Mark Latham Commodity Equity Intelligence Service

Friday 2nd December 2016
Background Stories on

News and Views:

Attached Files


    Steven Mnuchin Says U.S. Growth Can Be 3% to 4%. Here’s Why That’s Hard

    The incoming Trump administration has set a big goal of generating a dramatic acceleration in U.S. economic growth to an annual pace above 3%. It’s an achievement that has eluded three of the last four presidents.

    “Our most important priority is sustained economic growth, and I think we can absolutely get to sustained 3% to 4% GDP, and that is absolutely critical for the country,” President-elect Donald Trump’snew pick for Treasury secretary, Steven Mnuchin, said Wednesday.

    But sustained growth at that level would defy recent history, and would be a big step up from the roughly 2.1% pace during the current economic expansion that began in mid-2009. While the GDP growth rate bounces around from quarter to quarter, it hasn’t seen sustained annual growth above 3% in more than a decade.

    The last president who oversaw average annual GDP growth above 3% was Bill Clinton, an achievement also reached by Ronald Reagan, Jimmy Carter, Lyndon Johnson and John Kennedy. Other presidents—Dwight Eisenhower and Richard Nixon, Gerald Ford and George H.W. Bush, George W. Bush and Barack Obama—fell short.

    Slower Growing

    Few recent presidents have achieved full-term economic growth rates of above 3.0%

    One obvious reason: Downturns in the business cycle can mar a president’s record. Mr. Obama took office during a deep downtown, for example, and the younger Mr. Bush’s two terms were bookended by recessions.

    But many economists also think the U.S. economy’s capacity for sustained growth has diminished over time, and especially since the end of the 1990s. They point to slower growth in the working population and declining participation in the labor force as well as subdued growth in labor productivity—the basic building blocks of economic growth.

    The nonpartisan Congressional Budget Office in August predicted long-run growth would average about 2%, “a significant slowdown from the average growth in potential output that occurred during the 1980s, 1990s, and early 2000s—mainly because of slower projected growth in the nation’s supply of labor, which is largely attributable to the ongoing retirement of baby boomers and the relatively stable labour-force participation rate among working-age women.”

    Without some changes, those trends will restrain growth under Mr. Trump and future presidents.
    Back to Top

    Trump/Ryan Tax Plan: hammers importers!

    The path for tax reform put forward by House Speaker Paul Ryan and fellow House Republicans would appear — at least at first blush — to offer a clear answer: taxing imports but not exports, in a reversal of current policy that imposes corporate income taxes on exporters but not overseas producers with goods bound for the U.S.

    Proponents go so far as to suggest that this is a neat way for Trump to shift the tide of trade without provoking a trade war by slapping punitive tariffs on goods from China and Mexico.

    While the economic impact of the proposal is much more complicated, the immediate fate of the House GOP tax reform may rest on what Trump's working-class supporters find more alarming: anti-competitive U.S. tax policy or higher prices at Wal-Mart (WMT).

    The National Retail Federation has begun sounding the alarm about the House GOP plan released in June, when a clean sweep in the election for Republicans seemed like a distant long shot.

    Here's why retailers are girding for a fight: While cutting the statutory corporate tax rate to 20% from 35%, the House plan would no longer allow businesses to deduct the cost of imports from taxes. That means retailers such as Wal-Mart, Amazon (AMZN), Costco (COST), Dollar Tree(DLTR) and Starbucks (SBUX) would have to pay a tax equal to 20% of the cost of the clothing, televisions, toys and coffee they import.

    Back to Top

    POBC adds currency controls

    Overnight, the PBOC added a unique form of "capital control" when China’s central bank announced it would limit the amount of renminbi that Chinese companies and individuals can remit outside the country, "imposing a cap for the first time in more than two decades", according to the SCMP, to stem the yuan’s outflow as the currency plumbs daily lows.

    As the Hong Kong publication reports, companies domiciled in China will be limited to net currency outflows equivalent to 30 per cent of the owners’ equity, according to Order No. 306 issued Monday by the People’s Bank of China. Commercial banks should “utilise an integrated prudential management for cross-border payment in both foreign currency and yuan,” according to the central bank’s statement.

    Among the other rules established by the PBOC in setting yuan-denominated loans to overseas entities, are the following, courtesy of Bloomberg and Reuters:

    Onshore corporates can only make yuan loans within quota; banks should stop handling business if cos use up quota
    Lender also has to have been registered for at least a year; borrower has to be a related entity
    Lender can’t make personal loan to overseas borrower, and also can’t use debt financing for purpose of an overseas loan to a foreign entity
    Party making a yuan loan to an overseas entity must first register the loan with SAFE; must keep loan within a certain limit which wasn’t specified
    Lenders should have shareholding relationships with borrowers
    Banks need to strictly examine whether use of yuan funds offshore is genuine and appropriate
    Interest rates for loans need to be above 0%
    Tenor should be 6 mos to 5 yrs; loans with maturities of 5 yrs or above need to be registered at local PBOC branches
    If lenders can’t justify why borrowers don’t repay debt on time, banks need to stop handling new business and report it to local PBOC branches

    This is a stunning reversal in government policy, which had previously encouraged the renminbi’s worldwide usage, part of a long-term strategy to internationalise the currency, culminating with the renminbi's admission into the IMF's SDR basket. Needless to say, the latest announcement will hardly impress the IMF which has been pushing for less government control of the currency.

    As SCMP notes, among the other measures, not listed above to halt capital flight, the central bank has instituted a range of measures to plug gaps where the currency could be remitted amid its 7 per cent slump this year against the US dollar, from banning Chinese citizens from buying insurance policies offshore, to requiring credit card companies to seek currency licenses.

    Two days ago, Horseman Global's Russell Clark asked "Is China running out of money." With every incremental "capital control" the answer is becoming increasingly obvious.

    Attached Files
    Back to Top

    Amazon moves truck???

