Mark Latham Commodity Equity Intelligence Service

Wednesday 8th March 2017
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro
    Oil and Gas
    Precious Metals
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    Steel, Iron Ore and Coal

    Macro

    In China’s Rustbelt Towns, Displaced Coal and Steel Workers Lose Hope


    After protests by unpaid coal miners made headlines around the world last year as China's parliament was meeting, a $15 billion assistance fund offered by the ruling Communist Party became a symbol of the government's need to ensure social stability.

    As the National People’s Congress gathers again a year on, the number of protests has dropped sharply and authorities are promising to create more jobs for workers in China’s northeastern belt, where the employment outlook is more grim than in many other parts of the country.

    China is pledging to cut further excess and inefficient capacity in its mining sector and "smokestack" industries this year as part of an effort to upgrade its economy and reduce pollution, but the move threatens to throw millions more out of work.

    Dozens of coal miners and laid-off workers in Shuangyashan, in northeastern Heilongjiang Province near Russia, said they were underemployed and underpaid, sometimes earning only a fifth of what they used to, despite rising living costs.

    They said a heavy police presence was discouraging further mass protests.

    "Security has become much tighter since last year's protests, the police are everywhere, watching everything," said Li, 53, who works at the nearby Dongbaowei coal mine.

    "The government could owe me one year's worth of wages and I wouldn't protest again. It's just not worth it for us miners," said another worker who said he was owed five months' pay. He also declined to give his full name.

    With a twice-a-decade leadership transition looming later this year, Beijing has focused on curbing mass unrest, including the $15 billion fund for retraining, relocating and early retirement of an estimated 5-6 million affected people.

    "We were expecting a lot of possible unrest but it seemed that something happened after Shuangyashan that stopped major waves of protests," said Keegan Elmer of Hong Kong-based China Labor Bulletin (CLB), which tracks workers' strikes in China.

    The number of mining protests in China dropped from a high of 37 in January 2016 to 6 in December, CLB figures showed.

    So far, China has not released any comparison of its success rates with employment programmes nationwide, and analysts say there is little transparency on how the funds are being spent.

    But workers in some other parts of China have similar tales to tell.

    In Hebei province, over 2,000 km (1,200 miles) to the south, a 55-year-old former steelworker said he now makes 1,000 yuan ($145) a month, a quarter of his previous salary, as a security guard.

    But the man, who only identified himself as Wang, said he was luckier than most.

    Other laid-off workers said they had to return to their farms, where they could hope for little more than subsistence.

    UNDEREMPLOYED, UNDERPAID

    This year, new jobs will be found for half a million steel and coal workers as capacity is cut in those industries, China's labour minister said on Wednesday.

    "As overcapacity is cut, we must provide assistance to laid-off workers," Premier Li Keqiang said at the opening of the annual meeting of parliament on Sunday.

    For more on heavy industry in China, watch Fortune's video:

    But unlike the more affluent south, China's rustbelt has few other jobs to offer, prompting some local governments to offer menial work while state firms keep staff on but pay much less.

    Longmay, the state coal producer in northeastern Heilongjiang, received more than 800 million yuan from the new fund last year to help it deal with coal output cuts and reallocating workers to other jobs, according to a government document.

    "This isn't a job, at least not a real job," said Peng Jianting, 51, who used to earn 3,000 yuan a month working in a coal mine and now earns 500 yuan as a street sweeper.

    The company declined to comment.

    In Shanxi province, which accounts for a quarter of China's coal production, the deputy governor says the province's state-owned enterprises owed 5.46 billion yuan in outstanding wages, state news agency Xinhua reported.

    "The state sector acts as a semi-safety net. Rather than lay off a lot of workers, they typically will freeze wage increases, so you don't get the same levels of unemployment as you would in other economies when there's a downturn," said Julian Evans-Pritchard, an economist at Capital Economics.

    China's official unemployment rate—which only accounts for urban, registered residents—has held around 4% for years, despite a slowdown that has seen growth cool from the double-digits to quarter-century lows of under 7 percent.

    "The (assistance) fund was never really big enough to cope with the number of workers that has been shed in these sectors," said Evans-Pritchard.

    "It doesn’t surprise me that a lot of workers aren’t benefiting from the fund. I think they need to increase the scale significantly.”

    Media said last year that more than half a million laid-off workers were now driving for ride-sharing services, in line with a government push for them to become a part of the "new" economy.

    But that option doesn't exist for Wu Yilin, a coal miner in Shuangyashan who moved to an office job after he lost his thumb in a workplace accident.

    "We're told to start our own businesses, but we just become street cleaners instead. You need money, connections to become an entrepreneur. It's not as if everyone can do it."

    http://fortune.com/2017/03/06/china-rustbelt-steel-workers/
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    Bitcoin plunges sharply and suddenly


    Bitcoin plunged by more than $100 in a matter of minutes on Tuesday morning. The cryptocurrency was down about 1.5% at $1,260 a coin just after 6 a.m. ET before tumbling below $1,160 within 30 minutes. As of 7:12 a.m. ET it was down 5%, or $62, near $1,218 a coin.

    While no headlines can be directly tied to the plunge, about two hours earlier a Bloomberg headline cited a People's Bank of China official as suggesting the recent bitcoin regulation wasn't temporary.

    The PBOC recently announced it was cracking down on bitcoin trading, and China's largest bitcoin exchanges have since introduced a flat 0.2% fee on each transaction and announced a blockage of withdrawals.

    Tuesday's sell-off could also be tied to nervousness over a coming Securities and Exchange Commission ruling. The SEC is expected to issue a ruling on whether it will approve at least one of the three proposed bitcoin-focused exchange-traded funds by a Saturday deadline.

    The price of bitcoin has rallied 27% in 2017 after gaining 120% in 2016. Bitcoin has been the top-performing currency in each of the past two years.

    http://uk.businessinsider.com/bitcoin-price-plunges-suddenly-and-sharply-march-8-2017-2017-3?r=US&IR=T
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    China posts rare trade deficit as February imports surge 44.7 percent in yuan terms


    China unexpectedly posted a rare trade deficit in February as imports surged far more than expected to feed a months-long construction boom, driven by commodities from iron ore and copper to crude oil and coal.

    Imports in yuan-denominated terms surged 44.7 percent from a year earlier, while exports rose 4.2 percent, official data showed on Wednesday.

    That left the country with a trade deficit of 60.63 billion yuan ($8.79 billion) for the month, the General Administration of Customs said.

    Customs has not yet published dollar-denominated trade figures, on which most economists and investors base their forecasts and analysis.

    Apart from currency fluctuations, higher commodity prices and the timing of the long Lunar New year holidays early in the year also may have distorted the data. Most of China's commodity imports grew strongly in volume terms from a year earlier, but dipped from January.

    Still, economists say the upbeat readings reinforced a growing view that economic activity in China and globally picked up in the first two months of the year.

    That could give China's policymakers more confidence to press ahead with oft-delayed and painful structural reforms such as tackling a mountain of debt.

    Containing the risks from years of debt-fueled stimulus and heavy spending has been a major focus at the annual meeting of China's parliament which began on Sunday.

    China's first-quarter economic growth could accelerate to 7 percent year-on-year, from 6.8 percent in the last quarter, economists at OCBC wrote in a note on Monday, while adding that the pace may ease starting in spring.

    "We suspect that this largely reflects the boost to import values from the recent jump in commodity price inflation, but it also suggests that domestic demand remains resilient," Julian Evans-Pritchard at Capital Economics said in a note.

    "Looking ahead, we expect external demand to remain fairly strong during the coming quarters which should continue to support exports."

    But he added that it was unlikely the current pace of import growth can be sustained as the impact of higher commodity prices will start to drop out of the calculations in coming months.

    Analysts polled by Reuters had expected February shipments from the world's largest exporter to have risen 12.3 percent in dollar-terms, an improvement from a 7.9 percent rise in January.

    Imports had been expected to rise 20 percent, after rising 16.7 percent in January. Both export and import growth were seen at multi-year highs.

    Analysts were expecting China's trade surplus to have risen to $25.75 billion in February, versus January's $51.35 billion, with growing attention on its large trade surplus with the United States as new U.S. President Donald Trump ramps up his protectionist rhetoric.

    China has not posted a trade deficit in dollar terms since February 2014.

    China has trimmed its economic growth target to around 6.5 percent this year, Premier Li Keqiang said in his work report at the opening of parliament on Sunday. The economy grew 6.7 percent last year, the slowest pace in 26 years.

