Mark Latham Commodity Equity Intelligence Service

Friday 9th October 2015
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    Saudi Arabia Said to Order Spending Curbs Amid Oil Price Slump

    Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, according to two people familiar with the matter.

    The finance ministry told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter, the people said, asking not to be identified because the information isn’t public. It also banned buying vehicles or furniture, or agreeing any new property rentals and told officials to speed up the collection of revenue, they said.

    With income from oil accounting for about 90 percent of revenue in the Arab world’s largest economy, a drop of more than 40 percent in crude prices in the past 12 months has put pressure on the nation’s finances. While Saudi Arabia’s public debt is one of the lowest in the world, with a gross debt-to-GDP ratio of less than 2 percent in 2014, the kingdom’s net foreign assets fell for a seventh month to the lowest level in more than two years in August.

    Saudi Arabia is OPEC’s biggest oil exporter. Brent, a benchmark for more than half the world’s crude, was trading at $51.62 per barrel at 12:55 p.m. in London, down 10 percent this year.

    The finance ministry declined to comment. The government was working with advisers on a review of capital spending plans, people familiar with the matter said in August.

    The kingdom’s economic growth will likely slow to 3 percent this year from 3.6 percent in 2014, according to the median estimate of economists on Bloomberg. The budget deficit may widen to as much as 20 percent of gross domestic product, according to the International Monetary Fund.
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    Bank of England quizzing UK banks over commodities exposure - source

    The Bank of England has asked British banks to report their exposure to commodities and ensure they are mitigating risks effectively, a source familiar with the situation said on Thursday.

    Prices for oil and other commodities have fallen sharply in recent months, and earlier on Thursday the Financial Times reported the BoE move had been triggered by the sharp fall in the shares of commodities and mining company Glencore.

    "This is something being done in the course of normal supervision," the source said, adding that the request had been made by the Prudential Regulation Authority, the arm of the BoE in charge of day-to-day bank regulation.

    "It is not asking (banks) to take any particular action and it has not been prompted by any particular concern about the commodity sector. The PRA is making sure the firms understand the risks they are exposed to and mitigating them accordingly."

    Shares in Glencore dropped by 30 percent on Sept. 28, before recovering in subsequent days after the firm mooted sales of some of its units to reduce its $30 billion debt pile.

    Two of its rivals, the privately-held Vitol and Trafigura, earlier this week raised over $10 billion in finance, which they said showed bankers understood the sector better than bond or equity dealers.

    Copper, iron ore .IO62-CNI=SI and crude oil prices have tumbled by 16 to 25 percent in 2015, putting pressure on miners to turn a profit.
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    VW cheat software was switched on in Europe - Sueddeutsche Zeitung, headquarters raided

    Volkswagen's software used to cheat emissions tests was switched on in diesel vehicles in Europe, German daily Sueddeutsche Zeitung reported on Thursday, citing Volkswagen.

    The German carmaker admitted last month to cheating U.S. emissions tests and has since said about 11 million cars worldwide had the software installed. But the company has stopped short of saying whether the software was switched on in vehicles outside the United States.

    The paper cited Volkswagen as saying the carmaker now knows that the software recognises test procedures both in the United States and in Europe.

    Volkswagen was not immediately available to comment on the report.

    The biggest business crisis in Volkswagen's 78-year history has wiped around third off its share price, forced out its long-time chief executive and sent shockwaves through both the global car industry and the German establishment.

    German prosecutors have raided the headquarters of car maker Volkswagen and other sides on Thursday as part of an investigation into the company’s emissions scandal.

    "Today, in connection with the so-called emissions scandal, raids were carried out at Volkswagen in Wolfsburg and other locations," prosecutors from the state of Lower Saxony said in a statement.

    They said the raids aimed to secure documents and data carriers that could provide information about the exact conduct of company employees and their identities in the manipulation of exhaust emissions of diesel vehicles.

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    Oil and Gas

    Libya's Oil Export Capacity Rises as Zueitina Port Reopens

    Libya’s crude export capacity increased as Zueitina, an oil port in the eastern region, resumed loadings after a five-month halt due to protests, a workers union said.

    Zueitina began Thursday loading 600,000 barrels of crude on theSea Faith tanker, the port’s workers union president, Ramadan Lefkaih, said by phone. The shipment, bound for Italy, is the first since May, when protesters seeking jobs at state-run National Oil Corp. shut the pipeline that supplies Zueitina with crude. The protesters agreed to reopen the export route after being promised jobs, Lefkaih said.