    In Amazon Web Services, Inc. has built one of the most powerful computing networks in the world, on pace to post more than $12 billion in revenue this year.

    But the retail giant on Wednesday proposed a surprising way to move data from large corporate customers’ data centers to its public cloud-computing operation: by truck.

    Networks can move massive amounts of data only so fast. Trucks, it turns out, can move it faster.Image title

    Back to Top

    China short on trains for coal.

    China Faces Severe Coal Transport Capacity Shortage

    The nation's freight rail operator says it needs 100,000 more cars to meet strong demand for power during cold winter months

    China is suffering from a major shortage of trains to transport coal, a situation that follows a pause in construction of new rail cars and the scrapping of many old ones due to oversupply and weak demand over the past three years.

    Beijing has embarked on a campaign to eliminate excess capacity in a number of industrial sectors, with coal and iron both set for sharp reductions. Much of the excess was built to feed China's hungry economy during years of breakneck growth, when annual expansion routinely reached 10% or more.

    But a new phase of slower growth, sluggish demand and trade barriers overseas have prompted Beijing to reduce capacity in a bid to shore up sagging prices. Coal prices have jumped sharply as a result of those reductions, compounded by strong demand for electricity during the cold winter months.

    As a result of those factors, the country now faces a shortage of about 100,000 rail cars for coal transportation, according Guo Yuhua, a senior official at China Railway, operator of the country's passenger and freight rail systems. He said that with a few exceptions, freight capacity is now being completely utilized on most of China's rail lines, creating a transportation crisis.

    To address the shortage, China Railway has deployed 20,000 flatbed rail cars, and another 20,000 open cars, Guo said.

    China Railway shipped 170 million tons of coal in October, up 6.6% from a year earlier. Beijing has set a reference shipping price of 15.51 fen (2.25 U.S. cents) per ton of coal, and the operator can charge up to 10% more than that rate based on demand.

    The Bohai-Rim Steam-Coal Price Index, which measures domestic thermal coal prices, has risen more than 60% from the beginning of the year after the government ordered mines to cut production to trim overcapacity and fight pollution. This has led to a coal shortage heading into winter when demand typically peaks.

    Attached Files
    Back to Top

    Peru aims to quickly auction off $34 bln of projects

    Peru will aim to quickly auction off $34 billion in proposed projects from highways to new mines to revive slumping investments and bring sorely needed development to rural areas, the new head of state bidding agency Proinversion told Reuters on Thursday.

    Alvaro Quijandria, who was appointed two weeks ago, said he is carrying out reforms in Proinversion that will make the agency more efficient and more active in far-flung provinces where public work investments have stalled in recent years.

    Proinversion contracts will be designed as public-private partnerships, Quijandria said.

    "From the portfolio of projects, 44 are state initiatives and 63 are from the private sector which we'll improve and help untangle from permits so they can happen faster," Quijandria said in an interview on the sidelines of a business summit in the coastal town of Paracas south of Lima.

    Proinversion will likely launch bidding on a cross-Andean highway and a railway to link two Andean towns in the first quarter, Quijandria said, declining to comment on how the projects might cost.

    Quijandria also said it was too early to talk about what a new public auction for a natural gas pipeline project would look like if the government decides to terminate Brazilian construction company Odebrecht SA's current concession as financing needed for construction has been stuck for more than a year.

    Peru is a leading global producer of copper, zinc and gold and enjoys one of the fastest growth rates in the region. But development in rural areas lags far behind the capital Lima, despite millions in mining proceeds that go to local governments every year.

    Quijandria said local authorities often lack the technical know-how needed to build meaningful public works in their districts, and that Proinversion would make sure they had help.

    President Pedro Pablo Kuczynski won this year's election on promises to boost sluggish domestic demand and job creation by ramping up investments in infrastructure projects.

    Kuczynski's government has criticized big public contracts awarded to a single bidders during the previous government and has promised that auctions would be more competitive during his term.
    Back to Top

    Oil and Gas

    Novac says 300,000 cut will be gradual

    Russia oil min Novak says 300Kbpd cut from Nov/Dec levels to be gradual. Cut leaves output at March 2016 levels.

    Russia plans to cut its oil output from November-December levels as a part of its agreement to stabilize global oil market together with OPEC, Energy Minister Alexander Novak told reporters on Thursday.

    Novak said a day earlier Russia was ready to cut oil production by up to 300,000 barrels per day in the first half of 2017 as a part of its agreement with OPEC.

    "It will be an equal approach, an equal cut by all (Russian) companies, but we will work out (details) additionally... In general, there is an understanding that this (cut) should be equal in percents for all," Novak said. He did not elaborate.

    Rosneft is Russia's top oil producer, followed by Lukoil, Surgutneftegaz and Gazprom Neft. Rosneft and Gazprom Neft declined to comment, while Lukoil and Surgut did reply to Reuters requests seeking a comment.

    Russia's oil output set a new post-Soviet era record high in October, rising 0.1 percent from September to 11.2 million barrels per day (bpd).

    Attached Files
    Back to Top

    Russia’s Pledge to OPEC Will Mean ‘Herding Cats’ to Deliver Cuts

    Russia has committed to cooperate with OPEC by cutting as much as 300,000 barrels a day from its oil output but offered no clear method for enforcement, creating uncertainty about how easily the reduction can be delivered.

    Output cuts should be spread proportionally between Russian producers, who have said they support the move, Energy Minister Alexander Novak told reporters Thursday. Yet no oil companies have so far taken the lead on explaining how they will implement the cuts, said Chris Weafer, a partner at Macro Advisory. State-controlled Rosneft PJSC is likely to bear most of the burden, according to Renaissance Capital.

    “Trying to get an agreement for a pro-rata cut amongst the Russian oil producers, even if mandated by the Kremlin, would be akin to herding cats,” Weafer said by e-mail Thursday. “All would want to wait to see what the others do first.”