    As in 2016, China did not set a target for exports in 2017, underlining the uncertain global outlook, but Li said China will take steps to steady exports this year.

    China's shipments to the United States rose 11.5 percent in February in yuan terms, compared to a year earlier. It imports from the U.S. rose 41.0 percent.

    The yuan has lost about 5 percent of its value against the dollar since early 2016.

    In the early days of his presidency Trump hasn't made good yet on his campaign pledges of greater protectionist measures, but analysts say the specter of deteriorating U.S.-China trade and political ties is likely to weigh on confidence of exporters and investors worldwide.

    The U.S. International Trade Commission said last Friday it had made a final finding that the U.S. industry was being harmed by the dumping and subsidization of imports of carbon and alloy steel cut-to-length plate from China.

    A government adviser said last month that China's exports would likely return to growth this year, as commodity prices stabilize and the impact of the appreciation in the U.S. dollar is gradually absorbed.

    http://www.reuters.com/article/china-economy-trade-idUSL3N1GK1UP
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    Oil and Gas

    Burning less oil at home will help Saudi exports and Aramco IPO


    Saudi Arabia is likely to reduce the amount of oil it burns to generate power this summer as the kingdom hikes domestic energy prices and uses more natural gas in power stations, industry sources said.

    Burning less crude at home means the world's top oil exporter may not need to push output to the record high of 10.67 million barrels per day (bpd) reached in July last year, even if the Organization of the Petroleum Exporting Countries and other producers end supply curbs in June.

    It may also make the sale of a 5 percent stake in Saudi Aramco more attractive to investors because the national energy giant will have more crude to export, if needed, and can sell fuel at higher prices to the domestic market.

    "Now we are using more and more natural gas, and with the reforms in electricity prices, crude burning will go down," said a Saudi-based industry source. "This summer you will see less crude burning."

    Saudi Arabia's domestic energy reforms aim to rein in waste which threatens to erode the amount of oil available for export.

    The kingdom's energy subsidies have long kept power and fuel at a fraction of cost price, draining the state budget and giving consumers little incentive to buy smaller cars or switch off power-hungry air conditioners -- even when they leave home.

    But a slide in international oil prices to around $55 a barrel now from above $100 in 2014 has left a gaping hole in state coffers, encouraging efforts to wean the nation off cheap energy and use more of its huge gas reserves.

    "That's a national objective. Aramco's been doing this for years, reducing crude burning by increasing use of gas and encouraging the state power generation sector to become more efficient," said another source familiar with the matter.

    In December 2015, the government, which spent nearly 300 billion riyals on energy and water subsidies that year, hiked electricity for the industry and gasoline prices at the pump by about 50 percent. More gradual increases are planned until 2020.

    BIG CONSUMER

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    Under the 2015 rises, 95 octane gasoline rose to 0.90 riyal ($0.24) per liter from 0.60 riyal, a big rise for Saudi drivers but still offering them some of the cheapest fuel in the world. A further 30 percent rise could come as early as July, sources said.

    Cheap fuel prices have helped make Saudi Arabia the world's fifth biggest energy consumer, while its economy is ranked about 20th in size.

    The OPEC heavyweight burned an average of 700,000 bpd of oil for electricity to keep the population cool in the hottest months from May to August, official figures showed.

    Expanding gas usage is helping cut the hefty level of oil consumption. Aramco aims to nearly double gas production to 23 billion standard cubic feet a day in the next decade, supplying more of the fuel to power stations.

    In the wake of the price reforms and gas development plans, domestic demand for crude declined about 3.5 percent year-on-year in December 2016 to 2.21 million barrels per day compared to a year earlier, the lowest total for the month of December since 2013, according to an OPEC report.

    One industry source said Riyadh might not need to raise output to the record high of July last year as a result of the reforms. "Demand internally will not be high," the source said.

    The reduction in domestic oil demand comes with an added bonus as the government plans to sell a 5 percent stake of Aramco, in what is expected to be the world's biggest initial public offering of shares worth $100 billion.

    The sources said that a reduction in oil usage, while not a specific objective for the IPO, is part of Aramco's plan to improve efficiency and secure the best possible listing price.

    "More volume (exported) abroad means more revenue for investors," said another industry source. "That should help Aramco's valuation."

    http://www.reuters.com/article/us-saudi-crude-demand-idUSKBN16E15Z
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    OPEC engages with shale producers and hedge funds


    OPEC held talks in recent days with shale oil producers and hedge fund executives, he said during a media conference at the CERAWeek energy conference in Houston. This is the first time OPEC held bilateral meetings with shale producers and investment funds, Barkindo said.

    "I think we have broken the ice between ourselves and the industry, particularly the tight oil producers and the hedge funds who have become major players in the oil market," he said in remarks on the sidelines of the energy conference.

    OPEC plans to hold an event to consider the impact of oil futures on physical crude markets, he said, without providing details.

    The November deal to reduce output, which was joined by non-OPEC countries including Russia and Kazakhstan, is intended to reduce global output by about 1.8 million barrels per day, and help reduce a glut. The six-month agreement took effect on Jan. 1.

    Compliance among top global oil producers should improve in February from January, he said. Members of the production accord last month reported 86 percent of the reduction target had been met in the early weeks of the agreement.

    http://www.reuters.com/article/us-ceraweek-oil-barkindo-idUSKBN16E2P4
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    International offshore rig count goes further down in February


    The international offshore rig count for February 2017 was down both sequentially and year over year, which is the third time in a row, according to Baker Hughes’ monthly rig count reports.

    The report by the oilfield services provider shows that the international offshore rig count for February 2017 was 200, down 6 from the 206 counted in January 2017, and down 25 from the 225 counted in February 2016.

    The international rig count for February 2017, which includes land and offshore units, was 941, up 8 from the 933 counted in January 2017, and down 77 from the 1,018 counted in February 2016.

    The average U.S. rig count for February 2017 was 744, up 61 from the 683 counted in January 2017, and up 212 from the 532 counted in February 2016.

    The average Canadian rig count for February 2017 was 342, up 40 from the 302 counted in January 2017, and up 131 from the 211 counted in February 2016.

    The worldwide rig count for February 2017 was 2,027, up 109 from the 1,918 counted in January 2017, and up 266 from the 1,761 counted in February 2016.

    The worldwide offshore rig count for February 2017 was 222, down 9 from the 231 counted in January 2017, and down 32 from the 254 counted in February 2016.

    http://www.offshoreenergytoday.com/international-offshore-rig-count-goes-further-down-in-february/
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    BP to finish seven new projects in 2017, largest year ever


    After years of stalled growth, British oil major BP will bring more projects online this year than any in the company’s history, CEO Bob Dudley said on Tuesday.

    BP will finish seven “massive” projects around the world in 2017, Dudley said, from Egypt to the Gulf of Mexico. In 2011, the company had 8 million man-hours of work on projects under construction around the world, he said. This year, BP will log 88 million man-hours.

    Dudley said BP has been quietly retooling in recent years, as it worked to recover from the 2010 explosion of the Deepwater Horizon drilling rig off the coast of Louisiana, which killed 11 workers and spewed millions of gallons of crude oil into the Gulf.

    Last year, a federal judge approved BP’s $20.8 billion environmental settlement with the Justice Department, wrapping up the main civil case in the disaster.

    “We’ve had our own special problems over the last six or seven years,” Dudley told industry leaders gathered for the CERAWeek conference downtown at the Hilton Americas-Houston. The company had to sell $55 billion in assets, including prime land in West Texas’ Permian Basin, to cover the settlements.

    The two-year-old crash in crude prices then forced BP, among others, to stop or slow big projects. CERAWeek last year had a somber tone, Dudley said. “I don’t think I heard anybody laugh about anything last year,” he said. “It was a very serious group.”

    But as the crash stretched out, oil companies began cutting costs, squeezing contracts and finding efficiencies. Dudley called it a “really tough re-wrenching of the cost structure.”

    Some of those savings will go away as oil prices rise and contractors try to recapture profits. But some will stick, Dudley said, as companies and contractors work through strategic relationships.

    “It feels like we’re heading into a balance point here,” he said.

    Cost estimates for BP’s projects scheduled to come online this year, he said, are coming in under budget.

