Mark Latham Commodity Equity Intelligence Service

Tuesday 8th November 2016
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    China Oct exports, imports fall more than expected

    China's exports and imports fell more than expected in October, with weak domestic and global demand adding to doubts that a pick-up in economic activity in the world's largest trading nation can be sustained.

    October exports fell 7.3 percent from a year earlier, while imports shrank 1.4 percent, official data showed on Tuesday, raising fears that a broader recovery seen in recent months could falter.

    While recent data had suggested the world's second-largest economy was steadying, analysts have warned that a property boom which has generated a significant share of the growth may be peaking, dampening demand for building materials from cement to steel.

    Indeed, China's imports of iron ore, crude oil, coal and copper all fell in October, after its robust demand drove global prices of many major commodities higher this year.

    Though some analysts argued the decline may be seasonal, data from industry consultancy suggested steel mills have been cutting output and even starting maintenance work earlier than usual as soaring costs for raw materials such as iron ore and coal squeeze profits.

    Analysts polled by Reuters had expected October exports to have fallen 6 percent from a year earlier, compared to a 10 percent contraction in September. Imports had been expected to drop 1 percent, after falling 1.9 percent in September.

    "Our conclusion is that external demand remains sluggish but it has not worsened significantly. Although both exports and imports have fallen short of expectations, they have improved on a year-on-year basis," economists at ANZ said in a note, noting the rate of decline in October had moderated from September.

    Still, China's exports in the first 10 months of the year fell 7.7 percent from the same period a year earlier, while imports dropped 7.5 percent.

    Exports have dragged on economic growth this year as global demand remains stubbornly sluggish, forcing policymakers to rely on higher government spending and record bank lending to boost activity. Weak exports knocked 7.8 percent off the country's GDP growth in the first three quarters of this year.

    Imports fell for the second month in a row in October after rising for the first time in nearly two years in August.

    That left the country with a trade surplus of $49.06 billion for the month, versus forecasts of $51.70 billion, and September's $41.99 billion.

    In yuan-denominated terms, the trade numbers weren't as bad, indicating that the currency's slide to six-year lows has provided some support for exporters. Yuan-denominated shipments have only fallen 2.0 percent this year, with imports down 1.8 percent.

    "Yuan depreciation should be positive for exports, but it only provides some support for exporters when they convert dollar income into yuan, but cannot reverse the trend," said Merchants Securities economist Liu Yaxin in Shenzhen.

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    Tangshan orders emergency production halt to tackle air pollution

    The city government of Tangshan in northern China's smog-ridden Hebei Province had on November 4 ordered local coke, steel-rolling, casting, cement and glass factories to halt production immediately in an emergency response to the country's lingering air pollution.

    All coking plants were asked to halt production and delay the coking time to 48 hours immediately from 15:00 November 4, said an official statement released on November 4.

    Analysts expected coke production to cut by 50% due to the increase of coking time, putting pressure on coke and steel producers' replenishing activities.

    Meanwhile, the Tangshan government asked all steel enterprises to stop sintering machines and damping down furnaces.

    According to the municipal government, all coal-fired boilers except those for heating must be turned off, production and transportation in all surface mines will be stopped. Construction sites and concrete mixing plants across the city were also ordered to stop work.

    The decisions were made as China renewed its orange alert for air pollution that has lasted for days.

    Hebei is China's biggest steelmaking region, accounting for a quarter of the country's steel output.

    The province has already pledged to impose what it called "special emission restrictions" on local mills by setting up tough standards for sulphur dioxide and other pollutants.

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    Oil and Gas

    Militants pull out of Nigeria oil talks

    Nigeria's bid to ramp up oiloutput back to pre-January 2016 levels of 2.2 mil b/d comes under threat as militants back out of peacetalks.

    @PlattsOil  22m
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    OPEC Raises Oil-Demand Forecast on Outlook for Cheaper Crude

    OPEC raised its forecast for global oil demand next year and through the end of the decade, anticipating that cheaper crude will spur consumption even as economic growth slows.

    Demand will reach 95.3 million barrels a day in 2017, according to the producer group’s annual World Oil Outlook report released Tuesday. That’s an increase of 300,000 barrels a day from last year’s forecast. The Organization of Petroleum Exporting Countries also raised its outlook for oil use in 2018, 2019 and 2020, when it sees demand reaching 98.3 million barrels a day, or 900,000 more than the group projected in its previous annual outlook.

    OPEC cut its estimates for crude prices by $20 a barrel for each year from 2016 to 2020, compared with its previous outlook. The group assumes crude will average $40 a barrel in 2016, and it raised its projected price by $5 a barrel in each of the following years through 2020. Brent has averaged about $44 a barrel so far this year.

    OPEC’s upward revision for demand “is the result of a lower medium-term oil price assumption, which is expected to have a stronger influence than assumptions of lower medium-term economic growth and expanded energy efficiency policies,” the report’s researchers said. Global economic growth will be 3.4 percent a year for 2015 to 2021, compared with an annual 3.6 percent that OPEC forecast last year for 2014 to 2020, due to slowdowns in China and Latin America, it said.

    The group’s 14 members are in talks with each other, and with non-member producers including Russia, to complete an initial agreement OPEC reached in September to limit its collective crude output in an effort to support prices. Benchmark Brent crude tumbled from more than $115 a barrel in June 2014 amid a supply glut and ended last week trading 8.3 percent lower at $45.58. Exploration for new crude deposits has declined with prices, prompting concern that producers may not be able to meet future demand.

    Future Shortage

    Royal Dutch Shell Plc, the world’s second-biggest energy company by market value, predicts demand for oil could peak in as little as five years. “We’ve long been of the opinion that demand will peak before supply,” Shell Chief Financial Officer Simon Henry said on a conference call on Nov. 1.

    “While the recent oil market environment has been one of oversupply, it is vital that the industry ensures that a lack of investments today does not lead to a shortage of supply in the future,” OPEC Secretary-General Mohammed Barkindo wrote in a foreword to the report.

