Mark Latham Commodity Equity Intelligence Service

Thursday 25th August 2016
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    Four More Mega-Banks Join The Anti-Dollar Alliance...blockchain

    That was fast.

    Yesterday I told you how a consortium of 15 Japanese banks had just signed up to implement new financial technology to clear and settle international financial transactions.

    This is a huge step.

    Right now, most international financial transactions must pass through the US banking system’s network of correspondent accounts.

    This gives the US government an incredible amount of power… power they haven’t been shy about using over the last several years.

    2014 was one of the first major watershed moments when the Obama administration fined French bank BNP Paribas $9 billion for doing business with countries that the US doesn’t like– namely Cuba and Iran.

    It didn’t matter that this French bank wasn’t violating any French laws.

    Nor did it matter that only months later the President of the United States inked a sweetheart nuclear deal with Iran and flew down to Cuba to attend a baseball game with his new BFFs.

    BNP had to pay up. A French bank paid $9 billion because they violated US law.

    And if they didn’t pay, the US government threatened to kick them out of the US banking system.

    $9 billion hurt. But being kicked out of the US banking system would have been totally crippling.

    Big international banks in particular cannot function if they don’t have access to the US banking system.

    As long as the US dollar remains the world’s dominant reserve currency, major banks must able to clear and settle US dollar transactions if they expect to remain in business.

    This means having access to the US banking system… the gatekeeper of the US dollar.

    But having watched BNP Paribas get blackmailed into paying an absurd $9 billion fine to the US government, the rest of the world’s mega-banks knew instantly that their heads could be next ones on the chopping block.

    So they started working on contingency plans.

    Blockchain technology provided an elegant solution.

    Instead of passing funds through the US banking system’s costly and inefficient network of correspondent accounts, blockchain technology provides an easy way for banks to send payments directly to one another.

    I cannot understate how important this technology is.

    Blockchain may very well be what neutralizes the US government’s domination of the global financial system.

    And while there’s been a lot of momentum in this direction (hence yesterday’s letter to you), even I’m surprised at how fast it’s moving.

    Today, four of the world’s largest banks announced a brand new joint venture to create a new financial settlement protocol built on blockchain technology.

    Deutsche Bank from Germany, UBS from Switzerland, Santander from Spain, and Bank of New York Mellon have joined together to launch what they’re naming the very un-sexy “utility settlement coin”.

    Like Ripple, Setl, Monetas, and several other competing technologies, Utility Settlement Coin has the potential to end the reliance on the US banking system for cross-border payments and financial transactions.

    Banks will be able to send payments to one another directly without having to transit through the Wall Street financial toll plaza.

    (Global consulting firm Oliver Wyman estimates that the cost of clearing and settling international financial transactions at up to $80 billion annually.)

    This has enormous implications, especially for US banks.

    The Federal Reserve, for example, has already warned that financial technology could pose stability risks to the US financial system.

    And they’re right.

    If foreign banks are able to transact directly with one another without having to go through the US banking system, then why would they need to park trillions of dollars in the United States?

    They wouldn’t.

    Adoption of this technology could cause a gigantic vacuum of deposits out of the US banking system.

    US banks would take a big hit. And the US government would have far fewer foreign buyers to sell its ever-expanding piles of debt.

    Make no mistake, the adoption of this technology is a game-changing development with far-reaching implications. And it’s happening very quickly.

    If these mega-banks can hit their milestones, they’ll launch commercially in eighteen months.

    Mark it on your calendar– that may be the end of peak US financial dominance.
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    Glencore's underlying profit falls, lowers debt target

    The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar November 20, 2012. REUTERS/Arnd Wiegmann/File Photo

    Glencore reported first-half adjusted underlying profit (EBITDA) down 13 percent at $4 billion (3.04 billion pounds), but said it was on track to sell assets and lowered its net debt target to between $16.5 billion and $17.5 billion this year.

    It had said in March that it aimed to cut net debt to $17 billion to $18 billion by the end of 2016.

    "We have already largely achieved our asset disposals target of $4-5 billion with a diverse and material pool of asset sales' processes also ongoing," Chief Executive Ivan Glasenberg said in a statement on Wednesday.

    He said an upturn in commodity markets had helped, but the company remained "mindful that underlying markets continue to be volatile".

    Glencore came under pressure to reduce its net debt last year after investors said they were concerned by its leverage after a fall in commodity prices and weaker demand in China.

    Glencore says its combination of industrial activities and trading protects it from market volatility with trading being a defensive earnings driver when commodities prices fall.

    It said its adjusted EBITDA in metals and minerals was up 11 percent at $3.229 billion on strong trading and improved contributions from aluminum and nickel.

    Adjusted EBITDA in oil, refined products and coal fell 49 percent to $847 million on lower prices and as trading earnings fell to $276 million. Glencore said that supportive oil marketing conditions seen in the first half of 2015 were not repeated and coal trading was challenging.

    The company kept its full-year adjusted EBIT guidance for trading, which it calls marketing, unchanged at $2.4-2.7 billion.
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    Oil and Gas

    Loss-making CNOOC warns of headwinds to oil price recovery

    CNOOC Ltd reported a loss for the first half of 2016 on Wednesday and warned that headwinds will stymie a recovery in crude oil prices from the worst downturn in years.

    The company, China's offshore oil and gas specialist, reported a net loss of 7.74 billion yuan ($1.16 billion) in the first six months of the year, compared with a profit of 14.73 billion yuan in the same period last year, it said. This is the first half-year loss the company has reported for data on Eikon going back to 2011.

    Oil and gas sales in the period plunged 28.5 percent to 55.08 billion yuan from 77.03 billion yuan even as total net production rose 0.6 percent over the year-ago period to 241.5 million barrels oil equivalent.

    The state-owned oil company vowed to continue to cut costs amid a "complex and volatile" market and said uncertainties remain in the global and domestic macro environment while a further recovery in oil prices faces headwinds.

    Global crude prices rose by a third in the first six months of the year, recovering from their lowest in more than a decade of $27 a barrel in mid-January amid hopes that major producers would cut output, helping to erode a global surplus.

    Prices are currently near $50 per barrel, but have struggled to sustain major gains.

    The state-controlled firm said its realized oil prices during the January-June period fell 34.5 percent over a year earlier and its natural gas prices also dropped 16.2 percent during the same period.

    CNOOC's Hong Kong-listed share prices were up 19 percent in the first half, outperforming the broader Hang Seng Index , which dropped 5 percent during the period.
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    PetroChina Ekes Out Profit Amid Oil Crash With Pipeline Sale

    PetroChina Co., the country’s biggest oil and gas producer, posted its smallest half-year profit since it was publicly listed in 2000 as the crash in oil prices continues to drag on earnings.

    Net income dropped 98 percent to 531 million yuan ($80 million), the state-run explorer said in a statement to the Hong Kong stock exchange on Wednesday. Revenue fell 15.8 percent to 739 billion yuan. The sale of a Central Asian pipeline network helped the company eke out a profit and recover from its first-ever quarterlyloss earlier this year.

    “Low crude price is a killer for companies like PetroChina as they pretty much rely on oil incomes to make a living,” Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd. said by phone.“The performance is not unexpected and what they do in the second half hinges on whether oil can really rebound to a higher level.”

    The state-owned explorer’s total global crude oil and gas output rose 1.7 percent to 748.2 million barrels of oil equivalent during the first half of the year, it said on Wednesday. That’s down 1.3 percent from the second half of last year. Capital expenditures fell 17.5 percent to 50.9 billion yuan. The company declared a special dividend of 0.02 yuan a share in addition to an interim dividend distribution of 45 percent of profit.

    While oil prices have recovered from a 12-year low earlier this year, the crash continues to roil explorers. Exxon Mobil Corp. and Royal Dutch Shell Plc in July reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp. is suffering the longest earnings slump in more than a quarter century and BP Plc posted its lowest refining margin in six years.

    Brent crude, the global benchmark, averaged about $41 a barrel during the first half of the year, down roughly 30 percent from the same period in 2015. Prices have fared better in the second quarter, averaging about $47 from about $35 during the previous three months.

    Domestic Decline

    High production costs, aging fields and low prices have resulted in a decline in China’s domestic crude output, helping drive imports by the world’s second-biggest consumer to a record. Oil producers including PetroChina and China Petroleum & Chemical Corp. have said they will shut down high-cost fields this year after prices crashed to the lowest since 2003. PetroChina’s domestic crude output in the first half of the year fell 4.2 percent from the same period in 2015 to 385.3 million barrels.

    The country’s crude production in July tumbled to the lowest since October 2011 and has slipped 5.1 percent in the first seven months of the year, according to data from the National Bureau of Statistics. The drop contrasts with a 3.1 percent increase in natural gas output over the same period. While demand growth for oil has slowed, natural gas use rose 9.8 percent in the first half the year.

    Pipeline Sales

    PetroChina and it’s parent company, China National Petroleum Corp., have sold off some assets to shore up their balance sheets to weather the crash. The company announcedin November that it planned to sell a 50 percent stake in Trans-Asia Gas Pipeline Co., which builds and operates links between Central Asian countries to China’s western province of Xinjiang, to a unit of state-ownedChina Reform Holdings Corp. The company said Wednesday that it booked a 24.5 billion yuan gain from the sale.

    CNPC said in July that it earned a profit in the first half of the year of 27.6 billion yuan, without providing details. The company will give priority to natural gas exploration and production in the second half the year and may adjust investment strategies depending on the change in oil prices, Chairman Wang Yilin in a statement last month.

    The Changqing oil field, CNPC’s biggest domestic oil and gas producer, reported separately last month that it rebounded from losses earlier this year to turn a first-half profit on reduced spending. PetroChina posted a 13.8 billion yuan loss in the January to March period, its first-ever quarterly loss since listing in 2000.
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    Oil refiners face reprieve as maintenance tames fuel glut

    Oil refiners reeling from tumbling profits can expect some reprieve in the coming weeks as lower production will tame a huge global excess of gasoline and diesel.

    Dozens of plants that will switch off for regular autumn maintenance will help slow the downward spiral in margins (the profit from refining crude into oil products) that have fallen to barely break even in 2016 from highs of around $11 a barrel a year earlier, analysts said.

    Refining profits have been a vital bulwark for the likes of Royal Dutch Shell, BP, Eni and Repsol, helping to offset losses from crude oil production in a more than two-year price rout.

    European refinery turnarounds are set to peak at around 1.1 million barrels per day (bpd) in mid-September before gradually tapering off throughout October, according to Reuters data and traders.[REF/E]

    Though last minute maintenance announcements could increase the balance, it remains significantly lower than last year, when it peaked at around 2.3 million bpd.

    Globally, maintenance is expected to be more significant, particularly in export hubs in the Middle East and Asia, taking off around 5 million bpd of capacity at the peak, roughly 7 percent of global refinery throughput.

    "No one is seeing the same sort of margins we saw a year ago, but nor are they falling off a cliff," said David Fyfe, head of market research at Switzerland-based trader Gunvor, which owns three refineries in northern Europe.


    Unplanned outages in the U.S. Gulf Coast, a major export hub, including at ExxonMobil's 502,500 bpd Baton Rouge refinery, are further helping reduce the glut.

    A cold winter would further eat into stocks of heating oil.

    All this will likely help deplete brimming gasoline and diesel stocks, a result of excessive production earlier this year when prices of crude oil feedstock were low and demand expectations were high.

    "We're approaching a state of equilibrium in the sense that demand is matching quite closely with what refineries can produce," said Jonathan Leitch, oil product markets research director at Wood Mackenzie.

    The overhang in developed economies of middle distillates, which include diesel and heating oil, is at around 72 million barrels or around four days of consumption, a reasonable level given limited spare refining capacity, according to Fyfe.

    Gasoline faces an overhang of 30 million barrels, roughly two days of forward cover.

    Robert Campbell, head of oil products markets at consultancy Energy Aspects said refining margins, or cracks, are unlikely to surge even though European diesel stocks are expected to decline by 4 to 6 million barrels in September.

