Mark Latham Commodity Equity Intelligence Service

Wednesday 27th January 2016
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    Correlations become binary: bull or bear?


    If it feels as if the stock market and oil futures are moving in lockstep these days it’s because, to a large extent, they are.

    As oil futures plunged in the first two weeks of the new year to 12-year lows, U.S. equities put in the worst-ever start to a new calendar year.

    The Tuesday price action was no exception. Oil futures US:CLG6 CLH6, +3.07% surged overnight, lifting global equities and sending U.S. stock-index futures sharply higher. As those oil gains started to fade, stocks also lost altitude. As oil turned lower, U.S. equities soon followed suit, giving up gains to trade in negative territory.

    To be a little more precise, Leo Chen, quantitative analyst at Cumberland Advisors, noted that the correlation became very tight after oil fell below $40 a barrel in December. Since then, the contemporaneous correlation between Brent futuresLCOH6, +3.70%  and the S&P 500 SPX, +1.19%  is “unbelievably high” at 91.39% (see chart below), Chen said, in a note.Image title

    That’s pretty close to lockstep, and on par with the correlation between U.S. gross domestic product and the S&P 500, Chen wrote.

    Such a close correlation isn’t the norm. In fact, over a five-year period, the correlation was negative 71.8%—meaning stocks and oil tended to move in opposite directions (see chart below), Chen said. And over the last 20 years, the correlation between the two assets, while positive, is only 25%, he said, citing Barclays data.

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    The man in charge of China's economic data is under investigation

    The man in charge of safeguarding China's economic statistics is under investigation for potential corruption.

    China's Central Commission on Discipline Inspection announced Tuesday that Wang Bao'an, party chief and director of the country's National Bureau of Statistics, is under investigation for "serious violations of party discipline."

    Beijing uses the phrase "violations of party discipline" as a euphemism for graft or corruption.

    The surprise announcement, which is bound to raise new questions about the accuracy of Beijing's economic statistics, came just hours after Wang briefed reporters on the state of China's economy.

    China's economic statistics have come under fire in recent years from analysts and economists who say they are artificially inflated. Some are convinced that China is outright cooking its books. Others debate the accuracy of certain data and point to more meaningful alternatives like electricity consumption or rail freight.

    In the past, criticism of GDP calculations was mostly tied to "GDP worship." One way for officials to get a promotion, be it at the village or provincial level, was to hit -- or exceed -- growth targets, and then send the good news along to Beijing.

    "China does not have an independent statistics bureau," Andy Xie, an independent economist, told CNN last year. "It depends on local governments reporting the numbers from the bottom up, and local governments do have an incentive to distort numbers."

    President Xi Jinping has waged a three-year crackdown on graft since taking office in 2012. The campaign has targeted officials at state-owned companies, as well as top Communist Party officials. The investigations often result in convictions.

    Before leading the National Bureau of Statistics, Wang worked in China's Ministry of Finance and held positions related to tax administration.

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    US energy leverage

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    Freeport-McMoran Posts Q4 Adj-Loss of $0.02/Share

    Freeport-McMoran (NYSE: FCX) reported Q4 EPS of ($0.02), $0.11 better than the analyst estimate of ($0.13). Revenue for the quarter came in at $3.8 billion versus the consensus estimate of $3.89 billion.

    - Net loss attributable to common stock totalled $4.1 billion, $3.47 per share, for fourth-quarter 2015 and $12.2 billion, $11.31 per share, for the year 2015. After adjusting for net charges totalling $4.1 billion, $3.45 per share, for fourth-quarter 2015 and $12.1 billion, $11.23 per share, for the year 2015, adjusted net loss totalled $21 million, $0.02 per share, for fourth-quarter 2015 and $89 million, $0.08 per share, for the year 2015.

    - Consolidated sales totalled 1.15 billion pounds of copper, 338 thousand ounces of gold, 20 million pounds of molybdenum and 13.2 million barrels of oil equivalents (MMBOE) for fourth-quarter 2015 and 4.07 billion pounds of copper, 1.25 million ounces of gold, 89 million pounds of molybdenum and 52.6 MMBOE for the year 2015.

    - Consolidated sales for the year 2016 are expected to approximate 5.1 billion pounds of copper, 1.8 million ounces of gold, 73 million pounds of molybdenum and 57.6 MMBOE, including 1.1 billion pounds of copper, 200 thousand ounces of gold, 19 million pounds of molybdenum and 12.4 MMBOE for first-quarter 2016.

    - Average realized prices were $2.18 per pound for copper, $1,067 per ounce for gold and $48.88 per barrel for oil (including $11.39 per barrel for cash gains on derivative contracts) for fourth-quarter 2015.

    - Consolidated unit net cash costs averaged $1.45 per pound of copper for mining operations and $16.17 per barrel of oil equivalents (BOE) for oil and gas operations for fourth-quarter 2015. Consolidated unit net cash costs are expected to average $1.10 per pound of copper for mining operations and $15 per BOE for oil and gas operations for the year 2016.