    Zueitina receives crude from fields including the NOC-operated Nafoora, Wintershall AG’s concession C96, also known as As-Sarah, and Amal, operated by Harouge Oil Operations. It has 2 million barrels in storage and its current supply rate from the fields stands at 30,000 barrels a day, said Lefkaih. It has an installed export capacity of 70,000 barrels a day, according to the oil ministry.

    Kassel, Germany-based Wintershall on Oct. 2 said it was pumping batches of stored crude from tanks in C96 to Zueitina as stable pumping depended on other producers using the same pipeline. C96 was exporting as much as 35,000 barrels a day through Zueitina before the pipeline closed on May 5.

    Libya, with Africa’s biggest oil reserves, pumped about 1.6 million barrels a day of crude before the 2011 rebellion that endedMuammar Qaddafi’s 42-year rule. Political infighting and workers protests curtailed production to 350,000 barrels a day in September, data compiled by Bloomberg show.

    The United Nations on Wednesday expressed hope that rival administrations established in 2014 in eastern and western Libya will be able to form a unity government on Thursday, a development that would eventually facilitate the resumption of exports from oil ports that remain closed, including Es Sider, the nation’s largest. UN-sponsored peace talks are under way in Skhirat, Morocco.
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    Amid commodity crisis, LPG emerges as accidental bright-spot

    Liquefied Petroleum Gas, long a niche product used by the poor to cook and the rich to barbecue, has become a rare bright spot amid a broad commodities rout, riding on the wave of strong economic growth in India and parts of Southeast Asia.

    LPG is best known to consumers as propane or butane used in heating appliances and vehicles. But it is also used in the petrochemicals industry and the electricity sector, acting as a replacement for diesel in generators and power stations.

    While tumbling prices for oil, gas, coal and industrial metals have seen energy companies and miners slash capital expenditure, investment is flowing into the LPG sector to feed burgeoning demand from the world's poorer nations.

    The biggest growth market is India, with its 1.3 billion people and 8 percent economic growth expected this year, where millions of households are switching from kerosene or wood burners to LPG.

    "It cuts pollution and also replaces use of wood as well as animal dung used for cooking in rural India. In the last 5-6 years, the government has been consistently reducing the allocation of subsidized kerosene... Delhi is today kerosene-free."

    Energy consultancy IHS expects global LPG demand to rise from around 275 million tonnes this year to some 310 million tonnes by 2019, with the biggest growth seen in Asia. That compares with under 250 million tonnes in 2010.

    The World Bank says LPG helps reduce poverty, giving millions of households access to cooking heat and electricity for the first time.

    Just as important as the demand growth has been a change in LPG supply.

    Previously mostly produced in the Middle East, its rise over the last few years has come as a side-effect of the U.S. shale oil and gas exploration boom, of which LPG is a by-product.

    With LPG production from shale soaring since 2006, the United States has this year become the world's biggest exporter.

    Its soaring production has also made LPG much cheaper, a key ingredient for its success in developing countries, with U.S. propane prices PRO-USG down 70 percent since 2014.

    "The sea-change of U.S. LPG exports has been fantastic for us," said Theodore Young, chief financial officer of New York-based Dorian LPG, one of the world's biggest shippers of the fuel, which has ordered 19 new vessels to meet demand.

    "It's been massive growth of perhaps 4 million tonnes not a decade ago to some 20 million tonnes this year."

    LPG is also seeing industrial-scale growth. Malaysia is developing the huge Refinery and Petrochemical Integrated Development (RAPID) project in Johor, close to Singapore's oil hub.

    RAPID will have the capacity to store more than 2 million cubic metres of crude oil, refined products, petrochemicals and LPG and plans to start operations in 2019.

    One problem the LPG industry could face is a scale-back in subsidies it heavily relies on in many countries.
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    China's deepest gas field to be put into operation

    China's deepest gas field in marine strata,Yuanba gas field in Sichuan Province, is to be put into operation by year end, energy giant Sinopec announced.

    It will produce 3.4 billion cubic meters of natural gas every year, supporting many regions along the middle and lower reaches of the Yangtze River, including Shanghai, Zhejiang, Jiangsu and Anhui, according to Sinopec.

    The field's deposits are as deep as 6,700 meters, and it has a total explored reserves of 219.4 billion cubic meters. It is one of the most difficult gas fields to construct due to the high risk.

    Sichuan is also home to China's second largest gas field Puguang.

    Sinopec started exploring the Yuanba area in 2007 and formally began development and construction of the gas field in 2011. Sinopec Group said in April that the Yuanba field will play a significant role in energy security.

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    Norway Says Tax Reform to Boost Marginal Oil Projects Amid Slump

    Norway’s proposed tax reform will benefit marginal oil projects such as increased-recovery plans at a time when producers are cutting costs and delaying investments amid a slump in commodity prices.

