Mark Latham Commodity Equity Intelligence Service

Thursday 1st September 2016
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    Commodities Break?

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    China's stimulus is inventory formation???????????????????

    Baoshan Iron & Steel , China's top listed steelmaker, expects the country's apparent consumption of crude steel to drop to 680 million tonnes this year from 698 million in 2015, Dai Zhihao, its general manager, told an online briefing.

    The forecast from Baoshan Iron & Steel, or Baosteel, comes at a time when China, the world's top producer of the alloy, is stepping up efforts to slash a huge overcapacity that has boosted cheap exports amid slowing demand at home.

    ~Baoshan, yesterday online briefing.
    China’s crude steel production for July 2016 was 66.8 Mt, an increase of 2.6% compared to July 2015. 
    ~World Steel Association 22.08.2016

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    China factories unexpectedly expand in August, suggests economy steadying

    Activity in China's manufacturing sector unexpectedly expanded at its fastest pace in nearly two years in August as construction boomed, suggesting the economy is steadying in response to stronger government spending.

    The best factory reading since late 2014 may reinforce growing views that China's central bank will be in no hurry to cut interest rates or banks' reserve requirements, for fear of adding to high debt levels or fuelling asset bubbles.

    But the official factory survey also highlighted growing lopsidedness in the world's second-largest economy, with larger firms expanding, likely thanks to Beijing's largesse, while smaller manufacturers continued to struggle.

    "Our view is that the People's Bank of China doesn't really have any reason to ease until we start to see clear signs of another downturn," Julian Evans-Pritchard, China Economist at Capital Economics said, saying it is concerned such action could aggravate economic imbalances and credit risks.

    "I think eventually they'll come under pressure to ease further, but given the economy is still stable, I don't think it'll happen this year," he said, predicting the factory strength could last through the end of the year.

    The official Purchasing Managers' Index (PMI) rose to 50.4 in August from 49.9 in July, and above the 50-point mark that separates growth from contraction on a monthly basis.

    Analysts had expected a reading of 49.9 for the second month in a row, and some thought there would be added weakness after Beijing ordered many plants around Hangzhou to close to clear the air ahead of China's first summit of G20 leaders Sept 4-5.

    Yet factory output growth accelerated, with the index rising to 52.6, the highest this year, from 52.1 in July. Total new orders expanded sharply, though export orders continued to shrink, albeit at a more modest pace.

    "While many factories have been shut down before the G20 summit, overall manufacturing activities are still elevated, reflecting improving growth momentum," said Zhou Hao, senior economist at Commerzbank AG in Singapore.

    Buoyed by a government infrastructure building spree and a housing boom, Shanghai futures prices for steel bars used in construction have surged about 43 percent so far this year, coaxing steel mills to keep output at high levels even as Beijing tries to cut overcapacity in the sector.

    But analysts are divided over how much domestic demand is actually improving, with China's steel exports on track for record highs, and prolonged weakness in imports.

    In another sign that business conditions remain tough, factories continued to cut staff, though at a slightly slower pace than in July.

    China has vowed to quicken the pace of cutting excess steel and coal capacity after falling behind this year, raising the risk of more layoffs and debt defaults in coming months, which could further strain the banking system.


    The divergence of performance between smaller and larger enterprises is also a concern if struggling smaller firms have more trouble servicing their debt burdens, some analysts said, noting recently introduced debt-for-equity swaps are likely to help bloated state companies more than private ones.

    Smaller firms showed a sharp contraction in activity in August, while one for larger companies showed a solid expansion, suggesting state-owned enterprises, though often inefficient, remain the backbone sustaining China's economic growth.

    "Fiscal expansion will likely need to continue at a strong pace, to ensure stable growth in the coming months," HSBC economists said in a note.

    "We still see challenges in the second half, from further moderation in the housing sector to uncertainties about private investment. Therefore despite some upside surprise, withdrawal of policy stimulus at this stage would be highly premature."

    A private PMI survey focusing more on small and mid-sized firms reinforced the picture of a two-track economy. The survey suggested that activity at smaller manufacturers stagnated in August as output and new orders both grew at a softer pace.

    The Caixin/Markit Manufacturing Purchasing Managers' index (PMI) slipped to 50.0, the no-change mark which separates expansion of activity from contraction on a monthly basis.

    An official survey on the services sector showed the sector continued to expand at a rapid pace, though slightly more modestly than in July.

    China is counting on growth in services to offset persistent weakness in manufacturing and exports that dragged economic growth to a 25-year low.
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    Brazil's Rousseff ousted by Senate, Temer sworn in

    Brazil's Senate ousted President Dilma Rousseff on Wednesday, ending an impeachment process that polarized Latin America's biggest country amid a massive corruption scandal and brutal economic crisis.

    Senators voted 61-20 to convict the country's first female president for illegally using money from state banks to bankroll public spending, marking the end of 13 years of leftist Workers Party rule.

    Rousseff's opponents hailed her removal as paving the way for a change of fortunes for Brazil. Her conservative successor, Michel Temer, the former vice president who has run Brazil since her suspension in May, inherits a bitterly divided nation with voters in no mood for the austerity measures needed to heal public finances.

    In his first televised address to the nation after being sworn in as president through 2018, Temer called on Brazilians to unite behind him in working to rescue the economy from a fiscal crisis and over 11 percent unemployment.

    "This moment is one of hope and recovery of confidence in Brazil. Uncertainty has ended," Temer said in the speech broadcast after his departure for a G20 summit in China.

    Until just a few years ago, Brazil was booming economically and its status was rising on the global stage.

    The country then slid into its deepest recession in decades, and a graft scandal at state oil company Petrobras tarnished Rousseff's coalition. Millions took to the streets this year to demand her removal, less than two years after she was re-elected.

    A string of corruption scandals, led by the Petrobras scheme, has engulfed vast swaths of Brazil’s political class and business elites over the past 2-1/2 years.

    Temer will likely face tough opposition from the Workers Party both on the streets and in Congress to his agenda of privatizations, reforms to Brazil's generous pension and welfare laws and a public spending ceiling he hopes lawmakers will pass this year.

    For the third straight day, pro-Rousseff demonstrators in Sao Paulo, Brazil's largest city, clashed with riot police, who used tear gas to clear the streets.

    Defiant to the end, Rousseff, a former leftist guerrilla who was tortured and jailed under military dictatorship in 1970, vowed to fight on in defense of Brazil's workers.

    Standing outside the presidential residence flanked by supporters, she insisted on her innocence and said her removal was a "parliamentary coup" backed by the economic elite that would roll back social programs that lifted millions of Brazilians out of poverty over the last decade.

    "They think they have beaten us but they are mistaken," Rousseff said, adding that she would appeal the decision using every legal means. "At this time, I will not say goodbye to you. I am certain I can say 'See you soon'."

    The end of the Workers Party's long grip on power sparked angry reactions from leftist governments across the region.

    Venezuela, Bolivia and Ecuador withdrew their ambassadors, and Brazil responded by recalling its envoys for consultations. Cuba's Communist government branded Rousseff's ouster part of an "imperialist" offensive against progressive governments in Latin America.

    The U.S. State Department voiced confidence that strong bilateral relations with Brazil would continue, adding the country's democratic institutions had acted within the constitutional framework.

    In an unexpected move, Brazil's Senate voted 42-36 to allow Rousseff to retain the right to hold public office - a break with Brazilian law that specifies a dismissed president should be barred from holding any government job for eight years.

    The move appeared to demonstrate unease among some senators, notably within Temer's own fractious Brazilian Democratic Movement Party (PMDB), over whether a budgetary sleight of hand that is common in Brazil was truly an impeachable offense.

