Mark Latham Commodity Equity Intelligence Service

Friday 11th December 2015
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    China to lower on-grid thermal power tariffs by 0.03 yuan/KWh

    China’s State Council has approved the proposal submitted by relevant department to lower on-grid thermal power tariffs, sources reported, citing sources familiar with the matter.

    The cut across the country may be 0.03 yuan/KWh ($0.0047/KWh) on average, starting from January 1, 2016, China Time reported on December 7, in accordance with the coal-power linkage mechanism.

    If implemented, it would dent profit of thermal power generating companies, with estimated profit decrease of 125.1 billion yuan, based on the thermal power output of 4,170 TWh in 2014.

    The nation’s five top generators of the country – Huaneng, Datang, Huadian, Guodian, and China Power Investment -- may see their profit reduce more than 50 billion yuan, one senior official with one of the companies was cited as saying.

    The tariff cut reflected the decline in coal prices under a coal-power price linkage mechanism, under which the on-grid power tariffs would be adjusted if coal prices fluctuate more than 5% in a period of one year, according to a document released by the State Council on December 25, 2012.

    Local governments strongly recommended cutting on-grid power tariffs, in order to ease financial pressure of enterprises, following a slump in coal prices.

    China’s four major listed coal-fired power generators – State Power Corp., Datang, Huaneng and Huadian – all posted decline in revenue in the first three quarters of the year, mainly due to the drop of power output and the cut of on-grid power tariffs from the second quarter.
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    McKinsey Says Saudi Arabia Can't Wait for World to Get Better

    Saudi Arabia can’t afford to wait for oil prices to recover and needs to accelerate economic measures to avoid rising unemployment, deficits and debt, McKinsey & Co. Inc. said in a report released Thursday.

    The country requires public and private investments of as much as $4 trillion as part of a strategy to boost productivity and create jobs, the report said. Based on current trends, Saudi Arabia “could face a rapid economic deterioration over the next 15 years.” Even a public spending freeze and halt to hiring foreign workers would still leave the country facing falling household incomes, rising unemployment and weakening finances.

    “This is a call to dramatically accelerate reforms which ultimately will provide a more sustainable future,” Jonathan Woetzel, a McKinsey Global Institute director and main author of the report said by phone. “Waiting for the world to get better is not an option.”

    A slump in crude prices, the government’s main source of revenue, is pushing the world’s biggest oil exporter into its first deficit since 2009 and its foreign reserves to a three year low. The International Monetary Fund predicts that Saudi’s savings, $640 billion at the end of October, would run out after five-years under current spending policies. In response, the government is planning to cut spending on infrastructure projects, and tapping debt markets to fund the deficit.

    The bulk of the $4 trillion in investments needed would come from the private sector and should focus on mining and metals, petrochemicals, manufacturing, retail, tourism, healthcare, finance and construction, according to McKinsey. If this level of investment were achieved the country could double the size of its economy and create six million new jobs by 2030.

    Failure to make progress on productivity-boosting measures would lead to the government’s finances “deteriorating sharply,” according to the report. Reserves would drop and public debt could reach as much as 140 percent of GDP.

    “Even freezing spending would still mean burning through its reserves at a rapid pace and lead to the a decline in average incomes,” Woetzel said.
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    Glencore increases debt reduction targets

    Glencore has increased its planned target of reducing debt and preserving capital to the tune of $13bn (£8.6bn).

    It follows the FTSE 100 mining company’s debt reduction initiatives announced in September, which included a target of $10.2bn.

    In a trading update issued Thursday, it said it has already locked in $8.7bn of its target.

    It is also planning to bring net debt down to between $18bn and $19bn, with the previous target being in the low $20bns, as well as cutting capital expenditure to $5.7bn this year and $3.8bn next year, down from $6bn and $5bn respectively.

    Glencore also noted that it has more than $2bn of free cash flow at spot prices and will remain comfortably free cash flow positive at materially lower price levels.

    Current liquidity increased to over $14bn and will be further enhanced as its debt reduction plan is delivered.

    Chief executive Ivan Glasenberg said its showed “significant delivery” on the objectives announced just over three months ago.

    "Glencore is well placed to continue to be cash generative in the current environment - and at even lower prices.

    “We retain a high degree of flexibility and will continue to review the need to act further as required."

    Glencore said it is still generating free cash flow of more than $US2 billion at current spot prices and said it would further reduce capital expenditure this year and next. Meanwhile its trading division is on track to generate adjusted earnings before interest and taxes of $US2.5 billion, at the bottom end of its previously revised guidance of between $US2.5 billion and $US2.6 billion. 

    In a sign of the tough times ahead, the miner said it expects the trading division to generate another year of subpar profit. The "marketing" division is now forecast to generate between $US2.4 billion and $US2.7 billion in adjusted Ebit next year due to lower working capital levels and reduced copper, zinc, lead and coal volume. 

    This stands in contrast Mr Glasenberg's comments earlier this year that the trading division would make between $US2.7 billion and $US3.7 billion in annual profit "no matter what commodities are doing." 

    - See more at:

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    China-Australia FTA benefits set to flow from Dec 20

    The substantial benefits secured through the historic China Australia Free Trade Agreement  are set to start flowing from December 20, Australia’s Minister for Trade and Investment Andrew Robb announced.

    This follows a critical ‘exchange of notes’ in Sydney between Australia’s Ambassador-designate to China Jan Adams and Chinese Ambassador Ma Zhaoxu which formally confirms that both Australia and China have now fulfilled their respective domestic requirements to enable ChAFTA to enter into force.

    "This will deliver a very material early harvest for our exporters in the form of two rounds of annual tariff cuts in quick succession. The first round of tariff cuts will occur on December 20 followed by a second round on January 1 2016," Mr. Robb said.

    On entry into force, more than 86% of Australia’s goods exports to China (worth more than $86 billion in 2014) will enter duty free, rising to 96% when the ChAFTA is fully implemented.

    Upon implementation, China would scrap the existing 3% import tariff on coking coal, and lower the current 6% import tariff on thermal coal to 4%, and gradually reduce to zero in 2017.

    Meanwhile, tariffs on imported anthracite, other coal, briquette and lignite will be reduced to zero.

    Analysts said Chinese importers would benefit more from tariff cut on Australian coking coal than its thermal coal, as tariff cut of coking coal is bigger than that of thermal coal, and half of China’s imported coking coal comes from Australia, higher than the 33% share of Australian thermal coal (including lignite).

    Customs data showed China imported 21.23 million tonnes of coking coal from Australia over January-October, down 11.8% on year, accounting for 53.8% of China’s total coking coal imports.

    One southern utility source said experience showed the cut in tariff would result in an increment of Australian coal FOB prices. This could lead to cautious buying by Chinese importers for Australian material.

    Presently, Australian suppliers offered 5,500 Kcal/kg NAR thermal coal at $37-38/t FOB.

    Australian thermal coal sold into the Chinese market has been on the downward trajectory for nearly two years, impacted by a supply glut and weakening demand as the Chinese economy slowed.
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    Freeport suspends dividend, reduces spending plans

    Diversified U.S. miner and oil producer Freeport-McMoRan Inc said it had suspended its annual dividend of 20 cents per share to save cash amid a slump in commodity prices.

    The dividend suspension is expected to result in annual cost savings of about $240 million and enhance its liquidity, the company said on Wednesday.

    Freeport, under pressure from activist investor Carl Icahn, further reduced its capital spending plans for 2016 and 2017 on Wednesday.

    The company also said it was looking at other financing alternatives, including a potential sale of minority interests in certain mining assets.

    Freeport cut 2016 capital expenditure budget for its oil and gas operations by 10 percent to $1.8 billion, and slashed its 2017 budget by 40 percent to $1.2 billion.

    The company, in October, said it will add two new directors to its board under an agreement with Carl Icahn. Icahn owned 8.8 percent of Freeport as of Sept. 22.

    Shares of the miner, which were up marginally at $6.87 in premarket trade, have fallen 71 percent this year. They closed at $6.74 on the New York Stock Exchange on Tuesday.

    Read more at Reuters
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    China Said to Form State-Owned Fund to Deal With Mining Debt

    China’s government is said to be setting up a state-owned fund to absorb bad debt in the mining sector, including loans owed by China Minmetals Corp., as the fallout from a price collapse batters the global commodities industry.

    The investment company would be established by the State-Owned Assets Supervision and Administration Commission to coordinate the country’s investment in mineral resources, according to people with knowledge of the matter. The unit would take on some existing debt from the mining industry, said the people said, asking not to be identified because they’re not authorized to speak publicly.

    The world’s biggest mining and commodities firms are reeling as prices of everything from oil to steel and copper collapse to multi-year lows. In the latest sign of pain for the industry, miner Anglo American Plc on Tuesday announced a sweeping response to the rout including asset sales, mine closures, and job cuts. A slowdown in China’s economic growth is slowing demand for raw materials.

    Minmetals, the country’s biggest metals trader, has more than 60 billion yuan ($9.3 billion) of outstanding debt, according to three of the people. At least some of this debt would be absorbed by the new government-backed investment company, they said. Minmetals runs mines including deposits in Peru and Australia via its 74 percent stake in the Hong Kong-listed MMG Ltd.

    The plans for a restructuring of mining debt in the sector come after an announcement by SASAC on Tuesday that Minmetals would take over one of China’s biggest state engineering groups, China Metallurgical Corp. Calls to a Beijing-based spokesman for SASAC were unanswered. A spokesman for Minmetals in Beijing said he couldn’t immediately comment.
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    Factory of the future: German robots to make first Adidas running shoes in 2016

    A German factory operated largely by robots will make its first 500 pairs of running shoes for Adidas early next year as the sportswear company seeks to cut labor costs and speed up delivery to fashion-conscious consumers.

    Founded by German cobbler Adi Dassler in 1949, Adidas has shifted most of its production from Europe to Asia and now relies on more than 1 million workers in contract factories, particularly in China and Vietnam.

    But Adidas now wants to bring production back closer to its major markets to meet demands for faster delivery of new styles and to counter rising wages in Asia and higher shipping costs

    The new "Speedfactory" in the southern town of Ansbach near its Bavarian headquarters will start production in the first half of 2016 of a robot-made running shoe that combines a machine-knitted upper and springy "Boost" sole made from a bubble-filled polyurethane foam developed by BASF.

    "An automated, decentralized and flexible manufacturing process... opens doors for us to be much closer to the market and to where our consumer is," said Chief Executive Herbert Hainer.

    Larger rival Nike is also investing heavily in new manufacturing methods. But it has not yet put a date on when it expects that to result in more U.S.-based production.

    Adidas plans high volume production in the near future and will establish a global network of similar factories, although it expects them to complement existing suppliers rather than replace them as it seeks to keep growing fast.

    "This is on top. It is a separate business model," Gerd Manz, head of technology innovation at Adidas, told journalists.

    Adidas currently makes about 600 million pairs of shoes and items of clothing and accessories a year. It plans to grow sales by almost half again by 2020.

    The new factory will still use humans for parts of the assembly process, around 10 people will be on the ground for testing purposes during the pilot phase, but Adidas is working towards full automation.


    Manz said 74 percent of Adidas sales currently come from products newer than one year old and that figure is rising.

    "Our consumers become more challenging and demanding," he said. "Customization to markets and individuals will become the norm."

    The ultimate objective would be to get replicas of red shoes worn by rapper-turned-designer Kanye West at a concert into the store the following morning, he said.

    The next stage of the project will be to develop machines that can produce custom-made shoes in its stores with the same kind of attention to personal requirements as Adidas currently offers top athletes like soccer player Lionel Messi.

    Manz said Adidas is not trying to replicate existing models, but to create new products as it experiments with technologies to color its shoes and new methods to join sole to upper.

    Adidas is also seeking to find ways to remove machine tools from the manufacturing process as they can take weeks to prepare. It has already used 3-D printing to create futuristic-looking soles made from webs of criss-crossed fibers.

    Adidas signed a deal in October with German engineering group Manz to develop new automated production technology and work on full digitalization, from design to manufacturing.

    Adidas's other partners in the project include Johnson Controls, robotic assembly expert KSL Keilmann and scientists from the Technical University of Munich and the University of Aachen.

    Read more at Reuters

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    Anglo’s shadow hangs over Glencore investor day as shorts circle

    Short sellers sensed something was amiss at Anglo American this month, pushing bearish bets against the miner to a record high on the eve of yesterday’s investor meeting. It paid off when the stock plunged 12% after announcing a dividend cut.

    Are they on to something at Glencore too? Short interest has been rising ahead of the Swiss company’s shareholder day tomorrow, climbing to a two-year high of 5.3% of shares outstanding, according to Markit.

    A multitude of concerns could be driving the bets. Combined with a 27% plunge in copper this year, Glencore’s debt burden is putting pressure on chief executive officer Ivan Glasenberg to deliver on a $10 billion debt-cutting plan. At the meeting, executives are expected discuss measures to achieve that goal.

    “It’s the interaction between the low commodity-price environment and the debt on the balance sheet,” said Tyler Broda, an analyst at RBC Capital Markets in London. “It definitely adds to the challenges facing management at the moment because the overall environment remains negative.”

    Broda isn’t a bear. He suggests buying Glencore shares before tomorrow’s meeting in anticipation of asset sales and operational improvements. Still, he says, weak commodity prices will continue to cloud the longer term.

    Shorts are probably using Glencore as a proxy to play the slump in copper and coal prices, says Marc Elliott, the mining analyst at Investec whose bearish research spurred a record drop in the shares in September. Still, any good news out of tomorrow’s meeting and those bets might go the wrong way.

    “Typically, they present a good story on their investor updates,” Elliott said in an interview. “Going short ahead of the investor day is quite a risky call.”

    Compared to peers with high short interest, Glencore’s isn’t that high. That might be because getting hold of stock to short can be difficult — five of the company’s eight largest shareholders are directors. Wm Morrison Supermarkets and J Sainsbury are the most shorted companies in Britain’s FTSE 100 Index, with more than 17% of shares outstanding.

    Glencore’s debt is adding to price slump woes. It’s the biggest in the industry at $30 billion, and it’s also among the most expensive to insure in Europe, according to data from S&P Capital IQ. Anglo’s debt — at about $12 billion — is the next riskiest to insure.
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    Bitcoin breaking out? China?

    After trading in a very narrow $1 range for hours, Bitcoin suddenly exploded $17 higher on very heavy volume. Normally this wouldn't warrant an explicit mention, but this time... something odd happened in Chinese currency markets...

    Offshore Yuan suddenly snapped 12 pips lower after noise trading in a 1 pip range for hours... just as Bitcoin spiked...


    Image titleOn heavy volume...

    Image titleBoth moves signal a move away from the USDollar with Bitcoin and Yuan strengthening.

    The last time Bitcoin spiked notably like this was at the start of theChinese crackdown on capital controls.

    But... with the spread between Offshore and Onshore Yuan (the former dramatically weaker than the latter), it appears the market is expecting a devaluation sooner rather than later...

    Perhaps, just perhaps, that is what Bitcoin is 'hinting' at. For sure, a Yuan devaluation now would be enough to spook global markets once again, and force The Fed to put a rate hike on hold... only this time, everyone and their pet rabbit is neck-deep in "priced in" liftoff expectations.


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    Brazil's Congress names impeachment panel stacked against Rousseff

    The lower house of Brazil's Congress voted on Tuesday to appoint a committee stacked with opponents of President Dilma Rousseff to study whether to impeach her for breaking budget rules, in a blow to the leftist leader battling for political survival.

    By secret ballot, lawmakers voted 272-199 for a list of committee members drawn up by the opposition and pro-impeachment members of the centrist Brazilian Democratic Movement Party (PMDB), the biggest party in Rousseff's governing coalition.

    It was a clear defeat for Rousseff in the first battle of an impeachment process started last week, which threatens to paralyze Congress for months, distracting policymakers from Brazil's worst recession in decades.

    Controversy over the vote descended into chaos on the floor of the house, as lawmakers outraged by the secret ballot smashed an electronic voting urn, while pro-impeachment parties waved a flag in celebration of the win.

    Rousseff's supporters in Congress appealed to the Supreme Court in protest of the voting procedure. Several newspapers reported near midnight local time that a Supreme Court justice had suspended impeachment proceedings for a week. Court representatives could not be reached immediately for comment.

    The vote was a slap in the face for the leader of the PMDB party in the lower house, Leonardo Picciani, who has backed Rousseff since she appointed two ministers from his wing of the party to secure support and fend off impeachment.

    Picciani's embarrassment in the high-profile secret vote underscored the deep divisions within his party, which has veered away from the government in recent months as the economy plunges and a vast corruption scandal rattles the capital.

    The sweeping investigation into bribery at state-run oil company Petroleo Brasileiro SA threatened to further strain Rousseff's fragile coalition on Tuesday, as a veteran lawmaker in jail was reported to have decided to negotiate a plea bargain.

    Senator Delcídio do Amaral, Rousseff's point man on economic affairs, hired a lawyer to write up a plea deal, reported the websites of newspaper Folha de Sao Paulo and news magazine Veja, without saying how they got the information.

    Amaral and billionaire Andre Esteves, the former controlling shareholder and chief executive of investment bank BTG Pactual SA, were arrested last month and accused of obstructing the probe into the oil giant known as Petrobras.

    House Speaker Eduardo Cunha, who has been charged with corruption and money laundering in the Petrobras probe, outflanked Rousseff's allies with Tuesday's secret vote and postponed an ethics hearing into his activities for another day.

    Amaral, Esteves and Cunha have denied any wrongdoing. Lawyers for Amaral could not immediately be reached following the reports of a plea deal.


    While the result was hard blow for Rousseff, the fact that 199 lawmakers voted for the pro-government list was a sign that she may still have the more than one-third of support needed to block an eventual impeachment vote before the full house.

    "The result shows that the government is in a delicate situation," the political consultancy Arko said in a note to clients.

    The committee, whose final members should be named on Wednesday, will have the task of reporting on whether Rousseff committed an impeachable offense.

    Opponents who filed the impeachment request that set the process in motion accuse her of breaking budget rules to boost spending during her re-election campaign last year. Rousseff has denied any taking any illegal measures.

    If the committee finds an offense was committed, the process will go to a full vote on the house floor. The opposition needs two-thirds of the votes to begin a 180-day impeachment trial in the Senate. During that trial the president would be suspended and replaced by her vice president, Michel Temer of the PMDB.

    Speculation mounted on Tuesday that Temer was preparing for that scenario after publication of a letter he sent Rousseff on Monday complaining that she had sidelined him and his party in her government.

    Read more at Reuters

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    Dow Chemical and DuPont in merger talks: sources

    Dow Chemical Co and DuPont are in talks to merge, creating a chemicals giant with a market value of more than $120 billion that could then break up into different businesses, people familiar with the matter said on Tuesday.

    A deal, which would face regulatory approval in several countries, would allow the two U.S. companies to rejig their assets based on their diverging fortunes. Their plastics and specialty chemical businesses have benefited from lower energy costs, while their agrochemicals divisions have struggled to cope with weak demand for crop protection products.

    Following what would be structured as a merger of equals, the combined company could split into material sciences, specialty products and agrochemicals, the people said, cautioning that the plans have not been finalized.

    Dow's Chief Executive, Andrew Liveris, and DuPont Chief Executive Edward Breen would have the two top jobs in the combined company, one of the people said. An agreement could be reached in the coming days, that person added.

    Dow and DuPont declined to comment. The Wall Street Journal first reported on the merger talks earlier on Tuesday.

    The possible merger of the companies may see cost synergies to the tune of $3 billion, CNBC said citing people familiar with the matter.

    As of Tuesday's trading close, Dow had a market valuation of $58.97 billion, while DuPont (DD.N) was valued at $58.37 billion.

    DuPont, under Breen, who took over as CEO last month, had already been in talks with rivals, including Dow, about exploring options about its agriculture business.

    Dow had also been reviewing all options for its farm chemicals and seeds unit, which has reported falling sales for nearly a year.

    In August, the world's largest seed company, Monsanto (MON.N), abandoned a $45 billion bid for rival Syngenta (SYNN.VX) as declining grain prices and farm income led to the major players in the farm chemicals and seeds business becoming the subject of consolidation talks.

    The current chief of DuPont, Edward Breen, was appointed CEO last month after his predecessor and company veteran Ellen Kullman, resigned abruptly in October. Breen, who was the CEO of Tyco between 2002 and 2012, and is best known as a turnaround expert, split Tyco into six companies, a sprawling conglomerate beset by scandal and strategic flipflops.

    DuPont, which gets about 60 percent of its sales from outside North America, has seen a strong dollar chip away 53 cents per share from its earnings this year. The company has been facing sliding sales for nearly two years.

    Kullman had blamed much of the stock price drop on global markets including a rising dollar but some investors had already grown restless with her leadership, complaining that she was not fully executing on the changes she initiated.

    In the intervening period in May, when Kullman was fending off a proxy battle from activist investor Nelson Peltz to get representation on the board, the company's stock price fell over 25 percent, weakening her support among investors.

    In analyst views, the appointment of Breen has been welcomed by Peltz, who has been pushing for DuPont to separate its volatile materials businesses from more stable businesses and save $2 billion to $4 billion in annual costs.

    A 213-year-old company, DuPont makes products and chemicals that go into industries such as petrochemicals, pharmaceuticals, food and construction.

    Read more at Reuters
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    Latest Glencore 5-yr CDS 860bps (+90bps)

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    Minmetals takes over MCC as Beijing reforms state-run firms

    China's consolidation drive took aim at the mining sector on Tuesday with China Minmetals Corp to take over equipment maker China Metallurgical Group Corp.

    Minmetals is China's biggest steel and base metals trader with revenue of more than $50 billion last year.

    It owns a major stake in Hong Kong-listed, Australia-based MMG Ltd, an operator of copper and zinc mines in Australia, Africa and Laos.

    It will take over China Metallurgical Group Corp, known as MCC, which builds and designs mining and plant equipment and had revenue of more than $33 billion in 2014.

    The merger marks one of the largest in China's metals sector as Beijing looks to overhaul state-owned enterprises (SOEs) in sectors including steel, coal and oil.

    It comes as global miners grapple with a downturn in demand and a year-long rout in metals prices.

    China's SOEs are dominated by just over 100 central government-owned conglomerates overseen by the Assets Supervision and Administration Commission (SASAC).

    Overhaul steps are expected to cut that number to around 40, according to media reports.

    SASAC announced the mining merger but gave no further details of the transaction.

    Read more at Reuters
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    Anglo American to sell more assets and suspend dividends

    Anglo American will sell more assets, suspend dividends until the end of 2016 and whittle down its business divisions to three from six in the face of severe commodity price falls, the mining company said on Tuesday.

    Anglo said it would cut its assets by 60 percent, reduce its workforce to 50,000 from 135,000 and form three divisions: De Beers for diamonds, Industrial Metals for platinum and base metals and Bulk Commodities for coal and iron ore.

