Mark Latham Commodity Equity Intelligence Service

Monday 19th October 2015
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    China’s GDP Growth Beats Forecasts, and rumours of stimulus.


    China’s economy expanded quicker than economists forecast in the third quarter as the services sector propped up the world’s second-largest economy, suggesting monetary and fiscal stimulus is keeping Premier Li Keqiang’s 2015 expansion target within reach.

    Gross domestic product rose 6.9 percent in the three months through September from a year earlier, the National Bureau of Statistics said Monday, beating economists’ estimates for 6.8 percent. Still, that was the slowest quarterly expansion since the first three months of 2009, based off previously announced data.

    A stronger services sector and robust consumption are helping offset weakness in manufacturing and exports. The government has cut interest rates five times since November and boosted infrastructure spending in recent months to keep growth from sliding too far below this year’s target for about 7 percent.

    "It’s what we call the two-speed economy," said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. "The manufacturing slowdown is the bigger problem for the Chinese economy in the near term."

    The pace of growth in the services sector quickened to 8.4 percent in the third quarter, while so-called secondary industry -- which includes manufacturing -- weakened to a 6 percent expansion.

    Industrial output in September rose 5.7 percent from a year earlier, compared with economists’ median estimate of 6 percent. Retail sales increased 10.9 percent, versus a 10.8 percent gain forecast for the month.

    Fixed-asset investment climbed 10.3 percent in the first nine months from the same period last year, compared to a median projection of a 10.8 percent increase. That’s the slowest pace of gains since 2000.

    The slower growth of both industrial production and fixed-asset investment prompted some economists to question the reliability of the GDP data.

    "We don’t have total confidence in the numbers, and we are surprised by the acceleration in services output given the collapse in the equity market," Bloomberg economists Tom Orlik andFielding Chen wrote in a note. "However, tax revenue -- difficult to fake -- is up 5.2 percent year on year in the eight months to August and the gap with nominal GDP growth is narrowing."

    Bloomberg’s monthly GDP tracker slowed to 6.55 percent in September from 6.64 in the prior month.

    Reflecting the slowdown in the nation’s old growth drivers, power consumption declined 0.2 percent from a year earlier in September. A slowdown in property investment and excess industrial capacity have weighed on industries from steel to cement, leaving the economy on track for its slowest full-year expansion in 25 years.

    http://www.bloomberg.com/news/articles/2015-10-19/china-s-gdp-growth-beats-forecasts-as-stimulus-supports-spending

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    China Sept power output falls 3.1 pct on yr -stats bureau


    China generated 454.8 billion kilowatt-hours (kWh) of power in September, down 3.1 percent from the same month last year, the country's statistics bureau said on Monday, with industrial demand still under pressure as the economy slows.

    Power generation growth has been falling this year as a result of declining consumption levels in downstream industries like steel, which are struggling with crippling rates of overcapacity and weak prices.

    With China trying to ease its fossil fuel dependence, the slowdown in electricity demand has had a pronounced impact on China's thermal power plants, usually responsible for about three-quarters of the country's total electricity.

    The predominantly coal-fired generators produced 314.6 billion kWh of power in September, down 3.6 percent on the year and accounting for 69 percent of the total. Thermal power production over the first three quarters has fallen 2.2 percent, compared to a 0.1-percent increase in overall generation.

    The drop in thermal power in September could have been more severe had it not been for a decline in hydropower volumes over the period. Hydro generation fell 6.7 percent on the year to 107.5 billion kWh, with reservoir storage levels still lower than the same period of 2014.

    With the power market in surplus, grid companies have been able to take on cleaner sources of electricity without disrupting supplies, and utilisation rates at China's coal-fired power plants have been dropping.

    Average utilisation rates at China's thermal power plants fell by 265 hours in the first three quarters of the year, the National Energy Administration said in a separate release on Monday.

    Falling demand from thermal power plants has helped drag Chinese coal production down by 2.2 percent in September and 4.3 percent in the first three quarters as a whole.

    The NEA said total power consumption in September reached 456.3 billion kWh, down 0.2 percent compared to the same month last year, with industrial consumption dropping 2.9 percent over the period.

    Total generation capacity, measuring generating units of 6,000 kilowatts or more, reached 1,385 gigawatts by the end of September, up 9.4 percent compared to the same period of last year. Thermal power stood at 947.22 GW, up 6.8 percent.

    http://www.reuters.com/article/2015/10/19/china-economy-output-power-idUSL3N12J1PO20151019

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    SKF sends gloomy signal on industrial demand after weak Q3


    Sweden's SKF, the world's top bearings maker, painted a downbeat picture for the industrial sector on Friday, forecasting lower demand ahead as a global slowdown gathered pace amid sharp sales declines in North America and Asia.

    SKF, viewed as a manufacturing bellwether with its bearings found in products ranging from skateboards to wind turbines, posted a surprise drop in third-quarter core earnings, and said it needed to cut costs further given the market conditions.

    "The expected weakening of market demand that we flagged for in July materialised and gathered pace during the quarter, especially in Asia and North America," SKF Chief Executive Alrik Danielson said in a statement.

    "Entering the fourth quarter, we expect the macro-economic uncertainty to continue and as a consequence we expect demand in the fourth quarter to be slightly lower sequentially."

    SKF's like-for-like sales tumbled 5 percent in the quarter, with North America down 11 percent and Asia down 8 percent. Europe fared better in the quarter, down 1 percent.

