Mark Latham Commodity Equity Intelligence Service

Tuesday 3rd November 2015
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    Goodhart says 'inflation' will rise again.

    Image titleGoodhart argues that since roughly 1970, the world has been in a demographic sweet spot characterized by a falling dependency ratio, or in plainer terms, a high share of working age people relative to the total population. At the same time, globalization provided multinational companies the ability to tap into this new pool of labor. This positive supply shock was a negative for established workers, forcing down the price of labor as capital flowed to these areas.

    "Naturally, and quite properly, the West supplied much of the management; the East supplied the labor," wrote Goodhart.

    Outsourcing labor to less costly locales kept wages at home from rising too fast. This, in turn, entailed that inflationary pressures were benign, as best depicted by the concept of the Great Moderation, or the idea that central bankers were better able to stabilize the business cycle.

    As companies were encouraged to boost capacity with workers rather than capital equipment, this put downward pressure on the cost of the latter.

    "Access to a new reserve army of cheap global labor through globalization has encouraged companies to invest in this workforce rather than in capital at home. A garment company, for example, could choose to build a highly automated, capital-intensive factory in the U.S. or build a low-tech, high-labor factory in the Far East," said Toby Nangle, who published a column on the connection between labor power and interest rates in May. "For years, companies have been choosing the latter option, which reduces the requirement for capital in the West, thereby reducing the price of that capital."

    “China’s economic markets joined the global economy but its financial markets did not,” writes Goodhart. “When China’s labor force joined the global economy with a capital/labor ratio that was well below global standards, the relatively closed financial markets allowed China’s domestic real interest rate to remain very low in order to drive capital accumulation at home."

    The ensuing savings glut in China was recycled back into U.S. Treasuries, and put downward pressure on real interest rates. As such, the abundance of cheaper labor was only one avenue by which the world's second-largest economy contributed to these global trends.

    So what now, as the conditions that fostered these long- decades-defining demographic trends dissipate?

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    "So, we believe that demographic trends were one of the main causes of rising (within country) inequality in recent decades; and it was nothing to do with some innate tendency for returns to capital to exceed growth," wrote Goodhart's team in a direct challenge to the French economist's tome, Capital in the Twenty-First Century.

    The anatomy of income inequality over the past few decades has been increasing within countries, and decreasing between countries. Goodhart sees income inequality falling in both cases going forward.

    A shrinking labor force relative to dependents in advanced economies will work to quell income inequality within countries, while a stretch of stronger growth from emerging economies versus the Western World will continue to help income equality increase between nations.

    Perhaps most importantly, Goodhart and his predecessors' works offer a compelling rebuttal to the theory of secular stagnation -- essentially that we'll need negative real interest rates to achieve subpar growth and full employment.

    "It puts that in contention, and it puts it in contention with reference to data rather than hyperbole, and puts it in a theoretical framework that people can engage with," said Threadneedle's Toby Nangle.  "We can start to think about what data we should be looking for to test this, and luckily enough, we're looking to the fact that dependency ratios in developed markets and some emerging markets have already reached inflection points just about now."

    So the Japanification of advanced economies is far from set in stone. 

    Unlike many other economists, Goodhart does not believe the demographic backdrop of an aging population is inherently deflationary. The pool of labor around the globe that kept wages suppressed domestically on the island nation has nearly run dry; Japan, in other words, was a victim of circumstance. More generally, in order to meet the obligations of the state, the shrinking pool of workers will be forced to pay higher taxes at the same time that they'll be in a position to haggle for better wages.

    "This is a recipe for a recrudescence of inflationary pressures," wrote Goodhart. "The present concerns about deflation are fleeting and temporary; enjoy it while it lasts."

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    China’s third largest hydropower station to start construction before 2016

    China may kick off construction of Wudongde hydropower station -- the country’s third hydropower station with annual capacity over 10 GW after Three Gorges and Xiluodu stations, in the remaining days of 2015, local media reported lately.

    The station, located in Jinsha River, was also the second hydropower station with annual capacity over 10 GW in southwestern Sichuan province. It has an installed capacity of 10.2 GW and was operated by China International Engineering Consulting Corporation (CIECC).

    Total investment in this project stood at 96.7 billion yuan ($15.1 billion). If constructed as scheduled, the station would be put into operation in 2020.

    The station will be used in power generation, flood protection and shipping. It will further enhance local economic development and optimize energy resources allocation.
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    El Nino Warming Europe This Month Set to Strengthen Gas Bears

    The influence of El Nino will probably push temperatures in Europe above seasonal norms this month, increasing the bearish outlook for natural gas prices already near their lowest since 2009.

    Temperatures in November will be above normal for the time of year, according to all five meteorologists surveyed by Bloomberg News. Last month was cooler than usual for most of the region, boosting gas demand by 14 percent from a year earlier in the U.K., Europe’s largest traded market, according to National Grid Plc data.

    U.S. forecasters predict that this year’s El Nino, a warming of the equatorial Pacific Ocean, may be the strongest since records began in 1950, affecting weather patterns across the world. The warmth comes amid a period of abundant fuel, including a 41 percent jump in deliveries from Russia, the region’s biggest foreign supplier, that has increased European storage levels to near a record-high.

    “The European system at the moment is well supplied,” Fabio Cedronio, a senior gas trader at Repower AG, said by e-mail on Friday. “Storage is confirmed at a good level and above-average temperatures will cause a lack of demand for heating.”