    - Operating cash flows totalled $612 million for fourth-quarter 2015 and $3.2 billion (including $0.4 billion in working capital sources and changes in other tax payments) for the year 2015. Based on current sales volume and cost estimates and assuming average prices of $2.00 per pound for copper, $1,100 per ounce for gold, $4.50 per pound for molybdenum and $34 per barrel for Brent crude oil, operating cash flows for the year 2016 are expected to approximate $3.4 billion (net of $0.6 billion in idle rig costs).

    - Capital expenditures totalled $1.3 billion for fourth-quarter 2015 (including $0.6 billion for major projects at mining operations and $0.5 billion for oil and gas operations) and $6.35 billion for the year 2015 (including $2.4 billion for major projects at mining operations and $3.0 billion for oil and gas operations). Capital expenditures for the year 2016 are expected to approximate $3.4 billion, including $1.4 billion for major projects at mining operations and $1.5 billion for oil and gas operations, and excluding $0.6 billion in idle rig costs.

    - In response to further weakening in market conditions in fourth-quarter 2015 and early 2016, FCX today announced additional initiatives to accelerate its debt reduction plans and is actively engaged in discussions with third parties regarding potential transactions. These initiatives follow a series of actions taken during 2015 to reduce costs and capital spending to strengthen FCX's financial position.

    - Since August 2015, FCX has sold 210 million shares of its common stock and generated gross proceeds of approximately $2 billion under its at-the-market equity programs.

    - At December 31, 2015, consolidated debt totalled $20.4 billion and consolidated cash totalled $224 million. At December 31, 2015, FCX had no amounts drawn under its $4.0 billion credit facility.

    Richard C. Adkerson, President and Chief Executive Officer, said, "As we enter 2016, our clear and immediate objective is to restore FCX’s balance sheet and position the Company appropriately to enhance shareholder value in the current market environment. We are responding swiftly and decisively to achieve this objective. Our high-quality asset base provides opportunities for significant debt reduction while retaining a substantial business with attractive low-cost, long-lived reserves and resources that will enable our shareholders to benefit from improved conditions in the future. We achieved several important operational milestones during the fourth quarter while taking aggressive actions to adjust our plans in response to the decline in prices for our primary products.”$0.02Share/11246126.html

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    Freeport-McMoRan pledges to cut up to $10 billion debt, questions smelter deposit

    Freeport-McMoRan Inc, the U.S. mining and oil group, on Tuesday made its strongest pledge yet to reduce its massive debt, saying it wants to lop off as much as $10 billion through proceeds from a mix of asset sales and joint ventures.

    Freeport also reported a lower-than-expected fourth-quarter loss, and the shares jumped as much as 12 percent.

    At one point, the stock fell on concerns about securing an important Indonesia copper export permit before Thursday's deadline.

    Freeport faces "serious challenges" because of weak copper and oil prices and the massive debt on its balance sheet, Chief Executive Officer Richard Adkerson said on a conference call.

    "We are addressing this seriously and with a degree of urgency and we're very focused on it," he said, mentioning a debt restructuring target of $5 billion to $10 billion for the first time.

    Freeport's shares have tumbled 80 percent in the past year from the double whammy of falling oil and copper prices and $20 billion in debt.

    Credit default swaps showed investors pricing in slightly less risk of a Freeport default after the results. Still, the massive premium demanded to insure Freeport debt implies a better-than-85 percent chance of default within five years.

    Freeport was in talks with a number of parties on joint ventures or sales involving its copper assets, any of which could be sold at the right price, he said.

    The company continues to weigh alternatives for its oil and gas assets.

    Freeport expects to make "significant" progress on debt reduction in the first half of 2016, Adkerson said, but declined to give a time frame for the $5 billion to $10 billion target.

    Freeport, the biggest U.S.-listed copper producer, suspended its annual dividend last year and made cuts to capital spending and copper output.

    Adkerson did not rule out another equity issue but said Freeport was focusing on assetsales and joint ventures.

    Excluding charges of $4.1 billion, Freeport reported an adjusted net loss of $21 million, or 2 cents a share, better than analysts' estimates of a loss of 17 cents.

    Freeport questions Indonesia's demand for smelter deposit


    Indonesia's demand that Freeport McMoRan Inc pay a deposit for a new smelter to continue exporting copper concentrate is "inconsistent" with an agreement reached between the two sides in mid-2014, the firm's CEO said on Tuesday.

    Indonesia's government has said the U.S. mining giant must provide a $530 milliondeposit by Thursday to prevent a possible halt in copper concentrate exports from its massive Grasberg mine in the province of Papua.

    A halt in exports would deal a blow to Freeport's profits and deny the Indonesian government desperately needed revenue from one of the country's biggest taxpayers. It would also buoy global prices of the metal that have slipped 6 percent so far this year on worries over a glut.

    The U.S. firm's six-month export permit for its Indonesian unit is due to expire on Thursday, said Didi Sumedi, an official at the trade ministry, correcting a statement earlier this week that said the deadline was Tuesday.

    "Certain officials with the ministry of energy and mines have suggested that we should continue to pay an export duty and that we should make a sizeable escrow deposit to support the smelter development," Freeport CEO Richard Adkerson said on a call following the announcement of its Q4 financial results.