    The London-listed company aims to raise $4 billion through assets sales, up from an earlier target of $3 billion, and said it would press ahead with the sale of its Phosphates and Niobium businesses in 2016.

    "While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action," Chief Executive Officer Mark Cutifani said.

    The rout in commodity prices is putting pressure on credit ratings and dividends across the mining sector, prompting reductions in capital expenditure, operational costs and jobs.

    The fifth-biggest diversified global mining group by market value, Anglo is grappling with sliding commodity prices including iron ore, platinum and diamonds.

    Anglo's share price has fallen 70 percent so far this year as investors worry about the slow pace of turnaround efforts launched by Cutifani in 2013.

    So far, Anglo said it had secured $2 billion in assets sales.

    Anglo also suspended dividends for the remainder of 2015 and in 2016.

    "Upon resumption, (our dividend) policy will change to pay-out ratio to provide flexibility through the cycle and clarity for shareholders," Cutifani said, abandoning the company's progressive dividend policy under which the payout rises, or is at least maintained.

    Mining and trading giant Glencore has also suspended dividends and is selling assets to cut its debt and regain the trust of investors after its shares hit record lows.

    Read more at Reuters
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    Chinese trade data signal weaker demand

    Investors are concerned about the lack of Chinese demand which is acting as a millstone around the neck of risky assets and most investors will stay away until they see a clearer direction on rates,” said Cliff Tan, east Asian head of global markets at Bank of Tokyo-Mitsubishi UFJ in Hong Kong.

    Data showed on Tuesday that China’s exports fell by a more-than-expected 6.8% in November from a year earlier, their fifth straight month of decline. Imports fell 8.7%, which was not as much as expected but enough to signal continued weak demand from the world’s second biggest economy.

    Analysts were unsure if the numbers signalled a possible improvement in Chinese domestic demand, which has been a key factor in driving world commodity prices to multi-year lows.

    “The big picture hasn’t really changed that much. The US is doing okay, but the problems with emerging markets are really quite big,” said Kevin Lai, chief economist Asia Ex-Japan at Daiwa Capital Markets in Hong Kong.

    “Imports have been slumping for more than a year now, so the year-on-year figures are benefiting from a much lower base, which statistically we should expect. But I’m not so sure the number today reflects a real fundamental change for the better in import demand.”

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    China: On strike!

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    Enter the NYT which overnight reported that "China Arrests at Least 3 Workers’ Rights Leaders Amid Rising Unrest" in which it says that "police in southern China have arrested at least three workers’ rights leaders in recent days, labor groups and activists said on Saturday. The detentions come amid rising labor unrest in southern China, one of the world’s most important manufacturing centers, and are prompting concern that the Communist Party is extending its latest crackdown on civil society to a new arena."

    Precisely as we said would happen, the rising labor discontent is forcing the government to retaliate. Only this time the Chinese government is hopeless: if and when the angry workers, several hundred million of them, decide to take their anger out on their communist rulers, not all the arrests in the world, not even the full mobilization of the PLA, will do anything to stem this unprecedented tide of bodies which, simply due to its vast numbers, is practically unstoppable.

    The rest of the story is self-explanatory: during the good times, everyone was happy. But now that wages are sliding, and jobs are suddenly hard to come by, workers (many of whom recently fired), do what they do everywhere around the world: they get angry, go on strike, protest, and break or burn things down.

    When the economy in Guangdong, China’s richest and most populous province, was booming, the authorities apparently did not see labor activism as a threat. After strikes by workers at Honda auto parts plants in the province in 2010, for example, many workers won higher wages and benefits.


    But now, with many factories moving to regions where lower wages prevail — or to other countries, like Vietnam — labor unrest is rising, said Geoffrey Crothall, a spokesman for the China Labor Bulletin, which promotes independent labor unions in China and tracks strikes and other labor protests nationwide. Local governments in Guangdong are often the focus of workers’ demands after factory bosses leave town, sometimes with wages and pension benefits in arrears, he said.

    Not surprisingly, the NYT used precisely the same source as we did a month ago, to reach the same conclusion:

    According to figures from the group, the number of strikes and protests in Guangdong has more than doubled in recent months, rising to 56 in November from 23 in July.

    Clearly the rise in the number of protests and increase in labor activism has got the authorities worried,” Mr. Crothall said in a telephone interview. “They don’t know how to respond. And the only solution they can come up with is by cracking down on the people who are actually trying to help.”

    Which, as we warned a month ago, is a huge problem for not only China's government but its economy.

    One Chinese researcher on labor issues, who asked not to be identified in order to speak freely about the arrests, said that at least 16 activists had been detained or questioned and released in the crackdown on the Panyu Workers’ Center, or had disappeared with no information about their whereabouts. He said the detention of Mr. Zeng might have been a signal to workers not to get involved in labor movements outside the Communist Party-controlled All-China Federation of Trade Unions.


    “They want to make an example of them for worker rights’ defense in the future — don’t get involved with these labor organizations,” the researcher said. “They realize that the economic slowdown and decline of industry is creating widespread bankruptcies and unemployment, and labor incidents will increase.”

    Did we say the "biggest, most underreproted risk facing China"? Why yes we did. At least it is now being reported.

    “There have been arrests and crackdowns before on grass-roots labor organizations here,” one activist, He Shan, said in a telephone interview from Shenzhen, a mainland city that abuts Hong Kong. “But this is the most concentrated, the most serious. For us, this is unprecedented.”

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    Beijing Issues Air Pollution Red Alert for the First Time

    Beijing Issues Air Pollution Red Alert for the First Time

    Beijing authorities have issued a red alert for smog, the highest warning level, effective from 7am on Dec. 8.

    Acrid-smelling smog rolled back into Beijing on Monday, shrouding the city of 20 million people in a gray haze four days after northern China reported the worst pollution in a year.
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    Venezuela's opposition coalition just won a massive victory

    Venezuela's opposition trounced the ruling Socialists on Sunday to win the legislature for the first time in 16 years and gain a long-sought platform to challenge President Nicolas Maduro's rule of the OPEC nation.

    The opposition Democratic Unity coalition won 99 seats to the Socialists' 46 in the 167-national National Assembly, the election board said, with some districts still to be counted.

    Fireworks were set off in celebration in pro-opposition districts of Caracas when the results were announced, while government supporters dismantled planned victory parties.

    Maduro, 53, quickly acknowledged the defeat, the worst for the ruling "Chavismo" movement since its founder Hugo Chavez took power in 1999.

    "We are here, with morals and ethics, to recognize these adverse results," Maduro said in a speech to the nation, although he blamed his defeat on a campaign by business leaders and other opponents to sabotage the economy.

    "The economic war has triumphed today," Maduro said.

    His quick acceptance of the results eased tensions in the volatile nation where the last presidential election in 2013, narrowly won by Maduro, was bitterly disputed and anti-government protests last year led to 43 deaths.

    Opposition leaders, who have lost over-and-over since Chavez's first election victory 17 years ago, were jubilant, even though their victory was mainly thanks to public disgust at Venezuela's deep economic recession.

    "We're going through the worst crisis in our history," coalition head Jesus Torrealba said. "Venezuela wanted a change and that change came ... a new majority expressed itself and sent a clear and resounding message."

    Opposition sources predicted that once counting was finalised, they would win as many as 113 seats. That would give them a crucial two-thirds majority needed to shake up institutions such as the courts or election board.

    The result could also embolden government foes to seek a recall election against Maduro in 2016 if they garner the nearly 4 million signatures needed to trigger the referendum.

    The government's defeat was another blow to Latin America's left following last month's swing to the center-right in Argentina's presidential election.
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    Billionaire Palmer steps up fight with China's CITIC amid nickel slump

    Officials in Australia's Queensland state are prepared to step in to help protect jobs at a nickel refinery if needed, but called on its owner, mining magnate and politician Clive Palmer, to be open about the refinery's financial position.

    Concerns resurfaced this week about the future of the Queensland Nickel refinery when a lawyer acting for Palmer sought an advance A$48 million ($35 million) payment in an unrelated dispute, saying the matter needed to he heard that week.

    The case against estranged iron ore partner, China's CITIC Ltd, over any advanced payment of royalties due on the Sino Iron project will now be heard on Monday.

    Queensland Nickel, bought by Palmer from BHP Billiton in 2009, is one of the country's biggest refineries with a capacity of 35,000 tonnes a year.

    A slump in the nickel price from just over $13 a pound in early 2011 to $4.73 a pound amid a mounting supply glut has put pressure on many producers of the metal, used to make stainless steel.

    Queensland state's treasurer said he had met with Queensland Nickel but declined to say what exactly was discussed, except to say the commodities slump was hurting the whole resources sector, including Queensland Nickel.

    "We'll work with affected stakeholders where required to support jobs and employment in the region," Treasurer Curtis Pitt said in a statement after meeting with the mayor of Townsville and politicians from the region.

    Queensland Nickel operates in Yabulu, near Townsville, whose mayor has raised concern about the fate of the plant which she says accounts for more than 3,600 direct and indirect jobs and A$1.3 billion in activity for the city.

    Read more at Reuters
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    Anglo to cut dividend?

    Anglo American Plans to Slash Dividend

    Company has scrambled to shore up balance sheet as it reels from plunging prices for metals and gems

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    Oil and Gas

    Statoil acquires Alfra Sentral stake, becomes main operator in Eagle Ford

    Statoil acquires Alfra Sentral stake, becomes main operator in Eagle Ford

    Norwegian operator Statoil has become the sole operator in the US Eagle Ford shale play after striking a number of deals with Repsol.

    The company has acquired the Spanish players 13% interest in the acreage, as well as assuming operatorship of the BM-C-33 licence in Brazil’s Campos basin.

    Statoil said it has also farmed down a 15% interest to Repsol in the Gudrun field on the Norwegian Continental Shelf.

    It will still remain the operator and largest equity holder with a 36% interest.

    The operator will also acquire a 31% equity share in the UK licence for Alfra Sentral, a field which spans the UK-Norway maritime border.

    John Knight, Statoil’s executive vice-president for global strategy and business development, said: “We are delighted to be deepening our relationship with Repsol. In the current challenging market environment, these are innovative, value-enhancing transactions which will help control costs and strengthen Statoil’s portfolio for the long term.

    “Statoil has ambitious goals for future activity, production and value creation on the Norwegian Continental Shelf and this deal supports our long term ambition.

    “We are bringing a strong partner into Gudrun, an important NCS asset, and our increased interest in the Alfa Sentral development will strengthen our efforts to develop the important Sleipner area towards 2030”.
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    China's crude oil stockpiles at 26.1 mln tonnes - stats bureau

    China's oil reserves stood at 26.1 million tonnes, or 190.5 million barrels, in mid-2015, the country's statistics bureau said on Friday.

    The figures include strategic and some commercial volumes.

    China made its first announcement on the size of its strategic reserves in November 2014, putting them at 91 million barrels at the time.

    Read more at Reuters
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    Production starts at APLNG

    The $24.7-billion Australia Pacific liquefied natural gas (APLNG) project, offshore Queensland, has started LNG production at its Curtis Island facility. 

    ASX-listed Origin Energy reported on Friday that the project remained on track to export its first cargo by the end of the year. “With first LNG production, APLNG has now achieved its last major milestone prior to exporting LNG to customers in Asia,” said Origin CEO for integrated gas David Baldwin. 

    “The Origin-operated upstream activities, which deliver gas to Curtis Island, are fully operational and performing well, and Origin, along with partners ConocoPhillips and Sinopec, are now focused on achieving first export.” The APLGN project comprises two processing trains, each with a 4.5-million-tonne-a-year nameplate production capacity.
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    BP, Chevron Back $2 Billion North West Shelf Development Phase

    BP Plc, Chevron Corp. and the other partners in Australia’s largest oil and gas venture approved a $2 billion expansion in the project, the fourth major gas development at the North West Shelf in the past seven years.

    The Greater Western Flank Phase 2 off the north-west coast will develop 1.6 trillion cubic feet of gas from six fields, the operator of the North West Shelf, Woodside Petroleum Ltd., said Friday in a statement. This project will start production in the second half of 2019, Woodside said.

    The North West Shelf, which accounts for more than a third of Australia’s oil and gas production, represents investments of more than $34 billion, according to the project’s website.

    The six equal participants own a 16.67 percent share. In addition to Woodside, BP and Chevron, the partners are BHP Billiton Ltd., Royal Dutch Shell Plc and Japan Australia LNG (MIMI) Pty, which is a joint venture between Mitsubishi Corp. and Mitsui & Co.
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    OPEC points to larger 2016 oil surplus as group's output hits multi-year high

    OPEC pumped more oil in November than in any month since late 2008 and forecast little increase in demand for its crude next year, pointing to a larger supply surplus even as low prices hurt rival producers.

    The Organization of the Petroleum Exporting Countries in a report also forecast supply from non-member countries will fall more sharply next year, which would suggest its strategy, reaffirmed last week of defending market share, is working.

    OPEC's report follows an acrimonious OPEC meeting on Dec. 4, where it rolled over a policy of pumping crude to safeguard market share, despite oil prices LCOc1 that have more than halved to $40 a barrel in 18 months due to excess supply.

    A year ago, Saudi Arabia pushed though an OPEC decision to defend market share instead of cutting output to support prices, hoping to slow growth in rival supplies such as U.S. shale oil.

    "U.S. tight oil production, the main driver of non-OPEC supply growth, has been declining since April," OPEC said in the report. "This downward trend should accelerate in coming months given various factors, mainly low oil prices and lower drilling activities."

    Supply outside OPEC is expected to decline by 380,000 barrels per day (bpd) in 2016, the report said, as output falls in regions such as the United States and former Soviet Union. Last month, OPEC predicted a drop of 130,000 bpd.

    But OPEC also increased its 2015 non-OPEC supply growth forecast by 280,000 bpd, citing upward revisions to output from the United States, Brazil, Russia and the UK, among other countries.

    As a result of the report's changes to 2016 and 2015 non-OPEC supply forecasts, demand for OPEC crude next year is expected to average 30.84 million bpd - just 20,000 bpd more than OPEC expected previously.

    OPEC production, which has surged since the policy shift of November 2014 led by Saudi Arabia and Iraq, is far higher than forecast demand. Supply rose by 230,000 bpd in November to 31.70 million bpd, said the report, citing secondary sources.

    That is the highest monthly rate since late 2008 when Indonesia was still an OPEC member, according to a Reuters review of OPEC's previous reports on the group's website. The latest figure does not yet include Indonesia, which rejoined OPEC last week boosting its ranks to 13 countries.

    With extra barrels coming from OPEC and no sizeable increase in demand for OPEC crude, the report points to a 860,000-bpd supply surplus next year if the group keeps pumping at November's rate, up from 560,000 bpd indicated in last month's report.

    OPEC left its 2016 oil demand growth forecast unchanged, predicting global demand would rise by 1.25 million bpd, marking a slowdown from 1.53 million bpd in 2015.

    Read more at Reuters

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    ConocoPhillips expects 25 pct lower capital spending in 2016

    ConocoPhillips, the largest U.S. independent oil company, said on Thursday it expects its 2016 capital expenditure to be 25 percent lower than this year's estimated budget, as it responds to a slump in oil prices.

    The company forecast 2016 capital budget of $7.7 billion, and also said it expects to raise $2.3 billion from non-core asset sales.

    A more than 60 percent fall in oil prices since June last year has forced oil and gas companies to scale back spending.

    Global exploration and production spending is expected to fall by 11 percent in 2016, adding to a 20 percent decline in 2015, according to analysts at Evercore ISI.

    Conoco said it expects 2016 production to grow 1-3 percent from an estimated 1,515-1,525 thousand barrels of oil equivalent per day (MBOED), on an adjusted basis, this year, excluding Libya.

    The company raised $600 million from asset sales in the first three quarters of the year, and has agreements in place to raise another $1.7 billion from asset sales.

    Read more at Reuters
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    Argentina Shale Poised for Boom with 'Super Well' and Pro-Industry President

    The discovery of a 'super well' in Argentina's prized Vaca Muerta shale and the presidential victory of a pro-industry candidate raises the stakes in this market-defying venue and positions the only junior on the scene for massive gains.

    The 'super well'- discovered in October by state-run YPF in partnership with Chevron (NYSE: CVX) in the Vaca Muerta block in Neuquen--offsets Madalena Energy Inc.'s (MVN.V) Couron Amargo acreage, where this last remaining junior in the sea of supermajors is conducting a multi-well horizontal program.

    And shortly after the super well discovery, Argentina's shale prospects in general-and Madalena's high-profile plays here-got another bit of long-term good news: Conservative pro-business candidate and former Shell executive Mauricio Macri won Argentina's November presidential run-off elections, paving the way for a new government which is intent on seeing the shale boom through.

    The news could not have come at a better time for Madalena, which is now preparing its first multi-stage frac well in the Vaca Muerta, not only right next to the YPF/Chevron 'super well', but also offsetting Shell's impressive horizontal drilling results.

    This small, ambitious and highly intuitive Canadian energy company is sandwiched right in between the biggest players in the world, who are coming up with discovery after discovery.      

    All eyes are on Madalena as it drills with two rigs in Argentina's high-impact Curamhuele block, targeting two unconventional plays, and another rig at Coiron Amargo. While majors such as Chevron, Shell and ExxonMobil (NYSE: XOM) are hard at work here, it is Madalena that stands out for investors because it is the only remaining junior in this big game.

    Argentina is home to 27 billion barrels of recoverable oil and 802 trillion cubic feet of natural gas and its two shale basins could end up being bigger than the Eagle Ford and Bakken.

    Productivity is high and domestic oil and gas prices are fixed above international benchmarks, while costs per well could decline by 25 to 30 percent. Regulated oil prices are around $75-$77, despite low global prices.  

    In addition to this, the government's $11-million-plus incentivized oil program has spurred steady growth.

    Macri's party, Cambiemos plans to continue this price initiative, which was originally set to expire on 31 December.

    Madalena Energy is the only small independent with positions in key unconventional Argentinean resources; it is debt-free, generates substantial operational cash flow and has a rapidly increasing production and resource.

    Focused on drilling four strategic resource plays this year and next, Madalena has been described as a 'sleeper' that awakened earlier this year with successful horizontal test results on the Loma Montosa oil resource play at Puesto Morales.

    The junior will also be drilling back-to-back horizontals on its Coiron Amargo block, which is a prime Vaca Muerta shale play that also has attractive conventional development across multiple light oil pools-even more so now with the 'super well' discovery.

    Madalena is gearing up in the first part of 2016 to conduct a multi-stage frac and test of this Curamhuele well to delineate and unlock 365 million barrels of oil equivalent of risked recoverable resources where the Company has over 500 net horizontal locations in the Lower Agrio Shale alone.

    If all the drilling activity isn't enough to make a believer out of any shale skeptic in this market, Madalena'sQ2-2015 financial and operational results will. They realized a Q2 2015 oil price of CDN $96.33/bbl and$6.28/mcf for natural gas. They also managed to increase oil and gas production by 155 percent from 2014, to 3,996 boe/d, and a 30 percent increase in revenues to $83.50/boe, up from $64.08/boe from the same time last year.

    All this while corporate operating netbacks were over $37/boe in Argentina, with funds flowing from operations an impressive approximately $6.2 million (not including a one-time charge).

    Even in a tough energy market, it has been a solid year for Madalena, with each new discovery and each new horizontal well drilled by the supermajors right next to its own land position further de-risking operations and making this one of the most valuable juniors in the international energy sector.
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    OPEC Says Crude Production Rose to Three-Year High in November

    Output from the Organization of Petroleum Exporting Countries rose by 230,100 barrels a day in November to 31.695 million a day, the highest since April 2012, as surging Iraqi volumes more than offset a slight pullback in Saudi Arabia. The organization is pumping about 900,000 barrels a day more than it anticipates will be needed next year.

    Benchmark Brent crude dropped to a six-year low in London this week after OPEC effectively scrapped its output ceiling at a Dec. 4 meeting as de facto leader Saudi Arabia stuck to a policy of squeezing out rival producers. Members can pump as much as they please, despite a global surplus, Iran’s Oil Minister Bijan Namdar Zanganeh said after the conference. Brent futures traded near $40 a barrel in London on Thursday.

    Non-OPEC supply will fall by 380,000 barrels a day next year, averaging 57.14 million a day, with an expected contraction in the U.S. accounting for roughly half the drop, the organization said Thursday in its monthly report. It increased estimates for non-OPEC supply in 2015 by 280,000 barrels a day.

    The group maintained projections for the amount of crude it will need to pump next year at 30.8 million barrels a day.

    Iraqi production increased by 247,500 barrels a day to 4.3 million a day last month, according to external sources cited by the report, which didn’t give a reason for the gain.

    Iraq has pushed output to record levels this year as international companies develop fields in the south, while the semi-autonomous Kurdish region increases independent sales in the north, according to the International Energy Agency. Production had dipped in October as storms delayed southern loadings and as flows through the northern pipeline were disrupted, according to Iraq’s Oil Ministry.

    Production in Saudi Arabia slipped by 25,200 barrels a day to 10.13 million a day in November, OPEC’s report showed.

    The report didn’t make any reference to how OPEC’s data will re-incorporate output from Indonesia, which rejoined the organization on Dec. 4 after an absence of seven years.
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    Centrica says to spend less than planned after upstream cost cuts

    Centrica, Britain's largest energy utility, expects to spend less than the 1.05 billion pounds ($1.6 billion) it had previously envisaged, mainly due to a cut in upstream investments, the company said on Thursday.

    Centrica, which owns Britain's main household energy supplier British Gas, was forced to cut its dividend earlier this year as it has been hit hard by a fall in energy prices and slowing demand.

    It said it was on track to deliver full-year earnings in line with expectations despite a second round of retail price cuts made in August. This year's adjusted operating cashflow is set to exceed 2 billion pounds, Centrica said, compared with 2.7 billion pounds in 2014.

    "We are seeing underlying performance improvement against a softening commodity market," said Chief Executive Iain Conn, the former head of BP's downstream refining and marketing business who took over at Centrica at the start of the year.

    Centrica expected its 2015 organic capital expenditure to come in slightly below its target as its spending on exploration and production, its most expensive investments, was on target to be less than 800 million pounds.

    This would fall below 600 million in 2016, Centrica added.

    Analysts welcomed the results as positive and shares in Centrica were trading up nearly 3 percent at 0832 GMT at 212.2 pence.

    "We regard today's statement as relatively positive, and we continue to think that Iain Conn and his team are moving Centrica in the right direction," said Whitman Howard analyst Angelos Anastasiou.

    After joining Centrica in January, Conn initiated a strategic review that will include 1 billion pounds worth of upstream and wind power divestments. It didn't provide further details on Thursday.

    The utility, whose market share has been attacked by smaller rivals, said its customer account numbers were largely unchanged since the middle of the year.