    European gas traders are the most bearish since May, and have been negative on prices for all but one week since April, according to Bloomberg surveys. Next-month gas in the U.K. is trading at its lowest for the time of year since 2009 and the cost of the fuel is expected to remain low for the next five years, according to Bloomberg New Energy Finance.

    Temperatures in northwest Europe, including the U.K., are forecast to be 2.7 degrees Celsius (4.9 Fahrenheit) above the 10-year average next week, according to data from Weather Services International Corp. using the GFS model.

    “The very strong El Nino is having some influence on European climate,” Matthew Dobson, a meteorologist at MeteoGroup U.K. Ltd., said by e-mail on Friday.
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    Oil and Gas

    Gulf oil producers delay field work, see weaker 2016 prices -sources

    Gulf oil producers are delaying some field maintenance until next year to keep production high and reduce costs as they forecast weaker oil prices in 2016, industry sources said.

    It was not possible to clarify which fields were affected - information which is highly sensitive.

    But it showed that Gulf oil producers aim to keep pumping hard as they expect weak oil prices next year when sanctions on Iran are lifted allowing it to export more to an oversupplied market, the sources said.

    They told Reuters that OPEC members Saudi Arabia, United Arab Emirates and Qatar are rescheduling non-essential maintenance work at oilfields originally planned for the last quarter of this year later into 2016 due to low oil prices.

    "The non-urgent maintenance is definitely being pushed. We see huge focus on production in Qatar, Abu Dhabi and Saudi Arabia," said one industry source.

    "They are delaying to keep production high, if they shut down now they will not produce, and they also have to preserve cash," the source said.

    Two more sources also said that Gulf oil producers are pushing forward some of their maintenance plans for oil rigs, wells and pipes that are not critical to production or safety of operations, but declined to give details.

    "There is delay. The reason is low oil prices, they are trying to have some control over the cost," another industry source said of Saudi Aramco's maintenance plans this year.

    A Gulf industry source said: "Companies are trying to benefit from higher margins now as they expect oil prices to drop next year, when Iran comes back."

    Iran will notify OPEC in December of its plans to raise its output by 500,000 barrels per day (bpd), its oil minister said on Saturday.

    The sources said delayed maintenance was also a way to rein in spending, when the work often involves bringing in specialist foreign companies.

    "I think what people are doing is spacing out some maintenance, or being smarter about combining maintenance schedules as a way of bring prudent on costs," said one senior oil executive working in the Middle East.

    One industry source said he had not heard of any upcoming planned maintenance at ADNOC's oilfields and expects production from Abu Dhabi to hold steady in the fourth quarter. The UAE pumped 3 million bpd in September.

    Saudi-based sources have said the kingdom's level of crude production was likely to stay around current levels in the fourth quarter as a decline in domestic crude burning for electricity would be offset by rising global demand.

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    RasGas: collaboration required to avoid LNG market imbalance

    RasGas CEO, Hamad Mubarak Al Muhannadi said an LNG suppliers and buyers collaborative effort is needed to adopt a long-term view for maintaining a sustainable LNG market.

    “LNG buyers are currently comfortable with the availability of LNG and have a general wait-and-see attitude towards making new longer-term commitments,” said Al Muhannadi.

    However, if LNG suppliers fail to develop resources required to meet forecasted longer term demand growth, at the right time and place, there will be a supply and demand imbalance with longer term implications for LNG prices, he added.

    Speaking at the recently held Gastech conference on the growing role LNG will play in the global fuel mix, he pointed out that the ‘voice of gas’ is increasingly being heard supporting the further penetration of natural gas in the energy supply mix.

    “To help this vision along, we, as an industry, need to encourage  the  implementation  of  both  market  and  policy-focused  reforms  that  facilitate natural gas’ increased penetration,” he added.

    Al Muhannadi stressed that both buyers and sellers need to work together to honour contractual commitments and to jointly influence and enhance the role of gas by providing appropriate support for initiatives promoted by governments and regulatory agencies.
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    Gazprom ups October exports to Europe by 41% TO 14.7 BCM

    Gazprom ups October exports to Europe by 41% TO 14.7 BCM

    Russian state-owned Gazprom said Monday that its exports to Europe in October increased by 41.4% year on year to 14.7 Bcm, in line with expectations that European consumers would ramp up purchases in the second half of the year, as the impact of low oil prices hits gas prices under long-term contracts.

    The October growth follows on from increases of 22.4% in July, 23.1% in August and 24.2% in September, Gazprom said.

    In September, Gazprom raised estimates for its exports to Europe in 2015 to 158 Bcm on the back of a strong second quarter. Initially Gazprom expected to ship 152-153 Bcm to Europe this year based on weaker demand in the first quarter, when purchases in those markets fell 20% year-on-year amid expectations of future lower prices for Russian gas under long-term contracts.

    Gazprom's long-term contracts with European consumers typically include a 6-9 month lag in oil prices built into the pricing mechanism, making gas supplied under these contracts significantly cheaper in H2 2015.

    Gazprom officials have estimated that its gas price will average Eur195.9/1,000 cu m in the upcoming winter season. This is the average price for all deliveries, including under long-term, oil-indexed contracts and spot markets.
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    LNG prices have further to fall amid supply glut: Wood Mackenzie

    Liquefied natural gas producers may be in for years of prices much lower than even current depressed levels, potentially causing temporary plant closures, according to global energy consultancy Wood Mackenzie.

