Mark Latham Commodity Equity Intelligence Service

Friday 8th April 2016
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    Macro

    China's foreign reserves post surprise rise in March


    China's foreign exchange reserves rose slightly in March to $3.21 trillion, the central bank said on Thursday, the first monthly increase since November as cooling expectations of U.S. interest rate hikes eased pressure on the yuan.

    The level of reserves beat a Reuters poll forecast of a drop to $3.18 trillion, and compared with $3.20 trillion in February.

    The mild increase leaves reserves still down sharply from their peak of $3.99 trillion in June 2014.

    Capital outflows from China have moderated, according to recent official data, in part helped by expectations the Fed will slow the pace of interest rate rises this year. Federal Reserve Chair Janet Yellen's comments last week that the U.S. central bank should proceed cautiously in adjusting policy have caused a broad-based retreat in the dollar.

    Central bank governor Zhou Xiaochuan said last month recent data showed a significant easing in capital outflows and short-term speculative money leaving China was not worrisome.

    The central bank reported its net foreign exchange sales fell sharply to 228 billion yuan ($35.2 billion) in February, down from 644.5 billion yuan in January, a sign of decreased government intervention in support of the yuan.

    To be sure, analysts believe that China still faces a tough job keeping the yuan stable, particularly at a time of persistent supply glut and tepid domestic demand. A future U.S. rate hike remains a risk for more disruption to the world's second-largest economy.

    The People's Bank of China has moved to curb currency speculation since late December 2015, including limiting yuan-based funds' overseas investments and implementing a reserve requirement ratio on offshore banks' domestic yuan deposits.

    The foreign exchange regulator is also studying the introduction of a currency trading Tobin tax, part of efforts to penalise speculators.

    China's gold reserves stood at 57.79 million fine troy ounces at the end of March, up from 57.5 million at the end of February, the central bank said on Thursday.

    China began updating its reserve figures on a monthly basis in June 2015. Prior to that, the reserve figures were not updated regularly.

    http://www.reuters.com/article/china-economy-forexreserves-idUSL3N1782KK
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    ‘Sluggish’ 2016 outlook for world trade, WTO warns


    The World Trade Organisation (WTO) warned on Thursday that growth in the volume of world trade was likely to remain sluggish in 2016 at 2.8%, unchanged from levels recorded in 2015, which was the fourth consecutive year where growth in world merchandise trade remained below 3%. 

    WTO economists expected global trade growth to rise to 3.6% in 2017, well below the yearly average of 5% since 1990. In addition, risks to the forecast “tilted to the downside, including further slowing in emerging economies and financial volatility”. 

    The 2016 forecast was premised on world gross domestic growth of 2.4%. Director-general Roberto Azevêdo described the 2015 performance and the 2016 outlook as disappointing, noting, too, that while the volume of global trade had grown, its value had fallen as a result of shifting exchange rates and falls in commodity prices. 

    The dollar value of merchandise trade fell 13% to $16.5-trillion in 2015, from $19-trillion in 2014, while trade in commercial services declined 6.4% to $4.7-trillion. “This could undermine fragile economic growth in vulnerable developing countries. There remains as well the threat of creeping protectionism as many governments continue to apply trade restrictions and the stock of these barriers continues to grow," Azevêdo said. 

    Developed economy imports rose 4.5% last year, but developing countries stagnated at 0.2%, with South America recording the weakest import growth of any region, owing to the recession in Brazil depressing demand. The volume of developed economy exports grew by 2.6% in 2015, while exports from developing countries expanded by 3.3%.

    http://www.miningweekly.com/article/sluggish-2016-outlook-for-world-trade-wto-warns-2016-04-07
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    Animal Spirits Awaken

    ytd     name                                    mcap  ev/ebitda(ltm)
    Image title

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    Brazil's top prosecutor opposes Lula cabinet appointment


    Brazil's top prosecutor recommended on Thursday that the Supreme Court block the appointment of former president Luiz Inacio Lula da Silva as cabinet minister because it was intended to disrupt a corruption investigation.

    Lula's protégée and successor, President Dilma Rousseff, last month named him to be her cabinet chief, ostensibly to help her raise dwindling support among her coalition allies to fight off the threat of impeachment in Congress.

    The appointment would have given Lula some immunity from prosecution by crusading anti-corruption lower court Judge Sergio Moro because ministers and elected officials can only be tried by the Supreme Court in Brazil.

    A recording made public by Moro of a telephone conversation between Lula and Rousseff discussing the appointment appeared to confirm that they were seeking to shield the Workers' Party leader from prosecution and possible arrest in a graft probe.

    In his recommendation to the Supreme Court, Prosecutor General Rodrigo Janot said the cabinet appointment was intended to remove the investigation from the lower court judge and "disrupt" the corruption probe known as "Operation Car Wash."

    Lula is under investigation for allegedly benefiting, in the form of payments and a luxury seaside penthouse, from a massive graft scheme uncovered at state-run oil company Petrobras.

    The widening investigation has caused a political storm that threatens to topple Rousseff, who is facing impeachment over an unrelated accusation of doctoring government budget accounts.

    A Supreme Court judge suspended Lula's appointment on March 18, arguing that it was an illegal move to shield him. The full court must rule on April 20 whether to uphold the injunction issued by Justice Gilmar Mendes.

    It must also decide whether to return the Lula investigation to the lower court.

    Lula, Brazil's first working class president from 2003 to 2010, is still the country's most influential politician, but the delay in his appointment limited his ability to help Rousseff weather the political crisis.

    http://www.reuters.com/article/brazil-politics-lula-idUSL2N17B02E

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    Dirty Truth about the Tesla.

    But this is only true of the car itself; the electricity powering it is often produced with coal, which means that the clean car is responsible for heavy air pollution. As green venture capitalist Vinod Khosla likes to point out, “electric cars are coal-powered cars”.

    If the USA had 10 per cent more petrol cars by 2020, air pollution would claim 870 more lives. A similar increase in electric ones would cause 1,617 more deaths a year, mostly because of the coal burned.

    If we were to scale this to the UK, electric cars would cause the same or more air pollution-related deaths than petrol-powered cars. In China, because their coal power plants are so dirty, electric cars make local air much worse: in Shanghai, pollution from more electric-powered cars would be nearly three-times as deadly as more petrol-powered ones



    Moreover, while electric cars typically emit less CO₂, the savings are smaller than most imagine. Over a 150,000 km lifetime, the top-line Tesla S will emit about 13 tonnes of CO₂. But the production of its batteries alone will emit 14 tonnes, along with seven more from the rest of its production and eventual decommissioning.

    Compare this with the diesel-powered, but similarly performing, Audi A7 Sportback, which uses about seven litres per 100km, so about 10,500 litres over its lifetime. This makes 26 tonnes of CO₂. The Audi will also emit slightly more than 7 tons in production and end-of-life. In total, the Tesla will emit 34 tonnes and the Audi 35. So over a decade, the Tesla will save the world 1.2 tonnes of CO₂.