    Many utilities across the European continent are at a crossroads requiring a new business strategy as the decades-old model of centralised, predictable energy supplies and consumption is giving way to a modern and more flexible system.

    Germany's E.ON and RWE, two of Europe's largest utilities, have taken the drastic step of separating their conventional power plant and 'renewable' energy businesses.

    Britain's energy suppliers also face tighter regulation on the back of a competition investigation that could impose a limit on the most expensive energy tariffs.

    Read more at Reuters
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    Cenovus Energy to lower capital spending in 2016

    Canadian oil producer Cenovus Energy Inc said it expects to lower its capital budget for 2016 by 19 percent, from its estimated budget for this year, in response to tumbling crude prices.

    The Calgary-based company expects to spend between C$1.4 billion ($1.03 billion) and C$1.6 billion in 2016, down from its estimated 2015 budget of C$1.8 billion-C$1.9 billion.

    Cenovus, which jointly operates Foster Creek and Christina Lake oil sands projects with ConocoPhillips, plans to use about 80 percent of its 2016 budget to sustain capital investments, with the remaining budget to be allocated mainly to oil sands growth projects.

    The company said even if Brent crude prices remain in the $40 per barrel range through 2016, company expects to continue to fund its current dividend level.

    Brent futures were trading at $40.16 per barrel on Thursday.

    The company, which has already been cutting jobs, said it will focus on achieving additional cost reductions next year.
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    Technip denies FMC takeover speculation

    Technip has denied speculation it is in merger talks with FMC Technologies.

    It comes after previous reports from sources said to be close to the matter claimed discussions were ongoing between the pair.

    Technip and FMC Technologies have market capitalisations of $5.8billion and $6.8billion respectively.

    A spokesman for the company said: “Following recent press articles with respect to possible strategic transactions involving Technip, we state that there are no ongoing discussions with respect to such transactions.”

    Earlier this year, FMC Technologies and Technip formed a joint venture, Forsys Subsea, which was aimed at reducing the cost of subsea oilfield exploration.

    Talks will CGG last year fell through after the latter company said no to a €1.47billion offer from Technip.
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    Bakken flows tick up in October

    Production from the Bakken tight oil play increased slightly between September and October as operators began to draw down their backlog of wells that had been previously drilled but not completed, according to state regulators.
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    Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke

    In an instant, Chesapeake Energy Corp. will erase the equivalent of 1.1 billion barrels of oil from its books.

    Across the American shale patch, companies are being forced to square their reported oil reserves with hard economic reality. After lobbying for rules that let them claim their vast underground potential at the start of the boom, they must now acknowledge what their investors already know: many prospective wells would lose money with oil hovering below $40 a barrel.

    Companies such as Chesapeake, founded by fracking pioneer Aubrey McClendon, pushed the Securities and Exchange Commission for an accounting change in 2009 that made it easier to claim reserves from wells that wouldn’t be drilled for years. Inventories almost doubled and investors poured money into the shale boom, enticed by near-bottomless prospects.

    But the rule has a catch. It requires that the undrilled wells be profitable at a price determined by an SEC formula, and they must be drilled within five years.

    Time is up, prices are down, and the rule is about to wipe out billions of barrels of shale drillers’ reserves. The reckoning is coming in the next few months, when the companies report 2015 figures.

    “There was too much optimism built into their forecasts,” said David Hughes, a fellow at the Post Carbon Institute and formerly a scientist with the Geological Survey of Canada. “It was a great game while it lasted.”

    The rule change will cut Chesapeake’s inventory by 45 percent, regulatory filings show. Chesapeake’s additional discoveries and expansions will offset some of its revisions, the company said in a third-quarter regulatory filing. Gordon Pennoyer, a spokesman for Oklahoma City-based Chesapeake, declined to comment further.

    Other examples include Denver-based Bill Barrett Corp., which will lose as much as 40 percent, and Oasis Petroleum Inc., based in Houston, which will erase 33 percent, according to filings. Larry Busnardo, a Bill Barrett spokesman, declined to comment. Richard Robuck of Oasis didn’t respond to questions.

    The U.S. shale revolution, which brought the country closer to energy self-sufficiency than at any time since the 1980s, was built on money borrowed against the promises of future output. New wells that could be drilled when U.S. oil was selling for $95 a barrel -- last year’s price as calculated by the SEC’s formula -- simply don’t pay at today’s prices, and the revolution has stalled.

    Undrilled Properties

    When fracking advocates lobbied the SEC, they argued that hydraulic fracturing was a new technology that unlocked oil and gas in vast layers of underground rock, making drilling more predictable that it used to be.

    Drillers met the rule’s profitability provision last year due to a quirk in the SEC’s pricing formula. The agency’s yardstick is an average of the prices on the first day of each month during the calendar year. The price came to $95 a barrel at the end of 2014, even though oil was trading below $50 by the time the companies reported reserves in February and March. The 2015 average, including the Dec. 1 price, comes out to $51 a barrel.

    “They got such a break with the price for last year, but it sure as hell isn’t going to happen this year,” said Ed Hirs, a managing director at Houston-based Hillhouse Resources, an independent energy company.

    Proven Reserves

    The wells that exist only on paper are particularly vulnerable to revision. And thanks to the SEC rule change, companies have a lot more undeveloped reserves on their books than they used to.

    Undeveloped reserves of oil and natural gas liquids have more than tripled to 6.1 billion barrels since 2008, the last year before the rule went into effect, according to data compiled by Bloomberg on 40 independent U.S. producers. Undrilled wells account for 45 percent of proven reserves, up from 30 percent in 2008.

    Writedowns, which are reported on a quarterly basis, point to sizable revisions. The 61 companies in the Bloomberg North American Independent Explorers and Producers index have announced impairments of $143.8 billion in the past year.

    Some of the wells may never be drilled, while others may return to inventories if prices rise. A company’s deletions may be offset by the addition of new prospects, purchased properties or an increase in the estimated amount of crude each well will produce.

    “The question is, how are these reserves going to come back?” said Subash Chandra, an energy analyst with Guggenheim Securities in New York. “Because if you have to spend within cash flow, those reserves aren’t coming back. Not unless we get a spike in prices, or we return to levered growth.”

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    Chevron slashes 2016 budget 24 pct as oil price slump lingers

    Chevron will slash spending by 24 percent next year as it works to complete projects already under construction while delaying others that have not received a final financial commitment from the company.

    The multinational oil giant headquartered in San Ramon, California unveiled its 2016 capital and exploratory budget late Wednesday, providing an initial glimpse of how the world’s largest oil companies plan to curtail spending amid the worst downturn in years.

    While many oil companies have remained tight-lipped about their capital budgets for next year, speculation has been growing that upstream investment will fall for the second year in a row, marking the first time that’s happened since the 1980s bust.

    Chevron said Wednesday it will spend $26.6 billion next year, or nearly one-fourth less than it expects to invest this year, reaffirming the estimates laid out by the company in its third quarter conference call with investors.

    About $11 billion of its 2016 budget has been earmarked for major capital projects that are already being built and another $9 billion has been targeted for existing base producing assets, including shale and tight resources, the company said.

    Another $3 billion will go toward projects that have not been sanctioned.

    “Our capital budget will enable us to complete and ramp up projects under construction, fund high return, short cycle investments, preserve options for viable long-cycle projects and ensure safe, reliable operations,” Chairman and CEO John Watson said in a statement.

    In addition to funding its own projects, Chevron’s budget includes $4.5 billion of planned expenditures by affiliates, primarily linked to investments by Tengizchevroil LLP Kazakhstan and Chevron Phillips Chemical Company in the United States, which is building a $6 billion expansion along the Gulf Coast, including an ethane cracker at the company’s Cedar Bayou plant in Baytown, and two polyethylene units in Old Ocean near the Sweeny complex.

    The company warned on its third quarter earnings call earlier this year that it would pare back spending and place some projects on the back burner as it braced for an extended crude slump.

    “We are completing the projects we’ve got and working to preserve the options we have on some of the nice opportunities,” Watson said on the call. “We do have to live within our means here.”

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    North Dakota confirms Lime Rock as buyer of Occidental's Bakken acreage

    North Dakota's oil regulator on Wednesday identified Lime Rock Resources as the buyer of Occidental Petroleum Corp's North Dakota oil operations, confirming what Oxy's executives had yet to disclose publicly.

    The deal, worth about $600 million, is expected to close by the end of the month.

    Reuters first reported in October that Oxy had agreed to sell all of its North Dakota shale oil acreage and assets to Lime Rock, a private equity fund, as it focuses capital elsewhere.

    In an Oct. 28 earnings conference call with investors, Oxy Chief Executive Steve Chazen did not identify the private equity fund as the buyer, although he confirmed the price.

    The state's Department of Mineral Resources said on Wednesday that Oxy had filed paperwork to transfer well bonds to Lime Rock as the buyer. The transfers involve two entities controlled by Oxy's parent company.

    North Dakota requires bonding for oil wells.

    The deal includes all of Oxy's roughly 300,000 acres in the state, including a 21,000 square-foot regional office built three years ago.

    Read more at Reuters

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    Freeport-McMoRan to slash Gulf of Mexico rigs

    Freeport-McMoRan Oil & Gas has decided to further reduce costs for its oil and gas capital spending plans as a response to market conditions.

    As previously reported on August 5, 2015, Freeport-McMoRan Oil & Gas (FM O&G) is deferring investments in several long-term projects in response to oil and gas market conditions.

    Following an ongoing review, capital expenditures for 2016 and 2017 have been reduced further from $2.0 billion per year in 2016 and 2017 to $1.8 billion in 2016 and $1.2 billion in 2017, including idle rig costs, the company said on Wednesday.

    The revised plans, together with initiatives to obtain third party financing or other strategic alternatives, will be pursued with the goal of achieving funding for oil and gas capital spending within its cash flows and resources, Freeport-McMoRan added.

    The revised plans incorporate a reduction in rig utilization from three Deepwater Gulf of Mexico drillships to one drillship while increasing production from third quarter 2015 rates of 150 barrels of oil equivalents per day (MBOE/d) to an average of 159 MBOE/d in 2016 and 2017.

    According to its Wednesday statement, FM O&G expects to bring eight wells online in late 2015 and 2016 from its tie back drilling operations at the Holstein Deep, Horn Mountain and King Projects in the Deepwater Gulf of Mexico. These projects, combined with other initiatives, are expected to add low cost oil production, enabling cash production costs to decline from $19 per barrel of oil equivalents (BOE) in 2015 to less than $16 per BOE in 2016 and 2017. Under the revised plans, FM O&G’s cash flows would substantially fund its capital expenditures at $45 per barrel of Brent crude oil in 2017, said the company.

    The company also added it was engaged in ongoing discussions with its rig vendors and other service providers to obtain reductions in costs and to evaluate opportunities to market idled equipment to third parties.

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    Small decrease in US oil production

                                                  Last Week  Week Ago     Last Year

    Domestic Production '000........ 9,164          9,202             9,118
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    Summary of Weekly Petroleum Data for the Week Ending December 4,

    2015 U.S. crude oil refinery inputs averaged about 16.7 million barrels per day during the week ending December 4, 2015, 151,000 barrels per day less than the previous week’s average. Refineries operated at 93.1% of their operable capacity last week. Gasoline production increased last week, averaging about 9.9 million barrels per day. Distillate fuel production increased last week, averaging over 5.2 million barrels per day.

    U.S. crude oil imports averaged over 8.0 million barrels per day last week, up by 274,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.5 million barrels per day, remaining unchanged from the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 648,000 barrels per day. Distillate fuel imports averaged 58,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.6 million barrels from the previous week. At 485.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 0.8 million barrels last week, and are in the upper half the upper half of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 5.0 million barrels last week and are in the upper half of the average range for this time of year. Propane/propylene inventories fell 3.4 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 3.6 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.8 million barrels per day, down by 0.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.2 million barrels per day, up by 0.7% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels per day over the last four weeks, down by 1.2% from the same period last year. Jet fuel product supplied is up 5.5% compared to the same four-week period last year.

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    Petrobras ‘eyes Libra stake sale’

    Brazil's state-run oil company Petrobras is offering up to a quarter of its 40 percent stake in the huge Libra offshore oil prospect as its seeks to reduce the largest debt in the global oil industry, two industry sources said on Tuesday.

    The stake could fetch up to $1.5 billion, according to analysts at Macquarie, and is likely to attract international oil companies keen to expand in one of the world's fastest-developing oil basins.

    Petroleo Brasileiro SA, as Petrobras is formally known, is targeting $15.1 billion in disposals by the end of next year but has struggled to sell assets in less attractive prospects off Brazil and in the Gulf of Mexico.

    Chief Executive Aldemir Bendine has told Brazil's congress that the company will not be able to meet repayment obligations on its debt of more than $130 billion and maintain a $19 billion investment plan next year unless it hits the disposal target.

    The company is now offering sought-after oil prospects in the so-called sub-salt areas in the Santos basin south of Rio de Janeiro, several industry sources said. These areas contain vast reserves trapped deep beneath the sea bed by a layer of mineral salts.

    "Petrobras finally realised the assets they were offering were not as attractive as they thought and has decided to offer opportunities that are more likely to fetch a higher price," an industry source said.

    In 2013 Petrobras made an upfront payment of nearly $7 billion for its 40 percent stake in the Libra development, which was Brazil's first offshore oil lease sold under production-sharing agreements under which the company is required to be the operator and hold a minimum 30 percent stake.

    Royal Dutch Shell, which would become the biggest foreign investor in Brazil after the completion of its proposed $70 billion merger with BG Group, and France's Total each hold a 20 percent stake in Libra. China National Petroleum Corp and China's CNOOC each hold 10 percent.

    First oil from the Libra field is expected to flow in the first quarter of 2017. The government estimates that Libra has between 8 billion and 12 billion recoverable barrels of oil and gas equivalent.

    Analysts at Macquarie, who have an underperform valuation on Petrobras, cautioned over its ability to keep to its asset sales plans.

    "We maintain our concerns regarding the Petrobras' ability to deliver its short-term

    Read more at Reuters

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    PetroChina, Sinopec 2015 Shale Output Said Below China Goal

    China is on track to miss its shale gas production target for this year as its biggest producers throttle back output amid weakening demand growth and a collapse in energy prices.

    PetroChina Co., the country’s largest oil and gas company, may produce about 1.6 billion cubic meters of the unconventional gas this year, lagging behind its stated target of 2.6 billion cubic meters, according to people with direct knowledge of the matter.

    China Petroleum & Chemical Corp., the nation’s second-biggest oil and gas producer, may pump around 3.5 billion cubic meters of the fuel, according to the people, who asked not to be identified because the information isn’t public. The explorer plans to complete an expansion project this month that will boost capacity to 5 billion cubic meters a year.

    China’s efforts to copy the success of the U.S. in shale production has foundered as an economy growing at the slowest pace in 25 years curbs demand. The combined production of the two companies of 5.1 billion cubic meters in 2015 accounts for almost all of China’s commercial shale gas output. The country in 2012 announced an annual production target of 6.5 billion cubic meters for this year.

    “We’ve seen very limited growth in the domestic market and an oversupply in terms of imports, that’s led to lower-than-expected production this year,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “Shale gas is going to get cut when we’ve got an oversupplied market and companies focus on the lower end of the cost curve.”

    PetroChina is holding back shale gas expansion at Sichuan in southwest China partly because they’re already struggling to sell conventional gas, which is cheaper to produce, according to the people. Sinopec, as China Petroleum is known, will keep some of its newly added capacity at its Fuling field idle because of a lack of buyers, according to the people.

    Sinopec announced on Oct. 15 that proved shale gas reserves at Fuling increased by 273.9 billion cubic meters to 380.6 billion cubic meters, making it the world’s second-largest shale gas field outside North America. The country’s total proven shale gas reserves are estimated at 500 billion cubic meters, according to the Chinese Academy of Engineering.
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    Ship fuel prices fall to near 11 year low as oil glut spreads

    Ship fuel prices have plummeted to lows not seen in over a decade, pulled down by a rout in crude oil prices as a result of a global glut just as demand for marine fuel slows on the back of Asia's weakening economies.

    The benchmark end-user price for marine fuels, also known as bunker, Singapore's 380-centistoke grade bunker fuel BK380-B-SIN, closed at $183.21 per metric tonne on Tuesday, almost $10 lower from the previous day and at levels last seen in January 2005.

    Singapore is the world's main shipping fuel hub, trading over 40 percent of it globally.

    The fall in bunker fuel follows the tumble in crude prices after the Organization of Petroleum Exporting Countries ended their meeting last week without even mentioning production targets, indicating that members will continue to pump near record levels. OPEC members now seem to be defending market share against one another internally and against competitors like Russia and North America.

    The average daily fuel cost to operate a Very Large Crude Carrier (VLCC) has fallen from over $75,000 to under $18,000 currently, meaning a sharp reduction in operating costs for shippers

    Despite this fall in costs, bunker traders said that demand from shippers remained weak as they struggle with a slowdown in global seaborne trade.

    "Although (bunker) prices are low, demand has been weak compared with the same time last year because of mounting pressures on the shipping industry amid slowing global activity," one bunker fuel trader said.

    China, the world's biggest exporter, reported a 6.8 percent drop in exports in November from a year earlier, while its imports slowed 8.7 percent, as the country's economy grows at its slowest pace in decades.

    Another trader said that demand would only increase if the average distance of ships' voyages rose and if ship owners filled their tanks in anticipation of a price rise. Yet, with the oil supply glut expected to last well into next year and the economic outlook also not improving, this is seen as unlikely.

    Read more at Reuters

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    Apache boss says still possible to make money in UK sector despite oil price

    Cory Loegering, Apache’s regional VP and MD for the North Sea said it was possible to make money from the UK sector despite the current oil price.

    He said the company’s North Sea business centred on the mature Beryl and Forties fields was both competitive and delivering high rates of return.

    Moreover, it had lately been boosted by significant drilling successes on Beryl; indeed the two latest local discoveries were described as “exceptional”.

    Despite their age, Mr Loegering pointed out that Beryl and Forties remained two of the most prolific North Sea hydrocarbon accumulations and not only that as they ranked best in class for production efficiency at about 92%.

    He said too that Apache enjoyed “industry-leading operating costs in the North Sea; indeed, the company had a “50% operating cost advantage”.

    “Our operating costs are half the UK average and will come in below $14 per barrel this year,” said Mr Loegering, pointing out that making the effort to achieve top quartile production efficiency really did deliver lower operating costs.

    Last year, Apache achieved a unit operating cost of $16.66 per barrel versus the UK average of $30.49.

    He said that, thus far, the emphasis had been on capital investment in these two great brownfield assets but that over the period 2016-2020 the accent would increasingly swing to stepping up the drilling effort and shooting further seismic.

    On Forties alone, since its acquisition in 2003, Apache has invested $2.3billion in infrastructure and $2.3billion on drilling and workovers to date. Loegering described Forties as the most resilient field in the North Sea.

    And still the opportunities keep on coming, with 84 drilling targets currently listed for drilling up on Forties and about the same again for Beryl. And that’s not taking into account what else might be identified through further seismic.
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    Pipeline giant Kinder Morgan slashes dividend 75 percent

    Kinder Morgan Inc slashed its dividend 75 percent on Tuesday, marking the first time the U.S. pipeline giant has cut payouts to shareholders since it has been a publicly traded company.

    The move, which will reduce the annual dividend to 50 cents a share from about $2 a share, is an acknowledgement that the worst oil price crash in six years is hurting once-resilient pipeline companies.

    Kinder Morgan shares have shed about half their value since the company first warned on Oct. 21 that payouts would slow. In after hours trade on Tuesday the shares fell nearly 7 percent to $14.67.

    Moody's put the company on credit watch negative last week after it bought a stake in a leveraged natural gas pipeline system, and several analysts downgraded the stock.

    Founder Rich Kinder said the smaller payout to investors would allow Kinder Morgan to avoid issuing equity while maintaining its investment grade credit rating.

    "We evaluated numerous options, including significant asset sales, but ultimately concluded that these other options were uneconomic to our investors in the long run. This decision was not made lightly," he said in a statement.

    Analysts at Tudor Pickering Holt told clients in a note that the cash would be better spent reinvesting or buying back shares.

    "We'd argue that while market clearly hates the possibility of a dividend cut, a full payout is the least effective use for that cash."

    Once the darlings of investors, growth prospects of pipeline companies have been undercut by a 50 percent slide in oil prices and tough environmental reviews that have delayed projects.

    Pipeline companies have been especially popular with investors in recent years for their ability consistently to pay and grow large dividends.

    But their attractiveness has faded since at least the summer as executives at some of the biggest pipeline companies, including Plains All American LP, have warned of slower or variable dividend growth.

    Investors say they are skittish over the prospect of rising U.S. interest rates, a dimmer outlook for additional new volumes of oil and natural gas flowing onto new midstream systems, as well as the potential for lower shipments and fees on existing lines.

    Read more at Reuters
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    Japan Nov average LNG spot arrival price at lowest since March 2014

    The price of liquefied natural gas (LNG) spot cargoes arriving in November in Japan, the world's biggest buyer, fell to its lowest since the Japanese government
    started publishing figures last year, official data released on Wednesday showed.

    The average price for cargoes arriving last month fell to $7.50 per million British thermal units (mmBtu), down from $7.90 per mmBtu in October and the lowest since March last year, then trade ministry said in a release.

    A supply glut of LNG has pushed prices steadily lower during the last year-and-a-half, with benchmark Asian spot LNG prices LNG-AS last quoted at $7.20.

    The average price for cargoes contracted during November fell to $7.40 per mmBtu, down from $7.60 in October and matching the level in September, which was the lowest since March last year, according to the ministry's release.

    The ministry surveys spot LNG cargoes bought by Japanese utilities and other importers, while excluding cargo-by-cargo deals linked to benchmark prices such as the U.S. natural gas Henry Hub index.
    It only publishes a price if there is a minimum of two eligible cargoes reported by buyers. Prices are converted to a delivery-ex ship basis.

    Read more at Reuters
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    Driller becomes 18th to seek bankruptcy in Texas

    A North Texas oil company that went public around the time crude prices started slipping in 2014 is seeking Chapter 11 bankruptcy protection, becoming the 18th driller in the state to succumb to the downturn.

    Energy & Exploration Partners, a Fort Worth company that drills for oil and gas mostly in East Texas and in Wyoming, said capital markets have closed to producers in the wake of $40 oil, leaving it unable to raise to funds that could have prevented bankruptcy.

    “The impact of the depression in oil prices on the debtors’ business cannot be overstated,” John Castellano, a managing director at turnaround specialist AlixPartners and the company’s interim chief financial officer, said in court documents.

    U.S. crude sank as low as $36.64 per barrel on Tuesday before recovering to $37.88 per barrel in early trading on the New York Mercantile Exchange. And international Brent dipped 43 cents to $40.30 per barrel on the ICE Futures Europe, briefly trading under $40 per barrel for the first time since early 2009.

