Mark Latham Commodity Equity Intelligence Service

Wednesday 22nd February 2017
Background Stories on

News and Views:

Attached Files


    US Small-Business Confidence Reaches Highest Point Since December 2004

    Confidence among small-business, in the upswing since the election, in January reached its highest point in more than a decade, according to the National Federal of Independent Business.

    The National Federation of Independent Business’s small-business optimism index edged up to 105.9 in January, the highest point since December 2004 and follows December’s largest month-over-month increase in the survey’s history. Meanwhile, economists surveyed by The Wall Street Journal projected the index to decline slightly to 104.8.

    “Small business owners like what they see so far from Washington,” NFIB Chief Executive Juanita Duggan said.

    The NFIB survey is a monthly snapshot of small businesses in the U.S., which account for most private-sector jobs and about half of the country’s economic output.

    Economists look to the report for a read on domestic demand and to extrapolate hiring and wage trends in the broader economy.

    The January survey is based on 1,874 responses.

    The NFIB—a conservative-leaning small-business lobby based in Washington, D.C.—said that while recent trends look much like the surge in 1983, which was followed by 7 years of gross domestic product expansion averaging 4.5%, such expansion is unlikely this time due to differences in excess capacity available to absorb higher demand.

    Talk of tax and regulatory overhauls along with lowering health insurance costs are resonating with small-business owners, NFIB Chief Economist Bill Dunkelberg said.

    Over all, 48% of respondents expect the economy to improve—down slightly from December, when it jumped 38 percentage points—and 25% think it’s a good time to expand, up 2 percentage points.

    That optimism—backed by government data that show strong, though decelerating, job growth—is translating into hiring and spending. Ultimately, Mr. Dunkelberg said, that could translate into higher gross domestic product expansion for the year.

    The inflation outlook remained stable, the NFIB said.

    Small firms, however, continue to face a shortage of certain skilled workers, with 47% of respondents saying they had few or no qualified applicants for the positions they were trying to fill, according to the report.
    Back to Top

    Export companies tell U.S. Congress to push tax code rewrite

    Chief executive officers of 16 companies, including Boeing Co (BA.N), Caterpillar Inc (CAT.N) and General Electric Co (GE.N), have urged the U.S. Congress to pass a comprehensive tax code rewrite, including a controversial border tax.

    In a letter to Republican and Democratic leadership on Tuesday, the CEOs said a Republican-proposed border adjustment tax would make U.S.-manufactured products more competitive abroad and at home by making imported goods face the same level of taxation.

    "If we miss this chance to fundamentally reshape the tax code, it might take another 30 years before we have another chance to try," the group of CEOs wrote in the letter, according to a copy that Reuters obtained.

    It is the latest move in a back-and-forth lobbying effort from companies that proposed changes to the tax code would affect.

    Republican House Speaker Paul Ryan has proposed lowering the corporate income tax to 20 percent from 35 percent, imposing a 20 percent tax on imports and excluding export revenue from taxable income.

    The proposal has pitted large U.S. corporations that require imports, like retailers and auto manufacturers, against those that export much of their goods and therefore support the tax code changes.

    A group of retail CEOs met last week with President Donald Trump and congressional leaders to argue against the border adjustment tax.

    Trump is expected to release his own tax proposal in the coming weeks. While he has said the border adjustment tax is too "complicated," his administration has said taxing goods from Mexico could fund construction of a wall along the nation's southern border.

    The letter supporting the border tax was signed by 16 CEOs: Dennis Muilenburg of Boeing, John Coors of CoorsTek, Jim Umpleby of Caterpillar, Andrew Liveris of Dow Chemical Co (DOW.N), Mark Rohr of Celanese Corp (CE.N); Jeffrey Immelt of GE, Mark Alles of Celgene Corp (CELG.O), David Ricks of Eli Lilly and Co (LLY.N), Tony Simmons of McIlhenny Co, Thomas Kennedy of Raytheon Co (RTN.N), Kenneth Frazier of Merck & Co Inc (MRK.N), Douglas Peterson of S&P Global Inc (SPGI.N), Safra Catz of Oracle Corp (ORCL.N), Gregory Hayes of United Technologies Corp (UTX.N), Ian Read of Pfizer Inc (PFE.N) and Dow Wilson of Varian Medical Systems Inc (VAR.N).
    Back to Top

    Anglo targets further $1bn in cost, volume improvements in 2017

    Diversified miner Anglo American is this year seeking an additional $1-billion in incremental net cost and volume improvements, while also aiming to return to an investment-grade credit rating and resume dividend payments.

    The group has already identified 75% of these targeted net cost and volume improvements.

    Additionally, Anglo plans to maintain its capital expenditure at $2.5-billion and increase its stay-in-business capital to $1.2-billion this year, with capital to be “appropriately prioritised” to ensure that protection is provided for the long-term value of its assets.

    During a teleconference call, on Tuesday, to discuss the group’s results for 2016, Anglo CEO Mark Cutifani said the “decisive and wide-ranging” operational, cost, capital and portfolio actions that Anglo put in place in 2016 had enabled the company to reduce its net debt to $8.5-billion from $12.9-billion in 2015, which was significantly below Anglo’s $10-billion target.

    He commented that despite a 3% decrease year-on-year in average commodity prices, Anglo had achieved a $3.5-billion increase in attributable free cash flow, a 25% increase in underlying interest, taxes, depreciation and amortisation (Ebitda) to $6.1-billion and increased its underlying Ebitda margin to 26%.

    Cutifani said this “substantial” underlying Ebitda improvement was achieved despite headwinds, such as the labour stoppages and record snowfall at the company’s Los Bronces copper mine, in Chile, and the smelter run-out at its platinum business in South Africa.

    He remarked that the $1.5-billion sale of the group’s niobium and phosphates businesses further supported its balance sheet recovery goal and combined with the sale of a number of coal and platinum assets during the year, Anglo received $1.8-billion of disposal proceeds in 2016.

    “The high-quality assets across our De Beers, platinum-group metals and copper businesses underpin our positions in those respective markets and are the cornerstone of a more resilient and competitive Anglo, through the economic and commodity price cycle,” Cutifani stated.

    In addition, he pointed out that the diversified miner continued to benefit from the performance of a number of its other assets across the bulk commodities of iron-ore, coal and nickel.


    Nonetheless, Cutifani noted that, while Anglo had received “strong interest” in a number of its assets for which the group had held sale processes during 2016 to further strengthen its financial position, Anglo had adhered to “strict value thresholds” and chose not to transact.

    “We will continue to upgrade our portfolio as a matter of course, although asset disposals for the purposes of deleveraging are no longer required. We, therefore, retain Moranbah, Grosvenor and our nickel assets, ensuring that they continue to be optimised operationally to contribute cash and returns, while being allocated capital to both protect and enhance value,” he highlighted.

    Cutifani pointed out that, with regard to the group’s South African assets, Anglo continued to work through all the potential options for its export thermal coal and iron-oreinterests, as the company recognised the high quality and performance of these businesses and was intent on ensuring that maximum value was created for all its shareholders.

    He emphasised that the retention of these assets remained a “viable position” given Anglo’s recent operational and other general improvements. “Therefore, our focus is on continuing improvements as we go forward,” Cutifani asserted.


    He said that despite the group’s significant progress, it was critically important that the lessons of recent years were applied, adding that although there was confidence in the long-term outlook for the company’s products, the balance sheet needed to be able to withstand expected price volatility in the short-to-medium term.

    Cutifani noted that Anglo would continue to refine its asset portfolio over time to ensure its capital was deployed effectively to generate enhanced returns.
    Back to Top

    Bitcoin Soars Above $1100, Near Record Highs As Chinese Bypass Crackdown

    Despite concerted efforts by authorities to crackdown on capital outflows - specifically through virtual currencies - prices for Bitcoin are soaring as the Chinese find way around regulatory controls. Bitcoin just topped $1100 - near record highs - as Chinese traders shift their action off regulated-exchanges to local peer-to-peer marketplaces.

    China’s central bank has stepped up oversight of bitcoin exchanges this year, leading major trading platforms to impose halts on withdrawals and other checks to appease the regulator. But, as Quartz reports, Chinese traders aren’t playing along—they are apparently flocking to peer-to-peer marketplaces to continue buying and selling bitcoin.

    As Yuan trading on bitcoin exchanges has plummeted...

    Quartz notes that one of the longest established peer-to-peer marketplaces is LocalBitcoins, which acts as a kind of directory for buyers and sellers to find each other. Users can arrange to meet in person, on chat platforms, or talk on the phone to arrange exchanges involving bitcoin.
    Back to Top

    Oil and Gas

    OPEC Extension?

    OPEC could extend its oil supply-reduction pact with non-members or even apply deeper cuts from July if global crude inventories fail to drop to a targeted level, OPEC sources said.

    The group, together with Russia and other non-OPEC oil producers, agreed late last year to cut output by 1.8 million barrels per day (bpd) to reduce a price-sapping glut. The deal took effect on Jan. 1 and lasts six months.

    For global petroleum inventories to fall by some 300 million barrels to the five-year average, producing countries must comply 100 percent with the supply accord and growth in demand for crude will have to stay healthy, the sources said.

    "If we have full commitment by everybody, inventories will go down. By sometime in the middle of this year, maybe they will go near the five-year average. But that's if you have 100 percent compliance," one OPEC source said.

    "The question is, by how much will they fall? For that, you have to wait and see."

    The Organization of the Petroleum Exporting Countries meets next on May 25 to decide on supply policy, with non-members possibly also invited to attend.

    OPEC producers in January achieved 93 percent compliance with the pledged reductions, of which the group's de facto leader, Saudi Arabia, contributed the biggest chunk.

    Back to Top

    Rosneft to invest in Libya’s oil sector

    Libya’s National Oil Corporation (NOC) and Russia’s Rosneft company have signed a cooperation framework agreement that lays the groundwork for investment by Rosneft in Libya’s oil sector, said the message on NOC’s website.

    The agreement envisages the establishment of a Joint Working Committee of the two partners to evaluate opportunities in a variety of sectors, including exploration and production.

    Reportedly, Rosneft and NOC also signed a crude oil offtake agreement (an agreement between a producer and a buyer to buy/sell a certain amount of the future production).

    The accord represents a step forward in NOC’s plans, announced by chairman Mustafa Sanalla in London last month, to encourage investment by foreign oil companies in the expansion of Libya’s oil production to levels of 2.1 million barrels per day by 2020, said the message.

    “We need the assistance and investment of major international oil companies to reach our production goals and stabilize our economy,” said Sanalla.

    Alongside with Nigeria, Libya was exempted from the output cut deal during the meeting of OPEC countries held in Vienna Nov.30.
    Back to Top

    $294bn oil, gas projects underway in Mena

    Oil, gas and petrochemicals projects to the tune of about $294 billion are in the pre-execution phase across the Mena region even while concerns about global oversupply continue to suppress oil prices, a report said.

    Gas spending is also set to increase as countries such as Saudi Arabia and the UAE study higher-cost sour gas and shale gas plans to meet rapidly-growing domestic demand, reported the Times of Oman, citing Meed Insight’s Mena Oil and Gas Report 2017.

    Last year saw average crude prices drop to a 13-year low as oil and gas producers in the Mena region continued to face the impact of global oversupply.

    The drop in crude revenues coincided with an eight-year low in the value of engineering, procurement and construction (EPC) contracts awarded in the regional oil, gas and petrochemicals sectors.

    Investment in the Mena hydrocarbons industries hit an eight-year low in 2016, dropping 34 per cent to $32.4 billion.

    “The oil, gas and petrochemicals sectors will continue to be the backbone of economies across the Mena region,” Meed editorial director, Richard Thompson was quoted as saying in the report.

    “With an estimated $294 billion-worth of projects in the pre-execution phase, the sector provides a wealth of opportunity for business from Saudi Arabia’s ambitious oil-to-chemicals complex to the re-emergence of the Iran oil industry following years of sanctions.”
    Upstream investment has been driven by the need to meet rising demand, at both home and abroad, and the need to replace resources lost through natural depletion. In the GCC, Saudi Arabia, the UAE,

    Kuwait and Qatar have all raised their sustainable crude oil production capacity, while Oman has managed to reverse a slump in output through its enhanced oil recovery (EOR) programme. Outside the GCC, production capacity and output has stagnated or fallen in Algeria, Egypt and Libya, mainly due to the political problems in those states. Iraq has been able to increase capacity through one of the world’s largest upstream investment programmes.

    In terms of a subsector breakdown of future projects, the largest sector is petrochemicals with over a quarter of total projects planned. Many projects in this sector, however, are at an early stage and the current market environment for petrochemicals is not strong. The future of many of them also depends on the availability of feedstock, which has held back many GCC petrochemicals projects in the past. Oil refinery projects rank in second place with the announcement of several new refinery projects in Iraq boosting this sector. Spending is also anticipated on new refineries in Bahrain and Oman.

    With capital spending on oil & gas projects of about $44.3 billion, Kuwait has been by far the biggest spender over the past two years after a slump in project spending at the start of the decade. That was driven by major projects such as the Clean Fuels Project, the Al-Zour refinery (also known as the New Refinery Project) and the Lower Fars heavy oil handling facilities.

    Kuwait is only number five however in terms of pre-execution project value. This includes the estimated $7 billion Olefins 3 petrochemicals project and phases two and three of the Ratqa Lower Fars Heavy Oil project.

    In the UAE, lower prices have been a driver of workforce reduction and consolidation. Abu Dhabi National Oil Company (ADNOC) is merging its two offshore oil producers as well as several logistics subsidiaries to low costs and streamline operations. Job cuts have also been administered at Qatar’s major gas companies.

    Over the period in review the UAE has been the third most valuable market for hydrocarbons projects, spending $35.1 billion. Abu Dhabi in 2013 and 2014 awarded a string of contracts in the offshore oil sector. The UAE had quiet years in 2015 and 2016 as several major projects faced delays at the main contract bid phase. In 2016 the UAE was not in the top five countries in the region in terms of contract awards.

    The UAE is also eyeing major gas capacity expansions in the coming years, largely by developing new sour gas reservoirs. These include major projects on the Bab and Hail fields as well as the expansion of the Shah gas field. The UAE ran into delays at the contract award phase on several projects in 2015/16, including the $3 billion Bab Integrated Facilities Expansion, a new refinery in Fujairah and the Fujairah LNG import terminal.

    Meanwhile, Saudi Arabia plans to list the world’s largest oil and gas company, Saudi Aramco, on the stock market, in an initial public offering (IPO) that values the company at an estimated $2 trillion.

    Saudi Arabia had the region’s largest oil, gas and petrochemicals market in the 2011-2016 period, with a total of $69.37 billion worth of contracts awarded, accounting for over a quarter of the regional total. The bulk of these awards however were in 2011 and 2012 with over $47 billion spent in these two years combined. Average spending has dropped considerably in the subsequent four years.

    Saudi Arabia’s project pipeline is buoyed by the region’s two largest projects which are both at an early stage: Sabic’s oil-to-chemicals project and Aramco’s integrated refinery and petrochemicals development, both at Yanbu on the Red Sea coast. These projects aside, Aramco is likely to prioritise projects to expand its gas capacity which includes higher gas processing capacity, the development of non-associated gas fields in the Gulf and expanding shale gas production in the north.

    Saudi Aramco plans to spend $334 billion across the oil and gas value chain by 2025, meanwhile, Kuwait is expected to spend $115 billion on energy projects over the next five years to help boost crude production capacity to 4 million barrels a day by 2020.$294bn-oil,-gas-projects-underway-in-Mena

    Attached Files
    Back to Top

    Japan’s LNG imports rise 14.6 percent in January

    Liquefied natural gas (LNG) imports into Japan increased 14.6 percent in January as demand for the chilled fuel for power generation rose on the back of low winter temperatures.

    Japan imported 8.30 million mt of LNG in January, as compared to 7.24 million mt the year before, according to the provisional data released by Japan’s Ministry of Finance.

    The country paid about $3.28 billion for LNG imports last month, a rise of 6.7 percent as compared to the same month in 2016, the data shows.

    Japan’s average price of spot LNG hit its two-year high record during January. The average price of spot LNG bought last month was $8.40 per million British thermal units, up from $8 in the previous month and the highest since January 2015.

    Worth mentioning, Japan imported 83.34 million mt of LNG in 2016, as compared to 85.05 million mt the year before.

    This was the second drop in Japan’s annual LNG imports since the devastating earthquake and tsunami in March 2011 which caused Japan to shut down its nuclear industry.

    Attached Files
    Back to Top

    Japan plans second offshore methane hydrate output test from late April

    Japan plans to conduct a second testing round for offshore production of methane hydrate from around late April, aiming to run the tests non-stop for up to a month, an official at the Ministry of Economy, Trade and Industry said Monday.

    This will be the world's second offshore methane hydrate production test after Japan produced 120,000 cubic meters, or 20,000 cu m/day, of gas from methane hydrate in a first, six-day offshore production test in the Pacific Ocean in March 2013. That trial followed more than a decade of field research as well as testing of various technologies.

    Like the last round, METI will conduct the trial using the decreasing pressure system at the Daini-Atsumi Knoll in the eastern Nankai Trough, 70-80 kilometers (43.4-49.6 miles) south of the Atsumi Peninsula in Aichi Prefecture, the official said.

    The key objectives for the upcoming production test are to evaluate whether Japan can produce gas from methane hydrate using the decreasing pressure system stably for a given period, with a view to commercializing output in the future, the official said.

    State-owned Japan Oil, Gas and Metals National Corporation, or Jogmec, is leading the methane hydrate output test for METI.

    Starting from mid-April, operator Japan Methane Hydrate Operating Co. will extend its two production wells that have already been drilled by a further 50-60 meters to reach methane hydrate layers about 300 meters below the seabed at a water depth of around 1,000 meters, the official said.

    JMH, which will charter the Chikyu drilling ship from early April, has to date drilled a total of five wells including the two production wells with monitoring wells.

    JMH was formed in October 2014 as a joint venture of 11 Japanese companies, to take part in the planned next round of testing of pore-filling type methane hydrate.

    JMH stakeholders are Japan Petroleum Exploration (33%), Japan Drilling Co. (18%), Inpex (13%), Idemitsu Kosan (5%), JX Nippon Oil & Gas Exploration Corporation (5%), Nippon Steel & Sumikin Engineering (5%), Chiyoda (5%), Toyo Engineering (5%), JGC (5%), Mitsui Oil Exploration Co. Ltd. (5%), and Mitsubishi Gas Chemical Company (1%).
    Back to Top

    InterOil: ExxonMobil deal clears final hurdle

    InterOil corporation said the Supreme Court of Yukon granted a final order approving the proposed $2.5 billion takeover by the US-based energy giant ExxonMobil.

    The court decision follows a special meeting of InterOil shareholders at which 91 percent votes cast were in favor of the transaction.

    With the court decision, the arrangement has received all necessary approvals, InterOil said, adding that together with ExxonMobil it expects the transaction to be completed this week.

    The Supreme Court of Yukon initially approved the transaction in October last year, finding it “fair and reasonable”. However, the order was stayed by the Court of Appeal of the Yukon following an appeal lodged by InterOil’s former CEO Phil Mulacek.

    When concluded, the transaction will give ExxonMobil access to InterOil’s resource base, which includes interests in six licenses in Papua New Guinea covering about four million acres, including PRL 15, which includes the Elk-Antelope which is the anchor field for the proposed Papua LNG project.

    ExxonMobil earlier also said it aims to work with its co-venturers and the government to evaluate processing of gas from Elk-Antelope field by expanding the PNG LNG project.
    Back to Top

    China's Sinochem may sell 40 percent stake in Brazil's Peregrino oilfield - sources

    China's Sinochem is exploring the sale of its 40 percent stake in Brazil's Peregrino offshore oilfield, four people familiar with the matter told Reuters, a deal that could see the state-owned conglomerate walk away from what was once touted as a key overseas asset because of historically low oil prices.

    The oil and chemicals firm agreed to buy the stake from Norway's Statoil (STL.OL) for $3.07 billion in 2010 - beating out a raft of Chinese rivals chasing high-quality assets. The Norwegian giant owns the other 60 percent of Peregrino, the largest heavy oilfield it operates outside its home patch.

    But two of the people with knowledge of the matter said Sinochem is moving to sell its largest overseas upstream stake - with capacity to pump 100,000 barrels a day - as it reshapes its assets to reflect oil prices having halved in the last two and a half years. With that in mind, one person said, Sinochem was pitching the sale at a big discount to its purchase price.

    "Peregrino has been a success story for Statoil, not just technically but also financially. It provides a lot of value and has a good operator in Statoil," said Horacio Cuenca, Rio de Janeiro-based research director for upstream Latin America at energy consultancy Wood Mackenzie.

    Long term expectations of oil prices, however, and capital expenditure required in the next two to three years to develop the second phase of production will determine the value of any potential stake sale, he said.

    Earlier this month, Reuters reported Sinochem was in early talks to buy a stake in Singapore-listed commodity trader Noble Group (NOBG.SI), a move that would further its ambitions to become more active in global energy trade and also develop China's gas industry.

    The process to sell the Brazilian stake is still at an early stage and a final decision would depend on how the negotiations progress, the people familiar with the matter said. They spoke on condition of anonymity because they were not authorized to discuss it publicly.

    Statoil declined to comment.

    In an e-mail reply, Sinochem's press office said: "The company has been monitoring a large amount of transaction opportunities in the market and is ready to re-adjust and optimize its asset structure at the right time." It added that company does not comment on specific projects.

    Two sources said Sinochem's intent to sell the stake has been shared with India's Oil and Natural Gas Corporation (ONGC.NS). ONGC did not respond to requests for comments.

    One person said the stake is also likely to be pitched to other international buyers, including some Japanese firms and Kuwait Foreign Petroleum Exploration Company, which snapped up Royal Dutch Shell's (RDSa.L) stake in Thailand's Bongkot gas field for $900 million last month.


    The potential sale of the stake in Peregrino - located 85 km off Brazil in the Campos basin below about 100 meters of water - comes as oil prices hover in a mid-$50s per barrel range, well below the highs of recent years. That trend has also prompted other industry players to consider selling once-prized assets.

    Earlier this week, Reuters reported Malaysian state-owned oil and gas firm Petronas is aiming to sell a large minority stake in a local gas project for up to $1 billion as it seeks to raise cash and cut development costs.

    For its part, Sinochem has seen growth in its key oil trading business stagnate, with increasing domestic competition from the likes of state oil traders Unipec and Chinaoil, while overseas oil and gas assets have struggled amid the prolonged low oil prices.

    "Sinochem is readjusting its energy asset structure," said a Beijing-based industry veteran familiar with the company's strategy. "As a medium- to small-sized oil producer, exposure to higher cost assets like deep water has become over-challenging."

    "The company sees itself more as an asset manager. This becomes a clearer direction under the new management," the industry executive said, referring to Sinochem chairman Ning Gaoning who took over the helm last year.

    The potential sale of the Peregrino stake also comes ahead of the second phase of the project's development, expected to cost about $3.5 billion with production from the new phase set to start by the end of the decade.

    The second phase is designed to add about 250 million barrels in recoverable reserves to Peregrino, which currently contains an estimated reserve of between 300 million and 600 million barrels of recoverable oil.
    Back to Top

    Galp cuts investment plan, sees higher earnings growth

    Galp Energia on Tuesday cut its spending plan for the next five years by a fifth and trimmed its oil production growth forecast, but raised its earnings outlook after producing stronger than expected earnings for 2016.

    Galp, which is mainly an oil refiner, has stakes in various large oil fields off Brazil's coast and has been building up its oil and gas production.

    The company said it expected production from sanctioned oil and gas projects to grow at a rate of 15-20 percent a year until 2021, down from 25-30 percent under its previous plan that ran up to 2020. "We remain focused on delivering the projects under construction, on time, within the budget ... and targeting high returns," Chief Executive Officer Carlos Gomes da Silva told investors at the company's capital markets day on Tuesday.

    Galp shares were almost 2 percent lower in early trading, underperforming the broader market in Lisbon.

    Galp estimated annual average capital expenditure up to 2021 at between 0.8 billion and 1 billion euros, 20 percent lower than under the previous plan announced a year ago.

    But earnings before interest, taxes, depreciation and amortization (EBITDA) should grow at a rate of around 20 percent a year until 2021, up from the previous forecast of 15 percent.

    This year, it expects an EBITDA of 1.5 billion to 1.6 billion euros. Earlier on Tuesday, Galp reported an 8 percent drop in 2016 EBITDA to 1.41 billion euros ($1.49 billion), which exceeded its forecast of 1.2 billion to 1.3 billion.

    Galp also confirmed its previous projection that its free cash flow will break even next year. It put the cash breakeven price for oil production at around $65 per barrel in 2016-18 and below $35 per barrel 2019-21.

    Attached Files
    Back to Top

    Woodside flags growth options after tough year

    Woodside Petroleum Ltd said on Wednesday it sees its output rising by about 15 percent over the next three years, and flagged plans to expand near-term output in Western Australia as it seeks to defy views that it is short on growth.

    Australia's top gas and oil producer has come through the oil market rout over the past two years in better shape than rivals, with $2.7 billion in cash and undrawn debt, and sees itself well positioned as prices rebound.

    "We're a fundamentally different company to the one we were five years ago and the opportunity set in front of us is very much world class," Chief Executive Peter Coleman told reporters, pointing to prospects in Australia, Myanmar and Senegal.

    Woodside reported a 23 percent drop in annual underlying profit to $868 million for 2016, in line with analysts' forecasts, as it was hit by weaker oil and gas prices that offset cost cuts and a rise in output.

    The company cut its full year dividend to 83 cents a share from $1.09, slightly short of analysts' forecasts of 85 cents a share, according to Thomson Reuters I/B/E/S.

    Woodside's forecast for production to grow by 15 percent over the next three years, implying output of around 100 million barrels of oil equivalent by 2020, was ahead of some analysts' forecasts for growth of around 5 percent.

    All of its growth over the past five years has come from its Pluto liquefied natural gas project which began in 2012.

    The increase will come from the Wheatstone liquefied natural gas project (LNG), where operator Chevron Corp expects production to start in mid-2017, and oil from Woodside's Greater Enfield project.

    The company is also looking to boost output from Pluto by just under 1 million tonnes by running its facilities harder, and is considering a further expansion by adding a small new production unit of 1 million to 1.5 million tonnes.

    "It's something that can be brought to market quickly," Coleman said, contrasting the expansion option with the huge LNG plants that have been built in the region over the past five to 10 years.

    Woodside is also planning to build a truck terminal to supply LNG from Pluto to fuel the local mining industry and wants to supply LNG for the shipping sector, too, to build demand for its key product.

    Attached Files
    Back to Top

    Senex commits A$50m to Western Surat gas project

    ASX-listed Senex Energy will invest some A$50-million to a 30-well drilling campaign in the Western Surat gas project, marking its first major investment in the project.

    MD and CEO Ian Davies on Tuesday said the work programme would result in significant gas volumes from drill-ready acreage, with Senex already having a clear strategy for project acceleration.

    “We have seen immediate gas to surface from the Glenora pilot wells, brought online for continuous production in early February. We have also seen evidence of strong gas flows from wells on the Eos block during rehabilitation work being undertaken on legacy wells. These results demonstrate that coal seams in the Glenora and Eos blocks have already been partially dewatered by neighbouring operations.”

    Davies said the sanctioned well programme will further Senex’s understanding of the resource to support an accelerated project timeline, with potential to drill, complete and connect another 30 to 50 wells throughout 2018.

    “Under this scenario and, subject to regulatory approvals, Senex can seamlessly transition to a development phase targeting gas production of over 16 TJ a day by 2019, equivalent to one-million barrels of oil equivalent a year.”

    First wells are expected to come online in mid-2017 and are expected to produce some 10 TJ a day by mid-2018.

    “Finally, the 2017 work programme will give us the opportunity to fully embed our design, contracting and execution methodologies in order to demonstrate best-in-class safety and cost performance,” Davies said.

    With the Glenora and Eos blocks located directly north from the Gladstone liquefied natural gas (GLNG) project’s producing Roma field, Senex was planning to sell the raw gasto the GLNG project, subject to the agreement of commercial terms.

    A pipeline from the Glenora pilot to the GLNG low-pressure gathering network was built in 2016.
    Back to Top

    Oil, gas exploration explodes in province’s Peace region

    After a two-year downturn that pushed the Peace Region from having close to zero unemployment to the highest jobless rate in B.C. last year, jobs are suddenly flowing back into northeastern B.C.

    Oil and gas companies have dramatically stepped up drilling this winter compared with the last two years.

    “It’s been crazy,” said Dawson Creek Mayor Dale Bumstead. “It was like somebody turned a switch on about November, December. Before Christmas, all our hotels were almost 100% occupancy and rental accommodation was filling up.”

    “There’s optimism out there right now,” said Mark Salkeld, CEO of the Petroleum Services Association of Canada (PSAC).

    Between 2015 and 2016, new oil and gas rights sales dropped dramatically and drilling in northeastern B.C. slowed to a trickle, thanks to a sustained plunge in oil and gas prices and growing uncertainty over large liquefied natural gas (LNG) projects.

    But on January 18, the auction for petroleum and gas rights generated more sales in a single day – $40 million – than the total reaped in all auctions held in 2015 and 2016. PSAC recently bumped up its estimate for the 2017 winter drilling season in B.C. to 367 wells from 280.

    “We’re seeing it in company guidance,” said Mark Oberstoetter, lead oil and gas analyst with Wood Mackenzie. “A lot of companies are doubling or adding a lot of spend in 2017, versus the low scene in 2016. So we’re seeing a lot of optimism.”

    Art Jarvis, owner of FloRite Environmental Systems and executive director for Energy Services BC, said companies in Fort St. John that parked equipment and laid off 40% to 60% of their staff during the downturn are now scrambling to find workers again.

    While some might view the sudden activity as a sign of renewed optimism that an LNG industry will develop in B.C., Oberstoetter said it’s really just economics.

    Even throughout the last two-year drilling drought, midstream companies have pumped billions into the Montney, building new gas processing plants and pipelines. Veresen Inc. (TSX:VSN) and Encana Corp. (TSX:ECA), for example, are spending $2.5 billion building three new gas processing plants in the Fort St. John and Dawson Creek area under the Cutbank Ridge Partnership.

    But the more labour-intensive exploration side of the business, drilling and fracking, all but stopped between 2015 and 2016, thanks to a sustained plunge in oil and gas prices.

    Gas well drilling is labour intensive. Each well takes a crew of about 135. That’s not including all the related jobs created for service businesses like Jarvis’ company, which provides truck-mounted pressure vessels that bleed off pressure to separate liquids from gases at wellheads.

    In the Montney, companies will typically spend $3.5 million to $5 million per well, although some deeper and more complex wells may cost as much as $15 million.

    The Montney has proved to be one of North America’s lowest-cost regions. The sheer volume of gas makes for good wellhead economics, and an abundance of liquids such as light oil, condensate and propane provides added value to producers.

    “You get a lot of volumes for every well you drill,” Oberstoetter said. “They’re very big wells, and well costs have come down a lot.”

    During the last drilling cycle, between 2012 and 2014, much of the drilling was being done by companies like Progress Energy (owned by Petronas) and Shell, which were proving out wells in anticipation of a liquefied natural gas industry developing.

    The current boom involves companies that are after natural gas liquids, including some newcomers, like Crew Energy Inc. (TSX:CR) and Tourmaline Oil Corp. (TSX:TOU), which have been buying up assets in the Montney in both Alberta and B.C.

    Last year, Tourmaline bought $1.4 billion worth of natural gas assets from Shell in Alberta’s Deep Basin and B.C.’s Montney.

    Last year, when Terra Energy went bankrupt, Crew Energy snapped up some of its wells and processing assets.

    Attached Files
    Back to Top

    ConocoPhillips revises down over one billion barrels of oil sands reserves

    ConocoPhillips has revised down over a billion barrels of oil sands reserves because of low global crude prices, a company filing showed on Tuesday, the latest sign that some of Canada's vast hydrocarbon potential may be left untapped.

    The U.S. oil major said developed and undeveloped reserves of bitumen - the heavy viscous oil found in northern Alberta's remote oil sands - totaled 1.2 billion barrels at the end of 2016, down from 2.4 billion barrels at the end of 2015.

    The oil sands have some of the highest full-cycle breakeven costs in the world, with new thermal projects needing U.S. crude prices around $60 a barrel. Crude futures settled at $54.33 a barrel on Tuesday.

    The U.S. Securities Exchange Commission (SEC) document provides a detailed breakdown of the global reserves cut Conoco announced in quarterly results in early February, when it debooked 1.75 billion barrels of oil equivalent of reserves.

    Al Hirshberg, Conoco's executive vice president for production, drilling and projects, told investors on the quarterly call the company expects to rebook the reserves if current prices hold.

    Likewise Martin King, an analyst with GMP FirstEnergy in Calgary, said the debooking likely had more to do with SEC rules requiring companies to evaluate economic reserves at year-end.

    But the fact that the oil sands make up 70 percent of the reduction underlines how much of Canada's resources are uneconomic in a weaker oil environment.

    "They (the oil sands) are at the upper end of the cost curve," said Judith Dwarkin, chief economist at RS Energy Group in Calgary. "It may or may not speak to future similar events from other producers."

    Calgary-based Imperial Oil Ltd , which is majority-owned by Exxon Mobil Corp , debooked 2.6 billion barrels of reserves in January.

    ConocoPhillips made the reserve reductions at the Surmont, Foster Creek, Christina Lake and Narrow Lakes projects.

    Surmont is operated by ConocoPhillips and a joint venture with Total E&P Canada, a unit of Total SA, and the other three are joint ventures run by Cenovus Energy Inc .

    Total also debooked undeveloped reserves at Surmont, according to SEC filings. But Cenovus, which reports to Canadian securities authorities, said its total proved reserves including non-oil sands operations rose 5 percent in 2016 versus a year earlier.

    Cenovus spokesman Reg Curren said the company assumed different rules relating to reserves reporting in Canada and the United States were behind the difference.
    Back to Top

    Whiting Petroleum nearly doubles its capital spending budget

    Whiting Petroleum Corp, North Dakota's largest oil producer, nearly doubled its 2017 budget for capital spending as crude prices stabilize following a two-year rout.

    However, shares of the company were down 3.5 percent after the bell as the oil producer's revenue fell below analysts' expectations due to a steep drop in production.

    Oil companies are betting big on a continued rise in crude prices by buying up acreage and raising capital spending.

    Whiting boosted its 2017 spending to $1.1 billion from $554 million in 2016.

    The company's production fell 23.4 percent to 118,890 barrels of oil equivalent per day in the fourth quarter ended Dec. 31.

    Whiting's net loss available to common shareholders widened to $173.3 million, or 59 cents per share, in the quarter from $98.7 million, or 48 cents per share, a year earlier.

    Excluding items, the company posted a loss of 28 cents per share, smaller than the analysts' average estimate of 32 cents.

    Denver-based Whiting Petroleum's operating revenue fell 18 percent to about $342.7 million. Analysts had estimated revenue of $355.2 million, according to Thomson Reuters I/B/E/S.

    Attached Files
    Back to Top

    Precious Metals

    Newmont's quarterly profit misses as costs surge

    Gold and copper miner Newmont Mining Corp (NEM.N) reported a smaller-than-expected quarterly profit on Tuesday, as costs and expenses jumped more than 51 percent.

    Newmont, the world's second-biggest gold producer by market value, said gold production rose 17 percent to 1.3 million ounces during the fourth quarter.

    The company produced 4.9 million ounces of gold in 2016, up 7 percent from a year earlier.

    Newmont's all-in sustaining costs (AISC), the gold industry cost benchmark, fell to $918 an ounce in the three months ended Dec. 31, from $1,036 an ounce a year earlier.

    Net loss attributable to stockholders from continuing operations widened to $391 million, or 73 cents per share, from $276 million, or 54 cents per share, a year earlier.

    The company recorded a $970 million impairment charge related to a mine closure in Peru, which it had warned of in December.

    Newmont reported adjusted earnings of 25 cents per share.

    Analysts on average had expected the company to earn 33 cents per share, according to Thomson Reuters I/B/E/S.

    Newmont's costs and expenses jumped 51.3 percent to $2.58 billion in the fourth quarter.

    Total sales rose 23.2 percent to $1.79 billion.

    Shares of the company, which had gained 47.6 percent in the past 12 months, were down 1.6 percent at $36.84 in after-market trading.
    Back to Top

    Free cash rockets to $278m, dividend resumed – AngloGold

    Gold mining company AngloGold Ashantiwill resume dividends after lower operating and interest costs helped it nearly double free cash flow to $278-million on lower production.

    In the 12 months to December 31, AngloGold Ashantiproduced 3.6-million ounces of gold across its 17-mine portfolio at a total cash cost of $744/oz, compared with the higher 3.8-million ounces at $712/oz in the prior year.

    Production was hit by weaker output from the South Africa mines mainly because of safety-related stoppages, lower grades from Kibali in the Democratic Republic of Congo(DRC), a planned decrease in head grades at Tropicana in Australia and Geita in Tanzania, and no production contribution from Obuasi in Ghana.
    Both the Mponeng and Moab Khotsong gold mines in South Africa upped production over the prior year, along with Iduapriem in Ghana, Siguiri in Guinea and Sunrise Dam in Australia.

    Mponeng, where a brownfield expansion feasibility study is expected to be concluded towards the middle of next year, upped production by 16% and cut all-in sustaining costs (AISC) by 14% year-on-year.

    The JSE- and NYSE-listed company, under CEO Srinivasan‘Venkat’ Venkatakrishnan, has since 2013 used self-help measures, including asset sales and efficiency improvements, to reduce debt and improve balance sheet flexibility, without diluting shareholders.

    It continues to prioritise inward investment in brownfield projects over acquisitions, as it seeks to improve the quality of its production base and extend mine lives.
    Overall AISC were $986/oz, up from $910/oz in 2015, with proven and probable gold reserves of 50.1-million ounces at year-end offsetting depletion during the year.
    Six operating fatalities were recorded in South Africa during 2016, where a fatality-free fourth quarter was achieved across all business units, made up of one million fatality-free shifts at Mponeng, Kopanang and Moab Khotsong and two-million fatality-free shifts in the Vaal River region.

    Moab Khotsong achieved a full calendar year without a fatality in September and the Surface Operations unit achieved a full year with no lost-time injury.
    Production for 2017 is being guided at potentially up to 3.755-million ounces, with total cash costs of $750/oz at the low end and AISC of $1 100/oz at the high end.
    Capital expenditure of not more than $1. 050-billion is anticipated, with reinvestment at the Cuiaba gold mine, in Brazil, where a greater rate of ore reserve development is expected to improve mining flexibility; at Iduapriem to strip waste rock from the Teberebie orebody to extend mine life and lower cash costs; at Geita, to replace the mine’s original 20-year-old power plant to ensure reliable electricity supplyand also continue the ramp-up of underground production in advance of depletion of openpit ore in future; at Sunrise Dam, in Australia, where investment in plant modifications is expected to improve gold recoveries; and at Kibali, where additional ore reserve development will be conducted ahead of a production ramp-up.

    There was lower capital spend than initially planned in South Africa, where the small-range reef boring innovationprogramme was discontinued and the Sandvik/Cubex machine decommissioned at the Savuka section of the mine, owing to stage-gate review challenges.

    AngloGold COO South Africa Chris Sheppard assured Mining Weekly Online during a media conference that the efforts of the innovative Mark III and Mark IV high-technology machines were continuing according to plan.

    These machines are being developed to improve the economics of gold mining in South Africa’s low-height, hard-rock reef.

    “We still have our stage gates in place. Our research and development programme is still on track and I’m still upbeat about our reef-boring component on the Mark IV machine,” Sheppard told Mining Weekly Online, adding that the Mark IV had bored four holes this quarter, achieving 90 hours per hole, compared with the benchmark of 72 hours per hole, and the initial eight to nine days per hole.

    “The key issue outstanding is that we are not on a 24/7, and that 72 hours productivity level is based on being able to operate the machine on a 24/7 basis, which we don’t have at present,” he said.

    When it comes to South Africa’s  brownfield expansion options, Mponeng remains the option of highest potential.

    Sheppard said in response to Mining Weekly Online that a prefeasibility study had been concluded at Mponeng on the original Phase 2 project, which has resulted in the phased approach being rejected and a consolidated approach being adopted.

    He said that both the carbon leader reef and the Ventersdorp contact reef would be pursued below the current Phase 1 project.

    It entailed moving away from a phased ramp-up based approach to that of a sub-shaft deepening approach to realise a better investment proposition.

    “We’re currently in feasibility study and that will be concluded around the middle of next year,” Sheppard said, adding that the company was continuing with critical path activities in order to preserve value of the investment case.

    Attached Files
    Back to Top

    Russian gold miner Polyus reports 42 pct net profit jump, forex gains

    Polyus Gold reported a 42 percent jump in 2016 net profit to $1.4 billion on Tuesday as Russia's largest gold producer saw higher sales and gains in foreign exchange and derivatives.

    Higher sales volumes and higher gold prices powered a 20 percent rise in adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) to $1.5 billion.

    Revenue rose 12 percent to $2.5 billion.

    Profit excluding non-cash items was largely flat at $952 million due to higher interest payments, said the company, which is controlled by the family of Russian tycoon Suleiman Kerimov.

    Polyus said it expected to produce 2.075 million to 2.125 million troy ounces of gold in 2017, topping a record 1.968 million ounces in 2016.

    It said it remained on track to hit its target of at least 2.7 million ounces by 2020.

    This year Polyus aims to commission its Natalka gold deposit in Russia's Far East, its main greenfield project now, the company said.

    Polyus in a joint venture with state conglomerate Rostec also bought the development rights for the Sukhoi Log, one of the world's largest untapped gold deposits, for 9.4 billion roubles ($162 million) in January.

    In 2016, Polyus raised a credit facility to finance a $3.4 billion buyback of shares from its controlling shareholder. Polyus net debt stood at $3.2 billion at the end of 2016, up from $364 million a year earlier.

    "Polyus continued to proactively manage its debt portfolio and successfully tapped the Eurobond market twice during the last four months, placing a total amount of $1.3 billion," it said.

    Its capital expenditure rose 75 percent to $468 million in 2016.

    On Tuesday, the company said it was still working on a plan to increase its free-float to 10 percent, declining further comment.

    Polyus has said it plans a placement of 5 percent of its shares on the Moscow Stock Exchange to meet the bourse's 10 percent free float requirement.

    Polyus plans to use either existing or new shares with the funds from the placement going to the company. It has also said it would consider placing global depository receipts (GDRs) in London in the future.
    Back to Top

    Base Metals

    Escondida will wait 30 days into strike to replace workers

    Chile's Escondida copper mine, the world's largest, said on Tuesday it would not begin replacing striking workers for at least 30 days into the work stoppage to show its commitment to dialogue.

    The mine can legally hire temporary workers after 15 days of a strike. Tuesday marked 13 days since unionized workers walked off the job at Escondida, which is controlled by BHP Billiton .

    Waiting to replace workers means there will be no production from Escondida for at least another two weeks if the strike continues. That will likely push copper prices, which have already hit 20-month highs on supply concerns, even higher.

    Government-mediated talks on Monday failed to get workers and representatives of the mine to commit to a schedule of new wage talks.

    The company and union are far apart on a number of issues, including shift pattern changes, the size of a one-time bonus, and BHP's wish to give new workers lower benefits.

    It was unclear for days if the meeting would even take place as BHP blamed striking workers for interfering with non-unionized service employees on their shift changes.

    Escondida is majority-controlled by BHP with minority interests held by Rio Tinto and Japanese companies including Mitsubishi Corp The mine produced about 5 percent of the world's copper in 2016.
    Back to Top

    Anglo American to walk away from Chile copper mine if no permit

    Anglo American will walk away from its El Soldado copper mine in Chile if it cannot agree a permit for a redesign of the operation, Chief Executive Mark Cutifani said on Tuesday.

    The group hopes it will get regulatory approval for the mine in three to four weeks, but if a satisfactory permit cannot be agreed, "we won't continue going forward with the operation", he told a results presentation.

    Anglo said last week it had temporarily suspended operations at the mine after failing to get regulatory approval for the redesign.
    Back to Top

    Steel, Iron Ore and Coal

    China to launch nationwide coal mine inspections in March

    The work safety watchdog will launch a widespread safety check of coal mines nationwide in March, a move prompted by three coal mine accidents that killed 32 miners this year, said officials with the State Administration of Coal Mine Safety.

    The campaign, which will last until the end of the year, will look for safety hazards and focus on accident prevention, Huang Yuzhi, head of the State Administration of Coal Mine Safety, said at a work conference on February 21.

    The most recent fatal incident, a gas explosion at Zubao Coal Mine in Lianyuan, Hunan province, killed 10 miners on February 14. Fatal incidents that together killed 22 occurred in Dengfeng, Henan province, on January 4, and in Shuozhou, Shanxi province, on January 17.

    Huang said the three accidents exposed the lack of legal awareness among coal mine owners, given that two of the mines were found to have been operating in prohibited areas.

    The campaign will be led by provincial coal mine safety departments and divided into two phases. In the first phase, the authorities will assess the safety situation of all coal mines and identify problems. In the second phase, the authorities will check on how the problems have been rectified.

    The provincial watchdogs are also expected to formulate a report on each coal mine regarding ways to improve their work safety situation and solve existing problems, Huang said.

    Production would be suspended at coal mines that fail the work safety standards or are deemed to pose safety hazards, he said.

    Yang Huanning, head of the State Administration of Work Safety, has warned of possible risks associated with the extreme weather conditions that many parts of the country are seeing this week.

    He also said higher prices for resources like coal, steel and nonferrous metals have spurred coal mines to produce beyond their designed capacity.

    In one extreme case, a coal mine in Shanxi province, with designed annual capacity at 900,000 tonnes, produced 5.2 million tonnes of coal last year, according to Huang.

    China saw 11 accidents from accumulations of flammable gas at coal mines since the fourth quarter of last year, and 140 people were killed in those incidents, according to the work safety watchdog.
    Back to Top

    Large Chinese coal miners call for 276 working-day rule

    Most of China's large coal producers including Shenhua Group suggested the government to resume 276 working-day rule at all mines after the heating period ending in mid-March, in a bid to underpin price and ease anticipated supply pressure, sources learned from a meeting held by China National Coal Association on February 21.

    The association didn't give specific answers to whether and how the production reduction policy would be implemented this year, sources said.

    But officials with the association did suggested coal miners to enforce capacity cut resolutely.

    Both thermal and coking coal miners said they were faced with great sales and inventory pressure, which were weighing on prices.

    Besides Shenhua Group, another 16 large coal companies attended the meeting, including China National Coal Group, Datong Coal Mine Group, Shanxi Coking Coal Group.

    A draft proposal has been submitted to the National Development and Reform Commission, according to which some mines may be allowed to operate 276 working days over March-August.

    This, however, will not apply to advanced mines, mines with 70% production being primary coking coal or fat coal and mines in provinces buying outsourced coal to supplement supply, industry insiders said recently.

    All thoese are still under discussion, according to the NDRC.
    Back to Top

    Hebei to eliminate three batches of coal-fired power units

    North China's Hebei plans to eliminate condensing power units with capacity below 300 MW, coal-fired power units with capacity below 200 MW and all illegal power plants, in order to optimize energy mix, the provincial Development and Reform Commission said lately.

    Hebei has published the first batch of 16 coal-fired units to be eliminated this year, each with generating capacity at 174 MW.

    The second batch will be published in late March, mainly including illegal coal-fired power plants to be closed by end-2017.

    The third batch, to be published in late June, will phase out small condensing heating units with generating capacity below 300 MW.

    Hebei will shut all illegal coal-fired power units and those with capacity below 100 MW by end-2017, the commission said.

    All condensing heating units with capacity below 100 MW will be shut in 2017, it added.

    Attached Files
    Back to Top

    Australia: clean energy fund could underwrite new coal plants

    Australia is considering altering legislation to enable funds slated for clean energy developments to be used to bankroll construction of new low emission, coal-fired power plants, Reuters reported on February 18.

    The suggestion by Energy Minister Josh Frydenberg comes after a major power outage during a heat wave in South Australia state worsened a row with the national government over energy security and the state's heavy reliance on wind and solar power.

    Frydenberg said current laws governing the Clean Energy Finance Corporation (CEFC) prevented it from investing in the high-energy, low emission (HELE) coal plants.

    "In the Act it explicitly rejects carbon capture and storage and nuclear power," Frydenberg stated on February 12. "It actually confines investments to ones which reduce emissions by more than 50% on what the average is across the national electricity market."

    The government suggestion to tap taxpayer funds to build the HELE plants also comes after industry participants indicated the private sector was not interested in investing in the plants.

    Frydenberg said that while the cost of renewable energy had fallen considerably, it did not solve the problem of integrating intermittent energy supplies into a grid designed to transmit baseload sources of supply, mainly from coal.

    New South Wales state Premier Gladys Berejiklian said her state, the country's most populous and one heavily reliant on coal-fired power plants, was open to new coal-based sources of energy supply.

    Australia is one of the largest carbon emitters on a per capita basis due to its reliance on coal-fired power plants. Power generators account for roughly one-third of Australia's carbon emissions.

    The national government wants 23.5% of Australia's energy mix to come from renewables by 2020, but nearly all states have set much more ambitious renewable goals to cut carbon dioxide emissions from their electricity sector – clouding the outlook for many generators.
    Back to Top

    South African coal miners look to domestic market for higher prices

    South African thermal coal miners are looking increasingly at the domestic market, with inland consumers more willing to pay higher prices than buyers in the export market and shipments out of the country falling, according to market sources.

    S&P Global Platts assessed the FOB price of Richards Bay physical thermal coal basis 5,500 kcal/kg NAR and for delivery within the next 7-45 days at $70/mt. This is equivalent to Rand 917.83/mt for exporters of such material at Richards Bay Coal Terminal.

    According to XMP Consulting senior analyst Xavier Prevost, the average price of sized coal in the South African domestic market is Rand 606.67-788.91/mt ($46.27-$60.17/mt) FOT for A and B grade coal, and he believes these prices and their projected increases would eventually shift a lot of exportable coal to the local market.

    A grade coal has a minimum calorific value of 27.5 MJ/kg (6,568 kcal/kg), while B grade coal has a CV of 26.5-27.5 MJ/kg (6,329-6,568 kcal/kg).

    "Inland prices are increasing a lot and export prices, regardless of what some analysts say, are not going to be good in the long term," he said.

    According to recent research made by XMP Consulting, before 2009, domestic prices rose by an average 10%/year, with prices rising 8%/year over 2011-15 and 5% in 2016.

    Even with South African 5,500 kcal/kg NAR thermal coal export prices reasonably high compared with the low of $37.50/mt FOB hit in October 2015 and FOB prices in the $40s/mt for large parts of last year, material sold inland is on a FOT basis at the mines, meaning that sellers are not saddled with extra export costs such as processing, rail transport to port, handling fees and port allocation.

    In addition, many mines could achieve higher production yields by supplying the inland market, with B grade coal, which is what most inland industrial customers buy, according to the XMP Consulting research.

    The research found that, as there has never been a formal price index for sized coal sold to domestic users in South Africa, miners have "generally taken their lead from each other and set their prices accordingly, with Glencore predominantly setting most prices." According to a letter to customers at the beginning of February seen by Platts, large miner Glencore has adjusted prices to charge as much as Rand 1,300/mt ($99.15/mt) FOT for sized-coal from its Tweefontein operations, Goedgevonden Colliery, Graspan Colliery and Wonderfontein Colliery.

    According to Prevost, local coal sales were 181.2 million mt last year, split between electricity (66%), synthetic fuels (23%), industries (4%), merchant and domestic (4%) and metallurgical (3%).

    He said sized coal was used by all industry, besides state-owned utility Eskom and synfuel and chemical company Sasol, with some users using small amounts of unsized coal and merchants buying any coal available and exporting some.


    Another factor that could make the South African inland market increasingly attractive to mining companies is falling export demand. In 2016, South African coal exports declined for the first time since 2009. Shipments for the year were 72.81 million mt, 3.4% less from 2015's record high 75.39 million mt to their lowest annual volume since 2013.

    Large miner Anglo American's 2016 thermal coal export sales were down 8% on the year to 34.1 million mt, according to its annual production report, while domestic sales for the year rose 9% to 34.5 million mt.

    South 32's South African thermal coal unit sold 5.86 million mt of export thermal coal during July-December 2016, down 27% on the year. The company's financial year runs from July to June. Domestic sales registered a much smaller drop of 2% to 8.92 million mt.

    Glencore did not provide sales totals for the year, but its South African thermal coal production for export in 2016 dropped 13% to 17.2 million mt, although output for the domestic market fell too.

    Some factors will continue to promote exports, such as demand from routine buyers, take-or-pay rail agreements between mining companies and state-owned freight company Transnet Freight Rail -- 10-year contracts were signed in 2014 -- as well as penalties for volumes not delivered to RBCT under port allocation agreements.
    Back to Top

    Fortescue says H1 profit jumps 383 pct, misses market expectations

    Australia's Fortescue Metals Group Ltd on Wednesday reported a 383 percent rise in interim net profit to $1.2 billion, surpassing the $319 million in the year-earlier period on the back of a surprise surge in iron ore prices, but still fell short of market expectations.

    Analysts had forecast profit for the six months to Dec. 31 of about $1.5 billion, according to Thomson Reuters data.

    "Our successful operational performance combined with positive market conditions produced strong cash flows facilitating further debt repayments of $1.7 billion," Managing Director Nev Power said in a statement.

    Fortescue declared a dividend of A$0.20 ($0.1535) per share.

    Fortescue, Australia's third-biggest producer, is aiming to ship up to 170 million tonnes of ore in fiscal 2017, mostly to China.

    A push to hammer down costs has left Fortescue on par with larger rivals Vale SA, Rio Tinto Ltd and BHP Billiton Ltd , which combined control more than 70 percent of global sea trade in iron ore.

    Iron ore was one of the best-performing commodities in 2016, defying analyst forecasts for a correction on the back of plentiful supply and an expected slip in demand from China, the world's biggest buyer.

    Iron ore and steel markets grew at a modest rate during 2016, industry figures show, with China importing a record 1.02 billion tonnes of ore, and steel production rising by 1.2 percent versus 2015.
    Back to Top

    China to curtail 75 Mtpa steel capacity over 2017-20

    China planned to curtail 75 million tonnes per annum (Mtpa) of steelmaking capacity in the next four years, said Chinese Ministry of Industry and Information Technology at a press conference on February 17.

    China has adjusted down de-capacity goal for its steel industry over 2016-2020 at 140 Mtpa, compared with the original target of 100-150 Mtpa proposed in 2016.

    Last year, China slashed a total 65 Mtpa of steelmaking capacity.

    Meanwhile, Chinese steel makers posted a year-on-year surge of 2.02 times in profit  in 2016, while the total losses dropped 51% compared with losses suffered in 2015.
    Back to Top

    Ternium to pay 1.26 bln euros to buy Thyssenkrupp's Brazilian mill CSA

    Ternium SA has agreed to buy 100 percent of Thyssenkrupp's Brazilian mill CSA, the company said in a statement on Tuesday. Ternium will pay Thyssenkrupp 1.26 billion euros, and assume 0.3 billion euros in CSA's debt.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP