Mark Latham Commodity Equity Intelligence Service

Friday 3rd June 2016
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    Strikes reduce French power output, outages in some areas - CGT

    French nuclear power output fell by over 2,400 megawatts (MW) on Thursday, causing a few local blackouts, the CGT union said, after workers at utility EDF joined a nationwide rolling strike against a government plan to reform labour laws.

    The union said in a statement that output from at least six of France's 19 nuclear plants had been reduced by 0900 GMT after members walked out or reduced output at some sites.

    However, the reported impact was relatively modest and represented less that 4 percent of France's total nuclear power capacity, which normally supplies about three quarters of the nation's electricity.

    A spokeswoman for state-controlled EDF said less than 9 percent of its workforce was on strike on Thursday morning.

    Widespread blackouts are not expected because unions are compelled by law to maintain a minimum level of output in agreement with French grid operator RTE.

    Nevertheless, the CGT said that the action by EDF workers had caused some reported gas and electricity supply outages in the town of Tulle, and industrial zones in Brive and Urerche in the southwest of the country.

    RTE, an independent unit of EDF, reported unplanned power outages related to five nuclear reactors, with electricity production reduced by over 70 percent at the 1,300 MW St. Alban 1 reactor, and by 50 percent at the 1,300 MW Nogent 1 reactor near Paris.

    French intraday power prices jumped to as much as 73.9 euros per megawatt-hour (MWh) between 0800 and 0900 GMT, compared with 42.8 euros/MWh at the same time the day before.

    CGT said union members had also downed tools and were blockading Elengy's, Fos and Montoir liquefied natural gas (LNG) terminals.
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    EU Diesel Sales: 6 months on.

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    Noble Just Sold Stock At A 63% Discount

    The Hong Kong-based company will offer 1 rights share for each existing share at 11 Singapore cents, a 63 percent discount from the close on Thursday, according to a statement on Friday. Of the total 6.54 billion shares to be issued, biggest holder Elman has agreed to take 625.5 million, while China Investment Corp., the third-largest, agreed to take 630.6 million. CIC will get a second seat on the board.
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    Oil and Gas

    OPEC Keeps Status Quo After Failing to Agree on Output Cap

    OPEC will stick to its policy of unfettered oil production after members failed to agree on a new output ceiling. Crude extended its decline in London.

    The meeting didn’t produce a supply accord but did reach consensus on appointing Nigeria’s candidate as new secretary-general, Sudirman Said, Indonesia’s energy minister, said in Vienna. The Organization of Petroleum Exporting Countries’ de facto leader, Saudi Arabia, had previously discussed restoring a production target scrapped in December, according to delegates familiar with the matter.

    Oil has rallied about 80 percent from the 12-year low reached in January as depressed prices take their toll on supplies. That suggests the Saudi-led decision in 2014 to maintain output amid a global glut is finally paying off, with higher-cost producers cutting back. While Saudi Arabia had shown willingness to mend divisions Thursday with cash-strapped members demanding a new group ceiling, Iran said it would only support individual country quotas that would be difficult to agree in a single meeting.

    Iran has rejected any cap on production as it restores output following the removal of sanctions in January. The country’s refusal to participate in a production freeze proposed earlier this year prompted Saudi Arabia to block a deal between OPEC and Russia in April.

    Although OPEC regularly ignores its own output targets and there was no suggestion anyone would cut production, even a token gesture could have showed renewed unity and boosted prices. 

    Nigeria’s Mohammed Barkindo will assume the role of secretary-general, succeeding Abdalla El-Badri, who has been in the job for nine years. Barkindo was acting head of OPEC in 2006 and previously ran Nigerian National Petroleum Corp.

    His appointment demonstrates that OPEC has at least overcome squabbles that scuppered consensus on the top job at previous summits. El-Badri, a 76-year-old Libyan, was originally due to step down in 2012 after serving the maximum two terms, but members weren’t able to agree on a replacement and his tenure was extended at successive meetings.

    Barkindo, whose rival nominees for the job included Indonesia’s Mahendra Siregar, spent more than 23 years at NNPC, where he served in various capacities including deputy managing director of Nigeria LNG and head of the international trading unit. He also served for 15 years as Nigeria’s national representative to OPEC.
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    Saudi Arabia reinforces strategy with 10-year high Japan crude sales

    The sharp upsurge in Saudi Arabia's crude exports to Japan to 10-year highs in April clearly signals one thing -- that the Middle East supplier is intensifying efforts to grab any incremental demand opportunity that comes from its key customers.

    And it seems to be in no mood to deviate from its aggressive policy of doing all it can to boost market share, industry sources and analysts said, adding that its strategy was unlikely to change over the course of the year.

    "The Saudi response [for incremental supplies] has improved in recent months," a Japanese refiner source said. "We feel that they are actively responding to requests for incremental supplies in a prompt manner."

    Japan's crude imports from Saudi Arabia averaged 1.42 million b/d in April, the highest for the month since it imported 1.5 million b/d in April 2006, according to preliminary data released Tuesday by the Ministry of Economy, Trade and Industry.

    Saudi Arabia's crude supplies to Japan in April surged 37.2% from 1.037 million b/d a year earlier, according to S&P Global Platts calculations based on METI data.

    It includes 50% of imports from the Partitioned Neutral Zone, which lies between Saudi Arabia and Kuwait. METI lists it as a separate supply source.

    Saudi Arabia's market share rose to 41% of Japan's total crude imports of 3.47 million b/d in April, from 31% a year ago.

    Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corporation said that Saudi Arabia's increased crude sales to Japan in April was not a coincidence at this level and was based on its market share strategy.