    "All of this sounds very bullish, but a good deal of this story may already be priced in. European diesel cracks have rallied from their lows in recent weeks, but cannot realistically go much higher," according to Campbell.

    "Margins don't look great going into September but maintenance, even if it is small, will keep people afloat for a while."

    Chances for a new tidal wave of refined oil products once autumn maintenance is completed are diminishing as 2016 and 2017 will see far less new refinery capacity come on line compared to last year, Fyfe said.
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    Kenya finalises agreement for development of crude oil pipeline

    Kenya has finalised an agreement with oil explorer Tullow Oil and its partners Africa Oil and A.P. Moller-Maersk for the development of a crude oil pipeline, as it bids to become an oil exporter, the president's office said.

    Tullow and Africa Oil first struck oil in the Lokichar Basin in the country's northwest in 2012. The recoverable reserves are an estimated 750 million barrels of crude.

    The two firms were 50-50 partners in blocks 10 BB and 13T where the discoveries were made. Africa Oil has since sold a 25 percent stake in those blocks to A.P. Moller-Maersk.

    A statement from President Uhuru Kenyatta's office quoted Energy and Petroleum Minister Charles Keter as saying the three partners and the government had finalised the pipeline's development plan.

    "He said the Government and its upstream partners, Tullow Oil, Africa Oil and Maersk Companies, have concluded a Joint Development Agreement (JDA) for the development of the pipeline," the statement said.

    In April, Keter said the pipeline - to run 891 km between Lokichar and Lamu on Kenya's coast - would cost $2.1 billion and should be completed by 2021.

    The government and the companies are pushing to start small scale crude oil production in 2017, at about 2,000 barrels per day to be initially transported by road.

    "We have started and we are not moving back. We want to be at the top of the pile. So, we have set a path and by 2019, Kenya is going to be a major oil producer and exporter," Kenyatta said.

    The statement said Tullow Oil had confirmed it would start production in March 2017 and quoted Paul McDade, its chief operating officer, as saying the company would be ready to start exports in June next year.

    Neighbouring Uganda is also looking to build a pipeline to export its oil. Though it initially favoured a route though Kenya, Kampala has decided to build its pipeline through Tanzania instead.
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    Norway Oil Companies Cut Investment Plans Further Amid Slump

    Oil and gas companies operating in Norway, western Europe’s biggest producer, cut investment forecasts further for this year and next as they continue to weather a two-year long collapse in crude prices.

    Investments in Norway’s offshore oil and gas industry are now expected to fall to 163 billion kroner ($20 billion) in 2016, down from a 166 billion-krone estimate in May, according to a quarterly survey published by Statistic Norway on Wednesday. The estimate for 2017 fell to 151 billion kroner from 153 billion kroner. Investments peaked at 221 billion kroner in 2014 before falling to 195 billion kroner in 2015.

    The decrease for 2016 was mainly due to lower estimates for field developments, while lower expected investments in shutdowns and removals and exploration led to a decrease for 2017, the statistics agency said.

    “A decrease from the second quarter to the third quarter in the year before the investment year is very unusual,” Statistics Norway said in a statement. It also happened last year for the first time since 1999, it said.

    Oil companies are delaying development projects and exploration drilling in Norway and elsewhere to withstand a decline in crude prices. About 40,000 jobs have been cut in Norway’s offshore industry, while the central bank lowered rates to a record. Survey unemployment rose to 4.8 percent in June, the highest since at least 2004, according to separate statement today. The downturn has forced the government to make its first withdrawals from its $890 billion sovereign wealth fund this year as it spends more of the nation’s oil wealth amid dwindling income from petroleum production.
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    Planned BP stake sale in Indian unit has not taken place: exchange data

    An up to $261 million share sale in Castrol India Ltd (CAST.NS) by BP Plc due to take place on Wednesday according to a term sheet seen by Reuters had not taken place as of the end of the trading day, according to exchange data.

    BP, which owns a majority stake in Castrol India, had been due to sell an up to 8.53 percent stake including an upsize option, according to the term sheet seen by Reuters on Tuesday.

    A spokesman for BP declined to comment.

    Banking sources in India said they were not aware of a share sale having been launched.
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    Canacol Energy tests Nispero-1 exploration well at 28 MMSCFPD,

    Canacol Energy Ltd. is pleased to provide the following update concerning the Nispero 1 gas discovery, the doubling of its gas drilling program for the remainder of 2016, and an increase of 9% in Corporate cash sales to 19,440 barrels of oil equivalent per day for the month of July 2016 compared to the average cash sales of 17,817 boepd for the quarter of April 1 to June 30, 2016.

    Nispero 1 Exploration Discovery (100% Operated Working Interest)

    The Nispero 1 exploration well was spud on the Esperanza Exploration and Exploitation Contract on July 17, 2016. The well reached total depth of 9,906 feet measured depth ('ft md') on August 7, 2016, encountering 79 ft md (55 feet true vertical depth) of net gas pay with average porosity of 17% within the primary Cienage de Oro ('CDO') reservoir target. The CDO reservoir interval was perforated in 7 different intervals between 8,792 to 9,630 ft md and flowed at a final stabilized rate of 28 million cubic feet per day ('MMscfpd') of dry gas with no water at a flowing tubing head pressure of 2,045 pounds per square inch over a test period of 53 hours. The Corporation is currently completing the Nispero 1 well for permanent production via a flow line that will tie the well into the Corporation's operated Jobo production facility.

    Given the success at Nispero, the Corporation plans to immediately drill the offsetting Trombon gas prospect from the same drilling platform the Nispero 1 well was drilled from. The Trombon 1 exploration well will target the same CDO reservoir interval tested in the offsetting Nispero 1 well, but in a distinct and isolated fault block located approximately 2 kilometers south of the Nispero discovery. The Corporation anticipates spudding the Trombon 1 well late in the week of August 29, 2016, and anticipates that the well will take 5 to 6 weeks to drill and flow test.

    Expansion of the 2016 Gas Drilling Program

    The Corporation is currently contracting a second rig to drill the Nelson 6 and Nelson 8 wells while the existing rig will be left to drill the Trombon 1 exploration well and then be mobilized to drill appraisal wells in the Clarinete and Oboe fields. The Nelson 6 exploration well will target gas pay within the shallow Porquero sandstone reservoir in the Nelson field. The Nelson 8 well is a development well targeting productive reservoirs within the CDO reservoir that are not being drained by the existing producing wells in the Nelson field. The Corporation anticipates that both new Nelson wells will be drilled and tested prior to the end of 2016. Following the drilling and testing of the Trombon 1 exploration well, the existing rig will be mobilized to the Clarinete field to drill the Clarinete 3 appraisal well prior to the end of 2016. The Corporation intends to keep one drilling rig active for all of 2017 drilling gas exploration and appraisal wells on its operated VIM 5, Esperanza, VIM 19 and VIM 21 Exploration and Production contracts.

    The objectives of the expanded gas drilling program are to 1) target management's estimate of more than 100 billion cubic feet of potential recoverable resource in order to secure new gas sales contracts, and 2) increase the productive capacity of the Corporations gas assets to more than 190 MMscfpd in 2017 to supply the new contracts.

    The Corporation also plans to spud the Mono Cappuccino oil exploration well on its operated VMM2 E&P contract in the last quarter of 2016.

    Corporate Production

    Gas and oil cash sales before royalties for the month of July 2016 averaged approximately 19,440 boepd, which consisted of 88.0 MMscfpd (15,431 boepd) of gas, and 4,009 barrels of oil per day of oil which included production from Ecuador. Of the 88 MMscfpd of gas cash sales, approximately 85.0 MMscfpd were realized contractual gas sales as the Corporation saw its customers accept physical delivery of nearly all of their nominated gas volumes. The average cash netback of the gas cash sales was approximately US$ 26.60 / barrel of oil equivalent during this period, while the average cash netback of the oil sales was US$ 25.16 / barrel.
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    US Oil production slightly down

                                                                   Last Week   Week Before  Last Year
    Domestic Production '000..........    8,548           8,597            9,337
    Alaska '000................................... 483              477               427
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    Summary of Weekly Petroleum Data for the Week Ending August 19, 2016

    U.S. crude oil refinery inputs averaged 16.7 million barrels per day during the week ending August 19, 2016, 186,000 barrels per day less than the previous week’s average. Refineries operated at 92.5% of their operable capacity last week. Gasoline production decreased last week, averaging over 10.0 million barrels per day. Distillate fuel production decreased last week, averaging over 4.8 million barrels per day.

    U.S. crude oil imports averaged over 8.6 million barrels per day last week, up by 449,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.5 million barrels per day, 13.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 801,000 barrels per day. Distillate fuel imports averaged 224,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.5 million barrels from the previous week. At 523.6 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories remained unchanged last week, and are well above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 0.1 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.4 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 6.6 million barrels last week.

    Total products supplied over the last four-week period averaged about 20.8 million barrels per day, up by 2.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.7 million barrels per day, up by 1.8% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels per day over the last four weeks, unchanged from the same period last year. Jet fuel product supplied is up 4.7% compared to the same four-week period last year.

    Cushing +400,000
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    Shale Land Grab Tops Mergers as Buyers Await Better Oil Outlook

    The buyer’s market that the battered U.S. shale patch has become is so far luring more land purchases than takeovers as investors await a more solid crude price rebound before making bigger moves.

    Handshakes between U.S. oil and gas explorers have had more to do with acquisitions of coveted acreage in the Permian Basin straddling West Texas and New Mexico, or Oklahoma’s Scoop and Stack areas, than agreements to share a head office and a logo.

    “People are trying to find the bottom,” said Stephen M. Trauber, vice chairman & global head of energy at Citigroup Inc. “They would rather do a deal when they know they can pay for something and they know the price improves, versus declines.”

    A two-year slump in crude prices has sent many producers into bankruptcy, while others slash spending and sell assets to stay afloat. Crude rebounded from a 12-year low earlier this year but is still lingering below $50 a barrel, less than half a 2014 peak. The Permian, the nation’s largest field, has led the biggest and longest revival in oil drilling since 2014 while producers remain more cautious in areas that are less profitable.

    Of the $32.1 billion in deals U.S. oil and gas explorers signed this year as of Monday, 52 percent were asset sales, mostly land in the country’s hottest plays, according to data compiled by Bloomberg. But even in the case of deals that are tallied as takeovers, often it’s the acreage that comes along with the acquisition that drives the buy. To help pay for the bargains, producers have issued a record $20.59 billion in shares so far this year.

    Concho Resources Inc. and Newfield Exploration Co. are among producers that boughtup areas in the Permian and Oklahoma to consolidate their hold on the lowest-cost shale plays. PDC Energy Inc. joined the race, announcing late Tuesday a $1.5 billion purchaseof two companies with holdings in the Permian. While technically a takeover, the deal was mainly about the combined 57,000 acres PDC is getting out of it.

    Producers are looking to focus on areas in which they can operate more economically and increase drilling more efficiently, said Sean Coleman, chief credit officer at Franklin Square Capital Partners. At current price levels, that’s a strategy that makes sense, he said.

    The asset sales have reached $16.7 billion so far this year, about 69 percent higher than a year earlier but less than half of the volume of sales during the same period of 2014, the data compiled by Bloomberg show. About $7.46 billion of transactions have been in the Permian, compared with only about $1.88 billion in the Eagle Ford, according to PLS data compiled by Bloomberg.

    Scarce Funding

    With debt markets practically closed off for many producers, financing constraints have been a large obstacle for mergers and acquisitions, according to the mid-year Oil and Gas Mergers and Acquisitions report from the Deloitte Center for Energy Solutions.

    While a relatively better price environment won’t usher in “a tsunami of deals in the next several months,” we’ll likely see a gradual increase, said said Andrew Slaughter, executive director at the Deloitte Center for Energy Solutions.