    The Conservative-led minority government’s proposal to cut the corporate tax to 25 percent from 27 percent while raising Norway’s special petroleum tax to 53 percent from 51 percent will help producers because the base for the corporate tax is wider than for the special tax, Petroleum and Energy Minister Tord Lien said in an interview in Oslo on Thursday.

    “Any improvement of the tax framework will stimulate higher activity, that’s the whole idea,” he said. “Especially for investments that aren’t that profitable, the measure in the budget will have an impact.”

    Norway is headed for the biggest drop in investments in its offshore industry in 15 years as oil companies including Statoil ASA, Total SA and Royal Dutch Shell Plc cut spending and close down production earlier than planned after crude prices more than halved from a June 2014 high.

    Lien declined to quantify the effect of the proposed changes appearing in yesterday’s budget. The impact will be “marginally positive” for oil companies, analyst Teodor Sveen Nilsen of Swedbank AB said yesterday.

    The Norwegian Oil and Gas Association, which represents producers, has called for incentives to support increased-recovery projects and expressed disappointment yesterday that the budget didn’t include any.

    “They have no reason to be disappointed,” Lien said.

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    UK government passes energy policy power to new commission

    There is some confusion as to the role of the department of energy and climate change following a reorganisation announced by the UK’s chancellor for the exchequer George Osborne this week.

    The entire energy policy brief has been ceded by DECC to the new National Infrastructure Commission (NIC).

    With the energy portfolio has gone all the big issues on its agenda. These include the Hinkley Point C nuclear power station, indeed the entire future of the UK nuclear power programme.

    It is not entirely clear what DECC, headed by secretary of state Amber Rudd, will now hold responsibility for, following the announcement.

    Mr Osborne announced the NIC at the Conservative party conference on Monday describing it as "A Commission, set up in law, free from party arguments, which works out, calmly and dispassionately, what the country needs to build for its future, and holds any Government's feet to the fire if it fails to deliver ... Like how we are going to make sure Britain has the energy supplies it needs ...

    "I've asked the new National Infrastructure Commission to start its work today. And I am delighted that the former Labour Cabinet Minister and Transport Secretary Andrew Adonis has agreed to be the Commission's first Chair."

    As a result of the restructure it appears that DECC is largely a shell department with responsibility for climate change policy. The relationship between the NIC and DECC is not yet clear. Power Engineering International has asked for more detail on the newly defined roles for both offices but has not yet had a response.
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    Expanded Panama Canal to open by April 2016 - Mr Quijano

    Mr Jorge Quijano, Panama Canal administrator, has assured shipping leaders the expanded canal should be open for business by April next year.

    "It hasn't been easy" he said the Danish Maritime Forum in Copenhagen, referring to disputes with the project's contractors and engineering faults that led to leaks. The project is 95% complete.

    He said that when opened, the canal would not immediately handle the largest container vessels, that can be accommodated, 14,000 teu, but would build up to it, allowing pilots to acclimatise to the new conditions.

    Mr Quijano said that LNG shipments through the canal will be a segment that will show strong growth in the years ahead.

    He added that "Next year we'll see the first shipment going to Japan through the canal and he said there is also strengthening demand for LNG shipments from China and South Korea.”
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    Frontera Increases Georgia Gas Resource Estimate More Than Tenfold

    Frontera Resources Corporation has increased the gas resource estimate of its operations in eastern Georgia more than tenfold, compared to previous estimates.

    In April this year, Frontera revealed that independent consulting firm Netherland, Sewell & Associates confirmed combined prospective natural gas resources of 12.9 trillion cubic feet of gas in place, with as much as 9.4 trillion cubic feet of recoverable prospective natural gas resources, at the Mtsare Khevi Gas Complex and Taribani Field Complex, which were both combined to form the South Kakheti Gas Complex. In addition to gas resources previously identified for subsets of this combined area, Frontera’s ongoing work recently concluded new estimation of as much as 135 trillion cubic feet of gas in place from reservoir targets found between 984 feet and 16,404 feet in depth. Following Frontera’s considerable resource upgrade, an independent assessment of the company’s new internal estimates is now underway.

    Steve C. Nicandros, chairman and CEO of Frontera, commented in a company statement:

    “Our ongoing investments in Georgia have continued to reveal the emergence of what we believe to be a world class gas play with the identification of the South Kakheti Gas Complex. Much like the recent evolution of similarly prolific gas plays in the United States that have transformed the USA’s energy independence trajectory, our results continue to indicate that Georgia has the natural gas resources to follow a similar path. We believe that our ongoing work will further serve to establish Georgia’s domestic energy independence in the years to come and also make it a strategic supplier of gas to Turkish and European consumption markets.”