    The company said the new projects will add 1 million barrels of oil and gas per day to BP’s production totals by 2021.

    http://fuelfix.com/blog/2017/03/07/bp-to-finish-seven-new-projects-in-2017-largest-year-ever/
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    Snam ups investment, eyes small-scale LNG development


    The Italian natural gas transmission system operator, Snam, intends to study the development of small-scale LNG business and to up its investment over the 2017-2021 period.

    The company expects an annual net income growth of 4 percent on average, with investment over the period to reach €5 billion (Approx: US$5.3 billion).

    Out of the €5 billion planned investment, €4.7 billion will be spent on further developing the Italian gas network and its interconnection with the European infrastructure system, while €270 million has been earmarked for the Trans Adriatic Pipeline (TAP) project.

    Included in its plans are the development of small-scale LNG infrastructure as well as CNG infrastructure. In Italy, Snam will evaluate opportunities related to LNG infrastructure, the methanization of Sardinia and the utilization of natural gas for transport.

    Initiatives for the development of the small-scale LNG and CNG business are already being studied, Snam said in its latest financial report. The company plans to support the roll-out of 300 CNG stations throughout the country.

    Speaking of the 2016 operations, the company noted that five cargoes were unloaded at its Panigaglia LNG receiving terminal, with the facility regasifying 0.21 billion cubic meters of liquefied natural gas during the year.

    The facility has two LNG storage tanks with 50,000-cbm capacity each and is capable of receiving LNG carriers with 25,000-cbm up to 70,000-cbm.

    http://www.lngworldnews.com/italy-snam-ups-investment-eyes-small-scale-lng-development/
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    Chevron says expects first LNG from Gorgon Train 3 in March


    US-based energy giant Chevron expects to produce first liquefied natural gas (LNG) from the third liquefaction train of its giant Gorgon facility in Western Australia by the end of this month.

    Start-up operations at the third train are fully underway and “first LNG is expected in March 2017,” Jay Johnson, Chevron’s executive vice-president upstream told investors on Tuesday.

    Earlier this year, Chevron’s Chief Executive John Watson said the company was expecting to start LNG production from the third train at the Barrow Island LNG plant early in the second quarter of this year.

    The troubled $54 billion Gorgon LNG project has experienced several production interruptions since it shipped its first cargo on March 21.

    The LNG facility faced five production interruptions in March, July, two in November and the latest one at the end of February.

    Chevron restarted production at the second Gorgon liquefaction train on February 26 after it had been suspended due to “minor maintenance.”

    Johnson told investors that the second Gorgon train reached over 90 percent of its nameplate capacity within a week following the restart.

    He added that 22 LNG cargoes have been shipped from Gorgon since the beginning of this year.

    The LNG project will have a shipment capacity of 15.6 million mt/year once all three trains have ramped up to full production.

    Gorgon is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).

    http://www.lngworldnews.com/chevron-says-expects-first-lng-from-gorgon-train-3-in-march/
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    Ecopetrol jumps back to black


    Colombian oil and gas company Ecopetrol returned to profit in the last quarter of 2016 compared to a loss in the prior-year quarter.

    The state-run company on Monday posted a net profit of 186 billion Colombian pesos (approx. $62.6M) compared with a net loss of 6.31 trillion pesos ($2.1 billion) in the final quarter of 2015.

    Juan Carlos Echeverry G., CEO of Ecopetrol S.A., commented: “2016 was a year of enormous challenges for Ecopetrol. The oil industry experienced the lowest crude prices in 12 years, thus resulting in cuts in investment.”

    He added: “Ecopetrol focused its efforts on reducing costs, producing profitable barrels, prioritizing investments, strengthening cash flow and, at the same time, maintaining its investment-grade rating.”

    The company’s investments in 2016 totaled $2.5 billion.

    At 718 thousand barrels of oil-equivalent per day, the company exceeded its 2016 production target by 3 thousand barrels despite a drop in production by 25 thousand barrels of oil-equivalent per day for 45 days, due to the closure of the Caño Limón Coveñas oil pipeline; and a 16% drop in Brent prices.

    The company’s fourth quarter closed with a cash position of 14 trillion pesos (approximately $4.7 billion).

    Echeverry also noted that the country’s offshore is a region of high potential. “During the fourth quarter, two wells, Purple Angle (Kronos appraisal well) and Gorgon, were being drilled to have a better assessment of the potential of the Colombian Caribbean,” he said.

    Looking ahead, Echeverry said: “Challenges in 2017 are no less serious. Adding reserves and maintaining the pace of production are the company’s focus. The exploration campaign will be stepped up significantly in regions of high prospectivity. Investment in exploration will rise from USD 280 million to USD 650 million, thus increasing offshore wells from 2 to 6 and onshore wells from 5 to 11 from 2016 to 2017. Enhanced recovery will continue to leverage additional reserves in mature fields.”

    http://www.offshoreenergytoday.com/ecopetrol-jumps-back-to-black/
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    BHP hunts for oilfield stakes to cash in on market rebalance


    BHP Billiton, fresh from signing a joint venture to develop an oilfield off Mexico, remains on the lookout for more oil assets, as it is more bullish on oil than gas over the next few years, its petroleum chief said on Wednesday.

    The global miner, which also has a large petroleum business, has long flagged that copper and oil are its two main targets for growth over the next few years, as it sees potential supply shortfalls emerging for those commodities.

    BHP agrees with the International Energy Agency's outlook, released this week, which warned that world oil demand may outstrip supply after 2020 following a sharp decline in investment in new production.

    "We expect and we're seeing that oil markets in 2017 are really already coming back into balance for the first time in nearly three years," said Steve Pastor, President Operations, Petroleum for BHP Billiton, told reporters on a conference call after speaking at the CERAWeek energy conference in Houston.

    "And as we look ahead to the 2020s we see compelling market fundamentals," he said. That is based on a view that demand will grow around 1 percent a year while production will decline between 3 percent and 4 percent a year as fields are depleted.

    BHP is focused on the $9 billion Mad Dog phase 2 oil development in the deepwater Gulf of Mexico, drilling the Trion prospect with state-owned Petroleos Mexicanos in their side of the Gulf, and exploring off Trinidad and Tobago, while looking for more high quality oil assets, he said.

    "We always are open to and looking at acquisition opportunities," Pastor said.

    "Quite frankly, we're a bit more bullish on oil based on the fundamentals that I described, and we would like to add oil proportionately into the portfolio."

    He all but ruled out acquiring any assets in Southeast Asia, where companies like Chevron are looking to sell or give up assets in Indonesia and Thailand and Malaysia's Petronas is aiming to sell a large stake in a gas block off Sarawak state.

    "Quite frankly, in Southeast Asia, where we've played in the past, the prospects, the potential we see there is not a great strategic fit for us at this time," Pastor said.

    http://www.reuters.com/article/us-bhp-billiton-oil-idUSKBN16F0D1
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    Kurdish official reports agreement to keep Kirkuk crude flowing to Turkey


    The Kurdish group which controls Iraq's Kirkuk oilfields has reached an agreement with Baghdad to keep crude flowing from the region through a pipeline to a Turkish export terminal on the Mediterranean, a Kurdish official told Reuters on Wednesday.

    Kosrat Rasul said the agreement was reached on Tuesday between his group, the Patriotic Union of Kurdistan, and Iraqi Prime Minister Haider al-Abadi.

    "The agreement ended the problem and there is no deadline anymore" to shut the pipeline, said Rasul, who is the PUK deputy secretary general, giving no further details.

    PUK forces seized the Kirkuk facilities last week, briefly suspending oil flows and threatening further action if its demand to have a share in the revenue is not fulfilled.

    http://www.reuters.com/article/iraq-oil-kirkuk-turkey-idUSL5N1GL0Q1
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    API Reports Large Crude Build


    The American Petroleum Institute (API) reported a build of 11.6 million barrels in United States crude inventories against expert predictions that domestic supplies would see a much kinder 1.4-million-to 1.66-million-barrel build.

    The build in crude oil inventories was almost 10 times what analysts had predicted and marks yet another new high in U.S. inventories.

    http://finance.yahoo.com/news/oil-prices-slide-api-reports-220600284.html
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    Growth in Permian Production to Stress Outbound Infrastructure in Late 2017


    As the price of West Texas Intermediate steadies in the $50-$55 per barrel (bbl) range, oil rig counts affirm operator commitments to growing production immensely in the Permian Basin over the next two years. Nearly half of all U.S. drilling rigs returned to service since rig counts hit a low in May 2016 have gone to work in the Permian Basin.