    The level of uncertainty among buyers and sellers is “probably the highest it’s ever been,” Slaughter said. The timing and extent of the recovery has been difficult to predict, which has made agreement on valuations even harder to come by, he said. And traditional debt markets “will be very slow to open up again.”

    Executives at Hess Corp. have expressed a strategic but cautious approach to deals: If they can create growth by tweaking existing portfolios, there isn’t strong pressure to go out and buy.

    M&A Window

    “I think these people are looking at targets,” said Hugh "Skip" McGee, chief executive officer at Intrepid Financial Partners. “But I don’t think that they feel the window is about to close, and that they need to jump now.”

    An increased level of interest indicates there will be a higher volume of mergers and acquisitions later this year into the next -- though likely not many mega-deals, Citigroup’s Trauber said. Consolidation “absolutely makes sense” given how fragmented the upstream industry is, he said. Those waiting on a surge are likely to see an uptick in activity.

    In the meantime, the most sought-after assets remain pieces of land in the Permian and Oklahoma’s Scoop and Stack regions.
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    Permian rig count up nearly 50 percent

    While the latest report from Baker Hughes showed that the oil rig count rose again, now up for eight consecutive weeks – now up nearly 30 percent from the lows of late May to 406 rigs – the Permian Basin has got a headstart.

    Permian is resoundingly considered the lowest-cost U.S. shale play, and its rig count bottomed out a month prior to the low ebb of the aggregate rig count in late-April, some two-and-a-half months after WTI dipped into twenty dollardom. The Permian rig count has now rebounded emphatically, up nearly fifty percent in recent months, and accounting for nearly half of all active U.S. rigs.
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    BOEM offers 4399 offshore blocks. Attracts bids for 24

    U.S. Bureau of Ocean Energy Management (BOEM) on Wednesday held a lease sale offering acreage in 4399 blocks across 23.8 million acres million in the Gulf of Mexico, offshore Texas.

    The Lease Sale 248, as it was officially called, attracted 24 bids from only three oil and gas exploration companies which took part in the bidding round, BHP Billiton, BP, and ExxonMobil.

    There were no competing bids for the same acreage. The sum of all bids submitted was a little over $18 million.

    BHP Billiton, an Australian energy giant, offered the most bids. The company offerred to acquire acreage over 12 blocks in the U.S. Gulf of Mexico, located in East Breaks and Alamino Canyon areas.

    By the number of bids submitted, BP was the second. The British oil major filed bids for ten blocks, all situated in the Garden Banks area of the Gulf.

    Also, U.S. supermajor ExxonMobil submitted two bids for two blocks situated in the East Breaks areas. Worth noting, of all the bids submitted, the highest one for a single block was filed by ExxonMobil – $1.25 million. However, when all the bids are summed up, BHP Billiton offered almost $10 million, BP $6.3, and ExxonMobil $1.75 milion.

    In this sale, BOEM offered 23.8 million acres in federal waters offshore Texas for oil and gas exploration and development. The three companies submitted bids for blocks covering 138.240 acres.

    Director Abigail Ross Hopper said: “Though this sale reflects today’s market conditions and industry’s current development strategy, the bidding confirms that there is continued interest in the deepwater areas of the Gulf”.

    Today’s sale in New Orleans, Louisiana, was the first federal offshore oil and gas auction broadcastlive on the internet.

    Sale 248 included approximately 4,399 blocks, located from nine to 250 nautical miles offshore, in water depths ranging from 16 to more than 10,975 feet (5 to 3,340 meters). As a result of offering this area for lease, BOEM estimates a range of economically recoverable hydrocarbons to be discovered and produced of 116 to 200 million barrels of oil and 538 to 938 billion cubic feet of natural gas.

    Following today’s sale, each bid will go through an 90-day evaluation process before a lease is awarded.
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    Alternative Energy

    New record global low price for solar in Chile

    The price of solar in Chile has hit a record global low in an energy auction.

    The government has awarded a contract to sell solar energy at $29.1/MWh (£21.8/MWh).

    That undercuts the previous record set by a solar plant in Dubai at $29.9/MWh (£22.4/MWh).

    Spanish firm Solarpack won the bid and will built a 120MW solar farm in Tarapaca.

    The project is scheduled to be operating by 2019.

    Pablo Burgos from Solarpack said: “This tender, in addition to reaffirming the commitment of Solarpack with Chile, also demonstrates the competitiveness of Solarpack and solar energy at offering the best price among the bidding companies.”

    Attached Files
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    Another glut looms: Solar industry boosts panel production

    Solar manufacturers that are ramping up production now face a looming glut of panels, forcing companies to adjust or face dire consequences.

    Trina Solar, Canadian Solar and  JinkoSolar Holding Co. are among the suppliers boosting output at factories that will expand global capacity by 18 percent this year, according to Bloomberg New Energy Finance.

    The manufacturers are locked in a race to build bigger and more advanced factories to crank out panels faster and cheaper. Just as they start rolling off the lines, demand is expected to slow, especially in China where the government rolled back subsidies last month. Prices are slumping, and suppliers expect margins to slip as well. It’s a pattern we’ve seen before, after a global oversupply five years ago drove dozens of companies out of business.

    RELATED: Why solar power is still waiting for ‘liftoff’ in Texas

    “Oversupply appears to be business as usual in the solar industry,” said Jenny Chase, New Energy Finance’s lead solar analyst.

    The solar industry went through a similar boom-bust cycle after capacity grew faster than demand, triggering a two-year slump starting in late 2011. The result was a wave of consolidation as prices plunged and panelmakers’ losses piled up. Cheap panels also helped spur demand for more solar power, eventually prompting the survivors to expand production.

    Battle for customers

    “These companies are all fighting for market share and their tendency is to build more and more capacity,” Pavel Molchanov, an analyst at Raymond James Financial, said in an interview. “Ultimately that drives down prices and margins for everyone.”

    Canadian Solar, the second-largest manufacturer, is building a a 350-megawatt facility in Brazil, and JinkoSolar is expanding output from a 450-megawatt factory that went into operation in Malaysia last year.