    The latest analysis from the respected firm puts a possible floor for Asian and European LNG spot prices later this decade at $US5 a million British thermal units (MMBTU), but warns that lower coal prices could drag that price floor down to just $US4, about 40 per cent lower than current prices.

    That could lead to exporters in the United States, but potentially also in Australia, shutting down production because they cannot cover their cash costs, Wood Mackenzie global head of LNG and gas Noel Tomnay said.

    Spot prices have already dropped about two-thirds since early 2014 as new supply comes into the market from project start-ups, and demand growth disappoints in key markets such as China.

    LNG prices in Japan and Korea have slid to $US6.70 a MMBTU for short-term deliveries in November, down from about $US20 in early 2014, according to pricing service Platts.

    "If China demand does not pick up again until 2016 then that $US5 becomes a real risk," Mr Tomnay said.

    Some 130 million tonnes a year of new LNG supply could hit the market during the next five years, mostly from Australia and the US.

    Wood Mackenzie says European coal prices will be a key determinant for spot LNG prices. Assuming benchmark European coal prices of $US70 a tonne and Japanese coal prices of $US80, then the floor price for gas in Europe and north Asia should hold above $US5 a MMBTU.

    But if European coal prices are weaker than that, at $US50 a tonne, and Japan coal prices are $US60, then that floor for LNG falls to about $US4.

    Prices above $US5 should be high enough to avoid American LNG export production being shut down, but at $US4, US exporters would have to consider shutting in for periods, which would then depress US gas prices, the firm said.

    "The possibility of US LNG exporters being shut in will be very much determined by what happens in the coal market but it is a real possibility," Mr Tomnay said.

    He noted that Australia's conventional LNG plants, which have low cash costs and have output covered by mostly long-term sales contracts, would not face this issue. More affected are the coal seam gas-based ventures in Queensland, which have higher ongoing costs as they need to keep drilling new CSG wells.

    However, of the three Queensland CSG-LNG projects, only BG Group's Queensland Curtis project has sales based on a "portfolio" approach rather than tied to the project, giving only that venture the capacity to consider supplying its customers from plants elsewhere in its global portfolio or from the spot market, rather than keep producing from its Australian plant.

    "I would be very surprised if they are not looking at this but whether they actually implement it remains to be seen," Mr Tomnay said.

    He said the rationality for potentially closing down QCLNG would become more compelling if Shell succeeds in taking over BG, because of the greater number of other options Shell has to supply QCLNG's customers from its larger global portfolio.

    Most of the output from Australia's $200 billion wave of new LNG projects is covered by contract prices, but some volumes are exposed to spot prices, especially for the several "commissioning" cargoes that are shipped from new projects before deliveries start under long-term contracts.

    Shell global chief executive Ben van Beurden last week acknowledged that the "bit over 10 per cent" of the major's LNG business that is exposed to the spot market "of course sees a bit of pressure at the moment".

    But he said the very low cash costs of LNG projects meant the business "remains very healthy from a cash perspective".

    "Over the entire cycle, we still expect this to be a strong double-digit-return business," Mr van Beurden said.

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    Shell says can make BG deal work despite weak oil price

    Royal Dutch Shell RDSa.L sought to ease investor concerns over its planned $70 billion takeover of BG Group BG.L, announcing plans for further benefits and cost cuts aimed at making the deal work with oil prices in the mid-$60s a barrel.

    The Anglo-Dutch group, which hopes to complete the deal early next year, said it now expected synergies to increase by $1 billion to $3.5 billion for the combination which will make Shell a leader in liquefied natural gas (LNG) and offshore oil production in Brazil.

    Shell, which last week reported a huge third-quarter loss due to $8 billion of write-offs in Alaska and Canada, said it would reduce its costs by $11 billion in 2015 as it tackles a prolonged period of lower oil prices, currently trading below $50 per barrel.

    "Shell is becoming a company that is more focused on its core strengths, a company that is more resilient and competitive at all points in the oil price cycle and that has a more predictable project development pipeline. We'll grow to simplify," Chief Executive Officer Ben van Beurden said in a statement ahead of a company strategy day in London.

    Investors have been concerned that the benefits from the deal would be at risk as a recovery in oil prices is now expected to take much longer than foreseen in April, when the merger with BG was announced.

    Back then, Shell indicated it expected oil prices to recover to $90 a barrel by 2020.

    BG shares currently trade at a discount of more than 10 percent to the valuation of the cash and shares deal, reflecting investor concerns over its viability and remaining regulatory hurdles. Shell awaits the approval of Australian and Chinese regulators before the deal can be put before shareholders.
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    Egypt's giant Zohr gas field aims to start output in 2017 -minister

    Egypt aims to start natural gas production from its massive offshore Zohr field in 2017, a year ahead of schedule, oil minister Tarek El Molla said.

    The Zohr gas field, discovered by Italy's Eni, is the biggest in the Mediterranean, and with an estimated 30 trillion cubic feet of gas it is expected to plug Egypt's acute energy shortages and save it billions of dollars in precious hard currency that would otherwise be spent on imports.

    "We're looking to expedite the agreement with the partner and speed up production. Hopefully we will begin production from the discovery in 2017," El Molla said in an interview at the Reuters Middle East Investment Summit.

    Eni has said it expects to invest between $6 billion and $10 billion to develop the Zohr field. Previously, officials had said production was expected to start in 2018.

    Once an energy exporter, Egypt has turned into a net importer because of declining oil and gas production and increasing consumption. It is trying to speed up production at recent discoveries to fill its energy gap as soon as possible.

    In October British oil major BP said it would begin gas production at its north Alexandria concession in early 2017 rather than mid-2017. That should add up to 1.2 billion cubic feet of gas per day by late 2019.

    El Molla, appointed oil minister in September, succeeded Sherif Ismail who launched a drive to lure back foreign energy investors driven away by low prices and debt arrears.

    In July the oil ministry raised the price paid for gas from Eni to a maximum $5.88 for every million British thermal units and a minimum of $4, based on amounts produced, from $2.65. It then cut a similar deal with British Gas.

    Ismail's success in reinvigorating the sector, which is vital for economic growth at a time when energy shortages have crippled industrial production, helped propel him to the post of prime minister in September.

    The total value of Egypt's natural gas projects, excluding Zohr, is now $13.8 billion, and El Molla said the Zohr discovery had made additional investment much more likely.

    "The Zohr discovery whet the appetite of other foreign companies working in Egypt to speed up seismic discovery operations and exploratory wells."

    Current projects underway will add 2.4 billion cubic feet to the country's daily gas production by 2019, said El Molla. Current production is roughly 4.5 billion cubic feet.

    On the back of this, the stock of foreign oil and gas investment in Egypt is expected to increase to $8.5 billion during the current fiscal year ending next June, from $7.5 billion last year, said El Molla.

    Egypt's drive to expedite foreign investment in gas production comes just as the country has become a top growth market for imported liquefied natural gas (LNG).

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    Noble Energy posts loss amid crude price slump

    Oil and gas producer Noble Energy Inc, which acquired Rosetta Resources in a $2 billion deal earlier this year, raised its sales forecast for the current quarter, while cutting its 2015 capital budget by $100 million.

    Oil and gas producers are curtailing spending and cutting operating and other costs to weather a nearly 60 percent drop in crude oil prices since June last year.

    Noble reported a larger-than-expected quarterly loss on Monday, hurt by the slump in prices.

    Noble, which operates in the U.S. shale fields and offshore Gulf of Mexico, Eastern Mediterranean and West Africa, said it now plans to spend less than $3 billion this year.

    The company raised its fourth-quarter sales volume forecast to 385,000-405,000 barrels of oil equivalent per day (boepd) from 375,000-400,000 boe/d.

    Sales volume in the third quarter was 379,000 boepd.

    Noble said third-quarter sales volumes lagged production by 4,000 barrels per day due to the timing of lifting of some oil and natural gas liquids from its operations in Equatorial Guinea.

    The company's net loss was $283 million, or 67 cents per share, in the third quarter ended Sept. 30, compared with a profit of $419 million, or $1.12 per share, a year earlier.

    Adjusted loss was 21 cents per share, steeper than the average analyst estimate of 18 cents, according to Thomson Reuters I/B/E/S.

    Total revenue fell 37 percent to $801 million, lagging analysts' estimate of $955.3 million.
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    DEC Official Says NY in Danger of FERC Taking Over Pipeline Permits

    It was just two weeks ago that MDN posted an article saying the New York Dept. of Environmental Conservation (DEC) has had enough time to approve stream-crossing permits for the much-needed Constitution Pipeline.

    It’s now time to force their hand . As we wrote in that piece, the DEC risks the very real threat that the Federal Energy Regulatory Commission (FERC) may step in and force the DEC to issue the permits. Now a high-ranking official with the DEC has essentially said the same thing we did–on the record…
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    Pioneer Natural Resources records strong bottom line

    Pioneer Natural Resources bolstered its bottom line in the third quarter by selling its midstream operations in the Eagle Ford Shale and implementing aggressive cost-cutting measures in its oil and gas drilling operations.

    The Irving-based energy company on Monday said net income rose to $646 million, or $4.27 per diluted share, compared with $374 million in last year’s third quarter. And despite lower oil prices, revenues climbed $705 million — to $2.2 billion from $1.5 billion — thanks to asset sales and derivative trading.

    Pioneer profited by selling its oil and gas transportation system in the Eagle Ford for $2.15 billion — pumping about $530 million into its accounts in the third quarter with the rest to be paid in 2016, the company reported. It also realized savings by cutting its costs on drilling and services by 25 percent compared with 2014, the company reported.

    But excluding derivative market-to-market gains and other unusual items, its adjusted results came to a loss of one cent per diluted share.

    Overall, CEO Scott Sheffield said he was pleased with the third quarter results. Pioneer reported that its production hit 211,000 barrels a day in the third quarter, above what the company had previously expected.

    “Despite the weak commodity price environment, the company reported a great quarter that was highlighted by the impressive production growth delivered by our horizontal drilling program in the Spraberry/Wolfcamp,” he said. “This drilling program continues to provide strong returns due to our aggressive pursuit of cost reductions and efficiency gains...”

    In the second quarter, Pioneer said it planned to ramp up its drilling program in the Permian Basin oil fields, even if it loses money because of low oil prices. It boosted its drilling budget to $2.2 billion and added rigs in the Spraberry and Wolfcamp fields.

