Mark Latham Commodity Equity Intelligence Service

Thursday 9th April 2015
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MacroOil and GasAlternative EnergyAgriculturePrecious MetalsBase MetalsSteel, Iron Ore and Coal


China Aims to Soothe Labour Unrest

As slowing growth fuels labor unrest in the world’s second-largest economy, China’s top leadership is pushing for greater efforts to foster harmony across its increasingly agitated workforce. As the WSJ’s Chun Han Wong reports;

In a recent directive, top Communist Party and government officials called on party cadres and bureaucrats across the country to “make the construction of harmonious labor relations an urgent task,” to ensure “healthy economic development” and to consolidate the party’s “governing status.”

With China “currently in a period of economic and social transition,” labor relations have become “increasingly pluralistic, labor tensions have entered a period of increased prominence and frequency, and the incidence of labor disputes remains high,” the paper said, according to a copy reviewed by The Wall Street Journal. It cited problems including unpaid wages to China’s legions of migrant workers, growing protests and other issues.

Labor scholars say the paper—titled “the Communist Party Central Committee and the State Council’s opinion on the construction of harmonious labor relations”—marks a rare move by Beijing to formally outline policy priorities for tackling worker unrest. It also comes after Premier Li Keqiang pledged in early March, during an annual policy speech, to curb unpaid wages for migrant workers.

“The government is acknowledging the reality of rising worker unrest and wants to make this a bigger priority,” said Wang Jiangsong, a professor at the China Institute of Industrial Relations in Beijing. “But it also lacks specifics on implementation—it remains to be seen how this would work on the ground.”
MGL: Chinese stocks are in a 'blowoff' bull market. We pointed out in our quarterly presentation that Chinese resource companies have largely completed capex, and thus are beginning to show substantial free cash flow. We're certainly not making the case that they are great companies, just that they were terrible, and are now merely bad. Most Chinese resource stocks we look at have low single digit returns on assets. Stopping the silly capex likely nudges those low numbers a touch higher.

Image title'A' shares are at huge discounts to the 'H' shares in Shenzen, and recent moves to improve the liquidity and availabilty of cross border stock flow has provoked the HK names into a wild ascent as they close those enormous discounts. 

The Chinese equity bull story is that Beijing is finally starting to pursue a sensible economic agenda which involves curtailling excess capex, improving quality, incentivising entrepreneurs, reforming the SOE's and improving the law on property ownership. Its a Chinese version of the UK economy in the 1980's, and if this thesis pans out, yes that makes me a buyer of these stocks!

Sad to say, its the best resource equity story in town. We switch Baoshan 'H' to Angang 'A' in our buy list.

Mind your eye, though, Shanghai margin debt is soaring:
Image title“Margin purchases are now accounting for almost 20% of equities daily turnover which itself has soared to wholly unprecedented levels in another sign of self-feeding speculative frenzy. What happens next is clearly an ‘unknown-unknown’. By definition detached from fundamentals, speculative bubbles are inherently re-enforcing in the short-term and frequently last longer than expected. The longer they continue, however, the larger the eventual bursting.”

So we exit Baoshan.


China cuts resources tax, power prices to boost economy

China's State Council, or cabinet, said on Wednesday the government will lower power prices and the resource tax on iron ore to reduce business costs and support the economy.

Coal-based on-grid power prices will be reduced by an average of about 0.02 yuan ($US0.003) a kilowatt hour, the cabinet said in a statement on the main government website.

China will also cut power prices for industrial and commercial users by an average of about 0.018 yuan a kilowatt hour, according to the cabinet.

Starting next month, the government will reduce the existing resource tax on iron ore by 40 per cent, it said, without giving further details.
MGL: China is back in economy friendly policy making mode. Tax cuts are good. No subsidies here which is good. 

We're smelling a distinct change in flavour of Beijing announcements in the past week. The 'big stick' has been put away, for the moment, and we're seeing some actions to support the economy. 

That's potentially bullish the miners. 

China's first-tier home sales surge by over 50%

Housing sales in the first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen have surged 51.4 per cent compared to the previous week, according to new data from China Index Academy, a housing price consultancy.

Property transactions in 38 major cities also soared 19.5 per cent over the same period.

The Academy believes the latest surge in housing transactions is due to recent government policy announcements aimed at boosting the housing sector.

The policies include lowering the down payment requirement for second-home buyers as well as for consumers that are looking to upgrade.
MGL: Chinese sources reports queues outside vendors for the first time since 2009. This is a big deal, and may stop the economic rot.

We should expect an economic 'upswing', and it may lift the base metals.