    Total U.S. oil rig counts bottomed at 323 rigs in May 2016, as a result of crude prices falling to below $30/bbl. In contrast, oil drilling activity in the U.S. has trended up in the last year on an uptick in WTI prices and OPEC announced production cuts. Since the low, oil rig counts increased by 313 rigs, close to a 100 percent rise.

    The Permian’s rig count was 295 on February 29, 166 higher than the low of 129 active rigs in the basin in May 2016. The theme of recovery has taken firm root, and drilling activity should increase through at least 2017, based on the current forward price curves for natural gas and oil. Genscape expects an additional 33 rigs to be added between now and the end of the year, bringing the total Permian rig count to 328.

    As ever-increasing amounts of capital flow into robust drilling programs in the basin, Permian production is set to grow from around 2.2 million bpd to 2.8 million bpd by year end 2017, according to Genscape’s Spring Rock Production forecast. This incremental 600,000 bpd growth will be nearly matched in 2018 to the tune of a 500,000 bpd of expansion. Given that supply in the basin could see up to 50 percent growth between now and 2018, the natural question is: Will takeaway infrastructure be adequate to support such significant growth, and how soon might a lack of adequate takeaway become a constraint?

    Permian Pipeline Infrastructure to Expand

    Giving credence to the immediacy of this question, there have been several announcements in recent weeks to expand existing pipeline infrastructure. Magellan Midstream Partners announced plans to expand their 300,000 bpd Colorado City, TX-to-Houston BridgeTex pipeline by 100,000 bpd by Q2 2017, in a press release on January 24. Plain All American Pipeline announced plans to expand the 250,000 bpd McCamey, TX-to-Gardendale, TX, Cactus Pipeline system to 390,000 bpd by Q3 2017, according to a January 18 news release.

    In their 4Q earnings call, Sunoco Logistics announced plans to expand their system by 100,000 bpd with the Permian Express 3 project expected to be in service in mid-2017. According to Sunoco, they also have the ability to add an additional 200,000 bpd utilizing existing infrastructure and can be staged as needed. Currently, Sunoco’s 300,000 bpd West Texas Gulf, 150,000 bpd Permian Express I and 200,000 bpd Permian Express II pipelines transport barrels from the Permian to Longview and Nederland, TX, markets.

    Also in their 4Q earnings call, Enterprise Products Partners said it both expanded and moved up the start date for their new Midland-to-Houston pipeline. The company expanded the capacity from 300,000 bpd to 450, 000 bpd and moved up the start date from mid-2018 to Q4 2017.

    Tightening Balance between Production and Takeaway Capacity

    Based on the consensus evident in these midstream announcements and Genscape’s production outlook, the balance between production and outbound takeaway capacity will be tightening by the second half of 2017. Tighter pipeline capacity will result in a widening crude price differential between Midland and Cushing, which could widen enough to support rail economics to the Gulf Coast. However, the duration and magnitude of the impact to the Midland-Cushing spread will ultimately be determined by the timing of new infrastructure and when incremental production comes online.  

    Permian oil production growth and major outbound takeaway capacity additions from the basin to Cushing and the Gulf Coast. Also included in the takeaway is both local refinery capacity in the Permian Basin, which totals about 350 Mb/d and rail loading capacity estimates. Click to enlarge

    Service Costs Keep Rising

    The other primary, imminent concern on the speed of Permian production growth is rising oil production service costs. Operators continue to push the boundaries in the Permian on both the drilling and completion side. However, rising costs, especially for hydraulic fracturing services, continue to increase with activity. Many operators have been able to neutralize the effect of increased service costs on well economics via gains in both well and rig productivities. However, many operators are reporting between five and 15 percent increases in service costs.

    As evidenced by strengthening rig counts and operator drilling plans, the Permian Basin is the area most poised for production growth in the United States over the next two years. The clearest threats to this production growth are resource constraints (labor availability, equipment availability, and increasing OFS prices) and takeaway infrastructure. Given the announcements by several midstream firms to expand takeaway infrastructure by the end of 2017, as well as productivity gains offsetting rising service costs at the moment, Genscape believes that Permian producers have every incentive to drill their next well.

    - See more at: http://www.genscape.com/blog/growth-permian-production-stress-outbound-infrastructure-late-2017#sthash.LyOJSxul.dpuf
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    U.S. to open 73 million offshore acres for O&G exploration


    U.S. Secretary of the Interior Ryan Zinke said that the Department would offer 73 million acres offshore Texas, Louisiana, Mississippi, Alabama, and Florida for oil and gas exploration and development.

    The proposed region-wide lease sale is scheduled for August 16, 2017, and will include all available unleased areas in federal waters of the Gulf of Mexico.

    Secretary Zinke said: “Opening more federal lands and waters to oil and gas drilling is a pillar of President Trump’s plan to make the United States energy-independent. The Gulf is a vital part of that strategy to spur economic opportunities for industry, states, and local communities, to create jobs and home-grown energy and to reduce our dependence on foreign oil.”

    The Proposed Lease Sale 249, scheduled to be live streamed from New Orleans, will be the first offshore sale under the new Outer Continental Shelf Oil and Gas Leasing Program for 2017-2022 (Five Year Program). It will include about 13,725 unleased blocks, located from three to 230 miles offshore, in the Gulf’s Western, Central, and Eastern planning areas in water depths ranging from nine to more than 11,115 feet (three to 3,400 meters).

    The estimated amount of resources projected to be developed as a result of the proposed region-wide lease sale ranges from 0.211 to 1.118 billion barrels of oil and from 0.547 to 4.424 trillion cubic feet of gas.

    Excluded from the lease sale are blocks subject to the Congressional moratorium established by the Gulf of Mexico Energy Security Act of 2006, blocks that are adjacent to or beyond the U.S. Exclusive Economic Zone, and whole blocks and partial blocks within the current boundary of the Flower Garden Banks National Marine Sanctuary.

    Under the new Five Year Program, two region-wide lease sales are scheduled for the Gulf each year, where the resource potential and industry interest are high, and oil and gas infrastructure is well established.

    Walter Cruickshank, the acting director of the Bureau of Ocean Energy Management (BOEM), said: “To promote responsible domestic energy production, the proposed terms of this sale have been carefully developed through extensive environmental analysis, public comment, and consideration of the best scientific information available. This will ensure both orderly resource development and protection of the environment.”

    The lease sale terms include stipulations to protect biologically sensitive resources, mitigate potential adverse effects on protected species, and avoid potential conflicts associated with oil and gas development in the region. The Final Notice of Sale will be published at least 30 days before the sale.

    BOEM estimates that the U.S. Outer Continental Shelf (OCS) contains about 90 billion barrels of undiscovered technically recoverable oil and 327 trillion cubic feet of undiscovered technically recoverable gas. The 160 million acres of the Gulf, has technically recoverable resources of 48.46 billion barrels of oil and 141.76 trillion cubic feet of gas.

    According to the Department of Interior, production from all OCS leases provided 550 million barrels of oil and 1.25 trillion cubic feet of natural gas in FY2016, accounting for 72 percent of the oil and 27 percent of the natural gas produced on federal lands. Furthermore, energy production and development of new projects on the U.S. OCS supported an estimated 492,000 direct, indirect, and induced jobs in FY2015 and generated $5.1 billion in total revenue that was distributed to the Federal Treasury, state governments, Land and Water Conservation Fund, and Historic Preservation Fund.

    As of March 1, 2017, about 16.9 million acres on the U.S. OCS are under lease for oil and gas development (3,194 active leases), and 4.6 million of those acres (929 leases) are producing oil and natural gas. More than 97 percent of these leases are in the Gulf of Mexico; about 3 percent are on the OCS off California and Alaska.

    The current Five Year Program [2012-2017] has one final Gulf lease sale scheduled on March 22, 2017 for Central Planning Area Sale 247. The 2012-2017 Five Year Program has offered about 73 million acres, netted more than $3 billion in high bids and awarded more than 2,000 leases.

    http://www.offshoreenergytoday.com/u-s-to-open-73-million-offshore-acres-for-og-exploration/
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    Anadarko to spend over $1B on Gulf of Mexico and international assets in 2017


    American oil and gas company Anadarko Petroleum Corporation plans to spend around $1.1 billion on its U.S. Gulf of Mexico and international assets during this year.

    The oil company on Tuesday announced its 2017 initial capital program of $4.5 to $4.7 billion. Out of this total amount, Anadarko expects to invest in 2017 approximately $1.1 billion in its deepwater Gulf of Mexico, Algeria and Ghana assets.

