Mark Latham Commodity Equity Intelligence Service

Wednesday 9th September 2015
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    China changes GDP data: This could shock markets!

    China's statistics bureau said on Wednesday it has changed the way quarterly gross domestic product data is calculated, a move it calls a step to adopt international standards and improve the accuracy of Chinese numbers.

    There has long been widespread scepticism about the reliability of Chinese data, especially as the government has sought to tamp market expectations of a protracted slowdown in the world's second-largest economy.

    The move by the National Bureau of Statistics (NBS) comes after China said in July its annual growth rate in the second quarter was 7.0 percent, the same as in January-March. Many economists believe the April-June pace was lower.

    The combined economic output of China's provinces has long exceeded that of the national level compiled by the bureau, raising suspicion that some growth-obsessed local officials have cooked the books.

    Now, China is calculating GDP based on economic activity of each quarter to make the data "more accurate in measuring the seasonal economic activity and more sensitive in capturing information on short-term fluctuations", the NBS said.

    Previously, China's quarterly GDP data, in terms of value and growth rates, was derived from cumulated figures rather than economic activity of that particular quarter, the bureau said.

    The new methodology - in line with that of major developed countries - will pave the way for China to adopt the International Monetary Fund's Special Data Dissemination Standard (SDDS) in calculating GDP, it said.

    The bureau, which has revised some historical quarterly GDP figures for 2014 and prior years retrospectively, said it will publish third-quarter GDP data, due out on Oct. 19, based on the new methodology.

    The NBS has revised down year-on-year economic growth rates for every quarter last year by 0.1 percentage points, following its revision on Monday of the 2014 annual economic growth rate to 7.3 percent from 7.4 percent.

    The bureau has also revised down growth rates in the first two quarters of 2012 by 0.1 percentage points respectively and revised up the fourth quarter by 0.1 percentage points.

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    Bulgaria Blocks Russian Access To Its Airspace For Syria Flights

    On Monday we flagged a notable escalation in the build up to the geopolitical “main event” in Syria where, thanks largely to the West’s ambition to break Gazprom’s leverage over Europe, the US and Russia are one “accidental” run-in away from taking the “proxy” out of the term “proxy war.”

    With the Kremlin now ramping up its military presence around the Assad stronghold of Latakia, the US is scrambling to do anything and everything in its power to slow the Russian build up - including putting pressure on Greece to deny Russia the use of its airspace for supply flights to Syria.

    This isn’t the first time Greece has found itself in the middle of Cold War 2.0, as Athens (and notably Panagiotis Lafazanis) used Greece’s geographical position to field competing gas pipeline bids from Washington and Moscow during the height of the country’s fraught bailout negotiations.

    So while we wait for Greece to pick a side between the US and Russia by either allowing Moscow to use its airspace on the way to supplying Assad or else snubbing the Kremlin and jeopardizing a potentially lucrative gas deal,at least one country has been quick to make a decision: Bulgaria...

    Why, you ask? According to a spokeswoman, the Bulgarian foreign ministry has "enough information that makes [it] have serious doubts about the cargo of the planes, which is the reason for the refusal."

    What's particularly amusing here is that all of the above (Greece's reluctance to immediately acquiesce to Washington's demands, Bulgaria's move to deny Russia use of its airspace, and the whole Syrian civil war) is the direct result of energy disputes. As mentioned above, Greece is being pulled between The Southern Gas Corridor and the Turkish Stream, while the South Stream debacle means Bulgaria has no reason not to side with the West. And of course the entire crisis in Syria all comes down the proposed Qatar-Turkey line.

    So once again, it all comes down to natural gas and if the conflict in Syria has taught us anything so far, it's that when it comes to energy, the world's most powerful nations are willing to sacrifice hundreds of thousands of lives to protect their interests.
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    Oil and Gas

    Expectations of Saudi oil shake-up stir uncertainty

    A shake-up of Saudi Arabia's oil leadership by King Salman has introduced a new element of unpredictability to its energy policymaking at a moment when Riyadh is grappling with slumping crude prices and its war in neighbouring Yemen.

    State oil giant Aramco has been without a permanent chief executive since April, when Khalid al-Falih was made health minister, and the old Supreme Petroleum Council, where energy policy was historically made, was abolished in January.