    Visibly annoyed in televised remarks at his first cabinet meeting, Temer said he would not tolerate divisions in his coalition as he quickly tried to quash the first sign of splits that could grow as allies press him to deliver on austerity.

    Aecio Neves, leader of the center-right PSDB party that backs Temer, said the divisions had caused acute concern among his allies, but he denied there was any prospect of a split.

    "Brazil has given itself a new chance, to look to the future and construct an agenda for reform in line with the economic crisis," said Neves, who narrowly lost the 2014 election to Rousseff.


    Motorists honked car horns in the Brazilian capital to mark the removal of a president whose popularity had dwindled to single figures since winning re-election in 2014. In Brazil's largest city, Sao Paulo, fireworks exploded in celebration after the vote.

    Temer has vowed to boost an economy that has shrunk for six consecutive quarters and implement austerity measures to plug a record budget deficit, which cost Brazil its investment-grade credit rating last year.

    An upturn in corporate investment in the second quarter provided a glimmer of economic hope for Temer and economists expect a return to growth before the end of the year.

    Brazil's stocks and real currency slightly accelerated gains following the Senate's decision but the reaction was muted as most traders were already counting on the result. Market analysts said investors would now be looking to Temer to quickly deliver on his promises of reform, notably a constitutional change to limit spending increases in coming years.

    "What changes now, with Temer definitively confirmed, is that the pressure will increase on him to deliver," said Newton Rose, chief economist at Sulamerica Investimentos. "The honeymoon is over, and the market wants to know now how capable he is to govern and put the government accounts in order."

    Temer's government risks entanglement in the ongoing investigation into kickbacks at Petrobras, which ensnared dozens of politicians in Rousseff's coalition. Three of Temer’s ministers have already had to step down due to links to the scandal, which could hobble efforts to restore confidence.

    Rousseff became the first Brazilian leader dismissed from office since 1992, when Fernando Collor de Mello resigned before a final vote in his impeachment trial for corruption.
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    Brazil's Petrobras to pay $3.25 million to aid troubled Games

    Brazilian oil company Petroleo Brasileiro SA said on Wednesday it will spend 10.5 million reais ($3.25 million) to buy marketing rights to the financially troubled Rio de Janeiro Paralympic Games.

    The decision allows Petrobras, as the state-controlled company is known, to become an official sponsor of the event about a week before it is set to begin on Sept. 7. Petrobras joins companies such as Toyota Motor Co, BP Plc, Visa and Samsung in getting marketing benefits in exchange for financial support.

    Reuters reported on Aug. 18 that Petrobras was willing to buy marketing rights valued in the "low millions" of dollars to help the Paralympics.

    The Games, which feature athletes with physical and mental disabilities, was forced to make budget cuts as the city and state of Rio de Janeiro, mired in a major Brazilian recession, struggled to pay the 40 billion reais ($12.4 billion) price tag for the 2016 Olympics and Paralympics.

    Petrobras' money brings 205 million reais ($92 million) in extra funds Games organizers can draw on, said Mario Andrada the games communication director on a conference call on Wednesday.

    The bulk, 150 million reais, is from the City of Rio de Janeiro. The rest, 55 million reais is from Petrobras, the lottery unit of Caixa Economica Federal, a Brazilian government bank, and Apex, Brazil's Trade and Investment Promotion Agency.

    Petrobras, which is facing financial difficulties of its own and has debt of nearly $125 billion, was one of several state-owned or controlled companies asked by the government to help meet the Paralympic shortfall.

    Petrobras' money will come from its existing 98 million real sports budget for 2016.

    The sponsorship deal will allow Petrobras to run advertisements on TV, radio and social media mentioning the Games and featuring "Team Petrobras" athletes it is sponsoring for the Paralympics during the Games themselves, the company said in a statement.

    Petrobras will also be able to display its logo at Paralympic venues, set up a stand in the Olympic Park and have its name mentioned in an opening ceremony video, rights normally reserved for sponsors that signed up long ago.

    Without new funds, the Rio 2016 organizing committee would not be able to pay national Paralympic bodies for travel, food and uniforms, preventing some countries from competing, a judge, who overturned an injunction prohibiting the use of new public money for the Games, said earlier in August.
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    Oil and Gas

    OPEC oil output hits record as Gulf gains counter African losses

    OPEC's oil output is likely in August to reach its highest in recent history, a Reuters survey found on Wednesday, as extra barrels from Saudi Arabia and other Gulf members make up for losses in Nigeria and Libya.

    Production in top OPEC exporter Saudi Arabia has likely reached a fresh record, sources in the survey said, as it meets seasonally higher domestic demand and focuses on maintaining market share.

    Other big Middle Eastern producers, except Iran, also boosted output.

    Supply from the Organization of the Petroleum Exporting Countries has risen to 33.50 million barrels per day (bpd) from a revised 33.46 million bpd in July, according to the survey based on shipping data and information from industry sources.

    The gain could add to scepticism about renewed OPEC talk of freezing output to support prices. Oil has risen towards $48 a barrel from $42 at the start of August, helped by such speculation, but these hopes have waned in recent days.

    "OPEC does not really want to freeze production," said Olivier Jakob, oil analyst at Petromatrix. "But it dreams of freezing prices at current levels."

    Supply has risen since OPEC in 2014 dropped its historic role of fixing output to prop up prices as Saudi Arabia, Iraq and Iran pumped more. Production has also climbed due to the return of Indonesia in 2015 and Gabon in July as members.

    The membership changes have skewed historical comparisons. August's supply from OPEC excluding Gabon and Indonesia, at 32.54 million bpd, is the highest in Reuters survey records starting in 1997.

    In August, Saudi Arabia is expected at least to match July's record of 10.67 million bpd, sources in the survey said. Other industry sources told Reuters a new record as high as 10.90 million bpd was possible in August.

    There is no sign of any deliberate cutbacks. Saudi Energy Minister Khalid al-Falih told Reuters last week that August production had remained around July's level, without giving a precise figure.

    The United Arab Emirates continues to expand output, hitting 3.0 million bpd in August for the first time in the Reuters survey. Iraq and Kuwait pumped slightly more than in July, the survey found.

    Supply in Iran, OPEC's fastest source of production growth earlier this year after the lifting of Western sanctions, has held steady this month as output nears the pre-sanctions rate. Iran is seeking investment to boost supply further.

    Of countries with lower output, the biggest drop came from Nigeria as militants attacked oil facilities. The Qua Iboe stream, the country's largest, was under force majeure for the whole month, reducing exports.

    Libyan output slipped further and another decline occurred in Venezuela, hit by an economic crisis.

    The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data, and information provided by sources at oil companies, OPEC and consulting firms.

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    Saudi Arabia doesn't target specific level of oil output - Falih

    Saudi Arabian Energy Minister Khalid al-Falih said the top crude exporter does not target a specific figure for its oil production and that its output is based on customers' needs.

    "We in the kingdom of Saudi Arabia do not have a targeted number to reach. The kingdom's production meets the requirements of the customers, whether they are outside or inside the kingdom," Falih told the Saudi-owned al-Arabiya television channel in remarks broadcast on Wednesday.

    "The kingdom's production policy will maintain a large degree of responsibility," he said.

    Speaking during an official visit to China, Falih said that despite low crude prices, "demand for oil does not worry me", adding that demand for crude in China remains "very healthy".

    The OPEC heavyweight started to increase production in June to meet a seasonal rise in domestic demand as well as higher export requirements. Industry sources have told Reuters that Riyadh could boost production to a record in August.

    Saudi Arabia produced 10.67 million barrels per day (bpd) of crude, the most in its history, in July. Falih told Reuters last week that production in August had remained around that level, though he could not cite a specific number.

    Saudi Arabia has a production capacity of 12.5 million bpd, giving it the ability to boost output in case of any global shortage.

    Falih said that production level was not expected to be reached unless there were unexpected outages.

    "The market now is saturated with oversupply and we don't see in the short term a need for the kingdom to reach its maximum production capacity," he told the TV channel.

    The minister is part of an official Saudi visit headed by Deputy Crown Prince Mohammed bin Salman aimed at bolstering relations with China, a top energy customer and trade partner. The delegation heads to Japan late on Wednesday.

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    US Oil exports at record high.

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    Asia's July Iran oil imports rise 61 pct from a year ago

    Imports of Iranian oil by four major buyers in Asia in July jumped 61.1 percent from a year earlier, marking the biggest percentage gain since April 2014, reflecting Tehran's aggressive moves to recoup market share, lost under international sanctions.

    Iran is regaining market share at a faster pace than analysts had projected
    since sanctions were lifted in January, and Iran's senior government official
    said it sees its oil production at 4 million barrels per day by year-end.
    The four countries, South Korea, Japan, China and India, imported 1.64
    million barrels per day (bpd) in July, government and ship-tracking data showed.

    Japan's trade ministry on Wednesday released official data showing its
    imports jumped 61.8 percent from a year earlier to 256,651 bpd last month.

    Imports by South Korea jumped more than fourfold last month, while India's
    imports more than doubled from a year ago.
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    BP strikes second China shale contract

    Oil major BP has signed a second Chinese shale gas contract with China National Petroleum Corporation (CNPC).

    The company has agreed a production sharing contract (PSC) for shale gas exploration, development and production.

    The PSC was signed at the end of July and covers an area of approximately 1,000 square kilometres at Rong Chang Bei in Sichuan b.
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    Norway's Frontline sees major weakening in tanker market in H2

    Norway's Frontline, one of the biggest international independent tanker groups, expects a major deterioration in the tanker market in the remaining half of the year, compared with the first half, it said Wednesday.

    Posting second-quarter results, the company said the softer global tanker market led to its Q2 net profit slumping to $14.3 million from $78.9 million in the first quarter.

    "The spot market is currently at a 24-month low, and although we expect the rate environment to improve from current levels, the second half of 2016 will be significantly weaker than the first half of the year," Frontline CEO Robert Hvide Macleod said in a statement.

    "In the second quarter the tanker market experienced a downward pressure on rates which has continued into the third quarter," Macleod added.

    While these quarters are seasonally weaker, the tanker market was also hit by crude oil supply disruptions in the Atlantic basin, high levels of crude inventories, 13 vessels delivering from the newbuild fleet and easing congestion in ports around the world, Macleod said.

    Macleod said Frontline's scale, strong shareholder base and cost-effective operations positioned it well in the difficult market, with CFO Inger Klemp indicating the group had sound financial resources to ride out the market.

    Klemp said the company had secured bank financing of up to $548 million and was in the final stages of obtaining approval for further bank financing of up to $325 million.

    She said this new financing would partly finance 20 of Frontline's newbuild contracts at highly attractive terms, with the group maintaining its very low cash break-even levels.

    As of June 30, 2016, the company's fleet consisted of 82 vessels, including newbuilds, with an aggregate capacity of approximately 15 million dwt. The newbuild program comprised eight LR2 tankers, eight VLCCs and eight Suezmax tanker newbuildings.

    Almost 100 VLCCs were still to be delivered over the next two years and this was expected to put pressure on the tanker market.

    Frontline said there had been a notable absence of new orders placed in 2016 and it expected constraints in debt financing would continue to restrict newbuild orders, perhaps leading to a stronger market further out in the cycle.

    "Shipyards are also under pressure to restructure, and a reduction of capacity at several yards is expected," Frontline said. "Periods of market weakness, like we are currently experiencing, may also encourage scrapping of older tonnage, a factor which has been virtually absent for the last two years."
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    Golar LNG’s loss deepens in second quarter

    Bermuda-based Golar LNG, the owner and operator of liquefied natural gas carriers on Wednesday reported a net loss of US$99.5 million.

    The shipping company’s adjusted operating loss was cut slightly from $42.7 million in the first quarter to $37.1 million in the quarter under review, according to the company’s latest quarterly report.

    “Although headline shipping rates remained relatively unchanged during the quarter there was a modest improvement in utilization which increased from 24 percent in 1Q to 31 percent in 2Q,” the report reads.

    With the utilization increase, Golar’s total operating revenues increased from $16.6 million in the first quarter to $18.4 million in the second quarter.

    LNG Shipping business

    During the quarter, 22 spot voyages were concluded by the Cool Pool relative to only 8 commencing in the first quarter, Golar LNG said.

    The additional activity was initially supported by an Enarsa tender for 35 cargoes into Argentina early in the quarter followed by tenders for additional cargoes into Egypt.

    However, despite the increase in activity, hire rates remained at low $30,000 per day for TFDE tonnage and sub $20,000 per day for modern steam vessels, during the quarter.

    Subsequent to the quarter end, chartering activity and LNG charter rates have climbed steeply, Golar LNG said, noting that ramped up production from new facilities that started producing in late 2015/early 2016, the withdrawal of spot traded ships in anticipation of the imminent start-up of their dedicated project volumes and more trading activity to service recently installed FSRU capacity have collectively started to absorb some of the excess spot tonnage, increasing the rates as a result.

    Golar LNG believes that there is cautious confidence among shipowners in the market in the following 12 to 24 months. Currently, the round-trip voyages fetch $40,000 per day in the Atlantic basin and mid $30,000 per day in the Pacific.

    FSRU Tundra arrives in Ghana

    During the quarter, Golar LNG’s FSRU Tundra has arrived in Ghana and issued its notice of readiness.

    Amounts due under the contract started to accrue from mid-July, Golar LNG said adding that charterers of the FSRU, West Africa Gas Limited have experienced significant delays with respect to the part of the project for which they are responsible.

    Golar Partners who own the FSRU Tundra are however entitled to payment of hire.

    The company has been assured that the project remains intact and is in contact with WAGL in order to find a way to bring the project forward.

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    Open Hole Stimulation 30 Times Faster than Plug-and-Perf Method

    Packers Plus Energy Services Inc. is pleased to announce an operator successfully stimulated a StackFRAC® HD open hole multi-stage ball-drop system in Argentina's Loma La Lata field. This field-proven, cost-effective completion technology effectively stimulates multiple stages thereby increasing access to the reservoir, and resulted in a stimulation time which was 30 times faster than that of the traditional plug-and-perf method. Open hole completions have been proven to increase induced fracture complexity and provide superior connection to the reservoir.

    "The operator wanted a completion system that was more time efficient, as well as a system that would avoid proppant overdisplacement and its negative effect on production, whilst lowering operational risk" said Packers Plus President, Ian Bryant. "We're very pleased to have delivered on both counts and look forward to continuing to optimize completions for operators in the region."

    The completion, which would have taken an estimated 220 hours using the coiled tubing plug-and-perf technique (assuming a smooth operation), was successfully completed in 7 hours with the StackFRAC HD system, averaging one stage per hour. This saved the operator approximately $280,000USD.The frac spread utilization rate was 85% of total completion time. Because the StackFRAC system uses a continuous pumping operation and does not require trips between stages, the operator was able to control fluid placement, avoiding proppant overdisplacement, and avoid the potential risk associated with multiple coiled tubing runs. Additional time and cost savings were achieved with the use of degradable balls, which mitigated the need for post-stimulation intervention.  