    RELATED: IEA: China, Japan, U.S. leading solar energy boom

    This comes as demand slows in China, the world’s largest market, where the government is reducing subsidies for solar farms commissioned after June 30. That fueled a rush of projects in the first half of the year as developers added as much as 22 gigawatts before the subsidy expired, said Hugh Bromley, a New Energy Finance analyst. With the lower subsidy in place, he expects about 6 to 8 gigawatts of new solar projects in the second half.

    Trina, the world’s largest panel maker, said Tuesday that shipments will fall as much as 6.5 percent in the third quarter, to between 1.55 and 1.65 gigawatts. At the same time, the company has increased production capacity 7.1 percent after opening a 500-megawatt factory in Thailand in March. Yingli Green Energy Holding Co. said Tuesday that it expects shipments to slip as much as 54 percent in the current quarter, after 60 percent of its panels went to China in the second quarter.

    Demand rises at slower pace

    “Chinese solar manufacturers now face tougher competition due to a supply capacity increase and a decrease in market demand,” Yingli Green Energy Vice President and Chief Climate Officer Jingfeng Xiong said during a call Tuesday with analysts.

    To be clear, demand for solar is continuing to rise, but that growth is slowing. Global installations this year may reach about 67 gigawatts, up 27 percent from last year, according to New Energy Finance. In 2017, it’s expected to increase by 25 percent, and in 2018 it will rise 23 percent.

    It’s hard to pinpoint whether supply has already eclipsed demand since companies won’t report whether their shipments have been impacted by the reduced subsidy in China until the fourth quarter. Evidence is mounting, however, that the glut has already arrived. Panel prices are at a record low of 44.7 cents a watt after plunging 10 percent in the past six weeks. Prices may fall another 15 percent by the end of the year, according to Patrick Jobin, an analyst at Credit Suisse Group AG.

    While the last supply glut ravaged the solar industry, it may have less impact this time because the supply chain is more consolidated. The market has fundamentally changed, with 90 percent of sales going to a handful of the biggest companies, compared with 66 percent four years ago, said Xiaoting Wang, a New Energy Finance analyst. Industry leaders like Trina and Canadian Solar have expanded beyond manufacturing, diversifying their revenue by developing solar farms.

    ‘Collectively, it’s suicide’

    While manufacturers may have known they were speeding toward a glut, it’s not easy to take their foot off the gas. Many production costs are fixed, so cutting output would drive down margins and erode their market share.

    “They would essentially be giving up the race,” said Chase of New Energy Finance. “And nobody wants to do that –- even though collectively it’s suicide.”

    Canadian Solar is one of the few companies that has announced it is scaling back its manufacturing expansion, adding 5.8 gigawatts of capacity this year instead of an initial target of 6.4 gigawatts.

    “Canadian Solar’s objective this year is to play safe, not to grow our market share, but to improve our margin structure,” Canadian Solar Chief Executive Officer Shawn Qu said during an Aug. 18 conference call with analysts.

    It’s unclear how long a supply glut may last. Wang, of New Energy Finance, said it may take two years to work through surplus capacity.

    The key is how the companies react, whether they take a cautious approach or continue the race to build more factories, according to Merry Xu, chief financial officer at Trina.

    “It just depends on the strategic approaches of our peers,” Xu said on a call with analysts Tuesday. “We do hope that this imbalance won’t last very long.”
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    France to open tender for 3,000 MW of solar plants -ministry

    France to open tender for 3,000 MW of solar plants -ministry

    France will launch a series of tenders for a combined capacity of 3,000 megawatts (MW) of solar plants, the energy ministry said in a statement on Wednesday.

    The ministry will launch a series of six tenders of 500 MW each, between 2017 and 2020, each spaced six months apart.

    The ministry said this regular cadence would provide stability and visibility to the French solar industry and provide green jobs.

    Bidders will benefit from France's new subsidy mechanism for solar power, introduced in May, under which they will receive a premium on top of the market price for the power they generate, which will guarantee a level of revenue to cover the investment.

    Projects will be selected based on price and carbon footprint, the ministry said. Cooperative projects run by groups of citizens will receive an additional premium.

    In April, the government set a target to boost France's relatively small solar capacity from the current 6,700 MW to 10,200 MW by end 2018 and 18,200 to 20,200 MW by 2023.
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    Base Metals

    Glencore delays resumption of Katanga production to early 2018

    Mining and trading giant Glencore Plc will delay resuming production at its Katanga Mining unit to early 2018 due to stubbornly low copper prices, Chief Executive Ivan Glasenberg said on Wednesday.

    Katanga announced an 18-month suspension of operations last September at the mine, which accounted for about 15 percent of Democratic Republic of Congo's copper production in 2014.

    The company said in June that progress on $880 million in upgrades aimed at cutting costs was on track. However, Glasenberg said in a call with analysts that Glencore was in no rush to add to already oversupplied global markets.

    Congo's mines minister Martin Kabwelulu told Reuters that Glencore's announcement was made without consulting the government and "will lead the government to ask Glencore for explanations".

    The suspension and other cuts in Congo's mining sector due to low prices have cost more than 13,000 jobs since last year in Africa's top copper producer and caused output of the metal to fall 14 percent in the first half of this year.

    Mining and the smaller oil industry account for some 95 percent of Congo's export earnings. The government slashed its 2016 budget by 22 percent in June and has cut its annual growth forecast from 9 percent to 4.3 percent.
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    Think zinc: miners bet big on revival in key base metal market

    Resource companies are racing to dig zinc mines, betting that markets for the metal used to rust-proof steel and protect noses from sunburn have finally turned after a decade in the doldrums.

    A supply glut is evaporating as big zinc mines run dry, commodity analysts say, helping drive up prices by nearly half this year and triggering investments in new and long-dormant projects from Greenland to Africa.

    "There is a sense of urgency that the zinc price will continue to appreciate in coming years and we want to startconstruction as soon as possible to take advantage of that," said Simon Smith, finance manager of Heron Resources, which is spending A$190-million to return a landfill site inAustralia to its former life as a zinc mine.