    Reducing 1.2 tonnes of CO₂ on the EU emissions trading system costs £5; but instead, the UK Government subsidises each car with £4,500. All of the world’s electric cars sold so far have soaked up £9 billion in subsidies, yet will only save 3.3 million tonnes of CO₂. This will reduce world temperatures by 0.00001°C in 2100 – the equivalent of postponing global warming by about 30 minutes at the end of the century.  Electric cars will be a good idea, once they can compete – which will probably be by 2032. But it is daft to waste billions of pounds of public money on rich people’s playthings that kill more people through air pollution while barely affecting carbon emissions. The Tesla 3 is indeed a “zero emissions” marvel – but that is only because it does not yet exist.


    BJØRN LOMBORG

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    EU watchdog expands oversight of energy market trading


    The European Union started on Thursday to amass information about all so-called over-the-counter trades in the region's energy markets in a bid to crack down on suspected price manipulation.

    EU watchdog the Agency for the Cooperation of Energy Regulators (ACER) began collecting data about trades on official energy exchanges within Europe in October but says it can only get a full picture once informal transactions are tracked too.

    Over-the-counter (OTC) trades account for at least two thirds of Europe's multi-billion dollar wholesale power and gas trading markets. The EU has been concerned energy prices could be rigged with inside information, or with tactics used in stock markets such as "layering" where traders bombard systems with orders they do not intend to execute to try to shift prices.

    As a result, the EU launched the Regulation on Wholesale Energy Integrity and Transparency (REMIT) in December 2011, and the watchdog hopes the collection of OTC data will improve the integrity and transparency of the markets.

    There are several hundred companies involved in wholesale electricity and gas trading in Europe with up to 10,000 transactions a day, all of which makes it difficult to nail down whether there has been market manipulation.

    ACER said the REMIT market monitoring framework was unprecedented, not only for the energy sector and its geographic scope, but also for its complexity.

    Since it started tracking exchange transactions on Oct. 7, the EU watchdog had received data on more than 79 million orders and 23 million of trades on the EU's power and gas exchanges by Feb. 15, according to a presentation by the agency.

    The agency declined to say how many alerts had been triggered by its surveillance software so far, or potential market breaches detected, citing confidentiality.

    According to ACER's annual report published last September, out of 58 potential breaches in 2013 and 2014, 26 were related to suspected market manipulation.

    ACER said it proved market manipulation in two out of the 14 cases it closed in 2014, though neither was sanctioned. Estonia and Spain sanctioned two REMIT breach cases in 2015. Both companies in question have appealed.

    The EU watchdog uses market surveillance software SMARTS to monitor trading for suspicious behavior. SMARTS, developed in Australia, was acquired by the U.S. Nasdaq Inc. (NDAQ.O) and is also used to monitor trading in Nordic power derivatives.

    ACER said the surveillance software has been adapted and customized to fit the monitoring of EU wholesale energy markets, though some industry sources were skeptical about whether it would actually spot price manipulation.

    "The agency is confident that the software enables an efficient monitoring of EU energy markets," ACER told Reuters in an emailed statement.

    Still, some industry sources say the software used by the watchdog will have trouble pinpointing transgressions, partly because many of the traded power contracts overlap.

    For example, the price of a quarterly power contract could be moved by trading in monthly contracts, and those can be broken up into weekly contracts, making it more difficult to trace manipulation through trades.

    "ACER will drown in false alarms," one source familiar with the system said. "It will be up to market whistleblowers to bring cases to the prosecution."

    http://www.reuters.com/article/us-eu-energy-remit-idUSKCN0X40SV
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    Oil and Gas

    Iran says determined to regain oil market share: Tasnim news agency


    Iran's foreign minister said on Thursday that Tehran was determined to regain its share of the oil market after sanctions imposed on the country were lifted under a deal reached with six major powers, the semi-official Tasnim news agency reported.

    "Iran wants to regain its place on the oil market ... in cooperation with other oil producing countries," Mohammad Javad Zarif said after a meeting in Baku with Russian Foreign Minister Sergei Lavrov and Azerbaijan Foreign Minister Elmar Mammadyarov.

    Russian Energy Minister Alexander Novak said this week that Iran had confirmed its participation in a meeting in Doha on April 17 to discuss a deal to freeze oil output. Iran has repeatedly said it would freeze its output after it reaches 4 million barrels per day.

    http://www.reuters.com/article/opec-iran-oil-idUSL5N17A2OI

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    Iran Steps Up Offense in Oil Market Battle With Pricing Discount


    Iran ratcheted up its offense in the oil market after breaking a pricing tradition, signaling it’s seeking to win market share at a time when rival producers are trying to forge a deal on freezing output.

    State-run National Iranian Oil Co. will sell the Forozan Blend crude for May to Asia below the level offered by rival Saudi Aramco for Arab Medium, the third month the Persian Gulf state is giving the discount after setting it at a premium for almost seven years through February 2016, data compiled by Bloomberg show. NIOC will also sell the Iranian Light grade to Asian customers at 60 cents below Middle East benchmark prices, a company official said on Friday, asking not to be identified because of internal policy.

    While producers including Saudi Arabia, OPEC’s biggest member, and Russia are due to meet in Doha on April 17 to discuss a deal to freeze output in a step toward clearing a global glut, Iran is determined to regain market share lost over the past few years due to sanctions over its nuclear program. To pry away customers relishing oil that is cheaper than mid-2014 levels by more than 50 percent, the Persian Gulf state is expected to focus on pricing and boosting supply.

    “Unquestionably, since the lifting of sanctions, the Iranians have become a force to be reckoned with in global oil markets,” said John Driscoll, chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. “Their mission is to recapture market share, pure and simple.”

    NIOC will sell the Forozan Blend in May for Asian customers at $2.43 a barrel below the average of the Oman and Dubai benchmark grades, according to the company official. That’s 3 cents lower than state-run Saudi Aramco’s price for the similar Arab Medium variety for a third month, data compiled by Bloomberg show. Forozan was at a premium of 7 cents to the Saudi oil for February sales.

    The Iranian Heavy grade will sell in May to Asia at a discount of $2.60 a barrel to the Oman-Dubai average while the Soroosh variety’s price was set at $5.65 a barrel below Iranian Heavy, according to the official.

    While the key battle for market share will take place in Asia, the world’s biggest oil-consuming region, JTD Energy’s Driscoll sees “vigorous competition” between Iran and other Middle East producers for outlets in other regions such as the Mediterranean and Northwest Europe.

    Saudi Arabia has said it will only freeze output if it’s joined by other suppliers including Iran, while Kuwait has signaled a deal doesn’t hinge on the Persian Gulf state. Iran, meanwhile, plans to boost production to 4 million barrels a day by the end March 2017, according to the nation’s Shana news service, which cited Oil Minister Bijan Namdar Zanganeh.

    “The re-emergence of Iran as a viable exporter post-sanctions will challenge the prevailing status quo within OPEC, as evidenced in the latest debate over the implementation of the output freeze,” Driscoll said.

    http://www.bloomberg.com/news/articles/2016-04-08/iran-steps-up-offense-in-oil-market-battle-with-pricing-discount

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    India's Thirst for Oil Is Overtaking China's


    In the energy world, India is becoming the new China.

    The world’s second-most populous nation is increasingly becoming the center for oil demand growth as its economy expands by luring the type of manufacturing that China is trying to shun. And just like China a decade ago, India is trying to hedge its future energy needs by investing in new production at home and abroad.

    India may have one advantage its neighbor to the northeast didn’t. While China’s binge came during a commodity super-cycle that saw WTI crude reach a high of $147.27 a barrel in 2008 -- due in no small part to its demand -- India’s spurt comes during the biggest energy price crash in a generation. While oil has tumbled more than 50 percent from mid-2014 levels, the South Asian nation spent $60 billion less on crude imports in 2015 than the previous year even while buying 4 percent more.

    “In addition to the boost from low oil prices, structural and policy-driven changes are under way which could result in India’s oil demand taking off in a similar way to China’s during the late 1990s, when Chinese oil demand was at levels roughly equivalent to current Indian oil demand,” said Amrita Sen, chief oil analyst for Energy Aspects Ltd. in London.

    In 1999, China’s economy was less than a 10th of its current size of more than $10 trillion, and bicycles vied for space with taxis and buses on crowded streets in major cities like Shanghai. In the ensuing 17 years the economy, spurred on by foreign investment in manufacturing, grew from the seventh largest in the world to No. 2. Vehicle sales surged and oil demand has nearly tripled since then, positioning the country to overtake the U.S. as the world’s largest crude importer this year.

    China’s thirst for energy sent its companies on an unprecedented buying binge on every continent (except Antarctica), scooping up $169 billion worth of energy assets overseas in the past 10 years, according to data compiled by Bloomberg.

    India’s rise dovetails with a reopening by Iran, once the second-biggest producer in OPEC until sanctions choked output and investments. Indian Oil Minister Dharmendra Pradhan will lead a delegation this month to the country, he said in an interview. India is working with the Persian Gulf state to develop a port in Chabahar, near Iran’s border with Pakistan and about 800 kilometers from India’s west coast. The two countries are also discussing economic zones and joint projects on fertilizer plants and petrochemical projects, Pradhan said.

    “Our engagement with Iran will be multi-dimensional,” Pradhan said.

    India appears to be in the same position China was at the start of its growth binge. Asia’s third-biggest economy consumed 4 million barrels of oil last year, according to the International Energy Agency, and is expected to surpass Japan as the world’s third-largest oil user this year. It will be the fastest-growing crude consumer in the world through 2040, according to the IEA, adding 6 million barrels a day of demand, compared to 4.8 million for China.

    Just like China’s ascent, the growth is being driven by manufacturing. Indian Prime Minister Narendra Modi’s “Make in India” campaign aims by 2022 to create 100 million new factory jobs and increase manufacturing’s share of the economy to 25 percent from about 18 percent when he took office in 2014.

    Manufacturing drives oil use both by increasing the amount of goods that need to be moved around on ships and trucks, and by raising living standards of workers. Rising wages allowed Indians to purchase a record 24 million new vehicles in 2015.

    “In a growing economy, where there is so much of emphasis on manufacturing, naturally the demand for energy will grow,” B. Ashok, chairman of Indian Oil Corp., the nation’s largest refiner, said in an interview. “The emphasis on manufacturing and infrastructure building contributes a lot to increasing the employment potential, besides bringing in a lot of investments. There is bound to be a lot of more movements on the roads, in terms of goods and services and passengers.”

    http://www.bloomberg.com/news/articles/2016-04-07/india-echoing-pre-boom-china-as-new-center-of-oil-demand-growth
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    China teapot refiner oil buying spree creates tanker jam at Qingdao


    A surge in oil buying by China's newest crude importers has created delays of up to a month for vessels to offload cargoes at Qingdao port, imposing costly fees and complicating efforts to sell to the world's hottest new buyers.

    China's independent refiners, freed of government constraints after securing permission to import just last year, have gorged on plentiful low-cost crude in 2016. This has created delays for tankers that have quadrupled to between 20 to 30 days at Qingdao port in Shandong province, the key import hub for the plants, known as teapots, according to port agents and ship-tracking data.

    "Imports were blocked for some time by their increasing demand this month," one trader said of the teapots. Buyers, the trader added, "are suffering from the block - there is lots of demurrage," referring to costs a charterer pays to the shipowners if a cargo fails to unload at the specified time.

    February imports to Qingdao hit a record 2.3 million barrels per day (bpd), according to Energy Aspects, with March figures expected to record another increase. The February imports into the port were about 29 percent of China's intake that month, based on China customs data.

    The strong demand is stretching the port's facilities, with shipping data on the Thomson Reuters Eikon terminal showing that at least 15 tankers - Very Large Crude Carrier (VLCC) and Suezmax vessels - are currently waiting to offload at Qingdao, many of which were scheduled to deliver last month.

    Adding to the congestion is a lack of pipeline access to the teapots from the port, meaning that about 80 percent of the oil they buy has to be delivered by truck. This makes it hard to clear the imports quickly enough to make room for the next deliveries.

    Additionally, a lack of storage space at the terminal means tankers cannot easily offload and sail on to make other deliveries.

    The tanker traffic jam outside Qingdao is one of several bottlenecks in the global oil sector that have pushed up tanker rates as vessels are held up in the queues.

    A similar tanker backlog has built up outside the Iraqi port of Basra, and smaller jams have also been reported at China's Ningbo and Tianjin ports, to the south and north of Qingdao, respectively.

    The congestion in Qingdao has caused tankers to divert to other ports, while at least one VLCC has split its 2 million barrel cargo between two ports in China, a European ship broker and ship tracking data showed.

    Qingdao's congestion may get worse as more vessels are on the way.

    Exports loading for China from West Africa in April are expected to rise to a 19-month high of 1.14 million bpd, driven in large part by teapot buying.

    Norwegian oil firm Statoil has already sold some 4 million barrels via two tankers ex-ship at Qingdao to teapots that will arrive in April, and it has booked a third VLCC to sail to the port.

    Charterers like Statoil will normally bill the buyers for the demurrage costs, ship brokers said.

    "Otherwise, the price of crude is so low now that $65,000 per day demurrage for 10 days will wipe out a chunk of the trader's profit," a Singapore-based supertanker broker said.

    http://www.reuters.com/article/china-oil-tanker-traffic-idUSL3N17A1ET

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    No April Forties VLCC crude oil loadings scheduled following second failed fixture


    A second VLCC booked to take North Sea crude Forties from Hound Point, UK to Asia, failed its subjects due to delays Thursday, traders said.

    "There were some delays on the vessel [Nautic], so [it's not happening due to] logistical issues," a trader said.

    Glencore was heard to only have one Forties cargo around the relevant dates currently and is not seeking a replacement VLCC, traders said.

    "I don't think Glencore have many cargoes... maybe only one," a second trader said.

    The failure augurs a weak Forties April market, with the medium-sweet grade -- the largest of the four BFOE grades that constitute the Dated Brent benchmark -- buffeted by local refinery maintenance and thin to non-existent exports out of the region.

    The Forties spot differential shed 8 cents/b Wednesday, sinking to Dated Brent minus 76.5 cents/b after Gunvor lifted an April 25-27 loading cargo for Dated Brent minus 85 cents/b.

    There are currently no VLCCs scheduled to load Forties in April, a rare occurrence, with the over 20-cargo-long monthly Forties programs typically requiring two to three VLCCs exports to clear.

    In March the Maran Canopus, Samail, Olympic Loyalty II and Shanghai VLCCs all loaded Forties, ostensibly bound for Korean refiners. However, Asian demand for the grade was heard to be tepid, with the Samail still idle near the Forth of Firth, despite loading its cargo of Forties on March 22.

    The Nautic VLCC, which had been reported as on subjects to Glencore to load Forties from Hound Point around April 10, bound for Korea, is currently laden, stationary near Le Havre, off the northern coast of France Thursday.

    The Nautic was heard to be redirected to load a cargo in West Africa, though the grade and loading date were not known.

    "I think she is now loading West African [crude]," a third trader said.

    This follows the failure of the Atlantas VLCC, which was on subjects to Shell to co-load early April Forties cargoes for export to Korea, also due to delays.

    "[Failures due to delays] have been happening [recently]," the Forties terminal is not that flexible," the first trader said.

    Shell was reported to have put on subjects or fixed the Al Qadisa, Amalthea and Alfa Italia Aframaxes to load the relevant parcels instead. Both Glencore and Shell declined to provide comment on shipping fixtures.

    http://www.platts.com/latest-news/shipping/london/no-april-forties-vlcc-crude-oil-loadings-scheduled-26412843

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    May Angolan crude oil program slow to clear on Chinese turnarounds, port delays


    The pace of clearing May Angolan cargoes has slowed considerably from the previous two trading cycle, with around 15 cargoes still available and the June program expected in a week's time.

    This comes as fewer Chinese end users have bought May cargoes, according to trading sources, as they enter refinery maintenance season and as Chinese ports remain congested.

    China typically accounts for 40%-60% of total buyers in Angola and bought 52% and 62% in the March and April loading programs respectively, according to Platts tracking data. Thus far in May, Chinese end users have bought 25% of the program.

    A number of factors can explain China's absence: competitively priced Middle Eastern crudes and good availability of sweet crude cargoes in the Asia Pacific sweet complex have offered attractive alternatives for Asian refineries. Far East Russian grades such as ESPO Blend have also proved popular with Chinese refiners recently, traders said.

    "Values have come off in other regions and as a result, we've shifted away as much as we can from West Africa," said a Chinese end user. The buyer also also pointed to continued higher freight rates on the WAF-East route, which have varied between worldscale 70 and 80 over the past couple of weeks, from a ws55 rate in early March.

    Another factor favoring local crudes is the current front month Brent-Dubai EFS contract. While the front-month EFS contract has been broadly rangebound at $2.80-$3.00/b over the past two months, anything above three dollars encourages Asian buyers to look at closer-haul barrels that tend to price off Dubai. On Wednesday, the front-month June EFS was assessed at $3.31/b.

    Additionally, delays at ports in Qingdao, in China's Shandong province, have also slowed the buying of a number of refineries located in the region. A number of the smaller "teapot" refineries are located in the region and have increased their intake of foreign crude in the past couple of months since they were allowed to import for the first time in late 2015.

    Vessels currently need to wait at least two weeks to discharge at Qingdao, according to a number of sources in both Asia and Europe, due to heavy inflows of imported crude.

    The latest Chinese customs data showed that crude imported in February through Shangdong ports that accept VLCCs rose 33% from January.

    Qingdao and Rizhao ports are the only two ports that can berth VLCCs in Shandong, but the discharge schedule at Rizhao is much better, according to a port official said.

    At Qingdao, around five VLCCs that had arrived in March were asked to wait to discharge in April. In addition, some VLCCs that were due to arrive at Qingdao were redirected to Rizhao port in March, the official said.

    Lastly, a number of state-run Chinese refiners will be down for maintenance during the May-June period so crude demand is expected to be broadly tepid during that time.

    In Angola, a few crude grades have sold out in May, though mainly in the smaller grades, said traders, including Sangos, Mondo, Saxi, Saturno and Cabinda. European refineries appear to be mainly absent, choosing instead to blend heavy Middle Eastern crudes with sweet Mediterranean, rather than buy the medium heavy sweet Angolan crude.

    US buyers have also remained on the sidelines for May, traders said. "Some could be pushed to South America," a West African crude trader said. "Europe might buy it, but it needs to be cheaper and when [differentials] drop enough -- I think China will come back in."

    http://www.platts.com/latest-news/oil/london/may-angolan-crude-program-slow-to-clear-on-chinese-26412839

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    Shell under pressure to reduce spending


    Royal Dutch Shell is under pressure from shareholders to cut annual spending below $30 billion after buying BG Group to ensure it can maintain its dividend given the slow oil price recovery.

    Shell and other large oil companies slashed budgets, scrapped huge projects and cut tens of thousands of jobs last year in the face of a slump in oil prices from a June 2014 peak of nearly $116 a barrel to below $40.

    Shell reduced spending by $8.4 billion to $28.9 billion last year and for the first time in more than three decades global capital spending in the oil and gas industry, known as capex, is set to fall for a second year in a row.

    After the completion of the $50 billion BG acquisition, the Anglo-Dutch company set 2016 spending for the combined group at $33 billion and Chief Executive Officer Ben van Beurden said in February it had "options on the table to further reduce our spending should conditions warrant that step".

    At $33 billion, Shell's capex is the highest among its rivals, exceeding that of U.S. giant Exxon Mobil by about $10 billion. After increasing its debt to nearly 25 percent of its market capitalisation after the BG acquisition, investors and analysts say Shell must tighten its belt further.

    "Shell needs to cut capex to give the market confidence that the dividend can be sustained, and grown in future," said Charles Whall, portfolio manager at Investec Asset Management, which owns Shell shares.

    Whall expects Shell's 2016 capex to be cut below $30 billion, and to trend lower.

    Steady dividend payouts have been the main attraction for investors in large oil companies over the years and some have tapped the debt market to maintain payouts in the face of last year's oil price rout.

    Shell, for example, has not cut its dividend since the Second World War and has vowed to keep it unchanged following the BG deal.

    Ben Ritchie, senior investment manager at Aberdeen Asset Management, which is a top 10 investor in Shell, said while the company was expected to do more to reduce costs, it should not endanger growth.

    "We wouldn't be surprised to see capex guidance lowered again. However, we want the company to continue to focus on driving long-term growth," Ritchie said.

    "Simply cancelling or deferring economically viable projects to hit a lower capex number doesn't make sense, especially when the company's balance sheet remains reasonably robust," he said.

    Following the BG acquisition, Shell's production and cash flow is set to grow rapidly thanks to new assets in Brazil's offshore deepwater oil fields and Australian gas, and hence its need to invest in new projects is lower, according to analysts at Bernstein, who rate the company's shares as "outperform".