    While the world's top crude exporter has always prized stability and consistency in crafting oil policy, the changes, alongside a shift in market strategy that contributed to the world price slump, have left analysts and traders guessing as to King Salman's long-term vision.

    The main tenets of Saudi oil policy - maintaining the ability to stabilise markets via an expensive spare-capacity cushion and a reluctance to interfere in the market for political reasons - are still set in stone, say market insiders.

    But the uncertainty has led to speculation over the fate of both veteran Oil Minister Ali al-Naimi and the wider composition of the kingdom's energy and minerals sectors, with rumours abounding that a sweeping restructure could be imminent.

    "There will be changes (at the oil ministry), but no one knows when or what will happen next. It could be tomorrow, next week or a month from now," said a Saudi insider.

    "The decisions are being taken by a small circle of people and a few advisers."

    The key person in that small circle is Prince Mohammed bin Salman, the young deputy crown prince who without having any previous oil experience has emerged since his father's accession to power as the most powerful figure in Saudi economic and energy policy.

    The prince heads both an economic development supercommittee and a new council overseeing Aramco, making him the first royal ever to directly supervise the state oil giant, the world's biggest energy company.

    The sense of unpredictability has only been sharpened by the wider geopolitical and market climate.

    "It's anybody's guess what will happen next," said a Western diplomat in Riyadh.
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    UK oil, gas output to rise for first time in 15 years

    British oil and gas production is set to rise for the first time in 15 years this year as investment in more efficient technology pays off, the industry's association said on Wednesday.

    Britain's oil and gas output has more than halved in the past 10 years due to easy-to-reach resources running low and a lack of investments in new areas.

    This trend will likely reverse this year when production is expected to rise 3-4 percent, the first increase since Britain's oil and gas output peaked in 2000, lobby group Oil & Gas UK said.

    "Despite a very difficult business climate we are beginning to turn a corner," Mike Tholen, economics director for Oil & Gas UK, told Reuters at the launch of the association's yearly economic report.

    "We are turning a corner in terms of the massive spend on North Sea fields pulling production up with it and on top of that we're now begininig to get to terms with the cost base to find ways to make businesses cope in a much weaker environment."

    Preliminary government data showed oil and gas output over the first six months of this year rose 3 percent compared with 2014.

    The increase comes after years of investments in new technologies that have meant new fields are run more efficiently.

    However, the recent slump in oil prices has tightened oil companies' purse strings and Oil & Gas UK expects capital expenditure to fall to 10-11 billion pounds ($16.91 billion)this year, down from 14.7 billion pounds last year.

    Low oil prices in combination with high operating costs in the North Sea have caused many operators to question the economic viability of continuing to run some of their oldest fields.

    Maersk Oil said last month it would file for early decommissioning permission for its Janice field in the North Sea.

    "Inevitably there will be some more fields decommissioned as a result of low prices," Tholen said.

    "It's a significant concern but it's not the edge of the cliff."

    Bringing down operating costs in the North Sea is a key priority for operators and the British government which hopes a rebound in production will also increase tax revenue.

    Since the start of oil production in the 1970s, the industry has paid over 330 billion pounds in taxes to the British government.

    Oil & Gas UK expects operating costs to fall by more than 2 billion pounds, or 22 percent, by the end of 2016 as companies work more efficiently.
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    Oil Default Wave Seen Spreading to China With 40-Cent Bonds

    The wave of defaults and debt restructuring hurting oil bonds around the world looks set to reach China.

    Notes of oil services firms are the nation’s worst performers this quarter with a 5.9 percent slide amid record industry debt and slumping crude prices, according to a Bank of America Merrill Lynch index of foreign-currency notes. Explorers have lost 1.4 percent. Some private-sector companies have dropped to distressed levels with the 2019 notes of Honghua Group Ltd. at38.5 cents on the dollar and Anton Oilfield Services Group’s 2018 paper at 44 cents.