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    WTI Crude Surges Back Above $49 After OPEC Comments

    WTI Crude has recovered the losses following yesterday's DOE-reported inventory and production rise as it appears comments from OPEC Secretary-General Al-Badri told The IMF that demand will climb more this year than previously projected (coming on the heels of EIA's comments that oil companies worldwide will cut investments in oil exploration and production by a record 20 percent this year.) USD weakness is also helping drive algos to run stops in crude.

    Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the statement to the IMF’s International Monetary and Financial Committee. There is a supply overhang of about 200 million barrels in the market, El-Badri said at a conference in London on Oct. 6.
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    Bears on Natural Gas at a record high.

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    Enbridge to invest $38bn in new oil and projects through 2019

    Canadian pipeline company Enbridge is planning to invest C$38bn ($29bn) in new oil and projects between 2015 and 2019.

    The company's latest investments plan includes crude oil pipeline expansions and extensions on its mainline in a bid to expand in the US Gulf Coast region.

    Enbridge also plans to expand its natural gas footprint, including opportunities in growing supply basins as well as Canadian midstream.

    The investments will include load growth, system renewal and storage in the area of gas distribution, in addition to new opportunities to explore natural gas for transportation and combined heat and power (CHP).

    Further, the company continues to seek new opportunities in power generation and transmission projects.

    According to the company, out of the total investment amount, $24bn is commercially secured, and in execution, even after $9bn worth of projects was put in into service last year.

    Enbridge president and CEO Al Monaco said: "What we mean by secured is that these projects are supported by (financial) commitments, and they're happening.

    "We've built an enviable track record of delivering projects on time, and on budget, in a challenging environment. This is our competitive advantage."

    Recently, Enbridge obtained approval from the National Energy Board in Canada to start supplying oil from Western Canada through its long-delayed Line 9 pipeline from Sarnia, Ontario, to Montreal.

    The 76cm pipeline runs parallel to Highway 401 in eastern Ontario and has a current capacity of about 240,000 barrels a day.
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    Encana to Sell Colorado Oil and Gas Assets for $900 Million

    Encana Corp. agreed to sell oil and natural gas assets in Colorado to an entity 95-percent owned by Canada Pension Plan Investment Board for about $900 million.

    Encana will use the proceeds to strengthen its balance sheet after oil prices fell about 45 percent in the past year, according to a statement Thursday. The transaction includes Encana’s 51,000-acre DJ Basin, which produced an average of 52 million cubic feet per day of gas and 14,800 barrels a day of crude oil and natural gas liquids in the first half of 2015.

    The purchasing group is 5-percent owned by The Broe Group, an investment management company. The transaction is expected to close in the fourth quarter of 2015, with an effective date of April 1, 2015.
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    Near-Term Financial Risks For US Independents Exaggerated [Wood Mackenzie]

    The high-growth business models of the US Independents are being tested by low oil prices and tougher access to capital. Two recent Wood Mackenzie reports conclude that concerns surrounding October reserves-based-lending (RBL) redeterminations have been exaggerated. Wood Mackenzie’s Corporate Service Insight, ‘US Independents: How strong, for how long?’ examines the financial health of the top 26 US Independents, and concludes that the larger producers - which, along with the Majors, account for the majority of upstream investment and production - have the required flexibility to tide them through the near term at the very least.

    Fraser McKay, Corporate Analysis Research Director for Wood Mackenzie explains: “Most companies in the peer group have rising absolute debt levels, and October’s RBL redeterminations have been latched onto as a potential catalyst for sector implosion. But at least two thirds of Lower 48 production is attributable to companies with no RBL exposure at all, or have no redeterminations until 2016."

    Of those larger producers with near-term debt redeterminations, Wood Mackenzie estimates most can accommodate a borrowing-base cut of over 50% before their situation becomes imminently critical. McKay adds: “We anticipate discomfort in the coming months and expect some more companies will inevitably fail, which is clearly a catastrophic event for lenders and equity holders. However, most of these companies will be small, with pre-existing structural portfolio issues. Even in the worst case scenario, the assets of these companies will be salvaged through restructuring or assets sales; creditors will keep wells producing as long as possible. The strategic actions and cash flow neutrality goals of the largest producers in the sector will have a far greater impact on capital spend and therefore supply."

    Concerns regarding the roll-off of hedging protection are warranted. For the top-26 Independents, Wood Mackenzie estimates cash flow from hedging will fall from US$9.1 billion in 2015 to US$2.2 billion in 2016. "The most financially-stretched operators may be forced to enter into unattractive hedges, just to guarantee debt repayment and satisfy lender conditions" McKay noted.