    The key to successful multistage stimulation is connecting to a complex fracture network, maximizing near wellbore conductivity and reducing pressure drops during production. To date, Packers Plus has successfully completed more open hole wells than any other service company in Argentina. To learn more about Packers Plus' proven performance and international experience, visit
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    Victoria premier moves to ban unconventional gas development in the state

    Spearheaded by Victoria state premierDavid Andrews, the Labor government on Tuesday put forward a permanent ban on theexploration for and development of all onshore unconventional gas in the state, including hydraulic fracturing (fracking) and coal seam gas.

    The proposed permanent legislative ban, which will be introduced to Parliament later this year, will protect the ‘clean, green’ reputation of Victoria’s agriculture sector, which employs more than 190 000 people.

    Andrews noted that the farmers in Victoria produced some of the world’s cleanest and freshest food and that the government did not want to put that at risk.

    “Victorians have made it clear that they don’t support fracking and that the health and environmental risks involved outweigh any potential benefits,” he said, adding that Victoriais Australia’s top food and fibre producer, with exports worth $11.6-billion, and that the ban would protect the state’s reputation for producing high-quality food.

    Resources Minister Wade Noonan added that the government had carefully considered the key findings and recommendations of last year’s Parliamentary inquiry intoonshore unconventional gas development in Victoria and had made this latest decision “with the best available evidence”.

    The 2015 Parliamentary inquiry received more than 1 600 submissions that were mostly opposed to onshore unconventional gas, according to the Labor government.

    “There has been a great deal of community concern and anxiety about onshore unconventional gas – this decision gets the balance right,” said Noonan.

    The Minerals Council of Australia (MCA), however, believes the ban is a “retrograde step” for the nation, and not just forVictoria, as it will reduce the availability of gas for energy andindustrial use across the country.

    “This decision removes a key energy generation option from the energy mix and contradicts the recent [Council of Australian Governments] Ministerial communiqué that emphasised the need to increase the overall supply ofonshore gas,” commented MCA CEO Brendan Pearson, highlighting that the mining and minerals processing industry was a prominent electricity user, and that the country’s ability to compete globally depended on inexpensive and reliable energy supplies.

    “By ruling out new gas supply, there’s a real question as to what exactly will power Victorian (and also New South Wales, South Australian and Tasmanian) homes and businesses in the future.

    “These decisions will lead to higher prices for all energyconsumers,” said Pearson.

    He noted that the Victorian government had already showed its intention to move away from coal-fired electricity generation in the state and that this pre-empted any “reasonable” policy decision with the setting of ambitious renewable-energy targets.

    “The Victorian government seems intent on increasing the state’s dependence on expensive and part-time energy sources,” said Pearson, adding that the lessons from South Australia were “irrefutable”.

    “Energy prices will go up and reliability and grid stability will suffer,” he said.

    Meanwhile, until the Labor government’s proposed ban is passed by Parliament, Victoria’s current moratorium onunconventional onshore gas exploration and development will stay in place.

    The Labor government will also legislate to extend the current moratorium until June 30, 2020, while fracking remains banned.

    The government noted that exemptions to the ban would remain for other types of activities not covered by the current moratorium, such as gas storage, carbon storage research and accessing offshore resources. Exploration and development for offshore gas would also continue.

    Meanwhile, the Australian Labor party committed to undertaking the most extensive scientific, technical andenvironmental studies in Australia on the risks, benefits and impacts of onshore gas.

    “These will be overseen by an expert panel, headed by the lead scientist Amanda Caples, and will include farmers and industry, business and community representatives,” said the government.

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    Indian Oil Corp. to carry on importing two cargoes of LNG per month

    According to Reuters, a top executive at Indian Oil Corp. (IOC) has said that the company will continue to import a minimum of two cargoes of LNG each month after the Dahej import terminal expansion.

    The terminal is located on the west coast of India, and is operated by Petronet – the nation’s largest single LNG importer. The company increased the import capacity of the facility to 15 million tpy – an increase of 50%.

    Reuters added that IOC purchased two cargoes of LNG just last week.
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    Shell’s Forcados Oil Pipeline Seen Restarting in September

    Royal Dutch Shell Plc’s Forcados pipeline in Nigeria will resume deliveries in September, according to an oil company that uses the line.

    “We are hearing Forcados is due to return at the middle of next month," Kola Karim, chief executive officer of Shoreline Group, said Wednesday by phone from London. "It has been a tough situation for us these past couple of months."

    The Forcados pipeline system is among oil infrastructure targeted by Nigerian militants this year. In February, Shell declared force majeure -- a legal clause that allows it to stop shipments without breaching contracts -- after militants blew up a line feeding the Forcados terminal, which typically exports about 200,000 barrels a day. Of that, Shoreline sends about 52,000 barrels a day.

    Precious Okolobo, a Lagos-based spokesman for Shell, declined to comment on Wednesday.

    While the Niger Delta Avengers, which claimed most attacks in Nigeria’s oil heartland this year, have called a halt to hostilities, other militant groups have emerged. The Niger Delta Greenland Justice Mandate, or NDGJM, claimed an assault this week on the Ogor-Oteri pipeline, which is run by Nigerian Petroleum Development Co. and Shoreline and was already halted following a previous attack on Forcados.

    "It’s key to note that there are other groups now trying to assert themselves," Dolapo Oni, the Lagos-based head of Ecobank Energy Research, said by phone. "Nevertheless, it shouldn’t prevent the September opening."

    Shoreline is still trying to pinpoint the location and assess the damage from Tuesday’s attack in Delta state, Karim said.

    Nigeria expects to pump 1.5 million barrels a day “at best” this year, Minister of State for Petroleum Emmanuel Kachikwu said Aug. 12. The OPEC member produced about 2 million barrels a day last year.

    "With Forcados, we are likely to regain output at 1.8 million barrels a day and should be able to sustain that til year-end, which is a major boost for government revenue," Oni said.

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    The Truth Emerges: EIA Admits It "Overestimated" Crude, Gasoline Demand In The First Half By 16%

    One of the recurring peculiarities of oil complex data as reported by the EIA was how, during a time of an unprecedented crude glut by OPEC and pronounced economic weakness in the US, was overall US demand of various petrochemical products as strong as the DOE reported on a weekly basis. To be sure, the alleged increase in demand was one of the major catalysts that prompted rising oil prices together with relentless jawboning by OPEC members about a "production freeze" that would never materialize, in turn spurring not one but two record short squeeze across the commodity complex.

    We now know the answer.

    In a note released moments ago by the EIA, whose bias to keeping prices as high as possible is no secret, admitted that "over the first six months of 2016, EIA weekly estimates underestimated total crude oil, petroleum, and biofuel exports by an average of 16%, compared with final data published in the PSM."

    This underestimation of exports "led to the overestimation of total consumption" by a similar amount. The new methodology using near-real-time data from Customs significantly reduces the difference between weekly estimates and the actual data for total exports shown in the PSM during the first half of 2016.

    So time to fix the mistake then, and as a result, the EIA said that starting with today's release of the Weekly Petroleum Status Report (WPSR), EIA is now publishing weekly petroleum export and consumption
    estimates based on near-real-time export data provided by U.S. Customs and Border Protection (Customs). EIA previously relied on weekly export estimates based on monthly official export data published by the U.S. Census Bureau roughly six weeks following the end of each reporting month. This new methodology is expected to improve weekly estimates of petroleum consumption (measured as product supplied) by improving estimates of weekly exports of crude oil, petroleum products, and biofuels, which increased from 1 million barrels per day (b/d) in 2004 to nearly 5 million b/d in 2015.

    The EIA adds that the use of near-real-time export data should reduce differences between EIA's weekly data, as presented in the WPSR, and monthly data, as presented in the Petroleum Supply Monthly
    (PSM). The monthly data that EIA publishes 60 days after the end of
    each month are based on EIA's comprehensive monthly survey data and the actual Census Bureau export data for that month.