    The Organization of Petroleum Exporting Countries confounded skepticson Wednesday by reaching an agreement to cut production by 1.2 million barrels a day. Russia added to the surprise by saying it too would reduce current output of 11.2 million barrels a day -- a reversal for Novak who had for months expressed Russia’s preference for freezing at that level. While crude futures jumped above $50 a barrel on the news, questions remain over how the supply curbs will be implemented.

    Lukoil PJSC Russia’s second largest producer, supports OPEC’s moves to stabilize global oil markets, Pavel Zhdanov, the company’s director of capital markets and mergers and acquisitions, said on conference call Wednesday. It is too early to get into details, he said.

    The press services of Rosneft, Russia’s largest producer, and Lukoil declined to comment on any measures they would take to enact cuts.

    Rosneft’s Burden

    “Rosneft looks like the number one company that should take the biggest share of the cut,” Ildar Davletshin, an oil analyst at Renaissance Capital, said by e-mail. It controls almost 50 percent of Russian oil output and it has one of the lowest shares of so-called greenfields, or new developments, in its current production portfolio, he said.

    Cuts are more likely to be achieved by dialing back drilling on older fields, allowing the natural decline rates to grow, as opposed to stopping new projects, he said.

    An output reduction spread proportionately among large companies won’t result in changes to overall levels of investment in the industry, Olga Danilenko, director of oil and gas research at Prosperity Capital in Moscow, said by e-mail. Instead, they would probably shift funds to longer-term projects, she said.

    Russia plans to meet with OPEC producers and nations from outside the group in the next 10 days, during which the country will likely sign a memorandum confirming the supply reductions, Novak said in a briefing Wednesday.
    Back to Top

    Iran floating storage falling ‏


    Back to Top

    Dispatch From Vienna Crude Realities & OPEC’s Half Real Deal

    OPEC pulled a rabbit out of its hat and produced a cut plan that is half real. Nearly every minister on Tuesday was privately very grim about the prospects for a deal.

    So what changed?  Iran agreed to a freeze but will maintain it is not a freeze. And more significantly, Russia pledged it would cut production instead of its prior position to just freeze. The Saudi's privately admit that Iran is at peak production in the short term but Saudi views Russia as its chief competitor for market share. There would not be a deal without Russia.

    The OPEC agreement announced was to cut production by 1.2 Mbd to a ceiling of 32.5 Mbd.  In our view, we think you can only count on cuts from Saudi Arabia (-486), Qatar (-30), Kuwait (-131) and UAE (-131) so the real cut is about 786 Kbd. Not insignificant.

    Moreover, the OPEC President said the deal was "contingent" on non-OPEC cuts of 600 Kbd although the written agreement is silent on the very specific language used in the press conference. He said Russia would do half of that amount at 300 Kbd but advised the press corps to look for a coming press conference in Moscow for more details. Platts is reporting tonight that the Russian energy ministry said it would “gradually” work up to 300 Kbd in cuts so the deal is already on shaky ground. It’s not clear where the other 300 Kbd comes from since no further details were announced.

    OPEC will meet with other non-OPEC producers on December 9 in Doha to discuss the non-OPEC commitment. We are sure they will cobble together an announcement of 600k from non-OPEC but we think this number and, especially the Russian amount, are the weak links in the deal. We think the entire 600 Kbd is dubious.
    Back to Top

    Saudi share of China's oil imports keeps falling

    In October 2013, the kingdom had a 22 percent share of crude imports in China. Nowadays, it's been overtaken by Russia, and has Iraq and Iran nipping at the hem of its dishdasha.

    That dynamic is only likely to accelerate as a result of Wednesday's OPEC meeting. Almost all the cartel's members agreed to cut output by a fairly uniform 4.6 percent below reference levels. The glaring exception was Iran, which will be allowed to boost production 2.3 percent. The 300,000 barrel-a-day reduction promised by Russia, a non-OPEC member, is likewise a modest 2.7 percent below current levels.

    All things being equal, that's likely to accelerate China's trend toward a broader base of crude supply. In 2013, Saudi Arabia and Angola together accounted for 33 percent of the country's imports. The kingdom's 11.8 percent import share in September was the lowest figure since 2005; Angola's 8.5 percent slice last month was the smallest since 2007.

    Meanwhile, other Gulf producers have been catching up. Iraq briefly overtook the kingdom in September with 4.1 million metric tons of exports to China, compared with Saudi Arabia's 3.9 million. Iran, with 3.3 million tons, wasn't far behind.

    That's good news for Tehran, which could do with a diversity of customers, given the risk that a Trump administration manages to stymie oil exports to Europe, as Gadfly's Julian Lee has argued.
    Back to Top

    Iraq oil exports hit record 4.051 million bpd in November

    Iraq's oil exports reached a record high 4.051 million barrels per day (bpd) in November, the oil ministry said in a statement on Thursday.

    Exports from the country's southern oilfields totalled 3.407 million bpd, the ministry said. Kirkuk exports amounted to 64,000 bpd, with 580,000 bpd exported from oilfields controlled by the Kurdish regional authorities in the north, it said.
    Back to Top

    India to invest $20bn in deepwater fields

    India is to invest $20billion in gas fields in the next five to seven years, according to its oil minister Dharmendra Pradhan.

    The politician said the investment will be primarily in developing natural gas discoveries by state-owned ONGC and Reliance Industries joint venture with BP.

    He said: “About $20billion will be invested in next five to seven years primarily in deepwater fields to augment gas production.

    “We are now expediting production of gas from domestic sources to the extent of 20 trillion cubic feet from already discovered sources through policy, fiscal and regulatory mechanism.

    “These fields and the current auctions of discovered small fields are going to add to the domestic supplies in the next three to four years.”

    At the moment, ONGC is lining up $5.07billion to produce more than 16million standard cubic metre per day of natural gas from a set of discoveries in its Krishna Godavari basin.
    Back to Top

    Egypt delays third FSRU

    Egypt has decided to postpone plans to charter a third floating regasification unit (FSRU), the Al Borsa newspaper reported on Thursday citing Petroleum Minister Tarek El Molla as saying.