    In a separate analysis titled, ‘October Borrowing Base Redeterminations: Die Another Day’, Wood Mackenzie looks at the upcoming borrowing base redeterminations for 17 high yield operators, concluding that far fewer companies will struggle with liquidity after the October borrowing base redeterminations, contrary to current popular belief and speculation.

    Thomas Rinaldi, Institutional Investor Service Director at Wood Mackenzie explains: “The upshot is that nearly all operators we looked at have sufficient liquidity to absorb the anticipated decline in their borrowing base this October. That said, as we look forward the next twelve months, closer to one third of these companies will need to adjust their activity levels, capital structure or make asset sales, this assuming no change in the price deck applied by lenders. The handful of high yield operators without the required liquidity to make it through the next twelve months account for an insignificant amount of production.”

    Rinaldi continues: “Although development drilling consumes cash, few consider the added liquidity provided by the resulting added production. Banks basically lend on the net present value (NPV) of production so even if development well breakevens are below the bank price deck, the capex is partially offset by a larger base from which to borrow. When we take that added production and the related increase to the borrowing base into consideration, the time to liquidity crisis for many becomes much more manageable for most.”

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    Wells Fargo trimming energy borrowing bases an average 15%, lender says

    A Wells Fargo energy lender says the bank has trimmed oil-company borrowing bases by an average 15 percent so far, after working through about a third of its financial arrangements with petroleum firms.

    Wells Fargo, the nation’s fourth-largest bank, is reevaluating its 250 financial deals with oil producers in a semi-annual review of the credit lines it extended to producers when crude prices were higher. The financial sector is widely expected this fall to rein in revolving corporate loans that are based on the value of oil properties, which have tanked alongside crude prices since the previous spring review.

    “In our tougher deals, we’re seeing a 30 to 40 percent drop and the better deals are flat to maybe even a little bit up,” said Rich Gould, head of energy credit and risk management at Wells Fargo during a panel hosted by Thompson & Knight in Houston on Thursday. “The smaller guys are obviously a bit capital constrained. Liquidity under their revolvers have diminished significantly. Directionally we would expect to see borrowing bases come down.”

    Some analysts estimate a 15 percent reduction in borrowing bases could cut $15 billion from capital available to U.S. oil producers.
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    ConocoPhillips files for renewal of Kenai LNG export licence

    ConocoPhillips filed an application with the United States Department of Energy for blanket authorization to export LNG from Kenai liquefied natural gas facility in Alaska.

    The company requested the blanket authorization to export a quantity of LNG in an amount up to the equivalent of 40 billion cubic feet of natural gas to free trade agreement and non-FTA countries, according to the company’s filing to the DOE.

    The authorization is requested for a two-year period, starting on February 19, 2016, after the current LNG export permit expires.

    ConocoPhillips was also authorized to export LNG to non-FTA countries in April, 2014 ending in April 2016, which it would relinquish once the new permits are granted.

    The Kenai LNG plant began operating in 1969 and has shipped 1,300 cargoes since then.
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    Alternative Energy

    Top Energy Companies Join Forces to Launch Utility-Scale Energy Storage System

    Executives with Boston-based Vionx Energy have announced an ecosystem of companies to launch and commercialize a storage technology poised to transform how modern grids are managed and optimized.

    The unique relationship brings together six global companies—United Technologies Corp. (UTC), Starwood Energy Group, Siemens, 3M, VantagePoint Capital Partners, and Jabil—to license, finance, manufacture and deploy the energy storage system.

    The company’s unique technology, a vanadium flow storage system, was developed and engineered by researchers at UTC and is designed to make grid-scale battery technologies practical, resilient and cost efficient.

    “With the support of an Advanced Research Projects Agency-Energy (ARPA-E*) award, UTRC has developed a differentiated flow battery that enables cost-effective and reliable energy storage solutions,” said Dr. David Parekh, vice president, Research, and director, United Technologies Research Center.

    Vionx will market, sell, and service the technology, which is targeted to utility-scale applications in transmission and distribution, microgrid and island markets. Unlike other grid storage solutions such as lithium ion or lead acid, Vionx’s storage design boasts an in-situ process that maintains full storage capacity over a 20-year period. The result is a safe, long-running, affordable and flexible grid storage solution that provides utilities with added infrastructure resiliency and defers aging asset replacement costs.