    "These points are inconsistent with the arrangements that we had worked with the government in mid-2014."

    Those agreements said Freeport must sell the government a greater share of the Grasberg copper and gold mine and invest in domestic processing to win an extension of its contract beyond 2021.

    Adkerson said discussions with the government were ongoing, and he was confident a new export license would be issued.

    Jakarta wants the $530-million deposit as a guarantee

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    Oil and Gas

    Russia beats Saudis as top China crude supplier for 4th month in 2015

    Russia beat out Saudi Arabia as China's top crude oil supplier for the fourth month in 2015 in December due to robust demand from independent Chinese refiners that prefer shipments from the Far East over high-sulphur barrels from the Middle East.

    Russia strengthened its position in Asia by supplying nearly a quarter more crude to the region in 2015, shifting the balance of power in one of the few bright spots in the global market and blunting the Organization of the Petroleum Exporting Countries' high-profile drive to win customers.

    China is one of the top targets for Russian oil after small, independent oil plants nicknamed "teapots" won the right to import crude for the first time just several months ago and hectically started placing orders towards the end of last year.

    "These new plants were in a rush to use new quotas. But logistically they are not equipped to buy larger shipments from the Middle East or West Africa," said a Beijing-based official involved in marketing Middle Eastern oil.

    "Russian cargoes, like ESPO, suit them."

    China's December imports from Russia hit a record of 4.81 million tonnes, or 1.13 million barrels per day (bpd), up 29 percent over a year ago, Chinese customs data showed.

    Imports from Saudi Arabia, the world's top exporter, were down 1.2 percent on year last month at 1.05 million bpd.

    "It's not quite unexpected that Russia has surpassed Saudi Arabia in becoming the largest crude supplier to China once again. This has been partly driven by greater demand from teapots," said Wendy Yong of FGE Consultancy.

    Russia outpaced most of the top suppliers last year in boosting sales to China, with volumes up 28 percent or nearly 186,000 bpd over 2014, partly attributable to increased sales via the ESPO pipeline and also shipments by rail.

    That compared with Saudi Arabia's 1.8-percent growth last year and the 12.3-percent rise in Iraqi supplies.

    As China's No.2 supplier last year, Russia could further narrow the gap with the Saudis in 2016, as demand is expected to grow from the teapots that have together won 1.45 million bpd in crude quotas, or about 20 percent of China's total imports.

    China, Iran's largest oil client, bought 12 percent less Iranian crude oil in December versus a year ago at 530,600 bpd, taking imports for the whole of last year down 3.1 percent over 2014, according to data from the General Customs Administration.

    The 3.1 percent fall in 2015 imports, averaged at around 532,300 bpd, was largely because of an outage at one of Iran's regular clients, a private petrochemical maker that was forced to shut its plant after a fire in April for safety checks.

    Iran, which emerged from years of economic isolation earlier this month, has extended annual contracts with its top two Chinese buyers - Sinopec Corp and Zhuhai Zhenrong Corp - at steady volumes for 2016, and is discussing ramping up exports with other potential buyers in China.

    Sinopec, Asia's top refiner, and state trader Zhuhai Zhenrong are together contracted to lift around 505,000 bpd of Iranian crude in 2016, roughly half of the Islamic Republic's total current exports.
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    Oil Slump Wipes $2.3 Billion Off Dong as IPO Plans Continue

    Dong Energy, the Danish state-backed utility preparing for an initial public offering, said the rout in oil markets will force it to write down the value of a unit that had been the focus of spin-off speculation.

    Dong will write down its exploration and production division by 16 billion kroner ($2.3 billion), but said it will keep the unit as it continues to prepare for an IPO that is due to take place early next year.

    The decision follows a strategic review by JPMorgan of the E&P unit. Several analysts had speculated that Dong’s owners, which besides the Danish state include Goldman Sachs and pension funds ATP and PFA, would opt to spin off the E&P unit in order to offer potential Dong shareholders a company focused on green energy.

    “It’s natural that Dong Energy, as is the case with other companies in the industry, adjusts to the market conditions for oil and gas,” Finance Minister Claus Hjort Frederiksen said in an e-mail.
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    Lower prices hits Oil Search bottom line

    Despite reporting strong production in the December quarter, ASX-listed Oil Search reported a 10% decline in revenue for the fourth quarter, on the back of lower oil prices. 

    Total production during the quarter under review reached 7.51-mllion barrels of oil equivalent, which was up 1% on the 7.42-million barrels produced in the previous quarter. The Papua New Guinea liquefied natural gas project delivered 5.73-million barrels of oil equivalent, while the base LNG oil and gas business contributed 1.79-million barrels of oil equivalent. 

    “Following a strong performance from both the PNG LNG project and our operated oil fields during the fourth quarter, 2015 full-year production was 29.3-million barrels of oil equivalent, which was an all-time record for the company and above the top-end of our 27-million to 29-million barrels equivalent guidance range,” said Oil Search MD Peter Botten. 