    The third FSRU that will be used as an import terminal was expected to arrive at the end of June next year to handle a surge in LNG demand from new power plants coming online.

    However, these plans have been delayed as results of a reevaluation of natural gas projects that will supply the power grid showed that the domestic market did not need to increase the imports of gas next year, the report said.

    The Minister did not reveal how long the arrival of the third FSRU would be delayed.

    The Egyptian Natural Gas Holding Company (EGAS) had already held a tender earlier this year for the FSRU. Companies that expressed interest in providing the regasification unit included Höegh LNG, BW, and  Excelerate Energy.

    Egypt, which turned from a net exporter to a net importer, started importing the chilled fuel in April 2015 via FSRU Höegh Gallant located in Ain Sokhna Port. FSRU BW Singapore, used as Egypt’s second LNG import terminal in Ain Sokhna, began operations in October last year.

    The country recently selected its suppliers for about 60 cargoes of the chilled fuel it sought for 2017-18 through what was claimed to be the largest mid-term tender ever issued.

    Attached Files
    Back to Top

    Italy to receive first U.S. LNG cargo?

    Italy is about to receive its first cargo of U.S. LNG produced from shale gas, at least that it is what the ship tracking data currently shows.

    This would be only the fourth U.S. cargo to land in Europe since Cheniere’s Sabine Pass liquefaction facility started exporting the chilled fuel at the end of February.

    According to AIS data provided by the vessel tracking website, MarineTraffic, the 156,007-cbm WilPride is expected to deliver a Sabine Pass cargo to FSRU Toscana located off the Italian coast between Livorno and Pisa on December 4.

    Cheniere’s Sabine Pass facility has since February shipped more than 40 cargoes produced from two liquefaction trains with most of them landing in Latin America followed by Africa, Asia, and Europe.

    The U.S. is expected to become the world’s third-largest LNG supplier by 2020 with an export capacity of 60 million mt coming from five terminals located along the Gulf Coast.
    Back to Top

    Israel: Noble Energy sells more Leviathan gas

    U.S. oil and gas firm Noble Energy has managed to find another buyer for the Leviathan field gas.

    According to Delek, Noble’s partner in the project located in the Mediterranean Sea offshore Israel, the Leviathan partners have signed a deal to sell gas from the Leviathan to Or Power Energies (Dalia).

    The buyer will use the gas to operate a power station that it intends to set up, Delek said on Thursday.

    Under the deal signed on November 30, the Leviathan partners will supply the buyer with an overall amount of 8.8 billion cubic meters of natural gas.

    The agreement starts when commercial volumes of natural gas start to flow from the Leviathan field to the Or Power Energies (Dalia).

    As for the value of the contract, the Leviathan partners that the amount could come to around $2 billion, however “the actual revenues will be derived from a range of factors, including the amounts of gas actually purchased by the purchaser and the electricity production price.”

    Worth noting the deal is subject to several contingent terms, the main ones of which are receipt of a license for the natural gas pipeline from the Leviathan field, a Final Investment Decision by the Leviathan Partners. Additionally, Or Power needs to obtain a conditional license to produce electricity and the applicable approvals of the planning authorities for the construction of its installations. The deal is also dependent on financial completion of  Or Power’s funding agreements.

    As for the Leviathan field sanction, Noble Energy, the operator, in November said it had made progress towards the Final Investment Decision. The FID is now expected in early in 2017.

    To remind, during the third quarter, Leviathan partners signed a large sales contract to sell gas from Leviathan to Jordan’s to the National Electric Power Company Ltd. (NEPCO).

    The Leviathan development plan envisions a subsea system that connects production wells to a fixed platform located offshore with tie-in onshore in the northern part of Israel. The fixed platform’s initial capacity is anticipated to start at 1.2 billion cubic feet of natural gas per day (Bcf/d) and is expandable to 2.1 Bcf/d.

    The field is estimated to hold some 22 Tcf of recoverable gross natural gas resources.
    Back to Top

    BP says approves Mad Dog oil field extension in Gulf of Mexico

    Oil major BP has approved a $9-billion (7.13 billion pound) investment to expand its Mad Dog oil field in the U.S. Gulf of Mexico, the company said, adding to just a handful of investment decisions it has taken this year amid weak oil prices.

    The Mad Dog Phase 2 project will start producing oil in late 2021 and will have the capacity to pump up to 140,000 barrels per day (bpd) from up to 14 wells, BP said.

    A leaner design of the expanded Mad Dog, which is located around 190 miles south of New Orleans, means the project's costs have fallen to $9 billion from more than $20 billion initially.

    BP said its project partners BHP Billiton and Chevron are expected to made a final investment decision on the field soon.
    Back to Top

    WildHorse Resource Development Corp. launches IPO

    WildHorse Resource Development Corp., a Houston-based independent oil and natural gas company, has launched an initial public offering, the company announced Thursday.

    The shares are trading on the New York Stock Exchange under the symbol “WRD.” WildHorse is offering 27.5 million shares of common stock and underwriters get a 30-day option to purchase more than 4.1 million additional shares.

    Book-running managers for the offering are Barclays, Bank of America Merrill Lynch, BMO Capital Markets, Citigroup and Wells Fargo Securities, according to a company statement.

    WildHorse develops properties for oil and natural gas production across the Eagle Ford Shale region of Texas and the Cotton Valley region of northern Louisiana.
    Back to Top

    Inside FERC Henry Hub December index rises 46 cents to $3.23/MMBtu

    Inside FERC Henry Hub December index rises 46 cents to $3.23/MMBtu

    The December bidweek national average natural gas price rose 70 cents to $3.17/MMBtu, with prices in the US Northeast seeing the biggest increases, according to Inside FERC's Gas Market Report Thursday.

    The December bidweek price at benchmark Henry Hub rose 46 cents to average $3.23/MMBtu.

    That came as the NYMEX December gas futures contract expired at $3.232/MMBtu, up 46.8 cents from the November contract's close of $2.764/MMBtu.

    In the Northeast, Transcontinental Gas Pipe Line Zone 6 New York increased $1.96/MMBtu to average $3.87/MMBtu as expectations for colder temperatures and stronger heating demand drove prices higher.

    In premium New England markets, prices rose even more sharply as Algonquin Gas Transmission city-gates prices climbed $2.27 to $4.73/MMBtu.

    In the Northeast producing regions, Dominion, Appalachia December prices climbed $1.28 to $2.40/MMBtu.

    In the Upper Midwest, prices advanced, with Chicago city-gates rising 44 cents to average $3.25/MMBtu. Upstream, Rockies Express Zone 3 prices climbed 50 cents to $3.21/MMBtu.

    In the Midcontinent, December prices saw similar increases as the Panhandle pricing point rose 50 cents to average $3.04/MMBtu.

    Further west in the Rockies, Northwest Pipeline Rockies was up 37 cents to average $2.99/MMBtu.

    Along the West Coast, Southern California Gas December prices jumped 71 cents to $3.41/MMBtu.

    Elsewhere in the region, Pacific Gas & Electric city-gates climbed 31 cents to average $3.56/MMBtu.
    Back to Top

    Energy East the Odd Pipeline Out as Canada Approves Two Others

    For more than two years, TransCanada Corp.’s proposed 1.1 million barrel-a-day Energy East pipeline, designed to run from Alberta to New Brunswick, has been mired in regulatory hearings and opposition from environmentalists. Now, the hurdles it faces may be even higher after Kinder Morgan Inc.’s Trans Mountain expansion and Enbridge Inc.’s Line 3 replacement were both cleared for operation by the Canadian government on Tuesday.

    When combined with U.S. President-elect Donald Trump’s promise to quickly approve the Keystone XL pipeline, Trans Mountain and Line 3 will add enough capacity to handle Canada’s oil production for 20 years, according to National Energy Board projections. That makes Energy East redundant, according to Steve Belisle, a fund manager at Manulife Asset Management in Montreal.

    “It’s becoming an even more remote possibility that Energy East goes ahead,” Belisle said in a telephone interview. “Why go through the political hassles at this stage. I don’t think that TransCanada has a lot of appetite for this.”

    Extending Trans Mountain to the British Columbia coastline and expanding Line 3, which carries crude to the U.S. Midwest, will add 960,000 barrels in capacity a day. TransCanada’s Keystone XL pipeline to the Gulf Coast is designed to carry 830,000 barrels a day.

    Expand Access

    TransCanada applied to build Energy East two years ago as Canadian oil producers looked to expand access to markets beyond the U.S., where nearly all Canada’s oil is sold and where a surge of shale oil production depressed prices. The aim was to open access for Western Canadian oil producers to the Atlantic Ocean, allowing Alberta’s crude to be sold in Europe.

    Slated to cost C$15.7 billion ($11.9 billion), the line would have been the largest in North America carrying oil. It faced an uncertain future after National Energy Board reviewers assessing the project stepped down in September amid allegations that the regulatory process was tarnished, and after violent protests forced a halt to hearings.

    Still, TransCanada remains committed to the project, Tim Duboyce, a company spokesman, said in an e-mail Wednesday.

    “Energy East remains of critical strategic importance because it will end the need for refineries in Quebec and New Brunswick to import hundreds of thousands of barrels of foreign oil every day, while improving overseas market access for Canadian oil,” Duboyce wrote the day after Canadian Prime Minister Justin Trudeau announced the Trans Mountain and Line 3 approvals.

    Added Capacity

    Enbridge’s C$7.5 billion Line 3 replacement is scheduled to go into operation in 2019, allowing the company to restore the pipeline’s original 760,000 barrel-a-day capacity after it was cut by almost half in 2010. Kinder Morgan filed to expand Trans Mountain three years ago, seeking to almost triple its capacity to 890,000 barrels, and allowing increased exports to Asia.

    While Energy East could still be approved after Tuesday’s decision, it “may take a bit more time” and require the holding of provincial elections in Quebec, said Tim Pickering, a founder at Calgary-based Auspice Capital Advisors. Pickering said he believes the pipeline should be approved “in the interest of Canada’s energy security. We are selling oil at such a great discount because we have one buyer for our oil,” he said.

    In December last year, TransCanada increased the projected cost after addressing the concerns of communities and making almost 700 route changes. The company also eliminated a proposed marine export terminal in Quebec amid concern the facility would harm endangered beluga whales.

    Opposition remains nonetheless. In September, Quebec’s Premier Philippe Couillard said in an interview that Energy East poses significant risk to the provinces freshwater resources. “We will not compromise our people’s security and safety as far as water is concerned,” he said.

    Attached Files
    Back to Top

    Alternative Energy

    Daimler, BMW, Volkswagen Group, & Ford Sign superfast charging MoU in Europe

    A new joint venture has formed that will develop a high-power, EV fast-charging network in Europe has been signed by BMW, Daimler, Ford, and Volkswagen Group (including Audi and Porsche). In other words, these major auto companies are looking to finally catch up to Tesla on one of the most critical components of a healthy and vibrant electric vehicle ecosystem.

    This newly signed Memorandum of Understanding (MoU) will reportedly see the firms cover common long-distance travel routes in Europe with high-power DC electric vehicle (EV) fast-charging stations that offer up to 350 kW in power. (For comparison, current non-Tesla EV “fast chargers” max out at 50 kW, while Tesla’s max out at 120–135 kW.)

    The planned buildout — based on the Combined Charging System (CCS) standard — will reportedly involve around 400 station locations.