    "Based on its market share strategy, the Saudis are trying to increase their share by selling larger volumes to secure their income," Nogami said. "They are expected to maintain this policy this year."

    Saudi Arabia's oil policy is being closely watched as the kingdom recently appointed Khalid al-Falih as energy minister to replace the long-serving Ali al-Naimi.

    Samer AlAshgar, president of Saudi Arabia's independent King Abdullah Petroleum Studies and Research Center said at an energy seminar in Tokyo on May 13 that he did not expect the kingdom to change its market share policy any time soon.

    "I do not see any change from the current strategy that they have now," AlAshgar told the energy seminar hosted by the Institute of Energy Economics, Japan. "The policy has been working and is now being effective."

    Despite this year being a leap year, Saudi Arabia's crude supplies to Japan showed a hefty increase during the first four months, when overall Japanese imports slid 2% year on year to an average 3.47 million b/d, according to Platts calculations based on METI data.

    Saudi Arabia's crude supplies to Japan averaged 1.27 million b/d in January-April, accounting for 36% of the total imports in the four-month period.

    Compared with the same period last year, that was 7.6% higher from the 1.18 million b/d levels and accounted for 33% of the 3.54 million b/d total imports.

    Saudi Arabia's crude supplies to Japan spiked in April at a time when Japanese refiners had to make up for an expected shortfall in their procurements from Iran and the UAE, coupled with competitive Saudi official selling prices for March loading programs, industry sources said. Japan's crude imports from Iran dropped 71.9% year on year to 19,161 b/d in April.
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    Even for BP and Shell, North Sea remains a hard sell

    When it comes to the North Sea, there is no such thing as an easy sale, even for oil giants Royal Dutch Shell and BP.

    More than any other region in the world, the North Sea has suffered greatly over the past two years as a 60 percent drop in oil prices, high operating costs, dwindling reserves and a tough tax regime has hit operators hard.

    As a result, producers ranging from Shell and France's Total to smaller regional players such as Enquest and Tullow Oil have put dozens of assets in the region on the block to boost their balance sheets.

    But deals have been few and far apart. Buyers and sellers have found it hard to agree on the value of assets and how to share the costs of dismantling and cleaning up of obsolete fields, known as decommissioning.

    With around 30 percent of fields operating at a loss in 2016 and others seeing razor thin margins, "almost all UK North Sea assets are up for sale," said Fiona Legate, senior UK upstream oil and gas analyst at consultancy WoodMackenzie.

    "There is however a limited pool of buyers," she added.

    BP has struggled to sell a stake in its Forties pipeline system, one of the region's oldest and the main source for the eponymous crude used to price the global Brent crude benchmark.

    Talks with Swiss-based chemical giant Ineos recently collapsed after the sides could not agree on how to price the asset, sources close to the negotiations said.

    The Forties pipeline has a capacity to deliver over 1 million barrels per day and serves over 50 offshore oil and gas fields in the central North Sea, according to BP's website.

    But declining output has meant the pipeline operated at less than 40 percent of its capacity last year, WoodMackenzie says.

    Ineos wanted BP and other producers using the pipeline to commit to a fixed capacity fee that would guarantee revenue even if output continued to decline, industry sources close to the talks told Reuters.

    BP however sought to pay on a per-barrel basis, they said. "Buyers want something to protect them against a drop in throughput," one source said. The pipeline system remains on the market.

    Shell is starting an ambitious three-year $30 billion global asset sale programme to pay for its $54 billion acquisition of smaller British rival BG Group in February.

    In the North Sea, the company is planning to bundle several assets in packages that will include mature fields along with more attractive assets such as the Buzzard field and pipelines, banking sources said.

    The Anglo-Dutch company held talks in recent months with Neptune, a North Sea-focused investment company headed by former Centrica boss Sam Laidlow and backed by private equity funds Caryle Group and CVC Partners.

    Shell Chief Financial Officer Simon Henry remains confident it can meet its target within around three years. Shell will focus at first on selling infrastructure, refining and retail businesses that are less exposed to oil price fluctuations over production, or upstream assets, he said.

    "If the oil price stays at $48 a barrel maybe (the sale programme) will take us a little bit longer. We are not chasing sales of upstream assets at $48."

    Operating in the North Sea remains challenging even after Shell cut costs sharply in recent years, Henry said, adding that within the region, some areas are more profitable than others.

    "We've taken our costs down hugely and improved our reliability and availability. So the performance today is much better than it was two years ago but it is still not good," Henry told reporters on May 24.

    "In general it is high cost region in which you have to keep spending to stay in business and have significant decommissioning and restoration costs."

    An extended period of low oil prices also leads to an earlier decommissioning of fields, he said.

    WoodMackenzie estimates 142 fields will cease production over the next five years. Total UK North Sea decommissioning are expected to reach 55 billion pounds.
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    Israel approves development of large offshore Leviathan natgas field

    Israel's government on Thursday approved the development of the controversial Leviathan natural gas field that will give Israel a second source of gas supply while potentially turning it into a gas exporter.

    Leviathan, one of the largest offshore discoveries of the past decade, was found off Israel's Mediterranean coast in 2010. It has an estimated 622 cubic meters of natural gas (BCM) of reserves and is expected to become operational in 2019.

    Texas-based Noble Energy, which holds a 40 percent stake in Leviathan, said the field would initially start production at 1.2 billion cubic feet a day and expand to 2.1 bcf.

    "Leviathan is expected to provide a second source of supply and entry point into Israel's domestic natural gas transport system, while also delivering exports to regional countries," Noble said in a statement.