    The PNG LNG project produced at a yearly rate of 7.6-million tonnes a year, up from the 7.4-million tonnes in the third quarter, and some 10% higher than the nameplate capacity of 6.9-million tones. Despite the increase in production, total revenue for the fourth quarter reached $342.9-million, which was 10% lower than the third quarter, largely owing to the drop in global oil and gas prices. 

    Product sales for the fourth quarter was also 3% lower than the September quarter, owing to timings of liftings. “Oil Search is in the very fortunate position of having a range of producing assets with low operating costs and small sustaining capital requirements. 

    Based on the current cost structure, the company would generate positive operating cash flow even if oil prices fell to $20/barrel,” Botten added. He pointed out that a number of changes had been made to the company’s organisational structure and internal processes in 2015, to improve efficiencies and reduce costs. Further, almost all third-party contracts have been renegotiated or were being reviewed, in line with reduced forward work programmes and current market conditions.

    “Given the recent further sharp decline in oil prices, we are using the information gained through the 2015 business optimisation programme to actively prioritise further cost reduction opportunities across our business. Our overall strategy, however, remains unchanged, with a strong focus on Papua New Guinea, where we have a major competitive advantage, and our high-value growth projects,” Botten said. 

    Given the downturn in oil prices in recent months, the company was also carrying out a review of impairment across all of its assets.
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    API data show U.S. crude supplies jumped 11.4 million barrels

    The American Petroleum Institute late Tuesday reported that crude supplies climbed by 11.4 million barrels for the week ended Jan. 22, according to sources who reviewed the report. The more closely watched EIA report is due Wednesday. On average, analysts polled by Platts show expectations for a crude supply increase of 3.5 million barrels.
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    Distress in the Shale Oil Patch Spurs New Type of Joint Venture

    Joint ventures between oil and gas explorers in the U.S. and their foreign counterparts helped fuel the shale boom. They’re coming back in a new iteration for the bust.

    The difference this time: Shale explorers are partnering with Wall Street financiers to raise money for drilling, instead of overseas rivals.

    Typically, private equity firms invest in energy by buying entire companies or providing capital to startups. Last year, U.S. oil and gas companies struck a half-dozen joint venture deals with private equity firms totaling at least $1.4 billion. In December, an affiliate of Fortress Investment Group agreed to provide National Fuel Gas Co. with as much as $380 million to fund wells in Pennsylvania, while Blackstone Group LP’s credit arm closed a similar deal in July with Linn Energy LLC.

    Such transactions could accelerate this year as explorers face a cash crunch amid a rout in commodity prices. They are essentially a source of off-balance sheet financing for producers with good land but less than stellar credit. The way they are structured makes such deals akin to a homeowner renting out a room to keep the lights on.

    “It’s tough times in the oil patch,” said Ron Gajdica, co-head of energy acquisitions and divestitures with Citigroup Inc. in Houston. “The traditional ways of raising money are not available.”

    Joint ventures with private equity firms are fairly complex but have a simple premise. The investor pays for a certain number of new wells in exchange for a temporary majority stake in each well it funds. After booking a specified return, the financier surrenders most of its ownership interest back to the explorer.

    They make sense right now because low commodity prices means producers are facing budget shortfalls, and they’re losing access to other types of funding.

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    Hess to Cut Capital Spending 40 Percent on Low Oil Prices

    Hess Corp. said it will cut capital spending on exploration and production this year 40 percent from 2015 to $2.4 billion on low oil prices.

    The New York-based oil and natural gas producer previously said it would spend between $2.9 billion and $3.1 billion in 2016, according to a statement Tuesday. The company affirmed its production forecast of between 330,000 barrels of oil equivalent a day and 350,000 barrels for 2016.
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    Noble Energy Cuts Spending, Dividend to Preserve Cash

    Noble Energy Inc. said it will cut spending and investor payouts to save cash as oil has slumped about 70 percent since mid-2014.

    The Houston-based producer is reducing its capital spending program 50 percent for 2016 to $1.5 billion, according to a statement Tuesday. Its quarterly cash dividend will be reduced by 8 cents to 10 cents per common share.

    “The decision to adjust the quarterly dividend, along with a substantially reduced and flexible capital program for 2016, is part of a comprehensive effort to spend within cash flow and manage the Company’s balance sheet,” Chief Financial Officer Kenneth M. Fisher said in the statement. “We also intend to reduce leverage in this environment.”

    The investment level the producer is planning for 2016 is expected to deliver annual sales volumes of approximately 390,000 barrels of oil equivalent per day, which is consistent with the full-year 2015 pro-forma amount, the company said.

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    Continental Resources slashes 2016 budget by 66 percent

    Continental Resources Inc, North Dakota's second-largest oil producer, said on Tuesday it would slash its 2016 capital budget by 66 percent as it tries to preserve cash amid tumbling crude prices.

    Led by billionaire wildcatter Harold Hamm, Continental plans to spend $920 million this year, down from $2.7 billion in 2015.

    The cut comes just after rival Hess Corp (HES.N) and Noble Energy Inc (NBL.N) slashed their own 2016 budgets, adding to a chorus of company executives chanting that the plunge in oil prices has made it all but impossible to turn a profit.