    As the EIA adds, the difference between the old and new weekly methodologies differs across individual products, with the new methodology providing a particularly significant improvement in the estimate of finished motor gasoline exports for the first six months of 2016. The improvement in export values reduces the difference in finished motor gasoline consumption from within 1.3% to within 0.9% of the actual values published in the Petroleum Supply Monthly for the first six months of 2016.

    Still, don't assume that all the bias will be eliminated: while the new weekly export methodology should provide improved weekly
    petroleum consumption estimates, there still may be differences between the weekly and monthly balances. Although the Census Bureau is able to directly validate data with export filers, EIA processes the raw Customs data without the ability to directly validate reported data with those filers and adds estimates for data not reported by Customs. In
    addition, there will continue to be minor differences between weekly
    sampled survey data for the nonexport categories and monthly data
    because of standard sampling and statistical issues.
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    Summary of Weekly Petroleum Data for the Week Ending August 26,

    2016 U.S. crude oil refinery inputs averaged over 16.6 million barrels per day during the week ending August 26, 2016, 64,000 barrels per day less than the previous week’s average. Refineries operated at 92.8% of their operable capacity last week. Gasoline production decreased slightly last week, averaging over 10.0 million barrels per day. Distillate fuel production increased last week, averaging about 5.0 million barrels per day.

    U.S. crude oil imports averaged over 8.9 million barrels per day last week, up by 275,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.5 million barrels per day, 11.4% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 832,000 barrels per day. Distillate fuel imports averaged 128,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.3 million barrels from the previous week. At 525.9 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 0.7 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories remained unchanged while blending components inventories decreased last week. Distillate fuel inventories increased by 1.5 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories rose 2.4 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 4.5 million barrels last week.

    Total products supplied over the last four-week period averaged about 20.6 million barrels per day, up by 1.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.7 million barrels per day, up by 1.8% from the same period last year. Distillate fuel product supplied averaged about 3.8 million barrels per day over the last four weeks, up by 1.7% from the same period last year. Jet fuel product supplied is up 9.9% compared to the same four-week period last year.

    Cushing falls 1.0 mmln bbls

    Attached Files
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    US oil production falls

                                                           Last Week  Week Before  Last Year

    Domestic Production '000....... 8,488           8,548          9,218
    Alaska '000.............................. 473               483             327
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    US distillate exports hit record high in June

    The US exported a record high 1.45 million b/d of distillates in June, up 207,000 b/d from May, with increases seen to Latin America and Europe, US Energy Information Administration data showed Wednesday.

    Distillate exports to the Netherlands jumped 115,000 b/d to 225,000 b/d in June, while exports to France edged up 11,000 b/d to 79,000 b/d.

    In Latin America, increases were seen across the board. US refiners exported 116,000 b/d of distillate to Brazil in June, up from 97,000 b/d in May. Exports to Mexico jumped 52,000 b/d to 212,000 b/d, while exports to Argentina climbed 46,000 b/d to 118,000 b/d.

    US Gulf Coast refiners -- notably Marathon, Valero and Phillips 66 -- have increasingly depended on export demand to market their refined products. While sluggish economic growth has sparked concerns that export demand might begin to dry up, threatening USGC refinery margins, the EIA June data showed export demand running strong.

    The market may be glutted with refined products, making the diesel arbitrage to Europe difficult, but near record low freight rates have helped keep the barrels moving.
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    An already-hot Permian basin continues to draw crowds

    West Texas’ Permian Basin has held the hottest oil land in the United States for about two years.

    And it’s not slowing down.

    Last week, another energy firm bought in. Denver-based PDC Energy bought 57,000 acres from New York-based private equity asset manager Kimmeridge Energy for $1.5 billion, or about $21,000 per undeveloped acre.

    This year, companies have spent $27 billion on oil exploration and production mergers and acquisitions in the lower 48 United States, according to market analysts Wood Mackenzie. Of that, $12 billion, or almost half, has gone to assets in the Permian.

    “Things are definitely getting hotter in the Permian Basin right now,” said WoodMac analyst Ben Shattuck. “You’ve got a substantial asset base that you can drill at today’s prices and still make money on.”

    Over the past three months, the firm has tracked eight deals worth more than $400 million each — some, far more.

    In June, San Antonio’s Pioneer Energy bought 28,000 acres from Oklahoma City-based Devon Energy for $435 million, or about $14,000 per undeveloped acre. A few days later, Denver’s QEP Resources bought 9,000 acres for $600 million from an undisclosed seller, spending more than $60,000 an acre — a sum that made oilmen raise eyebrows.

    In July, Midland’s Diamondback Energy bought 19,000 acres from Austin’s Luxe Energy for $560 million or $27,000 per undeveloped acre. Houston-based Silver Run Acquisition, run by former EOG chief executive and renowned shale driller Mark Papa, bought 38,000 acres from the private, Denver-based Centennial Resource Development for $1.38 billion, or $29,000 an acre.

    And in August, companies booked four big deals, including Denver-based SM Energy’s purchase of 25,000 acres from Houston’s Rock Oil for $980 million, or $31,000 per undeveloped acre; Midland-based Concho Resources’ pickup of 40,000 acres from Midland’s Reliance Energy for $1.63 million, or $30,000 an acre; and Austin-based Parsley Energy’s 9,000-acre buy from an undisclosed seller for $400 million, or $43,000 an acre.

    About three-quarters of the Permian deals in recent years have been in the region’s northern and eastern area, called the Midland Basin.

    This year, the Permian’s western half, the Delaware Basin, is heating up.

    Small private firms like Brigham, Jagged Peak, Three Rivers, Silver Hill and Luxe also have dipped into the Delaware — as have big public companies like Shell, Chevron and Conoco, which are finally running horizontal drilling operations there.

    This summer’s Diamondback, PDC and Silver Run purchases were all in the Permian’s western basin.

    Papa, the former EOG chief, said Silver Run had been looking for “a meaningful position in one of North America’s premier oil shale basins.”

    “There has been a lot of recent excitement about the Delaware Basin, but we believe its potential is still significantly underappreciated,” Papa said in a statement. He described the deal as a launching point for the new company.

    “I look forward to replicating the culture and philosophy that made EOG Resources such a success during my time there,” Papa said, “and using the Centennial assets as a platform to build something truly special.”

    The Delaware wasn’t a secret, WoodMac analysts said. But the basin’s geology is more complex than that of the neighboring Midland. And drilling technology didn’t allow efficient production in the Delaware until late 2014.

    That’s when rigs began flocking to the basin, WoodMac’s Shattuck said, even as oil prices crumbled and drillers moth-balled other plans.
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    Louisiana Ports Awash in ‘Dead Iron’ as Oil Manufacturing Drops

    In Alaska and Louisiana, the oil bust accentuates an impending economic catastrophe: Easier-to-produce crude and natural gas deposits are running out. The depletion of fields that fed the need for generations-old manufacturers is forcing them to search for new markets.

    "You’ve got to tap dance,” said Emile Dumesnil, chief executive of Dynamic Industries, Inc., at its Port of Iberia fabrication facility. “The easy money of 30 years ago is behind us. We’re running just under 50 percent capacity and spending a whole lot of money chasing opportunities."

    In Louisiana’s Cajun Country, the evidence of a manufacturing industry in crisis is inescapable. About 131 miles (211 kilometers) southwest of New Orleans, the Port of Iberia is crammed with "dead iron."