    Investor worries over China, SKF's biggest Asian market, have intensified over the summer amid stock market turmoil, slumping car sales and weakening industrial gauges in the world's second largest economy.

    U.S. factories have also shown vulnerability to the chill in global economy, with their growth slowing in September.

    SKF, which derives more than 70 percent of its operating profit from its industrial markets unit, said sales to the energy sector had been one of few bright spots in China.

    SKF shares, which had lost over a third of their market value since a mid-April peak, fell a further 4.6 percent by 1143 GMT, the worst performer in the STOXX Europe 600 Industrial Goods & Services Index.

    "It is quite obvious that significant restructuring is needed next year, so analyst estimates need to be cut radically," Handelsbanken Capital Markets analyst Peder Frolen said.

    Shares of Nordic industrial peers dropped after SKF's earnings, with mining equipment makers Atlas Copco and Sandvik both down more than 3 percent.

    SKF, a rival of Germany's Shaeffler AG, said adjusted operating profit fell to 1.98 billion Swedish crowns ($240.32 million) from a year-ago 2.09 billion on the back of a weak demand, lagging a mean forecast of 2.28 billion in a Reuters poll of analysts.

    http://www.reuters.com/article/2015/10/16/skf-results-idUSL8N12G2LH20151016

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    Investors may face rough ride if Canadian election leads to political instability


    Given there is a good chance that Monday's Canadian federal election will not give one party control of the country's parliament, investors may want to brace for a period of political instability that could dent Canadian financial markets. The already weakened Canadian dollar could be most vulnerable to a further drop, market participants warned.

    Most recent polls have been suggesting the most likely outcome is a center-left Liberal minority government, with a lesser possibility that the ruling Conservatives will be in a position to form a minority government. Either of them would need the support of another party to govern

    The Liberals and left-leaning New Democratic Party (NDP) have telegraphed that they would not support Conservative Prime Minister Stephen Harper if he formed a minority administration. Under that scenario, they could bring down such a government and either offer to form an alternative minority government or trigger a new election.

    The Liberals have said they will not go into a formal coalition with the NDP, though there is always the possibility that stance could change once the votes are in.

    "What we could see is pressure on the currency more than anything else," said John Stephenson, head of Stephenson & Co Capital Management, noting it would be especially hard for a minority Conservative administration to govern.

    Liberal leader Justin Trudeau has pledged to run budget deficits to fund infrastructure spending, which could boost the stocks of engineering, construction and equipment companies, though it may take a toll on government bond prices in the near-term. Both the Conservatives and the NDP have stressed they will balance the budget.

    http://www.reuters.com/article/2015/10/19/canada-election-investors-idUSL1N12E1SF20151019
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    Oil and Gas

    Saudi commercial stocks at record.

    Saudi Arabia, the world’s largest oil exporter, is storing record amounts of crude in its quest to
    maintain market share as it cut shipments.

    Commercial crude stockpiles in August rose to 326.6 million barrels, the highest since at least 2002, from 320.2 million barrels in July, according to data posted on the website of the Riyadh-based Joint Organisations Data Initiative. Exports dropped to 7 million barrels a day from 7.28 million.

    “The fall in Saudi crude exports reflects the market reality,” Mohammed Ramady, an independent London-based analyst, said Sunday by phone. “It’s normal to see this fall knowing that the market is becoming highly competitive, with many countries in OPEC selling at discounts and under-pricing the Saudi crude.”

    Crude inventories have been at record highs since May, a month before Saudi Arabia’s production hit an all-time high of 10.56 million barrels a day. The nation has led the Organization of Petroleum Exporting Countries in boosting production to defend market share, abandoning its previous role of cutting
    output to boost prices.

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    Saudi Arabia Said to Delay Contractor Payments After Oil Slump


    Saudi Arabia is delaying payments to government contractors as the slump in oil prices pushes the country into a deficit for the first time since 2009, according to three people with knowledge of the matter.

    Companies working on infrastructure projects have been waiting six months or more for payments as the government seeks to preserve cash, the people said, asking not to be identified as the information is private. Delays have increased this year and the government has also been seeking to cut prices on contracts, the people said.

    Saudi Arabia is tackling the slump in crude, which accounts for about 80 percent of revenue, by tapping foreign reserves, cutting spending and selling bonds. Net foreign assets fell by about $82 billion at the end of August after reaching an all-time high last year. The country has raised 55 billion riyals ($15 billion) from debt issuance this year. The government is also seeking to cut capital spending and delay projects.

    “It’s hard to hold back from boosting spending when oil is on the rise, but very hard to cut when oil prices fall,” Simon Williams, chief economist for central and eastern Europe, the Middle East and North Africa at HSBC Holdings Plc, said in e-mailed comments. “Cuts are coming -- the budget deficit is too large to ignore and pretend it’s business as usual.”

    Payment delays could slow the completion of projects under construction, including the $22 billion Riyadh metro, and curb the expansion needed to create jobs for a rising population. In the past, government spending has been a catalyst for growth. For example, when authorities announced $130 billion in social spending in 2011, the economy expanded 10 percent. This year, growth will probably be about 3 percent, according to data compiled by Bloomberg.

    A spokesman for the finance ministry declined to comment.

    http://www.bloomberg.com/news/articles/2015-10-19/saudi-arabia-said-to-delay-contractor-payments-after-oil-slump

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    Russia ready to discuss oil-price bands, output cuts with OPEC


    Economic Times Russia said that it’s prepared to discuss crude- price ranges and output cuts when it meets with the Organization of Petroleum Exporting Countries next week.

