Mark Latham Commodity Equity Intelligence Service

Friday 9th December 2016
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    Hogan-Lovells on US Tax reform

    In light of the presidential election victory of Republican Donald Trump, and the Republican Party's success in maintaining control of both the U.S. House and Senate for the upcoming 115th Congress, we believe that there is a very good chance that the U.S. Congress will pass, in 2017, the most significant U.S. tax reform in a generation.

    This bill will affect any individual or company — U.S. or foreign-based — with income in the U.S., and will likely completely revamp the nation's current tax code as it applies to multinational corporations. The road to enactment of this legislation will be far from smooth — there will be turf battles and disagreements, not only between the parties, but between industries and different interests — and it will take time. Given the hurdles the bill will face — notwithstanding Trump's and Chairman Brady's pledges to get tax reform done in 100 days — getting a bill to the President's desk will almost certainly take much of 2017, if not more time. Much of this reform legislation will be positive for businesses and individuals alike, but there will be trade-offs as well that may divide industries or even different companies in the same industries.

    In addition to Trump's and Chairman Brady's pledges to get tax reform done next year, Speaker of the House Paul Ryan, (now Speaker nominee for the 115th Congress) has indicated that accomplishing tax reform in 2017 is his highest priority. The starting point for tax reform is likely to be the Tax Reform Blueprint, issued by Speaker Ryan and Chairman Brady in early 2016. The Blueprint was the product of extensive work by a Republican congressional task force and represents a major re-write of the tax code; far beyond changes in rates. The Trump tax reform plan is similar in many respects to the Blueprint, and Trump and his team thus far have indicated support for Speaker Ryan's plan to start with his own bill in the House. In the Senate, Republican Majority Leader Mitch McConnell and Senate Finance Committee Chairman Hatch have also indicated strong support for moving tax reform.

    Although House and Senate Republican leaders have all indicated in recent days their hopes that Congress will be able to move a tax reform bill with bipartisan support, we believe that in the end there is a good chance that Republicans will end up moving a bill with little to no support from the Democrats. The reconciliation process under the Budget Act of 1974 would allow Republicans to do this without the risk of a Democrat filibuster in the Senate, which would otherwise require 60 votes to overcome.

    Moving a bill through reconciliation, though, will make the process much more complicated. This would require that the House and Senate pass a budget resolution, and that the Senate comply with the Byrd rule, requiring 60 votes to overcome a point of order if the bill results in any revenue loss after the years included in the Budget Resolution. In addition, if Republicans attempt to address Obamacare reforms through reconciliation, as has also been contemplated, and perhaps an infrastructure revenue source as well, the process would be even more complicated and difficult to get through. And the Republicans may have trouble maintaining support within their own caucus.

    Although Trump, during his campaign, did not express much concern about the growing national debt, the issue remains a concern among many Republican deficit hawks. Recent analysis has estimated the U.S. revenue loss associated with the Trump plan at US$4-US$6 trillion on a static basis, and the static loss associated with the Brady/Ryan Blueprint at US$2-US$3 trillion. Using dynamic scoring, as the Republicans plan, could improve these numbers considerably, but it will make the process more difficult yet again if Congress is going to try to achieve revenue neutrality.

    The following are some of the primary elements of the Trump and Ryan/Brady Blueprint tax reform proposals. Neither Trump nor Ryan/Brady released legislative language for their proposals, though the Ryan/Brady Blueprint is far more detailed than the current Trump proposal.

    Ryan/Brady Blueprint:

    • 20 percent corporate tax rate
    • 25 percent rate for pass-through business income
    • A cash-flow consumption tax structure for business –
      • Full expensing for capital investments
      • No deductibility of interest expense beyond interest income
      • Territorial tax system with one-time tax on accumulated foreign E&P (8.75 percent cash/3.75 percent non-cash rates)
      • Border adjustment mechanism: tax imports and deduct exports
    • Industry-specific tax preferences and other unspecified tax preferences would be repealed
    • Transition rules – Blueprint: "The Committee on Ways and Means will craft clear rules to serve as an appropriate bridge from the current tax system to the new system, with particular attention given to comments received from stakeholders on this important matter"
    • Individual income tax rates lowered to 12 percent, 25 percent, 33 percent
    • Individual investment income (taxed at half of earned income rates)

    Trump Tax Reform Plan:

    • 15 percent corporate tax rate
    • 15 percent rate for pass-through business income
      • Manufacturers have option to fully expense capital investments if they opt to waive deduction of interest expense
      • Campaign expressed support for a one-time tax on accumulated foreign E&P, but the plan appears to retain the U.S. extraterritorial system
      • Repeal most corporate tax expenditures, except R&D credit
    • Individual tax rates lowered to 12 percent, 25 percent, 33 percent
      • Caps itemized deductions at US$100k, US$200k


    Both the Congressional tax-writers, and (to a lesser extent, as the players are not as firmly established) the Trump transition team, have been asking for ideas, thoughts, and criticisms of their tax reform proposals. When tax reform starts moving in 2017, it will be more difficult as time goes on to influence the process. Today, the bill is being written, but there is still time for all parties to influence its direction.

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    Trump Team’s Memo Hints at Broad Shake-Up of U.S. Energy Policy

    Advisers to President-elect Donald Trump are developing plans to reshape Energy Department programs, help keep aging nuclear plants online and identify staff who played a role in promoting President Barack Obama’s climate agenda.