Oil and Gas

Al Naimi Speaks

The experience of the first half of the 1980s was still in our minds. At the time, we cut our production several times. Some OPEC countries followed our lead, and the aim was to reach a specific price that we thought was achievable. It didn't work. In the end, we lost our customers and the price. The Kingdom's production dwindled from over 10 MMBD in 1980 to less than 3 MMBD in 1985. The price fell from over $40 per barrel to less than $10. We are not willing to make the same mistake again.

That said, I would like to be absolutely clear. The Kingdom remains willing to participate in restoring market stability and improving prices in a reasonable and acceptable manner. But this can only be with participation from major oil producing and exporting countries. And it must be transparent. The burden cannot be borne by the Saudi Arabia, the GCC countries, or OPEC countries, alone.

I would also like to clarify, conclusively, that the Kingdom of Saudi Arabia does not use oil for political purposes against any country, and it is not in a competition with shale or other high-cost oils. On the contrary, we welcome all new energy sources which add depth and stability to the market and that will help meet growing oil demand in the years to come.
MGL: Al Naimi is talking about burden sharing once again. It, I think is a hint to the Russian, Norwegians, and Mexicans, that they have to join OPEC if they want the price back to its former glory.

Market price expectations of $80+ remain extremely resilient.  We hear a steady chant by Oil analysts and fund managers quoted in the press and on TV saying that Oil will recover by year end. Its a palpable consensus.  Shell just paid $35bn premium for BG, and the only possible economic justification for that bid is that Shell, and its legion of analysts, consultants and advisers believes that LNG and Oil prices will approximately double from here.  The price of Schlumberger, which we've noted in the past tracks Oil expectations beautifully, is $86. 

Capex is declining, Oil shale production has likely peaked.  Thats true, and fair, but all it means is that the industry is moving away from peak supply add, and in 2014 the industry added roughly 2x as much production as demand. For the last six months we've been showing you, with examples from all the big commodities, that supply follows capex, it is not coincident. It will take at least another year before capex cuts begin to slow supply growth outside the shales. 
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Our core thesis is that Saudi is increasing its core export capacity by replacing Oil consumed in electric power plant with gas. Here's Al Naimi again:

"Although the Saudi Energy Efficiency Program only started three years ago, it has achieved distinguished results. It will achieve more in the future, saving for the Kingdom approximately 20% of the expected energy consumption by 2030. This is the equivalent of 1.5 MMBD. Here, I must praise the marvelous role of HRH Prince Abdulaziz ibn Salman in the success of this program."


"The Kingdom of Saudi Arabia has huge oil and gas resources. With today's technology, our proven recoverable reserves stand at 267 billion barrels. Our proven natural gas reserves are 300 trillion cubic feet. Annual production is compensated with new discoveries. Upstream technology is advancing, and Saudi Aramco is a leader in this area.

We are also one of the most active countries in terms of exploring for shale oil and gas and detecting their reservoirs and volumes. We know that we have huge volumes in several places."

We've shown you the large gas midstream contracts, the surge in LPG exports and the adverts in Texas for experienced fracking crews. 

We've shown you the repeated references to $60 in Saudi official PR: from Al Naimi, from various ambassadors, and from the Saudi budget assumptions.

The only question that you must answer is whether you believe that Saudi has the power to sustain export growth, and for how long. Our analysis suggests they want to export 10mbpd of crude and products by late 2017. Thats an increase in 2.5mbpd from todays levels.

Here's the IEA on Oil Demand growth:

"Having bottomed-out in 2Q14, global oil demand growth has since steadily risen,with year-on-year gains estimated at around 0.9 mb/d for 4Q14 and 1.0 mb/d for 1Q15. The forecast of demand growth for 2015 as a whole has been raised by 75 kb/d to 1.0 mb/d, bringing global demand to an average 93.5 mb/d."

So on face value (let's ignore, for a second, the substantial storage build thats ongoing) Saudi has the capacity to fully satisfy Oil demand growth for 2.5 years. 

This is a generous read of the market balance, it could easily be argued that half the IEA's forecast growth in demand is going into inventory build. We still have strong non-OPEC supply growth. So parsing the numbers, it could be 5 years before we can once again be bullish of Oil.

To be bullish Oil now you need to believe that Norway, Russia and the Mexicans accept the implicit Saudi offer, and agree to curtail production. That's a reach. 


Prices: EIA short term energy outlook

Global crude oil prices

North Sea Brent crude oil sport prices dropped by US$2/bbl I March to a monthly average of US$56/bbl.

Several factors put upward pressure on Brent prices in February, including news of falling US crude oil rig counts and announced reductions in capital expenditures by major oil companies.

Upward price pressure abated in March, as the combination of robust world crude oil supply growth and weak global demand contributed to an increase in the rate of global inventory builds.

Total global oil inventories are estimated to have increased by 2.1 million bpd in March.

Strong global oil inventory builds are expected to continue in the coming months.

The monthly average WTI crude oil spot price decreased to an average of US$48/bbl in March.