    “Recent changes to the energy system are creating completely new challenges for distribution grids,” said Dan Wishnick, Siemens Energy’s Sales and Business Development manager. “The modern grid requires robust energy storage solutions that can provide value to smart grid users, multiple hours a day, year after year. As the engineering, procurement and construction provider to Vionx Energy, we believe the company’s flow battery technology can and will provide valuable long-duration energy storage solutions for creating a balanced and resilient electrical grid. The collection of unique and prominent companies working with Vionx Energy is a testament to what Vionx’s technology can accomplish, and we’re excited to play a role in this new venture.”

    The group is backed by a variety of energy finance heavyweights including Starwood Energy and VantagePoint Capital Partners, among others.

    “The flow-battery system from Vionx reflects many years of concentrated design, testing and manufacturing expertise, as evidenced by the unique and highly qualified partners working with the company,” said Lee Burrows, managing director at VantagePoint Capital Partners, an early investor in Vionx Energy. “We are very pleased to be investors in Vionx and to witness the company emerging as an important leader in this critical and large-growth market.”

    Vionx Energy has recently delivered a large-scale storage system to the U.S. Army at Fort Devens in Massachusetts and is poised to announce additional projects in the coming weeks.

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    Rare metals investment blow-up shows risks lurking in China's financial system

    The promise of risk-free, double-digit returns made the "Daily Golden Jewel" investment offered by an obscure commodities exchange in China hard to resist. Advertisements on Chinese state TV implied government backing.

    Now Beijing faces a political headache after the Fanya Metal Exchange in southwest China said it cannot pay investors their principal. Just as Beijing is scrambling to restore foreign investment confidence in its major markets following a tumultuous summer, its own citizens have hit the streets in protest, underlining the dangers that lurk in China's byzantine financial system.

    The exchange in rare metals has become the focus of wrath by Chinese investors who feel duped by an investment they thought was state backed - an assumption that is not rare in a country where the lines between private and public enterprise are often blurred.

    "We just hope the government can face up to this problem," said a 35-year-old man surnamed Wang, who said he had invested 500,000 yuan ($79,000) in the product. He was among about 150 protesters in front of the Shanghai office of China's banking regulator. Similar demonstrations have been held in recent weeks in Beijing and Shanghai.

    "President Xi and Premier Li said we should build our 'China Dream', but now even our basic rights, our property rights, can't be protected. How can we achieve the 'China Dream?'" said the man, referring to the leadership's slogan that adorns propoganda posters nationwide.

    Fanya did not return calls requesting comment.

    The exchange, regulated by the local government in Yunnan province, trades 14 minor and rare metals and offered a range of investment products based on the metal stored in its warehouses.

    The "Daily Golden Jewel" investment promised annualised returns as high as 13.7 percent and the right to withdraw funds at anytime. Fanya guaranteed the product, which was based on rising metal prices and interest earned on financing deals.

    But in July, the exchange said it had experienced liquidity problems since April after investors tried to withdraw their holdings. Demand for the metals has been falling this year and Fanya's warehouses are now bulging with stock. It holds more than 19,000 tonnes of bismuth - used in alloys, flame retardants, castings among others - enough to meet global annual consumption more than twice over according to 2012 figures.

    Fanya has said 80,000 investors are involved and the outstanding investment was 36 billion yuan ($5.7 billion).

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    China raises solar installation target for 2015

    China has raised its solar power installation target for 2015 by 30 percent from its previous goal, state media reported, potentially adding to overcapacity as insufficient grid capacity remains a hurdle for the new plants to deliver power.

    Solar plants can in theory delivery returns of 10-15 percent under long-term power purchase contracts with state utilities but in practice face problems of subsidy collection and panel quality, making investors wary of the sector.

    China will add another 5.3 GW installed capacity of solar power stations this year, on top of an earlier national target of 17.8 GW, Xinhua reported, citing a notice from the National Energy Administration last week.

    The new stations will be added mostly in Inner Mongolia and Hebei in the north and Xinjiang in the west, the report said.

    The NEA required the project hosts to complete construction by end of this year and get connected to the grid by end of June next year, the report said.

    China's insufficient grid capacity and overcapacity has curtailed the sector's growth. Nearly a tenth of the solar power generated during the first half of this year was unable to be delivered, according to the NEA.

    China, the world's largest solar market, installed 7.73 GW capacity in the first six months of 2015, the NEA has said, which would be only a third of the new target, meaning companies would need to speed up construction significantly in the second half of the year.

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    U.S. keeps outlook for strong El Nino through N. Hemisphere winter

    A U.S. government weather forecaster on Thursday maintained its outlook for strong El Niño conditions as likely to continue through the Northern Hemisphere into 2016, potentially roiling global crops and commodities prices.

    The National Weather Service's Climate Prediction Center (CPC) again pegged the likelihood of El Niño conditions persisting through the winter at about 95 percent, peaking in late fall/early winter.

