Mark Latham Commodity Equity Intelligence Service

Thursday 1st December 2016
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    Kondratiev Spring?

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    Reuters carrying Ryan's tax plan.

    Republicans in the U.S. Congress hope to convince President-elect Donald Trump to support an untested strategy of using the tax code to promote exports while slashing corporate taxes, framing it as a way to fulfill his campaign promises to restore blue-collar jobs.

    The plan would be one way to help Republican lawmakers reconcile their long-standing goal of tax cuts with the often populist campaign rhetoric of Trump, who has attacked the North American Free Trade Agreement (NAFTA) and other trade deals as bad for U.S. workers.

    Critics say it risks running afoul of global trade rules and increasing costs for U.S. consumers. Analysts also say that any export gains could be short-lived if the strategy causes the dollar to strengthen, wiping out any price advantage for U.S. products in international markets.

    It is likely to undergo months of debate as part of a larger package of proposals offered in congressional Republicans’ “A Better Way” economic plan, but at least one Trump adviser already seems to have a favorable view of the export-focused "border adjustability" strategy.

    "If we have a border adjustable tax system, that can solve a lot of these trade issues that Trump is talking about," economic analyst and Trump adviser Stephen Moore said in an interview.

    “You’re going to tax what’s imported and not going to tax what’s exported. So we’re going to reduce the trade deficit and we’re going to have more companies come in here,” Moore said.

    Border adjustability's details are not clearly explained in a summary of the “A Better Way” plan from House Speaker Paul Ryan and House tax committee chairman Kevin Brady. But the Tax Foundation, a think tank that closely studies business tax policy, said the strategy would be implemented by making revenue from sales to non-U.S. residents non-taxable, while preventing importers from deducting the cost of goods bought from non-residents.

    Brady told Reuters that border adjustability would "virtually eliminate" any tax incentive for U.S. companies to move operations overseas and encourage foreign investment to return to the United States.

    "We’ve got a great argument, I think,” he said.

    Steven Mnuchin, Trump's pick for U.S. Treasury secretary and co-author of the president-elect’s tax plan, described tax reform on Wednesday as “something that happens absolutely within the first 90 days of this presidency.” Wilbur Ross, Trump's nominee for commerce secretary, did not mention tax policy directly but said the Trump administration’s aim would be to increase exports in part by getting rid of “non-tariff” barriers.

    The perceived winners under a border adjustability approach would include U.S. manufacturers that export heavily, while large-volume importers, such as U.S. retailers, could be hurt. That distinction was already dividing corporate lobbying groups.

    While retailers support an overhaul of the tax code, "the tax on imports proposed in the House blueprint is cause for concern for retailers," said Christin Fernandez, spokeswoman for the Retail Industry Leaders Association, a Washington group.

    The industry group's members include Wal Mart Stores Inc, Home Depot Inc and Target Corp.

    Some version of border adjustability could attract support from Democrats. Senator Ben Cardin, a Maryland Democrat who sits on the Senate Finance Committee and the panel’s tax subcommittee, said he strongly favors the idea. But he called the emerging House plan "very, very questionable" because it would use tax on corporate income rather than a consumption tax.

    Tax lawyers and other experts have said such an approach risks violating long-standing world trade rules that allow countries to adjust their trading positions through indirect taxes, such as a sales tax, but not with direct taxes like the U.S. corporate tax. "It would lead to uncertainty on how it would be treated internationally. And that’s bad for business," Cardin told Reuters.

    Trump's transition team and other Trump advisors on the economy did not respond to requests for comment.

    Brady has said border adjustability would pass muster with the World Trade Organization, which polices global trade. The WTO declined to comment on the plan.


    Border adjustability is only one component of the "A Better Way" blueprint. It would also slash the corporate income tax rate to 20 percent from a top rate of 35 percent; repeal the corporate alternative minimum tax; and let businesses write off capital investments immediately.

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    China liquidity fears trigger exodus from steel to rubber

    An exodus of cash from steel to rubber to zinc threatened a blistering months-long rally across global commodity markets on Wednesday, triggered by fresh concerns about liquidity in China, the world's second largest economy.

    Retail and institutional investors scrambled to exit bullish bets and shore up cash amid government efforts to steady the sliding yuan currency and curb capital outflows.

    Coking coal futures and construction product steel rebar posted their biggest one-day falls on record, while Shanghai lead and zinc led steep falls across base metals and rubber dropped sharply.

    "Both longs and shorts are fleeing the commodities market," said Liu Xinwei, steel analyst at Sublime. "Capital is flowing into risk-free products, as the treasury bond prices fall and yields increase."

    Yuan borrowing costs surged after the central bank pulled funds from the financial system, making investments in commodities and equities more expensive and less attractive.

    Analysts said the selloff was long overdue after a months-long surge in steel and iron ore, China's largest commodity futures markets, which fed into a recent speculative surge in copper, zinc and lead.

    Shanghai copper hit 3-1/2-year highs earlier this month, while steel rebar futures touched their loftiest level since April 2014 on Tuesday.

    Still, the reversal was stunning in both its speed and size, reflecting the major role China's retail investors with an appetite for risk play in global commodity markets.

    Coking coal futures on the Dalian Commodity Exchange and steel rebar on the Shanghai Futures Exchange fell 8 percent and 7 percent respectively, while iron ore dropped 8 percent, one of its worst daily performances since the contract launched three years ago. [IRONORE/]

    Technical and computer-driven selling and book squaring ahead of the month and year-end added pressure for a second straight day of selling, after China's major commodity exchanges introduced new measures to tame the spectacular rally.

    Shanghai zinc and lead plunged 7 percent, while nickel, tin and copper slid 4 percent or more, dragging down London Metal Exchange metals.


    The selling wiped out some of the massive gains in base metals seen over the past few weeks fueled by hopes that U.S. President elect Donald Trump would bost infrastructure spending.

    A reduction in China's steel capacity along with robust infrastructure spending has fueled a 90 percent spike this year in prices of construction steel product rebar.

    Analysts said a reversal was long overdue as the scale of the rally driven by speculative cash was not justified by fundamentals.

    Demand for steel and copper in China, the world's top commodities market, from infrastructure and construction is relatively steady, but supplies are relatively robust.

    "If the cost of borrowing has gone higher, then obviously the bubble will come off a little bit," said Bonnie Liu, General Manager of GF Futures in Hong Kong.

    "Technically we probably will see further selling, but probably we will see buying into the dips will be the strategy for next year."
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    China manufacturing November PMIs better than seen by analysts

    China's economy continued to show signs of stabilization in November with two separate manufacturing surveys on Thursday pointing to better-than-expected growth.

    The official manufacturing Purchasing Managers' Index (PMI), which measures large state-owned factories, came in at 51.7 in November–matching the previous high in July 2014 and the highest since the 53.3 hit in April 2012.

    The official PMI was an improvement from 51.2 in October and beat Reuters analyst predictions of a 51.0 reading.

    The run-up in manufacturing came on the back of a government infrastructure stimulus plan and a property boom that spurred construction activity and steel prices.

    This in turn benefit industrial raw materials including coal used in steel-making, which saw an increase in output that likely helped the official PMI, ANZ economists wrote in a note.

    Notably, large producers of metal products and commodities benefited from a government-driven capacity reduction plan, pushing up the large enterprise PMI by 0.9 percentage point to 53.4 while the small enterprise PMI dropped by 0.9 percentage point to 47.4, noted the ANZ economists.

    This is reflected in the Caixin manufacturing PMI which fell to 50.9 from 51.2 in October, although the gauge also beat analyst forecasts of 50.8. The Caixin report focuses on mid-size companies not included in the official survey.

    Figures above the 50 level suggests expansionary activity while sub-50 levels indicate contraction.

    UBS Wealth Management's chief China economist Yifan Hu told CNBC's "Squawkbox" that she expected the economy to expand by 6.7 percent of 2016–within the government's 6.5-7.0 percent target range.

    "Recently, the whole economy stabilized and accelerated a little bit especially for manufacturing. With the rising of PPI (producer price index), upstream activity picked up very quickly, while downstream retail sales improved quite a lot," Hu said.

    China's October Producer Price index rose 1.2 percent in October to a near five-year high. October retail sales rose 10.0 percent in October on-year.
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    Israeli jets fired two missiles from Lebanese airspace toward the outskirts of the Syrian capital Damascus early Wednesday, the official Syrian news agency said, in a strike on an unknown target that caused loud explosions.

    The news agency, SANA, said the missiles struck the Sabboura area, west of Damascus, and did not cause any casualties.

    Damascus residents reported on social media hearing loud blasts around 2 a.m. The Israeli military declined to comment, but Israel is widely believed to have carried out a number of airstrikes in Syria in the past few years that have targeted advanced weapons systems, including Russian-made anti-aircraft missiles and Iranian-made missiles.

    The arms are believed to be destined for the Lebanese Shiite Hezbollah militant group, a close ally of the Syrian government and a fierce enemy of Israel.

    Israel has been largely unaffected by the Syrian civil war raging next door, suffering only sporadic incidents of spillover fire over the frontier that Israel has generally dismissed as tactical errors of the Assad regime.
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    Anglo American to exit stake in South African miner Exxaro

    British miner Anglo American Plc  said on Wednesday it would sell its stake in South African diversified miner Exxaro Resources Ltd  and use the proceeds to reduce debt.

    Exxaro's controlling black economic empowerment shareholder Main Street 333 Proprietary Ltd will also sell its interest in the miner, Anglo American said.

    Anglo American's stake of 9.7 percent, or 35 million shares, in Exxaro is valued at 3.39 billion rand ($240.62 million) based on Tuesday's close, while Main Street's holding equals 1.66 billion rand.
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    Brazil prosecutors blast lawmakers for gutting corruption bill

    Brazil prosecutors blast lawmakers for gutting corruption bill

    Prosecutors investigating Brazil's biggest-ever graft scandal threatened to resign en masse on Wednesday if a move to gut an anti-corruption bill won approval from legislators as the nation mourns an air disaster.

    The lower chamber of Congress passed the bill in the early hours of Wednesday morning by 450 votes to 1, with changes that would help shield lawmakers from prosecution and weaken the authority of public prosecutors.

    The vote came as Brazil grieves for soccer club Chapecoense following an air crash on Monday night in which 71 people died, including all but three of the team's players and several journalists.

    "In the dead of night, they took advantage of a moment of national mourning and shock to subvert the proposals," said Deltan Dallagnol, leader of the team of investigators probing a massive political kick-back scheme centered on state-run oil company Petrobras.

    Dallagnol accused the lower chamber of seeking to block Operation Car Wash as it comes close to incriminating a "significant number" of lawmakers in the Petrobras scandal.

    The anti-corruption bill originated in a petition signed by 2.5 million Brazilians frustrated at widespread graft.

    Prosecutors on the taskforce called a news conference to denounce the changes to water down the bill.

    "We plan to resign collectively if this proposal is signed into law by President Michel Temer," prosecutor Carlos Fernando Lima said.

    As Brazilians mourned the victims of the Colombian crash, lawmakers removed the legal definition of the crime of illegal enrichment and scratched a clause creating a reward and protection system for informants of corruption.