    Mr Alexander Novak, Russia’s energy minister, said that “So far, we have not seen any proposals except for the one that concerns production cuts. We are not ruling out altogether the possibility of discussing the issue, both with OPEC and non-OPEC countries.”

    Following a meeting with other oil producers in Vienna last November, Novak said Russia doesn’t have the ability to reduce or increase output quickly because of the harsh winters and complex geology at its Siberian fields. While previous attempts by Russia and OPEC to cooperate on cutting production have failed, the government is under increased budgetary pressure after the nation entered its first recession in six years.

    Mr Novak said that Russia still believes production cuts are “inefficient” as they only result in short-term price gains. Any artificial price increases lead to investment inflows and, in turn, to price declines.

    Mr Igor Sechin, chief executive officer of Russia’s largest oil producer OAO Rosneft, said that Saudi Arabia is “actively dumping” its supply and expanding in Europe, traditionally a key market for Russian exports.

    http://steelguru.com/gas-oil/russia-ready-to-discuss-oil-price-bands-output-cuts-with-opec/437062#tag

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    China preliminary Sept implied oil demand down 0.1 pct yr-on-yr


    China's implied oil demand fell slightly in September from the same period last year even as passenger car sales rose for the first time in six months.

    China consumed roughly 10.13 million barrels per day (bpd) of oil in September, down 0.1 percent from a year ago, and down 1.3 percent from August, according to calculations based on preliminary government data.

    The fall came as Chinese auto sales climbed 2.1 percent in September from a year earlier, according to an industry association last week.

    Daily implied oil demand is the sum of domestic refinery throughput and net imports of refined products, not counting adjustments for inventory changes.

    The latest throughput and net import figures put China's implied oil demand in the first nine months of 2015 at 10.35 mln bpd, up 3.9 percent from the same period last year.

    The year-to-date growth is running behind the International Energy Agency's most recent forecast for Chinese demand in 2015, which was revised higher to 4.9 percent earlier this month.

    Reuters will publish more detailed demand calculations later in August, broken down by product and adjusted for estimated changes in fuel stocks based on data yet to be released.

    In September, Chinese refineries C-CNREFPROC processed 0.5 percent more crude oil than a year ago at 10.32 million bpd. That was down 1.1 percent from August on a daily basis. Refinery runs in the first nine months of the year were at 10.38 million bpd.

    The National Bureau of Statistics will provide a breakdown of output by refined products later this week.

    China's domestic crude output rose 2.7 percent to 4.32 million bpd in September and recorded the same percentage growth in the first nine months of the year, the statistics bureau data showed.

    http://www.reuters.com/article/2015/10/19/china-economy-oil-demand-idUSL3N12J15F20151019

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    China heads for record crude buying year as cargoes snapped up


    As China closes in on the United States as the world's biggest crude oil importer, demand from private refiners and stockpiling of cheap oil is expected to keep imports at record levels after a wobble in the third quarter.

    Despite slower growth in recent months - crude imports rose just 1.3 percent in September on a year earlier - buying for October-November delivery has picked up strongly, traders and analysts say.

    The purchases will ease concerns of a sharp slowdown in Chinese buying and support prices in coming months, analysts said.

    The increased buying has shown up in tanker movements and freight rates, said Energy Aspects analyst Virendra Chauhan, and analysts are upgrading earlier forecasts for second half growth.

    "Despite a slowing Chinese economy, crude imports remain robust on the back of accelerated stockpiling activities into operating and commercial storage," said Wendy Yong, analyst at oil consultancy FGE.

    Since July, China has also granted nearly 700,000 bpd of crude import quotas to small refiners, known as "teapots", or roughly 10 percent of China's current total imports, as part of efforts to boost competition and attract private investment, creating a new source of demand.

    "The teapots are super-active," said one oil trader, with many racing to fill their new quotas.

    And state-owned refiners are restocking after a third-quarter lull. Unipec, the trading arm of Asia's top refiner Sinopec, bought 6 million barrels of North Sea Forties crude and 2.9 million barrels of Russian ESPO for loading this month, and it has also stepped up Angolan crude purchases for November.

    To accommodate the oil, new storage tanks on southern Hainan island have either been put to use or are due to be filled with crude from end-2015.

    FGE expects China's crude imports in the second half to rise by 12 percent from a year ago, up from a previous estimate of 10 percent. It forecast China's crude imports to rise 9 percent for the year.

    Such a rise would take Chinese imports to 6.75 million barrels per day, not far off U.S. imports of 7.3 million bpd. China's imports outpaced the United States in April were roughly on par in September.

    http://www.reuters.com/article/2015/10/19/china-oil-idUSL3N1221O420151019

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    Reliance Profit Rises 14% on Refining Margins, Weak Rupee


    Reliance Industries Ltd.’s second-quarter profit climbed 14 percent as gross refining margins widened at the operator of theworld’s biggest oil-refinery complex and a weakening rupee boosted export earnings.

    Net income increased to 65.61 billion rupees ($1 billion) in the three months ended Sept. 30 from 57.42 billion rupees a year earlier, the Mumbai-based company said Friday in a stock exchange statement. That beat the 58.8 billion-rupee mean of 12 analyst estimates compiled by Bloomberg. Sales fell 37 percent to 608.17 billion rupees.

    Mukesh Ambani-controlled Reliance is hoping to cut energy costs at its 1.24 million barrels-a-day Jamnagar refinery complex in the western state of Gujarat as well as petrochemical units by using synthesis gas and imported ethane as feedstock. Lower costs will help the company boost margins and face competition from China, which exported a record volume of fuel in August.