    Idled barge rigs rocked as sugarcane swayed in the breeze. Mountainous offshore oil platforms sat across an isthmus from rusted lift boats with 130-foot-tall legs. Two-hundred-foot-long supply vessels named for members of a family-owned firm seeking to lease them to oil companies for $9,000 a day -- one fifth of their $45,000 rate in 2014 -- floated nearby. Some multi-million-dollar equipment, delivered after the downturn started, has never been used.

    Construction Boom

    Unlike other energy-dependent states that are struggling to diversify their economies, Louisiana’s job loss could be offset by a $65 billion construction boom in liquefied natural gas and other industrial facilities that officials say could make it the world’s LNG export capital.

    Instead of constructing platforms for drillers on the Gulf’s shallow shelf, Dumesnil’s welders are making pipe modules for an $11 billion chemical facility Sasol Ltd. is building a 90-minute drive northwest in Lake Charles.

    The Sasol complex will join up to 19 other capital projects in parishes next door to the Lafayette metro area, which includes the Port of Iberia. The region’s municipalities are steeling themselves for an influx of some 31,000 scaffolders, electricians, truck drivers and others.

    Yet officials in Lafayette are without funds to retrain thousands of workers like Jimmie Green for these jobs. Green, 50, lost a position he held for two decades painting helicopters when Bristow U.S. LLC decided to contract out his work. He’s been unable to find another.

    "I’m taking money out of my retirement to live," he said. "I am hurting for insurance."

    Jermaine Ford, director of the Corporate College at South Louisiana Community College, is managing a wait list of more than 600 laid-off employees eager for retraining. Most require tuition subsidies for programs that don’t qualify for federal aid.

    "I’ve seen grown men and women cry because they can’t feed their families," he said. "I’ve had students sleeping in their cars."

    Bleak View

    The view outside the office window of Quay McKnight, chairman of the board of M&M International, a safety valve manufacturer founded by his father and uncle in 1980, is bleak: Enormous lathes that fashion metal bodies for valves sit idle. Lights are off in part of the plant. Lanes plied by fork lifts ferrying parts to milling machines are empty. In the last year, revenue plummeted 80 percent and M&M laid off 45 percent of its workforce.

    With oil production on hold in the Gulf and Bakken, M&M is without inventory. To protect his remaining workers, McKnight is seeking clients in other industries. He’s researching medical manufacturing.

    "My goal is to find work," he said. "The long-term goal is diversification -- we need to make sure this doesn’t impact us this way again."

    Nineteen miles southeast, boat maker Breaux mopped sweat from his tan, balding brow and explained he’s advertising his 33-year-old family-operated company for the first time in 15 years to find contracts to fill his warehouses.

    "When oil gets good again we will be the last to get back to work" because half the fleet available isn’t being used right now, he said. "It could take two years."

    Attached Files
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    Ferrellgas sheds rail terminal contract as oil prices fall

    Ferrellgas Partners LP has quietly shed a five-year contract at a Philadelphia-area crude rail terminal just a year after it obtained it through a deal that gave the propane company its first foothold in the oil logistics business.

    The deal - the purchase of Bridger Logistics - allowed Ferrellgas to move at least 65,000 barrels of Bakken crude daily through a rail terminal in Eddystone, Pennsylvania owned by Enbridge. But deliveries stopped in February - the same time Ferrellgas sold the terminal contract to a company named Jamex Transfer Services based in Baton Rouge, Louisiana.

    Ferrellgas, a retail propane supplier and midstream oil logistics company, has not disclosed the sale to investors. The details became public as an arbitration fight instigated by Enbridge spilled into New York federal court. The company declined to comment.

    The quiet sale raises questions about how transparent Ferrellgas has been with investors about developments around the Eddystone terminal contract, which was held by Bridger until Ferrellgas bought the logistics company last year.

    It also demonstrates how companies have been forced to reckon with the shifting economics in delivering oil by rail to the East Coast, viewed as a lucrative opportunity just a couple of years ago. Deliveries stopped in February after a fall in oil prices made it uneconomical to deliver the crude to the East Coast.

    The contract had a minimum volume commitment, which means Ferrellgas paid Eddystone Rail Company, which is majority-owned by Canada's Enbridge, roughly $5 million a month whether it brought crude to the facility or not, according to court records. Jamex Transfer stopped making monthly payments to Eddystone in February, as trains stopped coming into the terminal.

    Eddystone and its local investors in April asked a panel of arbitrators in New York to force Jamex to pay them millions of dollars in missed payments, along with payments due for the remainder of the contract, which expires in 2018.

    Arbitrations are typically private affairs, but a portion became public in early August when Enbridge asked a federal judge in the Southern District of New York to enforce a subpoena against Ferrellgas.

    Jamex Transfer is a subsidiary of Jamex Marketing, which Ferrellgas has identified as a related party in SEC filings. Related party transactions that meet certain thresholds, such as exceeding $120,000, are required to be disclosed. What Ferrellgas got for the contract is unknown.

    Enbridge declined to comment.

    The developments leave Ferrellgas without a reliable method to deliver Bakken crude to the 185,000 bpd refinery run by Monroe Energy, a subsidiary of Delta Air Lines. It also threatens Monroe Energy's ability to easily source Bakken crude if the market shifts in favor of domestic grades.


    In 2013, as U.S. crude-by-rail volumes were surging, Bridger Transfer Services, a subsidiary of Bridger Logistics, entered into a five-year contract with Eddystone, according to court documents.

    The agreement gave Bridger unequaled access to transport crude to the rail terminal. Bridger agreed to pay $2.50 for each barrel of crude oil unloaded at the facility, with a minimum volume commitment of 64,750 bpd, according to the agreement.

    Bridger then had a separate agreement with Monroe Energy to purchase the crude oil, according to regulatory filings. Monroe agreed to purchase half the crude at the Brent benchmark price minus $3 and the other half at cost, plus a fee, according to two people familiar with the agreement.

    In June 2015, Ferrellgas bought Bridger Logistics for $822.5 million. They noted the Monroe agreement was Bridger's "largest revenue-generating contract" and boasted the deal gave it "exclusive use of unloading capacity" at the Eddystone facility.

    In court and arbitration filings, Jamex Transfer said they stopped making payments because the rail station was "sub-standard" and the owners failed to make promised improvements.

    Jamex Transfer also alleged Eddystone did not disclose that crude trains would be slowed by regional rail service. Its own financing was also a problem, Jamex said in court papers.

    Through its attorneys, Jamex declined to comment.

    Eddystone said Jamex is fabricating problems, when the real problem is that Bakken crude has become economically unattractive on the East Coast.

    "The developments were connected with Monroe's reduced demand for North Dakota crude oil," Eddystone said in court documents.
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    EXCO Resources Turnaround is Working, but Comes at a High Cost

    EXCO Resources was once a sizable player in the Marcellus. They still have 145,000 net acres in the Marcellus, with 124 horizontal Marcellus wells drilled and in production.

    However, EXCO, as we pointed out in March, has pretty much abandoned the Marcellus at this point. In May the company announced it was looking at “restructuring,” which is typically a code word for bankruptcy, and the company’s stock took a nosedive.

    Not long after, EXCO announced it was firing some board members, hiring new ones, and aggressively hammering midstream companies to lower pipeline costs. It looks like the plan is working. The bleeding slowed in 2Q16.

    So far the company has stayed out of bankruptcy. How did they do it, where some others in similar circumstances have failed? According to EXCO’s chairman (and major investor) Wilbur Ross, Jr., the turnaround is due to turnaround expert C. John Wilder that the company hired last year.
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    Alternative Energy

    Tesla plans to raise additional cash this year

    Tesla Motors Inc plans to raise additional cash this year to help fund development and production of its new Model 3 sedan and build out a giant battery factory, the company said on Wednesday.

    The electric carmaker plans to raise money through either an equity or debt offering, it said in a registration statement filed with the U.S. Securities and Exchange Commission.

    Tesla Chief Executive Officer Elon Musk had warned the company might need "a small equity capital raise" in 2017.

    Earlier this month, Tesla said it closed the second quarter with nearly $3.25 billion in cash, but in July it repaid $678 million on a revolving credit line and planned to redeem $422 million in convertible notes.

    That would leave the company with $2.15 billion in cash. But it also told analysts earlier this year it planned to spend $1.75 billion in the second half on plants and equipment, primarily to get the $35,000 Model 3 ready for production next year and finish construction at the Reno "gigafactory."

    As a result, Tesla would be left with around $400 million in cash at a time when the company has been burning through cash and is in the process of acquiring and absorbing its money-losing sister company, SolarCity Corp.

    Tesla has posted operating losses in 14 straight quarters and negative cash flow since early 2014.

    The company said its main source of revenue is the sale of vehicles, but deliveries fell below projections in the first half, to 29,222.
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    Molycorp thrown a lifeline

    Bankrupt Molycorp has been offered a vital loan to keep its Mountain Pass mine under care and maintenance.

    On Wednesday the former rare earths producer morphed into Neo Performance Materials, but its rare earths mine and processing facility – the only mine and processor of REEs in the United States – is still under a separate Chapter 11 bankruptcy after Molycorp failed to find a buyer for the mine and release it from Chapter 11. The bankruptcy trustee tried to get a court to shut down the bankruptcy due to lack of funds, but on Tuesday, he revealed that Lexon Insurance Co. "has offered to lend the estate $4.2 million to maintain the mine and continue the search for a buyer," the Wall Street Journal reported.

    That means the mine will continue to be maintained safely, including keeping pumps running to contain groundwater contaminated by the rare earths separation process.

    Once considered the vehicle to challenge China's domination of the rare earths market (the Asian superpower mines about 90 percent of the materials used in everything from cell phones to defense systems) through Mountain Pass – Molycorp's fall from grace began in 2014. That summer the rare earths producer was forced into bankruptcy, a victim of low rare earth oxide prices. Shareholders sued the company's officers and directors, hoping to collect on their liability insurance. According to court filings, Molycorp spent $1.7 billion to outfit Mountain Pass with specialized equipment.

    A restructure plan made Molycorp 92.5 percent the property of Oaktree Capital Management LP, from which Molycorp received $130 million in debt financing. Unsecured creditors, including Molycorp bondholders, got the rest.

    The Greenwood, Colorado- based company moved Mountain Pass into care and maintenance, while continuing to serve customers through its production facilities in Estonia and China.

    Mountain Pass was expected to be America’s flagship source of rare earths. In 2010 Molycorp sensed an opportunity to capitalize on reduced rare earth oxide exports from China, which had caused the prices of REOs to spike. When China subsequently relaxed export rules, however, prices fell, leaving Molycorp to pay the close to $2 billion bill for expanding Mountain Pass.

    Hit by lower rare earth prices, Molycorp warned it might not have enough money to remain in business. Three months later, it filed for chapter 11 bankruptcy protection.
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    Deere, Monsanto Slide After DOJ Files Suit To Block Precision Planting Deal; Ag Sector Lower

    Several months after dozens of merger arb funds had their worst day in years when the US government effectively killed the Pfizer-Allergan deal, moments ago both Deere and Monstanto stocks dropped, after the DOJ filed a lawsuit seeking to block Deere's deal for Monsanto's Precision Planting.


    The news promptly dragged down the entire ag complex...


    ... as it now appears that the US government has shifted away from blocking tax inversion deals, and is instead focusing on the US agri space.

    As a reminder, in November 2015, Monsanto and Deere struck a deal to strengthen their cooperation in the emerging business of big-data services that help farmers improve crop performance. Deere agreed to buy Monsanto’s line of high-tech planting equipment, called Precision Planting, and in return make it easier for farmers to link their John Deere machinery to Monsanto’s Climate Corp. unit, which crunches data on crop performance and weather conditions to formulate farming advice. Terms of the deal weren’t disclosed.

    The deal “benefits all our customers and will allow for more information and better data-driven insights to come out of Climate,” Mike Stern, president of the division at Monsanto, said Tuesday.

    It appears that US government thought otherwise.
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    Steel, Iron Ore and Coal

    China's robust August iron ore, coal imports mirrored in prices

    China's imports of iron ore and coal remained robust in August, providing a fundamental justification for the ongoing resilience in the price of the two major bulk commodities.

    Although there are several more factors driving prices than China demand, it's also worth noting that crude oil imports likely slipped back somewhat in August, coinciding with a retreat in the price of global benchmark Brent crude.

    Imports of iron ore by China, buyer of about two-thirds of global seaborne supplies of the steel-making ingredient, were estimated at 89.26 million tonnes in August by Thomson Reuters Supply Chain and Commodities Research, based on vessel-tracking and port data.

    While the shipping data doesn't exactly dovetail with official data because of slight differences in when cargoes are assessed as having arrived for customs purposes, it was within 2.5 percent of the customs numbers over the first seven months of the year.

    Official data for August commodity imports will be released in about 10 days time.

    If the official numbers mirror the vessel-tracking data, it would mean August's iron ore imports would be the second-highest on record, and the most in any month this year.

    Such strength in imports is being reflected in spot Asian iron ore prices .IO62-CNI=SI which rose slightly in August from July to finish the month at $59 a tonne, taking the year-to-date gain to almost 40 percent.

    Whether this can continue is largely dependent on whether China will actually start cutting steel output, which reached a record on a daily basis in June, before easing slightly in July.

    Coal is also performing strongly on the back of rising Chinese import demand, which similar to iron ore has taken the market by surprise.

    China's August seaborne coal imports are estimated at 18.12 million tonnes, down somewhat from July's 18.9 million, but still the second-highest monthly total this year, according to ship-tracking data.

    The Thomson Reuters vessel-tracking data doesn't exactly match Chinese customs data, as the official figures include overland imports by rail and truck, mainly from Mongolia.

    However, the vessel data implies that China's total coal imports in August will be fairly close to July's official number of 21.21 million tonnes.

    Earlier in August it seemed from vessel-tracking data that China's seaborne coal imports would slump in August, but a flurry of late cargoes from Indonesia boosted the total, implying increased demand for the low-rank coal typically supplied by the Southeast Asian nation.

    China's year-to-date coal imports were up 6.7 percent in July, again providing fundamental support for the 32 percent rally this year in the benchmark thermal coal weekly index at Australia's Newcastle Port.

    While both thermal coal and iron ore remain well-supplied markets, the strength in Chinese demand has boosted prices for both, a situation likely to persist as long as China's imports remain robust.

    Among major resource imports, it appears China's appetite for crude oil eased in August, with Thomson Reuters Supply Chain and Commodities Research estimating 28.79 million tonnes of oil being imported in August.

    This equates to about 6.78 million barrels per day (bpd), which would be substantially down on the 7.32 million bpd officially reported in July.

    The most likely explanation for the lower crude imports is seasonal refinery maintenance in China, but it's also true that apparent demand has been weak, falling 0.3 percent to 10.58 million bpd in July from the same month in 2015.

    Softer growth in the parts of the Chinese economy that are heavy users of diesel, such as manufacturing and construction, have served to trim the use of the main fuel used for transport and in industry.

    While oil markets have been more focused on yet another round of "will they, won't they" being played over the possibility of a producer freeze on output, the slowing of purchases by the world's second-biggest crude importer has largely flown beneath the radar.

    It might be that China is experiencing a temporary easing in crude oil imports, but any sign of slowing growth and the possibility of a weak second half may act as a drag on oil prices.