    Oklahoma City-based Continental, for instance, said it would not become profitable until oil prices CLc1 return to $37 per barrel.

    Hamm famously cancelled Continental's oil hedges in the fall of 2014, a bold bet that now appears misguided as the price of crude has only tumbled since then, dragging down Continental's profitability.

    Yet Hamm showed little sign of remorse on Tuesday, betting that oil prices will jump before 2017.

    "We are dedicated to preserving the value of our premier assets and building operational efficiencies in preparation for crude oil prices to stabilize and start recovering later this year," Hamm said in a statement.

    The company does plan to cut its oil output this year by 10 percent from 2015 levels to roughly 200,000 barrels of oil equivalent per day (boe/d), a recognition that it can no longer afford to extract and sell oil from the more-than 1 million acres it controls at depressed prices.

    The largest plurality of Continental's 2016 budget spending will be in North Dakota's Bakken shale, which the company helped make a global oil play.

    Oklahoma's SCOOP shale formation will receive the next-largest share of the budget, followed by other Oklahoma fields and well repair projects.

    Overall, Continental plans to complete 71 wells this year, a sharp drop from 2015. The company said it will delay bringing online most of its North Dakota wells this year, increasing its count of drilled-but-uncompleted wells from 135 in December to 195 at the end of 2016.

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    Painted Pony announces capital reductions while maintaining forecast production profile

    Painted Pony Petroleum Ltd. is pleased to announce that due to further realized capital efficiencies, the 2016 capital spending program has been reduced by 8% to $197 million from a previous estimate of $215 million. Forecast 2016 production volumes remain unchanged and are expected to average approximately 138 MMcfe/d (23,000 boe/d) with daily production volumes expected to exceed 240 MMcfe/d (40,000 boe/d) by year end 2016. Painted Pony also anticipates a reduction in estimated 2017 capital spending of 15% or $52 million to $298 million from a previous estimate of $350 million. Painted Pony maintains previously forecast 2017 average daily production volumes of approximately 288 MMcfe/d (48,000 boe/d).

    Further Improved Capital Efficiencies

    The efficiencies achieved over the six most recent completions have contributed to a reduction in drilling, completion and equipping costs per well to $5.4 million from previous budget estimates of $5.9 million per well. This reduction is the result of a significant increase in the number of frac stages completed per operational day, reduced water usage, and other efficiencies. Painted Pony has been able to complete the most recent four net wells in three days per well versus the previously estimated four days per well resulting in significant cost savings. The benefits of this operational effectiveness is expected to continue to provide cost reductions going forward.

    As a result of these efficiencies, the Corporation has been able to further reduce its 2016 capital spending forecast to $197 million, which represents a reduction of 31% from the original five-year plan capital spending estimate in early 2015 of $287 million and a reduction of 8% from the 2016 capital budget of $215 million announced in November 2015. Similarly, the lower drilling, completion and equipping costs have positively impacted the Corporation's 2017 capital spending forecast. When combined with reduced infrastructure costs, the revised forecast of $298 million represents a reduction of 31% from the original five-year plan capital spending estimate in early 2015 of $435 million and a reduction of 15% from the 2017 capital spending estimate in November 2015 of $350 million.

    AltaGas Propane Export Facility

    AltaGas Ltd. recently announced plans to build a propane export terminal in the Prince Rupert area at Ridley Island, British Columbia. (Please see AltaGas press release dated January 20, 2016.) As part of Painted Pony's strategic alliance with AltaGas, Painted Pony has the right to be a supplier for a portion of the Ridley Island Propane Export Terminal's capacity. This will allow Painted Pony's propane to access world prices. AltaGas indicated it is working towards reaching a final investment decision in 2016.
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    Canada to set climate change tests in pipeline reviews: Trudeau

    Canadian Prime Minister Justin Trudeau pledged on Tuesday to require that environmental reviews of oil pipelines and LNG export projects consider greenhouse gas effects, and said it was not his role to be a cheerleader for such projects.

    The Liberal government said the new rules would be rolled out within days, and that they would take into account not just the greenhouse gas emissions from a proposed pipeline or liquefied natural gas terminal but also its "upstream" effects, meaning the impact of oil and gas production.

    Trudeau did not make clear how much weight would be applied to the emissions. U.S. President Barack Obama rejected TransCanada Corp's Keystone XL pipeline from Canada last year, citing the effect it could have on climate change.

    "The federal role is to put into place a process by which TransCanada and any other company could demonstrate that their projects are in the public interest and could have public support," Trudeau told reporters after meeting Montreal Mayor Denis Coderre, who opposes TransCanada's Energy East pipeline.

    Energy East would carry 1.1 million barrels of crude oil from Alberta and Saskatchewan across numerous provinces to refineries and export terminals in eastern Canada.

    "What we are going to roll out very soon, as we promised in our election campaign, is to establish a clear process which will consider all the greenhouse gas emissions tied to a project, which will build on the work already done."

    The Liberals have pledged to strengthen Canada's environmental process and have been working on a transition plan for projects currently under review to ensure they adhere to a higher standard without having to return to square one.