    In addition to sunken crude prices, massive storms this summer cut off roads leading to Energy & Exploration’s East Texas oil fields near the Trinidad River, crimping nearly half of the company’s crude production more than a year after the firm took out debt to partially fund a $700 million purchase in the region.

    The firm recently cut 15 employees and saw several managers resign, including the company’s chief operating officer, its top acquisition and divestiture coordinator, its chief accounting officer and its chief financial officer.

    In court papers, the company indicated it had up to $500 million in assets and more than $1 billion in liabilities. It had 59 employees.
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    This time next year, what will the oil price be?

    121 votes•Final results

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    EQT reduces Marcellus drilling plans for 2016

    EQT Corp. plans to again cut its capital spending and shale gas drilling program as it faces the prospect of continued low prices next year.

    The Downtown-based gas producer on Monday set a capital budget of $1 billion for 2016, including $820 for well development. That's down from the $1.9 billion it set for 2015 in February, which was a reduction from what it had announced a few months before.

    Natural gas prices are hovering around $1.36 per thousand cubic feet in Pennsylvania, half what companies got a year ago, when most major Marcellus producers started cutting 2015 budgets by up to 40 percent. Prices are expected to remain low until at least 2017 because of a supply glut.

    EQT said it plans to drill 72 Marcellus wells — down from the 122 it planned for 2015 — and up to 10 wells in the deeper Utica shale. It will concentrate Marcellus drilling in a core area of southwestern Pennsylvania on multi-well pads to increase efficiency and lower costs. The company predicted it would increase production by about 18 percent next year.

    Read more:

    The company plans to spend $1 billion on drilling next year, which is half of what they spent this year. Although EQT’s top brass previously said they were dumping the Marcellus and concentrating on the Utica Shale instead, it seems they’ve had a change of heart. Yesterday’s forecast says EQT will drill 72 Marcellus wells in 2016 and just 5 Utica wells. What happened? We don’t know–but we suspect EQT is finding it more of a challenge than they thought to get the price of a deep Utica well down to the $12.5 to $14 million range they predicted they could get it to.
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    This Is Why $20 Oil Is A Possibility

    The day of reckoning has arrived for the oil price with the head and shoulders pattern I have been tracking for two months finally being completed in recent weeks. It became a rather drawn out affair with markets awaiting the outcome of the OPEC meeting of 4 December where OPEC elected to stay the course and do nothing. With WTI closing at $40 and Brent on $43 on Friday both are testing support levels. WTI in particular has had strong support at $40 in recent weeks. Should this support be broken then another major down leg is to be expected to the vicinity of $20. I can see nothing in the numbers presented below to provide hope that $40 may hold. The market remains over-supplied and awash in oil. Lower price is required to remove supply from the market.

    World total liquids production up 240,000 bpd to 97.09 Mbpd, a new record high.
     OPEC production down 20,000 bpd to 31.72 Mbpd (C+C)
     N America production up 260,000 bpd to 19.66 Mbpd.
     Russia and FSU up 90,000 bpd to 14.01 Mbpd
     Europe down 10,000 bpd to 3.40 Mbpd (compared with October 2014)
     Asia down 50,000 bpd to 7.99 Mbpd.
    Middle East rig count is rising. The international oil rig count is stable. The US oil rig count is falling.

    Image titleFigure 1 The oil price has trended down this month in a saw tooth pattern to support levels and to complete the head and shoulders pattern. Friday’s close was just above the near term lows of $38.22 for WTI and $41.59 for Brent, both on August 24th. If these lows are broken traders and companies should be prepared for a plunge.

    The October 2015 Vital Statistics are here. EIA oil price and Baker Hughes rig count charts are updated to the beginning of December 2015, the remaining oil production charts are updated to October 2015 using the IEA OMR data.

    Figure 2 The bigger picture shows how the second shoulder has already breached the long-term trend line and the chart appears to be very bearish. Chart patterns alone do not tell the whole story, but it is difficult to find ANY near term bullish indicators in the production and rig count data.

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    Oil Doubling $200 Billion of Cuts Risks Imbalance, Eni CEO Says

    The global oil industry is set to repeat this year’s $200 billion of investment cuts in 2016, raising even more concerns than the current slump in crude prices, according to the chief executive officer of Italy’s Eni SpA.

    "What is worrying me is not the price of today; it is what is happening in the industry,” CEO Claudio Descalzi said in an interview with Bloomberg TV from the COP21 climate change conference in Le Bourget, France. “We cut about $200 billion and I think next year we are going to do the same and that can create in the mid term an imbalance between supply and demand."

    The 65 percent collapse in oil prices since June 2014 has forced the industry to defer exploration to preserve cash and safeguard dividends. Cutbacks of $180 billion were announced in the first nine months of this year, according to consultancy Rystad Energy AS. There may be more to come after OPEC set aside its production target on Dec. 4, potentially lifting the lid on millions of barrels of additional crude.

    Descalzi said a “right price” for oil stood at $60 a barrel. That’s about $20 above benchmark Brent crude, which fell below $40 a barrel for the first time in almost seven years on Tuesday.

    “I think that the right price is not just the right price for us,” the CEO of the Italian oil producer said. “It’s the right price for the average in the industry and also for the producer country.”
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    Oil price hits fresh post 2009 lows as glut grows

    Oil prices resumed their slide on Tuesday, with U.S. crude falling below $37 per barrel and Brent below $40 for the first time since early 2009, amid fears the world was running out of storage capacity as a global glut intensifies.

    The global oversupply is being compounded by OPEC's failure last week to agree a production ceiling, with members Iran and Iraq promising to ramp up output and exports next year.

    Benchmark Brent and WTI futures both fell more than 6 percent on Monday, and on Tuesday they hit fresh lows last seen during the credit crunch of 2008/09.

    Brent futures LCOc1 were down 23 cents at $40.50 a barrel by 1450 GMT. U.S. crude CLc1 was trading at $37.44 a barrel, down 11 cents from its last settlement.

    "The lower levels are largely the result of a renewed focus on fundamentals now that the bulls’ hope for an OPEC cut is off the table," JBC Energy said in a note.

    The failure to agree production levels means OPEC core members are readying for new battles for share in a market already heavily oversupplied and consuming almost 2 million barrels per day less than it is producing.

    "OPEC has lost control of the oil market and unless something fundamental changes that causes demand to overtake the oversupply in the market, the path of least resistance is the 2008 lows of $35-$38," said Michael Hewson, chief market analyst at CMC Markets.

    If Brent falls below $36 per barrel, it would reach levels last seen in 2004 at the start of the so-called commodities super cycle.

    "We are only around $5 away and the oil price has moved almost $5 in the last two days. It might seem miles away, but it’s not really," said Tamas Varga, analyst at PVM Oil Associates.

    Banks such as Goldman Sachs have said oil could fall to as low as $20 per barrel as the world might run out of storage to place unwanted crude. World oil stockpiles are at a record, according to the International Energy Agency.

    In yet another indication of fierce market battles, trading sources said Saudi Arabia was shipping more crude oil to Asia over the last two months of the year.

    On the demand side, China's crude oil importsor the first 11 months of the year rose 8.7 percent to 6.61 million barrels per day, with November crude imports growing 7.6 percent from the same month a year ago.

    China's November sales of new vehicles jumped 17.6 percent over the same period.

    With crude prices near record lows, China is seen as likely to double its strategic oil purchases in 2016, adding 70-90 million barrels to its strategic petroleum reserves (SPR).

    Read more at Reuters
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    Carl Icahn buys more of LNG player Cheniere

    Billionaire investor and a major Cheniere Energy shareholder, Carl Icahn, has raised its stake in the Houston-based LNG player to 13.83 percent.

    A filing with the Securities and Exchange Commission (SEC) from Monday reveals that Icahn bought 2,781,694 shares of Cheniere’s stock at an average price of $43.25 per share.

    The total transaction was valued at about $120 million. Icahn now owns 32,649,671 shares in Cheniere.

    The billionaire reported an 8.18 percent activist stake in Cheniere in August and has since then boosted its stake in the company for several times.

    Cheniere also in September appointed two managing directors of Icahn Capital, a subsidiary of Icahn Enterprises, to its board of directors.

    Cheniere, that is developing two LNG export projects in the United States, expects to ship the first cargo from its Sabine Pass liquefaction facility in January 2016.
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    Saudi Arabia shipping more Nov-Dec crude to Asia to meet robust demand

    Saudi Arabia is shipping more crude oil to Asia over the last two months of the year as strong refining margins boost demand, trade sources said, helping the top oil exporter defend its market share amid fierce competition.

    Cheap Saudi oil - in comparison with prices for other Middle Eastern grades - has drawn several Asian refiners to request a few million barrels above contractual volumes as they ramp up crude run rates to capture robust margins.

    The increment in demand will require Saudi Arabia to pump at near record volumes just as a battle over global market share is expected to intensify following the failure of the Organization of the Petroleum Exporting Countries (OPEC) to set a production quota, and ahead of higher exports from Iran next year once sanctions over its nuclear programme are lifted.

    "There is a bigger call for Saudi crude as monthly supply nominations from Asian refiners have gone up," said an industry source familiar with the matter, adding that the kingdom will raise shipments to Asia by a few million barrels over November and December.

    The trend may continue into early next year as a drop in exports from key light sour producer Abu Dhabi has increased demand for Saudi grades of a similar quality.

    Nearly half of Saudi's crude production is exported to Asia. Saudi Arabia's major Asian customers received about 4.6 million barrels per day (bpd) of crude in the first 11 months this year, up 12 percent from the same period a year ago, data from Thomson Reuters Research & Forecasts showed.

    Saudi Arabia last raised oil exports to Asia over contract volumes in January and February this year to meet peak winter demand in the Northern Hemisphere. The OPEC member's offers of extra crude in low-season October, however, failed to attract interest from Asia.

    Demand for Saudi crude picked up again in November and December as refining margins rebounded.

    At least four Asian refiners lifted more crude as Saudi Aramco set more competitive official selling prices (OSPs), sources close to the matter said.

    Under oil contracts, the seller or buyer can adjust loading volumes, depending on demand and shipping logistics, using an operational tolerance that ranges from plus to minus 10 percent of the contracted volume.

    "The OSP is not bad and the (refining) margin is wonderful," said a trader with a North Asian refiner that has requested more Saudi crude.

    Saudi Aramco's Arab Extra Light OSP is about $7 a barrel below Abu Dhabi's Murban, the widest discount since August.

    Light sour crude supply is expected to tighten early next year as Abu Dhabi National Oil Company has cut Murban and Das crude exports on field maintenance and higher domestic demand.

    Light crudes typically yield more light products such as naphtha, whose crack to Brent NAF-SIN-CRK averaged $111.93 a tonne in November, the highest since September 2014.

    This helped boost refining margins at a typical complex refinery in Singapore to the highest in eight months in November.

    Taking the strong refining margins in Asia into greater consideration, Saudi Arabia cut its January OSPs for most of the crude grades it sells to Asia by a smaller extent than expected last week.

    Asian refiners are now waiting for other Middle Eastern producers to set their prices before deciding on how much Saudi crude to ask for in January, sources said.

    Read more at Reuters

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    EIA again sees oil production dropping in Eagle Ford, Bakken and Niobrara

    The US Energy Information Administration Monday again forecast oil production to fall in the Eagle Ford, Bakken and Niobrara plays in December, marking the 10th straight month of projected declines, but said Permian production would continue to climb.

    In its Drilling Productivity Report, EIA said it expects Eagle Ford oil production to fall by 77,000 b/d in December to just over 1.2 million b/d, while Bakken production will fall by 27,000 b/d to just under 1.1 million b/d and Niobrara production will fall by 24,000 b/d to 344,000 b/d.

    EIA has forecast a month-to-month drop in oil production in each of these three plays every month since February, when it last estimated that production would climb by 17,000 b/d in the Eagle Ford, 13,000 b/d in the Bakken and 3,000 b/d in the Niobrara.

    Permian production is expected to continue to climb by 14,000 b/d to nearly 2.04 million b/d next month, the report estimates. EIA has forecast a jump in Permian production since it began releasing its drilling productivity report in May 2014.

    Overall, EIA sees oil production in these four regions, along with the Haynesville, Marcellus and Utica, falling by 116,000 b/d from December to January. These seven plays, which are forecast to produce about 4.98 million b/d this month, will produce just over 4.86 million in January, EIA estimates.

    In addition, oil production from new wells in these seven plays is expected to remain relatively flat, falling by 3,000 b/d to 492,000 b/d next month.

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    Total to Pay $3.6 Million to Settle U.S. Gas Market Rigging Case

    Total SA, the world’s fifth-largest integrated oil and gas company, has agreed, along with one of its traders, to pay a $3.6 million civil penalty to settle charges of attempted natural gas market manipulation in the U.S.

    Total Gas & Power North America Inc. and the trader, both based in Houston, were charged with trying to rig monthly gas index prices at four major trading hubs in Texas and other markets in the Southwest, the U.S. Commodity Futures Trading Commission said in a statement Monday. The agency imposed sanctions including a two-year trading limit during monthly settlement periods.

    Total was one of the largest players in the fixed-price gas markets at the time that it attempted to manipulate prices, according to the trading commission’s statement. Its penalty comes as U.S. regulators increase efforts to crack down on market manipulation in energy markets. BP Plc’s facing a $28 million penalty after a Federal Energy Regulatory Commission judge ruled that it had artificially lowered gas prices at a Houston hub in 2008. Barclays Plc is fighting $488 million worth of fines after the same energy commission alleged it had manipulated power trades.

    We have no comment beyond the terms of the order other than we are pleased to have resolved this matter with the CFTC,” Katia Mackintosh, a spokeswoman for Total in Houston, said by phone Monday.

    The Federal Energy Regulatory Commission, which in September separately accused Total of manipulating gas markets, said at the time that the company had executed a scheme to manipulate the price of natural gas in the southwestern U.S. between June 2009 and June 2012. Total Gas & Power has traded and marketed natural gas in the U.S. since 1990 and owns 1 billion cubic feet per day of capacity at the Sabine Pass liquefied natural gas terminal in Louisiana, according to the company’s website.
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    Woodside scraps $8 bln Oil Search tilt as oil price tanks

    Australia's Woodside Petroleum on Tuesday formally scrapped its $8 billion all-share proposal to take over Oil Search Ltd, which was rebuffed in September, and said it was not chasing any other deal to merge with its target.

    The statement came after speculation Woodside was looking to snare the Papua New Guinea government's 9.8 percent stake in Oil Search to get a foot in the door of the PNG oil and gas producer, coveted for its liquefied natural gas (LNG) assets.

    "Woodside is not pursuing any alternative transactions to combine the businesses," it said in a statement to the Australian stock exchange.

    Oil Search shares, which have sharply outperformed rivals this year, slumped nearly 18 percent to their lowest since August, with the takeover premium evaporating.

    Woodside's shares fell more than 4 percent to a seven-year low, but held up better than other energy producers on a day when oil prices hit their lowest since February 2009.

    "Clearly investors will see this as a positive, the fact that they're not going to raise the bid," said Neil Beveridge, an analyst with Bernstein in Hong Kong. "You're in an environment where cash is king, and balance-sheet strength is everything."

    Cashed up but forced to defer its own expensive growth plans due to weak LNG prices, Woodside had been chasing Oil Search for its 29 percent stake in the PNG LNG project, considered one of the world's lowest cost, expandable LNG projects.

    Analysts said the decision to walk away probably reflected the fact that Woodside was unable to win support from Oil Search's top shareholders, Abu Dhabi's International Petroleum Investment Corp and the PNG government, without sweetening its offer, which would not make sense in a depressed oil market.

    "If you think the oil price is going to go lower, there might be better opportunities," said Andrew Forster, senior investment officer at Argo Investments, which owns shares in Woodside.

    Oil Search rejected the one-for-four takeover plan, worth A$11.6 billion when it was announced in September, calling it too cheap. Its shares last traded at A$6.34, valuing the company at A$9.7 billion.

    It reiterated on Tuesday it was focused on its low-cost operations in PNG, where its output could double in the early 2020s, working with giants ExxonMobil Corp and France's Total SA on two "world class" LNG projects.

    Read more at Reuters
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    China's Nov crude oil imports up 7.6 pct on yr -customs

    China's November crude oil imports rose 7.6 percent from the same month a year ago, data showed on Tuesday, as state energy firms extended the strategy of maintaining strong buying on low crude prices and exporting surplus refined fuel.

    China brought in 27.34 million tonnes, or 6.65 million barrels per day (bpd) last month, preliminary data from the General Administration of Customs showed, about 440,000 bpd or 7.1 percent above the October level.

    For the first 11 months, China's crude oil imports rose 8.7 percent to 302.3 million tonnes, or 6.61 million bpd, supported by strong demand for gasoline and aviation fuel even as demand for diesel eased in line with a cooling economy.

    "The main trend is on track - as long as storage space allows, China will continue to seize low oil and build stocks," said Barclays analyst Zhang Chi.

    "The low oil (price) also helps refineries maintain relatively high operations to cover firm gasoline demand and then export surplus diesel which has been hit by the weaker economy."

    China, which imports roughly 60 percent of the crude oil it processes, has been taking advantage of oil prices that have more than halved from last year's peak to fill strategic reserves.

    The country could double strategic oil purchases next year as more tanks become available, according to a Reuters' survey of analysts, challenging the United States as the world's largest crude buyer.

    The entry of new crude importers, independent refineries Beijing allowed in for the first time to boost private sector investment, also helped prop up crude shipments.

    Reflecting a surge in net fuel exports, customs data showed China's oil product imports fell 21 percent in November versus a year ago to 1.88 million tonnes, while exports jumped 68 percent year-on-year to 4.1 million tonnes.

    China's commercial crude oil stocks at the end of October fell 4.4 percent from the previous month in their biggest drop since at least 2010, and refined fuel also recorded a steep draw, the official Xinhua News Agency has reported, allowing for inventory replenishment.

    Nov oil product exports rise 68% on year to 4.1 mil mt, record high since Jan 2005 when Platts started compiling the data

    Read more at Reuters

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    Oil Firms Dropped From EU Probe Into Fuel-Price Manipulation

    Oil companies, including Royal Dutch Shell Plc, BP Plc and Statoil ASA, no longer face a European Union investigation into potential manipulation of crude oil benchmarks.

    The European Commission “is currently not investigating further behaviors in price benchmarks for the crude oil sector," Ricardo Cardoso, a spokesman for regulator said in an e-mail. He said the EU’s current probe focuses “on price benchmarks for the ethanol sector.”

    Raids on Shell, BP, Statoil and price publisher Platts in May 2013 over suspected benchmark-rigging echoed probes into banks for trying to fix the London Interbank Offered Rate and foreign exchange markets. EU antitrust regulators levied 1.7 billion euros ($1.8 billion) in fines later that year over Libor manipulation.

    The EU is now focusing on ethanol benchmarks, opening a formal investigation on Monday into suspicions Abengoa SA colluded with Alcogroup and Lantmaennen. The trio may have agreed to submit or support bids to push benchmarks up and increase ethanol prices as a result, the commission said in a statement.

    Closing the crude oil part of the case removes the risk of possible fines for companies involved.
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    A bunch of OPEC members are 'at risk for a significant crisis in 2016'

    The group remained divided over its production ceiling, and failed to reach an agreement.

    And that's pretty grim news for about half of the cartel's members, who are already struggling with low prices amid a supply glut.

    "[The] OPEC meeting ended without a decision, putting on full display the vast divide between OPEC members," wrote RBC Capital Markets global head of commodity strategy Helima Croft. "We believe that the current OPEC strategy — or non-strategy — leaves a significant portion of the cartel at risk for a significant crisis in 2016."

    Notably, there are two camps within OPEC: one that definitely can't handle the stress of lower oil for longer and one that says it can. The crisis-prone, high-risk "fragile five" — Libya, Iraq, Nigeria, Algeria, and Venezuela — want higher prices ASAP as they risk plunging into deeper economic and political chaos, while the relatively better-off Gulf Cooperation Council (GCC) members — Saudi Arabia, Qatar, Kuwait, and the UAE — can sort of weather the lower prices for now.

    "This chasm ... was on fully display at the initial morning press conference. Qatar's energy minister ... stated that the non-interference strategy is working [and] predicted the market would balance in 2016," noted Croft. While on the flip side, "Venezuela's energy minister ... warned that the price situation was extremely critical and that prices would drop to $20/bbl without OPEC action."

    "The interests of member countries have perhaps never been so far apart," Croft wrote in another note ahead of the meeting.
    RBC Capital Markets

    However, this wasn't the only major stress-point for OPEC last Friday.

    While de facto OPEC leader Saudi Arabia adopted a more conciliatory posture in the days leading up to Friday's meeting, Iran decided to play hardball.

    "If anything, it was the Iranians who were publicly displaying a lack of flexibility in the runup to the meeting," wrote Croft. "The Iranian energy minister, Bijan Namdar Zangeneh, ruled out Iran accepting any output restrictions until the country's exports returned to pre-sanctions levels."

    That's not exactly surprising, as Iran is on the cusp of reaping serious economic benefits if/when sanctions will be suspended. Still, its "refusal to abide by any output restrictions likely contributed to the lack of any real decision from the cartel," noted Croft.

    And, although Croft doesn't mention this point exactly, it's also worth reiterating that Iran and the Saudis vie for regional hegemony — and it's interesting to see the reversal of fortunes. The former, which is poised to win big after years of incapacitating sanctions, took a tougher stance, while the latter, struggling with budget pressures and rumored internal divisions, took the more "conciliatory" route.

    In short, OPEC's lack of real decision betrays the deep divide within the cartel, and that could mean pain for some of its members going in the upcoming year.
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    RasGas foresees decade of 5 pct yearly LNG demand growth

    LNG business environment is still strong with an expected continuous demand growth ahead, according to Khalid Sultan R. Al Kuwari, chief marketing & shipping officer of RasGas.

    Speaking at an LNG summit in Rome last week, Al Kuwari anticipated a five percent growth rate per year from 2015 to 2025, with LNG demand outpacing expected growth in natural gas demand.

    He noted that the Asian premium has been challenged due to the increase in supply and a lower demand for LNG in Asia mixed with the drop in oil prices put new LNG projects under pressure, questioning economics.

    However, Al Kuwari said that new markets are emerging rapidly and LNG still requires capital investments in production, liquefaction and transportation.
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    Investors brace for oil price 'lower for even longer' after OPEC

    Investors are betting on the oil price staying lower for even longer after OPEC's decision to ditch a formal production ceiling, pushing U.S. crude futures for delivery nearly 10 years away below $60 a barrel.

    This could possibly harm the ability of U.S. shale producers, among the casualties of OPEC's strategy of pumping hard to retain market share, to lock in profitable prices for future deliveries.