    Demand for oil in the rich nations of the Organization for Economic Cooperation and Development will begin to fall after 2017, due partly to an increase in supplies of natural gas and nuclear and renewable energy, OPEC said. Oil consumption in developing nations will continue to rise, however, driving overall demand growth until at least 2040, it said.

    Demand in India will grow to 5.4 million barrels a day by 2021, a 32 percent increase from 2015, OPEC said, raising its forecast from last year by 470,000 barrels a day due to the Asian nation’s improving economy. The group reduced its growth forecasts for oil demand in Latin America and China.

    Road transportation will account for 6.2 million barrels a day of new demand arising between 2015 and 2040, or more than a third of the total increase for that period, according to OPEC. The number of vehicles on the roads will double over those same 25 years to more than 2.5 billion, with developing nations accounting for most of the increase.

    While the number of cars will also increase in OECD countries, related oil demand will drop by 30 percent as a result of of improved fuel economy and the growing use of electric and hybrid vehicles, OPEC said.

    World oil outlook:
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    Saudi oil shipments to Egypt halted indefinitely, Egyptian officials say

    A Saudi Aramco employee sits in the area of its stand at the Middle East Petrotech 2016, an exhibition and conference for the refining and petrochemical industries, in Manama, Bahrain, September 27, 2016. REUTERS/Hamad I Mohammed

    Saudi Arabia has informed Egypt that shipments of oil products expected under a $23 billion aid deal would be halted indefinitely, suggesting a deepening rift between the Arab world's richest country and its most populous.

    Saudi Arabia agreed to provide Egypt with 700,000 tonnes of refined oil products per month for five years in April, during a visit by King Salman.

    The cargoes stopped arriving at the start of October, as festering political tensions burst into the open, but Egyptian officials said the contract remained valid and had appeared to hold out hope that oil would start flowing again soon.

    Saudi Arabia's state oil firm Aramco has not commented on the halt. But on Monday, Egyptian Oil Minister Tarek El Molla confirmed it had halted the shipments indefinitely.

    An oil ministry official told Reuters: "They did not give us a reason. They only informed the authority about halting shipments of petroleum products until further notice."

    The move comes as a source in Molla's delegation said late on Sunday evening that he would visit Iran, Saudi Arabia's main political rival, to try to strike new oil deals.

    Egypt and Iran's diplomatic relations have been strained since the 1970s. An Egyptian official visiting Iran would cement a break in its alliance with Saudi Arabia and mark a seismic shift in the regional political order.

    The oil ministry spokesman declined to confirm or deny whether Molla was scheduled to visit Iran, saying he had gone to Abu Dhabi to attend a conference. Foreign Ministry spokesman Ahmed Abu Zeid said he had no information on the visit.

    Speaking to reporters in Abu Dhabi, Molla said he was not going to Iran.

    But two security sources and a source in Molla's delegation said the minister had been scheduled to go though the low-key visit was now likely to be delayed after the news became public.

    Gulf Arab countries, led by Saudi Arabia, have pumped billions of dollars into Egypt's flagging economy since mid-2013, when general-turned-president Abdel Fattah al-Sisi seized power, ending a year of divisive Muslim Brotherhood rule.

    But with the Brotherhood threat diminished, Gulf rulers have grown disillusioned at what they consider Sisi's inability to reform an economy that has become a black hole for aid, and his reluctance to back them on the regional stage.

    Egypt has been reluctant to provide military backing for Riyadh's war against the Iranian-backed Houthi group in Yemen.

    In Syria, where Saudi Arabia is a leading backer of rebels fighting against Iranian-backed Bashar al-Assad, Sisi has supported Russia's decision to bomb in support of the president.

    A deal to hand over two Red Sea islands to Saudi Arabia, made at the same time as the oil aid agreement, has faced legal challenges and is now bogged down in an Egyptian court.

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    Future of Gas Called into Question at London Conference

    The future of gas was called into question at a recent energy conference in London by Tara Schmidt, principal consultant at Environmental Resources Management.

    The future of gas was called into question at a recent energy conference in London by Tara Schmidt, principal consultant at Environmental Resources Management.

    In a panel discussion at London Business School’s 13th Global Energy Summit, focusing on the energy mix of the future in the wake of the Paris Agreement, EDF’s corporate policy and regulation director Angela Hepworth was optimistic about the role of gas contribution.

    “You need a diverse balance mix of different types of generating capacity and you need that because different types of generating capacity have got different characteristics,” Hepworth said.

    “Renewables…[are] great sources of renewable low carbon energy, but the problem is they’re intermittent. You can’t guarantee that they’ll be there when you need them…Gas capacity is not low carbon but it is very flexible. So gas is a really valuable contributor to the generation mix to provide the flexibility we need to balance the system,” she added.

    Following Hepworth’s comments, Schmidt said the future of gas contribution could go one of two ways.

    “The big question for gas is if we’re going to see that golden age of gas, as the IEA called it so many years ago, or if we’re actually going to see gas impacted as we’ve seen in some markets for renewables growth and also from energy storage as technology starts to advance,” stated Schmidt.

    Earlier this month, an International Energy Agency report stated that technological improvements are required if gas is to serve as a long-term fuel.

    The IEA states that gas-fired power generation in the 2DS (two degrees) plan will increase through the 2030s, and will rise rapidly in China and India from 2015 to 2040. This form of power is scheduled to gradually decline to 2050 though, unless technological advancements can be made.

    These improvements include the application of CCS (carbon capture and storage), which reduces the carbon intensity of generation and would allow gas to remain a low-carbon choice relative to the increasingly stringent requirements of the 2DS well beyond 2040, the IEA said.

    The Paris Agreement, reached at COP21 in December 2015, aims to limit global warming to ‘well below 2 degrees celsius’ by phasing out inefficient and emission-heavy fuel sources. The agreement became effective November 4, 2016.
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    Eni to BP CEOs Limit Oil Spending for 2017 to Cope With Glut

    From Eni SpA to BP Plc, the biggest international oil companies are reining in capital spending for 2017 and possibly longer as they try to squeeze profits from a crude market battered by a global glut.