    China’s quest to secure resources for the world’s second-biggest economy has sparked a fourfold expansion in petroleum industry debt in the past decade to 1.3 trillion yuan ($205 billion). Crude’s14 percent slide this year is adding to stress on energy firms’ finances. Standard & Poor’s says oil and gas companies account for 28 percent of all corporate defaults globally this year, and that they are among the most vulnerable to failures in coming months.

    “We see the possibility of a default scenario for private Chinese oil companies in the next year or so given their stretched liquidity," said Annisa Lee, credit analyst at Nomura Holdings Inc. "Some of them will run into trouble if banks don’t roll over their loans. They could resort to debt exchanges to cut coupon costs as well as to extend maturities.”

    Obligations at Chinese oil and gas companies have shot up to 29 percent of assets from 19 percent, data compiled by Bloomberg show. The situation is especially tough for private firms because they have less access to funding than state-owned peers, saidSandra Chow, a high-yield bond analyst in Singapore at CreditSights Inc.
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    Repsol Postpones Oil Refinery Work in Spain as Margins Climb

    Repsol SA, Spain’s largest oil company, said it will postpone maintenance at its joint-biggest refinery, fueling speculation that collapsing crude prices are boosting margins and encouraging European plants to limit routine works.

    The company will carry out work at the 220,000 barrel-a-day plant on the Mediterranean Sea at some point in 2016 rather than in the fourth quarter, spokesman Kristian Rix said by phone on Tuesday. He didn’t say if the entire plant will halt or give a reason. The works, when they happen, will last about 45 days and take about 110,000 barrels a day offline, according to Wood Mackenzie Ltd., an Edinburgh-based energy consultant.

    The oil-price slump has cut costs for refiners while simultaneously helping boost demand for fuels, buoying profits. From the North Sea to West Africa, crude supply in the Atlantic is poised to jump next month, according to loading programs obtained by Bloomberg. Repsol’s refining margins rose to $9.10 a barrel in the second quarter from $3.10 a barrel a year earlier, the Madrid-based producer said July 30.

    “They must make hay while the sun shines,” said Steve Sawyer, a consultant at FGE Energy in London. “It doesn’t come around very often for a refiner, so it doesn’t surprise me at all.”

    Low oil prices and demand for heating fuel will support margins for the rest of the year, Lydia Rainforth, an analyst at Barclays Plc, said in a research note Tuesday. Its estimate for margins in northwest Europe, the region’s oil hub, was $5.10 a barrel last week, compared with a negative figure for last year. Its estimate for the Mediterranean was $6.80 a barrel last week.
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    Japan Aug average LNG spot price rises to $8.10/ down again

    Liquefied natural gas (LNG) spot prices for buyers in Japan, the world's top consumer, averaged $8.10 per million British thermal units (mmBtu) in August, up 20 cents from the previous month, trade ministry data showed on Wednesday.

    The rise was largely in line with Asian spot prices, which were mostly higher last month than they were in July.

    The price of Asian spot cargoes was around $7.50 per mmBtu on Friday, down 50 cents from a month ago, underscoring how markets have shifted into an era of oversupply.

    The trade ministry surveys spot LNG cargoes bought by Japanese utilities and other importers, while excluding cargo-by-cargo deals linked to benchmark prices such as the U.S. natural gas Henry Hub index.

    It only publishes a price if there is a minimum of two eligible cargoes reported by buyers. Prices are converted to a delivery-ex ship basis.

    The following table lists the monthly average prices in mmBtu for contracted and arriving spot LNG cargoes.
      Year   Month   Contract price   Arrival price
      2015     Aug            $8.10           $7.70
      2015    July            $7.90             n/a
      2015    June            $7.60           $7.60
      2015     May              n/a             n/a
      2015   April            $7.60           $7.90
      2015     Mar            $8.00           $7.60
      2015     Feb            $7.60          $10.70
      2015     Jan           $10.20          $13.90
      2014     Dec           $11.60          $15.10
      2014     Nov           $14.40          $14.30
      2014     Oct           $15.30          $12.40
      2014    Sept           $13.20          $11.30
      2014     Aug           $11.40          $12.50
      2014    July           $11.80          $13.80
      2014    June           $13.80          $15.00
      2014     May           $14.80          $16.30
      2014   April           $16.00          $18.30
      2014   March           $18.30             n/a
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    Noble Energy raises third-quarter sales volume outlook

    Noble Energy today provided new third quarter 2015 sales volume guidance, with the midpoint of the Company's new expectation representing a 10 thousand barrel of oil equivalent per day (MBoe/d) increase over the midpoint of its prior estimate. Following strong volume performance in July and August, the Company has raised its anticipated third quarter 2015 sales volume range to between 360 and 370 MBoe/d. The increase was driven primarily by enhanced well performance and infrastructure expansion in the DJ Basin. In addition, strong production is resulting from the Company's assets in Texas (Eagle Ford and Delaware), Marcellus Shale, Israel, and Equatorial Guinea. Natural gas sales in Israel set a record in August as the Company's Tamar asset averaged more than one billion cubic feet of natural gas per day, gross, for the month.

    Gary W. Willingham, the Company's Executive Vice President of Operations, commented, "The expansion of natural gas processing systems in Greater Wattenberg has continued to unlock the productive capacity of our DJ Basin operations. Production from our legacy vertical wells and older horizontal wells are benefitting from substantially reduced line pressures and improved third-party plant uptime. We have also continued to materially grow production from the East Pony Integrated Development Plan, which is primarily crude oil and is entirely handled by Noble Energy owned midstream assets. Strong production performance in our business is resulting from execution momentum and the benefits of operating a high-quality and diversified portfolio, despite reducing capital investment materially quarter over quarter throughout the year."

    The third-party Lucerne-2 plant has been tested to a nameplate capacity of 200 million cubic feet of natural gas per day (MMcf/d). Addition of the Lucerne-2 plant has expanded total system natural gas processing capacity to 840 MMcf/d, resulting in line pressures being reduced by between 50 and 100 psi in various parts of Greater Wattenberg while also providing additional capacity for future growth. Noble Energy's net DJ Basin production has averaged approximately 115 MBoe/d through the first two months of the third quarter of 2015.
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    Investors Flee Biggest U.S. Crude Oil Fund as Volatility Surges

    A net 19.3 million shares of the biggest exchange-traded fund that tracks oil were sold back, a weekly record since the ETF’s inception in 2006, according to data compiled by Bloomberg. Total shares outstanding dropped to 176 million on Sept. 4, the lowest since Aug. 11.

    Investors withdrew from the fund as oil’s trading volatility reached the highest since March last week. The weekly redemption represents an outflow of $290.9 million, the most since December 2013.

    “There’s a lot of volatility in the market,” said Carl Larry, head of oil and gas for Frost & Sullivan LP in Houston. “We are seeing money being pushed away from oil.”

    The CBOE Crude Oil Volatility Index, which measures the volatility of the ETF, increased to 57.51 on Sept. 1, the highest since March 17.
    The U.S. Oil Fund, which holds West Texas Intermediate futures, slipped 0.4 percent Tuesday to $15.02. WTI crude lost 0.2 percent to $45.94 a barrel on the New York Mercantile Exchange.
    The ETF is down 26 percent this year, compared with a 14 percent decline for front-month futures. The fund’s performance is trailing oil because the market is in contango, meaning futures for delivery in later months trade higher than nearby contracts. The structure erodes gains as the ETF sells the expiring contract and buys the more expensive next-month futures.
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    US House panel set to approve crude oil exports bill Thursday

    A US House Energy and Commerce subcommittee is expected Thursday to approve a bill to lift all limits on US crude exports.

    The House energy and power subcommittee is scheduled to vote on a bill from Texas Representative Joe Barton, a Republican, to repeal these limits, which have been in place for roughly four decades.

    In a joint statement, Michigan Representative Fred Upton, a Republican and the full committee's chairman, and Kentucky Representative Ed Whitfield, a Republican and the subcommittee's chairman, said current limits on US crude exports have become "obsolete."

    "We have taken a thoughtful approach to reconsidering oil exports, and the time to lift the ban is now," Upton and Whitfield said.

    The subcommittee vote, which will be the first of its kind in the House, is expected to set up a potential full House vote as early as this month. There are enough votes in the House for the bill to pass easily, according to congressional staffers. Barton's bill currently has 113 co-sponsors, including 13 Democrats.