    The global supply pool has been contracting as reserves are exhausted at huge mines in Australia, Canada and Ireland, while other major producing nations such as Peru have seen output drop as richer ores are mined out.

    Macquarie Bank calculates that global supply has plunged by as much as 14.5% in the first half of 2016 alone.

    "There is no doubt the supply side of this market is declining and supporting the case for new mines," said commodities analyst Daniel Morgan of UBS, adding that companies that buy zinc to refine had become "panicky" about supply.

    Not everybody is sure zinc prices will keep going up.

    Analysts at Capital Economics caution that zinc's upcycle could be clipped, if, as it predicts, Chinese steel prices weaken again in the second half of the year, reducing demand in the biggest consumer of the base metal.

    And investment bank Liberum warns that high prices may tempt China's miners to dig more metal, leaving little room for further upward price moves.

    Chinese zinc output has been running around 1.3-million tonnes below its 2014 peak, with local media reports that mines have been shuttered as part of a government crackdown on pollution.

    Miners remain optimistic on the long-term outlook for prices, however.
    "We were looking very hard for zinc, which is offering some of the greatest opportunities for growth, and wanted to move quickly," said Craig Mackay, MD at Golden Rim Resources.

    Golden Rim last month paid $2.29-million for the Paguanta zinc project, a 40-mile expanse of exploration ground nearChile's border with Bolivia.

    Andrew Michelmore, CE of China's MMG, said the company was digging a new mine in Australia costing $1.5-billion, with up to $550-million in loans from China Development Bank Corp and Bank of China.

    "The supply crunch has finally come," he said, adding that few opportunities exist to acquire operating zinc mines anywhere in the world.

    "Most of our focus is: how do we find it ourselves?"

    After years of exploring for copper in Mongolia, Ivanhoe Mines chairperson Robert Friedland wants to restart the long-dormant Kipushi zinc mine in the Democratic Republic of Congo.

    "We believe that market conditions are ideal as we evaluate the available options to return Kipushi to production," Friedland said in a statement announcing the prospect of restarting the mine at a cost of $409-million.

    Meanwhile, Jonathan Downes, CE of Australia's Ironbark Zinc, said he is closer than ever to developing a mine inGreenland discovered 23 years ago.

    China Non Ferrous (NFC) has already agreed to construct the mine and provide 70% of the debt funding in exchange for 30% of the zinc.

    Separately, Ironbark has entered into a $50-million funding and supply arrangement with mining giant Glencore, its biggest shareholder.

    "With zinc inventories down and the price up, our stars are starting to align," Downes said.
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    Japanese aluminium premiums fall ahead of Q4 talks as keen sellers emerge

    S&P Global Platts assessed spot premiums for aluminium imports into Japan at $66-$74/mt plus LME cash CIF Japan Wednesday, down from $76-$77/mt plus LME cash CIF Tuesday, as keen sellers emerged ahead of fourth quarter premium negotiations.

    An international trader has offered $75/mt plus LME cash CIF Japan for October and received counterbids at $65/mt plus LME cash CIF Japan, with no deals done due to the gap.

    A Japanese trader confirmed having received the offer at $75/mt, which was for 99.7% minimum aluminum, 0.2% maximum iron and 0.1% maximum silicon guaranteed metal of origins excluding Brazil, Venezuela, Russia, India, Iran and Egypt.

    Other traders and producers who do not usually participate in quarterly contract premium negotiations have started to discuss Q4 with potential buyers.

    Related blog: What the ‘MJPexit’ debate implies in the aluminium market

    Buyers have asked for $65/mt plus LME cash CIF Japan for Q4, down 29% from $90-$93/mt for Q3, said two traders. One trader said there was also a bid at $60/mt plus LME cash CIF Japan for Q4.

    After holding discussions with potential buyers, one producer said he would wait for Q4 settlements to be agreed between major global producers and Japanese buyers.

    Another producer was asking for premium ideas from Japanese buyers for Q4 but had not returned with a firm offer, said a Japanese consumer.

    Japan's aluminum stocks at three main port warehouses have fallen to a near two-year low of 305,900 mt, according to trading house Marubeni.

    But there were also stocks in South Korea's Busan warehouses, exceeding their annual consumption, sources said.

    Busan stocks stood at 159,300 mt at LME-approved warehouses this week and there may be larger volumes outside LME warehouses where monthly rents were cheaper, sources said.

    The cost of bringing metal to Japan from South Korea is in the range of $20-$100/mt depending on shipping arrangements, sources said.

    Those who are able to secure transport at $20-$25/mt take the opportunity to ship the metal to Japan, trade and Japanese consumer sources said.

    Rising Libor interest rates are adding to pressure to sell, a trader said.

    Major global producers have not released their offers for Q4 premiums.

    Japanese buyers said one producer may announce his Q4 offer on Friday, and other producers next week. --Mayumi Watanabe
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    Aluminium giant Rusal expects tough second half of year

    Russian aluminium giant Rusal on Thursday reported a nearly 40-percent drop in second-quarter core earnings due to weak aluminium prices, slightly better than analysts feared, and warned the second half of the year would remain tough.

    The company said it was focused on cutting debt to help weather tough markets and would continue to step up sales of value-added products, which it said made up nearly half its sales in the first half of 2016.

    "Looking forward to the second half of the year, we believe that the aluminium industry will remain under pressure," Chief Executive Vladislav Soloviev said in a statement.

    Rusal expects global aluminium demand to rise by 5.4 percent to 59.5 million tonnes in 2016, helped by housing and automotive growth.

    That, combined with slower growth in aluminium production and falling Chinese exports of aluminium semi-finished products, would result in a global aluminium deficit of about 1 million tonnes in 2016, it said.

    Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $344 million for the three months to June from $568 million a year earlier. However, the result was up 10 percent from the first quarter.

    Six analysts on average had predicted adjusted EBITDA of $336 million.

    Aluminium prices have risen about 11 percent since the start of 2016, but remain weak.

    Net debt was trimmed slightly by June to $8.33 billion from six months earlier.

    Rusal said its debt profile was helped by its recent agreement to sell its Alpart alumina refinery in Jamaica to China's state-owned Jiuquan Iron & Steel Group for $299 million.

    "The deal further strengthened Rusal's relationship with our Chinese partners, which is expected to open new opportunities for future cooperation in other areas," the company said.
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    Steel, Iron Ore and Coal

    Shenhua Shendong realizes profit of 3.5 bln yuan in H1

    Shenhua Shendong coal group Co., Ltd, a backbone company of China Shenhua Energy Co., Ltd, realized profit of 3.5 billion yuan ($526.16 million) in the first half of the year, exceeding its annual target for 2016, sources learned from the company’s website on August 24.

    It was benefited from the company's measures of cutting costs and enhancing quality of coal, coupled with its strict implementation of 276-workday regulation since April this year.

    "An increase of 100 Kcal/kg in the calorific value of coal will bring 7 yuan of profit, and what we have done is just enhance its calorific value," said Dong Zhichao, head of a coal mine of the group.

    Besides, the company has taken measures to cut the mining costs to 150 yuan/t or so, the lowest across the country.

    Attached Files
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    China hopes Shanghai clean coal plant sets example

    A Shanghai coal-fired power plant is being championed as a model for the rest of China to emulate, as a result of the efficiencies created through its design.

    New Scientist reports that a Chinese engineer has re-engineered the Shanghai-Waigaoqiao No. 3 Power Plant to make it one of the world’s most efficient – and a potential model for the country’s coal-burning future.

    While the Beijing government is working hard to incorporate more renewables into the energy mix, China still has a large dependency on coal, as oil and gas reserves are limited.

    Feng Weizhong, general manager of the state-run plant, has overseen the introduction of technology which have enabled the plant to mill coal, generate electricity and remove sulphur compounds from its gas stream more efficiently.

    Feng’s supporters say that he achieved his efficiency gains in Shanghai by designing site-specific, cost-effective solutions for each component of the plant.

    The plant burns 276 grams of coal per kilowatt-hour, compared with China’s national average of 315 grams per kilowatt-hour

    The plant supplies about 8 per cent of the megacity’s power and is in one of the country’s largest power-generating complexes.

    Mao Jianxiong, an energy expert at Beijing’s Tsinghua University who has consulted at the plant told New Scientist that Feng is currently working on a plant prototype that promises even greater gains.

    Feng is designing a plant that he says will have as its signature feature a system that more efficiently transfers steam between the boiler and turbine and reduces the need for expensive steel piping.

    Mao says the new plant, in the eastern province of Anhui, will burn 251 grams per kilowatt-hour. If all China’s coal-fired plants were that efficient, the country would reduce its annual carbon dioxide emissions by some 7 per cent, he says.

    The coal lobby, including the World Coal Association, has consistently warned that coal will continue to dominate the energy mix in much of the developed world and called for investment in clean coal technology as a means of reducing the emissions that are inevitable in that scenario.
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    China's most polluted province lags behind on plan to cut steel capacity

    China's northern Hebei, which accounts for a quarter of China's steel output, is lagging far behind in its plan to reduce steel and iron producing capacity, data released by the provincial state planner showed on Wednesday.

    Seven major iron and steel producers have cut their capacity by 3.18 million tonnes in the first seven months of the year by turning off six plants, but this accounts for only 10 percent of the target for capacity cuts set by the government.

    The disappointing data from the Hebei Development and Reform Commission showed the difficulties that China faces trying to reduce excess capacity across several industrial sectors.

    It comes just a month after state media said the heavily polluted province, which surrounds China's capital Beijing, pledged to close more than 31 million tonnes of combined iron and steel production capacity in 2016.

    Officials from nation's state planner said on Aug. 19 that the government had allotted 30.7 billion yuan ($4.62 billion) to implement the capacity cuts in steel and coal, but cuts across the world's top steel producing nation are also behind national targets.

    The Hebei authorities did not give further details on the plan, saying the data was published as required by the central government.
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    Mounting losses, delisting drive Chongqing Steel out of steel sector

    China's debt-ridden Chongqing Iron and Steel is drawing up radical restructuring plans that will see the firm exit the steel industry and shift its focus to more lucrative sectors like finance, it said on Thursday.

    In a notice filed to the Shanghai stock exchange, Chongqing Steel blamed the downturn in the economy, severe industrial overcapacity, soaring labour costs and persistently low steel prices for its predicament.

    "In order to fundamentally improve the listed firm's performance and protect the interests of medium- and small-sized investors, the plan is to remove the company's steel-related assets," the firm said.

    It said it would sell its steel assets to the Yufu Group, an entity run by the local Chongqing city government. It then aims to acquire high-quality assets in the financial and industrial investment sectors from the group. The plans have not yet been finalised.

    The firm suffered net losses of almost 6 billion yuan ($901.47 million) in 2015 and nearly a billion yuan in the first quarter of 2016. Its shares in Shanghai have been suspended since June.

    After borrowing billions of yuan to expand production, China's steel firms are struggling with heavy debts and persistent losses. The country is now aiming to bring capacity down by 140 million tonnes over the 2016 to 2020 period, and will target non-competitive and obsolete assets.

    According to government estimates, China has 1.13 billion tonnes of crude steel capacity, more than 300 million tonnes higher than total output last year.

    The listed unit of the Valin Iron and Steel Group , based in central China's Hunan province, is also planning to swap its steel assets for more lucrative finance and clean energy operations to avoid being delisted.

    China's second biggest steelmaker, the Baoshan Iron and Steel Group, was mulling a similar restructuring plan for its loss-making unit SGIS Songshan, but the plan has been shelved.

    The government is setting up dedicated asset management firms for the steel and coal sectors to help shut capacity and handle the closure of "zombie enterprises" - those that would not survive without loans or government support.

    The State-Owned Assets Supervision and Administration Commission is also encouraging government-run enterprises that are not specialist steel or coal producers to withdraw completely from the two sectors.

    According to a recent study by Renmin University, 51.4 percent of China's listed steel firms could be defined as zombie enterprises because they have been unable to pay back debts.
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