    Eni, which posted a greater-than-expected third-quarter loss, is reducing capital expenditure at least through next year, CEO Claudio Descalzi said Monday in a Bloomberg TV interview from Abu Dhabi, where energy companies are meeting to discuss the industry’s future.

    BP is holding outlays to about $16 billion this year compared with a previous estimate of less than $17 billion, its CEO Bob Dudley said in a separate interview at the conference. Many other companies in the industry were doing the same, “bolting” down their capital spending, he said.

    Energy majors are putting limits on expenditures as OPEC, which agreed in September to trim output for the first time in eight years, struggles to persuade Russian and other producers from outside the group to join the cuts. OPEC, which pumps about 40 percent of the world’s oil, wants to put the changes into effect when it meets in Vienna on Nov. 30. The agreement is to last one year starting in January, state-run news agency APS reported Monday, citing Algeria’s energy minister, Noureddine Boutarfa.

    Price Floor

    Brent crude, the international benchmark, has dropped below $50 a barrel since last month on concern that OPEC won’t be able to reach an accord with non-OPEC producers. Futures rebounded 1.1 percent to $46.10 a barrel by 2:54 p.m. in Dubai, the first advance in seven sessions.

    Rome-based energy producer Eni could still make a profit, maintain spending and pay a dividend with crude at $50 a barrel, Descalzi said. Oil at $50 “is OK,” he said. “Looking at our break-even price, that is enough.”

    Eni wants to maintain production while reducing capital expenditure at least through next year, Descalzi said. “2017 will still be a very low capex year, and we have to try to optimize, and we have to reduce capex but be able to maintain production.”

    Capital spending was static across the industry, due largely to cost savings and deflation, BP’s Dudley said. “I think we’re going to be about the same level next year as we have been this year,” he said.

    ‘Supply Overhang’

    With demand rising and investment dropping off, crude could “easily” reach $55 a barrel next year, Dudley said.

    Exxon Mobil Corp. CEO Rex Tillerson, speaking on the sidelines of the Abu Dhabi conference, declined to give an estimate of his company’s expenditure. Capital spending will be “highly variable” from one producer to the next, he said.

    There’s still a significant supply overhang and inventory overhang that needs to be worked through,” Tillerson said.

    Energy investment will be 44 percent lower than expected from 2015 to 2020, compared with expectations before crude prices collapsed about two years ago, author and energy consultant Daniel Yergin said in an interview in Abu Dhabi. “‘When you look at all the postponements and cancellations, that will add up later in this decade,” he said.

    Eni is among major oil producers that are under pressure since crude prices plunged to less than half their 2014 peak levels. The company pumps crude in Iraq and is developing offshore natural gas fields in Egypt and Mozambique.

    Eni’s Descalzi said oil prices would be high enough over the next three years for his company to maintain investment spending and its dividend. “Our number that’s good to cover our investment, and our operating cash flow is $50.” Price

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    Chevron pledges to share North Sea Alder learnings to help unlock small pools potential

    Chevron has pledged to share some of the “learnings” of the Alder project with the wider industry to exploit small pools in the North Sea.

    The subsea technology employed on Alder could be important to the development of so-called small pools, oil and gas fields that might otherwise not be exploited unless the required technology is developed and deployed to link them to existing platforms.

    Exploiting small pools in the North Sea is a key focus of the Oil and Gas Authority (OGA) as part of its “maximising economic recovery” (MER) strategy as well as a main area of research for the newly established Oil and Gas Technology Centre (OGTC).

    Greta Lydecker, managing director of Chevron Upstream Europe, said: “Maybe the general view of small pools is that they will never be profitable.

    Mr Hinkley said that technology could reduce costs of subsea development up to 25% which would make developments feasible. : “There is no doubt the industry has come together to look at subsea solutions. They have looked at the savings that are out there. You start talking those kinds of cost saving numbers, it becomes the trigger between go or no go for some of these small pool opportunities.”

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    Iran to Sign $6 Billion Gas-Field Deal With Total, CNPC

    Iran plans to sign a preliminary $6 billion deal with Total SA on Tuesday to help develop an offshore gas field, potentially the first Western energy investment there since international sanctions were lifted this year, an oil-ministry official in Tehran said.

    The agreement with the French oil giant could be a harbinger for the return of more Western companies to Iran’s vast petroleum industry and represents a step forward for the Islamic Republic’s goals of ramping up production of oil and gas over the next several years.

    European oil companies have been slow to return to Iran since the Persian Gulf country secured an end to sanctions on its energy industry by agreeing to curbs on its national nuclear program in January. American sanctions related to terrorism and weapons remain in effect on Iran.

    Total, China National Petroleum Corp. and Iran’s state-owned Petropars will develop part of a giant gas field in the Persian Gulf known as South Pars, a press official at Iran’s oil ministry said. It wasn’t clear how much of the $6 billion investment would come from Total, or how the deal would be structured for Total to steer clear of American sanctions still in effect.

    The deal is a draft that still must be completed over the next six months, the official said, but it gives Total and CNPC a head start over competitors.

    Representatives for CNPC and Petropars didn’t immediately respond to requests for comment. Total said representatives weren’t available to comment on Monday.

    The agreement marks the first time a Western oil company has been contracted under the new terms for foreign firms working in Iran. The terms still haven’t been publicly released, but Iranian oil officials have said they foresee allowing oil companies to make more money and work for longer than previous deals that were seen as onerous and loss-making.

    Total was long one of the most active Western oil companies in Iran, and its executives have said they were eager to return to a country with the fourth-largest reserves of oil in the world. Total kept an office open in Iran throughout sanctions and was the first European oil company to buy Iranian oil and ship it to Europe after the restrictions were lifted.

    But actually setting up shop in Iran and drilling has been a riskier proposition. Total Chief Executive Patrick Pouyanne has said he was in no rush to return to Iran until the terms of working there were better understood.

    Total and CNPC both signed deals years ago to develop the South Pars project before sanctions forced them to pull out. The South Pars field, which is shared by Iran and Qatar in the Gulf, contains 14,000 billion cubic meters of gas—8% of the world’s known reserves.

    Total and CNPC have been leaders among oil companies in finding ways to do business in countries under U.S. sanctions. Both companies were key players in developing a $27 billion natural-gas field in Russia with a company, OAO Novatak, hit by sanctions, a deal largely financed by Chinese banks.

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    Italgas promises higher dividends on its return to stock market

    Italy's biggest gas distributor Italgas pledged to pay higher dividends as it returned to the Milan stock market on Monday after a 13-year absence.

    Italgas, first traded in 1853 on the bourse in Turin and delisted from the Milan exchange in 2003 by oil company Eni , started trading at 4.062 euros per share giving it a market value of about 3.3 billion euros ($3.7 billion).

    Italian gas company Snam spun off its domestic distribution business earlier this month as part of plans to focus on energy transmission and storage across Europe.

    Snam, which distributed Italgas shares to its shareholders, has kept a 13.5 percent stake.

    Speaking at the ceremony to mark the company's bourse debut, Chief Executive Paolo Gallo said Italgas would increase its dividend by 2-3 percent per year in 2017 and 2018.

    "From 2019, when we have a clearer picture of the gas concession situation, we might be able to remunerate shareholders more," he said.

    Italy's gas distribution sector is highly fragmented but new rules cutting concession areas to just 177 from almost 7,000 are expected to streamline the industry.

    Italgas, the third biggest gas distributor in Europe, is hoping to lift its share of the Italian market to about 40 percent from 30.3 percent now.

    Gallo said it would invest some 1.3 billion euros to take part in the new gas zone tenders which would be on top of other planned capital expenditure of 2 billion euros over the period to 2020.

    Italgas will post revenue of more than 1 billion euros this year, 98 percent of which will be from regulated tariffs.
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    International offshore rig count down by 70 units YOY

    Oilfield services provider Baker Hughes informed on Monday that the international offshore rig count in October 2016 was down by 70 units when compared to the same period in 2015.

    Namely, according to the report, the international offshore rig count for October 2016 was 200, down 21 from the 221 counted in September 2016, and down 70 from the 270 counted in October 2015.

    The international total rig count for October 2016 was 920, down 14 from the 934 counted in September 2016, and down 191 from the 1,111 counted in October 2015.

    The average U.S. rig count for October 2016 was 544, up 35 from the 509 counted in September 2016, and down 247 from the 791 counted in October 2015.

    The average Canadian rig count for October 2016 was 156, up 15 from the 141 counted in September 2016, and down 28 from the 184 counted in October 2015.

    The worldwide rig count for October 2016 was 1,620, up 36 from the 1,584 counted in September 2016, and down 466 from the 2,086 counted in October 2015.

    The worldwide offshore rig count for October 2016 was 225, down 15 from 240 counted in September 2016, and down 79 from 304 counted in October 2015.
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    Trafigura Says Not Party to Storage Contracts in Petrobras Probe

    Trafigura Group distanced itself from a board member arrested in Brazil over allegations of involvement in bribery and money laundering at state-run oil company Petroleo Brasileiro SA, saying the contracts at the heart of the case didn’t involve the commodity-trading house.

    The “substantive allegations” made by Brazil’s public prosecutor against management board member Mariano Marcondes Ferraz “relate to certain storage contracts entered into between Petrobras and Decal do Brasil at the Porto de Suape,” Trafigura wrote in a letter sent to its banking partners on Nov. 2. Ferraz was a founding partner of storage and bunkering firm Decal and retains an equity interest in the company, Trafigura said in the letter seen by Bloomberg News.

    “We note that Petrobras has (via its legal department) informed the public prosecutor that Trafigura was not party to these contracts,” Trafigura said.

    The trading house dispatched the letter to its banks several days before the office of the Swiss attorney general said a “criminal case” had been opened involving a Trafigura executive and the Petrobras corruption probe known as Carwash. A spokesman for the attorney general declined to comment further on the investigation, first reported by Swiss newspaper Le Temps.

    “From what we can gather from reading the prosecution documents and press articles, it seems that the substantive allegations against Mariano Marcondes Ferraz are arising from his private business relationship with Decal do Brazil,” a spokeswoman for Trafigura said in an e-mailed statement. “Trafigura has not been approached by the Swiss authorities in relation to these allegations.”

    Setting Bail

    Following a hearing on Nov. 3, Ferraz agreed to pay bail and remain in Brazil while authorities investigate his alleged involvement in the bribery scheme.

    A judge in Curitiba, Brazil, accepted that Ferraz be released upon paying bail of 3 million reais ($930,000), according to the ruling made last week. Ferraz will have his passports withheld to prevent him from leaving the country, can’t change his address in Brazil and must cooperate with the investigation as part of the agreement, according to the ruling.

    Ferraz, a management board member at Singapore-based Trafigura since 2014 and the CEO of company affiliate DT Group, was detained Oct. 26 on suspicion that he collected bribes and participated in corruption and money laundering. Federal police detained him at Sao Paulo’s Guarulhos International Airport as he prepared to board a flight to London.

    Ferraz was taken the following day to Curitiba, the base of the Carwash probe investigating a pay-to-play scheme where Petrobras executives accepted bribes, funneling money to politicians in exchange for favors. The judge and federal prosecutors overseeing the case are based in the city.

    Bribery Allegations

    A former executive with Marc Rich and Glencore Plc in Brazil, Ferraz joined Trafigura in 2007, according to his biography on Trafigura’s website. The Brazilian national has a residence in Geneva, according to website

    With major trading operations in Geneva, Singapore and Houston, Trafigura is the second-biggest metals trader and third-largest independent oil trader, handling more than 4 million barrels of crude and petroleum products a day. Relationships with banks via short-term financing arrangements to fund operations are the lifeblood for trading houses.

    Former Petrobras executive Paulo Roberto Costa has told investigators that Ferraz paid more than $800,000 in bribes from 2011 to 2013 to obtain contracts with the oil company, according to a statement issued by federal prosecutors when Ferraz was arrested.

    A lawyer for Ferraz declined to comment on the case.

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    Oil investor impatience grows over global surplus

    Oil investors are growing increasingly disgruntled with the pace at which supply and demand are rebalancing, cutting their bullish bets and pushing the benchmark priceto its biggest discount relative to future prices in nine months.

    The premium of Brent crude futures for delivery in six months over those for prompt delivery, one measure of confidence in the market outlook, on Monday shot to its largest since February, the point at which OPEC first floated the idea of a possible deal on output to erode a two-year-old global surplus.

    The spread, or contango, is now at $3.51 a barrel, up from $2.30 at the end of September, when OPEC announced its intention to strike a deal to cut production when it meets in Vienna later this month.

    Generally, a widening in this spread can indicate one of two things: either investors have grown more pessimistic over the prospect of a rally in prices for prompt delivery, or they are more optimistic over the likelihood of a longer-term rally.

    In this case, the prompt Brent contract has led the move, having fallen by 5.2 percent since the end of September, compared with a fall of 2.6 percent in the price of oil for delivery in six months.

    "The increasing contango is really about the physical side of the market," SEB chief commodities strategist Bjarne Schieldrop said.

    "We've had an increase in inventories rather than a decrease that has coincided with refinery outages. It's not a pretty sight."

    The most recent Reuters survey estimated OPEC supply hit a record high of 33.82 million barrels per day (bpd) in October, up 130,000 bpd from September and up 2.2 million bpd from October last year. [OPEC/O]

    Since announcing their intention to cut production to a range of 32.5 to 33 million bpd following a meeting in Algiers, the discord among the world's largest exporters has grown. Libya, Nigeria, Iraq and Iran have clamored to be exempt from any reduction as they recover market share lost to civil unrest and, in the case of Tehran, international sanctions.

    Those four already represent a third of OPEC output and an exemption would increase the pressure on Saudi Arabia and its Gulf neighbors to deliver the bulk of the cuts.


    Highlighting the increasingly uphill battle to achieve consensus, OPEC sources told Reuters last week that Saudi Arabia had warned it could raise output steeply if rival Iran refused to limit supply.

    Despite OPEC Secretary-General Mohammed Barkindo attempting to soothe concerns about the group's ability to cut meaningfully, oil prices are at their lowest in nearly two months, having unwound the gains made since late September.

    "The problem in a nutshell is that too many members want higher prices without making any sacrifices and the market is losing patience," PVM Oil Associates analyst David Hufton said in a report on Monday.

    "Confidence in a successful OPEC outcome has evaporated."

    Investors have cut their net long holdings of crude oil futures and options by around 100 million barrels in just two weeks. [O/ICE] [CFTC/]

    Another question hangs over non-OPEC members, specifically Russia, the world's largest producer of crude, and their willingness to join in an effort to freeze or cut output.

    Russia set a new post-Soviet record high in October of 11.2 million bpd, underscoring the challenge the government might face in agreeing to freeze output.

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    Genscape see Cushing inventory down

    Genscape Cushing inventory week ending 11/4: -442,076 bbl w/w.

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    Alternative Energy

    Ireland's Mainstream Renewable to build $2.2 bln of wind farms in Vietnam

    Irish wind and solar firm Mainstream Renewable Power on Monday said it had agreed to build and operate wind projects in Vietnam worth a total of over $2.2 billion, as the country looks for new energy sources to meet soaring demand.

    The announcement came on the sidelines of Irish President Michael Higgins' visit to the Southeast Asian nation. It expands upon, and adds a price tag to, an agreement back in September.

    Countries around the world are coming under increasing pressure to crack down on carbon emissions from sectors such as coal-fired power stations, with the historic Paris climate accord coming into force last Friday.

    Vietnam's electricity demand is expected to grow 10.6 percent annually in the next five years, according to its trade ministry.

    The three wind farms would generate an annual total of 940 megawatts (MW) of power, Mainstream said in a statement.

    It added that it would partner with GE Energy Financial Services and local firm Phu Cuong Group in its main Vietnam project, an 800 MW wind farm worth $2 billion. The first phase of the project, for 150-200 MW, is expected to reach financial close in 2018, it said.

    Mainstream will separately partner with Vietnam's Pacific Corporation in two other projects in the southern province of Binh Thuan, with a combined 138 MW in capacity and $200 million in investment, the statement said. The first phase of these projects is also likely to reach financial close in 2018.

    Vietnam is also looking to join Thailand in blazing a trail for solar power in Southeast Asia, introducing targets to fire up green energy generation.
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    Tesla just killed one of the biggest benefits for customers

    Tesla's extensive Supercharger network is one of the great benefits of being a Tesla owner, but after January 2017, it will no longer be free for new customers.

    "For Teslas ordered after January 1, 2017, 400 kWh of free Supercharging credits (roughly 1,000 miles) will be included annually so that all owners can continue to enjoy free Supercharging during travel," Tesla said in a statement on Monday.

    "Beyond that, there will be a small fee to Supercharge which will be charged incrementally and cost less than the price of filling up a comparable gas car," the automaker added. "All cars will continue to come standard with the onboard hardware required for Supercharging."

    Tesla said that it would "release the details of the program later this year, and while prices may fluctuate over time and vary regionally based on the cost of electricity, our Supercharger Network will never be a profit center."

    Tesla also said that the change wouldn't affect "current owners or any new Teslas ordered before January 1, 2017, as long as delivery is taken before April 1, 2017."
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    Base Metals

    Base metals come out of LME week with a bullish roar

    Cautiously optimistic. That was the consensus takeaway of the mood at LME Week, the annual shindig of the industrial metals markets.

    Looking at the screens this morning, you could well drop the word "cautiously".

    The LME metals are on a tear. Zinc and tin have both recorded year-to-date highs, nickel is close to doing so and even out-of-favour copper has hit its highest level since March.

    True, this may be down in large part to the Trump effect. The U.S. elections were a hot topic last week, with analysts near unanimous in their view that a Donald Trump win trading strategy would be to buy gold and sell everything else.

    So, with Hilary Clinton getting a weekend poll boost after the FBI cleared her of wrongdoing over emails, this morning's exuberance may be the flip side of that trade. Gold, it is worth noting, has fallen.

    But beyond the U.S. political noise, there was a feeling that the cycle low may have passed for the industrial metals complex.

    China's early-year stimulus has been the big "bull" surprise of 2016 and the tail winds are expected to carry through to next year.

    There is also a hopeful sense that Western investment money is starting to flow again into commodities, joined this time around by Chinese money.

    Hey, and even if neither funds nor fundamentals are looking that great, there is always the reliable fallback of divergence between individual metals to generate a little bit of trading excitement.

    Graphic on LME Index:


    Global growth is expected to accelerate to 2.7 percent next year from 2.2 percent this year, according to Grant Colquhoun, group economist at the CRU research house.

    It will be, he pointed out, the first acceleration since 2014 but, and it's an important but, "we're still stuck in a slow-growth world".

    So it's all down to China. Again.

    The stimulus unleashed at the start of this year does, in hindsight, appear to have coincided with the low point of the LME base metals index in January.

    Renewed economic pump-priming into infrastructure and construction has, once again, turned metals demand expectations on their head.

    First-stage beneficiaries have been steel, iron ore and met coal. The flow-through effects on second-stage metals such as copper are still being felt.

    And the broad view is that the stimulus tail winds will only abate around the middle of next year.

    After that, most analysts get a bit nervous.

    "China is not out of the woods and I think real estate will start to soften in Q2 and we could see lower prices in H2," was the view of Ed Meir of INTL FCStone.

    "Storm clouds are gathering" for 2018 agreed Jim Lennon, consultant at Macquarie Bank.

    "The further out you go, the more concerned you've got to be" was the take of Goldman Sachs' Max Layton, talking specifically about Chinese copper demand.


    While the wheels of global economic growth still grind slowly, a different sort of cycle appears to have passed an inflection point.

    After several years of absence the heavy fund hitters are coming back to town.

    Barclays Capital estimates that $62.3 billion of investment flowed into commodities in the first nine months of this year, exceeding the previous equivalent high seen in 2009.("The Commodity Investor - Flow Analysis", Oct 21, 2016)

    Most of it has hit the precious and oil markets in that order. But in September itself over 80 percent of flows, or around $9.5 billion, went into broad-based commodity indices with a resulting trickle-down effect on base metals.

    Outright price gains, a break-down in correlations between commodities and other parts of the financial universe and inflation hedging are all in the mix.

    Paul Crone, founder of Critine Capital and speaking on the "Investors in Metals" panel at the LME Seminar on Monday, agreed.

    "Investor interest appears to be turning", particularly in the form of indices "as a long play", Crone said, although he added the caveat that heavyweight funds are increasingly looking for personalised investment baskets.

    Chinese money is also on the move in the commodities space, according to Li Gang, co-head of market development at Hong Kong Exchanges and Clearing, speaking on the LME's afternoon Chinese seminar.

    Thwarted by the authorities' clamp down on stock market trading and frustrated by the red-hot property markets in Tier 1 cities, many retail and not-so-retail investors are now looking for a return in commodities, he argued.

    Love them or hate them, and opinion is equally divided in the metal markets, fund money has a track record of being ahead of the curve when it comes to spotting inflection points.

    Its return has, therefore, been taken as another positive sign the worst might be over.


    India's 2016 gold demand seen at 650 T 750 T Vs 858.1 T year ago-WGC
    UPDATE 1-China October iron ore imports lowest since Feb -customs

    Graphic on relative base metals price performance 2016:


    Divergence between individual metals has been an overarching theme this year and looks likely to continue.

    Supply has been the key differentiator in 2016, with metals such as zinc benefiting from raw materials famine and others, particularly copper, struggling to cope with feast.

    Everyone agrees that zinc's fortunes are beholden to Glencore, which suspended 500,000 tonnes of mine capacity this time last year. No-one agrees, however, on when it will reverse those cuts.

    Nickel's fortunes depend largely on the Philippines, where the new administration has suspended several nickel mines and threatened more with closure.

    But given how low the nickel price has traded this year, many will agree with Anton Berlin, marketing manager at Norilsk Nickel, who told Bloomberg's Wednesday seminar that "there is only one way to go, up, it's just a question of when".

    Aluminium, according to Jorge Vasquez, founder of Harbor Aluminum, will suffer from a rising surplus, record high stocks and the increasing forced release of those stocks as financing metrics become strained. Nobody rushed to contradict him when he expressed that view at the LME seminar.

    And as for copper, opinion remains as polarised as ever with Goldman's Layton and Citi's David Wilson doing bear-bull battle during the Bloomberg seminar.

    A more unusual take on divergence was provided by Vanessa Davidson, director of copper at CRU, who argued that demand prospects for individual metals were also potential drivers of divergence.

    The lightweighting of vehicles has already benefited aluminium over other materials and creeping electrification of the global automotive fleet will boost both copper and lead, the latter thanks to stop-start engine technology.

    Zinc, by contrast, risks demand destruction if raw materials constraint feeds through to ever higher prices with die-casting and construction both at-risk sectors.

    CRU's conclusion was that intensity of use becomes a key source of divergence in a slow-growth global economy.

    But then a more divergent commodity market, according to CRU director Paul Robinson, "is good for institutions seeking portfolio diversification."

    In other words, thank heavens the funds are back!

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    China copper imports drop to 21-month low in Oct as demand wanes

    China's imports of copper fell 14.7 percent from a month ago to 290,000 tonnes in October, its lowest since February 2015, General Administration of Customs data showed on Tuesday, as demand from the world's top commodities user continued to slow.

    Copper imports to China, the world's leading copper and aluminium consumer, include anode, refined, alloy and semi-finished copper products.