    Asian refiners, including Reliance, have benefited from lower crude prices in the third quarter with Brent averaging about half of what it was a year ago. The company is also betting on a fourth-generation telecommunications network, which is expected to start later this year.

    “Refining and petrochemical companies in India should do well on the back of higher refining margins compared with the year ago period,” Sudip Shah, London-based chief executive officer at Orbit Investment Securities Services Plc said before the earnings. His clients hold Reliance Industries’ bonds.

    The adjoining refineries at Jamnagar have a combined capacity of 1.24 million barrels a day and can process cheaper, lower grades of crude into high-value products. Brent oil, the global benchmark, averaged about $51 a barrel in the quarter.

    Reliance earned $10.6 for every barrel of crude it turned to fuels in the quarter, compared with $8.3 a year earlier and $10.4 in the preceding three months, according to the statement.

    http://www.bloomberg.com/news/articles/2015-10-16/reliance-net-income-rises-14-on-higher-refining-margins

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    Regulator orders encashing 25pct of GAIL’s bank guarantee


    LiveBusiness Line reported that the Petroleum & Natural Gas Regulatory Board has ordered the encashing of 25 per cent of GAIL (India)’s performance bank guarantee for failing to achieve financial closure for the Surat-Paradip pipeline project.

    The board found that GAIL failed to achieve financial closure for the project even after 42 months. The company had been given the authorisation to lay a 1,724-km natural gas pipeline from Surat in Gujarat to Paradip in Odisha in 2012.

    On September 30, the board had passed an order for encashing 25 per cent of the bank guarantee.

    However, this order was challenged in the Delhi High Court by GAIL (India).

    On October 10, the Delhi High Court gave the company one week to satisfy the PNGRB with respect to its financial capabilities, the regulator said in its October 13 order.

    Following the development, PNGRB asked GAIL (India) to furnish proof of tying up funds from banks or a company resolution approving the allocation of funds for the project.

    PNGRB said that “On hearing the representative of GAIL, we find that neither any error in the order dated September 30 has been pointed out nor any resolution of the Board of Directors of GAIL has been placed before us and moreover, no other reason could be placed which could convince the Board to re-look into its earlier decision.”

    http://steelguru.com/gas-oil/regulator-orders-encashing-25pct-of-gail-s-bank-guarantee/436939#tag

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    Parex provides operations and third quarter production update


    Parex Resources Inc., a company focused on Colombian oil exploration and production, provides an operational update.

    Q3 Production.

    Quarterly (Q3 July 1-Sept 30, 2015) production grew to 27,375 barrels of oil per day compared to Q2 2015 production of 27,025 bopd and from Q3 2014 production of 25,175 bopd

    Jacana 2015 Discovery (LLA-34, 55% WI, Non-op)

    The Jacana-2 well was drilled to a depth of 11,092 feet approximately 820 meters northeast of the Jacana-1 well in the direction of the Tigana field. The well encountered potential oil bearing zones in both the Mirador and Guadalupe formations. The Guadalupe reservoir was tested with the use of an electric submersible pump and after 112 hours, a total of 3,941 barrels of 15 API oil had been recovered at an average rate of 845 bopd. The production rate on the final day of testing was 1,152 bopd with a water-cut of 0.5% and a producing drawdown of 20% indicating a production capability beyond the limitation of the current testing facility. The long term testing facility for the Jacana field has been completed and the Jacana-1 well is currently producing approximately 1,800 bopd with a watercut of 1%. 

    Tilo 2014 Discovery (LLA-34, 55% WI, Non-op)

    The Tilo-2 appraisal well was drilled 740 meters southwest of the Tilo-1 discovery well in the direction of the Tigana field to delineate the Guadalupe reservoir. The well encountered two potential oil bearing sections in the Guadalupe reservoir. The lower Guadalupe reservoir was the first zone that tested over a 53 hour period with the use of an ESP. The well recovered a total of 1,358 barrels of oil for an average production rate of 615 bopd. The final measured water-cut from the well was 88% indicating that a water contact is present in the wellbore. The well was recompleted into the upper Guadalupe reservoir and tested for a period of 144 hours. A total of 4,851 barrels of 14 API oil was recovered from the test at an average rate of 809 bopd and a final rate of 857 bopd with a water-cut of 12% .

    Bazar 2015 Discovery (LLA-26, 100% WI, Operated)

    The Bazar-2 well was drilled approximately 2.2 kilometers northeast of the 2015 Rumba-1 discovery and 1.1 kilometers northeast of the Rumba-2 appraisal well. The well encountered similar potential oil bearing zones in the Mirador formation as Rumba-1 and Rumba-2 wells and was tested in the upper Mirador zone with the use of an ESP. The well was tested for a period of 183 hours and recovered a total of 14,267 barrels of 18 API oil at an average rate of 1,871 bopd and a final facility restricted rate of 2,300 bopd with a water-cut of 1% .

    Q4 Guidance

    Capital expenditures for 2015 are estimated to be $140-$145 million. Fourth quarter 2015 oil production is forecast to be 28,500 bopd, an increase of 7% from production of 26,544 bopd for the fourth quarter of 2014. As at June 30th 2015, Parex had no bank debt, an undrawn credit facility of USD$200 million and working capital of approximately USD$90 million.

    http://www.oilvoice.com/n/Parex-provides-operations-and-third-quarter-production-update/3955b80c8ad6.aspx
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    BP Plc and China's CNPC will next week unveil a strategic alliance

    BP Plc and China's CNPC will next week unveil a strategic alliance

    BP Plc and China's CNPC will next week unveil a strategic alliance to develop oil resources in Iraq and other regions, industry sources said on Friday.