WTI prices fell in March in large part because of commercial crude oil inventories in Cushing, Oklahoma, which increased to a record 58.9 million bbls as of March 27.

EIA projects the Brent crude oil price will average US$59/bbl in 2015.
The Brent crude oil price is projected to average US$75/bbl in 2016.
WTI prices in 2015 and 2016 are expected to average uS$7/bbl and US$5/bbl, respectively, below Brent.

The current values of futures and options contracts continue to suggest high uncertainty in the price outlook.

Several OPEC and non-OPEC oil producers rely heavily on oil revenue to finance their national budgets and some producers have already started adjusting their upcoming budgets to reflect the crude oil price decline.
MGL: IEA is following the Saudi line here with a $59 Oil price this year. $75 next year? We think that optimistic. It requires some OPEC-non OPEC cooperation to restrain oil output.

At the end of the day the IEA is considerably lower in expection than the equity market.

PIRA: Gas supply and demand as we enter spring

March’s price action in the physical market was relatively tranquil with only minor month-on-month changes. In some ways limited month-on-month cash price declines seem remarkable given the enlarging year-on-year storage surplus that once again showcased the underlying overall U.S. supply imbalance, especially the inadequacy of price-induced demand gains to date — with seasonal heating loads just beginning to diminish rapidly. While inventories are higher year-on-year in all regions, only Consuming Region West storage is above its respective five-year average. Moreover, the region will be under growing pressure to absorb more Rockies and WCSB supply given the displacement of those sources in the MW by additional Appalachia inroads. The backdrop points to broad bearish price and basis implications ahead, PIRA writes in its report.

In Europe a narrower gap will exist between spot (at a discount) and contract gas prices due to newfound support for summer spot prices. Several more bullish fundamental components have been added to the list of reasons why a spot price collapse this summer is less likely to be in the cards. More demand growth, low stocks in Germany and Italy, firm 2Q maintenance in Norway, and a much riskier profile for incremental supply will all play a role in keeping spot prices from too much downside risk. However, PIRA does not believe that spot prices can remain above descending Russian gas prices for a sustainable period without buyers making a massive shift into more Russian gas buying and, as a result, fewer spot purchases.

In Asia, one of the key factors in cascading spot prices for LNG has been the reluctance of China to jump into the fray, no matter how low the price. Chinese LNG imports have not seen much sustained growth over the past 12 months and the growth that has occurred is taking place among long-term contracts that are still well below full utilization. China appeared to staunch the LNG import bleed, with February volumes up by 8-mmcm/d year on year after several consecutive months of losses, but the fact that LNG import growth rates have been so sluggish in recent months is in no small part related to the surge in pipeline imports from Central Asia.
MGL: China refuses to co-operate with the gas bulls.  Pipeline gas is the culprit.

Woodside discovers gas near Pluto

Woodside has announced that it has discovered more gas near its Pluto infrastructure.

The Pyxis-1 exploration well has intersected approximately 18.5 m of net gas within the Jurassic sandstone target. The well reached a total depth of 3347 m.

Woodside Executive Vice President Global Exploration, Philip Loader, said: “Given its location, this successful exploration outcome offers future tie-back potential to Woodside’s existing Pluto infrastructure.”

Pyxis-1 is located in Production Licence WA-34-L, within Western Australia’s Dampier Sub-Basin and is located approximately 15 km north of the Pluto Gas Field infrastructure.

Woodside Burrup Pty. Ltd. is the operator and 90% equity owner of WA-34-L. Kansai Electric Power Australia Pty. Ltd. and Tokyo Gas Pluto Pty. Ltd. each hold 5% equity.
MGL: More gas. Geologically gas is far more abundant than Oil. We've always regarded the 6:1 ratio of Oil to Gas averred by the industry as more a marketing ploy than an economic statement.  

Gas prices have globalised to Henry Hub. $7 spot, or ultimate oil index contract, at Tokyo Bay implies a netback of around $3 for well head gas as a general rule.


SBM Denies $1.7B Settlement with Brazil over Bribery Scandal

Dutch floating production vessel provider SBM Offshore refuted Wednesday an article in a Brazilian daily newspaper that it has agreed a $1.7-billion settlement with Brazilian authorities in connection to a bribery scandal in the country. SBM said that discussions with the Brazilian authorities remain at an early stage and no numbers have been agreed upon.

Last month, SBM and Brazil's comptroller general said they had agreed on a framework for a mutually-acceptable settlement over the scandal, which is also linked to Brazil's state-run oil firm Petrobras.

In November, SBM agreed to pay $240 million to settle the case with Dutch authorities. The firm also stated that the US Department of Justice had informed SBM that it had closed its inquiry into the matter. But individuals involved in the case could still face criminal charges in other countries.