    Overall, it appears that China's imports of major commodities are still relevant to prices, notwithstanding the slowing growth in the world's second-largest economy.
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    Samarco prosecutor expects to seek criminal charges next month

    Brazilian prosecutors are finalising a criminal investigation into the Samarco mine disaster and expect to ask a judge by the end of September to charge employees, said one of the prosecutors heading the case.

    The investigation is looking into alleged negligence that may constitute involuntary manslaughter charges, along with possible environmental crimes, Prosecutor Eduardo Aguiar said Tuesday in an interview in Belo Horizonte. Samarco, a venture owned by Vale SA and BHP Billiton, denies wrongdoing.

    “We are separating each individual from Samarco to know who had the power to make decisions or avoided making decisions that increased the level of risk of a dam rupture,” Aguiar said.

    A panel commissioned by Samarco and its owners found that the November 5 spill resulted from a series of misguided efforts to fix structural defects that hindered drainage and led to liquefaction, with small earth tremors possibly accelerating the process.

    BHP’s Chief Commercial Director Dean Dalla Valle said Monday that there was no evidence that anyone put production over safety or had reason to believe that anyone at BHP had any information that indicated the dam was in danger. Samarco and its owners declined to comment on the criminal case.

    The “findings, while answering the technical question of why the dam failed, draw no conclusions on liability and was not designed to,” UBS Group AG analysts, led by Glyn Lawcock, said in an August 30 report.

    BHP shares fell 3.2% in Sydney on Wednesday, while Vale was down 3.4% at 12.50 pm in Sao Paulo. The Bloomberg World Mining Index lost 1.6%.

    The rupture sent billions of gallons of sludge through the Rio Doce valley, killing as many as 19, leaving hundreds homeless and contaminating waterways in two states in what the government described as Brazil’s worst environmentaldisaster.

    The panel’s conclusions didn’t assign blame and, according to Aguiar, didn’t reveal anything new.

    The probe indicates that there was evidence that the risk of a dam breach rose in the years prior to the accident, Aguiar said. Samarco’s decision to continue increasing output, rather than halting operations to properly address the growing dam issues, was one of the major causes of the rupture, he said.

    While the criminal investigation is focusing on the role of Samarco employees, it may eventually shift to Vale and BHP, whose representatives are on the venture’s board of directors.

    “We expect the legal issues to eventually be resolved,” Macquarie Wealth Management said in an August 30 report. A restart of production is expected in fiscal 2018, though “we do not incorporate any cash flow contribution from Samarco in our forecasts for BHP and value it at zero,” it said.
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    Thyssenkrupp steel workers protest merger plans

    Several thousand steel workers at Thyssenkrupp on Wednesday protested management's plans for a merger of its European steel business with that of Tata Steel as well as possible site closures.

    Carrying banners saying "Stop steel exit" and "Steel is the future" in a rally organised by powerful labour union IG Metall, they marched to the headquarters of Thyssenkrupp Steel Europe in the industrial city of Duisburg, where the steel business's supervisory board is due to meet on Wednesday.

    Steel-to-elevators group Thyssenkrupp is in talks with India's Tata Steel to merge their European steel operations, but a senior labour official at Thyssen said this month that any plan to close some plants could go ahead irrespective of whether there is a merger deal.

    Thyssenkrupp has its 19th century roots in steelmaking but the sector is now being hit by lacklustre demand and cheap imports into Europe. Labour representatives fear the group wants to exit the sector at any cost, under pressure from activist investorCevian, which owns 15 percent of the group.

    "The workers want clarity on what is going on. They are worried," Steel Europe's works council chief Guenter Back told Reuters on Wednesday.
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    China listed steel enterprises swing to profit in H1

    China listed steel enterprises swing to profit in H1

    China's 24 surveyed listed steel enterprises posted a total profit of 3 billion yuan ($450 million) in the first half of the year, compared with a loss of 56.4 billion yuan last year, according to their half-year reports released lately.

    19 out of these enterprises managed to make profit, compared with only 7 last year.

    In the first quarter of the year, 11 out of the 24 steel enterprises posted profit, and total loss of the 24 enterprises exceeded 4 billion yuan.

    With the deepening of China's de-capacity movement, steel price has rebounded since March this year, which led to an increment in steel mills' profit.

    However, many steel producers are cautious about the future market, as the oversupplied situation can't be changed in the short run, and most steel mills are still operating with high cost.

    Baoshan Iron and Steel Co., Ltd., China's largest listed steel maker, ranked first with profit at 3.46 billion yuan in the first half of the year.

    The figure exceeded the total profit of the other 18 enterprises.

    The company planned to cut outdated steel capacity by 9.2 Mtpa in 2016-2018, in response to the government's supply-side reform.

    China aimed to reduce steel production capacity by 100-150 Mtpa over the next five years, with some 45 Mtpa cut in 2016.
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    Hebei lags behind on plan to cut steel capacity

    Hebei province in northern China, accounting for a quarter of China's steel output, is lagging far behind in its plan to slash iron and steel making capacity, said the Hebei Development and Reform Commission.

    Seven major iron and steel producers cut capacity of 3.18 million tonnes per annum (Mtpa) in the first seven months of the year by closing six plants, which, however, accounted for only 10% of the de-capacity target set by the government, data showed.

    Hebei province, as the heavily polluted province which surrounds China's capital Beijing, had pledged a month earlier to cut iron and steel making capacity of 17.26 Mtpa and 14.22 Mtpa respectively by end-2016, yet the disappointing figures showed the difficulties that China faces trying to reduce excess capacity across several industrial sectors.

    The government had allotted 30.7 billion yuan ($4.62 billion) to support the capacity cuts in steel and coal industries, but de-capacity results across the world's top steel producing nation are also behind national targets, said the National Development and Reform Commission.
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    US mills cancel August ferrous scrap; pressure mounts on primes

    US mills began sending cancellation notices to their ferrous scrap suppliers for any material not delivered by close of business Wednesday, the last business day of the month.

    Some mills canceled only undelivered prime scrap, the grade expected to see the biggest price drop in September, while other mills canceled all grades.

    "No surprise on the cancellations coming in," one source said. "[The] market is weaker, which means cancellations are sure to come. Demand is much weaker."

    A major electric arc furnace in Ohio was canceling all grades, two Detroit-area EAFs were canceling only prime grades of scrap, and other Midwest mills were canceling most grades with some mill-specific exceptions, including heavy melting scrap or plate & structural scrap exclusions.

    September trading is expected to begin on Tuesday at the earliest following the US Labor Day holiday on Monday.

    One major mill was indicating to dealers on Thursday it was likely to take primes down $20/lt and obsolete grades of scrap down $10/lt during the September buy week.

    "People have given up on busheling; shred will take a hit because the powerhouse shredders have plenty of shred to offer into the market," one trader said. "The fight will be on cut grades."

    Mill outages and poor utilization rates are the two major factors weighing on the market. Mill buyers indicate they are not in a hurry to procure tonnage and will likely wait until Wednesday of next week to enter the market.

    "Cuts will be tough to figure out," one Midwest mill buyer said of grades including P&S and HMS. "For most [mills] you can fill in with shred if you can or pay [extra] for remote P&S/HMS."

    Prime scrap prices are averaging around a $30/lt premium to shredded scrap, a wide premium that many believe still needs to be reconciled.

    One Southeast scrap supplier who had yet to receive a cancellation notice by late Wednesday believed most of the cancellations in the Southeast would be limited to prime scrap.

    "Cut scrap seems a bit tight and should trade at sideways in most regions," he said. "Shred looks to be a soft sideways to possibly down $5-$10 depending on region. I would expect prime to be down $10-$20."
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