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    Ohio Landowners File Royalty Class Action Lawsuit Against Chesapeake

    A group of Ohio landowners is doing what others have previously done in Pennsylvania, Texas and elsewhere–they’ve filed a proposed class action lawsuit against Chesapeake Energy claiming Chessy has screwed them and about 1,000 other Ohio landowners out of a collective $30 million in royalty payments.

    The lawsuit was filed last Monday in Columbiana County Common Pleas Court by an Akron, OH woman and the owners of two Columbiana County farms.

    In addition to Chesapeake, French company Total E&P USA, Pelican Energy LLC and Jamestown Resources LLC were also named in the lawsuit.

    The plaintiffs claim the only allowed deduction from royalties, according to signed leases, is for taxes–not for drilling expenses, not for post-production costs, etc. The lawyers filing the lawsuit figure there are at least 1,000 landowners with 40,000 acres who have been negatively affected by Chesapeake’s royalty shenanigans…
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    Areva says China's CNNC may buy minority stake

    Areva said on Monday it had signed a memorandum of understanding for a possible partnership with China National Nuclear Corporation (CNNC) that could see the Chinese group take a minority stake in the French nuclear company.

    The partnership would also cover "uranium mining, front end, recycling, logistics, decommissioning and dismantling", Areva said in a statement.

    The deal excludes the reactor business that French power group EDF is buying from Areva, the company said.

    "This project offers numerous opportunities for both AREVA and CNNC," Areva Chairman Philippe Varin said in the statement following a ceremony in Beijing.

    "Strengthening the cooperation with our Chinese partners is an integral factor for Areva's future success," said the statement, issued during a visit to China by French President Francois Hollande.

    The French government wants utility EDF and nuclear group Areva, both state-owned, to keep a combined 66 percent stake in Areva's former reactor building arm Areva NP, a government source told Reuters on Oct. 6.

    With respective stakes of 51 percent for EDF and 15 percent for Areva, this would open the door for outside investors to buy into Areva NP and limit the amount of funds the French state will have to spend on saving the nuclear firm.

    After four consecutive years of losses wiped out Areva's capital, EDF said in July it had agreed to buy 51-75 percent of Areva's reactor arm Areva NP, while Areva would keep a maximum 25 percent and EDF would look for other investors to invest in Areva NP.
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    GrainCorp to post lowest annual profit in seven years

    GrainCorp Ltd, Australia's largest listed bulk grain handler, said it expects to post its lowest net profit in seven years as dry weather curbs production along the country's east coast, and sees no early let up in difficult conditions.

    GrainCorp on Tuesday forecast a net profit of A$32 million ($22.9 million) when it reports its 2015 annual results on Nov. 12, down from A$50.3 million last year, and below analysts' forecasts of about A$54 million according to Reuters Estimates.

    The result would be the company's weakest since it posted a loss of A$19.9 million in 2008, with strong competition from the Black Sea region also eating into earnings.

    "Lower grain production in eastern Australia resulted in intense competition to originate grain, while bigger crops and stock levels in other regions also generated strong competition from alternative supply origins," said Graincorp chief executive Mark Palmquist.

    "This situation was exacerbated by lower fuel costs and ocean freight rates, which reduced Australia's freight advantage to major export destinations."

    Palmquist acknowledged that the headwinds that have affected GrainCorp's competitiveness may continue into the 2016 season.

    "Each year is different, but we do have some of the same conditions on the front-end [of the season] - crop size does not look like it is going to be too different and freight spreads are going to be narrow," he said.

    An El Nino weather event has brought drier conditions to much of Australia's east coast in recent months, which may lessen available supplies for GrainCorp next year.

    Australia's grain export fortunes may ultimately rely on the prospects of its competitors, analysts said. Should major exporters also suffer supply concerns - Australia may arrest the side in its competitiveness.

    The difficult outlook will fuel speculation over the intentions of GrainCorp's largest shareholder Archer Daniels Midland Co, whose A$2.8 billion bid for Graincorp was rejected by the Australian government in 2013 on national interest grounds.

    Local media reported last week that ADM's stake of nearly 20 percent may be up for sale, but Palmquist said he had not been informed by ADM of any intention to change it holding.

    Shares in GrainCorp hit a five-month high in October after Malcolm Turnbull was installed as the country's prime minister, stirring speculation that Australia may change it stance on an ADM takeover.

    GrainCorp shares fell as much as 6 percent on Tuesday but recovered to be down just 0.7 percent at 0205 GMT at A$8.83.

    It forecast an underlying 2015 net profit at A$45 million and said it expected EBITDA (earnings before interest, tax, depreciation and amortization) of A$235 million.
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    Precious Metals

    Lonmin warns of $2bn write-down, 6,000 job cuts

    South African platinum producer Lonmin, the world’s third largest, said Monday it expects to take an impairment charge of about $2 billion triggered mainly by weak metal prices and rising costs, when posting annual results next week.

    The company, still hurting from a lengthy strike that crippled its mines last year, revealed in October extreme measures to stay afloat, such us planned layoffs of 6,000 people and its intention to raise $400 million in a rights issue of new shares for debt repayments.

    "The impairment charge is primarily driven by lower PGM prices and the business plan which has an impact on future discounted cash flows over the life of mine business plan across the group's operations," it said in a statement.