    U.S. crude futures for front-month delivery fell below $40 per barrel on Monday after the Organization of the Petroleum Exporting Countries failed last week to agree on an output target to reduce a bulging oil glut that has cut prices by over 60 percent since 2014.

    In the run-up to the OPEC decision, oil derivatives showed investors had, unusually, been willing to pay more to protect against a surprise rally in the price, than a surprise fall.

    That bet has now been unwound, meaning they are once again expecting a higher likelihood of further declines than that of a bounce back. The most popular options contract is one that gives the holder the right to sell crude oil futures at just $35 a barrel.

    "Oil is going to make lower lows and lower highs for the foreseeable future and, in terms of market reaction post-OPEC, I'm not surprised, but it does leave the door open for prices to fall," Gain Capital analyst Fawad Razaqzada said.

    Bearishness has been brewing in the derivatives market for some time. Options data shows holdings of December 2016 put options at $25, $30 and $35 a barrel have risen 41 percent in the last two months and open interest in those three contracts now equates to nearly 90 million barrels of oil. <0#CLZ6+>

    "Price levels just aren't high enough for many shale producers to hedge," said Mark Keenan of Societe Generale.

    "In addition, due to the short production timelines associated with many shale wells because of their steep well depletion rates, there is little need to hedge five years or more into the future."

    Read more at Reuters
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    Toil ahead for oil, but expect double trouble for LNG

    The LNG market is facing oversupply for years, experts agree. Photo: Robert Shakespeare

    The crude oil market is seen as being in dire straits, but liquefied natural gas is much worse, according to experts.

    Hanging as a dark cloud over the market for the next several years are large volumes of LNG from committed US export projects that have firm sales contracts but have yet to be sold to end users.

    Consultancy FGE says between 25 million and 35 million tonnes of the 65 million tonnes a year of US LNG export capacity under construction has been sold to "middlemen", traders or portfolio LNG players such as BG Group or Mitsubishi, which still need to sell the gas on.

    "Portfolio sellers and traders are not end users: they must find buyers," FGE founder Fereidun Fesharaki says.

    In addition, about one-third of Qatar's export LNG volumes are unsold, while the three big Chinese national oil companies and one Indian national oil company have switched from buying to selling as they seek to resell LNG they have committed to buying, according to FGE.

    An example is Sinopec, the dominant buyer for Origin Energy's Australia Pacific LNG venture, which is on the cusp of starting production. It is reported to be offering to resell cargoes it has signed up to buy from the Queensland plant.

    That means about 70 million tonnes a year of LNG still needs a buyer, which will weigh on the oversupplied Asian market potentially through to the mid-2020s, the consultancy says. Dr Fesharaki describes those holding the contracts as "desperate sellers" that will provide stiff competition for producers seeking customers for new projects.

    LNG oversupply

    FGE's outlook points to bleak prospects for Woodside Petroleum's ambitions to give the green light in late 2016 for the construction of the Browse floating LNG venture, given it is still seeking customers for the gas.

    Dr Fesharaki names potentially only three new projects that could move forward in the next few years: Anadarko's Mozambique venture; expansion in Papua New Guinea; and Petronas' western Canadian venture.

    Australia's wave of new LNG projects, including three in Queensland, Chevron's two monster Western Australian projects, Inpex's Ichthys and Shell's Prelude floating project, are all starting production within the next couple of years.

    They make up a large chunk of the 90 million tonnes a year of new LNG capacity that Bernstein Research estimates will start up by late 2017, amounting to 35 per cent of current worldwide demand.

    Bernstein sees oversupply of 20 million to 30 million tonnes, or 10 per cent of demand, persisting through to 2018 as global LNG demand struggles to grow.

    Chinese demand growth has "collapsed" this year, with LNG imports likely to decline in 2015 for the first time since they began in 2006, Bernstein says. Yet it considers the chances of China defaulting on its LNG purchasing contracts, as suggested by some commentators, as "highly unlikely".

    The experts agree that the situation will create huge downward pressures on spot LNG prices, with FGE forecasting that prices will sink to just $US5 per million British thermal units in Asia, and could even plunge temporarily to $US3 or $US4. That compares with December prices of about $US7.28, which are already 42 per cent down from a year ago, according to pricing service Platts.

    FGE is expecting a decoupling of spot and contract LNG prices, which FGE expects to remain in the $US8 to $US9 range through to 2017, based on its forecast for crude oil to which Asian contract LNG prices are linked.

    "The oil market is not so bad," Dr Fesharaki says. "LNG is far worse."

    Yet existing Australian LNG producers should be mostly insulated from the worst of the effects, says Adelaide-based consultancy EnergyQuest.

    It points out that the new Australian projects coming into production are all largely covered by contracted sales to buyers that respect the sanctity of contracts and value the long-term relationships that underpin the Asian LNG industry.

    "In our view, the major factors affecting Australian LNG production are likely to be technical ones like completion timing, ramp-up and gas supply, rather than the state of the market," EnergyQuest said.

    Read more:
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    Utica Shale Production Hits New Highs

    The Ohio Department of Natural Resources (ODNR) just announced Ohio’s third quarter production results, which show an impressive doubling of both oil and natural gas production.

    In the third quarter of 2015, the Utica shale produced 5,696,780 barrels of oil and 245,747,686 Bcf (245 billion cubic feet) of natural gas. This sets new records as unconventional shale production totals have increased by more than 100 percent since the same quarter last year.

    In 2014, Ohio’s wells only produced 15,062,912 barrels of oil and 512,964,465 Mcf of gas for the entire year which means that during the first nine months of 2015, oil and gas production surpassed 2014’s entire production results.  This report also indicates that this trend is continuing as there was an increase of 23.8 Bcf and 118,000 barrels since last quarter.

    Although rig count has been falling in Ohio overall, production continues to soar in its Southeast, where Belmont County and Monroe County are producing record amounts of natural gas.  As for oil, most production in Ohio still remains in Noble, Guernsey, Harrison, and Carroll Counties.  As shown below, Rice Drilling remains the top producer with Ascent Resources (formerly American Energy Utica), Chesapeake, and Antero Resources rounding out the top four.
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    Devon Energy to buy Anadarko Basin assets for $1.9 billion

    Oil producer Devon Energy Corp said it will buy some assets in the Anadarko Basin from smaller peer Felix Energy LLC for $1.9 billion, the latest deal in the U.S. oil patch amid a global crude price rout.

    As part of the deal with Felix, Devon will acquire 80,000 net acres, with up to 10 prospective zones, in the Anadarko Basin which is spread over Oklahoma and Texas.

    Separately, Devon agreed to acquire 253,000 net acres in the Powder River Basin for $600 million on Monday.

    The Powder River Basin assets are located to the south of Devon's existing position in Wyoming and includes production of 7,000 barrels of oil equivalent per day (boepd), with about 85 percent oil, the company said.

    Devon's pipeline unit EnLink Midstream also agreed to acquire peer Tall Oak Midstream for $1.55 billion.

    Reuters reported last week that Devon is in discussions to buy peer Felix Energy for around $2 billion, including debt, citing sources familiar with the matter.

    The deals will be funded with about $1.35 billion of Devon equity issued to sellers and about $1.15 billion of cash on hand and borrowings.

    Devon said it is also in the process of marketing its Access Pipeline in Canada and planning to monetize various other non-core upstream assets.

    The company has identified 50,000 to 80,000 boepd of production from non-core assets, which it plans to divest throughout 2016.

    A more than 60 percent drop in oil prices, has forced oil producers, including Oklahoma-based Devon, to tighten their budgets and raise cash.

    Devon, which wrote down about $6 billion worth of oil and gas assets in the third quarter, said it expects pipeline and upstream divestitures to generate proceeds of $2 billion to $3 billion.

    Read more at Reuters
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    Europe's diesel market hits crunch month of over supply

    Europe's new status as the dumping ground for the world's excess diesel comes to a head this month as mild weather, strong refinery runs and months of building stocks combine.

    The glut has been building for months as margins fattened by cheap crude have prompted European refiners to boost output and as exports from new refineries in the Middle East have headed to Europe.

    "Europe is not performing. There is lots and lots coming from the Middle East and more tenders for exports from the Middle East and India," one trader said.

    Vessels that took a longer trip around the southern tip of Africa to delay their landing are now arriving, and lingering at ports.

    At least four 90,000-tonne tankers filled with distillates, which includes diesel and heating oil, are floating outside Europe's Amsterdam-Rotterdam-Antwerp import hub.

    Storage tanks there are nearly 70 percent full, according to industry monitor Genscape, while German household heating oil stocks, at 63 percent of tank capacity, are above their five-year average.

    The surplus is forcing some storage to move offshore where traders such as Vitol have already leased ships to serve as floating storage.

    But the window to make money that way is narrow. The premium of current distillate prices over those next month - known as contango - stood at just $7 per tonne on Friday.

    Ship brokers said that with current freight costs

    , traders need $15 per tonne per month to cover the vessel costs alone.

    "If there is no belief in forward prices, then a steep contango can't develop," another trader said. "Each time the prompt goes down, so does the back end of the curve."

    Profits for diesel versus crude oil stood near five-month lows and threatened to drop further - bad news for oil refineries but potentially the opposite for many drivers.

    "I am not surprised by the accumulating diesel surplus," said Stephen George, chief economist with KBC Advanced Technologies.

    "A contributing factor has to be strength in gasoline, which is supporting refining runs and the overproduction of distillates."

    Refineries in Europe and Asia have been running at full steam to capture unusually strong profits for gasoline and naphtha, light ends in industry terminology. Refineries in the United States are also just starting up again after maintenance,

    Demand for gasoline has soared as low prices encouraged motorists in China, India and the United States to clock up more miles well past the traditional summer driving season.

    On Monday, data showed that investor bets on falling diesel prices hit their highest level in at least four years.

    Distillate stocks on the U.S. East Coast are 33 percent above the five-year average, according to BNP Paribas. All this is expected to force these regions to export - adding to Europe's glut.

    "If light ends go back to more seasonally normal levels, things might not be so bad," another trader said. "But as long as they are strong, you keep building distillate stocks and that's when things can get really bad."

    Read more at Reuters

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    Jordan’s NEPCO targets spot LNG purchases

    National Electric Power Company of Jordan is expected to issue an LNG tender soon seeking cargoes from the spot market.

    NEPCO’s managing director assistant for operation and planning, Amani Al-Azzamtold Reuters on Thursday that Jordan expects to import around 20 percent of its LNG from the spot market in 2016 and 2017.

    He added that Jordan could import up to seven cargoes a year from the spot market in 2016 and 2017, noting that an LNG supply tender could be issued by the end of December, seeking one or two cargoes for delivery in the first quarter of next year.

    Jordan’s NEPCO already inked a deal with Shell for the supply of 36 LNG cargoes in 2015 and 2016
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    Oil rig count falls for 3rd straight week

    The US oil rig count fell by 10 to 545 last week, for a third period in a row, according to oil driller Baker Hughes.

    That's the lowest tally since the week of June 4, 2010.

    The gas rig count rose by 3 to 292.

    In the prior period, US oil producers idled 9 rigs, while the gas rig count dropped by 4.
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    OPEC fails to agree production ceiling after Iran pledges to boost output

    OPEC members failed to agree an oil production ceiling on Friday at a meeting that ended in acrimony, after Iran said it would not consider any production curbs until it restores output scaled back for years under Western sanctions.

    A final statement was issued with no mention of a new production ceiling, apparently allowing member countries to continue pumping oil at current rates into a market that has been oversupplied.

    OPEC's secretary general Abdullah al-Badri said the body could not agree on any figures because it could not predict how much oil Iran would add to the market next year, as sanctions are withdrawn under a deal reached six months ago with world powers over its nuclear program.

    Most ministers left the meeting without making a comment. Iranian oil minister Bijan Zangeneh had said before the meeting that Tehran would be prepared to discuss action only when his country reached full output levels, if and when Western sanctions are lifted.

    Saudi oil minister Ali al-Naimi earlier had said he hoped growing global demand could absorb an expected jump in Iranian production next year: "Everyone is welcome to go into‎ the market".

    Iran has repeatedly said it would boost production by at least 1 million barrels per day when sanctions are lifted. Without curbs elsewhere, this would add to a global glut, as the world is currently consuming up to 2 million bpd less than it is producing.

    Read more at Reuters

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    Turkey Turns to Iraq's Kurds for Gas Amid Pressure From Putin

    Turkey plans to build a pipeline to import gas from the Kurdistan Regional Government in northern Iraq, part of efforts to diversify its energy supply as relations with Russian President Vladimir Putin deteriorate.

    The state-run gas grid operator Botas will open a tender in two months for construction of the 180-kilometer (112-mile) pipeline, which will carry up to 20 billion cubic meters of gas a year from the border with Iraq to where the existing grid ends at Mardin, a Turkish official said Wednesday, asking not to be named in line with policy.

    Turkish officials have scrambled to secure alternative sources of energy since its F-16s downed a Russian warplane in the border region with Syria, triggering economic sanctions and intensifying verbal attacks from Putin. Though Russia has promised to adhere to its contractual supply obligations, the incident has left Turkey exposed.

    “In the long-term, Turkey needs to cut its dependence on Russian gas below 30 percent, from 55 percent now, and it also needs to speed up work on getting Kurdish gas,” Mehmet Ogutcu, chairman of London-based energy advisory firm Global Resources Partnership, said by phone on Wednesday. “Those occupying ruling positions in Turkey should stop promulgating the narrative that it can get gas from other sources -- it’s not that easy.”

    Turkey’s $800 billion economy relies on imports for almost all of its fossil fuel needs, with half of its natural gas coming from Russia at a cost of as much as $10 billion last year.

    Istanbul, Turkey’s most populous city that accounts for more than a quarter of national output, is almost entirely dependent on Russian gas imports through the Trans-Balkan pipeline, according to the Turkish official. Storage facilities around the city may not be sufficient to meet demand in the case of a prolonged cut in supply, he said.

    “On energy, Turkey is definitely more dependent on Russia than what the consensus seems to portray,” Naz Masraff, director for Europe at political risk consultants Eurasia Group, said on Monday. “If there were to be technical problems on the Trans-Balkan line for one or two days, that would really make Turkey and especially the Istanbul region struggle both in terms of power cuts, gas cuts, heating and production.”

    The value of Turkey’s business makes it unlikely that Putin will break Russia’s deals to supply gas, according to Emin Danis, energy program coordinator at Istanbul-based Caspian Strategy Institute.

    The pipeline to northern Iraq would further a relationship with Iraq’s Kurds that has improved in recent years, in contrast to the collapse of a ceasefire with autonomy-seeking Kurds in Turkey earlier this year. Turkey offers the sole route to market to the expanding Kurdish oil industry, and Turkish companies provide builders and consumer goods.
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    Yergin: Why oil prices cannot stay this low

    The next two quarters will be tough on crude prices, but 2016 will be a year of transition for oil markets, IHS Vice Chairman Dan Yergin said Friday.

    Yergin told CNBC's "Squawk Box" he expects oil markets to begin to balance next year or in 2017.

    "The oil market "can't stay low like this because you're not going to have the investment you need," he said." "By 2020, the world oil market is going to need another 7 million barrels a day of production."

    "Right now, the whole mantra is slow down, postpone, cancel projects," he added.

    Multinational energy companies and U.S. shale oil producers have slashed capital spending in order to protect their balance sheets as their revenues plummet and cash flow dries up. Crude prices began to sink from historic highs last fall, and the downturn accelerated after OPEC announced it would not cut supply to balance oil markets.

    Despite expectations that high-priced American crude production would collapse at $70 a barrel, U.S. producers can perform well at $55 to $60 per barrel. However, current prices in the $40 to $50 range are creating "great pain," he said.

    Yergin said he does not expect OPEC to change its policy of maintaining current oil output levels to defend market share. The 12-member orgnization is meeting Friday in Vienna.

    Crude oil futures rose Thursday on reports that top oil exporter Saudi Arabia would agree to cut production by 1 million barrels a day, provided non-OPEC members also dial down output.

    However, a Saudi source said later the report by industry publication Energy Intelligence was "baseless." Iran, Iraq and Russia swiftly rejected any such proposal.

    Russia, which does not belong to OPEC, is the world's top oil producers and has been pumping crude at a rate of about 10.5 million barrels per day.

    After years of sanctions on Iranian oil, Iran's leaders have said they plan to bring 500,000 barrels per day to markets as soon as possible, and they anticipate reaching 1 million barrels. The world is already oversupplied with about 1.5 million barrels of oil.

    Kurt Hallead, co-head of energy research at RBC Capital Markets, said a Saudi cut was highly unlikely because it would essentially subsidize U.S. production and make room in the oil markets for Iran, the Saudis chief regional rival.

    Oil prices may be range bound for years, he told "Squawk Box" on Friday.

    "I think this is more like the period of 1991 to 1994, where you had about a three-year period of capacity absorption before the supply and demand lines kind of crossed again," he said.

    In his scenario, prices would move up and down between current levels and roughly $60 per barrel.
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    Asian LNG market to enter deeper glut as demand falters, supplies soar

    Asia's liquefied natural gas (LNG) glut is set to deepen in 2016 as long-planned new production comes to the market just as demand from top buyers Japan and South Korea as well as China wanes.

    While analysts say that new consumer demand may offset dwindling use from established buyers, new supplies will outweigh overall orders, resulting in a low gas price outlook for years to come.

    "From having been an import basin, Asia will next year be going to have excess supplies and worse so in 2017," said David Hewitt, co-head of global oil and gas equity research at Credit Suisse.

    While term buyers will take most of the volumes from Australia's 13 new LNG supply-trains, commissioning cargoes over the next two years totalling 14 million to 15 million tonnes will go into the spot market, adding pressure to prices.

    Hewitt said he expected Asian LNG spot to fall to "eye-watering low" levels of below $5 per million British thermal units (mmBtu) in early 2016 and to hit a low of $4 during the year.

    Because of the emerging glut, Asian spot LNG prices LNG-AS have already plummeted by almost two-thirds since 2014 to around $7.30 per mmBtu.


    With this wave of supply, even rising demand from new customers that will outweigh the dips in demand from established importers will not be enough to balance the market.

    Japan imported 6.06 million tonnes of LNG last month, down 12.8 percent from a year ago, while South Korea's monthly imports have averaged 2.7 millon tonnes this year, the lowest since 2009, customs data showed.

    China's LNG demand could dip by around 300,000 tonnes this year, according to analysts, although this is expected to be a short-term dip rather than a long-lasting trend.

    A dozen new buyers - including Morocco, Poland, the Phillippines and Bangladesh - are expected to start importing LNG by 2020, creating about 13 million tonnes a year of new demand. But this will not consume the 14 million to 15 million tonnes of commissioning cargoes coming onto the market.

    Along with consumption from existing buyers, newcomers are expected to add 50 million tonnes per annum of demand by 2020, yet a huge 120 million tonnes a year of new LNG is scheduled to come online by then, according to industry expectations.

    With such an overhang in supplies, analysts and industry members say that some planned production will have to falter in order to rebalance the market.

    In another sign of a deepening glut, China's Sinopec has been given rare approval by its partners in the Australia Pacific LNG project to sell on some of the cargoes it doesn't need for itself, albeit with heavy restrictions.

    The A$24.7 billion ($18.06 billion) Australia Pacific LNG project is now starting operations and will produce 9 million tonnes of LNG a year when completed.

    Most LNG deals have so-called destination clauses which prohibit the sale of unwanted cargoes to third parties.

    However, ConocoPhillips, which holds 37.5 percent of the project, and Australia's Origin, with a similar-sized stake, have given Sinopec permission to sell on some cargoes it doesn't need, permitting they are sold within China or outside Asia and are sold linked to oil prices, according to Conoco. Sinopec holds 25 percent of the project.

    With oil-indexed LNG prices about a dollar higher than Asian spot prices and European benchmarks almost $3 per mmBtu cheaper, Sinopec will have a hard time selling the shipments. Higher freight costs from Australia to Middle East and European markets will also add to the price of Sinopec's cargoes.

    Read more at Reuters

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    "Shale is the new Reality"

    “There is nothing at the moment that could be done from OPEC to correct the situation,” said an OPEC delegate from a Persian Gulf Country. “Shale is the new reality.”
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    Alternative Energy

    UK proposes huge VAT hike for solar panels

    The UK Government has proposed a massive VAT hike for solar panels and wind turbines.

    The news comes as the European Commission said the UK’s legislation was not consistent with EU laws and referred it to the Court of Justice of the European Union.

    The UK currently applies the reduced VAT rate of 5% for the installation of energy-saving materials (ESMs) in domestic properties, including insulation, heating controls, solar panels, wind turbines and ground and air source heat pumps.

    Under the new proposals, solar panels, water turbines and wind turbines would be charged at the standard VAT rate of 20%.

    HM Revenue & Customs (HMRC) has launched a consultationand is seeking views from interested parties until 3rd February 2016.

    It states: “The measure is likely to affect fewer than 500,000 individuals (and households) and the impact on affected individuals (and households) is anticipated to be negligible.

    “We estimate that there are roughly 3,000 businesses will also incur one-off costs updating their invoicing systems to account for the change in the tax rate… These costs are therefore expected to be negligible”.

    The reduced rate will however continue to apply to those “who have a social need”, relevant housing associations and installations in all buildings “used solely for a relevant residential purpose”.

    The HMRC document adds: “The revised legislation as drafted will mean that there could be a different VAT treatment depending upon the status of the customer (for example, whether or not the customer is a ‘qualifying person’).

    “However, the different treatment will only arise in cases where the supply includes installed materials and the cost of the materials element of the supply is greater than the labour installation cost. All other supplies will be unaffected.”

    The new proposals are expected to come into effect on 1stAugust 2016.

    The Solar Trade Association claims the move could add £900 to the cost of a typical 4KW solar installation, which is currently around £6,400.

    Head of Policy Mike Landy said: “This requires urgent action from both the UK Government in London and the European Commission in Brussels.

    “Instead of just accepting the EU ruling, HMRC needs to push back and argue for solar to keep its reduced VAT rate. The Department of Energy and Climate Change and the Treasury also need to take this massive hike in end prices into consideration in their imminent decision on how far to cut the Feed-in Tariff for solar.”
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    SunEdison cuts cash portion of Vivint Solar offer

    Solar company SunEdison Inc said it cut the cash portion of its offer for Vivint Solar Inc by $2.00 to $7.89 per share.

    SunEdison's shares jumped 21.4 percent to $4.25 in early trading on Wednesday.

    The company said the stock component of the offer has been raised by 75 cents per share.

    SunEdison also said Blackstone Group LP had entered into a commitment to provide a $250 million credit facility

    SunEdison said its yieldco, TerraForm Power Inc, will acquire Vivint Solar's then-installed rooftop solar portfolio for about $799 million based on the number of installed megawatts (MW) expected to be delivered at closing, subject to reduction based on any solar portfolio debt assumed by TerraForm Power.