    The path is much less clear in the Senate, congressional staffers and lobbyists claim.

    The Senate Energy and Commerce Committee in July approved a bill from Alaska Senator Lisa Murkowski, a Republican and the committee's chairman, which includes a provision to repeal existing limits on US crude exports.

    Senate Majority Leader Mitch McConnell, a Kentucky Republican, has indicated that he will not bring any crude export bill to the Senate floor until he has assurances that it has 60 votes to pass, sources have said.
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    Continental Resources Reducing 2015 Capital Spending

    Continental Resources, Inc. (CLR) (Continental or the Company) today announced plans to spend approximately $300 to $350 million less than its previously approved capital budget for 2015 to better align spending with cash flow at current commodity prices. The Company plans to defer well completion activity, except for where it has contractual considerations or it accomplishes specific strategic objectives. Continental is also reducing its operated rig count in the Bakken from 10 to eight rigs by the end of the month.

    "While we do not believe today's low commodity prices are sustainable long term, we are committed to living within cash flow until they recover," said Harold Hamm, Chairman and Chief Executive Officer. "We are reducing capital expenditures to protect our balance sheet and to preserve the value of our world-class assets until commodity prices improve."

    The Company's 2015 guidance remains unchanged.  Continental continues to expect production growth of 19% to 23% for the year, compared with 2014, but now expects to exit the year with production in a range of approximately 200,000 to 215,000 barrels of oil equivalent (Boe) per day. The bottom end of the range is 10,000 Boe per day below its previously stated outlook, reflecting an increase of inventory from the previously expected 100 gross operated wells that are drilled but not yet completed at year-end 2015 to the current estimate of 160 gross wells drilled but not yet completed at year-end 2015.  Maintenance capital to maintain 2016 production at the 2015 exit rate is now projected to be $1.6 to $2.0 billion.

    "We continue to focus on achieving cash flow neutrality in the current environment," said John Hart, Chief Financial Officer. "We believe it is in the interest of shareholders to defer new production growth until we see stronger commodity prices. We can achieve this objective due to our focus on costs, operating efficiencies and having a large portion of our high-potential leasehold already held by production," he said.

    "We are pleased with our results year-to-date, and operating performance versus guidance remains strong, especially in terms of production growth and cost controls. Annual production growth is expected to be toward the top end of our guidance range, even with deferred completions," he said. "Production expense per Boe and general and administrative expense per Boe are also trending positively toward the low end of guidance. Lower capex spending and excellent operating performance should position us to be cash flow neutral for the remainder of 2015 in an environment of approximately $50 per barrel for West Texas Intermediate. In a $40 per barrel WTI environment, our updated spending outlook would result in capital expenditures being approximately $150 million over cash flow.  We continue to have ample liquidity with approximately $1.3 billion available under our credit facility at August 31, 2015, basically in line with our June 30, 2015 balance."

    Attached Files
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    Reversed REX Pipeline from Marcellus/Utica to Midwest Will Expand


    On August 1, the Rockies Express Pipeline reversed its direction on a portion of the pipeline called Zone 3 and began flowing 1.8 billion cubic feet per day (Bcf/d) of Marcellus and Utica Shale gas to the Midwest . REX Zone 3 stretches from Clarington, OH to Mexico, MO (see the map). Further good news. The Federal Energy Regulatory Commission (FERC) has granted a favorable Environmental Assessment (EA) for REX to beef up capacity along Zone 3 by expanding two existing compressor stations and building three new compressor stations along the Zone 3 section.
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    In Canada's prairies, crude slump puts first oil patch in reverse

    Amid the corn and canola fields of eastern Saskatchewan, oil foreman Dwayne Roy is doing what Saudi Arabia and fellow OPEC producers are loath to do: shutting the taps on active wells.

    Inside a six-foot-square wooden shed that houses a basic hydraulic pump, the Gear Energy Ltd employee demonstrates how shutting down a conventional heavy oil well in this lesser-known Canadian oil patch is as simple as flipping a switch. His company has already done so hundreds of times this year, making the Lloydminster industry among the first in the world to yield in a global battle for oil market share that has sent crude prices tumbling to six-year lows.