    The deal, one of several high profile deals to be signed during a visit by Chinese President Xi Jinping to London, will aim to bolster cooperation between the two companies in Iraq, where they are developing the giant Rumaila oilfield.

    Rumaila, in southern Iraq, is the world's second largest oilfield and produced 1.34 million barrels per day in 2014, according to BP's website.

    The two companies will also seek to expand into new joint ventures in other parts of the world, according to the sources. No clear production or investment targets are expected to be included in the deal, they said.

    State-owned China National Petroleum Corp is Asia's largest oil producer and parent of PetroChina Co Ltd...

    http://www.reuters.com/article/2015/10/16/bp-china-idUSL8N12G2HD20151016
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    Niko Resources provides corporate debt update


    Niko Resources Ltd. provides the following updates:

    The previously disclosed waiver of certain financial covenants and undertakings under the facilities agreement (as amended) with the institutional lenders of its US$340 million senior term loan facilities and a related forbearance agreement expired on October 15, 2015.

    The Company is in negotiations with its senior lenders to extend the covenants in the third amendment to the facilities agreement and to extend the forbearance period in the forbearance agreement entered into on September 22, 2015, and expects to complete these negotiations next week. The Company has been advised that the senior lenders will not seek to enforce any of their rights under the amended facilities agreement during this period.

    http://www.scandoil.com/moxie-bm2/news/niko-resources-provides-corporate-update-2.shtml
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    Alternative Energy

    Investment in renewables up 7%


    Investment in renewable energy rose by 7% in the third quarter (Q3) of this year.

    That’s according to Clean Energy Pipeline, a data service dedicated to the green energy sector, which said investment totalled $75.4 billion (£49.01bn) during the same period.

    It believes the funding will surpass the $286 billion (£185.9bn) recorded in 2014.

    Finance in clean energy projects totalled $53.4 billion (£34.7bn), a 21% increase in Q3 driven by a 51% increase in the Asia-Pacific region. It saw a record volume of $24.1 billion (£15.6bn) of investment.

    On the other hand, project finance in Europe fell 38% annually to $9.1 billion (£5.9bn), a three-year low, the report added.

    That was caused by a slump in the number of projects financed. Only 93 renewable energy projects in Europe secured financing, it stated.

    Arond 23.4GW of renewable energy capacity was acquired in Q3, a record high, according to Clean Energy Pipeline.

    Thomas Sturge, Head of Research at Clean Energy Pipeline said: “The most striking feature of last quarter’s investment figures was the sharp decrease in European project finance. This should not come as a surprise. There is still plenty of appetite to invest in renewables but swingeing subsidy cuts in some of Europe’s major markets during the last three years have significantly reduced deal flow.”

    http://www.energylivenews.com/2015/10/16/investment-in-renewables-up-7/
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    China's wind power capacity to hit 120 gigawatts by end of 2015


    China's wind power capacity is to hit 120 gigawatts by the end of 2015, according to the National Energy Administration (NEA) on Friday.

    Zhu Ming, deputy director of the NEA's new and renewable energy department, said wind power capacity has reached 105 gigawatts by the end of June this year.

    He stressed wind power generation has become an important part of the country's electricity supply, and needs more subsidies, better technology and management.

    By the end of 2020, China aims to increase non-fossil energy to 15 percent of total primary energy consumption, and sharply enhance the ratio of renewable energy in production.

    http://en.chinamining.com.cn/News/2015-10-19/1445218949d74133.html
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    Precious Metals

    El Nino halts Papua New Guinea gold mine-Barrick


    Operations at the Porgera gold mine in Papua New Guinea have been suspended due to drought conditions, part owner Barrick Gold said on Monday, the latest mine in the Asia-Pacific to be disrupted by El Nino-induced dry weather.

    Production had been halted due to low levels of water in the mine's reservoir, used in processing the raw ore, operator Barrick (Niugini) Ltd said in a statement to Reuters.

    "Some water-intensive production activities at the mine have been temporarily suspended during this extended dry season, and we are using this opportunity to bring forward some scheduled maintenance activities," it said.

    "The very unusual extended dry conditions that we have seen in recent months have meant that our supplies of production water have run very low, and we have made the decision to shut down our milling and processing plants for the time being to conserve our water supplies."

    Barrick earlier this year forecast Porgera would yield 400,000-450,000 ounces of gold in 2015, down from its peak years of around 900,000 ounces when it was regarded as one of the world's foremost deposits.

    http://www.reuters.com/article/2015/10/19/barrick-gold-porgera-elnino-idUSL3N12J28720151019
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    Base Metals

    Antofagasta slows pace of exploration in cost cuts drive

    Antofagasta slows pace of exploration in cost cuts drive

    Chilean copper producer Antofagasta Plc has cut back on exploration activities, its chief executive said, part of plans to save about $160 million this year.

    Like its peers, London-listed Antofagasta is battling a slide in commodity prices as a result of slowing growth in China, the world's top consumer of industrial metals. London copper prices are recovering from six year lows hit in late August.

    Antofagasta Chief Executive Diego Hernandez told Reuters late on Thursday that the company was on track with its cost savings plan for the year.

    "We are doing less things than we were doing before. We have reduced our exploration, we continue to do exploration but at a lower pace," Hernandez said.