    TerraForm Power was to buy Vivint's rooftop solar portfolio of 523 megawatts for $922 million, according to the terms of the deal signed in July.

    Hedge fund Appaloosa Management LP's David Tepper had earlier this month questioned TerraForm's acquisitions in the Vivint deal.

    Read more at Reuters
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    South Australia to set path towards 100% renewable energy

    South Australia is expected to pass its 50 per cent renewable energy target next year – nearly a decade ahead of schedule – and the Labor government will now aim to get the state as close to 100 per cent renewable energy as possible.

    Premier Jay Weatherill said in Paris on Monday that the state was leading the world in the incorporation of variable renewable energy sources such as wind and solar, and hoped the knowledge gained would create a massive economic opportunity for a state struggling with the decline of long-term industries such as car manufacturing.

    “We are running a big international experiment right now,” Weatherill said at the launch in Paris of the Compact of States and Regions, an initiative that will see 44 states and regions reduce their emissions by 12.4 tonnes by 2030.

    “We have got a long, skinny transmission system and we will soon have 50 per cent renewable energy, including a lot of wind and some solar.

    “We need technology breakthroughs for large-scale storage, such as pumped hydro or batteries, but these are massive technological challenges that are exciting opportunities for the state.”

    Jay Weatherill, Jerry Brown (to his right), and other regional leaders prepare to speak to journalists in the Paris Hotel de Ville.

    South Australia does find itself at the cutting edge of the transition from a fossil-fuel based economy to an energy system dominated by technologies such as wind, solar and storage. Its last coal fired power generator is due to close in March next year.

    The 50 per cent renewable energy target was formally announced last year, but was always going to be met well ahead of time – the addition of the Snowton 2 wind farm, the construction of the Hornsdale wind farm, and the growth in rooftop solar PV will take the state over that threshold in 2016.

    Indeed, the Australian Energy Market Operator has forecast that all of the state’s daytime demand may on occasions be met by rooftop solar alone within the next decade.

    It recently undertook scenario planning that suggested the state could reach close to 100 per cent renewable energy within two decades. In reality, the state is unlikely to go all the way to 100 per cent renewables, because it will likely find that  electrification of transport is a bigger priority. But it could go close.
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    This Joint Venture Could Stir Up The Lithium Market

    Rumors are swirling that the rare metals space is close to an unusual joint venture deal. One that shows how alternative financing arrangements are continuing to become a major story for the beaten-down mining sector.

    The deal is all the more interesting because it involves the world’s largest copper miner: Chile’s state-run Codelco. Which local papers said late last week is looking at a joint venture for a completely different commodity.

    This of course isn’t a major step out for Codelco. Chile is the largest producer of lithium in the world — and Codelco holds a major land package across the country.

    But the rumored partner with Codelco on the lithium investment is more surprising: U.S. electric car manufacturing phenomenon Tesla.

    According to the local press, “top executives” from Tesla have met with Chile’s government in recent weeks. With the goal being to “suggest an agreement with Codelco” on lithium.

    Few details were given about what a potential Tesla-Codelco deal might look like. But it would presumably involve Codelco contributing exploration or development lands from its portfolio — and Tesla contributing some or all of the capital for identifying and producing lithium deposits.

    If such an arrangement does materialize, it would be an extremely interesting move for Tesla. The company needs large amounts of lithium for its electric car batteries. And supply for this metal is somewhat unnerving — given that only five countries outside the U.S. produce significant amounts of the metal.

    Three of those lithium-producing nations are China, Argentina and Zimbabwe. Which Tesla might be hesitant to rely upon for output.

    The only other major producers are Chile and Australia. A fact Tesla has obviously decided to act on — attempting to secure a direct deal with the closest and most apparently-reliable supply nation. Such an approach might have got little attention three years ago. But the fact that Codelco is now apparently considering the concept shows how the current downturn has changed big miners’ ideas on funding sources.

    Officially, Codelco says it has not made any formal agreement yet. Watch for announcements over the coming weeks — which may show the “age of the end user” rising in mining investment.
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    How world can go 100% renewables by 2050 – and save money

    On the eve of the Paris climate conference, a new analysis from Stanford University has laid out a roadmap for 139 countries to power their economies with solar, wind, and hydro energy by 2050.

    The idea of net zero emissions, or a decarbonised economy, is being openly discussed at the Paris conference, even by Australia, with prime minister Malcolm Turnbull talking (but not yet acting) of a push to zero carbon energy, and Labor putting it into their policy modelling. The Greens are pushing for 90 per cent renewables by 2030.

    For most however, zero carbon means including carbon capture and storage and nuclear, or offsets from forestry, land use and other sequestration. Some, though, are talking of meeting that talking with 100 per cent renewable energy only.

    The Stanford study focuses on what is has dubbed “WWS” – wind, water and sunlight. And it includes not just electricity but transportation, heating and cooling, industry, and agriculture, forestry and fishing.

    It says the world can reach 80 per cent “WWS” by 2030, which puts the Greens target for 90 per cent renewable energy for electricity only for Australia by the same date in a different perspective.
    Image title

    The roadmap outlines numerous benefits – millions of jobs, no impact on economic growth – and total savings from fuel costs, environment and climate damage of nearly $US5,000 a year.

    Stanford study estimates that it will save each person in the 139 countries an average of $170 a year on fuel costs, and $2,880 a year in air-pollution-damage cost and $US1,930/person/year in climate costs (2013 dollars).

    They have even broken now the equipment and installations needed into each country. It appears eye watering, but Stanford says the land use requirements are minimal – just 0.29 per cent of the land area, mostly for solar PV, not including reclaimed fossil fuel plants.

    Their plan, under one generalised scenario, would require:

     496,900 50-MW utility-scale solar-PV power plants (providing the most power, 42..2% of the 139-country power for all purposes).
    1.17 million new onshore 5-MW wind turbines (19.4%).
    762,000 off-shore 5-MW wind turbines (12.9%)
    15,400 100-MW utility-scale CSP power plants with storage (7.7%).
    653 million 5-kW residential rooftop PV systems (5.6%).
    35.3 million 100-kW commercial/government rooftop systems (6.0%).
    840 100- MW geothermal plants (0.74%).
    496,000 0.75-MW wave devices (0.72%).
    32,100 1-MW tidal turbines (0.07%)
    Zero new hydropower plants. (Stanford says the capacity factor of existing hydropower plants will increase slightly so that hydropower supplies 4.8% of all-purpose power).
    Another estimated 9,300 100-MW CSP plants with storage and 99,400 50-MW solar thermal collectors for heat generation and storage will be needed to help stabilize the grid.

    Energy efficiency and changing industrial practises will be important. The average end use load will fall 39.2 per cent, with 82 per cent of this fall due to electrification and eliminating the need for mining, transport, and refining of conventional fuels.

    The cost reductions come from the fact that that levellised costs of electricity for hydropower, onshore wind, utility-scale solar, and solar thermal for heat is already similar to or less than natural gas combined-cycle power plants.

    And as the LCOE for rooftop PV, offshore wind, tidal, and wave energy fall below conventional fuels in coming years and decades.

    Stanford says the major benefits of a conversion to WWS are the near-elimination of air pollution morbidity and mortality and global warming, net job creation, energy-price stability, reduced international conflict over energy because each country will be energy independent.

    It will bring power 4 billion people worldwide who currently collect their own energy and burn it, and reduced risks of large-scale system disruptions because much of the world power supply will be decentralized.

    “Finally, the aggressive worldwide conversion to WWS proposed here will avoid exploding levels of CO2 and catastrophic climate change.”

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    Wind, Solar Projects Find New Buyers, Uncertain Prices

    Prices to buy U.S. renewable energy projects are going down asyieldcos, battered by the market, acquire fewer wind and solar farms.

    Yieldcos, publicly traded holding companies that own and operate power plants, dominated the market through the first half of this year. Now they’ve been effectively sidelined after their shares slumped in recent months.

    “There’s a bit of a moratorium in the buying of assets,” Philip Shen, senior research analyst at Roth Capital Partners LLC, said on a panel on Dec. 3 at the Renewable Energy Yieldco Conference in New York.

    “Yieldcos are not sitting on a lot of free cash,” said Swami Venkataraman, a vice president at Moody’s Investors Service.

    With fewer yieldco deals, utilities, infrastructure funds and sovereign wealth funds are emerging as the main buyers of wind and solar projects, and they’re often paying less.

    “Those are the buyers that are setting the price point,” Jeff Kulik, a managing director at Bank of America Corp., said on a panel at the conference organized by Solarplaza.

    Infrastructure funds typically seek unlevered after-tax internal rates of return of about 8 percent, said Venkataraman of Moody’s.

    Earlier this year, when yieldcos dominated the dealmaking, acquired assets produced an unlevered after-tax IRR of about 6 percent to 7 percent, said Carl Weatherley-White, president of Lightbeam Electric Co., a Sausalito, Calif.-based company that’s looking to buy and operate clean energy power plants. Now, it’s about 8 percent to 9 percent.

    “No question, prices will go down as you eliminate buyers,” he said. “There’s a price discovery going on.”

    This new price range will have a significant effect on developers, which often build their cost projections around the aggressive prices offered by yieldcos.

    “If an asset moves 100 basis points, that affects your development fee considerably,” Weatherley-White said.
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    German grid operator sees 70% wind + solar before storage needed

    The company responsible for more than one-third of Germany’s electricity grid says there is no issue absorbing high levels of variable renewable energy such as wind and solar, and grids could absorb up to 70 per cent penetration without the need for storage.

    Boris Schucht, the CEO of 50 Hertz, which operates the main transmission lines in the north and east of Germany – and which is 40 per cent owned by Australia’s Industry Funds Management – says the industry’s views of renewable energy integration has evolved rapidly in the past decade.

    “It’s about the mind-set,” Schucht said at the Re-energising the Future conference in Paris, and later to RenewEconomy.

    “10 to 15 years ago when I was young engineer, nobody believed that integrating more than 5 per cent variable renewable energy in an industrial state such as Germany was possible.”

    Yet, Schucht says, in the region he is operating in, 42 per cent of the power supply (in output, not capacity), came from wind and solar – about the same as South Australia. This year it will be 46 per cent, and next year it will be more than 50 per cent.

    “No other region in the world has a similar amount of volatile renewable energy ….. yet we have not had a customer outage. Not for 35 or 40 years.”

    Schucht conceded that Germany, which through its Energiewende (energy transitions) has pioneered the push into variable renewable energy, made some mistakes in the early years, particularly in relation to the management of rooftop solar PV. But at that time, the penetration rate was low and renewables was only a niche market.

    He points to the changes made since then as proof that the integration is posing no issues. In the solar eclipse earlier this year, a ramp down of more than 10GW of solar PV and ramp up of 14GW of solar PV (both within minutes) were handled by the market with no need for intervention.

    “We believed in the market and education of market,” Schucht said. “We did not need to interfere. It was done by itself.”

    Because of this, Schucht believes that integration of 60 to 70 per cent variable renewable energy – just wind and solar – could be accommodated within the German market without the need for additional storage. Beyond that, storage will be needed.

    Schucht later told RenewEconomy that even higher levels of renewable energy could be absorbed. But before the grid went to 100 per cent renewable energy, he thought that attention should be turned to ensuring there was more renewable energy in the transport and heating sectors.

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    EU solar panel producers win Chinese import curb extension

    European solar panel manufacturers have won an extension of restrictions on Chinese imports after the European Commission agreed on Saturday to a review that keeps curbs in place for at least a year.

    Seeking to resolve a dispute about cheap Chinese imports, the Commission in 2013 set a minimum sales price and a limit on the number of Chinese-made solar panels, wafers and cells sold in the European Union.

    The restrictions were due to expire this month but the Commission said it had decided to consider a request by EU ProSun, an association of EU producers, to extend them.

    "The request is based on the grounds that the expiry of the measures would be likely to result in continuation of dumping and recurrence of injury to the (EU) industry," the Commission said in its Official Journal, referring to EU industry concerns that Chinese rivals would be able to import free of tariffs.

    The Commission's decision to start a so-called expiry review extends the current arrangement for at least a year while it is assessed.

    "As long as Chinese manufacturers fail to comply with basic international trade and competition rules, the EU must maintain the measures in full force and effect," EU ProSun said in a statement.

    European producers accuse China, whose solar exports to the EU rose to 21 billion euros ($21.2 billion) in 2011, of using soft loans and export credits to try to corner the EU market.

    China denies any wrongdoing, arguing that its products are more competitive.

    Read more at Reuters

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    China starts building 2nd biggest offshore wind farm

    China's top wind power company has started building the country's second-largest offshore wind farm, state media said, as Beijing aims to boost the nation's clean power industry and cut dependence on fossil fuels that are contributing to smog.

    Construction of the project in the eastern coastal Fujian province, which is majority owned by Longyuan Power Group Corp Ltd, will take three years at an estimated cost of 8.2 billion yuan ($1.28 billion), Fujian Development and Reform Commission records show.

    The plant on Nanri island off the southeast coast of Fujian province will have installed capacity of 400 megawatts (MW) by 2018, state-run news agency Xinhua said on Friday.

    When complete, it will be second only to two other projects which have planned capacity of 600MW.

    State-owned and Hong Kong-listed Longyuan, a unit of China Guodian Corp, will invest 5.7 billion yuan, or 70 percent of the total funds, with the rest supplied by Jiangyin Sulong Heat and Power Generating Company.

    Since last year, China, the world's fifth-biggest offshore wind power producer, has approved 44 offshore wind projects in 11 provinces with combined installed capacity of 10.53 gigawatts (GW), according to the National Energy Administration (NEA).

    But only two of those were up and running by July, with many stalled by high construction costs of around 20,000 yuan per kilowatt engine, NEA documents show.

    As part of the country's target to have installed capacity of 200GW of wind power by 2020 and encourage investment in the growing sector, China has set prices for offshore wind power generators at 0.75-0.85 yuan per kilowatt hour, higher than the grid tariff of coal-fired plants.

    Grid congestion has stalled onland wind power deliveryEarlier this week, China said it would prioritize renewable energy, including wind and solar, as part of its electricity sector reforms.

    Offshore wind is a relatively new market for China, which launched its first 100MW project in Shanghai in 2009.

    Read more at Reuters
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    Advancing Small Modular Reactors

    Nuclear energy continues to be an important part of America’s diverse energy portfolio, and the Energy Department is committed to supporting a domestic nuclear industry.

    While we are supporting the deployment of passively safe large nuclear reactors, both in the United States and around the world, we are also looking to the next generation of nuclear energy technologies.

    Today, the Department announced a new award that supports first-of-its-kind engineering, design certification and licensing for an innovative small modular reactor (SMR) design. Supporting this innovative technology will help advance low-carbon nuclear energy deployment in the United States.  

    The basics of small modular reactor technology explained. | Infographic by <a href=Sarah Gerrity, Energy Department. " title="The basics of small modular reactor technology explained. | Infographic by Sarah Gerrity, Energy Department. " width="153" height="425" >

    Small modular reactors are approximately one-third the size of current nuclear power plants or about 300 megawatts -- enough to power almost 230,000 homes each year. These reactors feature simplified, compact designs that are expected to be cost-effective and incredibly safe.
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    China to become global nuclear energy player with 110 reactors

    China will have 110 operational nuclear reactors by 2030, making it one of the largest nuclear energy users in the world by then, Power Construction Corp. of China Ltd. (PowerChina) said.

    Exports of indigenous technologies to be key thrust in the 13th Five-Year Plan (2016-20), said PowerChina.

    PowerChina said that the total scale of nuclear power generation from reactors both under construction and in operation in the country will reach 88 GW by the end of 2020, according to estimates in the draft 13th Five-Year Plan for the power industry.

    According to the draft plan, China will set aside 500 billion yuan ($78 billion) for setting up nuclear power plants using its homegrown nuclear technologies and add six to eight nuclear reactors every year from 2016 for the next five years.

    Though it is only a draft proposal, it will "set the tone during the annual legislative and political advisory sessions in 2016", the state-owned firm said.

    There are 22 nuclear reactors in operation and 26 under construction in China, according to the National Energy Administration.

    During the first nine months of this year, the listed firm saw its revenue rise 24.7% to 145 billion yuan from the same period a year earlier, according to a regulatory filing. It claimed to have built about one-third of the nuclear reactors that are currently operating in China.

    At the same time, China is also looking to popularize its homegrown pressurized-water nuclear technology known as Hualong One both at home and abroad.

    In May, work on a pilot project involving Hualong One started in Fuqing, Fujian province, indicating that China is ready to export its nuclear technologies, experts said.

    Sun Qin, chairman of China National Nuclear Corp, said the third-generation nuclear technology meets the highest requirements for global safety standards and has a competitive edge over others in terms of economic performance and reliability.

    Chinese nuclear companies are already making huge inroads in global nuclear markets such as the United Kingdom, Argentina and Kenya.
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    U.S. government forecaster maintains outlook for strong El Niño this winter

    U.S. government forecaster maintains outlook for strong El Niño this winter

    A U.S. government weather forecaster on Thursday said the El Nino weather phenomenon that is underway is expected to remain strong through the Northern Hemisphere winter 2015-16, before tapering off during the late spring or early summer.

    The Climate Prediction Center (CPC), an agency of the National Weather Service, in its monthly forecast broadly maintained its outlook for strong El Nino conditions likely to persist through the winter.

    "El Niño has already produced significant global impacts and is expected to affect temperature and precipitation patterns across the United States during the upcoming months," CPC said.

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

    Japan's weather bureau said earlier Thursday that El Niño is now at its peak and weather would return to normal by summer.

    Read more at Reuters

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    Brazil sugar group Tonon files for bankruptcy protection

    Brazil sugar and ethanol producer Tonon Bioenergia SA, which operates three mills with a total capacity to process 8.2 million tonnes of cane per year, has sought court protection against creditors, the company said late on Wednesday.

    Tonon said its debt, largely denominated in dollars, soared following the recent weakening of Brazil's currency. The sugar group's debt in Brazilian reais jumped by 69 percent by the end of September to 2.66 billion ($707 million) compared to the same time a year earlier.

    "The main objective of this request is to restore the capital structure and preserve business continuity," the company said in a statement.

    More than 70 mills in Brazil have filed for court protection against creditors in the past three years as a long period of low sugar and ethanol prices has hurt their profitability.

    More recently, the local currency's weakness, despite increasing the return in reais on sugar export deals, has raised indebtedness for companies with a large share of their liabilities denominated in dollars.

    Tonon also said tough financing conditions in the Brazilian market further harmed its ability to manage its finances. To tackle inflation running in double-digits, the central bank has signaled it could raise interest rates in January from a nine-year high of 14.25 percent.

    Tonon's request comes at a time when international sugar prices are finally recovering from their lowest values in more than five years and local ethanol prices hit the highest levels since 2011. ($1 = 3.76 reais)

    Read more at Reuters
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    Precious Metals

    Lonmin says $400m rights issue undersubscribed

    Beleagured platinum producer Lonmin said on Friday its deeply discounted $400 million share issue was undersubscribed with about 71% taken up.

    The company, which is seeking cash to stay afloat, said it had received acceptances for 19 billion new shares as of December 10 out of 27 billion shares it is selling to shareholders at 1 pence each.

    The rights issue was underwritten by HSBC, J.P. Morgan Cazenove and Standard Bank. Lonmin said they now need to find subscribers for the balance of nearly 8 billion new shares by no later than December 14.
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    Goldcorp caught in middle of Mexican gang war

    Goldcorp Los Filos gold and silver mine in Mexico's Guerrero state, the same region where 43 students were kidnapped and massacred last year, is at the centre of a turf war between two criminal gangs.

    Goldcorp, the world's most valuable listed gold mining company, has operated the mine near the town of Carrizalillo since 2007, but residents say the $3 million the community receives annually has seen rival gangs enter the area to extort workers, contractors and landowners.

    Guerrero has the country's highest homicide rate and a police crackdown in mid-2014 on Los Rojos, the gang controlling the town of 1,000 at the time, opened the door for a rival gang, Guerreros Unidos, to move in. Both groups are offshoots of the Sinaloa cartel which was headed by infamous narco kingpin Joaquin "El Chapo" Guzman.

    According to Reuters "at least 26 people" have been killed in the ensuing tit-for-tat feud over control. In March this year, three Goldcorp employees were kidnapped for ransom and later found dead.

    Speaking to Reuters, Goldcorp’s Latin America director for corporate affairs and security, Michael Harvey, claimed the corporation is doing everything it can:

    “Even though we can and do advocate with local authorities for the respect of human rights in the vicinity of our operations, we cannot take on the role of government.

    “The violence carries both a terrible human cost to the communities, and a financial cost to Goldcorp as we are obliged to invest in additional security for our operations and personnel.

    "It is essential to protect the jobs provided by legitimate investment so as to give community members economic opportunities other than crime."

    Last year, Goldcorp had to suspend operations for about month, during negotiations with landowners that led to a deal where Goldcorp pays "the equivalent of 4 ounces of gold per hectare in rent to 175 landholders and a communal land fund," according to Reuters.
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    Russia Jan-Oct gold output at 243.9 tonnes - Finance Ministry

    Russia produced 243.9 tonnes of gold in the first 10 months of 2015, down from 246.1 tonnes in the same period a year ago, the Finance Ministry said in a statement on Wednesday.

    Production for the period included 196.9 tonnes of mined output, compared with 199.1 tonnes a year ago.

    Silver production totalled 981.9 tonnes for the period, up from 857.2 tonnes in January-October last year, the ministry added.

    Read more at Reuters
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    Fresnillo says not to suspend production at Saucito

    Silver and gold miner Fresnillo Plc said it would not suspend production at its Saucito mine in Mexico after a pipeline burst on Sunday.

    Mexico's environmental agency PROFEPA said the accident, which occurred on Dec. 6, affected about 8,000 square meters of industrial land and 1,600 square metres adjacent to the mining company.

    Fresnillo, which operates six mines in Mexico, said it was in the process of cleaning the affected area.

    PROFEPA said the mine's operators had completed about 85 percent of the recovery of the spilt material.

    Read more at Reuters
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    China adds 21 tonnes to gold reserves in November on price slump

    China's gold reserves rose by nearly 21 tonnes last month, the biggest purchase since it began disclosing monthly data on the stockpile earlier this year, central bank data showed on Tuesday.

    Gold reserves stood at 56.05 million fine troy ounces at the end of November, up from 55.38 million at end-October, according to the People's Bank of China.

    In tonnage terms, reserves totaled 1,743.35 tonnes at the end of last month, an increase of 20.8 tonnes from October.

    The data is close to a Reuters estimate of 20.9 tonnes, calculated on Monday from PBOC data and the spot gold price.

    The PBOC usually announces the dollar value of its gold reserve early in the month, before revealing the volume later.

    Prior to November, the central bank had been adding between 14 tonnes and 19 tonnes of gold, as the country has sought to diversify its foreign exchange reserves.