    Lonmin added that the results for the year would show an operating loss of $207 million before the impairment

    Lonmin added that the results for the year would show an operating loss of $207 million before the impairment, even though it was already “removing high-unit cost [platinum group metals —PGM] production and associated overhead costs.” Lonmin said it hoped to keep unit costs generally flat in nominal terms for the next three years.

    The miner, which is planning for lower production at some of its South African mines, is expected to cut platinum output from over 750,000 ounces to 700,000 ounces in 2016 and then down to 650,000 ounces for 2017 and 2018.

    Despite a five-month strike that axed South Africa’s platinum output last year, prices for the metal have been down to historic lows. According to the company, during the final quarter of its financial year it sold platinum at a price 30% lower in dollar terms than in the same period last year.
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    Northern Start Director Sale.

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    Yamana Gold inks metal purchase pact with Sandstorm Gold

    In a transaction valued at more than C$200 million, Yamana Gold has entered into three metal purchase agreements with Sandstorm Gold Ltd.

    The metal purchase agreements include a silver purchase transaction related to production from Cerro Moro, Minera Florida and Chapada, a copper purchase transaction related to production from Chapada, and a gold purchase transaction related to production from Agua Rica.
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    Base Metals

    Strike begins at the largest copper mine in northen turkey

    tmgrupDailysabah report that workers at Turkey's largest copper mine went on strike over a salary dispute, bringing to a halt operations at the mine in northern Turkey.

    Three-hundred-and-twenty workers at the mine operated by First Quantum Minerals Ltd. went on strike, after the company refused to grant an increase in wages following lengthy negotiations regarding a collective labor agreement.

    Mr Zekeriya Gültekin, the local representative of the Mine Workers' of Maden Union said on behalf of the protesting miners in Rize province's Çayeli district, strike was the result of the company refusing to consider raising salaries over the next three years.

    He said.that, this is one of the most important mines in Turkey. It helped the company generate high revenues for years and made significant contributions to Turkey's economy. It has been among the top taxpayers for years and managed to keep its revenues steady, even when stagnation was afflicting the industry and metal prices were low. The company has no excuse not to give a raise. We will not return to work unless they cancel this policy.

    According to its website, the Çayeli mine produces copper concentrate, copper, zinc bulk concentrate and zinc concentrate and base metals. It has a production capacity of 1.2 million tons per year.
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    Tiger Resources reports record production in Q3

    Tiger Resources Limited delivered an improved and consistent production performance in Q3 2015 with 7,139 tonnes of copper cathode produced and 6,833 tonnes sold.

    Cash operating costs were US$1.40/lb, with a US$1.63/lb all-in sustaining cash cost.
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    Alcoa idling 3 U.S. aluminium smelters as prices bite

    Alcoa Inc said on Monday it will idle three of its four active U.S. aluminium smelters, slashing annual capacity by 500,000 tonnes, in the steepest cuts yet by an aluminium producer to battle oversupply and sinking metal prices.

    The company said in a statement it will suspend its Intalco and Wenatchee smelters in Washington state and the Massena West smelter in New York state. It will also permanently close Massena East, also in New York, which was shuttered in 2014.

    The move will reduce Alcoa's smelting capacity by a further 503,000 tonnes annually, leaving the Evansville, Indiana, smelter as its sole U.S. primary plant. It produces 269,000 tonnes per year.

    For Alcoa, the measures come as it prepares to break itself in two, separating the faster-growing plane and car parts business from traditional upstream operations.

    The cuts are the biggest since the year-long rout in benchmark aluminium prices and the collapse in premiums, paid for physical delivery, earlier this year, pushing many of the world's smelters into the red.

    Prices have plunged by a third since September 2014 and are languishing at six-year lows around $1,450 per tonne amid concerns about waning demand and a ballooning surplus.

    Some producers, like Century Aluminium Co, also blame exports of cheap metal from China, the world's top producer, for undermining their competitiveness.

    Traders said the cuts were a step in the right direction to chip away at the global surplus and may give U.S. premiums AL-PREM some support.

    "These difficult, but necessary measures will further strengthen our upstream portfolio, reducing our cost position and driving greater resilience," Klaus Kleinfeld, chairman and chief executive, said in the statement.

    The news deals a major blow to a U.S. industry struggling with high energy and labor costs. Many companies including Alcoa have built capacity in the Middle East where energy is cheap and abundant.

    Alcoa's cuts, coupled with recent announcements by Century, represent around 30 percent of U.S. aluminium production and will leave just four smelters operating in the United States, with capacity to produce 759,600 tonnes per year.

    That's the lowest output since the 1950s and compares with 23 smelters in 2000, according to the U.S. Geological Survey.

    Alcoa said it will begin the cuts later in the fourth quarter, and will aim to complete them by the end of the first quarter of 2016.
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    Steel, Iron Ore and Coal

    S. African Sept thermal coal exports fall 15.1pct on year

    South Africa exported 5.93 million tonnes of thermal coal in September, slipping 15.1% year on year, according to customs data released late October 30.

    The volume was, however, 3.5% up on August 2015 and at a four-month high.

    Exports for the January-September period totaled 54.49 million tonnes, 1.6% higher than the volume shipped during the same 2014 period.

    India continued to be the largest destination for South African thermal coal in September, with 2.07 million tonnes shipped during the month. The volume was 21% lower than a year ago and also slipped 12% from the previous month.