    "Studies we can postpone we have postponed and we have reorganised some areas in our mines and head office to improve productivity and costs."

    Antofagasta Minerals, the group's operational division, said earlier this month it was reducing its workforce by around 7 percent to cut costs.

    As the industry battles sinking prices, major miners including Glencore and U.S.-listed Freeport have cut production as prices fall towards levels where some operations are no longer economically viable.

    But Hernandez said Antofagasta was not planning to suspend its production as the company's operations have positive operating margins.

    Family-controlled Antofagasta operates the Los Pelambres mine, which produced just over 400,000 tonnes of copper last year out of Chile's total 5.8 million tonnes. It also has smaller operations and is ramping up its new Antucoya project.

    Antofagasta's Los Pelambres had been affected by water shortages, but the situation was now improving, Hernandez said.

    "In Pelambres area we went through probably four years of drought and this year we have had a normal year in terms of rain and we should recover our water stocks," he said.

    http://www.reuters.com/article/2015/10/16/metals-lmeweek-antofagasta-idUSL8N12E31620151016
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    Indonesian battle over Freeport threatens to mar leader's US trip


    Indonesian ministers are battling over control of U.S. mining giant Freeport-McMoRan's future in the country, threatening to mar the president's first trip to the United States later this month.

    President Joko Widodo starts a five-day trip to Washington and San Francisco on Oct. 25, as investor sentiment in Southeast Asia's largest economy brightens following a cabinet reshuffle and a series of new stimulus measures.

    One of Widodo's first stops will be with Freeport executives at a breakfast ahead of his meeting with U.S. President Barack Obama, according to a tentative schedule obtained by Reuters.

    At the heart of talks will likely be Freeport's years-long bid to renew its contract, allowing the firm to continue operating beyond 2021 at the lucrative Grasberg mine in Papua, one of the world's biggest deposits of gold and copper.

    Freeport wants certainty to spend $18 billion to build what would be the world's biggest underground mine. But under law the government cannot begin to renegotiate until 2019, two years before the contract expires.

    A mines ministry official said this month the rules were being revised, possibly allowing companies to propose an extension earlier.

    Mines minister Sudirman Said assured Freeport in a letter last week that the government would "promptly" approve a contract extension once it completes the process later this year.

    "For the government, it is better to make a decision instead of delaying the problem. If it's postponed, it will burden the government," Said Didu, the minister's senior adviser, told reporters when asked about Freeport's contract extension.

    But Said's boss, chief natural resources minister Rizal Ramli, and security czar Luhut Pandjaitan have sharply criticized Freeport's 48-history in Indonesia and say a contract extension will not be decided for at least another four years.

    "We have a regulation ... 2019, two years before the contract expires," Pandjaitan told Reuters late Thursday. "We cannot change our regulation just because of Freeport."

    The mines ministry has dismissed statements from the two senior ministers on the issue, saying they do not have the authority to decide on such matters.

    Didu said the mines ministry has Widodo's support to extend the company's contract as quickly as possible.

    "The president doesn't want many parties involved in this negotiation with Freeport because, based on experience, many parties have political and business interests."

    But when reporters asked the president on Friday to provide some clarity, Widodo said: "The extension can be done two years before the end of the contract, it means 2019."

    http://www.reuters.com/article/2015/10/16/indonesia-freeport-idUSL3N12G2NT20151016

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    Chuquicamata goes underground

    Calama (Chile), Oct 18 (EFE) .- The Chuquicamata copper mine, Codelco of Chile, is immersed in a mega project that will transform the world's largest underground reservoir and prolong its life over half a century.

    The project, which will invest 4,200 million dollars (about 3.7900 billion) and work about three thousand people, is a marvel of engineering and includes unique processes and technologies in the mining industry.

    "Converting an open pit that leads exploited over a hundred years in an underground mine is unique in the world, there is a challenge equivalent today of the scale of what Codelco is doing," he told Efe Victor Perez, Manager of Business Planning and Market Development Company.

    Nestled in the northern region of Antofagasta, in the Atacama Desert and near the city of Calama, Chuquicamata mine is a flagship state-owned Codelco and for many years was mining at the world's largest open pit.

    The site, which last year produced over 340,000 metric tons of copper, was one of the stalwarts of Codelco during the last decade, when the super cycle of commodity prices brought him millions in income to the Chilean public coffers.

    The price of copper has fallen and Codelco has implemented severe austerity plan. But late last century, long before it reached the current situation, the company began to study the possibility of converting Chuquicamata into an underground mine.

    Engineers discovered that under the current pit pampers there are at least 4,300 million tons of ore.And the Chuquicamata underground project, which will be operational in 2019, aims to exploit 1.760 million tons of copper ore and molybdenum up to 2058, equivalent to 140,000 tonnes per day.

    The huge amount of copper reserves that lie underground and other operating factors led Codelco to conclude that the best alternative was an underground operation, which is unusual in the world of copper, told Efe Edisson Pizarro, director of Innovation and Applied Technology of the project.

    "Transportation costs are increasingly high. For the depth of the pit, each truck has to travel about 20 kilometers to go, carrying mineral and out," said Pizarro, an expert in underground mining that has spent four years working on the project Chuquicamata underground.

    It has also affected the sustained decline in copper grade, which is the concentration of minerals in rocks and the material is removed.

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    Copper producer jumps 30% on takeover offer


    Aditya Birla Minerals, headquartered in India, closed up 30.56% Friday on close to triple average volumes, after an $86 million takeout attempt by Australia's Metals X Limited. Metals X is offering one of its shares for every five Aditya shares at a price of 27.4 cents a share – a 60 percent premium on the 17 cents a share Aditya was trading at before the announcement. ABY on Friday closed at 23.5 cents, bringing the market cap up to $73.46 million.