    The new rules would apply to major pipeline and LNG projects like TransCanada's Energy East, Kinder Morgan's Trans Mountain expansion and the Petronas-led Pacific NorthWest LNG export terminal.

    Projects with existing environmental certificates and pipelines regulated on a provincial level would not be impacted.

    Ali Hounsell, spokeswoman for the $5.4 billion Trans Mountain project, said it was too soon to comment on the impact of the new rules but added the company would be eyeing changes to timing.

    "When you look at additional process, the key issue for us is timeline," she said. "A small delay in timeline can result in a longer delay on the other end."

    TransCanada said it is prepared to work with government to ensure the "safe and environmentally sound" transport of resources to market.

    Trudeau has promised the new process would give the various levels of government, scientists and indigenous people the opportunity to take part in decision-making.
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    Cheniere delays Sabine Pass completion date

    U.S.-based LNG player Cheniere Energy has postponed the completion date for the first liquefaction train at its Sabine Pass LNG export terminal in Louisiana.

    “Actual project progress supports the achievement of substantial completion for Trains 1 and 2 by May 2016 and August 2016, respectively,” Cheniere said in the latest construction report filed with the U.S. FERC.

    These dates are two months later than the company predicted in the November report.

    Houston-based Cheniere has also delayed the first cargo from the Sabine Pass liquefaction project to late February or March 2016.

    The first commissioning cargo from the liquefaction and export facilty in Cameron Parish, Louisiana was initially expected to occur by late January.

    Cheniere also delayed the substantial completion date for the second Sabine pass liquefaction train to August from June.

    Trains 3 and 4 targeted substantial completion dates remained April 2017 and August 2017, “with schedule recovery expected in the summer of 2016 as labor resource is transitioned from Stage 1 onto Stage 2″, Cheniere said in the report.

    Cheniere is building liquefaction and export facilities at its existing import terminal located along the Sabine Pass River on the border between Texas and Louisiana.

    The company plans to construct over time up to six liquefaction trains, which are in various stages of development. Each train is expected to have a nominal production capacity of about 4.5 mtpa of LNG.

    Cheniere’s Sabine Pass liquefaction facility will be the first of its kind to export cheap and abundant U.S. shale gas to overseas markets.
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    China on course to meet 2020 nuclear capacity targets -official

    China is on course to meet its target to raise its total installed nuclear capacity to 58 gigawatts (GW) after a resumption in new project approvals last year, an official with the country's nuclear agency said on Wednesday.

    Xu Dazhe, the chairman of the China Atomic Energy Authority, told reporters that China now had 30 reactors in operation, with a total capacity of 28.3 GW. Another 24 units are now under construction, with a total capacity of 26.7 GW, following the approval of eight new reactors last year, Xu said.

    "At this speed, the targets to put 58 GW into operation and have another 30 GW under construction by 2020 are still within our plans," he said at a briefing on nuclear safety.

    Of the total now in operation, 28 are commercial nuclear projects. According to the China Nuclear Energy Association, they generated 169 billion kilowatt-hours of power last year, up 29.4 percent from 2014.

    China suspended new reactor approvals and launched a nationwide inspection of all its nuclear projects in 2011 after a massive earthquake and tsunami sparked meltdowns at an ageing nuclear plant in Japan's Fukushima.

    While some countries have vowed to phase out their nuclear reactor fleet as a result of safety concerns and growing public opposition, China is now embarking on the world's biggest nuclear construction programme as part of its efforts to ease its dependence on coal.

    China also aims to become a leading global reactor builder, and has signed preliminary agreements with countries such as Argentina and Romania to export technology, including its flagship "Hualong I" reactor design.

    Chinese state nuclear firms are also set to help finance a controversial reactor at Britain's Hinkley Point after signing a deal with France's EDF last year.

    Two of China's key advanced reactor projects - the world's first Westinghouse-designed AP1000 at Sanmen in Zhejiang province and an Areva EPR reactor at Taishan in Guangdong province - have been repeatedly delayed due to safety concerns.

    Similar EPR units in Flamanville in France and Finland's Olkiluoto are both years behind schedule. Xu said that despite the delays at Taishan, construction was still the fastest of all the world's EPRs.

    "Why has it been delayed? Because safety has been put in an important position," he said. "As soon as there is a problem, we must resolve it and carry out follow-up work."
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    DuPont forecasts higher 2016 earnings, helped by cost cuts

    DuPont forecast higher 2016 earnings, helped by aggressive cost-cutting to offset continued pressure from a strong dollar and weakness in its farm business.

    The company forecast full year operating earnings of $2.95-$3.10 per share, including an expected benefit of 64 cents per share from its cost cutting and restructuring plan.

    DuPont and Dow Chemical Co (DOW.N) are in the process of a merger that would create a company with an estimated combined market capitalization of about $130 billion as of Dec. 11, when the deal was announced. The companies plan to then break up into three separate standalone businesses.

    "Our merger process is on track," DuPont Chief Executive Edward Breen said on Tuesday.