    In the Gulf of Mexico, the company plans to continue leveraging its premier infrastructure position and drill approximately seven development tiebacks during the year. In addition, Anadarko expects to benefit from a full year of production from the recently acquired Freeport-McMoRan properties, which doubled Anadarko’s sales volumes to more than 160,000 BOE per day at the end of last year.

    According to the company, minimal capital investments are expected to be required in 2017 to maintain the steady, long-lived, high-margin oil production provided by the company’s cash-generating assets in Algeria and offshore Ghana.

    Also in 2017, the company expects to invest approximately $770 million in its deepwater and international exploration program and LNG project in Mozambique.

    During the year, Anadarko plans to drill up to 10 exploration/appraisal wells in the deepwater Gulf of Mexico, Côte d’Ivoire, and Colombia, where Anadarko recently made a discovery at the Purple Angel prospect.

    The company expects to continue advancing the Mozambique LNG project where it has made progress on the legal and contractual framework, and recently submitted a Development Plan to the Government of Mozambique for the Golfinho/Atum discoveries.

    When it comes to its onshore assets, the oil company plans to invest approximately $820 million in Delaware Basin upstream activities, with an additional $560 million of Anadarko capital allocated toward the expansion of its midstream backbone to enable future growth, and approximately $840 million in DJ Basin upstream activities.

    Al Walker, Anadarko Chairman, President and CEO, said: “Our 2017 initial capital program is designed to leverage our streamlined portfolio and sharpened focus on higher-margin oil production, which is expected to generate stronger returns and substantial cash flow to fund material growth over the next five years.”

    “With a growing lower-risk resource base of more than 6.5 billion BOE (barrels of oil equivalent) in our premier U.S. focus areas of the Delaware and DJ basins, and the deepwater Gulf of Mexico, I believe Anadarko is poised to deliver exceptional value in 2017 and well beyond.

    “In 2017, we plan to allocate approximately 80 percent of our total capital program toward our U.S. onshore upstream and midstream activities, and our expanded position in the deepwater Gulf of Mexico,” added Walker.

    “These investments provide the foundation for our increased five-year oil growth expectations of more than 15 percent on a compounded annual basis at current prices, and we are prepared to be flexible throughout the year if we see the opportunity in the Delaware and DJ basins to accelerate activity to capture additional value. Furthermore, sustained oil production from our deepwater Gulf of Mexico, Algeria and Ghana assets is expected to generate significant free cash flow to support growth and fund future value creation through exploration success and our LNG business.”

    http://www.offshoreenergytoday.com/anadarko-to-spend-over-1b-on-gulf-of-mexico-and-international-assets-in-2017/
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    Shell accelerates plan to boost U.S. shale output: exec


    Royal Dutch Shell is ramping its North American shale output earlier than planned to lock in quick returns from what has become one of its most profitable businesses, the head of Shell's unconventional energy business said.

    The Anglo-Dutch company plans to make shale oil and gas in the United States, Canada and Argentina a key engine of growth in the next decade, targeting output of around 500,000 barrels of oil equivalent per day (boepd), Greg Guidry told Reuters in an interview.

    A drive to cut the cost of producing oil and gas from U.S. shale deposits has proven so effective that Shell has accelerated development plans, Guidry said on the sidelines of the CERAWeek industry conference in Houston.

    It aims to boost output by 140,000 boepd over the next three years in the Permian basin in West Texas and the Duvernay region in Canada, said Guidry, an executive vice president.

    Shell had previously expected to hit that target after 2020.

    Shell produces 280,000 boepd in shale- a tenth of the company's overall output of 2.8 million boepd in 2016. The firm is targeting an increase in global output to around 4 million boepd by 2020.

    The world's top oil and gas companies such as Shell, Exxon Mobil and Chevron have traditionally focused on developing complex projects such as offshore fields and liquefied natural gas plants that are expensive and take years to complete.

    The sharp drop in oil prices since 2014 - a barrel is currently worth around $56 - has pushed boards to increasingly look at shale, which is cheaper and faster to develop.

    Since 2013, Shell has overhauled its shale business, selling assets and streamlining operations to better compete with smaller, more nimble shale-focused producers.

    Shell's shale output is profitable with oil prices at $40 a barrel, with the most productive wells at an even lower breakeven, Guidry said.

    Exxon and Chevron are betting heavily on shale output in the coming years. Shell's short-term growth will mostly come from deepwater production in Brazil as well as LNG projects.

    Further expansion in shale beyond the next three years is a possibility, Guidry said.

    VACA MUERTA

    Shell is also developing shale capacity in the Vaca Muerta region in Argentina, where it last month reached a deal with state-run company YPF to invest $300 million.

    The company will decide in around 18 months on whether to go ahead with commercial scale development of the unconventional formation in Patagonia, where it holds around 250,000 acres, Guidry said.

    http://www.reuters.com/article/us-ceraweek-shell-shale-idUSKBN16E30E
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    Canada could export 450,000 b/d of heavy crude to Asia by 2021: industry sources


    Canadian crude oil exports from the US Gulf Coast has the potential to grow to some 450,000 b/d over the next five years, as Asian refineries intensify their search for a "diet" of medium-to-heavy crude feedstock, industry participants said Monday.

    New Asian refining capacity is being built to take in medium-to-heavy grades and that's "good" for Canada, Sarah Emerson, president of Energy Security Analysis, said at the CERI 2017 Oil & Gas Symposium in Calgary.

    During a five-year period starting 2016, new investments in coking and desulfurization facilities in Asian refineries will result in incremental demand of a total of 1.2 million b/d of heavy and medium grades, she said.

    For Canadian producers to get a larger share of the new market demand, "pricing will matter," Emerson said without giving any figures.

    Dinara Millington, vice president of research with the Canadian Energy Research Institute, said the first step for Canadian heavy producers will be to find a footing in the Asian market.

    "Our current estimates show that about 30,000 b/d of WCS [Western Canadian Select} grade gets re-exported out of the USGC to foreign markets," Millington said on the sidelines of the event. "The advantage for Alberta's bitumen producers is there is a growing demand for the heavy barrels and the success will be in first finding a footing in that market rather be purely driven by pricing. Subsequently those numbers can grow, as WCS will not be in direct competition with the US light grades or the volumes being offered now by OPEC."

    MEETING US REFINERY DEMAND FIRST

    Besides pricing, new pipeline takeaway capacity from Western Canada will also be another determining factor for exports to markets beyond the US, Emerson said.

    Asian exports will likely to be impacted if no new export pipelines get built by 2023, she said.

    For Western Canadian producers, their first target will still continue to meet growing WCS demand in the USGC which could potentially grow by another 300,000 b/d to 400,000 b/d over the next five years, Emerson said.

    Total throughput from Alberta to USGC -- through a combination of pipelines, rail and barges -- is about 350,000 b/d and Alberta bitumen supplies are set to grow as supplies from Latin America starts declining and WCS finds itself in a competitive position, Millington said.

    The Kinder Morgan-backed Trans Mountain Expansion pipeline project will also offer opportunities for exports of 530,000 b/d for Alberta's producers to foreign markets from the Canadian Pacific Coast, Emerson said.

    Also, the planned Energy East pipeline of TransCanada will provide 590,000 b/d of export opportunities for Alberta and Saskatchewan producers from the Atlantic Coast, Emerson said.

    Lastly, TransCanada's Keystone XL will carry 830,000 b/d of Canadian heavy barrels from Hardisty, Alberta to refineries on the USGC.

    The most advanced on the planned pipelines is the 890,000 b/d Trans Mountain Expansion that received Canadian government approval late 2016 and is due for start up by 2019.

    Energy East is till undergoing regulatory review by Canada's National Energy Board, while a US presidential permit is due end-March on an application refiled by TransCanada to build the Keystone XL pipeline system.

    "Trans Mountain Expansion is very significant. Also after 2022, you will need something?either Keystone XL or Energy East," Emerson said.

    There is interest amongst shippers to export to Asia and it is seen as a major option, Millington said, adding ultimately it will be the market that will determine where those barrels go.

    The Trans Mountain Expansion project is underpinned by firm commitments and has the backing of about 13 oil sands producers that include Cenovus, Imperial Oil, Statoil Canada, Suncor, Total, Husky Oil and Devon Energy.

    http://www.platts.com/latest-news/oil/calgary/canada-could-export-450000-bd-of-heavy-crude-27784744
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    New bipartisan bill calls for shipping 30 pct of LNG exports on U.S.-flagged ships


    A bipartisan bill introduced last week is requiring up to 30 percent of U.S. exports of liquefied natural gas (LNG) and crude oil to be transported on U.S.-flagged vessels.

    The bill, introduced by congressman John Garamendi and co-sponsored by John Duncan and Duncan Hunter, aims to help the US maritime industry, that, according to Garamendi “is in crisis-level decline.”

    He added that after World War II, oceangoing fleet of U.S.-flagged ships numbered 1,200 while now it’s fewer than 80.

    Requiring even a minority of strategic energy asset exports to be carried on U.S.-flagged ships will compel the country to rebuild the technical skill to man these vessels, Garamendi said.

    “The legislation would revitalize the maritime industry by creating thousands of seafaring jobs,” said Marshall Ainley, president of the Marine Engineers Beneficial Association.

    Other members of the domestic maritime industry have also voiced support of the legislation.

    Masters, mates and pilots president, Don Marcus said the “enactment of this legislation will ensure that at least some of the jobs associated with the export of LNG will go to American maritime workers.”

    http://www.lngworldnews.com/new-bipartisan-bill-calls-for-shipping-30-pct-of-lng-exports-on-u-s-flagged-ships/
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    LNG developers, equipment manufacturers working more closely on costs


    Developers of LNG export projects are working more closely with liquefaction equipment manufacturers than they have in the past to lower their expected production costs before making a final investment decision, a GE executive said Monday.

    The manufacturers, unwilling or unable to lower their profit margins, face the challenge of coming up with more efficient technology that can drive down their own costs so they can help developers find the right price point for their projects, said Rod Christie, president and CEO of turbomachinery solutions in GE's Oil & Gas unit.

    "There is a lot of due diligence being done right now," Christie said on the sidelines of the annual IHS CERAWeek conference in Houston.

    While 2016 was the year of the first US exporter of LNG produced from shale gas getting off the ground with Cheniere Energy starting up its Sabine Pass facility, 2017 is bringing new entrants and increased competition. There are more than a dozen export projects pending before regulators or being proposed, on top of several under construction.

    GE is a player in many of those projects, supplying heavy machinery used in the liquefaction process and helping service that equipment when plants go into turnaround. It also has taken equity stakes in some of the projects that it is confident will be built.

    The industry has been closely watching to see at what point the market becomes too saturated to support further development. Some final investment decisions that were expected this year have been pushed off to 2018 and beyond. A number of developers with proposals in the permitting queue have announced preliminary offtake agreements with buyers, but firm final agreements have so far been fleeting.

    "There are a handful of suppliers out there who really try to push that price point down," Christie said.

    http://www.platts.com/latest-news/natural-gas/houston/ihs-ceraweek-lng-developers-equipment-manufacturers-21072296
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    Precious Metals

    One of the rarest precious metals is on best run in a decade


    Rhodium’s on the best run in a decade on expectations of more demand for the material that’s used in cleaning toxic car emissions.

    One of the rarest precious metals, it climbed the past seven months and is up 19% this year, outperforming most major commodities. Mostly used alongside palladium in gasoline autocatalysts, prices have rebounded from a 12-year low set in July.

    The spectacular turnaround comes amid stronger demand from industrial users including automakers, which account for the bulk of rhodium consumption. China, which predominantly favours gasoline vehicles, in December raised a sales tax on small cars less than originally expected. In 2016, Chinese consumers bought vehicles at the fastest pace in three years.

    “China is a big part of this story,” said Jonathan Butler, a precious metals strategist at Mitsubishi Corp. in London. “The level of car ownership is still growing, and there are signs that it could get to western levels.”

    The metal is trading at $920/oz, according to Johnson Matthey, which makes about a third of all autocatalysts. This year’s advance compares with a 13% gain for palladium and an 8% increase for platinum, which is also used to curb car emissions. All three metals are mined together, mainly in South Africa.

    One way to buy rhodium is through an exchange-traded product started by Standard Bank Group in late 2015. Money managers account for most purchases in the fund and private investors make up the rest, according to Johann Erasmus, who oversees the fund.

    The product’s assets total about 46 650 oz, he said. That’s about 5% of total annual demand.

    Because rhodium is a smaller market than other precious metals, prices are more volatile, said Grant Sporre, an analyst at Deutsche Bank in London. The metal surged almost 23-fold from 2003 to 2008, when it touched a record $10 100.

    “There’s “currently no reason to expect falling prices in the short or medium term,” Heraeus Metals Germany said in a report emailed Monday.

    http://www.miningweekly.com/article/one-of-the-rarest-precious-metals-is-on-best-run-in-a-decade-2017-03-07
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    Bafokeng’s Merafe hits high spots with record results


    Black-owned ferrochrome company Merafe Resources on Tuesday reported record production, record revenue and a major jump in headline earnings in the 12 months to December 31.

    Production hit the 393 000 t mark, revenue lifted to R5.7-billion, headline earnings a share soared 53% to 21.2c, safetyimproved and the final dividend of 4c a share amounts to a payout of  R100.4-million.

    Merafe’s revenue and operating income is generated from the Glencore-Merafe Chrome Venture, which has a total installed capacity of 2.3-million tonnes of ferrochrome a year.

    Headed by CEO Zanele Matlala, Merafe shares in 20.5% of the venture’s earnings before interest, taxes, depreciation and amortisation (Ebitda).

    The Bafokeng community-linked company’s share of venture revenue increased by 29% from the prior year to R5 702-million.

    Ferrochrome revenue rose 25% year-on-year to R4 923-million on mainly an 18% increase in ferrochrome sales volumes to 437 000 t and a 15% weaker average rand/dollar exchange rate, partially offset by a 7% decline in net ferrochrome prices.

    The average European benchmark ferrochrome price in US currency fell 11% from 107c/lb in 2015 to 95.5c/lb in 2016.

    Chrome ore revenue increased by 61% year-on-year to R778-million on a 38% increase in chrome ore sales volumes to 372 000 t (2015: 270 kt), a 7% increase in dollar cost, insurance and freight (CIF) prices and the weaker exchange rate.

    Chrome ore revenue as a percentage of total revenue increased from 11% in 2015 to 14% in 2016.

    Merafe’s share of the venture’s Ebitda was R1 176.2-million for the 12 months to December 31, 38% higher than last year.

    Corporate costs fell to R30.2-million in 2016 compared with R34.-million in the prior year. The share based payment expense increased from R1.9-million in 2015 to R12.8-million in 2016 as a result of the significant increase in the share price, a key input to the share-based payment valuation.

    Profit and total comprehensive income for the year was R532.4-million, up from R343.4-million last year, after taking into account depreciation of R329.9-million, net financing costs of R59.4-million, current tax of R147.1-million and deferred tax of R64.5-million.

    The balance of unredeemed capital expenditure is nil compared with R173.8-million last year.

    Depreciation increased year-on-year on mainly the ProjectLion II ferrochrome plant.

    Merafe closed the year with a net cash balance of R263.3-million, down on last year’s R309.6-million.

    Head-office debt fell to R363-million from R559-million last year, and unutilised debt facilities stood at R283-million.

    The interim dividend in August last year was R20-million and a final dividend of R100.4-million has been declared, compared with R30-million last year.

    Sadly there was a fatality at the venture’s Helena mine, in September, when Johan Cronje sustained fatal injuries.

    The company says that all efforts continue to be made to ensure that the highest standards of safety remain.

    The venture’s total recordable injury frequency rate improved slightly from 4.17 at the end of 2015 to 4.15 at the end of 2016 as a result of ongoing programmes.

    Merafe’s ferrochrome production from the venture was 4% higher than the prior year owing to the timing of refurbishments leading to more furnace hours, and the benefits of operating Lion II for the full year.

    Total production cost a tonne increases were well below inflation despite above inflation price increases in electricityand labour, the impact of the weaker rand on imported reductants and higher upper group two (UG2) input costs.

    This was primarily as a result of higher production volumes, the impact of low cost volumes from Lion II and various cost saving initiatives across all operations.

    Global stainless steel production totalled 45.2-million tonnes in 2016, equivalent to 8.8% year-on-year growth.

    A surge in Chinese stainless steel production was the leading influence behind the global increase, as China increased its yearly output to 24.4-million tonnes, which is equivalent to a 13.3% year-on-year growth.

    Other significant stainless steel-producing regions also recorded year-on-year growth. Favourable trade and anti-dumping conditions in Europe, India and the US supported increases of 1.8%, 6.6% and 6.7% respectively.

    Collectively, these regions produced 13.2-million tonnes in 2016, an increase of 3.9% year-on-year.

    In early 2016, ferrochrome prices decreased to the lowest levels seen since 2009 when the second quarter European Benchmark was settled at 82.00 USc/lb, driven largely by destocking of chrome ore, ferrochrome and stainless steel.

    In the same period, the Metal Bulletin said that the imported charge chrome 50% index CIF China had decreased to 54.00 USc/lb, which is the lowest price quoted since the index was introduced in 2012.

    A surge in Chinese stainless steel production positively impacted ferrochrome demand and resulted in global ferrochrome demand increasing 7.6% year-on-year.

    Chinese stainless steel mills were the largest contributors to this increase, with demand growth of 9.4% to seven-million tonnes.

    Chinese mills typically employ lower scrap utilisation ratios compared to global averages and therefore require a significantly larger portion of primary chrome units to meet stainless steel production increases.

    Ferrochrome prices have continued to increase since the second quarter of 2016 on the back of increased ferrochrome demand, lower stock levels and increased chrome ore prices.

    The European Benchmark ferrochrome price for the fourth quarter of 2016 was settled at 110 USc/lb, up 34.1% on the second quarter of 2016.

    The Metal Bulletin imported charge chrome price increased to 135 USc/lb by year-end, a 150.0% increase on the price in March last year.

    Global ferrochrome production increased 4.9% to 11.1-million tonnes with significant increases recorded from Kazakhstan and Chinese producers.

    South African production decreased by 3.2%, which is as a result of multiple producer closures in late 2015 and early 2016.

    China remained the world’s largest ferrochrome producer, with a 2016 output of 4.2-million tonnes.

    The increased demand for ferrochrome, coupled with tightness in global chrome ore supply, resulted in positive price movements for chrome ore.

    Between February and December last year, the Metal Bulletinprice for imported UG2 chrome ore 42% CIF China rose 400% to $400/t.

    Chinese chrome ore importers continued to increase their dependence on South African chrome ore in the 12 months to December 31, as South African material accounted for 73.3% of all imported material.

    Chinese chrome ore imports totalled 10.6-million tonnes.

    Towards the end of 2016, the European Benchmark ferrochrome price for the first quarter of 2017 was announced as 165.00 USc/lb, the highest quoted price since 2008.

    The price increase is indicative of a market still in deficit, and highlights the positive sentiment for 2017.

    Stainless steel production is projected to increase by 3.5% and 3.8% in 2017 and 2018 respectively, indicating strong demand prospects for ferrochrome in the short-to-medium term.

    Merafe reports that the venture is well positioned to take advantage of the increased demand.

    “We remain on track to achieve our strategy of further reducing Merafe debt and increasing the dividend,” Matlala said.

    The company has a hybrid dividend policy that has features of a stable dividend policy and a residual dividend policy.

    A stable dividend of a minimum of 30% of headline earnings is planned at least once a year, based on the yearly financialperformance, expansionary projects and prevailing economic circumstances.

    In addition, special dividends and share buy-backs may be considered.

    http://www.miningweekly.com/article/bafokengs-merafe-hits-high-spots-with-record-results-2017-03-07
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    Newmont joins gold 'staking rush' in Canada's once-fabled Yukon


    Newmont Mining on Monday became the latest of the world's biggest gold miners to invest in Canada's Yukon territory, the site of a famous gold rush 120 years ago, as miners hunt for rich, new deposits in safe regions.

    US-based Newmont, the world's No 2 gold producer, unveiled an agreement with small explorer Goldstrike Resources to spend $39.5-million to explore and develop Goldstrike's Plateau property, in the Yukon.

    With this deal, Newmont follows moves by rivals Goldcorp Inc and Agnico Eagle Mines last year into the northwestern Canadian territory at a time when gold miners are loosening their purse strings after five years of belt-tightening when bullion prices fell.

    "It's a stable mining jurisdiction with high-quality goldprospects," Newmont spokesperson Omar Jabara said.

    Goldcorp, the world's fourth biggest gold producer by ounces, started off the mini-stampede last May when it paid C$520-million for Kaminak Gold and its Yukon-based Coffee goldproject. A month later it acquired an almost 20% stake in Independence Gold, which owns a neighbouring property.

    In December, Agnico Eagle, the world's ninth biggest goldproducer, bought a stake in a Yukon-focused miner.

    The Klondike region of the Yukon was the centre of a stampede of some 100 000 treasure seekers between 1896-1899 after gold was discovered in the area. Fortunes were made but many left empty-handed, with some heading on to Alaska after gold was discovered there in 1899.

    http://www.miningweekly.com/article/newmont-joins-gold-staking-rush-in-canadas-once-fabled-yukon-2017-03-07
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    Base Metals

    Copper breaks down?

    In New York  on Tuesday copper for delivery in May fell as much as 1.7% to $2.6080 per pound or $5,750 a tonne after a surge in warehouse stocks in Asia limiting the impact of supply disruptions at the world's biggest mines.

    Reuters reports copper inventories at facilities controlled by the LME unexpectedly jumped by almost 39,000 tonnes, the biggest inflow in more than a decade and reversing a downtrend in place since mid-December. Shanghai Exchange stocks jumped by 24,000 tonnes to total 320,000 tonnes, an 11-month high.

    In February copper jumped to its highest level since  May 2015 after workers at BHP Billiton's giant Escondida mine in Chile first went on strike, but a slowdown in China which consumes some 46% of the world's copper and diminishing prospects of a bold infrastructure program in the US have shifted market attention to demand strength.

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    Striking Escondida copper workers stand firm as pressure builds


    The union leading a 26-day-old strike at the Escondida copper mine in northern Chile, the world's largest, vowed Monday to continue with the protest for as long as it takes, even as pressure builds for them to end the standoff.

    "We have said we will strike for 60 days or longer," No. 1 Workers Union spokesman Carlos Allendes told journalists in Santiago Monday.

    The strike, which has halted production at the open pit operation, is thought to have cost the BHP Billiton-controlled mine more than 100,000 mt in copper production and more than $500 million in lost revenue.

    But the two sides have not met for more than a few hours since the strike began as they clash over what issues should under negotiation.

    The union is refusing to open talks with the company until management agrees to remove three issues from the table: the removal of benefits; changes to workers' rest times; and different conditions for new employees.

    Allendes was in Santiago Monday to meet with government authorities and politicians to explain the union's position.

    Left-wing presidential candidate Senator Alejandro Guillier condemned the company's proposal as discriminatory after meeting with union officials Monday.

    But Allendes said that the union was not being inflexible.

    "If the company agree to these conditions, then it should be quite quick to reach a solution," Allendes said, adding that a Chilean Peso 25 million ($38,000) signing bonus demanded by the union is negotiable.

    The company previously offered workers a Chilean Peso 8 million bonus and no pay rise.

    The 2,500 workers striking workers, among the best paid in Chile's mining industry, have come under criticism for putting the country's economy at risk.

    Escondida, which produces almost a fifth of Chile's copper, is so large that economists fear a strike could scupper the country's economy just as it is coming out of a prolonged period of lackluster growth.

    Figures published Monday by the country's central bank showed the economy grew by 1.7% in the 12 months to January. But Finance Minister Rodrigo Valdes has warned that figures for February, published in a month's time, could show a contraction as the strike bites.

    But Allendes dismissed the criticism, arguing it was Escondida's intransigence that had forced workers to strike. "They have pushed us to this and it is up to them to resolve it," he said.

    The strike has now lasted longer than a 2006 protest at the mine, which ended after 26 days, although strikes at other Chilean copper mines have almost lasted twice as long.

    Many strikes crumble after a month, when Chilean labor law allows companies to make individual offers to striking workers: if more than half accept then the strike is over.

    Allendes said that the union was confident that workers shared its commitment to the issues at stake in the standoff.

    "Our members know what it is at stake. There will be no strikebreaking," he said.

    BHP Billiton owns 57.5% of the Escondida mine. Rio Tinto and two Japanese companies own the balance of shares.

    http://www.platts.com/latest-news/metals/santiago/striking-escondida-copper-workers-stand-firm-21072847
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    Philippine minister asks Duterte to halt second mine review she earlier supported


    The Philippine environment minister has asked President Rodrigo Duterte to halt a second review of 28 mines that she ordered closed or suspended, challenging its legality despite initially supporting it.

    The U-turn by Environment and Natural Resources Secretary Regina Lopez comes as she faces pressure to defend her decision to shut more than half the country's mines, a move that prompted an industry outcry and concerns about lost revenue.

    The government's Mining Industry Coordinating Council (MICC), an inter-agency panel that includes the finance ministry, is conducting a review of the mines following criticism from miners that the original decision was baseless and lacked due process.

    "The MICC is not mandated to do a review of any mining operation. The only agency that can do a review of mining operations is DENR, and that's what we've done," Lopez told Reuters, referring to her environment agency.

    Duterte's spokesman, Ernesto Abella, declined to comment on Lopez's latest move, saying it was not discussed in a cabinet meeting.

    Duterte, who last year warned miners to abide by stricter environmental rules or close down, has so far backed Lopez, a committed environmentalist, in the increasingly contentious dispute.

    She faces a Philippine legislative hearing set for Wednesday to confirm her appointment after an initial hearing was postponed last week. She is among just a few of Duterte's appointees yet to get the green light from lawmakers.

    Lopez on Feb. 2 ordered the closure of 23 of 41 mines in the world's top nickel ore supplier and suspended five others to protect watersheds after a months-long review last year by the environment agency.

    Members of the MICC met a week later and agreed to a second review of the affected mines, issuing a joint resolution signed by Lopez and Finance Secretary Carlos Dominguez who co-chair the mining council.

    "Whether I signed it or not the fact of the law is the law," Lopez said.

    The MICC was created through a 2012 executive order by former President Benigno Aquino and tasked, as part of its duties, to review mining laws and regulations and ensure their implementation.

    Lopez said she's challenging the review after learning that the second assessment will cost 50 million pesos ($1 million). "I've already done the review, what more do you want?" she asked.

    Dominguez said he was surprised by Lopez's about-face, recalling that it was Lopez's lawyer who drafted the Feb. 9 resolution, ABS-CBN News reported, citing Dominguez.

    Miners have contested the closure and suspension orders, which a mining industry group has said would affect 1.2 million people that depend on mining for their livelihood.

    http://www.reuters.com/article/us-philippines-mining-idUSKBN16E0JQ
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    Malaysia likely to extend bauxite mining ban for three months or more


    Malaysia is likely to extend its moratorium on bauxite mining for another three months or more as there is still runoff from bauxite stockpiles near a port that is contaminating coastal waters, the environment minister said on Tuesday.

    Natural Resources and Environment Minister Wan Junaidi Tuanku Jaafar told Reuters in a text message he would make a recommendation to the cabinet, although that body would have the final say on the matter.

    Malaysia's largely unregulated bauxite mining industry in Kuantan, port capital of key bauxite producing state Pahang, ramped up output starting in 2014 to fill a supply gap after Indonesia banned exports and to meet demand from top aluminium producer China.

    The frenetic pace of digging, however, led to a public outcry over water contamination and destruction of the environment.

    In January last year, the government imposed its first three-month ban on mining of the commodity, extending it several times.

    Wan Junaidi had said in February that he was not inclined to lift the moratorium yet as heavy rains had caused bauxite runoff and further contamination.

    http://www.reuters.com/article/malaysia-bauxite-idUSL3N1GK3EI
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    Japan's aluminium smelters switch to Chinese feedstock on rising AK5M2 prices


    Japanese secondary aluminium alloy smelters are switching to Chinese supply as Russian AK5M2 feedstock prices surged on seasonal scrap shortage, market sources said Tuesday.

    Russian AK5M2 was offered at $1,840/mt CIF Japan for 0.1% magnesium material for April loading, and $1,850/mt CIF Japan for March-April loading from Saint Petersburg.

    AK5M2 with 0.3% magnesium was offered at $1,820/mt CIF Japan for March-April loading.

    The prices of auto diecasting alloy ADC12, the final product of AK5M2, was $15-$30/mt lower, traders said.

    "Japanese smelters want to keep the price above Yen 220/kg delivered or ex-warehouse basis ($1,840/mt CIF without local handling costs) but that is hard as there is competition from imported ADC12 from China," a Japanese trader said.

    Another trader said that he had bought several hundred tons of Chinese origin ADC12 at $1,805/mt CIF Japan this week.

    The first trader said he had received requests for off-spec Chinese ADC alloys from Japanese smelters.

    "They are seeking to source feedstock at below $1,800/mt CIF Japan," he said.

    The second Japanese trader said smelters that needed to buy feedstock for the second quarter were turning to Chinese ADC12 to remelt or resell.

    "Those who can wait, are waiting for the Russian prices to come down," he said.

    The country imports 2,000-3,000 mt/month of Russian AK5M2, according to data from the Japan Aluminium Alloy Refiners Association.

    Japanese secondary aluminium alloy smelters also use domestic scrap as feedstock.

    A Japanese scrap trader said they was no rise in inquiries as yet. Engine and machinery scrap traded at Yen 160/kg ($1,404/mt) delivered, for delivery in March, and 6063 extrusion scrap also around Yen 160/kg delivered, flat from two weeks ago, he added.

    Japan's ADC12 production in January was 36,092 mt, down 0.3% year on year, according to JAARA data.

    http://www.platts.com/latest-news/metals/tokyo/japans-aluminum-smelters-switch-to-chinese-feedstock-27784155
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    Steel, Iron Ore and Coal

    China to eliminate small-scale thermal power capacity


    China planned to eliminate, halt or delay construction of small-scale coal-fired power capacity by over 50 GW in total this year, as part of efforts to covert risks of coal power overcapacity and enhance efficiency of the industry, said Premier Li Keqiang while presenting government work report on March 5.

    "The coal-fired power units with installed capacity below 30 KW will be obsoleted during the 13th Five-Year Plan period (2016-2020), but the detailed plans are yet to be released," said Nur Bekri, director of the National Energy Administration.

    "Meanwhile, the government will clamp down on illegal constructions of coal-fired electricity units, and regulate private power plants. But private power plants are no longer allowed in eastern China," he added.

    China's installed capacity of coal-fired power units stands at 940 GW presently, according to a research report. It planned to shed 50 GW of electricity capacity this year, accounting for 5.3% of the total installed capacity.

    The National Development and Reform Commission said previously that China's coal power capacity will be capped below 1.1 TW by 2020, mainly by the way of limiting newly-added capacity, closing coal-fired power units with capacity below 300 MW and eliminating outdated capacity through market transactions.

    http://www.sxcoal.com/news/4553089/info/en
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    Datong Coal Mine Group to cut 3.7 Mtpa of coal capacity


    Datong Coal Mine Group, one major thermal coal producer in northern China's Shanxi province, planned to further close three coal mines in 2017, slashing a total 3.7 million tonnes per annum (Mtpa) of production capacity, said President Zhang Youxi.

    Meanwhile, 5,758 workers will be resettled this year, Zhang said during a group discussion with other delegates at the annual parliamentary sessions on March 5.

    The company had slashed 3.75 Mtpa of coal capacity by shutting three mines last year, and 6,026 layoffs were reallocated, according to Zhang.

    By end of the 13th Five-Year Plan period (2016-2020), Datong Coal Mine Group will shut 13 coal mines, cutting 12.25 Mtpa of capacity, and reallocate 14,209 staff.

    "The coal capacity cut promoted domestic coal industry to upgrade and optimize, reflected by a resurgence of coal prices, enhanced efficiency, capacity replacement and production safety," said Zhang.

    While sticking to policies of eliminating outdated capacity, the group has been seeking to build prolific, efficient and safe coal mines, in line with the model of 1,000 workers and 10 Mtpa of capacity at one mine.

    Tashan Coal mine, owned and operated by the group, is a single underground mine with largest designed capacity of 15 Mtpa in China. It has been ranked advanced coal mine by China National Coal Association last September.

    Datong Coal also gained approval for capacity replacement of four coal mines in November last year, boosting share of advanced coal capacity to 33.2% of its total capacity, according to the Shanxi branch of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

    By 2020, the group is expected to build 11 efficient coal mines each with capacity above 10 Mtpa, and by then production of coal mines with advanced capacity will account for 68% of its total.

    The company's raw coal output dropped 17% from the year prior in 2016, while commercial coal output slid 15% year on year.

    Datong Coal Industry Co., Ltd, its listed arm, expected to swing to profit in 2016, with profit estimated at 180 million yuan or so.

    http://www.sxcoal.com/news/4553099/info/en
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