    The deal however is by no means done. Sydney Morning Herald reported on Monday that the bid was "subject to numerous conditions, including a 90 per cent minimum acceptance condition". The newspaper also quotes Metals X CEO Peter Cook as saying that the bid was designed to "crystallize" a response from the Aditya board and its majority shareholder, Hindalco Industries also of India, after it received no response to a number of friendly offers earlier this year.

    Bombay-based Aditya Birla Group is among the largest producers of primary aluminum in Asia. It has two copper mines in Australia, the Mount Gordon mine in northwest Queensland, and the Birla Nifty mine located 120 kilometres from Mount Isa, one of the largest underground mines in the world, producing copper and zinc-lead-silver. Late last year Aditya announced it would unload its Mount Gordon mine, a promise it made good on in September, selling to Lighthouse Mineral Holdings Pty for around $10.8 million. Copper concentrate from the Birla Nifty mine is trucked to Port Hedland for shipping to Hindalco Copper’s Dahej smelting and refining facility in India.

    Metals X is Australia's largest tin producer, operating the Renison mine in Tasmania. It also has nickel and gold operations, including the Higginsville and South Kalgoorlie operations in Western Australia.

    http://www.mining.com/copper-producer-jumps-30-on-takeover-offer/
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    Hindustan Zinc to Invest 83.6 Billion Rupees to Expand Capacity


    Hindustan Zinc Ltd., India’s biggest miner of the metal, plans to spend 83.6 billion rupees ($1.3 billion) in the next three years to ramp up mine and smelter capacities.

    The company plans to increase zinc and lead ore mine production in Rajasthan state by 41 percent to 12.8 million metric tons a year and metal output to 1.028 million tons annually from 850,000 tons, the unit of the London-listed Vedanta Resources Plc said in an e-mailed statement on Friday. Hindustan Zinc is also looking to expand all its underground mines, it said.

    The investment comes after Vedanta Resources said earlier this week that the company won’t be following Glencore Plc in cutting zinc output after prices slumped this year as it’s “rational” to maintain its low-cost production. Zinc made up 37 percent of Vedanta Resources’ 2014-15 pretax earnings, and it may benefit from the supply cutbacks, according to Bloomberg Intelligence.

    Hindustan Zinc’s investments will also include a 500,000 tons-a-year di-ammonium phosphate plant to be set up in Udaipur at an estimated cost of 13.5 billion rupees, Hindustan Zinc said. The new plant would be built in the next three years and generate employment for more than 7,000 people, it said.

    Vedanta’s oil unit Cairn India Ltd. has also announced an investment of 125 billion rupees in the next three years in Rajasthan to develop its Mangla-Bhagyam extended oil recovery polymer project, Mangla-Aishwariya in-fills and set up a sulphate removal plant, according to the statement.

    Shares of Hindustan Zinc rose 4.8 percent to close at 154.25 rupees in Mumbai on Friday, the highest level since Aug. 7. The advance pared losses to 9.5 percent this year.

    http://www.bloomberg.com/news/articles/2015-10-16/hindustan-zinc-to-invest-83-6-billion-rupees-to-expand-capacity

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    Chinalco plans shutdown of biggest aluminium smelter-report


    Aluminum Corp of China (Chinalco), the country's top producer of the metal, plans to shut down its biggest smelter - accounting for about an eighth of its total capacity - due to low prices, an industry body said.

    The shutdown reflects mounting pressure on even state-owned companies in the face of slower economic growth and a planned restructure of state-owned enterprises, although it is not expected to have much impact on a forecast domestic output surplus this year.

    Chinalco vice president Jiang Yinggang announced the shutdown of the Liancheng smelter in the northwestern province of Gansu last week during a visit with other company officials, according to a report on the website of industry body China Nonferrous Metals Industry Association.

    The smelter has an annual capacity of about 550,000 tonnes, analysts said, compared with Chinalco's total capacity of more than 4 million tonnes.

    Liancheng was Chinalco's worst performing smelter and the company had been unable to turn it around, the report said, citing Jiang.

    Liancheng had recorded losses of 1.99 billion yuan ($313 million) since 2011 due to high production costs and weak aluminium prices, which had fallen up to 36 percent during the period.

    Production costs at Liancheng averaged 13,860 yuan ($2,180) a tonne in the first 8 months of this year, Jiang said. This compared to an average in China of about 12,840 yuan and 11,330 yuan a tonne for the lowest cost producer, he said.

    Jiang said that in the current market it would be difficult for aluminium prices to rebound to 13,000 yuan.

    The report gave no details on the timing of the shutdown, but Xu Hongping, an analyst at China Merchants Futures, said it should be completed by end-November.

    Chinalco could close more loss-making smelters if prices stayed weak in coming months as it looks to maintain profits, an executive at a smelter in Guizhou province told Reuters.

    Its listed unit swung to a net profit in the first half of this year after posting a record loss in 2014.

    http://www.reuters.com/article/2015/10/16/chinalco-aluminium-outputcut-idUSL3N12G1Y120151016

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    Steel, Iron Ore and Coal

    China unveils rankings of top coal production bases in 2014


    China National Coal Association (CNCA) released the list of top 8 coal producing provinces based on their actual output in 2014.