    During the first nine months of the year, 25.65 million tonnes of thermal coal was exported to India, accounting for 47% of the total material shipped during the period.

    It has been a year since South Africa exported any thermal coal to China, while no material was sent to South Korea or the US.

    Spot FOB Richards Bay 6,000 kcal/kg NAR coal spot prices continued to fall during September, pressured by continued oversupply amid limited demand for the material. Indian buying also neglected to return as the monsoon season came to an end, due to credit issues and better availability of domestic thermal coal.

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    Swelling iron ore stockpiles in China may signal more losses

    Iron ore stockpiled at ports in China posted the longest run of gains this year, and Australia & New Zealand Banking Group Ltd. predicts holdings will probably expand further, hurting prices that have dropped below $50 a metric ton.

    The inventories climbed 1 percent to 84.75 million tons last week to the highest level since May, according to Shanghai Steelhome Information Technology Co. The gain was the third straight weekly increase, the longest run of rises since November, and holdings expanded 5.3 percent in that period.

    “Slowing Chinese demand continues to push up Chinese port stocks,” ANZ wrote in a report on Monday. “We believe, based on seasonality trends, that there is still upside in port stocks, which should continue to put some downside pressure on iron ore prices.”

    Iron ore sank 12 percent in October on surging supply from low-cost miners including Rio Tinto Group and weaker consumption in China. The purchasing managers’ index for China’s steel industry fell to 42.2 last month from 43.7 in September, with readings below 50 indicating contraction. Steel demand is shrinking at an unprecedented speed and mills are making losses as product prices drop, according to the China Iron & Steel Association.

    The uptick in port holdings follows rising exports this year to China, which accounts for half of global steel output. Shipments from Australia’s Port Hedland to China were 33.8 million tons in September, near the record 33.9 million tons set a month earlier. Brazil’s exports totaled 35.6 million tons in September, the most this year. The voyage from Brazil takes about 35 days, three times the journey from Australia, AXSMarine Ltd. estimates.

    “There’s room for port stockpiles to climb further through year-end as the major miners continue to export large amounts of ore while mills’ purchases remain sluggish,” Huang Huiwen, an analyst at Shanghai Cifco Futures Co., said by phone. “Steel prices are so weak currently, so mills are unlikely to boost production. Conversely, steel output will fall because northern mills typically shut over November and December for the winter.”
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    Goan miners to export about 220,000 tonnes of iron ore in November

    Trust of India reported that leading iron ore miners in Goa - Vedanta and Fomento Resources - will export around 2.20 lakh tonnes of iron ore to steel plants in China and Japan this month. The consignment will be the second such shipment out of the coastal state, where iron ore mining resumed last month after being banned by the Supreme Court in 2012.

    This month, Vedanta will export its second shipment of 80,000 tonnes, whereas another leading miner from the state Fomento Resources will ship two consignments totalling around 140,000 tonnes.

    Vedanta was the first firm to resume iron ore mining in Goa and the company's Iron Ore Division shipped its first consignment of 80,000 tonnes last month to China.

    Price of iron ore with iron content below 58 per cent has fallen to USD 32 per tonne FOB in Goa, while the cost of production is about USD 34-35 a tonne, of which taxes alone account for more than 40 per cent

    Goa mainly produces low grade iron ore (with iron content between 55-58 per cent), which is mainly exported to China and Japan. While China accounts for 75 per cent of the ore, the remaining is largely exported to steel plants in Japan. Both the miners, however said that the sector in Goa is passing through its toughest phase as it tries to resume operations in the state amidst a subdued global economic sentiment and a commodities slump.
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    Vedanta threatens to shut Amona pig iron plant

    vedantaresourcesHerald Goa reported that owing to the frequent disruption of transportation of iron ore by truck owners, Vedanta’s Sesa Goa Iron Ore Division, one of Goa’s largest iron ore mining companies, has threatened that it will be forced to close down its pig iron plant at Amona, which will affect the livlihood of about 4000 employees. The company has already shut down one of its three blast furnaces due to lack of raw material.

    On Friday, the company’s official spokesperson said, “We have been trying our best to keep the business running. The company has been forced to shut down one of its blast furnaces at Amona and will shut down the other two soon if transportation of ore is hindered by vested interest. The company’s pig iron plant at Amona depends on ore from its mines in Codli and Bicholim and this could affect a large workforce that earns their livelihood.”

    The spokesperson added, “We have been law abiding and have knocked on each and every door for a solution, approached every stakeholder of the industry to intervene and help resolve the problem amicably. Our efforts seem to be in vain, if things continue this way, the company will have no other option but to close down operations. All stakeholders must realize that if this happens, it is not just the organization that is at a loss. Every direct and indirect stakeholder will find sustenance difficult if they do not adopt a proactive approach to resolve the crisis at the earliest.”

    Vedanta’s Sesa Goa Iron Ore Division has begun mining operations and started transportation of ore purchased through e-auction for shipment at a trucking rate as declared by the Directorate of Mines and Geology (DMG) vide its circular on rate of transport dated April 21, 2015.

    Based on the Supreme Court directive, the company has purchased e-auctioned ore for its blast furnace operations at the pig iron plant as well as for exports. In the past ten days the company has been facing problems with truck operators hampering business demanding a hike in freight tariff.
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    Woes continue in China’s steel industry, sector to be boosted by the ‘internet+’ concept?