    Work on the development of the network will begin sometime in 2017, according to the press release — with the goal being for there to be thousands of high-power charging points on the continent by 2020.
    Back to Top

    US ethanol crush margin reaches nearly two-year high

    The US ethanol crush margin continued to rise Thursday after reaching a nearly two-year high of 46.73 cents/gal Wednesday.

    The margin has not been as high since December 12, 2014, when it was 63.43 cents/gal.

    Chicago Argo, a benchmark for physical US ethanol, was heard trading for $1.66/gal Thursday morning, while the front-month CBOT corn futures contract traded for $3.3275/bushel, yielding a margin of 47.16 cents/gal.

    A simple crush margin can be calculated by dividing the cost of corn per bushel by 2.8, the number of gallons of ethanol that a bushel of corn can produce. The resulting number is the cost of corn per gallon of ethanol.

    The margin strengthened sharply on Wednesday, climbing 4.75 cents from Tuesday, as ethanol rallied on bullish weekly data from the US Energy Information Administration.

    Market participants had expected production to climb above 1.020 million b/d, but the data showed run rates fell 2,000 b/d to 1.012 million b/d. The longer production can hover below maximum capacity, the more time stocks have to draw before the typical build in the first quarter.

    Stocks also supported prices as they fell 504,000 barrels to more than a one-year low. "No one expected that big of a draw," said one source. Strong exports have kept demand for US ethanol high.
    Back to Top

    Precious Metals

    India's Dec gold imports to halve as cash crunch squeezes demand

    India's overseas purchases of gold could halve this month after jumping to the highest level in 11 months in November because retail demand has faltered due to the government's move to scrap high-value currency notes, industry officials told Reuters.

    Lower imports by the world's second-biggest consumer of gold could weigh on global prices that are already trading near their lowest level in 10 months, although it would likely help the South Asian country trim its trade deficit.

    "In December gold imports could fall below 50 tonnes. Retail demand is very weak due to the cash crunch," Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation, told Reuters.

    The November imports jumped to around 100 tonnes, highest since December 2015, Bamalwa said, as people with unaccounted wealth rushed to buy bullion following Indian Prime Minister Narendra Modi's shock withdrawal of 500 and 1,000 rupee banknotes to fight graft and "black money".

    The Indian government has also put strict limits on the amount of money people can withdraw from banks, although a larger sum, 250,000 rupees ($3,660), is allowed for weddings - a big driver of demand for gold - as long as participants can prove that the marriage is genuine.

    Anticipating curbs on gold imports, banks and other nominated agencies ramped up overseas purchases in mid-November, but demand plunged by the third week of the month due to the shortfall of currency notes, dealers said.

    "A significant chunk of November imports are still unsold. Import requirement for December is limited," said Sudheesh Nambiath, a senior analyst at metals consultancy GFMS, a division of Thomson Reuters.

    Indian jewellers rely on the wedding season for an uptick in demand during winter months after the end of key festivals such as Diwali. Weddings accounts for more than half of the country's annual demand for gold, according to GFMS.

    But the difficulties of getting enough cash have hit wedding demand hard and forced many consumers to exchange old jewellery for new, says Kumar Jain, vice president of the Mumbai Jewellers Association.

    "The demand will remain low for the next few months. It will take time to recover."
    Back to Top

    Base Metals

    BHP Australia copper mine hit by another power outage

    BHP Billiton said on Thursday that its Olympic Dam copper mine was without power for four hours due to a blackout in the state of South Australia.

    That marks the second time in two months that Australia's second-biggest copper mine has been brought to a standstill over power issues.

    BHP said that operations were resuming following the restoration of power in the wake of the overnight outage that was blamed on the failure of an interconnector, a structure used to let energy flow between networks.

    "Olympic Dam's latest outage shows Australia's investability and jobs are placed in peril by the failure of policy to both reduce emissions and secure affordable, dispatchable and uninterrupted power," BHP Chief Executive Andrew Mackenzie said in a statement following the outage.

    A BHP spokeswoman declined to comment on any impact on production from the latest blackout.

    The previous blackout left the mine without power for two weeks, costing BHP an average of 567 tonnes in lost copper production a day, based on last year's output of 203,000 tonnes. That would be worth around $3 million a day at current metals prices.

    About 200,000 people were without power overnight after the state was separated from the Victorian network, according to the state's energy Minister Tom Koutsantonis.

    Some lost power for 15 minutes, others for up to an hour, But most properties had power restored by early on Thursday, he said.

    BHP in October warned that more blackouts were possible, with power shortages most likely on hot, cloudy days when there's not much wind blowing.

    Growth in wind power, which now drives more than a third of the state's electricity supply, has led to the closure of coal-fired power stations and some gas-fired capacity, which has raised blackout risks and caused price spikes.

    "The challenge to reduce emissions and grow the economy cannot fall to renewables alone," Mackenzie said.
    Back to Top

    Lundin shares bounce on payout, guidance

    Lundin shares bounce on payout, guidance

    Shares in Lundin Mining jumped more than 5% on Thursday after the company announced the introduction of a quarterly dividend policy and provided a strong production outlook for its copper and zinc operations. The company, worth $3.7 billion in New York, is up nearly 90% this year thanks to the rally in base metals.

    The first $0.03 per share payment, pending board approval, is expected to be made in March 2017 and represents a 1.8% annualized yield on the Toronto-based company’s current share price.

    Haywood Securities in a research note said it views the dividend, which follows Lundin's sales of a 24% interest in Congo's Tenke Fungurume copper mine $1.136 billion, as "a strong vote of confidence for Lundin’s financial (and operating) outlook."

    Lundin also announced production guidance for the next three years  with improvements in cash costs, output and capital and exploration expenditure guidance particularly at its flagship Candelaria mine in Chile:

    Attributable copper production guidance for 2017 and 2018 from mines operated by the Company has increased from last year's three-year guidance on an improved production profile at Candelaria.