    "We are meeting key milestones and have begun our planning to create three strong, highly focused, independent businesses in agriculture, material science and specialty products."

    The company reported a quarterly profit of 27 cents per share, excluding items, that slightly beat analysts' average estimate of 26 cents.

    However, including restructuring and other charges of $622 million, the company reported a quarterly net loss.

    Net loss attributable to the company was $253 million, or 29 cents per share, in the fourth quarter ended Dec. 31, from $683 million, or 74 cents per share, a year earlier.

    Net sales fell 9.4 percent to $5.3 billion.
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    Precious Metals

    China Dec gold imports through Hong Kong highest since 2013

    China's net gold imports for December via main conduit Hong Kong surged to the highest in more than two years, data showed on Tuesday, as investors lost faith in collapsing stock markets and a weakening currency and snapped up bullion.

    Net gold imports by China, the world's top consumer, jumped to 129.266 tonnes last month from 79.003 tonnes in November, according to data emailed to Reuters by the Hong Kong Census and Statistics Department.

    That was the highest monthly number since October 2013 when imports stood at 131.190 tonnes.

    As China's equities slumped and its yuan currency finished 2015 with a record yearly loss, "people looked at other investment alternatives that's why there was huge demand for gold," said Brian Lan, managing director at gold dealer GoldSilver Central in Singapore.

    China's gross gold imports via Hong Kong reached 152.158 tonnes in December, the highest since March 2013.

    For all of 2015, China's net gold imports rose to 861.7 tonnes from 813.1 tonnes in 2014.

    China's gold imports this year might approach the all-time high of 1,158.16 tonnes hit in 2013, said Lan, but are unlikely to top that.

    "We expect to see a pickup in the China market especially in the first quarter. (This year) will be better than the past two years but is unlikely to beat 2013 when there was a big crash in prices," said Lan.

    Spot gold ended a 12-year rally in 2013, with prices tumbling 28 percent, and the values have fallen further in the two following years to their lowest levels since 2010.

    Gold touched a 12-week high on Tuesday of $1,117.60 an ounce, benefiting from safe-haven bids as stocks and oil tumbled again.

    China does not provide trade data on gold, and the Hong Kong figures serve as a proxy for flows to the mainland.

    The Hong Kong data might not provide a full picture of Chinese purchases as imports through Shanghai and Beijing, for which no data is available, gathered pace last year.
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    Something Snapped At The Comex

    There had been an eerie silence at the Comex in recent weeks, where after registered gold tumbled to a record 120K ounces in early December nothing much had changed, an in fact the total amount of physical deliverable aka "registered" gold, had stayed practically unchanged at 275K ounces all throughout January.

    Until today, when in the latest update from the Comex vault, we learn that a whopping 201,345 ounces of Registered gold had been de-warranted at the owner's request, and shifted into the Eligible category, reducing the total mount of Comex Registered gold by 73%, from 275K to just 74K overnight.

    Image titleThis took place as a result of adjustments at vaults belonging to Scotia Mocatta (-95K ounces), HSBC (-85K ounces), and Brink's (-21K ounces).

    Meanwhile, the aggregate gold open interest remained largely unchanged, at just about 40 million ounces.
    Image title
    This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the "coverage ratio" that shows the total number of gold claims relative to the physical gold that "backs" such potential delivery requests, - or simply said  physical-to-paper gold dilution - just exploded.
    Image title
    As the chart below shows - which is disturbing without any further context - the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday's close there was a whopping 542 ounces in potential paper claims to every ounces of physical gold. Call it a 0.2% dilution factor.


    To be sure, skeptics have suggested that depending on how one reads the delivery contract, the Comex can simply yank from the pool of eligible gold and use it to satisfy delivery requests despite the explicit permission (or lack thereof) of the gold's owner.

    Still, the reality that there are just two tons of gold to satisfy delivery requsts based on accepted protocols should in itself be troubling, ignoring the latent question why so many owners of physical gold are de-warranting their holdings.

    Considering there are now less than 74,000 ounces of Registered gold at the Comex, or just over 2 tonnes, we may be about to find out how right, or wrong, the skeptics are, because at this rate the combined Registered vault gold could be depleted as soon as the next delivery request is satisfied. Or isn't.

    Attached Files
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    Steel, Iron Ore and Coal

    China 2015 coking coal imports down 23.1pct on year

    China’s coking coal imports slumped 23.1% on year to 47.83 million tonnes in 2015, showed the latest data from the General Administration of Customs (GAC).

    The value of the imports saw a yearly plummet of 41.2% to $3.81 billion, the GAC said.

    The average price of imported coking coal was $79.68/t in 2015, dropping 24% or $25.21/t from 2014’s $104.89/t.

    In December last year, China imported 4.45 million tonnes of coking coal, falling 41.1% on year but 9.34% higher than the month-ago level.

    The value of the December imports was $274.44 million, plunging 59.6% year on year and down 3.65% on month.

    In 2015, China exported 970,000 tonnes of coking coal, a year-on-year rise of 21.5%, with December’s exports standing at 120,000 tonnes, up 33% on year and rising 20% on month, data showed.