- See more at:
MGL: WSJ article last week had $700m total of Petrobras bribes, we think this figure is likely the settled figure the investigators have so far completed to litigation. We know SBM is $240m, we know the lead witness has been found with $300m in his various bank accounts, so $700m feels like a likely number for completed testimony. The chief Justice in the case is quoted in the press as saying "in excess of $30bn" for the  entire scandal, and that number approximates to 3% of Petrobras's expenditure over the last decade. 

Apache exits Australia E&P operations with $2.1 bln sale

U.S. oil and gas company Apache Corp said it would exit its exploration and production business in Australia by selling its unit in the country to a consortium of private equity funds for $2.1 billion in cash.

The sale of Apache Energy Ltd to a consortium of funds managed by Macquarie Capital Group Ltd and Brookfield Asset Management Inc has an effective date of Oct. 1, 2014, Apache said.

Apache, one of the top U.S. shale oil producers, had said it was exploring a sale of its offshore oil assets in Australia to focus more on domestic shale drilling as well its operations in Egypt and the United Kingdom's North Sea.

"Following the sale of our Australian assets, about 70 percent of Apache's production will come from North America onshore," Chief Executive John Christmann said on Wednesday.

The Australian unit, Apache Energy Ltd, averaged production of about 49,000 barrels oil equivalent per day (boepd) in March. That compares with Apache's total output of 673,000 boepd in the fourth quarter ended Dec. 31.

A slump in oil prices has spurred activity among private equity investors who are hoping to scoop up attractive assets on the cheap.

Buyout group's poured $31 billion into the oil and gas sector in 2014, clearly outstripping the $8 billion in investments that sponsors have invested in the sector over the five prior years, according to Thomson Reuters data.

Apache said the sale of its Australian assets is expected to close in mid-2015, but it will have some presence in the country through its 49 percent ownership interest in fertilizer producer Yara Pilbara Holdings Pty Ltd.

Houston-based Apache in December sold its stake in two liquefied natural gas projects, Wheatstone LNG in Australia and Kitimat LNG in Canada, to Australia's Woodside Petroleum Ltd for $2.75 billion.

Apache in February cut its 2015 capital expenditures by 60 percent and slashed its drilling fleet by 70 percent, mirroring steps taken by several oil and gas companies due to a decline in global crude prices.
MGL: PE rides to the rescue- again. The more we see this, the longer the downturn.

America is still brimming with oil.

Last week, crude oil inventories rose by 10.9 million barrels from the previous week, according to the Energy Information Administration's weekly data release. That brings the total to 482.4 million barrels, the highest level for this time of year in at least 80 years.


Read more:
MGL: Since September US oil inventory has risen 100m barrels in a near straight line. Thats roughly 0.5mbpd, or the increase in Canada export capacity via pipeline south of the border. Its the Canadians, not the shale!

ConocoPhillips stresses shale through 2017

ConocoPhillips said Wednesday that a more flexible, shale-heavy portfolio will help the company shore up its finances while protecting payments to investors, whatever the oil price may be.

In a briefing for analysts in New York, CEO Ryan Lance and other executives said capital spending will stay at $11.5 billion through 2017 and shift from long-term, expensive projects into relatively cheap and immediate shale wells.

ConocoPhillips has cut its capital spending budget twice since oil prices began to fall last year to $11.5 billion.

The reduced spending will allow the Houston-based independent company to preserve its sizable dividend while also allowing it to fully fund its operations with its own cash by 2017, executives said.

The shift to shale will happen as several big projects that the company has had in the works —  LNG plants and oil sands projects —  stop sucking up cash and begin producing, said Matt Fox, executive vice president of exploration and production.

“That provides a lot of capital flexibility,” Fox said. “In the operating plan what we’re doing is we’re redirecting that capital.”

ConocoPhillips said that its major project outlays will fall by 45 percent while its unconventional development spending will nearly double.

Despite the reduction in spending overall, the company said it plans to see a boost in liquids production by 2017. The boost of 200,000 barrels of oil equivalent per day will help boost revenues, executives said.

Those extra funds, combined with about $1 billion in cost savings, will help ConocoPhillips reach what it calls cash-flow neutrality, or funding its operations with its own cash flow, by 2017.

The company’s projections are based on $75 Brent oil, $70 West Texas Intermediate and $3.50 Henry Hub natural gas. But executives said that flexibility in capital spending will help ConocoPhillips meet its obligations even if prices don’t recover that far.
MGL: Image title
Here's Conoco's price outlook, as per its research of consensus. Confirmation of our thoughts almost exactly.

COP PV10 : $83bn.
EV $97bn.