    There were eight provinces with 2014 coal output above 100 million tonnes, with Inner Mongolia at 984.25 million tonnes, Shanxi at 976.7 million tonnes, and Shaanxi at 515 million tonnes, said the CNCA on October 13.

    Coal output of top 8 Chinese producing provinces in 2014
     
    Rankings
    Province
    Output (Mt)
    1
    Inner Mongolia
    984.25
    2
    Shanxi
    976.7
    3
    Shaanxi
    515
    4
    Guizhou
    185.06
    5
    Shandong
    148.18
    6
    Xinjiang
    141.96
    7
    Henan
    137.69
    8
    Anhui
    132.55



    http://en.sxcoal.com/0/133070/DataShow.html
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    Green worries keep foreign banks away from $3.3 bln Coal India sale


    India's plan to raise as much as $3.3 billion from selling a 10 percent stake in Coal India Ltd could be thrown off course by global investment banks under pressure from environmental groups to steer clear of the share sale.

    Several senior executives at foreign investment banks in Mumbai said 'green' concerns had clouded Coal India since its listing five years ago, and few were keen to take on a deal that could tarnish their public image.

    The pressure in a country where economic growth frequently trumps environmental concerns comes at a convenient time for banks. Many operating in India are under pressure to be more selective when it comes to roles that are heavy on staff but light on returns. The government pays a fee of just 1 rupee ($0.015).

    Banks' reluctance, say people directly involved in the sale, prompted the government this week to extend the deadline for bids from banks for a third time, and could make it tougher for New Delhi to narrow the fiscal gap.

    The Department of Disinvestment, which oversees stake sales in state firms, has not given a reason for the extensions.

    "This time, the pressure from groups like Greenpeace is very intense, and no one is in a mood to take chances on a deal where you're not going to make money anyway," said one senior investment banker at a foreign bank.

    A second banker at a large European bank said he would struggle to get permission from his bosses. "The pressure is building up," he said.

    An official at the finance ministry, which oversees the disinvestment department, brushed aside concerns the share issue could be derailed, arguing environmental concerns had always been an issue for Coal India.

    But an individual close to Coal India confirmed bankers and investors were under pressure from environmental campaign groups, and a third investment banker said the government was expected to call a meeting to discuss concerns over the sale.

    http://www.reuters.com/article/2015/10/16/coal-india-divestiture-environment-idUSL3N12F2PK20151016
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    Sinosteel extends bond redemption date amid liquidity concerns


    China's state-owned Sinosteel said it had extended the date investors can start redeeming its bonds for a month until Nov. 16 amid reports the debt-laden steel giant had asked investors to hold off seeking repayment due to liquidity problems.

    The extension would allow investors in the debt issued by subsidiary Sinosteel Corp Ltd to have more time to review the matter, the company said in a statement posted on the website of one of the country's main bond clearing houses late Friday.

    In a separate letter seen by Reuters, Sinosteel had asked bondholders of its 2 billion yuan ($315 million) October 2017 bonds not to exercise a put option on Oct 20, the earliest available date, because the company would not be able to make full payment. Some of the company's operations had been halted and it was facing a severe liquidity shortage, the letter said.

    Local and international media reported the contents of the letter, but its authenticity could not be confirmed and Sinosteel did not answer calls requesting comment.

    In the statement posted on the website, Sinosteel offered shares of its Shenzhen-listed subsidiary Sinosteel Engineering & Technology Co Ltd as additional collateral for the debt, as an inducement for bondholders to stay invested.

    Sinosteel had a debt of over 100 billion yuan with debt-to-asset ratio up to 98 percent between 2011 and 2013, according to a report dated in June 2014 issued by China Cheng Xin International Credit Rating (CCXI), a domestic rating agency.

    China's steel sector has been grappling with a slowing economy, oversupply and a hefty debt burden, a legacy of over-investment during the country's infrastructure boom in the wake of the global financial crisis.

    http://www.reuters.com/article/2015/10/19/china-sinosteel-idUSL3N12J1D320151019

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    China crude steel output falls in Sept y/y as demand slows


    China's crude steel output fell 3 percent in September from a year ago to 66.12 million tonnes, government data showed on Monday, as persistent weakness in demand in the world's top producer forced steekmakers to curb output.

    Output in the first nine months of 2015 was down 2.1 percent at 608.94 million tonnes, compared with the same period of last year, data from the National Bureau of Statistics showed.

    With steel prices at their lowest in nearly three decades, steel mills, including big state-owned firms, are expected to cut output further in the fourth quarter.

    "China's steel output has already fallen a lot this year, while we expect more output cuts ahead and some will not be able to survive from cash shortage and heavy losses," said Qiu Yuecheng, analyst at the steel trading platform Xiben New Line E-Commerce in Shanghai.

    China's economic growth eased to 6.9 percent in the third quarter from a year earlier, beating expectations but still the slowest since the global financial crisis, putting pressure on policymakers to roll out more support measures.

    The average daily steel output was 2.204 million tonnes in September, up 2.3 percent from August, according to Reuters' calculation based on the data, driven by a modest seasonal pick-up in demand.

    China's apparent consumption of crude steel peaked last year and dropped 5.5 percent to 477 million tonnes for the first eight months, outpacing a 3.5 percent fall in output, the China Iron & Steel Association said in a report on Oct.10.

    Meanwhile, steel mills have boosted sales abroad to offset shrinking orders in the domestic market, with September shipment hitting an-all time high of 11.25 million tonnes.

    http://www.reuters.com/article/2015/10/19/china-economy-idUSL3N12D36W20151019

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