    Ever since Chinese Premier Li Keqiang delivered this year’s government work report at the 12th National People’s Congress and introduced the ‘Internet+’ strategy, it has become a buzzword in China for many industries.

    Industry and enterprises alike have started to put forward their applications of the strategy, including the Excellent Gas Network (EGN) e-commerce platform for the industrial gas industry.

    Now, it seems this might be a solution to the difficult situation of the steel industry in China.

    On 28th October, the China Iron and Steel Association held its 4th press conference of 2015 to provide an analysis of the situation of the steel business in the third quarter.

    Deputy Chairman Mr Zhu Jimin pointed out that, in the third quarter, the national economic growth continued to fall and the pull of economic growth on steel consumption was gradually weakening – and steel consumption intensity had decreased significantly over the period.

    In the first three quarters, the apparent national crude steel consumption fell sharply, by 5.8%, although the production of crude steel when compared to the same period last year had already declined 2.1% to 608.94 million tonnes – but this is insufficient to offset the decline in the demand side, and the imbalance between demand and supply is still very prominent.

    Steel prices continued to hit record lows, and the main business of iron and steel enterprises were all ‘seriously’ in the red, coupled with a substantial increase in foreign exchange losses and the price increase of iron ore, the entire iron and steel industry is facing losses across the board. Among the 34 steel enterprises that are listed in the stock market, 27 have released their financial results for the third quarter 2015; three-fifths of these are expected to record a loss.

    To put it in real terms, from January to September of 2015, according to the statistics from the China Iron and Steel Association, the medium to large-scale steel enterprises have seen total revenue decline 19.6% compared with the same period last year. The top 10 enterprises making a profit had a total profit of RMB 12.3bn, a drop of 18.7%; on the other hand, the worst 10 enterprises recorded a total loss of RMB 32bn, more than 10 times of the total loss of the same period last year.

    This demonstrates that the capability to make profit for the profit-making companies has deteriorated whereas the companies losing money are getting even worse.

    Now, there are suggestions that the ‘internet+’ idea should be adopted to facilitate integration of the assets and the restructuring of the industry chain: firstly to promote the coordinated development between the customised needs of the users and the scale of economics of steel production; secondly to evolve steel enterprises from merely producers to production service providers; and thirdly, to base steel enterprises on the research and development of target products for downstream industries to realise coordinated development.

    It is thought that making use of the ‘internet+’ concept for the reformation of the steel industry chain can not only achieve a revolution of the marketing model of steel enterprises, but also form a supply chain relationship between the large enterprise groups of the upstream and downstream industries – and ultimately a win-win development.

    The struggles in China’s steel industry create a backdrop – and arguably a catalyst – for challenges in the wider steel business, with a number of steel plant closures globally in the last 12 months. The most high-profile of late was the mothballing of the SSI plant in Redcar, UK, one of region’s the largest steel plants.

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    Kloeckner swings to Q3 net loss on steel prices

    German steel distributor Kloeckner swung to a net loss in the third quarter due to pressure from cheap imports and slow demand in anticipation of a further fall in prices as well as a collapse in prices for scrap.

    Kloeckner, whose efforts to restructure and digitise its business have so far been outpaced by price drops due to cheap Chinese exports and weak demand, said it made a quarterly net loss of 9 million euros ($9.9 million) compared with a profit of 16 million a year earlier.

    Kloeckner said on Tuesday it expected core earnings before restructuring charges in the single-digit millions of euros in the fourth quarter, where it forecast pressure from falling prices and slow demand to continue.

    In the third quarter, earnings before interest, tax, depreciation, amortisation (EBITDA) and restructuring charges of halved to 30 million euros, as the company had flagged in earlier this month.

    Kloeckner said it expected full-year EBITDA before restructuring expenses of up to 85 million euros, less than half what it made last year.

    It added that it expected an increase of about 1 percent in real steel demand in Europe for the whole of 2015 and a decrease of about 2 percent in the United States due to a slump in the oil and gas sector.

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    China’s steel sector PMI further slides to 42.2

    The Purchasing Managers Index (PMI) for China’s steel industry further slid 1.5 on month to 42.2 in October, the second consecutive monthly decline and the 18th straight month below the 50-point threshold, showed the latest data from the China Federation of Logistics and Purchasing (CFLP).

    The falling index in recent months indicated a tougher status as well as future in domestic steel market, given the persisting weak demand amid sluggish market.

    The output sub-index dropped 1.5 from September to 43.1 in October, the 14th consecutive month below the 50 mark.

    China’s steel products output may continue to decline in November, mainly impacted by steel mills’ expanding losses and weakening demand at domestic market.

    The new order sub-index decreased 2.8 from September to 37.9 in October, and the new export order index fell 1.4 from September to 40.7 in the same month – the lowest level in recent nine months, reflecting a contraction trend of steel exports in the short run.

    The sub-index for steel products stocks decreased 3.6 to 45.7 in October, the fourth successive monthly drop and a new low since September 2013, as steel mills continued to destock to reduce losses.

    As of October 10, total stocks in key steel mills stood at 15.07 million tonnes, rising 1.89% from ten days ago but down 6.8% from September, said the CFLP.

    Domestic steel prices have decreased to record lows, and steel mills may intensify production cut to reduce losses. The steel market is expected to maintain weak in November.
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