    The site, however, will cost at least $5 billion to develop and it was not yet clear how the project will be financed.

    "Strong momentum on the regulatory and marketing fronts represents major steps in advancing the Leviathan project towards final investment decision," said J. Keith Elliot, Noble's senior vice president for the Eastern Mediterranean.

    Earlier this week, Leviathan signed a deal to supply up to 473 bcf to a new private power plant, IPM Be'er Tuvia, for 18 years. Noble estimated gross revenue from the deal at $2.5 billion.

    In January Leviathan signed a $1.3 billion gas supply contract with Edeltech, Israel's largest private power producer.

    Last week Israel's government approved a revised deal aimed at fast-tracking development of Leviathan, which has been mostly earmarked for exports.

    The Leviathan project hit a major obstacle in March when Israel's Supreme Court blocked a previous agreement between the field's shareholders and the Israeli state, the terms of which would have stayed unchanged for 10 years.

    It had been opposed by opposition parties and public advocacy groups on grounds that Noble and its partner Delek Group - which also own the adjacent Tamar field - would control too much of Israel's natural gas supply.

    Tamar began production in 2013 and provides Israel with its current natural gas needs.
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    Exxon CEO Says Argentina Shale Investment May Exceed $10 Billion

    Exxon Mobil Corp. may invest more than $10 billion in Argentina’s Vaca Muerta shale formation in the next decades, Chairman and Chief Executive Officer Rex Tillerson said Thursday.

    The oil giant has so far invested $200 million in the world’s second largest shale gas deposit, Tillerson said after meeting with Argentine President Mauricio Macri in Buenos Aires. Exxon has received approval to invest $250 million more for a pilot project in the coming months.

    If the pilot project is successful, the company will start full development during a period of 20 to 30 years that could involve additional investment “that would be well in excess of $10 billion,” he said.

    For Tillerson, Argentina’s vast Vaca Muerta shale region represents an opportunity to reverse production losses and add reserves after a $35 billion wrong-way bet on U.S. natural gas and a Russian exploration venture that was derailed by international sanctions. Exxon, the world’s largest oil explorer by market value, has designated Vaca Muerta as one of nine “key activity” areas in the Western Hemisphere and one of just four in South America, according to company data.

    Macri has been courting international corporations from Total SA to Dow Chemical Co. to Coca-Cola Co. to invest in Argentina since taking office in December. Exxon, whose annual sales dwarf the economic output of all but about 45 of the world’s nations, is building a plant to strip impurities out of natural gas as well as a pipeline network to handle the output from its Vaca Muerta wells.

    “I am very encouraged by the changes that have occurred here in Argentina, with the change in government,” Tillerson said, according to a statement from the Argentine government.

    Exxon’s worldwide oil and gas output is lower than it was when Tillerson began his tenure as CEO a decade ago.

    Last year, the company that traces its roots to the 1880s and John D. Rockefeller’s Standard Oil Trust failed to replace all the crude and gas it pumped with new discoveries for the first time in 22 years. In April, S&P Global Ratings stripped Exxon of the gold-plated credit rating it had held since the Great Depression.

    Tillerson will reach Exxon’s mandatory retirement age of 65 in March. In a May 25 meeting with reporters after the company’s annual meeting in Dallas, he declined to say whether he would seek an extension of his tenure from the board.

    Vaca Muerta, Spanish for Dead Cow, is one of the world’s top shale plays, covering an area the size of Belgium and considered key to restoring energy self-sufficiency in Argentina.
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    BP to Pay $175 Million to Settle Claims It Hid Spill Size

    BP Plc said it agreed to pay $175 million to settle claims by U.S. investors that its managers lied about the size of the 2010 Gulf of Mexico oil spill to prop up its stock price,
    removing the company’s last major overhang from the disaster.

    The investors, who blamed BP for massive losses when the true scope of the spill was revealed, had sought as much as $2.5 billion. The settlement averts a trial that was set for July in Houston federal court.

    The settlement announcement Thursday came shortly after a ruling by U.S. District Judge Keith Ellison to narrow the evidence that could have been presented to a jury. The decision, which would have benefited BP at trial, limited the management statements that investors could claim affected the stock price.

    BP shares plunged by more than 40 percent in the weeks after the April 2010 disaster, as it became clear the company couldn’t immediately contain the spill. More than 4 million barrels of oil escaped into the Gulf of Mexico during the 87 days London-based BP took to control the well.

    The investors’ lawsuit, led by the public employee pension funds of New York and Ohio, revolved around statements made shortly after the Deepwater Horizon drilling rig blew up in April 2010. Those statements also were central to BP’s agreement in 2012 to pay $525 million to resolve claims by the Securities and Exchange Commission that the London-based company underestimated the size of the spill to bolster stock prices. BP also pleaded guilty to a felony count of obstruction of Congress related to spill estimates.

    “Investors saw their stock prices plummet after the Deepwater Horizon explosion,” said Jennifer Freeman, a spokeswoman for the New York Comptroller’s Office. “This settlement helps compensate investors for their losses."
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    Another fall in US oil production

                                                   Last Week     Week before   Last Year

    Domestic Production '000......... 8,735               8,767           9,586
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    Summary of Weekly Petroleum Data for the Week Ending May 27, 2016

    U.S. crude oil refinery inputs averaged 16.2 million barrels per day during the week ending May 27, 2016, 73,000 barrels per day less than the previous week’s average. Refineries operated at 89.8% of their operable capacity last week. Gasoline production increased last week, averaging over 9.9 million barrels per day. Distillate fuel production increased last week, averaging about 4.8 million barrels per day.