Here's the assumptions:

"In accordance with SEC and FASB requirements, amounts were computed using 12-month average prices (adjusted only forexisting contractual terms) and end-of-year costs, appropriate statutory tax rates and a prescribed 10 percent discount factor.Twelve-month average prices are calculated as the unweighted arithmetic average of the first-day-of-the-month price for eachmonth within the 12-month period prior to the end of the reporting period. "

ie $95 Oil, $3 Natural Gas. 

Conoco appears to need $75 Oil by 2017 to make the numbers work.

As usual: conventional capex moves to higher return shales, and Conoco claims the productivity offsets price decline, but doesn't provide any useful data!

4.5% dividend yield sufficient compensation for the overvaluation and lack of free cash flow? Dividend is not covered, but presentation makes a big deal of its priority.


TransCanada looking at oil port sites outside Quebec

TransCanada Corp will widen its search for sites for an oil-pipeline export terminal outside Quebec after scrapping plans to build one in the province due to environmental concerns, the company's chief executive said on Wednesday.

CEO Russ Girling, speaking to reporters at an industry conference in Toronto, also saidTransCanada may decide that its Energy East pipeline project, which would transport crude from the Alberta oil sands to Canada's east coast, may involve just one export terminal instead of the two that had been envisioned.

TransCanada halted work on the Cacouna terminal, on the south shore of the St. Lawrence River in Quebec, in December after experts said it would harm endangered beluga whales. Last week the company called off the terminal project, a move that delays the C$12 billion ($960 million) Energy East pipeline.

"We looked at a number of alternatives before we chose Cacouna, so we'll go back to all of those alternatives now," Girling said.

He said some alternatives are in Quebec, and some are not. He also said the revised plan would not necessarily include two terminals.

"It will be up to both our shippers and stakeholders along the route," he said. "We have a tremendous amount of flexibility in terms of how we build this pipeline."

The second export terminal on the 4,600-kilometer (2,858-mile) line was planned to be built at the pipeline's terminus in Saint John, New Brunswick.

Girling said building a terminal in New Brunswick still makes sense "in almost any configuration that we're thinking about".

If TransCanada does not build an export terminal in Quebec, Energy East could avoid some regulatory barriers, but the project would also create fewer long-term jobs in the province. The government of Quebec has said it will only support Energy East if the pipeline benefits the province economically.
MGL: Canadian crude exports from New Brunswick just increased in probability. As we've pointed out Canada's big crude projects have tremendous inertia, and $50 crude will take some years to impact Oil output growth.

Alternative Energy

Tesla just announced a new entry-level car

Tesla is replacing its lowest-priced Model S sedan with a new version, called the 70D.

In a statement, the car maker said that the new car will start "at $67,500 after Federal Tax Credit, Model S 70D includes dual motor all-wheel drive technology, an EPA-rated 240 miles of range, and a 0-60 time just north of five seconds."

The 70D replaces the previous, non-all-wheel-drive Model S, which delivered about 208 miles of range on a single charge.

Before tax credits, the Model S will cost $75,000.

Read more:
Image titleSome 25 years ago the Berlin wall fell. This was two years after Reagans famous speech:

It was four years after the last time Saudi collapsed the Oil price, and arguably bankrupted the Soviet Union.

There were two powerful investment responses to this epochal piece of history.

1> Emerging markets were born, and a the geographers had a field day creating an entire new asset class.
2> We saw the first indications of the true power of technology.

In 1992 Copper prices were $2200 a mt. Oil was $21. So  in 25 years of growth in commodity demand from the emerging world we have in fact roughly tripled the price level of inputs. The strategy of following resource demand growth has produced some return.

But in fact its the technology revolution that blazes bright in front of us.Image title

Since the wall fell we have put 100m PC's, 1bn Mobile phones and potentially 10bn internet enabled devices in front of the 3bn people worldwide who have access to this technology, some 40% of the worlds population.

There has been a simply astonishing continuous deflation in the cost of computing.Image title
That deflation must necessarily impact the economic state of play, and today we find ourselves with bond yields at generational lows.

We see the impact of this technology in all kinds of spin off technologies, here the time taken to sequence the human genome:
Image title
We use our expertise in commodities as a lens through which we watch the world, and the resource sector is a price driven sector, not a volume driven sector.

There has been no discernable impact of this technology on copper or oil consumption in the last 25 years:
Image titleOil Production
Here's the really nasty slide:

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The total world mcap of equities is $57 trillion.  Of this $2tn is quoted in the US in companies started by entrepreneurs who left their homeland. This is a direct net transfer of $4tn into US equities. (US equity +2tn, International -2tn), thats 20% alpha directly moved from, primarily emerging equity, into the USA. 

Add that $2tn back to Emerging equity and its returns increase 50% over the period. 

We live in an Ayn Rand world. Property rights matter, and until we see the extension of core property rights into countries outside the US, alpha will 'leak' into the US. 

Elon Musk was born in South Africa.