    "Shell has yet to give investors enough comfort that all the numbers stack up in 2016 if oil prices don't move up from current levels," Bernstein said, anticipating that Shell will revise its 2016 capex to $28 billion at its June 7 investor day.

    Spending cuts could include a $1 billion reduction in exploration, about $2 billion from cost savings and some $1.8 billion from project delays or cancellations, they said.

    Shell has "the capacity to reduce capex significantly, and should have had sufficient time by June to review the portfolio following the BG acquisition," Investec's Whall said.

    According to a top 20 investor in Shell who declined to be identified, Shell should aim to reduce spending to $25 billion by 2017: "Anything above $28-$30 billion in 2016 would be a disappointment."

    http://www.reuters.com/article/shell-capex-idUSL5N1794UZ

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    NOVATEK announces preliminary operating data for first quarter 2016


    NOVATEK's marketable production totaled 17.24 billion cubic meters (bcm) of natural gas and 3,208 thousand tons of liquids (gas condensate and crude oil), resulting in an increase in natural gas production by 1.09 bcm, or by 6.7%, and an increase in combined liquids production by 1,217 thousand tons, or by 61.1% as compared with the first quarter 2015.

    The Company processed 3,232 thousand tons of unstable gas condensate at the Purovsky Processing Plant, which represented a 29.8% increase as compared with the corresponding volumes processed in the first quarter 2015.

    In the first quarter 2016, NOVATEK processed 1,779 thousand tons of stable gas condensate at the Ust-Luga Complex, which was 4.7% higher than the volumes processed at the facility in the first quarter 2015. Preliminary first quarter 2016 petroleum product sales volumes aggregated 1,881 thousand tons, including 1,151 thousand tons of naphtha, 297 thousand tons of jet fuel, and 433 thousand tons of fuel oil and gasoil. Export sales of stable gas condensate amounted to 479 thousand tons.

    As at 31 March 2016, NOVATEK had 0.4 bcm of natural gas and 395 thousand tons of stable gas condensate and petroleum products in storage or transit and recognized as inventory.

    http://www.oilvoice.com/n/NOVATEK-announces-preliminary-operating-data-for-first-quarter-2016/5911f2c9b84e.aspx
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    Wintershall to save costs to battle oil price fall


    BASF's Wintershall oil and gas subsidiary plans to cut costs and trim investments in response to sharp oil price falls that forced it to lower its sales and earnings forecasts for 2016.

    The international exploration business will seek to cut costs by at least 200 million euros ($228 million) after its net profit fell 28 percent to 1.05 billion euros last year.

    Wintershall could seek further savings in operational costs should oil prices stay low, finance chief Ties Tiessen told journalists.

    "There is still room on the upside there," he said.

    Last year, oil prices slumped 47 percent to $52 a barrel on average for North Sea grade Brent when Wintershall had operated on the assumption of a range between $60 and $70.

    Wintershall's planning is based on an average $40 this year.

    Lower results last year were also due to the disposal of trading assets to Russian partner firm Gazprom.

    Wintershall also continues to encounter problems linked to unrest in Libya where its oil output is only a third of the possible maximum.

    The company announced a 600 million euros writedown on its assets in January.

    Chief Executive Mario Mehren said production would be expanded in lower-cost regions such as Russia and Argentina.

    "Wintershall will do both in coming years, save and invest. Those goals are not contradictory," he told the news conference.

    Investments in 2016 will fall by 28 percent to 1 billion euros, especially at projects in the Norwegian and Dutch North Sea that are not far developed as yet, he said.

    The company is set to spend 4.8 billion euros over the next five years, especially in Russia and Argentina, where its cost structure is far below industry averages.

    The company is also active in Norway and Abu Dhabi and eyes upcoming opportunities in Iran.

    Wintershall accounted for more than a fifth of EBIT at parent group BASF in 2015, which had reported results on Feb 26.

    Mehren brushed off concerns over overreliance on Gazprom in the Nord Stream-2 project, where Wintershall is partner in an international consortium planning to double existing pipeline transport by opening new subsea capacity to the EU by 2019.

    "The safest transit country is the Baltic Sea," he said, alluding to problems with transit via Ukraine following Russia's annexation of the Crimea region.

    http://www.reuters.com/article/wintershall-basf-idUSL5N17A23Y

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    Osaka Gas looking to sell surplus LNG


    Osaka Gas of Japan is looking to sell surplus amounts of liquefied natural gas it will have in the short to medium term, according to the utility’s president Takehiro Honjo.

    Speaking at a media conference, Honjo added that Osaka Gas overcommitted LNG in the short to mid-term, however, he did not reveal the amount of surplus LNG as the demand remains uncertain, Platts reports.

    Volumes could be sold at both domestic and international markets, Honjo added.

    Additionally, Osaka Gas is looking to strengthen its LNG value chain and bring LNG from the upstream projects it has invested in to the utility’s domestic power generation projects or LNG terminals and power generation project abroad. Projects in Southeast Asia are a likely target, Honjo said, according to Platts.

    Investment in upstream projects could be increased as the company is looking to up its overall LNG procurement from equity from less than 10 percent to 30 percent.

    The utility expects its LNG consumption to remain at around 6.9 million tons from the fiscal year 2016 to 2021.

    Osaka Gas noted in its five-year business plan that it expects the demand for natural gas to reach 8.47 million cubic meters in FY 2021, with an annual growth of 1 percent over the five-year period.

    http://www.lngworldnews.com/osaka-gas-looking-to-sell-surplus-lng/

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    Halcon Update on “Charting a New Course”


    In March MDN reported Halcon Resources had hired a prominent law firm with a specialty in bankruptcies to assist the company to “chart a course” through the current downturn in gas and oil prices.

     Yesterday Halcon issued an update on their progress. According to the update, the company is “in discussions” with “certain stakeholders” to negotiate terms of a “potential transaction” to “materially reduce the Company’s indebtedness.”

    What does all of that coded language mean? You would think the company whose CEO is famous for his blunt language would just spit it out. We’re left to wonder…

    http://marcellusdrilling.com/2016/04/halcon-update-on-charting-a-new-course-i-feel-good/?utm_source=dlvr.it&utm_medium=twitter
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    Alternative Energy

    China Three Gorges Plant Q1 output hits new high


    China’s largest hydropower project Three Gorges Power Plant generated 15.59TWh of electricity in the first quarter, Xinhua News Agency reported, citing China Three Gorges Corporation.

    The output is 2.16TWh higher than Q1 last year, hitting the highest record.

    The last generator of the plant started operation in July 2012, enabling the plant to reach combined generating capacity of 22.5 GW.

    Besides, another leading Gezhouba hydropower plant generated 3.41 TWh in the first quarter, up 385 GWh from the year before.

    The increasing hydropower output will continue to squeeze coal-fired power output.

    http://en.sxcoal.com/0/143997/DataShow.html
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    IKEA Global Solar Push

    "Ikea's ambition is to help and inspire their customers to live a more sustainable life at home and the residential solar program is one step on the way to reach that ambition," the magazine quoted Håkan Nordkvist, head of sustainability innovation at Ikea, as saying. "Last year there were 770 million visits to Ikea stores worldwide and the company sees that as a great platform to fulfill our ambition and for people to be able to live a more sustainable life at home."