    The value of the exports in 2015 was $103.93 million, up 2.9% on year with December’s value at $11.08 million, down 3.4% from the year prior but up 86% on month.
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    China 2015 thermal coal imports down 38pct on year

    China’s imports of thermal coal—including bituminous and sub-bituminous coals– fell 38.17% on year to 83.21 million tonnes in 2015, according to the latest data released by the General Administration of Customs.

    Total value of thermal coal imports during the same period stood at $4.85 billion

    Thermal coal imports in December stood at 7.43 million tonnes, falling 0.37% from a year ago but up 0.14% from November, data showed.

    In addition, lignite imports in 2015 reached 48.26 million tonnes, down 24.6% from the year prior.

    Lignite imports in December stood at 3.55 million tonnes, sliding 36% on year and down 6% on month.

    In addition, China exported 1.33 million tonnes of thermal coal in 2015, down 49% year on year, with December exports at 39,467 tonnes, dropping 73.5% from a year ago and down 43.4% from November.

    Lignite exports in 2015 plunged 61.5% on year to 3,858 tonnes, with December exports fell 48.6% on year and down 74.8% on month to 533 tonnes.

    Attached Files
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    Rio Tinto sells Australia coal mine to Indonesia's Salim

    Global miner Rio Tinto has agreed to sell one of its last remaining coal mines in Australia to a group owned by Indonesia conglomerate Salim Group, continuing an exit from coal as it battles a sharp slump in prices, it said on January 25.

    Rio was selling its Mount Pleasant thermal coal assets in the Hunter Valley in New South Wales to a private company, MACH Energy Australia Pty Ltd. -- an entity owned by Salim Group, for $224 million plus royalties.

    The royalties from the mine would only be paid when coal prices top $72.50/t, well above the current price of $47.37/t.

    "We believe Mount Pleasant can have a very positive future under its new owners with different priorities for development and capital allocation," Rio Tinto copper and coal chief executive Jean-Sebastien Jacques said in a statement.

    The sale of the Mount Pleasant mine, which has marketable reserves of 474 million tonnes, follows Rio Tinto's sale of its stake in the Bengalla joint venture last year for $606 million and leaves it with the Hunter Valley Operations and Mount Thorley Warkworth mines.
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    Shandong to cap coal consumption in 2016

    Eastern China’s Shandong province planned to further cap coal consumption of 2016, which was expected to be 10 million tonnes less than that in 2012 at some 380 million tonnes, in the hope of alleviating air pollution, Xinhua News Agency reported, citing local government authorities.

    The reduction volume of coal consumption will be allocated to 17 cities of the province, mainly targeting major coal-guzzling enterprises of these cities.

    By 2017, 10 million tonnes more coal consumption will be cut in the province compared to 2016.

    In addition, environmental protection authorities will set up a quality standard for “San Mei”, the main culprit to blame for the heavy pollution in northern China.

    In 2014, Shandong consumed a total 396 million tonnes of coal, ranking the No.1 in China, and coal consumption accounted for 80.8% of the total energy use of the province, 14 percentage points higher than the national average level.

    The official data on Shandong’s coal consumption last year hasn’t been available yet.
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    China's run-of-mine iron ore output falls 7.7% on year to 1.38 bil mt in 2015

    China's run-of-mine iron ore output fell by 7.7% on year in 2015 to 1.38 billion mt, latest data released by the National Bureau of Statistics Monday showed.

    The fall was less than the minimum 10% drop expected by market participants. The decline in 2015, however, was in contrast to the 3.9% year-on-year rise seen in 2014.

    China's independent iron ore miners suffered most due to the low price environment and had to shut mines towards the end of last year.

    "I shut my three mines one after another over November-December 2015, so for my own operations, [the output decline] is even more than 10%," a source at a 2 million mt/year iron ore mine in Liaoning province said Tuesday.

    With price of 64%-Fe iron ore concentrate dropping below Yuan 300/wet mt ($46/wmt) in Liaoning, the source said it was meaningless to keep mines in operation amid stiff competition from better and more affordable Australian and Brazilian iron ore imports.

    Australian and Brazilian iron ore supplies accounted for about 85% of the country's total consumption in 2015, up from around 65% a decade ago, according to official data.

    China's iron ore concentrates typically have 64-66% ferrous content and are used for either sintering or pelletizing.

    The steel mills, on the other hand, were not impacted much.

    A North China steel mill's mining operation source said their run-of-mine iron ore output had, in fact, gone up in 2015.

    "We sold all our iron ore output to our steel mills, so we have not resorted to production cuts. Most of the mines that belong to Chinese steel mills have been running more or less at full rates," he said.

    China's steel mills own 70%-80% of the country's total run-of-mine iron ore production capacity, according to industry sources. As such, most of the mines will keep operating as long as they can supply their concentrates to their own downstream processes, and will be little impacted by slump in international prices, add the sources.

    China's iron ore mining operations are mainly located in the provinces of Liaoning, Hebei, Anhui, Shandong, Inner Mongolia and Sichuan. Independent mines located in Anhui and Shandong were hurt the most by the price declines in 2015, market sources said.
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