Pesticides could lead to shortage of crop pollinators - EU report

Evidence is mounting that widely-used pesticides harm moths, butterflies and birds as well as bees, adding to concerns crop production could be hit by a shortage of pollinators, according to a report drawn up for EU policymakers.

The European Commission, the EU executive, placed restrictions on three neonicotinoid pesticides from Dec. 1, 2013, citing worries about their impact on bees, but said it would review the situation within two years at most.

The makers most affected include Bayer CropScience and Syngenta.

When the restrictions were agreed, the European Academies' Science Advisory Council (EASAC), a network of EU science academies that seeks to inform EU policymakers, assembled 13 experts to assess the relevant science.

Its report published on Wednesday found there was "an increasing body of evidence" that neonicotinoids, used in more than 120 countries, have "severe negative effects on non-target organisms".

Bees are, generally speaking, the most important crop pollinators.

But the report said relying on one species was unwise and found the attention on bees had masked the impact on other pollinators such as moths and butterflies, as well as birds, which eat some pests.

Citing an increase in crops that require or benefit from pollination, the report noted "an emerging pollination deficit".

Proponents of neonicotinoids say they have a major economic benefit because they destroy pests and help to ensure abundant food for a growing world population.

But the report cited the monetary benefits of protecting pollinators and natural pest controllers.

Some 75 percent of crops traded on the global market depend on pollinators and the value of pollination in Europe is estimated at 14.6 billion euros ($15.9 billion).

Natural pest control, whereby insects, such as wasps and ladybirds, as well as birds consume enough pests to avoid the need for chemical treatment, is estimated to be worth $100 billion annually worldwide.

Neonicotinoids are synthetic chemicals that act systemically, meaning they are absorbed and spread through the plant's vascular system, which becomes toxic for insects sucking the circulating fluids or ingesting parts of it.

The European Crop Protection Association (ECPA), which represents the pesticide industry, said the new report was biased.

In a statement Jean-Charles Bocquet, ECPA Director General, said it reflected "a bias of the anti-neonicotinoid campaign toward highly theoretical laboratory tests rather than fully considering published field studies and other independent research that proves the safety of these pesticides".

The Commission welcomed the report and said it would start a review of new scientific information by the end of May.
MGL: Something is killing bees.

It could be Neonicitinoids, it could be other causes.

This is a much more serious problem than global warming. No bees= no pollinators= no flowering plants.


Precious Metals

Newmont says opening new Nevada gold district

Denver-based Newmont Mining Corp is going ahead with building the first phase of its Long Canyon gold mine in Nevada, some 100 miles from the company's existing operations in the state.

The first phase, which consists of an open pit mine and heap leach operation, is expected to produce between 100,000 ounces and 150,000 ounces of gold a year over a mine life of 8 years.

First commercial production is expected in the first half of 2017 and costs are some of the best in the industry with all-in sustaining costs of between $500 and $600 per ounce.

Thanks to a phased approach to developing Long Canyon, Newmont has kept the capital outlay to between $250 million and $300 million, according to a company statement.

Newmont acquired the Long Canyon gold deposit from Fronteer Gold in April 2011.

Newmont forecasts 2015 gold production roughly in line with last year at 4.6 million to 4.9 million ounces, with all-in sustaining costs of $960 – $1,020/oz. By 2017 output could top 5 million ounces as the Turf Vent Shaft in Nevada achieves production in late 2015 and the Merian project in Suriname come on stream late next year.

Newmont, worth $11 billion in New York is the only gold company that forms part of the S&P500 index and which has been publicly traded since 1940.

The company, the world's second largest public gold miner in terms of output, is having a strong 2015 so far, with just under 17% gains in market value this year.
MGL: Sounds good?

"Gold giant Newmont Mining Corp. (NYSE:NEM) is sticking close to home for future production growth by acquiring Nevada-focused explorer Fronteer Gold Inc. (AMEX:FRG) in a deal valued at $2.3-billion."

So the total cost to Newmont shareholders is closer to $2.6bn.

Meanwhile Fronteer managment formed Pilot Gold:

"Pilot Gold, the new company to be spun out of the Newmont-Fronteer deal, will hold Fronteer Gold’s exploration properties in Nevada, Turkey, and Peru. Newmont will provide $10-million in cash and will hold a 20-per-cent stake in Pilot, while Fronteer shareholders will hold the remaining 80 per cent."

Pilotgold is a $66m mcap, and has a very interesting asset:

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The stock is on a five year low, but building a good base here:

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So $66m ev buys you an asset worth $208m net to Pilot, there's some other assets in Pilot too.

Thats the kind of math we like to see. We add Pilotgold to the buylist.


Base Metals

Alcoa posts profit after year-earlier loss, confirms '15 outlook

Alcoa Inc earned a profit in the first quarter after a year-earlier loss, reflecting its ongoing shift from traditional smelting and refining to value-added businesses such as automotive and aerospace, the aluminum producer said on Wednesday.

The company's earnings, excluding restructuring costs, beat market expectations but its revenue lagged analysts' estimates, sending Alcoa shares down more than 3 percent in after-market trading.

Alcoa Chief Executive Klaus Kleinfeld said in a telephone interview that all of Alcoa's growth over the previous year came from its new businesses, as it has shut down or curtailed a large portion of its traditional bread-and-butter aluminum smelting and refining business.

"This shows that our strong operational transformation is fully on track ... we are growing as planned," Kleinfeld said. "We have more work to do."

The New York-based company has been shifting away from its traditional, more costly smelting operations in pursuit of more value-added products for the automotive and aerospace industries. Last month the company announced a strategic review of 14 percent of its global smelting capacity and 16 percent of its global refining capacity.

Just last week Alcoa said it was curtailing the remaining smelting capacity at a facility inBrazil as part of that process.

The company has made several recent acquisitions to increase its focus on aerospace products. In March Alcoa announced it had agreed to buy RTI International Metals Inc for $1.3 billion. RTI is a titanium supplier whose customers include Boeing Co.

Alcoa said it excepts global aerospace sales growth of 9 percent to 10 percent in 2015 and worldwide automotive production to rise between 2 percent to 4 percent.

The company posted first-quarter net income of $195 million, or 14 cents per share, compared with a loss of $178 million, or 16 cents per share, a year earlier.

Excluding restructuring costs, Alcoa earned $363 million, or 28 cents a share. Wall Street analysts had expected 26 cents, according to Reuters I/B/E/S.

Alcoa reported revenue of $5.82 billion, up nearly 7 percent from $5.45 billion a year earlier but short of the $5.94 billion expected by analysts.

In post-market trading, Alcoa shares were down more than 3 percent at $13.21.
MGL: We've temporarily shelved our bull case on Aluminium until global demand picks up.

Alcoa now sees global aluminium surplus of 326,000 tonnes in 2015

The world aluminium market will see a surplus of 326,000 tonnes in 2015, an executive at Alcoa Inc said following a presentation of the company's first-quarter 2015 earnings on Wednesday.

That surplus forecast differed sharply from the aluminium producer's January estimate of a 38,000-tonne deficit for 2015, largely driven by an increase in its estimate for output in top-producer China.

"China continues to add capacity," Alcoa Chief Financial Officer William Oplinger said on the call. "Smelters have been reluctant to curtail as prices have recovered."

Demand for aluminium remained strong, Oplinger said, noting that global inventories continue to fall and are currently at 66 days of consumption, just above their 30-year average of 61 days.

This robust demand will limit the downside of the fall in regional premiums, he said. In recent years, financing deals that kept aluminum in storage drove those regional premiums to record levels even as futures prices on the London Metal Exchange fell.

Premiums have begun to fall as those deals start to unwind after attracting regulatory and political scrutiny, though Oplinger noted that they are still at historically high levels and would be supported by strong demand.

"The industry needs metal to operate," Oplinger said. "So as metal comes out of inventory it is being absorbed through higher demand."

In addition, premiums could be supported by a drop in Chinese exports of what Chief Executive Klaus Kleinfeld called "fake semis", or semi-fabricated aluminium shipped by Chinese exporters to avoid an export tax on primary aluminium, only to be re-melted into primary aluminium by the end user.

These exports flooded the market as exporters sought to capitalize on high regional premiums, resulting in abundant supplies. This has in turn pressured those premiums, which could reduce the incentive for Chinese exporters to ship semi-fabricated aluminium, Kleinfeld said.

He added that the exports had caused "annoyance" among Chinese authorities, who may take action to restrict the flow.
MGL: Weak demand. Capacity growth is slowing markedly, even in China.

Steel, Iron Ore and Coal

Hebei, China's most polluted province cuts coal use

Hebei province, known for the worst air condition in China, vowed on Wednesday to clear the smog by reducing coal-related pollution.

Hebei Vice Governor Zhang Jiehui said the province would cut emissions from coal-fired power stations by half.

Stations that can not meet the goal will be shut down, according to the provincial government.

The government also plans to close all solid clay brick kilns as they cause heavy pollution.

Coal emissions contribute half of the air pollution in Hebei, the vice governor said at an air pollution control meeting.
MGL: This anti-smog story in China has legs.  Its a disaster for coal, China is the largest user worldwide, and by a country mile.

Metinvest seeks breather from debt repayments

Left with barely any cash as a result of Ukraine's economic and political turmoil, the country's largest steel company, Metinvest, has asked creditors for a timeout on repayments.

"The idea is to give the company and all our creditors time until the end of January 2016 to agree within two next quarters a new schedule of our overall debt repayments," Kutepov said.