    Nordkvist also revealed the company would work closely with suppliers to push down solar technology costs.

    "To be able to deploy residential solar in a big scale we need to have a very simple and transparent purchase process for the customer and the offer needs to be very affordable, this is what our customers normally get when they visit Ikea and this is what we will continue to have, including the residential solar offer," he said.

    A spokeswoman for IKEA confirmed to BusinessGreen the company was working on plans to expand its solar offering.

    "Offering solutions for residential solar is part of IKEA Group's sustainability strategy and we have successfully rolled out a pilot offer to stores in three markets; the Netherlands, Switzerland and the United Kingdom," she said via email. "During 2015 we evaluated the pilot and decided on a new business model, offering an expanded range of technologies and a more integrated sales model. In the process we also researched the market to identify suppliers that can provide the most competitive offer for our customers."

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    Agriculture

    China citizens protest ChemChina-Syngenta deal amid GMO worries


    Around 400 Chinese citizens have signed a letter to protest the purchase of Swiss-based seeds and pesticides company Syngenta by state-owned ChemChina, saying the deal would eventually lead to genetically modified crops being sown across swathes of the country.

    Critics of genetically modified organisms argue the technology poses risks to public health and the environment, while advocates say such fears have not been scientifically proven and that high-yielding genetically altered crops would help ensure food security as the world's population grows.

    Although relatively few people signed the letter, it marks a rare example of open opposition to state-supported corporate strategy in a nation where the government often clamps down hard on any criticism.

    It also underscores fears among some of the public that the government is gearing up to gradually loosen laws that prevent the cultivation of any GM varieties of staple food crops, with Beijing already permitting the import of some GMO crops for use in animal feed.

    The $43 billion all-cash deal unveiled in February is the largest foreign acquisition ever by a Chinese firm as China is looking to secure food supplies for its population. Syngenta has a portfolio of top tier chemicals and patent-protected seeds, many of which are genetically modified.

    "The acquisition of Syngenta and the promotion of its genetically-modified and agro-chemical agriculture in the country would destroy the country's own agriculture and food security," the protesters said in the letter, seen by Reuters. They argue GMO strains would contaminate Chinese staple crops.

    "ChemChina must immediately stop the suicidal acquisition from causing a disaster to the Chinese nation."

    Syngenta did not respond to requests for comment. A ChemChina spokesman said he had heard about the letter and that the company was waiting to learn more about it.

    Yang Xiaolu, one of the protesters on the list, said the letter was handed over late last month to the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), which overseas companies owned by the central government.

    A SASAC spokeswoman said her office had not yet seen the letter, but was looking into the matter.

    Yang, a long-time anti-GMO activist, is also among the three plaintiffs who were taking China's Ministry of Agriculture to court in April last year in a bid to make public a toxicology report supporting the approval of Monsanto's popular weed killer.

    Reuters was unable to verify other names listed on the anti-GMO letter.

    China's commerce ministry spokesman Shen Danyang said in February that the ministry supported the acquisition which would help secure global food supply.

    The protest comes amid worries that Beijing is losing control over the supervision of GMO technology.

    Last month, agriculture minister Han Changfu admitted that GMO corn was illegally grown in some parts of the country, but found "no large areas of illegal planting" after Greenpeace said a majority of samples taken from corn fields in 5 counties in Liaoning province, tested positive for GMO contamination.

    http://www.reuters.com/article/china-gmo-protests-idUSL3N1791F3
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    Base Metals

    Workers at Freeport’s copper mine in Peru to down tools


    Workers at Freeport-McMoRan's Cerro Verde copper mine in Peru will begin Friday a 48-hour strike to protest what they describe as the near disappearance of their profit-sharing bonus this year.

    The Arizona-based company, which own a majority stake in the mine, has informed workers they are scheduled to receive an average bonus of $146 (483 soles) this year based on 2015 profits, down from about $9,090 (30,000 soles) they obtained in 2014, local newspaper La Republicareported (in Spanish).

    The union said it would stop all activities for an initial period of 48 hours, which would then be extended to 72 hours and finally moved into an indefinite strike until its members demands are heard.

    While Freeport has reacted to low copper prices by making several cutbacks at existing operations, the miner has gone ahead with a $4.6 billion expansion of its Cerro Verde open pit mine, which has been in production since the mid-1800s.

    The project, which should be close to completion, would triple capacity at the concentrator plant to 360,000 tonnes per day and it is set to catapult Cerro Verde to the top three global copper operations by 2017.

    About $22 billion worth of projects have been cancelled or delayed in Peru in recent years due mainly to anti-mining protests.

    The copper and molybdenum mine produced 41,873 tonnes of copper in February, up 180% when compared to output during the same month the previous year, according to official data published this week (in Spanish).

    Mining investments in Peru, which drove economic growth during the past decade, has fallen dramatically in the past two years as violence linked to relentless anti-mining sentiment keeps scaring investors away.

    It is estimated that about $22 billion worth of mining projects have been cancelled or delayed in the South American nation in recent years as a result of social conflicts and red tape.

    Peru is the world’s No 3 copper producer and mining accounts for about 60% of its export earnings.

    http://www.mining.com/workers-freeports-copper-mine-peru-tools/
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    Chile's Escondida copper mine looks to counteract falling ore grades


    Chile's Escondida, the world's biggest copper mine, said it is banking on a new $4.2-billion concentrator, its third, and $3-billion water desalination plant to counteract falling ore grades and help boost production over the coming years. 

    Once all three of its concentrators are up and running, Escondida expects to produce around 1.2-million tonnes of copper annually for the next decade. The mine, nestled high in Chile's arid Atacama desert, produced 1.15-million tonnes in 2015.

    "Escondida has the potential to operate its three concentrators in the medium term, this will compensate for the natural decline in ore grade and contribute to recovering production in the medium term," the company said on Thursday as it unveiled its third concentrator. 

    The mine halted its first concentrator in February for renovation work and other adjustments, and the company expects it to be back in operation from July 2017. 

    Boosting production is also dependent on the completion of Escondida's second water desalination plant, which is slated to be ready in 2017. BHP Billiton controls Escondida with a 57.5% stake, while Rio Tinto owns 30%.

    http://www.miningweekly.com/article/chiles-escondida-copper-mine-looks-to-counteract-falling-ore-grades-2016-04-08

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    Malaysia extends bauxite mining ban by another three months


    Malaysia will extend its ban on bauxite mining by another three months, effective April 15, in order to clear stockpiles and remove the risk of the aluminium-making ingredient contaminating the country's rivers, the environment minister said on Friday.

    While lower output at the world's top exporter of bauxite threatens to interrupt supply to the world's biggest aluminium producer, China, traders expect the impact to be limited given China's ample stocks of the raw material.

    Malaysia's largely unregulated bauxite mining industry has boomed in the past two years to meet demand from China, filling in a supply gap after Indonesia banned exports, but the frenetic pace of digging has led to a public outcry with many complaining of water contamination and destruction of the environment.

    Late last year, bauxite mining was blamed for turning the waters and seas red near Kuantan, the capital of Malaysia's third-largest state and key bauxite producer Pahang, following which, in January, the government imposed its first three-month ban on mining the commodity.

    "The cabinet today agreed to the ministry's suggestion that the bauxite moratorium in Kuantan be extended by three more months," said Wan Junaidi Tuanku Jaafar, Malaysia's natural resources and environment minister at a press conference.

    "One reason for the moratorium extension is to clear the stockpile, only then can we clean the stockpile areas. This is so that we remove the possibility of remnants of the bauxite stockpile contaminating the river and sea in the event of rain."

    Existing bauxite stockpiles in Kuantan must be exported before the moratorium can be lifted, Wan Junaidi said, adding that there were 3.6 million tonnes of stocks in Kuantan.

    Malaysia had shipped out around 3.5 million tonnes of the commodity to China in December, but exports dwindled to slightly under 1 million tonnes in February.

    Malaysia will resume issuing bauxite export permits to help miners clear existing stockpiles, Wan Junaidi said. It had frozen export permits during the first moratorium.

    If producers are unable to clear up stockpiles within three months, it is up to them to apply for additional extension, the minister added.

    A Singapore-based alumina trader said he expected the impact of the extended ban to be limited due to China's ample stocks as well as low metal prices on the London Metal Exchange (LME) that have curbed production.

    Aluminium prices sank 18 percent last year on a China-driven supply overhang and have not made any gains so far in 2016.

    China may hold more than 20 million tonnes of imported bauxite stocks, said Xu Hongping, an analyst at China Merchants Futures. "Their stocks could support five months of production."

    "China has also started importing bauxite from Guinea, which should replace the bulk of demand from Malaysia," Xu said.

    http://www.reuters.com/article/malaysia-bauxite-idUSL3N17B1TW

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    Steel, Iron Ore and Coal

    Shanxi suspends consolidated mines under top five producers


    North China’s coal-rich Shanxi planned to suspend and rectify consolidated mines under the province’s top five miners – Shanxi Coking Coal, Datong Coal Mine Group, Lu’an Group, Yangquan Coal Industry and Jincheng Group – for at least one month, according to a document released by the local government on March 30.

    Shanxi has around 200 consolidated mines under the top five producers, including 132 operating mines with combined capacity at 130 Mtpa, and 68 mines in construction.

    These mines shall resume work only after passing strict safety checks, according to the document.

    The move may reduce Shanxi’s coal supply by 12 million tonnes in April, accounting for 4% of the total monthly output in China, analysts said.

    It’s worth mentioning that Datong Coal Mine Group, one major coal producer in northern China’s Shanxi province, has halted production at all of its consolidated coal mines in the wake of a mine accident at its subsidiary Anping Coal Industry Co., Ltd on March 23. In fact, many non-consolidated mines in the province were asked to suspend operation for a week after the mine accident.

    The province also vowed to strictly implement 276 working days in mines in 2016, according to the document.

    The province also exposed 16 illegal operating mines which haven’t carry out formalities for approval, and asked them to stop operation and construction immediately.

    These mines have a combined capacity of 79.4 Mtpa, including capacity of coking coal, anthracite, and thermal coal at 32 Mtpa, 29 Mtpa and 18.4 Mtpa, respectively.

    Analysts said the move may reduce supply and support prices to some extent, but persisting weak demand will continue to weigh on the long-run market.

    http://en.sxcoal.com/0/143993/DataShow.html

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    Adani being investigated for alleged involvement in US$4.4bn coal-pricing scandal


    The mining and resources giant Adani is being investigated for alleged involvement in a US$4.4bn pricing scandal around coal sales by Indian power companies.

    Adani Enterprises is one of six Adani Group companies named for the first time in connection with an industry-wide scandal in which Indian energy companies are accused of profiteering on coal imported from Indonesia. The company denies being involved over-valuing the coal.

    It comes days after Adani Enterprises’ Australian subsidiary, Adani Mining, was granted mining leases by the Queensland government for the country’s largest proposed coal project in the Galilee basin.

    The Adani Group companies are among dozens of companies targeted in an 18-month investigation by the Indian Directorate of Revenue Intelligence (DRI), the Economic and Political Weekly revealed.

    DRI last week issued a “general alert” to customs offices claiming that power companies were exploiting “higher tariff compensation based on [the] artificially inflated cost of the imported coal” from Indonesia, it reported.

    Profits from the alleged scam by companies supplying state-owned power utilities were being “siphoned” overseas, the DRI alert said.

    An Adani Group spokesman told Guardian Australia it was “aware of the investigations being conducted by the DRI, and has fully co-operated, and shall continue to co-operate with the investigating agencies”.

    “Adani Group denies the allegations of over valuation and there is no show cause notice received till date,” he said.

    The DRI, an agency attached to the Indian finance ministry, made its first arrest as part of the investigation in February, in a case unrelated to the Adani Group.

    In court documents following the arrest, the DRI alleged a number of Indian power plants were inflating the prices of their Indonesian coal imports, passing on the costs to customers and hiding the profits overseas, the Economic and Political Weekly reported.

    The power companies typically used front companies in Singapore, Hong Kong and Dubai to inflate the prices of coal in official billing documents, the DRI alleged.

    Indian energy minister Piyush Goyal told Economic and Political Weekly that the DRI was “investigating cases related to misdeclaration of value (over invoicing) of coal imported from Indonesia and supplied to power plants of NTPC [the former National Thermal Power Corporation, India’s biggest power producer]”.

    The publication named Adani Group companies Adani Enterprises, Adani Power, Adani Power Rajasthan, Adani Power Maharashtra, Adani Wilmar and Vyom Trade Link as targets of the investigation.

    http://www.theguardian.com/business/2016/apr/07/adani-being-investigated-for-alleged-involvement-in-us44bn-coal-pricing-scandal

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    Glencore says SA coal strike violence worsens


    Glencore has laid arson charges against a South African mining union as a three-week coal strike turns increasingly violent, the mining company said on Thursday.

    Workers from the Association of Mineworkers and Construction Union (Amcu) torched two trucks and offices at the Wonderfontein Mine on Wednesday night, taking the petrol bomb incidents to around ten since the strike started, Glencore said.

    Around 60 striking workers accused of intimidating other employees and damaging nearby farms have been arrested.

    Amcu and the police were not available to comment.

    Wonderfontein is a joint venture between Glencore and Shanduka Group, which was founded by Deputy President Cyril Ramaphosa. The mine produces 3.6 million tonnes annually.

    Glencore said it was engaging with Amcu leadership over a wage dispute.

    http://www.mineweb.com/news-fast-news/glencore-says-sa-coal-strike-violence-worsens/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A%20MasterGold%20%28Gold%20News%29&utm_term=MasterMetals

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    Australia lifts 2016 iron ore price forecast by 11 pct


    Australia lifted its 2016 price forecast for the country's biggest export earner iron ore by 11 percent on Friday, though kept it well under current market prices.