    It said its El Nino conditions would likely start gradually weakening next spring.

    El Niño is a warming of ocean surface temperatures in the eastern and central Pacific that occurs every few years, triggering heavy rains and floods in South America and scorching weather in Asia and as far away as east Africa.

    CPC's forecast was little-changed from its September outlook and in line with a growing consensus for a strong Niño that will weaken in 2016.

    Across the United States, "below-average temperatures and above-median precipitation" due to the conditions are likely to be seen during the upcoming months, CPC said in its report.
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    Base Metals

    Copper mining's deepening costs crisis

    GFMS Thomson Reuter's closely watched annual base metals review and outlook contains some stark warnings for copper miners.

    The industry has made progress to reduce costs – since the first quarter of 2014 average cash costs have dropped by $303 a tonne according to GFMS calculations.

    Over the same period the price of copper is down by $998 a tonne. And since the end of the June quarter of 2015 (the scope of the report) copper is down another $1,000.

    It seems unlikely that the pace of cost reduction can improve much from the relatively modest pace of the last few quarters

    GFMS says at the August low of $4,888 a tonne (a six-year low visited again at the end of last month) 10% of the industry is losing money on a cash basis.

    But consider total costs (a better proxy for sustaining production levels at mines) and 47% of the industry is unprofitable at a 2009 copper price.Image title

    While costs have been reduced by 8% since the start of 2014, in Q2 2015 cash costs for the industry actually creeped up fractionally over the first quarter.

    The inability of copper miners to make deeper cutbacks was despite a 50% fall in the price of crude oil and a sharp depreciation of producer country currencies against the dollar (on average more than 15% says GFMS) over the period. The usual culprit when it comes to rising costs in copper mining – falling grades – were relatively stable.

    And the outlook is not all that rosy for the cost curve to lower much more:

    "While cash costs may benefit from the lag in the transmission of lower energy prices, it seems unlikely that the pace of cost reduction can improve much from the relatively modest pace of the last few quarters.

    "If copper prices continue to languish, additional cuts in sustaining capital are likely in the coming months, which will clearly impact the future production profile. We expect noise levels to increase in the coming months as the industry announces cuts to mine production and capital budgets, but how much of that translates into mine closures and/or a meaningful reduction in volumes remains to be seen."

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    Freeport says Indonesia promises approval to operate beyond 2021

    Energy and mining company Freeport-McMoRan Inc said the government of Indonesia has assured the company's local unit that it will approve the extension of operations beyond 2021.

    The government is working on economic stimulus measures, including revisions to mining regulations, Freeport said.

    Freeport mines copper, gold and silver in the Grasberg project in Indonesia, under a contract with the government.
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    Glencore cuts 4 percent of world zinc output, price jumps

    Commodities giant Glencore said on Friday it will cut 500,000 tonnes of zinc production, or around 4 percent of global supply, in its latest move to withstand weak commodities prices.

    Zinc prices, which have fallen 30 percent since May to five-year lows, rallied six percent on the news, which follows recent cuts in copper output and could signal metal prices are nearing the bottom of the cycle, analysts said.

    "Certainly for the markets they're dominant in, nickel and zinc in particular, it does raise the spectre of markets getting a bit more positive," said analyst Daniel Hynes of ANZ in Sydney.

    "As for whether it's enough impetus for a more sustainable rally in metals prices, we do need to see one or two others join this move."

    Glencore, the world's largest miner of zinc ore, said the cuts will shutter about a third of its annual output, mostly from mines in Australia, where 535 jobs will be lost, as well as operations in South America and Kazakhstan.

    The move follows an array of measures the company announced last month to help it slash its $30 billion in net debt by a third, including lower copper production, suspension of its dividends and a sale of new shares.

    Glencore said at current zinc prices it was better to keep its resources in the ground.

    "Glencore believes that current prices do not correctly value the scarcity of our zinc resources," it said in a statement to the Hong Kong stock exchange.

    The cuts will reduce the company's fourth quarter production by 100,000 tonnes. It had previously expected to produce between 1.52 million tonnes and 1.57 million tonnes of zinc this year.

    Mine supply of zinc was already set to shrink this year due to the closure of MMG's huge Century zinc mine in Australia, which also accounts for about four percent of global supply, and Ireland's Lisheen, owned by India's Vedanta.

    Prices of lead which is often mined with zinc also jumped by almost three percent.

    "Glencore remains positive about the medium and long term outlook for zinc, lead and silver, however we are taking a proactive approach to manage our production in response to current prices," it said.

    A Glencore spokesman in Australia declined to say how much the output cut would savein working capital or pay, nor how long it expected the cuts to last.