    The country exported 350,000 tonnes of unwrought aluminium and aluminium products, including primary, alloy and semi-finished aluminium products, in October, down from September's 390,000 tonnes. That is the second month of declines and the lowest since February.
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    Japan's JX says will miss output target at Chile copper mine

    Japan's JX Holdings Inc expects to miss the copper concentrate output target at its Caserones mine in Chile in the fiscal year ending next March due to slow output in the first six months, an executive said on Tuesday.

    The company is aiming for output of 97,000 tonnes in the current business year, down from its August outlook of 100,000 tonnes, Katsuyuki Ota, JX Holdings Director and Executive Officer, told a news conference.

    The mine's ramp-up has been repeatedly delayed, weighing on profits at its owners, including JX and Japanese trading house Mitsui & Co.

    The move marks another downward revision after the company in May said it had aimed to more than double Caserones' output to 137,000 tonnes this financial year from 63,000 tonnes the year before.

    The mine produced just 17,000 tonnes of copper concentrate in April-June and 19,000 tonnes in July-September, hurt by heavy snow in June and the frozen equipment in July, Ota said.

    The mine's utilisation rate is expected to rise to nearly 90 percent in October-March, up from around 70 percent in the first half, he said, adding that the company aims to achieve full utilisation rates in February or March.

    The target for the mine's annual output capacity at full production is 150,000 tonnes.

    JX has hired a consultant to help revamp the mine's operations, and expects cost reductions to improve the business, Ota said.

    The firm posted a loss of 22 billion yen ($210 million) at Caserones in the six months ended in September and expects the loss to grow to 31 billion yen for the full year, he added.

    "We expect to narrow the losses more than initially expected in the current business year via cost cuts in the second half," he said.

    For the first half ended in September, JX on Tuesday posted a net profit of 25.4 billion yen, compared with a net loss of almost 45 billion yen a year ago, thanks to inventory gains.

    Caserones is 77.37 percent-owned by Japan's Pan Pacific Copper, a joint venture of JX and Mitsui Mining & Smelting Co Ltd. Mitsui & Co holds the remainder.
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    Steel, Iron Ore and Coal

    China Oct coal imports post sharpest YoY growth this year

    China imported 21.58 million tonnes of coal in October this year, posting the sharpest rise of 54.58% year on year in 2016, showed data from the General Administration of Customs (GAC) on November 8.

    The increase was mainly because lots of downstream users turned to imports amid contracting output and rallying prices in China.

    The volume, however, was 11.7% lower than September, as buying interest for imported coal was hit by rising international prices and growing supply from domestic mines.

    In October, the Chinese government allowed more efficient mines to boost output to guarantee supply in northern China's heating season and stabilize prices.

    The value of coal imports in October stood at $1.31 billion, rising 78.52% on year and up 6.39% on month. That translated to an average price of $60.7/t, climbing $8.14/t on year and up $10.32/t from the previous month.

    Over January-October, coal imports of China totaled 201.74 million tonnes, rising 18.5% on year, data showed. That valued $10.18 billion, a year-on-year decline of 1.8%.

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    Shaanxi Coal & Chemical lowers thermal coal prices by 10 yuan/t

    Shaanxi Coal and Chemical Industry Group on November 5 cut prices of rail-delivered coal by 10 yuan/t for sales to six major power companies including Huaneng Group and Huadian Group, in response to the government's call for stabilizing the market and ensuring supply.

    The six power companies account for 70% of the miner's customers.

    As supply falls short of demand under the nationwide supply-side structure reform, coal stocks at utilities in Shaanxi fell to a record low in the middle of the year while coal prices have been on a rally since then.

    In Yulin, one major producing area in the province, the mine-mouth price of 5,800 Kcal/kg NAR coal rose 40 yuan/t from a month ago to 390 yuan/t with 17% VAT on November 7, a surge of 235 yuan/t from the start of this year.

    Though large miners including Shaanxi Coal and Chemical Industry have been making efforts to boost supply, utilities still have urgent demand to build up stocks to meet use in the peak demand winter season.

    "This year's coal price surge is mainly attributed to the government-led overcapacity cutting policy," said Wang Zengqiang, vice general manager of the company.

    "The price rally lacks continued momentum, and in the long term too fast rise in prices will do no good to either the supply or demand side," Wang added.

    Other miners in Shaanxi may follow Shaanxi Coal and Chemical Industry, the bellwether of the province's coal industry, to cut prices in the near future.

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    South African Sep thermal coal exports hit a 12-month high

    South Africa exported 6.96 million tonnes of thermal coal in September, gaining 15.89% year on year and up 20.49% from August, hitting a new high since October last year, showed latest data from customs.

    Over January-September, the country's thermal coal exports totaled 52.47 million tonnes, down 5% on year, data showed.

    India remained the largest taker of South African thermal coal in September, with its exports increasing 56.47% on year and up 44.07% from August to 3.28 million tonnes.

    Shipments to Europe came to decline 31.06% on year and down 28.02% on month to 1.09 million tonnes.

    Shipments to the Netherlands plummeted 51.65% on year and down 39.94% on month to 394,800 tonnes in September, while those to Spain more than doubled both from a year ago and last month to 324,600 tonnes, hitting a new high since August last year.

    French received 203,000 tonnes in September, more than quadrupling from August.

    Exports to Pakistan surged 96.1% on year and up 69.37% from August to 431,900 tonnes. Shipments to Sri Lanka increased 53.7% on month to 247,000 tonnes, up from zero in September 2015.

    The United Arab Emirates imported 149,600 tonnes of thermal coal from South Africa in September, dropping 49.87% on year and down 35.01% on month.
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    China Sep rail coal transport up 2pct on year

    China's rail coal transport increased 2% on year and up 1.9% from August to 158 million tonnes in September, the first monthly increase on a year-on-year basis this year, showed the latest data from the China Coal Transport and Distribution Association.

    Of this, 110 million tonnes or 69.6% of the total were railed to power plants, a yearly increase of 1.4% and steady on month, data showed.

    In the first three quarters, China’s railways transported a total 1.37 billion tonne of coal, falling 9.1% year on year, with thermal coal transport contributing 960 million tonnes or 70.1% of the total, down 6.7%.

    Coal-dedicated Daqin line transported 241.73 million tonnes of coal during the same period, down 20.8% on year, with September volume down 4.8% on year but up 2.2% on month to 29.71 million tonnes.
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    Glencore coal output drops 11pct in Jan-Sep

    Anglo-Swiss multinational Glencore produced 91.9 million tonnes of coal over January-September, down 11% from the comparable 2015 period, showed data from the company's third quarter production report released on November 3.

    The decline was mainly attributed to the divestment of Optimum Coal, closure of various South African operations, maintenance sequencing in Australia and adverse weather conditions in Colombia.

    Of the total production, 49.1 million tonnes was produced by Australian coal assets, including 42.4 million tonnes of thermal coal, 3.6 million tonnes of coking coal and 3.1 million tonnes of semi-soft coal, down by 0.6 million tonnes from the year-ago period.

    Glencore's Australian thermal coal output edged up 2% year on year in the first three quarters, with export thermal coal dropped 3% on the year to 37.8 million tonnes, as operational difficulties relating to ground conditions at Bulga Underground earlier this year were offset by increased production at Ulan and Mangoola.

    The miner's Australian coking coal production fell 14% from a year prior to 3.60 million tonnes in the first nine months, reflecting various operational and geological challenges at a number of mine sites, the company reported.

    Glencore's South African coal mines produced 21.9 million tonnes of thermal coal during the nine-month period, down 9.9 million tonnes on the comparable period, due to Optimum Coal movements and the scheduled closures of the Middelkraal and South Witbank mines.

    Besides, its Golumbia-based Prodeco produced 13.0 million tonnes of coal, 0.9 million tonnes below the comparable period, due to adverse weather conditions and some proactive supply reduction earlier in the year in response to market conditions.

    Glencore's share of production from Cerrejón was 7.9 million tonnes, 6% lower than the comparable period, reflecting some restrictions implemented to mitigate dust emissions during a protracted drought in the region, and then, conversely, higher than average rainfall during May and June, which hampered production.
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    Glencore to extend life of Australian coal mine to 2031

    Glencore, the world's biggest coal exporter, said on November 4 it has won approval from the New South Wales state government to extend the life of its Mount Owen coal complex in Australia by 12 years to 2031.

    The complex, which includes the Mount Owen and Glendell mines, produced 8.07 million tonnes of saleable thermal coal for power stations and semi-soft coking coal for steel mills last year.

    The miner plans to dig coal reserves that are within the land the mine owns for the extension, but will not be expanding output. The mine would have had to close in 2019 if the approval had not been granted, said a spokesman of the company.

    "Construction work associated with the approval is expected to start around March 2017," Glencore said, yet it declined to comment on the cost of the mine extension.
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    China October iron ore imports lowest since Feb -customs

    China imported 80.8 million tonnes of iron ore in October, the lowest since February and down 13 percent from the previous month, official data from China's customs showed, as steel mills curtailed output amid tightening profits and soaring costs.

    Compared with a year ago, shipments of the steelmaking ingredient were still up 7 percent.

    Imports of steel products fell 4.4 percent to 1.08 million tonnes while exports fell 12.5 percent to 7.70 million tonnes, data from the General Administration of Customs showed.

    Febuary and October wre both holiday months

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    Starved of coal, China steel mills opt for output cuts and early repairs

    Stunned by soaring raw material costs, some Chinese steel mills have cut output and even started maintenance works earlier than usual as state-enforced mine closures continue to choke off the supply of key production ingredients, coke and coking coal.

    Prices of coke and coking coal, that typically account for 20 percent of steel production costs, have rallied more than two-fold this year amid Beijing's big push to curb overcapacity and pollution, hurting profits for mills.

    Blast furnaces in the world's top producer and consumer of steel are as a result operating at their lowest rate in about four months, data from industry consultancy shows, in contrast to earlier this year when robust demand and prices prompted mills to operate at nearly full capacity.

    Furnaces across China are running at 86 percent, their lowest since June, according to the data.

    In Tangshan, a major steel-producing city in China's Hebei province, furnaces were running at 84 percent of capacity last week, versus around 90 percent in August, the data shows. Hebei accounts for a fifth of the country's steel output.

    While a seasonal weakness in demand for rebar, or reinforced steel used in construction, during the colder months may have been a reason for the output cuts, analysts said critically low raw material supplies were a major factor.

    "The severe shortage of coking coal and coke has largely lifted steelmakers production cost, forcing some to cut output," said Jin Tao, an analyst with Guotai Jun'an Futures in Shanghai.

    According to, Jiangsu Shagang Group, China's top private steelmaker, has suspended a rebar production line, while Zenith Steel, also based in eastern Jiangsu province, is set to start a 10-day overhaul this month, said.

    Maintenance typically takes place in December.

    Shagang declined to comment and calls to Zenith went unanswered, although said the moves could reduce output by about 40,000 tonnes over Nov. 10-27 for the former and by 25,000 tonnes for the latter.

    Any prolonged output cuts would add to the rally in steel prices, but remove some of the upward pressure on the prices of steelmaking ingredients and curb the impact of seasonally slower demand on mills' margins.

    Earlier in the day, coking coal futures on the Dalian Commodity Exchange climbed by their 10 percent limit and coke hit its strongest since 2013, extending their months-long rally on tightening supplies. [IRONORE/]

    Coke inventory among steel mills has dwindled to 2-10 days, versus the usual 15-30 days of production, said analyst Jin.

    Some steel mills located far from coal production bases, such as Shanxi and Shaanxi provinces, have been hit particularly hard by the tight raw material supplies, traders said.

    Several small mills in the western and southwestern regions have also cut output for the same reason, they added.

    Exacerbating steelmakers' woes are China's stricter rules on truck transportation since September that have cut trucking capacity, adding to mills' high costs.

    "It's not one simple reason, but complex factors including a shortage of coking coal and coke, surging prices, slower demand that has hurt rebar producers' profit, dragged some to losses and forced some to cut output," said Xia Junyan, investment manager at Hangzhou CIEC Trading Co in Shanghai.

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