    U.S. crude oil imports averaged over 7.8 million barrels per day last week, up by 524,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.6 million barrels per day, 8.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 921,000 barrels per day. Distillate fuel imports averaged 69,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.4 million barrels from the previous week. At 535.7 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.5 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.3 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.3 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories decreased by 2.7 million barrels last week.

    Total products supplied over the last four-week period averaged 20.4 million barrels per day, up by 2.2% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.7 million barrels per day, up by 4.0% from the same period last year. Distillate fuel product supplied averaged about 4.1 million barrels per day over the last four weeks, up by 0.6% from the same period last year. Jet fuel product supplied is up 1.6% compared to the same four-week period last year.

    Cushing drops 700,000 bbls

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    As diesel price soars, U.S. refiners seize the moment, sell future output

    U.S. diesel futures have soared about 40 percent in the last two months, prompting independent refiners to pounce, selling future output on the view that resurgent domestic demand and higher exports may turn out to provide only a brief boost.

    The surprise rally in U.S. diesel futures has put prices on track for their biggest quarterly percentage gain in seven years. Money managers and hedge funds have invested heavily in the fuel as stronger-than-expected demand has helped draw down record inventories.

    Diesel typically enjoys strong seasonal demand in these months from farmers fueling tractors and equipment during the spring planting season. But prices this year have gotten an extra boost from robust exports to Europe and Latin America.

    Strikes in France have slashed European supplies for almost two weeks, boosting demand for U.S. diesel. But the announcement that one French refinery would restart hit U.S. diesel margins on Thursday. The distillate crack spread had jumped 7 percent, then gave up most of the day's gains.

    Refiners such as Valero Energy Corp and Phillips 66 typically look for big price rallies to sell future output. These refiners were presented with a rare opportunity to lock in profits when diesel prices and margins popped in April and May.

    Producer short positions in NY Harbor Ultra Low Sulfur Diesel (ULSD) have soared to levels not seen since November 2010, data from the Commodity Futures Trading Commission show.

    Refining margins, represented by the U.S. diesel crack spread, have jumped by about 70 percent since early April and are on track for their biggest quarterly percentage gain since 2013. Margins widened to $14.94 on Thursday, their highest since mid-February, but then gave back most of the day's gains on the French refinery announcement.

    Locking in $13 to $14 per barrel of profit through the rest of 2016 was better than the single-digit margins earlier this year, a trader at a U.S. East Coast refiner said. But they remain a far cry from the record hit in 2012, which exceeded $45 a barrel.

    "Refiners are systematic, because they need to lock in margin," said John Saucer, vice president of research and analysis at Mobius Risk Group. "Anytime there's an uptick in a crack or a margin they're going to capitalize on it."

    The rally could fade if hedging gathers pace and speculative buying wanes.

    In a further sign of selling into next year, the average for the 12 futures contracts expiring in 2017, called the calendar strip, has not kept pace with gains in this year's prices.

    Since early April, the 2017 strip has risen 21 percent to $1.64. Over the same period, the 2016 strip has gained about 29 percent, while the front-month contract has jumped about 40 percent.

    The picture for refiners has improved dramatically since the bleak outlook this winter, after margins fell as low as $8 a barrel in late January. Soon after that, many refiners shut capacity due to weak profits because of a big glut in diesel.

    But refiners are skeptical that margins will remain strong, because U.S. crude is on track for its biggest quarterly percentage gain since 2009. Fear for tighter margins going forward has encouraged them to hedge.

    The heightened activity in diesel is surprising for this time of year, when typically the market buzz surrounds gasoline, heading into the busy summer driving season.

    Speculative investors turned bullish on diesel early in May for the first time in about two years, after inventories that had been bloated by a mild winter started to decline.
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    U.S. FERC approves Elba Island LNG export project

    Kinder Morgan on Thursday said its units Elba Liquefaction and Southern LNG received approval from the Federal Energy Regulatory Commission for the Elba liquefaction and export project.

    In its statement, Kinder Morgan informed its units have also received FERC certificates of public convenience and necessity for the EEC modification project and SNG Zone 3 expansion project, respectively.

    The liquefaction project has a price tag of $2 billion and will be constructed and operated at the existing Elba Island LNG terminal near Savannah, Georgia.

    The first of 10 liquefaction units is expected to be placed in service in the second quarter of 2018, with the remaining nine units coming online before the end of 2018. The project is supported by a 20-year contract with Shell, Kinder Morgan added.

    The other expansion works that include additional compression and related work for north-to-south capacity expansions on Elba Express Pipeline that will supply additional gas to industrials and utilities in Georgia and Florida and to Elba Island for liquefaction.

    Facilities for these pipeline projects are expected to be placed in service late in the fourth quarter of 2016.

    The liquefaction project is expected to have a total capacity of approximately 2.5 million tons per year of LNG for export, equivalent to approximately 350,000 Mcf per day of natural gas.

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    Alternative Energy

    Rio Tinto expects lithium to be in high demand

    Diversified mining major Rio Tinto signals that it is eager to join the lithium rush, with its lithium-borate deposit in Serbia being seen as a “strategically important” project for the group. 

    In a Rio Tinto publication released on Thursday, Rio Tinto CEO for diamonds and minerals, Alan Davies, described the lithium-borate project in the Jadar basin as “exciting”. He said that lithium was a resource that was expected to be in high demand in future, owing to growth in the electric vehicle (EV) market.

    Rio Tinto has earmarked $20-million for the Serbian project until the end of 2017, to complete the studies required for the prefeasibility stage and to obtain a resource reserve certificate from the Serbian government. To date, Rio Tinto has invested $70-million in the Jadar project. 

    The company’s geologists discovered a new lithium sodium borosilicate mineral in the Jadar basin in 2004 and two years later, jadarite was officially confirmed as a new mineral. Jadarite contains lithium and borates and Serbia is the only known source of the mineral. 

    Rio Tinto believed that the Jadar lithium-borate deposit was among the largest lithium deposits in the world. If developed, the Jadar project could supply over 10% of the world’s lithium demand. The fastest-growing application for the mineral was lithium batteries, with particularly strong demand from EVs. The Rio Tinto M2M publication stated that the world market for EVs was expected to increase to more than ten-million vehicles by 2022 – about ten time the market size in 2014.

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    India sticks with above normal monsoon forecast

    India's weather office on Thursday stuck to its initial forecast for above average monsoon rains in 2016, boosting hopes for a revival in farm output which could translate into lower food prices and also lower interest rates.

    The June-September monsoon rains would be 106 percent of a long-term average, the chief of the Indian weather office said, in the second forecast for the four-month long season.

    Monsoon showers, which typically start from June 1 and cover the entire country by the middle of July, would arrive slightly late this year but crop sowing would not be delayed, the weather office said last month.

    "Conditions are congenial for the arrival of monsoon in the next 4-5 days," Laxman Singh Rathore, the chief of India's meteorological department, said at a news conference.

    The annual June-September monsoon rains hit the coast in India's southern Kerala state first before progressing to other parts of the country.

    Although agriculture accounts for about 15 percent of the country's $2 trillion economy, about two-thirds of its 1.3 billion people depend on agriculture for their livelihood.

    Reserve Bank of India governor Raghuram Rajan in April said he was closely watching inflation developments as well as monsoon rain forecasts in terms of the impact on monetary policy.
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    Row between Peru and UK-listed cacao company turns bitter amid calls for trading halt

    A row between the Peru government and a UK-listed cacao producer accused of illegally destroying Amazon rainforest has prompted land rights campaigners to call for the removal of the company from trading on the London stock exchange.

    United Cacao Ltd is seeking to become the world's largest single producer of cacao through its plantations in northern Peru, billing itself as a leading ethical producer both in labour and environmental terms.

    However Peru's forestry ministry, SERFOR, says the Cayman Islands registered company company does not have approved certification for its plantations that span several thousand hectares in the Iquitos region by the Amazon.

    But the company says its Peruvian subsidiary, Cacao del Peru Norte, is in compliance with all Peruvian laws, operating on freehold land zoned for full agricultural purposes by the relevant national authorities.

    The competing claims have promoted an investigation by the London Stock Exchange's Alternative Investment Market, that allows smaller companies to raise capital for expansion, amid calls for trading in United Cacao to be suspended.

    "This case is important for Peru but it's time for stock exchange authorities to start taking interest in the impact of these companies around the world," said Julia Urrunaga, from the Environmental Investigation Agency, a campaign group which has been following the case.

    "Companies doing illegal operations should not be raising money in Europe," she told the Thomson Reuters Foundation by phone from Lima, Peru's capital.

    The row dates back to 2013 when the company submitted details for environmental reporting documentation requested by authorities querying its agricultural activities.

    Employing more than 500 workers in Peru and running programs to support small-scale farmers, the company says on its website it is seeking to become the world's largest and lowest cost corporate grower of cacao when it completes the planting of its existing 3,250 hectare estate in 2017.

    In the ongoing row, Peru's Supreme Court said in February this year that United Cacao had the correct zoning and environmental permissions for its plantations.

    But in May the Forestry Ministry released a statement accusing the firm of violating land use regulations.

    A spokesman for United Cacao said this came out of the blue as the company is in regular correspondence with Peru's Agriculture Ministry and received no advanced warning about the critique of the environmental impact of its plantations.

    Regulators with the Alternative Investment Market said they were looking into whether United Cacao broke any trading rules in Britain, but could not comment on specifics of the case. United Cacao floated on London's junior AIM in 2014.

    The company is also listed in Peru on the Lima Stock Exchange (BVL).

    Officials from the BVL did not respond to phone calls or emails from the Thomson Reuters Foundation requesting comment.

    As Peru prepares for a second round of presidential elections on June 5, more than 200 land and resource related conflicts are ongoing in the country, according to government figures. (Reporting by Chris Arsenault, Editing by Paola Totaro; Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women's rights, trafficking and climate change.
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    Widely used U.S. farm chemical atrazine may threaten animals: EPA

    One of the most popular herbicides in U.S. agriculture can be dangerous to animals and fish and leaves behind worrisome residue levels, the Environmental Protection Agency said on Thursday in a draft report that sparked outrage among farmers.

    The agency's assessment of atrazine could lead to tighter regulatory limits on the product, manufactured by Swiss-based Syngenta AG. That could ultimately prevent farmers from being able to use it to control weeds, according to agricultural groups that blasted the report as flawed.

    Atrazine is primarily used on corn, sorghum and sugarcane to fight weeds and increase yields in the Midwest.

    The EPA's review adds to a debate about the safety of leading crop chemicals after a branch of the World Health Organization said last year that the herbicide glyphosate was "probably" able to cause cancer in humans.

    The EPA said atrazine's effects exceeded its "levels of concern" for chronic risk by 198 times for mammals and 62 times for fish. The agency will accept comments on the preliminary findings and consider whether to require label changes after it publishes a final risk assessment.

    The EPA republished the findings after it said it inadvertently posted the same report, along with other related documents, online this spring in an error that has sparked criticism from U.S. lawmakers.

    Syngenta, which is set to be acquired by Chinese state-owned ChemChina, said atrazine is safe and that the EPA report "contains numerous data and methodological errors and needs to be corrected."

    If the EPA's report is finalized as written, it could cause label restrictions so severe that they would "effectively ban the product from most uses," the Iowa Corn Growers Association said.

    "EPA's flawed atrazine report is stomping science into the dirt and setting farmers up for significant economic hardship," said Gary Marshall, executive director of the Missouri Corn Growers Association.

    The U.S. House of Representatives' agriculture committee is looking into EPA actions related to its multi-year review of potential risks tied atrazine and glyphosate.

    The agency said it plans to release its draft cancer risk assessment for glyphosate by year's end.
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    Chile's SQM to boost potassium nitrate production capacity

    Chilean chemicals firm SQM said on Thursday it will increase its potassium nitrate production capacity 50 percent to approximately 1.5 million tonnes per year by building a new plant and improving operating efficiencies.

    SQM said it plans to build a new plant with initial capacity of 300,000 tonnes annually, but added that it still has not determined how much it will cost to develop the new plant.

    Production at the new plant is expected to begin in mid-2018.

    Additionally, SQM said it has been introducing measures to increase operating efficiency at existing plants, which will allow it to boost production capacity by some 100,000 tonnes annually in 2016 and another 100,000 tonnes in 2017.

    "We will maintain high levels of installed capacity for the production of water soluble potassium nitrate for applications in the specialty plant nutrition market, and at the same time we will consolidate our position as the leading providers of nitrates -potassium nitrate and sodium nitrate- that are used for thermal storage in concentrated solar power plants," said Patricio de Solminihac, SQM's chief executive.
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    Steel, Iron Ore and Coal

    Peabody Australia losses blow out to $2.7bn,

    Aurizon's coal haulage business could be hurt if Peabody Australia is forced to renegotiate contracts.

    Peabody Australia's accountants have warned there is "significant uncertainty" over the coal miner's ability to remain a going concern, raising questions over the long term viability of its haulage contracts with rail group Aurizon.

    Peabody's Australian coal mining business has continued to operate following the Chapter 11 bankruptcy filing of its US parent, Peabody Energy, in April.

    But in Peabody Australia's annual accounts, filed with the Australian Securities and Exchange Commission on May 31, the company revealed consolidated net losses had deepened to $2.7 billion, including $1.8 billion of impairments, for the year ending in December compared with a $1.27 billion loss a year earlier. Its liabilities now exceed its assets by $4 billion.

    The coal group also warned that "weak market conditions" had continued since December and that its liquidity would be affected by the Chapter 11 reorganisation because it was unable to draw on some borrowing facilities.

    Alternative funding arrangements are being put in place, including a $US250 million revolving intercompany loan facility, but may not be enough to accommodate all cash outflows, including repayment of operating leases and bank guarantees, Peabody Australia said.

    The group is trying to put in place "stays, waivers and other negotiated outcomes" with counter-parties so it has enough cash to meet its needs. "Some interim arrangements have been agreed and other commercial negotiations are ongoing," Peabody Australia said.

    Peabody Australia's directors said in the report that they believed the company would be able to pay its debts on time. None of Peabody Australia's operations are included in the US bankruptcy filings.

    But the group's auditors, EY, said the changes to Peabody Australia's funding arrangements meant that there was now "significant uncertainty whether the company and/or the consolidated entity will continue as a going concern".

    Peabody Australia is also facing legal action from minority partners in its central Queensland Monto Coal joint venture, who are claiming up to $1.7 billion after alleging the management agreement in the joint venture was breached.

    Analysts are closely watching Peabody Australia's financial performance amid concerns that it may be forced to renegotiate some of its coal haulage contracts with Aurizon.

    Peabody accounts for about 10 per cent of Aurizon's coal haulage volumes, or about 20 million tonnes.

    Credit Suisse analysts this week warned that if Peabody's Australian business became "distressed", an administrator or receiver may try to renegotiate the contracts (which include both thermal and metallurgical coal in NSW and Queensland) at a lower price.

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    Wescoal achieves ‘best ever’ financial results

    South African coal mining and trading company Wescoal has posted its “best financial results ever” as it reins in costs, ramps up operations and sets a stable foundation for sustainable growth. 

    The JSE-listed firm on Thursday posted a 76.1% surge in headline earnings a share to 27.1c apiece for the year ended March 31. Earnings a share rose 66.6% to 26.2c for the year under review. “Late last year, R52-million in capital was raised and these funds were used to derisk and expedite key elements of the Elandspruit project, which realised its steady-state production of two-million tons a year and, with continuous coal supply contracts to State-owned power utility Eskom, formed the foundation for Wescoal’s performance,” said CEO Waheed Sulaiman on Thursday. 

    During the year under review, the group increased production at its flagship Elandspruit colliery from zero to 165 000 t/m within three months, using internal funding mechanisms. Further, optimisation and quality management projects were completed at the processing plant, unlocking Wescoal’s capacity to treat more than 200 000 t/m run-of-mine. 

    Profit after tax for the 12 months to March 31, jumped 78.8% to R51.8-million, owing to a better-quality debtor book, increased productivity and cost savings across the group. Wescoal’s cost-saving strategies and cash flow management enabled the reduction of overall debt and freed up working capital during the year under review. 

    “We reduced operating expenses by R22-million to R168-million, down from R191-million last year,” said CFO Izak van der Walt. Operational earnings before interest, taxes, depreciation and amortisation (Ebitda) increased 42.1% to R152.1-million, with the mining division’s Ebitda 31.2% higher at R124.7-million and the trading division maintaining Ebitda at R31.9-million. 

    “Wescoal trading met expectations in a difficult and volatile environment. Multiple business interruptions and financial stresses experienced by non-Eskom domestic coal consumers impacted negatively on the division resulting in reduced overall revenues,” Sulaiman said. 

    Group revenue remained flat at R1.6-billion, as sales volumes from the trading division muted that of the strong sales reported by the mining unit. Overall sales for the 2016 financial year reached 2.8-million tons, with sales from the trading division down 9% to one-million tons owing to increased focus on managing business risk and shareholder returns, while the mining division reported stable sales of 1.7-million tons for the year under review.
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    EU approves subsidies aimed at closing down coal

    The European Commission has cleared the way for billions of euros in subsidies to be provided to Germany and Spain with the aim of ending coal power in these countries.

    The EU approved nearly €4bn in subsidies to close down Spain’s unprofitable coal mines and Germany’s lignite-fired power stations.

     €2.1bn is to be spent by Madrid in closing 26 coal mines that are no longer profitable. This state aid will be permitted on the condition that the closure of the mines is completed by 2019.

    “The Spanish authorities have given a commitment to recover any aid from mines that have not been closed by that date,” the Commission said in a statement.
    Meanwhile in Germany, Brussels has authorised the government to subsidise the closure of power stations fuelled by lignite.

    Merkel’s cabinet negotiated the closure of eight lignite-burning installations owned by Mibrag, Vattenfall and RWE between 2016 and 2019. Together, these eight power stations represent 13 per cent of Germany’s lignite-burning capacity.

    By 2020, the closure of these power stations will cut the annual carbon emissions of Germany’s electricity sector by 11 to 12 million tonnes. In return, the federal government in Berlin will compensate the electricity companies to the tune of €1.6bn for loss of revenue.

    In a statement the Commission concluded that “the effects of the measure on the electricity market are expected to be limited and that potential distortions of competition created by the aid are largely offset by the environmental benefits”.
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    Joy Global posts surprise profit on cost reductions

    Mining equipment maker Joy Global Inc reported a surprise quarterly adjusted profit and a sequential rise in bookings for the first time in four quarters, sending its shares up as much as 14 percent on Thursday.

    Joy Global, like larger rival Caterpillar Inc, has been cutting costs as plunging commodity prices and slowing growth in markets such as China, the world's top copper consumer, reduced demand for its giant shovels and draglines.

    However, the company acknowledged that mixed economic signals, primarily from China, suggest that there could be a possible near-term improvement in economic output.

    Caterpillar in April had indicated that demand for construction equipment from China was improving.

    Joy Global has noted some signs of life in China, which is a positive for the copper market, J.P. Morgan Securities analysts wrote in a note.

    Citigroup analysts said bookings for the quarter exceeded their expectations.

    Bookings for the Milwaukee, Wisconsin-based company rose 24 percent sequentially in the latest quarter. Bookings last rose in the second quarter of 2015, when it increased 6.4 percent on a sequential basis.

    The company reported a loss from continuing operations of $15.3 million, or 16 cents per share, for the latest quarter, compared with a profit of $56 million, or 57 cents per share, a year earlier.

    However, it earned 9 cents per share on an adjusted basis. Analysts on average were expecting the company to break even on a per-share basis for the quarter, according to Thomson Reuters I/B/E/S.

    Revenue fell to $602 million from $810.5 million. Joy Global has cut jobs and lowered production among other measures to try to adapt to slowing demand.

    The company said it now expected 2016 sales at the lower end of its previous outlook of $2.4 billion-$2.6 billion. Adjusted earnings were also pegged at the bottom end of its previously expected range of 10-50 cents per share.
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    Japan Apr coking coal imports down 10.79pct on yr

    Japan imported 5.17 million tonnes of coking coal in April, falling 28.38% month on month and 10.79% on year, the latest customs data showed.

    Of this, cargoes from Australia marked the highest volume at 2.64 million tonnes, edging down 1.88% from the year-ago level and dropping 14.55% from March.

    In April, coking coal imports from Indonesia dipped 4.18% on year and 42.60% on month to 1.40 million tonnes, and that from Canada dropped 44.41% on year and 30.10% on month to 558,862 tonnes, ranking the second and the third of the total, respectively.

    In the same period, Japan’s coking coal imported from Russia slumped 39.03% on year and 48.93% on month to 246,288 tonnes; while imports from the US edged up 2.83% on year to 242,878 tonnes, almost doubling the 123,946 tonnes in March.
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    Iron ore price rout accelerates

    On Thursday  the Northern China benchmark iron ore price dropped 2.8% to $47.90 per dry metric tonne, the lowest since mid-February according to data supplied by The Steel Index. The steelmaking raw material is down 26% over the past month and is now just holding onto double digit gains for the year.

    Coking coal also had a torrid month after coming close to triple digits in April, only to fall back to the early $80s by the end of May and wiping out all of 2016's gains. Steel prices underperformed iron ore in May, cutting further into margins at Chinese blast furnaces which had brought 50m tonnes of capacity back online.

    Due to a lack of clearer policy direction from Beijing, market uncertainty and price volatility may remain relatively high in the near-term

    The outlook for Chinese iron ore and steel demand was also crimped by a disappointing reading of Chinese manufacturing activity indicating Beijing's economic stimulus program is already running out of steam.

    The Singapore Exchange in a research report says China's steel demand from the real estate and infrastructure sectors has improved in recent months, driven by stimulus measures and state-backed investment. However, due to a lack of clearer policy direction from Beijing, "market uncertainty and price volatility may remain relatively high in the near-term."

    The forward curve on the Singapore Exchange, the first to launch iron ore price derivatives in 2009, looks pretty ugly and even before the recent drop, the consensus forecast of analysts polled by FocusEconomics was a sub-$50 average during the second quarter.
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    Bucking the trend: Australian prospector plans new iron-ore mine

    As most of the world's small iron-ore miners fight for survival, an Australian prospector is preparing to dig a new mine – counting on its high-grade ore and specialist mill buyers to compete in market dominated by mega producers. 

    Quentin Hill, MD of Carpentaria Exploration, says his company's "super grade" concentrate represents some of the world's richest iron-ore pellet feeds, which can yield margins competitive with Vale, Rio Tinto, BHP Billiton and Fortescue Metals Group, which together control 70% of the sea-borne market. 

    Bahrain Steel has signed a nonbinding letter of intent with Carpentaria for three-million tonnes a year, while Mitsubishi and commodities trader Gunvor Group have agreed to buy a further one-million tonnes each. That leaves about 4.5-million tonnes of annual production still to be marketed, according to Hill. 

    While Carpentaria corrals new customers, blueprints for new mines from Australia to Guinea are being abandoned, as iron-ore topples from highs near $200/t four years ago to less than $50/t today. 

    Buyers ultimately determine which independent projects get developed, Hill said, based on the quality of the ore and an ability to operate at a low cost to ride out price cycles. "For us, this is being demonstrated by the recent nonbinding letters of intent that show the strength of international interest for our project," he said. 

    Carpentaria's "soft rock" is different from other harder magnetite ores, which allows a very different approach to the typical iron-ore mining and processing challenges. "The soft rock enables simple liberation of a super grade magnetite product without complex and expensive processing methods," Hill said, referring to the grade of ore. 

    Carpentaria has set a goal of first production by 2020, supplying its high-grade product with an iron content of 70% mostly to electric arc furnace steel mills, known as mini-mills. Mini mills manufacture steel from scrap mixed with pellets – concentrated balls of iron – alleviating the need for the large tonnages of iron-ore supplied to traditional blast oven furnaces. Hill is canvassing steel mills and trading houses, with an eye on the Middle East and Asia.
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    Voestalpine shares jump after company sees profit steady this year

    Voestalpine said it expects to reach an operating profit in its current year close to last year's level, marking a relatively reassuring outlook in the hard-pressed sector and sending its shares up nearly 8 percent.

    Responding to the sector's worst recession in a decade, Voestalpine has been working to increase the share of higher-value products in its output and on internationalising its business.

    The Linz-based company on Thursday reported a higher than expected full-year net profit of 602 million euros ($675 million), with strong demand from the car industry for its special steel and auto parts products offsetting weakness in its metal engineering business which suffered from the deterioration in the oil and gas sector.

    Analysts polled by Reuters had on average forecast a net profit of 572 million euros in the year through March 31.

    Earnings before interest and tax (EBIT) reached 888.8 million euros on sales of 11.1 billion.

    Chief Executive Wolfgang Eder said there were signs of a slight upward trend in its key market Europe, and that the weak Chinese economy had not affected Voestalpine's business so far.

    "The industrial sectors we are working in continue to do well, and this should not change in the course of the year," Eder said on a conference call.

    In a presentation to investors the company said its outlook was for adjusted EBIT and core earnings or EBITDA for the current year to be at least equal to last year's underlying level, even if the economic environment remains challenging.
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    Russian steelmakers complain of bullying by EU officials

    Two of Russia's largest steelmakers NLMK and Severstal have made formal complaints against two EU officials, alleging bullying during an EU investigation into whether China and Russia exported steel at unfairly low prices.

    Tensions between Russia and Brussels have been high since Moscow's seizure of Ukraine's Crimea region in March 2014 that led to economic sanctions.

    Ties have been further soured by an anti-dumping investigation into cold-rolled flat steel products following complaints from European producers that they face unfair competition from Russian and also Chinese rivals.

    The Commission has imposed provisional anti-dumping duties on a number of Russian and Chinese companies - including for NLMK at the highest rate of 26.2 percent and Severstal at 25.4 percent. These were enforced even though the investigation is only set to close by August.

    A letter from the Brussels office of international law firm Dentons Europe to the European Commission, seen by Reuters and dated May 31, alleges that two Commission officials carried out verification visits to NLMK "in such a way as to amount, cumulatively, to bullying, psychological harassment and perceived intimidation".

    The visits were aimed at gathering information for the investigation, the letter said. Such visits are normal practice during EC trade investigations.

    The two EU officials at the trade directorate, case handler William De Ruyck and assistant case handler Jean-Michel Bindner, declined to comment when spoken to by Reuters.

    A European Commission source said it was aware of the concerns raised by NLMK and held its staff to the highest ethical standards but had no further comment.

    Complaints over EU trade investigations are normally about methodology or tariffs imposed rather than allegations such as those made by NLMK and Severstal.

    In an emailed statement sent to Reuters, NLMK said the Commission's investigation into imports of cold-rolled flat steel products was conducted with "flagrant violations of all possible norms and standards, as filed in a separate complaint to the European Commission".

    NLMK said the decision to impose the duties was absurd and it denied allegations it was dumping steel, or selling it at below cost price, on the EU market.

    NLMK said it employs over 2,000 people in the European Union and continues to invest in developing its EU operations.

    Severstal confirmed it had sent a letter of complaint about the behaviour of two EU officials, adding that it had cooperated fully with the investigation and had not engaged in dumping.
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