    The department now sees iron ore averaging $45 a tonne this year versus a December forecast of $40.40.

    "While global iron ore demand is projected to remain relatively flat, continued displacement of domestically produced iron ore in China with seaborne iron ore is expected to result in a modest increase in international trade," Australia's Department of Industry, Innovation and Science said in its latest quarterly commodities paper.

    Iron ore .IO62-CNI=SI stood at $53.80 a tonne, according to the latest quote from The Steel Index, following a 24 percent gain between January and March.

    "While prices briefly rebounded to $61 a tonne in early 2016, increasing global supply coupled with lower demand from China's steel sector is forecast to result in prices softening by end of the year to average $45 a tonne in 2016," the department said.

    It revised lower its price forecasts for metallurgical coal to $82.80 from $83.80 a tonne, while maintaining its thermal coal forecast at $59 a tonne. Coal is Australia's second-most valuable export-earning commodity after iron ore.

    The outlook for growth in Australia's thermal coal exports is moderate because of lower or slowing import demand in major importing countries such as China, Japan and India, and slowing domestic production, according to the department.

    http://www.reuters.com/article/australia-resources-forecast-idUSL3N17A5BZ
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    Australia's Arrium in administration, highlighting pressure on small miners


    Australian iron ore and steel group Arrium Ltd has been placed in administration, underscoring the uphill battle facing smaller companies with high debt competing against larger and more efficient sector giants.

    Arrium's decision on Thursday to enter voluntary administration and raise the possibility of a break up or bankruptcy shows how creditors are souring on indebted resources companies in the current tough climate.

    Data compiled by Reuters shows at least 10 Australian companies in the materials sector hold debt three times their earnings before interest and tax and amortisation in 2015.

    "These are GFC (global financial crisis) levels and not a good sign," said Shaw & Partners analyst Peter O'Connor.

    Debt to EBITDA is used to determine the ability of a company to service its debt.

    Already facing the prospect of years of low iron ore and steel prices, Arrium endured a backlash from creditors who rejected a $927 million recapitalisation plan signed with Blackstone private equity group's GSO Capital Partners in February. The plan would have left lenders of A$2.8 billion ($2.14 billion) in unsecured debt with repayments of only 55 Australian cents on the dollar.

    Arrium is not the only company struggling with dissatisfied lenders.

    Atlas Iron could face insolvency if a debt-for-equity deal is not approved by lenders and shareholders in coming weeks. Even then, the iron ore miner could still find itself unable to keep up its loan payments.

    The deal would transfer 70 percent of equity to lenders in exchange for reducing loan debt by 48 percent to $135 million.

    If the deal fails, there is a risk that Atlas will breach its debt covenant test by June 30.

    According to an independent expert's report prepared for lenders by PPB Advisory and released by Atlas, it is doubtful that Atlas will meet its end-December 2016 covenant, triggering demands for immediate repayment of secured debt.

    "It is unlikely that the group would have sufficient liquidity or be able to raise sufficient capital/external finance to repay the secured debt in such a short time," raising the spectre of insolvency, according to the PPB report.

    Arrium and Atlas illustrate the struggles of smaller-sized Australian resources companies that used debt to buy second-tier iron ore mines to feed Chinese industrial expansion.

    But they found themselves far out-produced by sector giants such as Rio Tinto and BHP Billiton . Most of these smaller firms were left in the red as Chinese industrial growth slowed and iron ore and steel prices contracted.

    http://www.reuters.com/article/arrium-administration-idUSL3N1794ZS

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    China's Steel sector’s overall losses not yet reversed despite favourable signs, CISA


    China’s steel sector began to see favorable signs since late December last year, with prices gradually rebounding, which, however, had not reversed the overall losses haunting the whole industry since July last year, said Liu Zhenjiang, secretary of China Iron and Steel Association (CISA), on a recent meeting.

    The first two months of this year still saw the combined losses of 11.4 billion yuan ($1.76 billion) across the steel industry, in the wake of the worst-performed year of 2015, he added.

    Meanwhile, the steel prices of the first three months were around 500 yuan/t, 400 yuan/t and 300 yuan/t lower than the same month last year, indicating the growing deficit compared with the year prior.

    In 2015, China’s key steel makers were tangled in losses of their core businesses for 12 consecutive months, which were combined at 100 billion yuan and even more. Total deficit in their profits stood at 64.5 billion yuan last year, compared with the profits of 22.59 billion yuan in 2014.

    The rebounding steel prices recently was mainly because prices have hit the bottom with almost no space for downturn, and the state’s supply-side structural reform brought some positive influences.

    The steel mills’ prudence toward expanding production amid unclear prospect also helped to avoid the reoccurrence of oversupply and price drop.

    Yet, the not-so-bright future of the steel market still calls for the further stabilization of prices and control of production within an appropriate range, for a more steady and healthy development of the industry, Liu said.

    http://en.sxcoal.com/0/144037/DataShow.html
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    China's Maanshan Steel to cut output 20 pct over next three years


    China's Maanshan Iron & Steel plans to cut its steel capacity by about 20 percent over the next three years as it tries to a weather a slowing economy and an industry-wide supply glut, a company executive said on Friday.

    China as a whole is trying to cut steel-making capacity by between 100 million and 150 million tonnes in the next five years as it tries to tackle a chronic glut that has sent prices into a tailspin and saddled steel mills with huge losses and mounting debt.

    Large-scale steel mills made combined losses of 11.4 billion yuan ($1.76 billion) in the first two months of this year and more than 100 billion yuan last year, according to the China Iron and Steel Association.

    Maanshan Steel plans to cut 4.2 million tonnes of capacity over the next three years, from current 22 million tonnes currently, Qian Haifan, the general manager of the company told Reuters on the sidelines of an industry conference.

    The company, the listed unit of the Maanshan Steel Group, one of China's biggest state-owned steel enterprises, also aims to expand its foreign business, and will increase its overseas units from four to seven by 2017.

    "We will stick to our export strategy of selling about 10 to 15 percent of our production abroad," Qian said. "Steel mills have to become more international."

    China's mills have been accused of dumping millions of tonnes of cheap steel on the global market, causing producers elsewhere to close and raising the risk of more anti-dumping actions against the country's firms.

    With protectionism on the rise, China's exports were expected to fall this year, from a record 112 million tonnes in 2015, Qian said.

    Maanshan Steel is aiming to move up the value chain and produce high-end steel products like bearing steel and auto sheets, which China currently imports. Qian said the firm would aim to upgrade its low-end production lines by 2020.

    The company will also modify its production lines to customise its products in accordance with the requirements of its downstream users.

    "Supply side reform doesn't simply mean capacity cuts but also restructuring in both output and quality," he said.

    He said the steel market as a whole was likely to see an improvement on last year, and mills would even make a profit in the peak consumption season from March to May.

    However, global iron ore prices were likely to remain at around $45-50 a tonne this year, with steel mills likely to maintain low levels of stocks, said Qian.

    http://www.reuters.com/article/china-steel-maanshan-idUSL3N17B26Z

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