    Zinc production guidance for 2017 and 2018 has been improved from last year's three-year guidance primarily on operational improvements at Neves-Corvo achieved in 2016. The zinc production profile assumes plant capacity continues at current levels and does not yet include potential additional zinc production from the Neves Corvo Zinc Expansion Project (ZEP) pending its formal approval.

    Cash costs are expected to be lower year-over-year in 2017 at Candelaria and Neves-Corvo, and unchanged at Zinkgruvan. Eagle cash costs will be higher than 2016 but remain low on the cost curve.

    Estimated costs to complete the Los Diques tailings facility at Candelaria have been further reduced by approximately $25 million. Expenditures to complete are expected to amount to $135 million in 2017 and $30 million in 2018.

    The company now expects to produce between 202,000 – 216,000 tonnes of copper on an attributable basis next year declining to 189,000 – 203,000 tonnes in 2018 and staying flat in 2019. Candeleria is responsible for three-quarters of Lundin's copper production and Lundin sees cash cost at the mine reducing to $1.20 a pound.

    Zinc output is pegged at 152,000 – 162,000 tonnes next year, while nickel production from its Eagle mine in Michigan, US is set to decline from next year's 17,000 – 20,000 to 11,000 – 14,000 tonnes during 2019.

    Copper was trading at $2.63 a pound on Thursday, a 23.5% improvement since the start of the year. Zinc is the best performing metal of 2016, up 70% since the end of last year reaching an eight year high of just over $2,900 a tonne on Monday before retreating. Nickel is up nearly 30% year-to-date to above $11,00o a tonne.
    Back to Top

    Blackout ramps up pressure on Alcoa Australian aluminium smelter

    A blackout that forced Alcoa Corp to shut one of two potlines at its Portland aluminium smelter in Australia will ratchet up costs further and may put the plant's future in jeopardy, analysts said on Friday.

    The smelter was hit when a power interconnector between the states of Victoria and South Australia went down on Thursday, knocking out power to both of the plant's potlines for about five-and-a-half hours.

    Speculation has grown about the future of the Portland smelter after a recent rise in electricity prices added to pressure from a years-long glut in the global aluminium market.

    "Restarting potlines is a messy, time-consuming, expensive business," said analyst Lachlan Shaw of UBS in Melbourne. "It's unquestionably another headwind to keep that operation open."

    The smelter, co-owned by Alcoa, CITIC Resources and an arm of Marubeni Corp, produces about 300,000 tonnes of aluminum a year.

    Alcoa said that one potline had been curtailed as a result of the outage, and to ensure the safety of people inside the plant.

    "Efforts are focused on maintaining production in the smelter's second potline," Alcoa said in a statement, adding that it was too early to speculate on the full impact of the power outage, or on how long it may take to restore normal operations.

    "We are not speculating at all about the future of the smelter as a result of this latest power outage," Alcoa spokesman Brian Doy told Reuters.

    The smelter moved to a power contract with utility AGL Energy last month, following the end of a power contract with the state government, raising its costs.

    Global aluminium market have only recently picked up from seven-year lows, thanks in part to a coal shortage in China that many expect to prove temporary.

    "(It's) a bad time with metal prices so high. It will take months to jack hammer all the frozen metal and carbon from out of the pots, then repair," said Managing Director Paul Adkins of consultancy AZ China.

    "So Alcoa have a difficult decision to make."
    Back to Top

    Philippine Minister says may announce more mine suspensions next week

    Philippine Minister says may announce more mine suspensions next week

    The Philippine government will suspend more mines in a fight against environmental degradation, the minister in charge of mining said on Friday, in a move that could lift nickel prices again if supply from the world's top exporter is disrupted.

    The Southeast Asian nation has already halted 10 of its 41 mines. Twenty more were facing possible suspension and the agency in charge of the review may issue a ruling next week.

    "There will definitely be suspensions, but we have to go over the list," Environment and Natural Resources SecretaryRegina Lopez told Reuters by phone.

    Lopez said the list will be finalised "very soon, next week at the latest".

    Fourteen of the 20 mines facing suspension are nickel producers, and along with the eight of 10 already halted, they accounted for more than half of the Philippines' nickel ore output last year.

    The clampdown against what the government says is irresponsible mining began shortly after President Rodrigo Duterte assumed office on June 30. Duterte has warned miners to strictly follow tighter rules or shut down, saying the country could survive without a mining industry.

    Manila's mining crackdown drove nickel to a then one-year high of $11 030/t in August. Last month the prices briefly pierced $12 000/t for the first time since July 2015 in a broad-based rally in industrial metals.

    Nickel was trading at $11 150 on Friday, but analysts say it could top $12 000 again if the Philippines suspends more mines.

    "The Philippine ruling on those mines is really the only impetus to get it there," said Daniel Hynes, commodity strategist at ANZ.

    "Further suspensions would see an acceleration in the drawdown in inventories" of nickel from London Metal Exchange warehouses, he said.

    Attached Files
    Back to Top

    Steel, Iron Ore and Coal

    South African Oct thermal coal exports down 13pct on yr

    South Africa exported 6.14 million tonnes of thermal coal in October, down 12.8% on the year and 10.7% on the month, showed customs data released on November 30.

    The decline was mainly due to its lower shipments to India, Europe and Turkey, according to data.

    South African thermal coal exports over January-October totaled 58.51 million tonnes, down 4.9% from the year-ago level.

    India remained the largest taker of South African thermal coal, importing 3.13 million tonnes, falling 6% on the year and down 5% from September.

    Shipments to Northwest Europe and the Mediterranean fell for the second straight month to a four-month low of 486,183 tonnes, with the Netherlands taking 166,783 tonnes -- the lowest since June -- and Italy taking 319,400 tonnes.

    Exports to South Korea were close behind at 428,510 tonnes, the highest since 2014. Nothing was shipped to Turkey for the first time since May.
    Back to Top

    SAIL to double iron-ore production of its Bolani mines

    Steel Authority of India Limited (SAIL), the country’s largest integrated steel producer, will double the production capacity of its Bolani iron-ore mine at eastern Indian province of Odisha.