    Gear Energy Ltd, has idled up to 500 of its least efficient wells this year, many of them in the past weeks. Some cost of up to C$28 ($21.22) a barrel to operate. It costs another C$7 in royalty and transportation fees to get the crude, among the densest in the world, to regional rail hubs - where it was fetching barely $20 a barrel during last month's lows.

    "We ask every day: is this well making money today? Will it make us money going forward?" says Roy.

    Such questions have been nagging oil industry veterans since crude prices started sliding last year as a result of a supply glut caused by a battle between exporters' group OPEC and North American shale oil producers.

    Energy firms around the world have responded by laying off thousands of workers and slashing spending by billions of dollars. But producers here are the first to do what the global market needs to rebalance: turn off the taps.

    All told, at least 8,000 barrels per day (bpd) of local heavy conventional oil production has been idled by firms such as Gear, Canadian Natural Resources Ltd and Baytex Energy Corp this year.

    So far their actions are merely symbolic - the output loss represents less than a rounding error in a global market that produces 95 million barrels each day.

    Yet if prices stay low, other firms such as Husky Energy and Devon Energy could also shut in similar wells that produce conventional heavy crude, which accounts for roughly 11 percent of Canada's 3.7 million bpd output.
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    Alternative Energy

    Disagreements over scope and ownership delay Saudi solar projects

    Saudi Arabia's ambitious plans to become a world leader in installed solar power appear to have run into the sand amid disagreements over their scale, ownership and technology.

    The world's largest crude exporter announced three years ago it wanted to install 41 gigawatts of solar electricity by 2032 to help meet surging local demand for energy as the Saudi population increases rapidly and the economy grows strongly.

    The decision was prompted by concerns about cost rather than about cutting Saudi carbon emissions to help combat climate change. The kingdom currently generates much of its electricity by burning crude oil, thereby reducing the amount available for export and threatening its market share.

    But despite a 2013 statement that bids would soon be issued for the first solar power projects, the body set up to spearhead alternative energy development -- King Abdullah City for Atomic and Renewable Energy (K.A.Care) -- has made no progress and in January it pushed back the 2032 target to 2040.

    "It hasn't been approved yet, we are in a waiting mode," said a Saudi government source who declined to be identified.

    "There is a divergence of views. Everybody agrees on the goals, but they have different ideas on how to implement them."

    With its sunny climate and strong demand for electricity during the summer, Saudi Arabia seems perfectly suited for solar power projects, though its high levels of atmospheric dust and soaring temperatures pose difficult technical problems.

    The biggest obstacle, however, is bureaucratic. K.A.Care's relationship with the powerful ministries of electricity and oil was never clearly defined, meaning that no single department was put in charge, industry sources say.

    "The key issue is K.A.Care does not belong to any particular ministry leading the initiative and does not have the balance sheet to conclude power purchase agreements directly," said Imtiaz Mahtab, president of the Middle East Solar Industry Association.
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    EU solar panel producers seek extension to Chinese import limits

    A group of European solar panel manufacturers has asked the European Commission to extend restrictions on imports of Chinese solar power products, a move that could revive a politically charged tussle between Brussels and Beijing.

    The European Commission set in place in 2013 an arrangement allowing Chinese manufacturers to sell into the EU a limited number of solar panels, wafers and cells at a minimum price, following a complaint from the European group, EU ProSun.

    Imports from Chinese producers not part of this undertaking are subject to duties of up to 64.9 percent.

    The duties and duty-free arrangment expire in mid-December.

    EU ProSun, an association of EU producers, said it had filed an application last Thursday to extend them.

    The association did not welcome the EU settlement with Chinese solar module producers but wants it to be renewed. Otherwise, Chinese rivals will be able to sell into the EU free of tariffs.

    Assuming the European Commission agrees to start at so-called expiry review, the undertaking and anti-dumping duties would extend for at least a year while the it is assessed.

    The review is one of a number of actions EU ProSun is taking to contend with what it says is a continued assault from Chinese rivals even after a 2013 settlement.

    That settlement warded off a mounting trade battle between Brussels and Beijing, the latter saying that the European Union was unfairly targeting a sector whose exports to the EU rose to 21 billion euros in 2011.

    The Commission is already investigating a complaint that Chinese solar companies are trying to evade import tariffs by shipping their products via Taiwan and Malaysia.

    The Commission has already proposed denying six Chinese solar panel producers from the duty-free undertaking because of alleged violations of its conditions.

    They include Canadian Solar, ReneSola and Chint Solar.
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    Luminant inks deal with SunEdison to bring more solar power to Texas grid

    More solar power will enter Texas’ power market next year to compete “apples to apples” with coal and gas power now that Dallas-based Luminant has signed the largest such deal in the country with SunEdison.

    Power generator Luminant will buy 116 megawatts — enough to power 58,000 homes during normal demand — from SunEdison’s new 800-acre Castle Gap facility in Upton County, just south of Midland. The complex will have 485,000 solar panels when it is completed next year.

    The companies are touting the deal as the largest in the country in which solar power is being bought to compete in a competitive wholesale marketplace with all other power generation.

    “That is a first and that is a big deal,” said Julie Blunden, SunEdison chief strategy officer. “Solar is ready to compete head to head.”

    Unlike typical agreements in which the solar power is sold to a specific customer or in a regulated portion of Texas, Luminant will sell the electricity to the competitive market managed by the Electric Reliability Council of Texas. The companies are not revealing the financial terms of the deal.

    Solar power currently makes up less than 1 percent of the Texas power grid’s generation capacity, while wind power represents 14 percent, but several solar projects in the state are being planned.

    The costs for solar power have come down 15 percent in the last year, said Steve Muscato, Luminant chief commercial officer, in a video presentation.

    “When our customers are running the most amounts of electricity is when solar is producing,” Muscato said about the hot summer days in Texas. “So it doesn’t necessarily replace coal or replace gas because coal and gas are sort of there 24 hours a day, seven days a week.”

    “As we evaluate our future generation needs, we focus on projects that are profitable and able to compete in the wholesale market. This agreement with SunEdison meets those goals since solar generation costs have become increasingly competitive,” Luminant CEO Mac McFarland said in the announcement.
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    Precious Metals

    Sibanye buys Amplats’ Rustenburg platinum mines for R4.5billion

    Sibanye Gold has announced the acquisition of the Rustenburg Operations from Anglo American Platinum Limited (Amplats) for an upfront consideration of R1.5 billion in cash or shares and a deferred consideration equal to 35% of the distributable free cash flows generated by the Rustenburg operations over a six year period, subject to a minimum nominal payment of R3 billion. The company said should there still be an outstanding balance at the end of the six year period, Sibanye has the option to elect to extend the period by a further two years. Any remaining balance at the end of this period will be settled by the gold producer either in cash or shares.

    In addition to the deferred payment, which allows for a favourably extended payment period; should the Rustenburg operations generate negative distributable free cash flows in either 2016, 2017 or 2018, Amplats will be required to pay up to R267 million per annum to ensure that the free cash flow for the relevant year is equal to zero. This arrangement will provide important capital investment and downside price protection for Sibanye, facilitating ongoing capital investment in the first 3 years following the conclusion of the transaction. Should higher prices result in early repayment of the deferred payment during the first 6 years, Sibanye will share the upside with Amplats.

    Neal Froneman CEO of Sibanye said: “We have for some time indicated our interest in participating in the PGM sector and believe that these assets provide an attractively priced entry at an advantageous moment in the price cycle. The Rustenburg Operations are similar in nature to Sibanye’s current gold operations and, after extensive engagement with Amplats and completing a thorough due diligence, we are confident that we will be able to realise value for our stakeholders by leveraging our successful operating model. The Rustenburg operations have been significantly restructured and are well positioned to benefit from a recovery in PGM market conditions and provide a platform to grow regionally within the PGM sector. The outcome is a sensible commercial transaction, which is strategically advantageous for both parties.”
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    Base Metals

    Copper Surged Above Key Technical Level

    Copper prices has surged over 4% in morning trading, breaking above the 50-day moving average (trading 2.41, near 2-month highs). Aside from Glencore's demise and modest strength in the Chilean peso today, this seems more like an algo-driven run off China's massive intervention-driven momentum.

    Copper broke above it 50-day moving average...

    as China's intervention floated all boats...


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    Steel, Iron Ore and Coal

    China’s 1st ultra-supercritical gangue-fired power project starts construction

    China’s first ultra-supercritical low-calorific gangue-fired power project started construction at Changzhi City in northern Shanxi province on August 25, local media reported.

    The pit-mouth power plant is only 1.0km away from modern Zhaozhuang mine, which has an annual capacity of 8 million tonnes.

    The whole project, jointly invested by Jincheng Anthracite Mining Group and Shanxi International Energy Group, has a designed installed capacity of 3.2 GW.

    The 2×600MW first phase of the project would consume 3.54 million tonnes of coal per year, with standard coal consumption at 287g/KWh during the power generation.

    The project is expected to generate 6 TWh of electricity per year, with annual output value totaling 2.13 billion yuan ($348 million).

    It aimed to realize “zero emission” by recycling coal dust, slag and other emissions and is expected to be put into operation in late-August, 2017.
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    China Aug steel products export up 25.4pct on yr

    China exported 9.73 million tonnes of steel products in August, up 25.39% year on year and unchanged from July, showed the customs data on September 8.

    The value of August steel exports stood at $5.14 billion, dropping 14.72% on year and down 3.3% on month. That translated to an average export price of $528.57/t in August, dipping 3.31% from July and down 31.99% year on year.

    Over January-August, the exports of China’s steel products stood at 71.87 million tonnes, rising 26.5% from a year ago.

    Total exports value during the same period stood at $42.98 billion, down 4.1% from a year ago.

    China’s steel price dropped after a small rebound in early and mid-August. By end-August, the price of rebar fell 110 yuan/t on month to 2155.5 yuan/t.

    In August, China’s export of steel products saw its competitiveness subduing, mainly due to currency devaluation in major steel importers, intensified international anti-dumping acts, and ample stocks in steel importers.

    However, China’s steel products export may remain on an upward trend in September, due to flat domestic demand amid oversupply, said the China Iron and Steel Association.

    The new export order sub-index under the Purchasing Managers Index (PMI) for China’s steel industry dipped 1.6 from July to 54.5 in August – the third consecutive month above the 50 mark, data showed from the China Federation of Logistics and Purchasing (CFLP).

    Meanwhile, China imported 1.02 million tonnes of steel products in August, dropping 12.8% on year and down 2.9% on month. The value of imports stood at $1.11 billion, dropping 11% from July and down 24.16% from a year ago.
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    Platts China Steel Sentiment Index stabilizes in September

    Chinese steel market participants expect new steel orders during September to stay at similar levels to last month, though prices could soften slightly, according to the latest Platts China Steel Sentiment Index (Platts CSSI), which showed a headline reading of 55.64 out of a possible 100 points in September.

    The September index rose just 0.45 points from August’s 55.19, and was the second consecutive month the CSSI has stayed above the 50 threshold. A figure greater than 50 indicates expectations of an increase. The outlook for new domestic steel orders increased by 1.35 points to 58.33, while export order expectations for the month deteriorated by 10.09 points to 24.48.

    Crude steel production was expected to stay relatively flat in September, compared with August, while steel inventories held by traders were expected to rise further in response to weak demand.

    Prices of flat steel products, such as hot rolled coil, were expected to weaken slightly in September, the CSSI showed. Sentiment is currently more positive regarding domestic demand, while expectations for export orders fell 10.09 points in September to 24.48.

    “Generally, market sentiment remains extremely pessimistic with domestic steel prices at record lows, while demand from the manufacturing and property construction sectors has yet to improve,” said Paul Bartholomew, Platts managing editor of steel and steel raw materials. “Exports have provided a vital outlet for Chinese steel but there is now so much competition for overseas markets that it is pulling export prices down and eroding confidence.”

    Platts China Steel Sentiment Index – September 2015 (a figure over 50 indicates expectations of an increase; under 50 indicates a decrease)
    Data PointSep-15Change from August (points)
    CSSI (Total New Orders)55.640.45
    New Domestic Orders58.331.35
    New Export Orders24.48-10.09
    Steel Production37.142.14
    Steel Prices (flat products)41.43-3.57
    Stocks held by traders61.3413.64

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