    Instead, they added penalties, including prison sentences, for abuses of authority committed by judges and prosecutors.

    Brazil's top prosecutor Rodrigo Janot said in a statement the changes were clearly aimed at "intimidating and weakening" the authority of prosecutors and the judiciary.

    The overwhelming support for the bill reflected concern over an impending plea bargain deal with the country's largest engineering conglomerate Odebrecht, in which executives are expected to inform on bribes paid to as many as 200 politicians in recent years.

    The bill still needs Senate approval. Critics of the changes are hoping Temer will veto the measures if it clears the Senate.

    Presidential spokesman Marcio de Freitas said Temer would only decide when and if it came to his desk. "The anti-corruption measures are still in Congress. We must wait to see what gets approved," he told Reuters.

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    Glencore to pay $1 billion dividend in 2017, debt on track

    Commodities trader and miner Glencore said on Thursday it would pay out $1 billion in dividends in 2017, had exceeded asset sales targets and would meet its goal this year to cut net debt.

    The news sent the share price around 2 percent higher by 0830 GMT, adding to gains of more than 200 percent since the start of the year.

    Glencore a year ago was one of the miners hardest hit by a commodity price crash but has been one of the biggest gainers as the markets have recovered this year.

    It had scrapped its dividend and announced a turnaround plan, saying in September 2015 it would sell assets worth $1-$2 billion and then in March increased that target to $4-$5 billion.

    On Thursday, Glencore said it had achieved $6.3 billion in asset sales this year.

    It also said it was on track to cut debt to $16.5 billion to $17.5 billion and gave detail on earlier promises to reinstate a dividend in 2017, saying it would pay out $1 billion next year.

    In addition, it would introduce a new distribution policy in 2018, which analysts estimated could add around another $1 billion depending on performance and commodity prices.

    It would include a fixed dividend of $1 billion, funded from marketing cash flow, and a variable distribution equal to at least 25 percent of free cash flow from the mining, or industrial sector.

    "We have delivered on our commitments and done so in a way that has preserved the long-term earnings capability of the group," CEO Ivan Glasenberg said in a statement.

    Analysts largely agreed with him.

    "There's not much you can fault with it," analyst Hunter Hillcoat of Investec said.

    Analyst Liberum was cautious, saying the dividend news was roughly in line with expectations, although it said some investors may have wanted a dividend earlier.

    Glencore differs from other mining groups in the size of its marketing division, which it says is more resilient during commodity downturns.

    Core profit in 2015 from its trading arm fell only 11 percent while profit from its mining and industrial business slid 38 percent.

    In October, Glencore narrowed its full-year 2016 earnings guidance from trading before interest and tax (EBIT) to $2.5 billion to $2.7 billion and on Thursday, Glencore said it should meet the upper end of that range.
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    Oil and Gas

    Oil prices surge, smash trading volume records as OPEC and Russia agree output cut

    Oil prices shot up 13 percent, smashing trading volume records, after OPEC and Russia cut a deal to reduce output to drain a global supply glut, but analysts warned they could remain modest by historical comparison as other producers fill the gap.

    The Organization of the Petroleum Exporting Countries (OPEC)agreed on Wednesday its first oil output reduction since 2008 after de-facto leader Saudi Arabia accepted "a big hit" and dropped a demand that arch-rival Iran also slash output. The deal also included the group's first coordinated action with non-OPEC member Russia in 15 years.

    "OPEC has agreed to an historic production cut," analysts at AB Bernstein said. "The cut of 1.2 million barrels per day (bpd) was at the upper end of expectations (0.7-1.2 million bpd). An additional cut of 0.6 million bpd from non-OPEC countries could significantly add to what has been announced by OPEC."

    Following the announcements, the price for Brent crude futures LCOc1, the international benchmark for oil prices, jumped 13 percent from below $50 on Wednesday to $52.54 per barrel at 0600 GMT.

    U.S. West Texas Intermediate (WTI) crude futures also rose back above $50, trading at $50.11 a barrel at 0600 GMT.

    "OPEC has delivered an agreement," said Jason Gammel of U.S. investment bank Jefferies. "Bulls got as much as could be hoped for...For the time being, oil prices have received a huge support."

    The development also triggered frenzied trading, with Brent futures trading volumes for February and March, when the supply cut will start to be visible in the market, hitting record volumes.

    The second front-month Brent crude futures contract, currently February 2017, traded a record 783,000 lots of 1,000 barrels each on Wednesday, worth around $39 billion and easily beating a previous record of just over 600,000 reached in September. That's more than eight times actual daily global crude oil consumption.

    March Brent traded 288,64000 lots of 1,000 barrels each, compared with a previous record of 228,7000 lots done in July 2014.

    The records also meant that Brent volumes far exceeded trades in U.S. West Texas Intermediate (WTI) crude futures, which tend to be higher than those for Brent, but which registered only 368,000 and 214,800 lots for February and March, respectively.


    Despite the agreed deal, some doubts over the cut remained. "This is an agreement to cap production levels, not export levels," British bank Barclays said. "The outcome is consistent with... what OPEC production levels were expected to be in 2017 irrespective of the deal reached."

    Meanwhile U.S. bank Morgan Stanley said that "skepticism remains on individual countries' follow-through (on the cut), which is keeping prices below year-to-date highs (of $53.73 per barrel in October) for now."

    Despite the jump in prices, they are still only at September-October levels - when plans for a cut were first announced - and prices are at less than half their mid-2014 levels, when the global glut started.

    Goldman Sachs said in a note following the agreement that it expected oil prices to average just $55 per barrel in the first half of next year.

    OPEC produces a third of global oil, or around 33.6 million bpd, and the deal aims to reduce output by 1.2 million bpd from January 2017, similar to January 2016 levels, when prices fell to over 10-year lows amid ballooning oversupply.

    Analysts said that the cuts would leave the field open for other producers, especially U.S. shale drillers.

    "We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.," Goldman Sachs said.

    U.S. crude production has risen by over 3 percent this year to 8.7 million bpd, as its drillers have aggressively slashed costs.
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    OPEC cuts table

    Image titleOPEC cuts table

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    The Great Shale Barrier.

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    Chevron stops production at Gorgon Train 1, again

    US-based energy giant Chevron has halted production at the first liquefaction train of its giant Gorgon LNG facility in Western Australia.

    This comes just weeks after LNG production was restarted from the Gorgon Train 1 following a shutdown for “minor maintenance.”

    “Production from Gorgon LNG Train 1 has been temporarily halted as we assess some recent performance variations,” a Chevron spokesman said in an emailed statement on Wednesday.

    “Train 2 production is unaffected, and we continue to produce LNG and load cargos,” the spokesman added.

    Production at Chevron’s US$54 billion Gorgon LNG project has been hit several times this year since it shipped its first cargo of the chilled fuel on March 21 .

    The LNG facility faced three production interruptions in March, July, and the mentioned one in the beginning of November.

    Once in full production, the three-train plant on Barrow Island is expected to have a capacity of 15.6 million mt/year

    The Gorgon LNG project is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).
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    Indonesia's Tangguh LNG project has invited market participants to bid for 2017-2019 cargoes.

    The Indonesian firm is offering between eight and 10 liquefied natural gas (LNG) cargoes per year, two trading sources with direct knowledge of the invitation said.

    Bids are due on Dec. 5, the sources said, adding buyers were not obligated to bid for all the supplies and could selectively bid for any number of cargoes.

    Indonesia is oversupplied with the super-cooled fuel, and had 63 uncommitted cargoes of LNG for 2017 delivery from Indonesia's Tangguh and Bontang projects, Wiratmaja Puja, the country's Director General of Oil and Gas, said in October.

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    Centrica offloads Trinidad offshore fields to Shell

    UK’s Centrica has decided to sell all of its gas fields offshore Trinidad & Tobago to Shell.

    In a statement on Tuesday, Centrica said Shell would buy its entire portfolio of gas assets, located offshore the Caribbean Country, for an initial cash consideration of $30 million (£24 million).

    The assets consist of a 17.3 per cent interest in the producing NCMA-1 block and 80 per cent and 90 per cent operated interests respectively in the undeveloped blocks NCMA-4 and Block 22.

    In addition to the initial consideration, Centrica will receive further payments subject to Block 22 and NCMA-4 reaching agreed project milestones, Centrica said.

    “The divestment is in line with Centrica’s strategy to focus its E&P activity in the UK, Netherlands and Norway and to exit its positions in Canada and Trinidad and Tobago,“ the company provided rationale behind the decision to sell.

    The transaction is subject to government and partner approval and is expected to close in the first half of 2017.

    Centrica entered Trinidad & Tobago in 2010 with the acquisition from Suncor of interests in NCMA-1 and Blocks 22, 1a and 1b. It was awarded its interest in NCMA-4 as part of a shallow water bid round in the same year.

    In April 2016 Centrica sold its 80 per cent operating interests in Blocks 1a and 1b to De Novo Energy.

    That Centrica is indeed focusing on Norway, speaks the fact that the company on Wednesday filed the plan for Development and Operation (PDO) of the Oda field to the Norwegian Ministry of Petroleum and Energy.
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    Small rise in US oil production

                                                    Last Week  Week Before  Last Year

    Domestic Production '000.............. 8,699           8,690          9,202
    Alaska ................................................... 522              511            529
    Lower 48 ........................................... 8,177            8,179           8,673
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    Summary of Weekly Petroleum Data for the Week Ending November 25, 2016

    U.S. crude oil refinery inputs averaged 16.3 million barrels per day during the week ending November 25, 2016, 114,000 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 10.0 million barrels per day. Distillate fuel production increased last week, averaging over 5.2 million barrels per day.

    U.S. crude oil imports averaged over 7.5 million barrels per day last week, down by 30,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.7 million barrels per day, 5.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 851,000 barrels per day. Distillate fuel imports averaged 174,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.9 million barrels from the previous week. At 488.1 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 2.1 million barrels last week, and are well above the upper limit of the average range. Both Finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 5.0 million barrels last week and are well above the upper limit of the average range for this time of year.

    Propane/propylene inventories fell 1.9 million barrels last week but are near the upper limit of the average range. Total commercial petroleum inventories increased by 0.5 million barrels last week. Total products supplied over the last four-week period averaged over 19.8 million barrels per day, up by 1.0% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.2 million barrels per day, up by 0.1% from the same period last year. Distillate fuel product supplied averaged 4.0 million barrels per day over the last four weeks, up by 4.1% from the same period last year. Jet fuel product supplied is up 6.3% compared to the same four-week period last year.

    Cushing rises 2.4 mln bbl
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    More LNG exports possible from U.S. ports

    Sempra Energy said it filed the necessary paperwork to hasten the development of a port in Texas that could export liquefied natural gas, seen as a strategic asset.

    Sempra, which has its headquarters in San Diego, filed applications with the U.S. Federal Energy Regulatory Commission for exports and construction of the proposed Port Arthur LNG plant in southeast Texas.

    "Our experience in developing, building and operating energy infrastructure will help us deliver a cost-competitive project to the global LNG market," Octavio Simoes, the president of Sempra's LNG and pipeline unit, said in a statement.

    The project calls for everything from storage tanks to refrigerants and marine loading facilities at the proposed Texas plant.

    A potential site for LNG development in Texas could have export capacity. Sempra last year started the filing process with FERC to export LNG sourced from U.S. reserve basins to countries that have, or will have, a free-trade deal with the United States.

    A special permit is needed to export LNG sources from domestic reserves to countries that don't have a U.S. free-trade agreement.

    A vessel left its port at Sabine Pass, La., in February with the first cargo of LNG ever sourced from U.S. shale areas to the foreign market. Cheniere Energy Partners, which operates the Sabine Pass liquefaction plant, said the shipment marked a new era for the U.S. LNG sector.

    For U.S. allies in Europe, the abundance of natural gas from domestic shale basins could be used as a tool to break the Russian grip on the European economy. European leaders said last year LNG sourced from U.S. shale basins may present a source of diversity with the right infrastructure in place.

    Low energy prices may curb some options for exports. In July, a joint venture led by Royal Dutch Shell said capital constraints were in part behind a decision to delay a final investment decision for a gas export facility in Canada.
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    Magnolia LNG granted non-FTA export approval

    Perth-based LNG Limited on Thursday said its Magnolia LNG project has been granted authorization by the U.S. Department of Energy to export liquefied natural gas to non-FTA countries.

    Greg Vesey, LNG Limited managing director and CEO said that the authorization to export the chilled fuel from the proposed facility in Lake Charles, Louisiana to countries with which the United States has not entered into a free trade agreement was the final piece of regulatory framework for the project.

    Magnolia LNG has already been granted authorization to site, construct and operate the liquefaction and export terminal in April.

    Vesey added that the company is well underway in progressing on the final offtake milestones to enable it to move the project into the construction and operations phases.

    The proposed Magnolia LNG facility would have up to four trains each with a liquefaction capacity of 2 mtpa or more, two 160,000-cbm storage tanks, ship, barge and truck loading facilities and supporting infrastructure.
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    Alternative Energy

    Contract for world’s cheapest solar power signed for Dubai mega-project

    DEWA has signed a US$29.90/MWh PPA with Masdar for the 800 MW third phase of the Mohammed bin Rashid Al Maktoum solar park.

    The United Arab Emirates (UAE) has seen some of the lowest-price solar power contracts in the world, which has led to a combination of disbelief and skepticism about the viability of the projects awarded.

    However, today one of these mega-projects took another step forward, with the Dubai Electricity and Water Authority (DEWA) signing a power purchase agreement (PPA) with the Abu Dhabi Future Energy Company (Masdar) for the third phase of a massive solar park in Dubai for a shocking US$29.90 per megawatt-hour.

    This PPA for the third phase of the Mohammed bin Rashid Al Maktoum Solar Park is the lowest price PPA globally known to pv magazine staff.

    In analyzing how Masdar can make a profit on such a low PPA, Bloomberg New Energy Finance Head of Solar Analysis Jenny Chase has cited several factors, including low capital and operating costs, capacity factors of 25%, and the ability to access debt at an interest rate below 4%. (Note: This project and others in the region were examined in detail in the November print edition of pv magazine.)

    And while US$29.90 sets a new benchmark, bids as low as US$24.20/MWh were submitted for an auction in Abu Dhabi in September.

    When complete, the Mohammed bin Rashid Al Maktoum Solar Park will be 3 GW in capacity. In July developers closed on financing for the second 200 MW phase, which they expect to complete in April 2017.

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    China to use Australian solar thermal technology

    China would use Australian solar thermal technology to help reach its clean energy targets, after a licensing agreement was reached between Chinese company Thermal Focus and the Commonwealth Scientific and Industrial Research Organisation (CSIRO), Xinhua reported.

    The agreement was announced at the Asia-Pacific Solar Research Conference at the Australian National University on November 29.

    China aims to produce 5 GW of concentrating solar thermal electricity by 2020.

    Larry Marshall, chief executive of the CSIRO, said the agreement would enable Thermal Focus to make, sell and install the CSIRO's patented solar heliostat technology and design software in China, while the shared revenue stream will be used to fund other climate research back in Australia.

    The heliostat technology uses a number of mirrors to concentrate reflected sunlight onto a receiver. The resulting beam is then used to heat "molten salt" which generates a super hot steam which, in turn, generates electricity through a turbine.

    The mirrors follow the path of the sun during the day, meaning the technology is one of the most efficient at producing electricity.

    Zhu Wei from Thermal Focus said the CSIRO's pedigree in solar thermal technology meant its designs were the most attractive to the Chinese market.

    "CSIRO's solar thermal technology combined with our manufacturing capability will help expedite and deliver solar thermal as an important source of renewable energy in China," he said.
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    ERCOT sets new wind output record of 15,033 MW

    The Electric Reliability Council of Texas set a new wind-generation output record of 15,033 MW Sunday, topping 15,000 MW for the first time, the grid operator said.

    The record was set at 12:35pm CST Sunday and represented about 45% of total ERCOT electric demand at the time, according to an ERCOT news release.

    More than 8,800 MW came from wind farms in West and North Texas, 3,800 MW from the South region, such as the Gulf Coast, and about 2,300 MW from the Panhandle region, according to ERCOT.

    "We saw high wind output throughout the day, ranging from just over 10,000 MW during the late night hours to this peak output during the noon hour," ERCOT Senior Director of System Operations Dan Woodfin said in the news release. "Over the years, ERCOT has taken a number of steps, such as improving renewable generation forecasts, to allow us to operate the grid reliably on days like this."

    The portion of load served by wind ranged from about 35% to more than 46%, averaging nearly 41% throughout the day Sunday.

    ERCOT wind generation has totaled 137,300 MWh/d in November to date, which is down 6% from November 2015's average of 145,980 MWh/d.

    There is more than 17,000 MW of installed wind generation capacity in ERCOT. That number is expected to top 19,000 MW by the end of the year, ERCOT said.

    The previous wind generation output record of 14,122 MW was set November 17. The current wind percentage of load record is 48.28%, set on March 23.
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    Dutch government proposes 33 percent increase in renewables spending for 2017

    The Dutch government on Wednesday proposed a 33 percent increase in its budget for renewable energy projects in 2017, as it attempts to catch up after lagging on its 2020 emission reduction targets.

    In a letter to parliament, Economic Affairs Minister Henk Kamp said the government plans to spend 12 billion euros on subsidies for solar, wind, geo-thermal and other projects in 2017, up from 9 billion euros in 2016 and just 3.5 billion euros in 2015.

    The Netherlands came under intense criticism in 2015 when a review showed just 5.6 percent of its energy had come from renewable sources the previous year and coal use was at a record high after three major new coal plants were brought on line.

    The European Union targets renewables production of 20 percent by 2020.

    In June 2015, a court found the government had also fallen behind on its greenhouse gas emission reduction commitments under the Kyoto protocol and ordered it to take steps to meet its target of a 25 percent reduction from 1990 levels by 2020.

    Several studies attributed the country's poor performance to erratic subsidy policies in 2006-2013 and underspending generally, prompting the escalation.

    In October of this year, Prime Minister Mark Rutte said that subsidy increases were paying off, particularly in wind energy, and the 2020 targets were "within reach" after all, though he stopped short of saying they would actually be achieved.
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    Shell studies green energy deals to prepare for future after oil

    Royal Dutch Shell, the world's second-biggest publicly listed oil company, is studying acquisitions in the green energy sector, its CEO told Reuters, as it bows to shareholder demands for a strategy beyond fossil fuels.

    Shell, which has a market value of $200 billion, produces two percent of the world's oil and gas but rapid technological change coupled with policies to protect the climate have kick-started a shift in energy markets that has put enormous pressure on oil companies to plan for a time after fossil fuels.

    "The idea that you can just be a very clever observer and step in when the moment is right, forget about it," Shell Chief Executive Ben van Beurden told Reuters.

    "I am convinced that in this space we will play an active role, a leading role and we will plan acquisitions in it."

    Major investors, including Dutch pension fund PGGM, have criticised Shell's climate change policies in the past, saying the company should do more to mitigate climate change risks.

    "We don't just want them to pay lip service and do it because the industry is under pressure," said Rohan Murphy, co-manager of Allianz' Global Energy Fund, a Shell shareholder.

    "Shell do seem to be taking the issue of a less hydrocarbon dependent world seriously and are looking at it properly rather than just talking about becoming greener," Murphy said.

    Shell owns about 500 megawatts (MW) of onshore wind power capacity in the United States and has a growing biofuels business in Brazil which produces ethanol from sugar that is mixed with petrol and diesel to reduce carbon dioxide emissions.

    It also recently bid to build an offshore wind farm in the Netherlands in a consortium with two other Dutch companies.

    "Of course we do believe in renewables but probably more in building the utilities and integrating them into our existing operations," van Beurden said.

    That is where Shell's strategy appears to diverge from French oil company Total, which is often referred to as one of the most progressive oil company when it comes to moving away from fossil fuels.

    Earlier this year, Total splashed out $1.1 billion to buy Saft, which makes batteries to store solar energy, and bought a stake in AutoGrid, a startup that has developed a platform to optimize the use of home energy appliances.

    Total is also majority shareholder in SunPower, a manufacturer of highly efficient solar panels.

    While Total is focusing on investment in green energy technologies, van Beurden hinted that Shell would become an electricity and gas provider, through the integration of utilities. He said there may be value in delivering a service, rather than being the owner of a technology.

    In Britain, so-called demand aggregation is already a profitable business model. Aggregators secure commitments from businesses to cut their energy consumption and in return earn a fee from the network operator.

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    ChemChina setting up $5 billion fund to help finance Syngenta bid

    ChemChina setting up $5 billion fund to help finance Syngenta bid

    China National Chemical Corp (ChemChina) is setting up a fund that will aim to raise $5 billion to help finance its purchase of Swiss seeds group Syngenta, two sources with direct knowledge of the matter told Thomson Reuters publication Basis Point.

    The financing structure entails investors committing to the fund, which would in turn own equity in Syngenta, the people said - a move that would help ChemChina lower the debt burden of its planned $43 billion acquisition.

    Overall, ChemChina is targeting about $25 billion in equity commitments to help fund the largest ever foreign purchase by a Chinese firm, the people added.

    Sources have previously said it has $32.9 billion in total debt commitments arranged with Chinese and international lenders. That level of gearing is, however, viewed as too high for comfort by lenders, investors and analysts alike.

    ChemChina has hired state-run Postal Savings Bank of China (PSBC) (1658.HK) to arrange the fund, the people added. The mandate is a coup for the bank as it only set up its investment banking department about a year ago.

    The sources declined to be identified as the discussions are confidential. Representatives for ChemChina did not respond to telephone and emailed requests for comment. PSBC declined to comment.

    In addition to the planned fund, ChemChina has secured $5 billion in equity from Feng Xin Jian Da LP, a fund managed by CITIC Trust Co Ltd, a unit of conglomerate CITIC Ltd, sources have previously said.

    It was not immediately clear in what other ways ChemChina aims to boost the equity financing portion of the deal.
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    Precious Metals

    China Curbs Gold Imports To Slow Capital Flight

    While all eyes were on India (as rumors swirled of an imminent gold import ban), The FT reports that China curbed gold imports in the wake of government attempts to clamp down on capital leaving the country, according to traders and bankers.

    Some banks with licences have recently had difficulty obtaining approval to import gold, they said — a move tied to China’s attempts to stop a weakening renminbi by tightening outflows of dollars, the banks added.

    The hit to gold imports comes as China tightens restrictions on overseas deals by state-owned companies in an effort to limit capital outflows that has seen the renminbi fall to its lowest against the dollar in eight years.

    As The FT notes, quotas for importing gold have been cut during quarterly assessments this year. Banks also have dollar quotas, some of which must be used when buying gold.

    The limits on imports bite as the weakening renminbi raises Chinese investors’ interest in gold. Lower gold prices have also triggered more buying.

    The combination of tighter quotas and an uptick in demand caused the premium for gold in China over the international gold price to jump as high as $46 in the past few weeks, according to data from Wind Information. Normal levels are about $2 to $4.

    In an effort to ease that premium, Chinese banks have been allowed to import gold under their quotas using the offshore renminbi, one banker said. Although still high, the premium for gold on the Shanghai Gold Exchange has since fallen to $26, according to Wind data.

    If the restrictions on imports are sustained that could raise questions about China’s moves to open its gold market to international traders.The world’s largest consumer of the precious metal has moved to have a greater voice over the price of gold.
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    Base Metals

    Spot TCs for Chinese zinc smelters dip to $70-$90/mt in Nov as concentrate supply tightens

    Spot treatment charges for Chinese zinc smelters dipped to $70-$90/mt in November from $80-$90/mt in October, as supply of zinc concentrate tightened globally, Chinese brokerage Ruida Futures, based in Xiamen City, said in its report on the zinc sector Wednesday.

    In August and September, TCs were higher at $100-$110/mt and $90-$100/mt, respectively.

    Meanwhile, TCs for domestic zinc concentrate in November were in the Yuan 4,200-4,400/mt ($610-$639/mt) range, averaging Yuan 4,300/mt ($625/mt), down Yuan 200/mt from October, the brokerage data showed.

    TCs, the fees paid to smelters by miners, for converting zinc concentrate into refined zinc, are a main source of revenue for smelters.

    Meanwhile, Jiangxi Copper's subsidiary, Chinese brokerage Jinrui Futures, said in its zinc sector report issued late Tuesday that with the fall in TCs for domestic zinc concentrate, more market players have asked for imported ones, but that due to imported zinc concentrate being in the hands of a few stock owners, TCs for imported concentrate are getting pushed down as well.

    Jinrui said as it is now more difficult to source zinc concentrate from the domestic market, some Chinese smelters have begun to import the concentrate and more of it is expected to be imported into China in the next two months.

    China's national zinc concentrate import in the first ten months of this year was 1.54 million mt, down 43% year on year, data from the General Administration of Customs showed.

    State-run metals consultancy Beijing Antaike said at a zinc sector seminar in Chengdu City in mid-November that Chinese zinc smelters have concentrate stocks just enough for processing for half a month in November, compared with two-month processing stocks in early-2016. The agency forecast domestic zinc concentrate supply to be most tight from the fourth quarter of this year to the first quarter next year, but noted that with high-altitude mines overseas set to resume production by the second quarter of 2017, the tightness in supply of concentrate will ease by then.

    In early-November, world's major zinc producer Nyrstar cut its forecast for this year's zinc concentrate output to 90,000-110,000 mt, from the previous forecast of 130,000-160,000 mt. The Belgian producer said spot TCs have continued to dip year to date because of reduced availability of zinc concentrate.

    Another international zinc miner, Glencore, also posted a 30% year-on-year drop in its own-sourced zinc output for the first three quarters of this year, at 789,200 mt, according to the miner's third quarter report issued early-November.

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    Sherritt cuts production forecast for Moa nickel JV after bridge collapse

    Sherritt International Corp cut its full-year production forecast for its joint nickel venture in Cuba following the collapse of a municipal bridge there last week that killed four workers.

    The Canadian miner lowered its finished nickel production forecast for the Moa operation to 32,500-33,000 tonnes, from 33,500-34,500 tonnes.

    However, Sherritt said that its finished cobalt production forecast remained unchanged as higher volumes of third-party feed offset the impact of reduced production.

    Sherritt owns 50 percent of the Moa operation with General Nickel Company SA of Cuba.

    Last week, Sherritt said the workers had died when the bridge they were repairing collapsed. The bridge had been damaged by Hurricane Matthew in October and workers have been repairing the structure since late last month.

    The bridge crosses a shallow river and is the main access from the local town and port of Moa to the mine site and an acid leach plant.

    Sherritt said on Tuesday that a temporary bypass over the river is in place.

    Plant operations have resumed, although transport is affected by longer travel times and the need to carry lighter loads, Sherritt said.

    The Toronto-based company said that the timing of more permanent repairs to the damaged bridge or a replacement of the bridge is still unknown.

    Shares of Sherritt were down 9.3 percent at C$1.17 in late afternoon trading.
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    Steel, Iron Ore and Coal

    Large coal bases to take 95pct of China's total coal capacity

    China planned to expand production capacity of large coal production bases to over 95% of the nation's total by 2020, one senior official with the Ministry of Land and Resources (MLR) said on November 29.

    The official didn't give figures for present capacity of these large coal bases nor their share of the national total.  

    China has said previously it aimed to make 14 large coal production bases to account for 95% of the nation's total production capacity over the 13th Five-Year Plan period (2016-2020).

    The 14 large coal bases, mostly located in coal-rich north and northwestern regions, produced 3.36 billion tonnes of coal in 2013, said Wu Xinxiong, director of the National Energy Administration, in early 2014.  

    China also planned to reduce the number of operating coal mines to 6,000 or so by 2020, from just above 10,000 mines early this year, with advanced mines contributing 40% of the total capacity.

    The government aimed to build 103 national-level energy resource bases in the next five years, supported by 267 state-planned mining areas, according to a five-year plan on development of mineral resources released by the MLR on the same day.
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    Beijing to bid farewell to coal mining in four years

    China's capital Beijing will close its last three coal mines in the next four years and entirely quit coal mining by 2020, Xinhua reported, citing sources with the Beijing Municipal Commission of Development and Reform as said on November 30.

    In 2016, Beijing closed two coal mines with a total annual production capacity of 1.8 million tonnes per annum, said Li Bin, deputy director of the coal management office at the commission.

    By 2020, Beijing will completely bid farewell to the coal mining industry, Li said.

    Statistics show that Beijing's coal consumption in 2010 was over 26 million tonnes, with the number declining to about 12 million tonnes in 2015.

    The central and the Beijing municipal governments allocated more than 160 million yuan ($23.2 million) in subsidies to local coal workers and miners in 2016, said Geng Yangmou, chairman of Beijing Haohua Energy Resource.

    Geng said the coal mining areas will be developed, as new industries are expected to be brought in.

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    CITIC aims to cut costs at Sino Iron project, ramp up output

    CITIC Pacific Mining's Sino Iron project in Western Australia is ramping up production and expects to export more than 10-million tonnes this year, its chairman said on Tuesday, adding the goal was to become the world's lowest cost producer.

    Chairman Zhang Jijing of CITIC Pacific Mining, a wholly-owned subsidiary of Hong Kong-listed CITIC, said production needed to be increased as quickly as possible to achieve economies of scale.

    "Our objective is to become the lowest cost, large scale magnetite (iron ore) producer in the world," he said at a mining conference in London.

    Analysts have labelled it one of the world's costliest mines and a commercial disaster by industry standards as it wrestled with budget over-runs and delays.

    But for China, the Sino Iron project, is central to Beijing's strategy, as its domestic industry dries up, to ease its dependence on the world's dominant low cost iron oreproducers, such as BHP Billiton and Rio Tinto.

    CITIC Pacific shipped its first ore to one of its Chinese steelmills at the end of 2013.

    Zhang said all six production lines have been commissioned, with the last one starting six months ago and the mine is ramping up production to export 10-million tonnes this year.

    At full capacity, it would produce 24-million tonnes of iron-ore a year, compared with the 1.5-billion-tonne world market.
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    Goa iron-ore mines slow to resume production

    Optimism over getting more than 40 iron-ore mines in the western Indian province of Goa to resume operations is fast receding, owing to procedural delays.

    Despite a government announcement two months ago that 40 iron-ore mines will resume operations as monsoon rains were over, mines are slow in getting back into production.

    At least two Goa-based mine owners have said that the number of mines resuming operations will be short of government’s expectations as little is being done to relax restrictive policies

    Miners have voiced disappointment that Goa has not relaxed a ban on dumping rejects outside lease hold areas. They believe the ban should be lifted as depressed demand for iron-ore fines in China is forcing miners to carry higher stocks and rejects. Alternatively, miners say they will have to cut back production as handling rejects will be a formidable challenge.

    Goa miners are also hesitant to resume operations as there is no clarity on the process of distribution of production among various mines from the cap of 20-million tons a year set by India’s Supreme Court.

    Miners say that some owners are ready to resume production, but that they have not received their production quota from the 20-million-ton-a-year allocation, while others have been allocated a quota, but have not yet resumed production.

    The Goa government is reportedly considering redistributing already allocated production quotas to get more mines into production. Under the new re-distribution policy currently in the works, the government will probe why mines that have been allocated a quota have not resumed production. If replies are not found to be acceptable, the government plans to withdraw the quota limits from nonoperational mines and pass them on to operational mines to enable a faster production ramp-up.

    On Monday, the Goa government allocated iron-oreproduction quotas to four more mines, enabling them to resume production. A government official said that production limits set for these four mines were allotted proportionately and after factoring in the 20-million-ton-a-year cap.

    Salgaonkar Mining Industries was allocated a quota of 0.046-million tons, Salitho Ores a quota of 0.277- million tons, Sova Iron Ore 0.346-million tons and Marzook and Cadar 0.115- million tons.

    A total of 16-million tons have now been allocated, leaving another 4-million tons left for yet to be operationalised mines in the province, the official added.
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    China's key steel mills daily output up 1.2pct in early Nov

    Daily crude steel output of China's key steel mills rose 1.22% from ten days ago to 1.72 million tonnes over November 1-10, according to data released by the China Iron and Steel Association (CISA).

    The rise was mainly due to resumption of production at steel mills, stimulated by enlarging profit margin.

    The country's total crude steel output was estimated at 2.27 million tonnes each day on average during the same period, edging up 1.04% from ten days ago but falling 0.87% from the month-ago level, the CISA said.

    During November 1-10, daily output of pig iron at key steel mills stood at 676,600 tonnes, rising 1.56% from previous ten days; and that of steel products dropped 4.31% from ten days ago to 1.62 million tonnes.

    By November 10, stocks of steel products at key steel mills increased 3.52% from ten days ago to 12.91 million tonnes, the CISA data showed.

    As of November 25, total stocks of major steel products in China stood at 7.86 million tonnes, up 0.9% on week, the first rise in nearly six weeks, and the operating rate of furnaces slipped for the fifth consecutive weeks to 76.5%.

    Domestic demand for steel in traditionally slack season was stable recently, boosted by production halts and cuts, as well as climbing furnace maintenances.
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