    Purchases last month accelerated as gold prices slumped to their lowest since February 2010, hurt by a looming U.S. interest rate hike. They lost nearly 7 percent last month, the biggest monthly drop since June 2013.

    China disclosed its gold holdings in June this year for the first time since April 2009, and has been providing monthly updates since then.

    Read more at Reuters
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    De Beers suspends operations at Canada's Snap Lake diamond mine

    De Beers Canada is suspending operations at its unprofitable Snap Lake diamond mine in the Northwest Territories due to poor market conditions, and said on Friday it will evaluate the Arctic mine's potential over the next year.

    De Beers, 85 percent owned by Anglo American and 15 percent by the government of Botswana, said work to put the underground mine on care and maintenance has started and will last up to nine months.

    The mine, which had 595 employees and 200 contractors, has not turned a profit since it began production in 2008. Despite efficiency gains in recent years, Snap Lake was not expected to become profitable for three years due to declining prices, said spokesman Tom Ormsby.

    Technically challenging to mine, Snap Lake also had groundwater problems that added to high costs. Planned to operate until 2028, it produced 1.2 million carats last year.

    De Beers is terminating 434 employees and will employ 120 for the suspension work. Ongoing care and maintenance operations will require about 70 staff, it said.

    Another 41 employees have been transferred to Gahcho Kue mine, now being built in the Northwest Territories (NWT) with Mountain Province Diamonds, a 49-percent project partner. Sixty more could be transferred in 2016.

    Gahcho Kue is due to start production in late 2016 and operate for 11 years.

    Mountain Province Chief Executive Patrick Evans said the suspension will further trim De Beers' output, already cut to 29 million carats from 32 million carats this year.

    "Supply restraint on the part of the major producers is very prudent and it's certainly going to help relieve the pressure that exists in the mid-stream and balance the supply-demand equation," he said.

    Slower demand growth in China for diamond jewelry along with a glut of supply held by stone cutters and polishers have helped push the price of rough stones down by 18 percent this year.

    "It's going to be a shock to our economy," said Tom Hoefer, executive director of the NWT and Nunavut Chamber of Mines.

    Diamonds directly contributed 18 percent to the NWT's gross domestic product last year, but some put the figure closer to 40 percent when related spending for such things as construction is included, Hoefer said.

    Rio Tinto sees production at its majority-owned Diavik mine ending in 2023. Dominion Diamond, which holds 40 percent of Diavik and 89 percent of Ekati mine, could extend Ekati operations to 2031.

    Read more at Reuters

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    Base Metals

    Aurubis forecasts significant drop in 2015/16 profit

    Aurubis, Europe's biggest copper smelter, expects its operating pretax profit to decline significantly in its current financial year due to a recent drop in copper prices, it said as it published quarterly results on Friday.

    The group posted a 32 percent rise in its operating pretax profit for the fiscal fourth quarter through end-September to 82 million euros ($89.7 million), missing the average of estimates of 94.8 million in a Reuters poll.

    Analysts on average see the figure coming to 336 million euros for the 2015/2016 fiscal year, the poll showed.

    Read more at Reuters
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    China Hongqiao Group cuts aluminium output as prices tumble

    Aluminium producer China Hongqiao Group said on Thursday it will cut annual capacity by 250,000 tonnes immediately, the latest smelter to pledge to curb supplies as the loss making industry combats record low local prices.

    The output cut, representing 6 percent of the company's total capacity, mirrors similar moves over the past month by the copper, zinc and nickel industries and followed a meeting of 14 major Chinese aluminium smelters in the southwestern city of Kunming in Yunnan province.

    "We will not consider resuming production of the (250,000 tonnes) capacity," a China Hongqiao official told Reuters.

    Aluminium futures in Shanghai closed slightly higher on the news, although the reaction was largely muted as the latest cut in the world's top producing country was considered too small to make a dent in a global stockpile glut estimated at 14 million tonnes.

    Still, the move reflects the deepening pain across the industry with Shanghai prices down more than 20 percent in 2015 and on course to fall for a sixth straight year.

    Wan Ling, an analyst at research consultancy CRU, said there is likely to be "more production cuts at plants with high cost and big losses, especially those using grid power."

    "The reduction will be supportive to prices but difficult to say it is enough to push up prices."

    China Hongqiao is not the first major Chinese smelter to reduce output this year. Chalco and SPIC have already made cutbacks. According to CRU data, China has closed 3.65 million tonnes per year of primary aluminium smelting capacity.

    It wasn't clear if the other 13 smelters at the meeting would follow China Hongqiao's lead.

    Traders and analysts said that at least one smelter and local governments were resistant to broader cuts. The smelter was not losing money, while local governments preferred to offer subsidized power because they depend on the sector for economic growth.

    It also suggests that some aluminium makers are worried the government won't intervene to help out despite their pleas for the state reserve to scoop up some of the excess that has punished prices.

    Some smelters are keen to avoid shutting potlines - a series of connected electrolytic cells that turn alumina into aluminium - a costly and complicated move, while state aid may be on the table, traders said.

    The news sent Shanghai aluminium prices higher before closing nearly flat. The most-active February contract on the Shanghai Futures Exchange closed up 0.1 percent at 10,375 yuan ($1,612) a tonne, but it reached 10,600 yuan earlier in the day, the highest in six weeks.

    China's state stockpiler was considering buying more than 1 million tonnes of aluminium from local smelters, Reuters reported in late November, an initial sign that Beijing could agree to the first major bailout in its embattled metals industry since 2009.

    Read more at Reuters
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    Turquoise Hill forecasts lower Oyu Tolgoi gold output in 2016

    Gold production from the Oyu Tolgoi mine, in Mongolia, would be materially lower in 2016, compared with the forecast output for 2015, owing to the mining of lower-grade gold areas, owner Turquoise Hill Resources reported on Tuesday. 

    In its 2016 production and financial guidance, the Canadian company stated that the mine would produce between 210 000 oz and 260 000 oz of gold in concentrates in 2016. This compared with the 2015 gold production forecast of between 600 000 oz and 700 000 oz of gold in concentrates. The majority of 2016’s gold production would occur in the first half of the year. 

    Oyu Tolgoi’s copper production was forecast to remain steady at between 175 000 t and 195 000 t. Turquoise Hill said it expected its operating cash costs for 2016 to be about $800-million, compared with expected operating cash costs of $900-million for 2015. 

    The year-on-year reduction was mainly owing to additional capitalisation of Phase 4 deferred stripping costs. Capital expenditures for 2016 on a cash-basis, excluding underground development, were expected to be about $300-million, of which about $280-million related to sustaining capital. 

    Turquoise Hill would provide capital guidance for its underground development once a final 'notice to proceed' decision was confirmed. Turquoise Hill owner Rio Tinto and the government of Mongolia in May 2015 signed an underground mine development and financing plan in May this year, which addressed outstanding shareholder matters.

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    Rio Tinto cuts capital spending forecast to $5bn next year

    Rio Tinto Group, the second-largest mining company, cut its capital expenditure forecast for 2016 as the producer strives to balance shareholder returns with investing in projects.

    Capital spending will be about $5 billion in 2016, down from the company’s previous estimate of less than $6 billion, Rio said on Tuesday in a statement. Spending this year is seen at $5 billion, from a previous estimate of about $5.5 billion. It was about $8 billion in 2014, according to filings.

    “As we approach the start of 2016, we are well positioned to continue to provide returns for our shareholders and invest in our business,” chief executive officer Sam Walsh said in the statement. Rio last month approved a $1.9 billion investment in a bauxite project in Australia.

    The biggest mining companies, including Rio and BHP Billiton are slashing spending and cutting costs in an attempt to protect profits as commodities prices slide. China’s slowest pace of economic growth in a quarter of a century is weighing on metals to energy prices and eroding profits for producers. Prices this month touched the lowest since 1999 and the Bloomberg Commodity Index is heading for the fifth straight annual loss.
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    China copper imports surge

    The country's imports of copper rose month-over-month by 9.5 per cent to 460,000 tons, while iron-ore imports rose 8.75 per cent to 82.13 million tons during the same month. Purchases of coal from overseas also showed a surprising increase of around 16 per cent to 16.19 million tons.

    Helen Lau, an analyst with Argonaut Securities, said the stronger monthly imports of some commodities didn't suggest a full-blown demand recovery.

    Higher imports of copper mainly arose as traders saw scope for profiting from arbitrage as local copper prices in China were higher than international prices, while the rise in iron ore came about as international suppliers cut prices to lure Chinese consumers. Ms. Lau said.
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    Nyrstar suspends U.S. mine in face of weak zinc price

    Belgium's Nyrstar NV said on Monday it was suspending operations at another mine as it seeks to reduce cash consumption in the face of weak zinc prices.

    The company, the world's largest zinc smelter, said it would place its Middle Tennessee Mines on so-called care and maintenance, resulting in about 50,000 tonnes of zinc in concentrate being taken out of the market.

    Zinc metal production at Nyrstar's nearby Clarksville smelter would be reduced by about 7 percent, equivalent to some 9,000 tonnes per year. It would continue to be supplied by East Tennessee Mines and elsewhere.

    "We continue to take decisive action to reduce spending in our mines, and further mine operation suspensions may be necessary if the depressed metals price environment continues," Nyrstar chief executive Bill Scotting said in a statement.

    Nyrstar said last month it would consider cutting zinc concentrate output by 400,000 tonnes if prices remained depressed. That would be on top of 100,000 tonnes removed by the earlier suspension of its Myra Falls operations in Canada and Campo Morado operations in Mexico, it said.

    Zinc three-month forward prices are hovering around six-year lows and are down a third since early May.

    Nyrstar has also announced plans for a rights issue of 250-275 million euros ($272-299 million) to shore up its balance sheet and said it could even exit its poorly performing mining business.

    "We expect to complete the process to divest the majority or all of our mines over the course of 2016," Scotting said on Monday.

    Read more at Reuters

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    Iluka scraps Kenmare bid, but Mozambique mine may still be in reach

    After nearly two years of talks to snare a large mineral sands mine in Mozambique, Australia's Iluka Resources canned a $77 million all-share bid for Kenmare Resources Plc after the Irish group's top shareholder refused to back the bid.

    Kenmare owns the Moma mine in Mozambique, which Iluka wanted to snap up cheaply after a slump in prices for titanium feedstock used in paint pigments battered the debt-laden Irish company.

    Under Irish rules, Iluka is blocked from making a fresh offer for 12 months, but it may still be able to grab the Mona mine if Kenmare fails to meet its lenders' requirements in 2016.

    According to Kenmare's half-year report, lenders have said if a deal fails to go ahead, the company must set out a timetable by the end of January 2016 for cutting debt, which means it may have to sell new shares or convert debt to equity.

    "If this is ultimately unsuccessful and the company ends up in the hands of the debt providers, it could provide an opportunity for Iluka to purchase the assets without any equity component," Citi analysts said in a note on Monday.

    Kenmare's board and management had been in favour of teaming up with Iluka, but top shareholder M & G Investment Management, baulked after Iluka cut its offer in November for the second time to 0.007 Iluka shares for every Kenmare share.

    Iluka Chairman Greg Martin said Iluka was "very disappointed" Kenmare's board had been unable to secure a promise from M&G to support the bid, which was a pre-condition for the deal to go ahead.

    Even after being cut by about 80 percent from its original proposal of 0.036 Iluka shares for every Kenmare share, the offer was worth more than four times Kenmare's closing price of 0.44 pence on Dec. 4.

    "Iluka believes that in a heavily pro-cyclical resources industry, value can be generated by acting counter-cyclically, where appropriate," Managing Director David Robb said in a statement.

    The company said it still has its own growth option, with the Puttalam project in Sri Lanka, where it has a large sulphate ilmenite resource similar to Kenmare's in Mozambique, but that project is still a long way from being built.

    Read more at Reuters
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    Steel, Iron Ore and Coal

    India imported 17mln T coal in Nov

    India imported around 17 million tonnes of coal in November through 29 major ports, up 7.6% month on month, according to data released on December 8 by Indian shipbroker Interocean.

    Of the total, 13.2 million tonnes was thermal coal, rising 20.6% from October, and 3.8 million tonnes was coking coal, down 21.8%, data showed.

    Mundra port on the west coast received highest coal shipments at 1.9 million tonnes in November, falling 15% from October, consisting only of thermal coal.

    Goa port on the west coast received the highest coking coal shipments last month of 888,644 tonnes, up from 1.04 million tonnes in October.

    The coal was mainly imported from Indonesia, Australia, South Africa and the US.
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    Daqin Nov coal transport down 22.1pct on yr

    Daqin line, China’s major coal-dedicated rail line, transported 29.24 million tonnes of coal in November, a decline of 22.11% on year—the 15th consecutive year-on-year drop, and down 1.85% from October, showed the latest data on December 10.

    In November, Daqin’s daily coal transport averaged 975,000 tonnes, up 1.46% month on month.

    Over January-November this year, Daqin accomplished a coal transport volume of 364.1 million tonnes, a decline of 11.56% from the year prior. That was 86.68% of its annual target, which was set at 420 million tonnes.

    In 2014, Daqin line accomplished a total coal transport volume of 450.2 million tonnes, up 1.11% on year, accounting for 27.42% of the nation’s total.

    Daqin Railway Co., Ltd planned to buy 70% shares of Shanxi Taixing Railway Co., Ltd. with 3.16 billion yuan ($494.4 million), which was held by its parent Taiyuan Railway Administration , it said late November 24.

    The 164.26 km Taixing railway line, starting from Fenhe station in Taiyuan to Baiwen Station in Luliang city, had a designed transport capacity of 40 million tonnes per year, with preliminary capacity at 38 million tonnes.

    It has been completed construction and is expected to start commercial operation in 2016.
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    BC Iron shuts iron ore mine as price sinks

    Australian iron ore miner BC Iron Ltd on Friday said it was suspending operations at its Nullagine joint venture, the second company in the country to take such a step this year due to plunging prices for the steelmaking ingredient.

    Oversupply and a slowing economy in top consumer China have hit iron ore markets hard, piling pressure on smaller producers such as BC Iron, which owns 75 percent of the Nullagine joint venture in Western Australia. Fellow Australian miner Fortescue Metals Group holds the rest.

    The partners commenced exports in early 2011, using a Fortescue rail line to haul up to 6 million tonnes of ore annually to Port Hedland, where it is shipped to overseas buyers. That volume is a fraction of the amounts churned out by the nation's top producers Rio Tinto and BHP Billiton .

    "BC Iron is a price taker and unfortunately ... the iron ore market is such that we have had to make this decision," said BC Iron managing director Morgan Ball.

    The company and other miners have increasingly relied on a weaker Australian dollar, cheap freight rates and lower costs associated with a drop in oil prices to maintain satisfactory margins.

    But a sharper-than-expected decline in ore prices has tested the ability of all but the lowest-cost miners to stay afloat.

    Iron ore for immediate delivery to China's Tianjin port this week stood around $37.50 a tonne .IO62-CNI=SI, according to The Steel Index, the lowest level since it began collecting data in 2008.

    UBS recently estimated BC Iron's break-even cost at $52 a tonnes.

    BC Iron said it expected its cash balance to stand at A$42-47 million ($64.6 million) at year-end, compared to A$71.8 million on Sept. 30.

    The closure comes after Atlas Iron suspended production in April and laid off two-thirds of its employees, resuming only after securing financial backing and selling the bulk of its output forward at fixed prices.

    Meanwhile, Fortescue last month put its break-even costs at around $37 a month, dangerously close to current prices. That compares with around $27-$28 a tonne for Rio Tinto and BHP.

    Read more at Reuters
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    Mechel aims for approval of restructuring deals on March 4

    Indebted Russian miner Mechel said on Thursday it had called an extraordinary general meeting (EGM) for March 4 when it expected shareholders would be able to vote on debt restructuring deals with its banks.

    "We aim to reach final agreements with Sberbank before sending out the materials for the EGM," a spokesman for the miner added.

    However Sberbank, one of Mechel's key creditors, said in a statement it was still discussing debt restructuring with Mechel and was yet to reach a final agreement.

    Mechel, which employs over 60,000 people, had to ask its lenders to delay debt repayments after Russia's economic downturn and a decline in coal and steel prices put an end to its strategy of borrowing heavily to finance large investments.

    Mechel said it had called the EGM to vote on deals between the company and VTB, Gazprombank, Sberbank and a banking syndicate. The company plans to start distributing materials for the EGM from Feb. 4.

    Read more at Reuters
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    China's state planner calls for vigorous enforcement of dirty coal ban

    China's state planning commission urged better enforcement of a ban on dirty coal, calling for violators to be more vigorously punished, as the world's largest energy consumer continues to grapple with rampant air pollution.

    The National Development and Reform Commission (NDRC) called for the proper implementation of the ban on the import and local sale of coal with high ash and sulfur content, in a statement dated for Nov. 30 and posted on its website on late Wednesday.

    "Environmental protection departments should strengthen inspections for enforcement of coal emissions meeting targets, and more vigorously punish violations," the NDRC said in the statement.

    The ban on the import and sale of lower grade coals came into effect in January 2015.

    The restrictions are most stringent in the affluent and polluted cities around the Pearl River Delta in the south, the Yangtze River Delta in the east, and the capital city, Beijing, in the north.

    China relies on coal to provide 64 percent of its energy, contributing to the choking smog smothering its major cities.

    The capital issued its first air pollution "red alert" this week, banning heavy vehicles, restricting the number cars on the road, advising schools to cancel classes, and requiring outdoor construction to stop.

    China, also the world's biggest emitter of carbon dioxide, has said it will cap coal consumption at around 4.2 billion tonnes by 2020, lowering the fuel's share in its energy mix by increasing the use of renewable energy.

    Read more at Reuters
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    China offers bonus to ultra-low emission coal power plants

    China will pay bonuses from January 1 to those coal power plants meeting tough emissions rules, in a move to tackle air pollution and promote energy structure reform, the government said on December 9.

    Power plants that open after January 1 and meet the government's environmental requirements will get an 0.005 yuan/kWh bonus on top of the basic grid tariff, said an official statement jointly issued by the National Development and Reform Commission (NDRC), the Ministry of Environmental Protection and the National Energy Administration.

    Those already in operation will get an extra 0.01 yuan/kWh, which would equate to about 42 million yuan ($6.5 million) if all thermal power output last year had been produced at plants meeting the coal efficiency standards.

    The higher tariffs will take effect in January and last until the end of 2017, when the government will reassess the rate, the statement said.

    The measures reflect increasing pressure on the world's biggest consumer of energy as leaders meet in Paris to hammer out a global climate deal and a new push to encourage companies to invest in clean, efficient technology to curb air pollution.

    Coal-fired power accounts for three-quarters of China's total generation capacity and is a major source of pollutants such as sulfur dioxide and nitrogen oxides.

    According to China’s ultra-low emission standards for coal power plants, emission concentration of dust should not exceed 10mg/Nm³, and that of sulfur dioxide and nitrogen oxides should be lower than 35mg/Nm³ and 50mg/Nm³, respectively.

    Last week, the government said the country will cut emissions of major pollutants in the power sector by 60% by 2020 and reduce annual carbon dioxide emissions from coal-fired power plants by 180 million tonnes.

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    Steel group Kloeckner writes down N.American operations to zero

    German steel distributor Kloeckner & Co has completely written off the goodwill on its North American operations amid worse-than-expected market conditions, it said on Wednesday.

    Kloeckner said it was writing down 270 million euros ($297 million) of goodwill, leaving just an expected 30 million on the group's balance sheet by the end of the year.

    The company, which makes almost two-fifths of its sales in the Americas, said it now expected a group net loss of 350 to 380 million euros this year. It made a net loss of 85 million euros in the first nine months of 2015.

    "After the market environment for steel and metal products in the U.S. has once again developed worse than generally expected in the current year, Kloeckner & Co SE recognises impairments on the complete goodwill of the North American activities," it said in a statement.

    Frankfurt-traded shares in Kloeckner fell 3.2 percent after hours.

    Kloeckner reiterated its forecast for earnings before interest, tax, depreciation and amortisation (EBITDA) of 85 million euros and positive free cash flow in 2015.

    Chief Executive Gisbert Ruehl told Reuters in an interview earlier this year that he still viewed North America as the company's most attractive market, despite intense price pressure caused mainly by cheap imports from China.

    Read more at Reuters
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    Australia's Roy Hill makes first iron ore shipment

    Australia's Roy Hill mine shipped its first iron ore cargo on Thursday, marking the start up of the last of the mining-boom era mega projects in the country.

    The first shipment from the $10 billion project, jointly owned by Hancock Prospecting, Japan's Marubeni, South Korean steelmaker Posco and Taiwan's China Steel Corp, came after a series of delays caused by safety and commissioning issues.

    Roy Hill, with capacity to produce and ship 55 million tonnes of high grade iron ore annually, has secured long-term purchase contracts from steel mills in Asia including those in Japan for over 90 percent of the production, Marubeni said on Thursday.

    The development has been led by Gina Rinehart, one of the world's wealthiest women, whose fortune comes from mining the rust-red northwestern Australian outback.

    A Hancock Prospecting executive said the impact of the Roy Hill mine on an already oversupplied global iron ore market had been overstated, amid this week's plunge in prices for the raw material to record lows .

    The first cargo of iron ore from the newly-constructed mine, majority-owned by Hancock was loaded this week for shipment to a Posco steel mill in South Korea.

    "The initial shipments, such as this one today from Roy Hill, will only represent a small portion of its capacity of 55 million tonnes," executive director Ted Watroba said, adding that more than half the output will be taken by the minority investment partners, who are outside of China.

    Iron ore futures in China dropped to their weakest on record on Thursday amid expectations falling steel consumption in the world's biggest consumer could shut more producers, cutting demand for the raw material.

    Read more at Reuters
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    Gaming the system: China steel exporters look for tax advantage

    Chinese steel exporters are gaming the nation's tax system to pump ever greater amounts of surplus steel into world markets, crafting slightly different alloys to ensure their products sidestep Beijing's cutbacks to trade subsidies.

    Steel exporters claimed up to $2.4 billion in tax rebates in the first eight months of this year, on track to surpass the 2014 total despite government moves to tighten the kinds of shipments eligible for such refunds, Reuters calculations showed.

    The rebates, along with steps such as those announced on Wednesday to reduce taxes on some steel exports, are helping many Chinese steel mills deeply undercut rivals overseas. China's steel exports topped 100 million tonnes for the first time this year, more than four times 2014 shipments from the European Union's largest producer, Germany.

    That has fueled a plunge in steel prices to 12-year lows and driven scores of countries to slap anti-dumping duties on Chinese steel, as well as sparking mill closures. Some 5,000 steel jobs were cut in Europe this quarter, prompting EU ministers to hold crisis talks.

    Amid growing trade tensions, Beijing at the start of the year halted rebates on steel exports containing boron, an element used to harden steel for uses ranging from agricultural tools to mining. But steel executives in and out of China said the refunds continued on steel products containing another element, chromium.

    "Boron-added exports have now almost dried up. But at the same time non-boron alloy exports have shot up. When one loophole closes, another one opens," said Jeremy Platt, an analyst at British consultancy MEPS.

    Chinese exports of steel products alloyed with just 0.3 percent of chromium can get a 9 percent to 13 percent tax rebate as part of Beijing's efforts to promote higher-value steel.

    There has been speculation the government could also stop rebates on chromium-added steel, but that would likely only prompt exporters to shift to forming steel alloys with other elements such as titanium or manganese, said Roberto Cola, president of the ASEAN Iron and Steel Council.

    "Titanium looks to be the next most economic," he said. "They should stop the rebates completely."

    An official at China Iron and Steel Association, which groups both state-run and private steel producers, said the organization and the government did not encourage exports of "too much" steel.

    "Individual companies - many times traders instead of producers - make their own decisions to export and they are trying to get as much legitimate benefit as they can," said the official, who declined to be named as he was not authorized to speak to media.


    Of the 72 million tonnes of steel products that China exported in January-August, 44 million tonnes were declared as alloy steel, according to the country's customs data.

    Using the maximum rebate of 13 percent, the refunds due Chinese exporters from this volume would be $2.4 billion, Reuters calculations showed, compared to $3.5 billion for the whole of 2014.

    While some of the rebates will have been awarded to exporters pushing to sell more value-added steel, further data indicates that around half may have been granted to shipments containing just tiny amounts of alloy elements.

    Customs numbers from importing countries showed alloy steel imports from China only reached 20.6 million tonnes in January-August, based on estimates by MEPS, which has been tracking China's steel industry since the late 1990s.

    That is a 23.4 million-tonne discrepancy with the Chinese figures, suggesting that many shipments classified as alloys by Beijing did not contain enough alloy elements to receive a similar classification in their destination countries. For example, many importers consider a product to be specialty steel only if it contains more than 0.5 percent alloying element.

    Read more at Reuters

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    Vale completes sale of 4 ore carriers to Chinese-led consortium

    Brazilian iron ore miner Vale SA said late on Tuesday in a filing it had completed the sale of four very large ore carriers (VLOC), also known as Valemax class ships, to a consortium lead by ICBC Financial Leasing.

    ICBC is a subsidiary of the Industrial and Commercial Bank of China Limited.

    The deal was valued at $423 million and the resources were transferred to Vale on Tuesday. Each VLOC has the capacity to carry 400,000 tonnes of ore.

    Read more at Reuters
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    China offers stricken steelmakers lifeline with export tax cut

    China will cut export taxes on steel billet and pig iron from the start of 2016, the finance ministry said on Wednesday, the latest move by the world's top steel producer to erode a domestic glut and offer a lifeline to the stricken industry.

    Exports of the two products are relatively modest, but the move will likely fuel concerns that the world's biggest consumer of industrial raw materials is exporting its excess output to a saturated global market, accelerating a price rout.

    "This kind of strategy is aimed at redirecting this oversupply in China to other countries," said Helen Lau, analyst with Argonaut Securities in Hong Kong.

    As part of a raft of measures aimed at boosting economic growth in the world's second-largest economy, the ministry said it will cut the 25 percent export tariff on billet and pig iron to 20 percent and 10 percent respectively from Jan. 1.

    The move underscores the deepening crisis in the world's biggest steel industry as the country's economic growth slows, leaving stricken mills to struggle with plunging prices, waning demand from real estate to shipbuilding, and tight credit. Many have gone bankrupt or cut output.

    Chinese steel mills have cut shipments of both products since 2008 when duties were raised to current levels. In January-October, China exported 141,659 tonnes of pig iron and 5,367 tonnes of steel billet, said Kevin Bai, analyst at CRU in Beijing.

    Preliminary customs data on Tuesday showed China's shipments of steel products topped 100 million tonnes for the first time in the first 11 months of the year.

    Two exporters in China said the tariff cut was too small to help boost exports, but it will likely escalate trade tensions with Europe and the United States, which have accused the country's mills of deliberately dumping surplus production.

    Market participants were surprised by the move, coming just weeks after authorities hit back at criticism from abroad about its support for the industry and saying Beijing did not set out to encourage steel firms to boost exports.

    As part of Wednesday's statement, the government said it would also eliminate export tariffs on phosphoric acid and ammonia and cut taxes on some energy raw materials, but it did not identify which materials would be subject to the cut.

    It kept tariffs on naphtha, jet kerosene, diesel, fuel oil, ethylene/propylene, propane and benzene unchanged. It also kept base metals and nickel pig iron tariffs unchanged.

    Read more at Reuters

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    Anglo’s Kumba faces more cutbacks as iron-ore rout deepens

    Kumba Iron Ore, majority owned by Anglo American, said it will restructure Africa’s biggest mine for the steelmaking ingredient, cutting output there by 28% to combat the plunging price of the raw material. The stock fell to the lowest on record.

    The new plan for the Sishen operation will target free-on-board unit costs of about $30 a metric ton and a break-even price of about $40 a ton cost and freight, Centurion, South Africa-based Kumba said onTuesday in a statement. Output for 2016 will be about 26 million tons, compared with a previous plan to produce 36 million tons.

    Iron ore with 62% metal content delivered to Qingdao fell 2.4% to $39.06 a dry ton yesterday, a record low in daily prices compiled by Metal Bulletin dating back to May 2009. The metal has plunged 80% since its 2011 peak.

    “Our industry is under tremendous pressure with the market now pricing in a more muted trend for the iron-ore price over the medium to longer term,” chief executive officer Norman Mbazima said in the statement. “These circumstances have reinforced the need to make tough decisions for our business, that will enable it to withstand a longer period of much lower prices.”
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    India ready to impose more curbs on steel imports

    India is readying to impose more curbs on steel imports, including introducing a safeguard duty, after a 20 percent import tax failed to contain losses for producers such as Steel Authority of India.

    SAIL, JSW Steel and Essar Steel have complained that surging imports from Indonesia, China, Japan, Russia, Ukraine and South Korea were squeezing their market share and profit margins.

    In October, steelmakers asked the government to impose a safeguard duty for four years on imports of hot rolled flat sheets and plates of alloy or non-alloy steel, and set a minimum import price, to contain cheaper steel imports.

    The Directorate General of Safeguards, a branch of the finance ministry that can impose temporary import curbs, said on Tuesday that it found prima facie evidence that increases in imports "have caused or threatening to cause serious injury to the domestic producers".

    In a statement on its website, the directorate said it has asked foreign companies and other stake holders to submit their views within 30 days before taking a decision. 

    Indian companies, struggling to compete due to high borrowing and raw materials costs, have in recent months successfully lobbied to get duties on some products and quality checks strengthened.

    In September, India imposed the 20 percent import tax on some steel products as the government initiated an investigation into rising imports from China, Japan, South Korea and Russia.

    Government sources said the steel ministry has also supported local manufacturers' demand to impose a minimum floor price for steel imports to curb cheaper imports.

    Imports of iron and steel declined slightly to $6.9 billion during April-October period in the current financial year 2015/16 from $7.1 billion a year ago, Commerce and Industry Ministry data show.

    The government has asked the industry to submit figures on the cost of production so that it could consider a floor price for imports, said one official, with knowledge of policy decisions.

    Read more at Reuters
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    Iron ore price reaches Sam Walsh 'fantasy land'

    Iron ore fell to a record low on a spot price basis on Monday with the Northern China 62% Fe import price including freight and insurance (CFR) dropping 1.3% to $38.90 a tonne.

    After a strong recovery from its July low, the steelmaking raw material has been on a relentless decline since early October and is down 25% since then. Losses so far this year match that of 2014's when the price of the commodity nearly halved. Today's price compare to $190 a tonne hit February 2011 and an average of $135 a tonne in 2013 and $97 last year.

    The big three producers – Vale, Rio Tinto and BHP Billiton – have been following a scorched earth strategy of raising output and slashing costs to weather low prices and push out competitors.

    It's been highly successful, but the strategy is now also catching up with the most cost-effective producers and that includes the majors.

    Monday's price are now in the realm what Rio's chief executive and long-time iron ore division head Sam Walsh called a "fantasy land" in a Bloomberg interview in February when the price was still north of $60 a tonne:

    But even an iron ore price in the $30s may not be a major problem for Rio Tinto. Its high-quality 20 million tonne per year greenfield project in the Pilbara called Silvergrass could be used to replace any of the company's higher-cost production in the region next year.

    A year ago Walsh famously told the Australian Financial Review that his 'amazing' Rio turnaround "will be a Harvard case study" one day.
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    CNCA official: strict output control essential for coal miners to survive

    Strictly controlling coal production to help bring coal prices back to a reasonable level is necessary for survival and development of the coal industry and for social stability in mining communities, said Wang Xianzheng, chairman of China National Coal Association (CNCA) on December 3.

    "The way out for struggling coal miners is to control output, and push coal prices up to a reasonable level, of 0.1 yuan/Kcal or so, said Wang during the national coal fair held in Ordos, Inner Mongolia.

    That means the present coal prices should rise as much as 48%, a level that miners have been longing for. The reality was coal prices were still in the lowest of the past ten years, though thermal coal has recently rebounded on rising winter heating demand.

    The Fenwei CCI 5500 Index for domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port was assessed at 355 yuan/t with VAT on December 7, FOB basis, rising 0.5 yuan/t on day and up 3 yuan/t from a week ago.

    Since the third quarter of the year, China’s coal industry has faced more difficulties, with 80% of the coal firms suffering losses, including large miners.

    This situation may get worse in the fourth quarter, especially in old mining areas and enterprises, and mines are facing more pressure in safe production and social stabilization.

    China has entered a period of zero or lower-level growth in coal consumption, which would last for a long time, said Lian Weiliang, vice director of National Development and Reform Commission.

    Lian said China should further accelerate reorganization in the coal industry, promoting integrative development of upstream and downstream enterprises, and the clean and efficient utilization of coal.

    Enterprises shall improve self-discipline, and arrange output based on the actual demand, said Lian, adding that enterprises shouldn’t commit to price war and sell coal at below production costs.

    Major production provinces should improve mine capacity check system, and establish specific measures for mines to withdraw from the market.

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    Brazil's Vale says civil lawsuit seeks $5 billion in damages from dam burst

    A deadly dam burst at a Brazilian iron ore mine has triggered a civil lawsuit seeking 20 billion reais ($5.31 billion) in environmental and property damages from mine operator Samarco and its owners, BHP Billiton Ltd and Vale SA, Vale said in a securities filing on Monday.

    The National Humanitarian Society (Sohumana) has filed the lawsuit before a federal judge in Rio de Janeiro, Vale said. Brazil's federal and state governments have also said they will sue Samarco and its owners for 20 billion reais after a burst tailings dam last month unleashed 60 million cubic meters of mud and mine waste that devastated a village, killed at least 13 people and polluted a major river valley.

    Read more at Reuters
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    China's iron ore imports surge 22 pct in Nov

    Chinese iron ore imports surged 22 percent in November from a year earlier, customs data showed, as big miners in Australia and Brazil won market share even as steel output cuts push the price of the raw material lower.

    November shipments rose to 82.13 million tonnes, data from the General Administration of Customs showed, also up 8.8 percent from the previous month, although imports for the first 11 months were up just 1.3 percent from a year ago.

    Cooling economic growth in China, the world's top producer of steel, has already hit industrial demand and steel mills are expected to step up production cutbacks as losses deepen.

    "We aren't seeing any restocking activity going on now but certainly the additional growth that we continue to see in capacity in Australia is lending itself to stronger imports and the continued closure of domestic iron ore mines in China is supporting that," said Daniel Hynes, senior commodity strategist with ANZ.

    "There would certainly be a component of opportunistic buying, but considering the weakness in the steel market in China, it's hard to see how that type of support would be sustainable."

    Shanghai steel futures have tumbled 40 percent since the beginning of this year. Slower demand from China and rising supplies from top miners have dragged down spot iron ore prices .IO62-CNI=SI by 45 percent so far this year.

    China's crude steel output will fall for a second straight year in 2016, as a cooling economy hurts demand in the world's top producer, underscoring the bleak outlook for the steel and iron ore sectors.

    Steel product exports slid 1.1 percent to 9.61 million tonnes in November from a year ago, but total exports for the first eleven months jumped 21.7 percent to 101.7 million tonnes from a year ago.

    Weak domestic demand has driven Chinese steel mills to boost sales abroad.

    Read more at Reuters
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    Iron ore shipments to China from Port Hedland rise 3 pct in Nov-port

    Monthly iron ore shipments to China through Australia's Port Hedland rose 3 percent in November amid a sharp weakening in prices for the raw material used in steel production, port data released on Monday showed.

    Shipments to China, the world's biggest importer, reached 31.73 million tonnes last month versus 30.73 million in October, according to the Pilbara Ports Authority.

    The port, the world's largest for exporting

     iron ore, is used by large producers such as BHP Billiton and Fortescue Metals Group, along with smaller miners Atlas Iron and BC Iron

    Total shipments of iron ore through the port in November reached 37.33 million tonnes versus 36.52 million in October, the data showed.

    The record was set in September, when 39.4 million tonnes were shipped through the port.

    South Korea, was the second-biggest destination for ore from the port in November, importing 2.87 million tonnes, followed by Japan with 1.53 million tonnes.

    The price of iron ore deteriorated to fresh lows in late November and continued its decline in the first week of December, standing at $39.40 a tonne on Dec 4.

    Despite the price deterioration, aggravated by mounting global oversupply and waning steel production growth in China, miners continue to run at peak levels. BHP expects to mine 247 million tonnes by next July, while Fortescue is running at an annual rate of around 165 million tonnes, making them the third and fourth highest producers worldwide after Vale and Rio Tinto .

    Read more at Reuters

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    Vale sees global seaborn iron-ore demand at 1.35bn to 1.4bn t in 2016

    Vale SA, the world's biggest iron ore producer, said on Friday it sees global seaborn iron-ore demand at a healthy 1.35-billion to 1.4-billion tonnes next year. "Technically prices should be around $50/t next year, but there's much more going on than that, including sentiment," said Peter Poppinga, Vale's executive director for base metals and information technology. 

    Spot iron ore prices fell below the psychological $40/t threshold on Friday and were set for their steepest weekly decline in five months as falling Chinese steel demand exacerbated a global glut of the steelmaking raw material.
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    China iron ore concentrates producers hold prices in rout

    Most of China's domestic iron ore concentrates suppliers have refrained from cutting their prices further over the week after a substantial 9% reduction the previous week, as they hold back looking for clearer signs from the seaborne cargo market, according to sources.

    Platts assessed China's domestic 66% Fe iron ore concentrate delivered to steel mills in Tangshan city in Hebei province in a slightly narrower range at Yuan 450-Yuan 460/dry metric ton ($70-$72/dmt) Friday, compared with Yuan 450-470/dmt a week earlier, both on cash terms and including 17% value-added tax.

    The previous week's proactive move to cut prices in anticipation of weakening consumption from Chinese steel mills into December amid tightening cash flow has failed to yield much in the way of sales, officials from domestic iron ore mines admitted.

    A procurement official from a 3 million mt/year steel mill in Hebei disclosed that they have been relying on iron ore supplies from term contracts despite prices being than on the spot market because of tightness in cash.

    "We are really with little cash, so at least payments by letters of credit for term supplies will give us more time in full payments, and price is no longer the only or primary concern now," he explained.

    Besides, many more mills in Hebei are mulling either retrenching employees or reducing their production if really necessary to trim costs and weather the month.

    Under such circumstances, iron ore inventories should be as low as possible as mills need to be ready to cut production should other means of trimming costs be insufficient, market sources said.

    Chinese miners, therefore, will not further reduce prices unless seaborne cargoes fall below $40/dmt CFR North China and hold there, they added.

    Iron ore supply in China is not an issue at all, both from domestic production and overseas cargoes, which means Chinese mills can wait and pick up material on the spot market as needed, the sources agreed.

    Indeed, iron ore inventories at the Chinese ports have been rising slowly.

    As of November 27, the volume at 44 Chinese ports increased by 1.55 million mt to 87.65 million mt, the latest statistics from the Dalian Commodity Exchange showed, with the tonnage being sufficient for 27 days of steel output nationwide based on the present daily output level.

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    Iron ore sinks below $40 a tonne

    Iron ore prices got hammered again Friday, sinking to a 10-year-low of $39.40 a tonne, the lowest ever recorded by price assessor The Steel Index (TSI), which began compiling data in 2008.

    Prices were set for their steepest weekly drop in five months

    According to Metal Bulletin, the spot price for benchmark 62% fines traded Friday just above the critical $40/tonne mark (at $40.03).Prices were set for their steepest weekly drop in five months as declining Chinese steel demand keeps adding to a global oversupply of the steelmaking raw material.

    Iron ore has not traded this low since around 2007, when annual contract pricing between the Big 3 producers — Vale, Rio Tinto and BHP Billiton — and Chinese and Japanese steelmakers were still the industry norm.
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    China's Sichuan Shengda Group says unable to pay bond investors on time

    Chinese coal miner and pig iron producer Sichuan Shengda Group Ltd said on Monday that it has not been able to make full payments on time to bond holders.

    The privately-owned company issued 300 million yuan ($46.83 million) worth of bonds on Dec. 5, 2012, giving investors the option to sell back the debt in three years, with a fixed annual yield of 7.25 percent.

    But Shengda said in a statement on Monday that it has not been able to make full payments on both principle and interests.

    Read more at Reuters
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    Glencore to cut more Australia coal output as price sinks

    Commodities group Glencore said it will idle its loss-making Collinsville colliery in Australia for three weeks starting later this month and will restrict production next year as thermal coal prices deteriorate.

    Glencore said it would also lay off 80 percent of the remaining staff at the mine in Queensland state early next year with the loss of 180 jobs, having already cut 80 positions in May.

    "In 2016, we will phase down overburden removal and only produce coal from in-pit inventory and field stockpiles," Glencore said in a statement emailed to Reuters. "We will reassess the situation during the year."

    Collinsville produced 2.24 million tonnes of thermal coal along with some coking coal in 2014, according to Glencore data.

    The world's biggest thermal coal exporter

    , Glencore overall shipped 38.8 million tonnes from Australia in the first nine months of 2015.

    A 43 percent fall in thermal coal prices over the past 26 months and a supply glut had contributed to Collinsville's financial losses, it said.

    The main job cuts will be in place by the beginning of March 2016.

    Glencore said in February that it would reduce its Australian coal production by 15 percent in 2015 to avoid selling at a discount into an oversupplied market.

    Read more at Reuters

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    Vale says Valemax ship sale, leaseback could fetch $1.1 bln

    Brazil's Vale SA said on Friday that it plans to sell its 11 remaining Valemax iron ore carriers and lease them back in transactions that could raise $1.1 billion.

    Vale has said it has experienced some delay in selling the ships, the key to its attempt to cut transportation costs between its Brazilian mines and Asian customers, as it seeks to get the best freight rates under contracts to lease the ships back from the new owners.

    Each more than 360-meter-long (1181-ft-long) ship can carry 380,000 to 400,000 tonnes of ore and are among the biggest vessels afloat.

    Vale has been selling its part of the world's 35-vessel Valemax fleet for about $110 million each, Luciano Siani, chief financial officer of Rio de Janeiro-based Vale told investors at a conference in London.

    The ships are needed to help Vale compete with its principal Australian rivals in the world sea-borne iron ore market. BHP Billiton Ltd and Rio Tinto Ltd, which are closer to China, the world's largest market for the mineral, the main ingredient in steel.

    By carrying more ore in each vessel, Vale's per-tonne freight costs falls. Cost cutting has become an urgent matter for Vale as iron ore .IO62-CNI=SI fell below $40 per tonne for the first time since spot-market pricing was implemented for major customers in 2008.

    It is also now at its lowest since 2005, when prices were still set between major steelmakers Vale and other top miners at annual negotiations.

    Vale is also counting on the ships to reduce its carbon footprint, the company said. The current Valemax vessels burn 35 percent less fuel per tonne of ore moved and the newer vessels will burn even less, said Peter Poppinga, head of Vale's ferrous metals division.

    During a question and answer session with investors in London, Poppinga also said Vale plans to drastically reduce ore stockpiles in its southern mine system in Minas Gerais state part of efforts to "shrink" its southern system operations.

    The southern system has higher costs, and produces lower grade ore on average than the company's northern system, which is centered on its giant Carajas mining complex in Brazil's Amazon state of Pará.

    With iron ore prices low, the company may not pay dividends next year in order to preserve cash to finish its planned final year of a giant expansion to its Carajas mine complex, Siani said.

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    Thyssenkrupp launches programme to improve steel business

    German industrial group Thyssenkrupp launched a five-year programme on Friday to improve the performance of its steel business amid worsening markets.

    It said the so-called "one steel" programme aimed to focus the business more sharply on customers, raise production efficiency, innovate faster and improve the supply chain.

    "Following a strong focus on cost reduction measures in recent years and successful financial stabilization, the steel business now aims to maintain and continuously improve its performance," Thyssenkrupp said in a statement.

    Thyssenkrupp more than doubled operating profit at its European steel business in the year ended September thanks to deep cost cuts, but cheap steel imports

     from China - where the market is oversupplied - continue to depress prices.

    "The situation on the steel markets has not stabilised as hoped but has worsened considerably in recent months," it said.

    Thyssenkrupp said the programme would start at Steel Europe and may eventually be extended to its loss-making Brazilian steel operations. (

    Read more at Reuters

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    Nippon Steel to buy 1.8-2.6 mln T/year of iron ore from India

    Nippon Steel & Sumitomo Metal Corp , Japan's biggest steelmaker, said on Friday it had renewed a contract to buy 1.8-2.6 million tonnes of iron ore annually from India's state-owned Metals & Minerals Trading Corp (MMTC) over three years.

    The deal follows the approval by India's cabinet in June to renew a long-term contract between MMTC and Japanese steelmakers for the supply of high-grade iron ore, despite growing pressure in India to use its natural resources to meet domestic needs.

    Under the contract, India will supply 3.0-4.3 million tonnes of the steel-making material a year to Japanese steelmakers.

    JFE Steel, a unit of JFE Holdings Inc, and Nisshin Steel Co Ltd said they had also renewed their contracts with MMTC, but declined to disclose their purchase volumes.

    A Kobe Steel Ltd spokesman said it could not immediately confirm whether or not the firm had signed a deal.

    Despite the plunging price of iron ore in an oversupplied global market, Japan's steelmakers want to diversify procurement sources to ensure a long-term supply of the raw material, as Japan depends on Australia and Brazil for its imports.

    In the fiscal year that ended March 2015, Japan imported a total of 136.8 million tonnes of iron ore, 61.1 percent of which came from Australia and 26.5 percent from Brazil.

    Read more at Reuters
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