    The capacity of the mine will be ramped up to 10-million tons a year over the next four years from its current capacity of five-million tons a year, entailing an investment of about $34-million.

    The expansion of Bolani is crucial to maintain future raw material security. The mine is an important source of supply to SAIL’s steel mills at Rourkela, Durgapur and Bokaro, a company official in the raw materials division has said.

    Besides Bolani, SAIL has also started an expansion of its Barua and Kalita mines to double their production to four-million tons a year each, from two-million tons a year.

    Elaborating on the importance of enhancing raw material security, the official said that SAIL, which has five integrated steel mills under its fold, would achieve hot metal productionof about 23.1-million tons in the current financial year. This would increase to 50-million tons a year by 2025, which would require matching increases in production from its captive raw material assets.

    Meanwhile, the company is expected to select, over the next few weeks, a mine developer and operator (MDO) for its 15-million-ton-a-year iron-ore mine at Rowghat in the central Indian province of Chhattisgarh.

    SAIL has invited offers from domestic and international MDOs for the development of the Rowghat mine, which has an estimated reserve of more than 500-million tons of iron-ore. The company will offer an MDO a five-year period for construction and development of the reserves and a production agreement for the subsequent 25 years.

    SAIL has been seeking an MDO since early 2015 and previous MDOs, which had submitted offers, withdrew at the prebid conference stage, owing to concerns about law and order at the location.

    The development of the Rowghat mine is critical for supply for the Bhilai steel plant. However, the area where the iron-ore reserves are located in is plagued by violence and disruptions by ultra left extremists in the largely forested region, leading to previous MDOs balking at taking up the project.

    After series of consultations with provincial government and the federal Ministry of Home, the central government has deployed large contingents of paramilitary forces specialised in combating extremists. This should bolster confidence among MDOs to go ahead with the project.
    Back to Top

    China Nov steel sector PMI rises to 51.0

    The Purchasing Managers Index (PMI) for China's steel industry rose to 51.0 in November, compared with 50.7 in the previous month, showed data from the China Federation of Logistics and Purchasing (CFLP) on December 1.

    That was a new high since May of the year, indicating resilience in the steel industry. The steel market has been supported by declining operating rate at steel mills, good sales and relatively low stocks.

    In November, the steel industry output sub-index was 48.8, dropping 1.9 from 50.7 in October, after four months' consecutive reading above the 50-point mark that separates growth from contraction.

    Operating rate at domestic steel mills fell recently affected by climbing cost, constrained supply of steelmaking materials, as well as strengthened environmental regulations.

    As of November 25, the operating rate at 163 surveyed steel mills stood at 76.52%, falling 0.28% on week; and the profit margin slid 6.13% from the previous week to 47.24%.

    Experts anticipated the downturn of crude steel output to continue in December during traditional maintenance season.

    Meanwhile, the new orders sub-index reached 55.9, compared with 54.6 in the previous month, also the highest since May this year.

    Separately, the inventory index for the country's steel industry dropped 3.3 from October for the second straight month to a seven-month low of 45.1 in November.

    As of November 10, steel products stocks at China's key steel mills stood at 12.91 million tonnes, falling 6.92% from ten days ago and 14.07% from the year-ago level.

    Besides, the purchase price index continued to increase from 68.3 in October to 77.4 in November, the highest level in recent seven months and a new record high since February 2011, indicating higher prices of steel-making materials.
    Back to Top

    Chinese steel giant established following key merger

    China Baowu Steel Group, whose annual output will be China's largest and the world's second largest, was established on December 1 in Shanghai following the merger of two major steelmakers, local media reported.

    The group was created by the merger of Shanghai-based Baosteel Group and Wuhan Iron and Steel Corporation in central China's Hubei Province.

    The combined steel output of the two groups totals about 60 million tonnes, exceeding that of Hesteel, China's current top producer, and putting it at second place worldwide, after ArcelorMittal, according to the 2015 data from the World Steel Association.

    The new group is estimated to have 228,000 employees, general assets worth 730 billion yuan ($106 billion) and an annual revenue of 330 billion yuan.

    The merger is an important move to promote China's economic restructuring and improve the competitiveness of Chinese steelmakers in the international market, said Ma Guoqiang, chairman of Baowu.

    The State-owned Assets Supervision and Administration Commission approved the merger in September as the country fights to cut steel overcapacity.

    China has shut down steel plants with total capacity of over 90 Mtpa in the past five years and planned to reduce output by an additional 100-150 million tonnes by 2020.
    Back to Top

    China pushes for long-term coal contracts to stabilize market

    Chinese authorities have detailed measures to ensure the execution of medium- and long-term contracts between coal producers and buyers as the government seeks to avoid violent price fluctuations, Xinhua reported.

    A guideline released by the country's top economic planner and other parties specified that the contracts should make clear the amount of coal supply and price range, with clauses to allow for market-oriented price adjustments.

    Illegal practices such as price manipulation and spreading misleading information will be punished, while those who honor the contracts will receive government policy support, according to the guideline.

    The push for medium- and long-term contracts came as a supply crunch in the industry, which is partly due to a government capacity-cutting campaign, has driven an unexpected surge in coal prices.

    During the past two months, several top-level meetings have been called by the National Development and Reform Commission (NDRC) to seek increased supply to stabilize the market.

    Authorities have pledged to ensure market supply without weakening capacity-cutting efforts with plans to relax the limit on production days for coal producers.

    Major coal miners such as Shenhua Group and China National Coal Group last month inked long-term contracts with thermal power conglomerates, with price anchored at 535 yuan/t FOB with VAT for 5,500 Kcal/kg NAR coal.

    Thanks to these efforts, prices are showing signs of cooling. At the National Coal Trade Fair on December 1, NDRC deputy head Lian Weiliang said prices will gradually return to "reasonable" levels as China has an "absolute guarantee" over supply.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP