov Battsengel, chief executive officer of Energy Resources, an MMC unit that already extracts coal from a mine on the western edge of Tavan Tolgoi.

    "I believe the offer is still on the table," he told the conference.

    A spokesman for Sumitomo declined to say whether there were any new developments, but added: "We believe our preferential negotiating rights are still valid."

    Ashidmunkh of ETT said it was "too early" to say whether this particular consortium represented the best deal.

    The Shenhua Group did not respond to questions on the subject, and Mongolia's mining ministry did not immediately respond to requests for comment.


    About two thirds of industrial output in the first half of this year was generated by the mining industry, according to Mongolia's statistics bureau, and Tavan Tolgoi, along with the $4 billion investment required to develop it, could provide a huge boost to the $12 billion economy.

    But development has been repeatedly delayed amid financing difficulties and concerns about the role played by foreign firms in the former Soviet satellite of 3 million people, which is wedged between China and Russia.

    In 2011, the government awarded the project to a consortium involving Shenhua, U.S. miner Peabody and a team of little-known Russian and Mongolian firms, but it quickly scrapped the deal after unsuccessful bidders from Japan and South Korea complained that the process was not transparent.

    The tender came in the middle of a mining boom that drove double-digit growth in GDP and encouraged politicians to seek more favourable terms with foreign investors. Mongolia also tried to renegotiate the 2009 investment agreement for its Oyu Tolgoi copper-gold mine, now run by Rio Tinto .

    "Some policy mistakes were fuelled by nationalist sentiment," said Mongolia's new mining minister, Tsedev Dashdorj, at the conference on Thursday.

    Legislators opposed to the Sumitomo-Shenhua consortium were voted out of parliament after a landslide election victory for the Mongolian People's Party (MPP) in June.

    "The political dynamics in Mongolia have shifted very favorably for an ETT deal post election," said Nick Cousyn, chief operating officer for Ulaanbaatar-based brokerage BDSec, in a research note.

    "With an MPP super-majority in Parliament and Mongolia in desperate need of investment, we see the odds of an ETT deal as being extremely high," he added.
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    Australian coal soars to premium of more than $10 over Europe

    A 40-percent rally since June in prices for Australian thermal coal due to a jump in Chinese imports has pushed its premium over Europe to more than $10, offering miners with easy access to the Atlantic and Pacific basins opportunities for arbitrage.

    Australian cargoes from its Newcastle terminal, a benchmark for Asia/Pacific, currently cost $70 per tonne, levels last seen over a year ago.

    At the same time, European import prices into Amsterdam, Rotterdam or Antwerp (ARA) are at just $58 a tonne due to strong competition from renewables and cheap natural gas.

    Traders said that the huge price spread between Europe and the Pacific meant that exporters with access to both basins could benefit from arbitrage opportunities.

    "If you're a Colombian miner, who can ship coal through the Panama Canal to Asia, or you're South African, which enjoys easy access to Europe and Asia, then the big price difference between ARA and Newcastle, as well as cheap freight, are an arbitrage opportunity you might want to look into," said a coal shipper with a big trading house. He declined to be identified as he was not authorized to speak with media.

    Thomson Reuters Eikon data shows that export prices from Colombia, known as Bolivar, are trading slightly below $60 per tonne, and South African prices from its Richards Bay export terminal are worth around $63 a tonne.

    Although benchmark dry-bulk freight rates used for coal have risen away from their historic lows earlier this year, at just over 800 points they remain far below their historic average of over 1,900 points.

    The Australian price rise is a result of a regulatory change in China, where the annual hours miners can operate were cut to 276 a year from 330 last April in a bid to reduce rampant overcapacity and industrial smog.

    "The strong rebound in key Asian thermal coal reference prices since the beginning of this year is a function of the Chinese government's regulations surrounding supply management," Fitch Ratings said in a note to investors late on Friday.

    The lower domestic output spurred imports toward the middle of the year and took the market by surprise.

    "Coal has ... enjoyed a strong run ... (and) trading well above Macquarie Commodities teams' forecasts for the next two years," Australian bank Macquarie said.

    Despite the jump in Chinese imports, some traders said the price rally had been overblown.

    "There's been a bit of a squeeze in Newcastle, as some miners take advantage of the bump from China. But with overall coal demand timid, I don't think Newcastle will stay at such a premium over other benchmarks for long, and instead will pull back," said another coal trader.

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