    LME zinc jumped more than 6 percent and was up 5.8 percent at $1,763 a tonne at 0320 GMT, its largest single day gain in more than five years.

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    Alcoa profit misses as aluminum prices slide

    Alcoa Inc reported a smaller-than-expected quarterly profit, hurt by slumping prices for aluminum and other commodities and unfavorable foreign exchange rates.

    "The biggest challenges were commodities prices being under pressure and the wide currency swings," Klaus Kleinfeld, Alcoa's chief executive officer told Reuters.

    Alcoa's shares fell about 5 percent in extended trading.

    Alcoa said last month it will separate into two companies. One will provide "value added" materials such as airplane and car parts to manufacturers. The other, "upstream business" will consist of Alcoa's traditional aluminum smelting operations.

    One key question moving forward is how the two companies will divide debt and pension liabilities. Alcoa executives said during the conference call with analysts that the overall underfunded pension status is 78 percent and only the minimum payment is being made, so the unfunded status is not being significantly reduced.

    Alcoa's third-quarter revenue slid to $5.6 billion, down 21 percent mainly due to closures of non-competitive facilities, Kleinfeld said. The decline in revenue was partially offset by a 10 percent increase from aerospace, automotive and acquisition growth, he said.

    "For us, when you look at the upstream side, our revenues are down, but some of it is absolutely part of the transformation and it is a good thing," he said.

    Net income attributable to Alcoa fell to $44 million, or 2 cents per share, in the third quarter ended Sept. 30 from $149 million, or 12 cents per share, a year earlier.

    Excluding special items, Alcoa earned 7 cents per share.

    Analysts on average had expected Alcoa to earn 13 cents per share on sales of $5.65 billion, according to Thomson Reuters I/B/E/S.

    Benchmark London Metal Exchange prices fell to six-year lows toward the end of September, a nearly 20 percent drop from a year earlier.

    The company believes global aluminum demand will grow by 6.5 percent in 2015 and will double during this decade, Kleinfeld said.

    Alcoa lowered its forecast for the 2015 global aluminum surplus to 551,000 tonnes from its second-quarter estimate for a 762,000-tonne surplus.

    It said it expects a aluminum market deficit in 2016, though it did not specify how much.

    "On the value-add side, China does not play such an important role for us. Most of our business is in North America, Europe and developed countries," Kleinfeld said.
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    Steel, Iron Ore and Coal

    Glencore, Tohoku set annual coal contract price down 12 pct

    Mining group Glencore Xstrata Plc and Japan's Tohoku Electric Power Co have settled an annual Australian thermal coal import contract 12% lower than a year earlier, sources said.

    The price set for the year beginning on October 1 was set at around $64.60, the sources said, reflecting a supply glut for thermal coal worldwide.

    Australia is by far the biggest supplier to Japan, accounting for about 76% of Japan's thermal coal imports in the first eight months of this year.

    The price set by Tohoku and Glencore will likely be followed by other Japanese utilities.

    Annual contracts starting in October account for about 20% of Australian thermal coal imports to Japan, covering about 22 million tonnes, according to the sources.

    Japan power companies consumed 5.82 million tonnes of coal in August, up 1.9% from a year earlier and marking the highest for any month, data from the Federation of Electric Power Companies of Japan showed last month.
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    China Sep steel sector PMI slid to 43.7

    The Purchasing Managers Index (PMI) for China’s steel industry slid 1.0 on month to 43.7 in September, in the wake of the second monthly rise in August, indicating a contraction trend in steel sector, showed the latest data from the China Federation of Logistics and Purchasing (CFLP).

    The index has stayed below the 50 mark for 17 straight months, signaling a persisting conflict between supply and demand in this sector.

    The output sub-index dropped 2.9 from August to 44.6 in September, the 13th consecutive month below the 50 mark.

    China’s steel products output may be hard to rise in October, mainly impacted by steel mills’ intensified will to cut production amid weak demand and continuous losses in the sector.

    The new order sub-index rebounded 0.8 from August to 40.7 in September, but the new export order index plunged 13.8 from August to 40.7 in the same month – the lowest level in recent five months, reflecting a potential decline of steel products export in the short run.

    The sub-index for steel products stocks decreased 0.5 to 49.3 in September, the third successive monthly drop. However, the decrease was much slower than last two months, said the CFLP.

    As of September 20, total stocks in key steel mills stood at 16 million tonnes, dipping 1.06% from ten days ago and up 3.56% from August, said the CFLP.

    Domestic steel prices may continue to drop in October amid flat demand and financial strain at steel mills. However, a rebound was expected in the wake of prolonged sluggishness, due to increased production cut of steel mills and favourable financial policies of the state.

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