Metinvest's net profit slumped nearly 60 percent in 2014 to $159 million, the company said.

"The reality now is that after repaying its debts in 2014 the company has only enough funds to secure stable operations during 2015," Kutepov said.

He said Metinvest had asked bondholders to agree to extend its 2015 bond from May 20 to January 2016 and was also seeking extensions for its Eurobonds maturing in 2017 and 2018.

It has already agreed a part exchange of its $500 million May 2015 Eurobond for 2017 notes with a 10.50 percent coupon, but around $113 million was due to mature this year.

The company has offered to repay 10 percent, or around $11 million, of the 2015 bond and move the remaining sum to January, Kutepov said.

"These negotiations will be quite difficult and I would not risk assessing the chances for a success," he added.

The company's total outstanding debt as of Feb. 28 stood at $3.1 billion. Its 2017 and 2018 bonds are both trading at around 40-45 cents on the dollar.

Metinvest's revenues fell 18 percent to $10.6 billion in 2014 due to lower output of steel products, it said.

Its core earnings, however, rose 14 percent to $2.7 billion thanks to a weaker hryvnia currency which helped the company to reduce costs.

Business has not improved this year as rail networks in the separatist east have been disrupted by clashes between government troops and pro-Russian rebels, Kutepov said.
MGL: No equity, bonds trade in the 40's. Image title

Italy's Lecco steel mill to restart production, hire staff

Italy's Lecco steel rolling mill, formerly owned by the country's second-largest steelmaker Lucchini, will restart production in May and will hire nearly 100 staff including former employees currently under redundancy contracts.

Lucchini was previously owned by Russia's Severstal but was placed under special administration in 2012, battered by stiff competition from Asia and depressed demand following the 2008-2009 financial crisis.

The company sold the Lecco mill in the country's north to privately-owned steelmakers Duferco and Feralpi late last year, after selling its core steel plant in Piombino on the Tuscan coast to Algerian conglomerate Cevital.

Steel prices ST-CRU-IDX are currently at their lowest level in nearly six years, pressured by over-supply globally and demand that has yet to fully recover from the 2008-9 crisis.

As such, while the restart of the Lecco mill will be welcomed by an Italian government struggling to pull the country out of recession, rival steelmakers will be less pleased.

Duferco and Feralpi said on Wednesday they had formed a new company, Caleotto SpA, to own and operate the Lecco mill, rehire 74 staff who were laid off by Lucchini and employ an extra 10 staff.

The new owners also plan to invest more than 5 million euros ($5.4 million) between now and 2019 in the plant.

Italy's steel sector is Europe's second-largest after Germany but has been hard hit by post financial crisis austerity measures imposed on the country.
MGL: Capacity, once built, never leaves, it just is marked down in price. Severstal took an $800m loss on sale of this plant, and thats after some writedowns. 

China key steel mills daily output down 2.2pct in late-March

Daily crude steel output of key Chinese steel producers dropped 2.18% from ten days ago to 1.613 million tonnes over March 21-31, showed data from the China Iron and Steel Association (CISA), reflecting persisting weak demand in downstream sectors.

The drop was mainly due to output cut in some steel mills, which ran low capacities amid huge losses in an oversupplied domestic market and greater environmental protection pressure.

The Purchasing Managers Index (PMI) for the Chinese steel sector dropped 2.1 percentage points on month to 43.0 in March, the 11th consecutive month below the 50-point threshold separating growth from contraction, indicating persisting sluggishness in this sector, official data showed.

The extended decline came despite a rise in steel products in late March, as demand gradually improved with increased construction activities.

Over March 23-29, the price of steel products increased 1% on month, with the price of rebar increased 1.4%, according to data from the Ministry of Commerce.

The CISA didn’t give an estimate on China’s total daily output during the same period.

Meanwhile, the CISA members produced 1.60 million tonnes of pig iron on average each day during the same period, down 2.59% from the previous ten days.
MGL: Feels backward looking. Beijing moving now to support the feeble economy. Beijing's agenda is clean growth, not recession, and many Chinese numbers are in recession territory.

Chinese banks reduce credit to steel mills

Chinese banks are reducing their exposure to the country’s debt laden steel sector, withdrawing credit from struggling steel mills, according to the Economic Observer, a financial newspaper.

The Chinese banking system withdrew 150 billion yuan in loans from the steel sector, which accounts for 10 per cent of total planned lending of 1.5 trillion yuan.

Privately controlled steel mills have been hard hit by the latest lending policy. Zhao Xizhi, honorary chairman of the China Metallurgy Association says the cost of funding for private mills is about twice as expensive as state-owned firms.
MGL: This is worth watching. A steel sector deprived of credit must curtail production unless cash on cash returns are positive. 

If true, and generalised, ie we dont see other credit replace the banks then we should see rebar lift:

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