    The transition team has asked the agency to list employees and contractors who attended United Nations climate meetings, along with those who helped develop the Obama administration’s social cost of carbon metrics, used to estimate and justify the climate benefits of new rules. The advisers are also seeking information on agency loan programs, research activities and the basis for its statistics, according to a five-page internal document circulated by the Energy Department on Wednesday. The document lays out 65 questions from the Trump transition team, sources within the agency said.

    On the campaign trail, Trump promised to eliminate government waste, rescind "job-killing" regulations and cancel the Paris climate accord in which nearly 200 countries pledged to slash greenhouse gas emissions. Trump, though, hasn’t detailed specific plans for federal agencies. The document obtained by Bloomberg offers clues on where his administration may be headed on energy policy, based on the nature of questions involving the agency’s research agenda, nuclear program and national labs.

    Loans, Incubators

    Under Obama, the department played a major role advancing clean-energy technology through loan guarantees and incubators, while writing efficiency rules for appliances. The department leans heavily on tens of thousands of contractors, who supplement the work of its roughly 13,000 direct employees.
    Two Energy Department employees who spoke on condition of anonymity confirmed the questionnaire and said agency staff were unsettled by the Trump team’s information request.

    Tom Pyle, the head of Trump’s Energy Department landing team and president of the oil-industry-funded free-market advocacy group American Energy Alliance, didn’t immediately respond to a request for comment on the memo. Media representatives for the Trump transition and an Energy Department spokesperson also didn’t immediately respond to calls and e-mails seeking comment.

    A person close to the transition team confirmed the questions Thursday. The person, who asked not to be identified because he isn’t authorized to speak publicly about the matter, praised the caliber of the Energy Department staff and cast the transition team’s effort as designed to ensure transparency on the formation of existing, Obama-era policy.

    Social Cost

    The questions about the social cost of carbon dovetail with similar, so-far-unsuccessful requests from Republicans on Capitol Hill, who have also sought information about the analysis underpinning that policy and the people who helped develop it.

    The transition team questions includes perfunctory requests to identify current advisory committees, pending procurement decisions and positions subject to Senate confirmation — information critical to ensuring the agency’s functions before and after Trump is sworn in.

    The document also signals which of the department’s agencies could face the toughest scrutiny under the new administration. Among them: the Advanced Research Projects Agency-Energy, a 7-year-old unit that has been a critical instrument for the Obama administration to advance clean-energy technologies.

    Since going into operation in 2009, ARPA-E, as it is known, has provided about $1.3 billion in funding to more than 475 projects involving grid-scale batteries, power storage, biofuel production, wind turbines and other technology, according to a May report on the agency. Trump’s energy landing team is seeking “a complete list of ARPA-E’s projects” and wants information about the “Mission Innovation” and “Clean Energy Ministerial” efforts within the department.

    Without Subsidy

    The group also questions whether any technologies or products that have emerged from Energy Department programs “are currently offered in the market without any subsidy” and asks “what mechanisms exist to help the national laboratories commercialize their scientific and technological prowess.”

    The Energy Information Administration, the department’s statistical arm, is the subject of at least 15 questions that probe its staffing, data and analytical decisions, including whether its forecasts underestimate future U.S. oil and gas production. EIA staff also are asked how they account for added costs to transmit and back-up renewable power.

    The Trump transition advisers also want to know in what instances the EIA’s independence was most challenged over the past eight years.

    While the request for information hints at areas the Trump administration will address in terms of energy, it doesn’t actually specify policy, and administration plans may be shaped in part by the Energy Department’s responses.

    Nuclear Plants

    The document shows Trump advisers contemplating ways to keep aging U.S. nuclear power plants on line, including by addressing concerns about the long-term storage of spent radioactive material. “How can the DOE support existing reactors to continue operating,” and “what can DOE do to help prevent premature closure of plants?” the transition team asks.

    Trump advisers have been weighing how to revive a long-stalled plan to stash radioactive waste at Nevada’s Yucca Mountain. In the document, they ask if there are any statutory restrictions to restarting that project or reinvigorating an Office of Civilian Radioactive Waste Management that was responsible for disposing of spent nuclear material.

    In the transition document, Trump advisers ask for "a full accounting" of DOE liabilities associated with DOE’s Loan Program Office, criticized by Republican leaders over its part in bankrolling Solyndra, the solar panel manufacturer that went bankrupt and left taxpayers on the hook for $535 million in federal guarantees. The documents seeks lists of outstanding loans, their terms and objectives, and the parties responsible for repaying them.

    In addition to Pyle, Trump’s Energy Department landing team includes national security lawyer David Jonas; Michigan Republican Party vice chair Kelly Mitchell; Jack Spencer, vice president of the Institute for Economic Freedom and Opportunity at the conservative Heritage Foundation; Martin Dannenfelser Jr., previously with the Energy Innovation Reform Project; and Travis Fisher, with the Institute for Energy Research.
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    China economy reflating as producer prices rise at fastest pace in five years

    China's producer prices rose at the fastest pace in more than five years in November as prices of coal, steel and other building materials soared, boosting industrial profits and giving firms more cash flow to pay off mountains of debt.

    The stronger-than-expected 3.3 percent surge in prices, along with upbeat factory readings from China, the United States and Europe, add to views that the global economy may be slowly reflating again thanks to a pick-up in industrial activity.

    "This (the PPI jump) confirms our view that China has emerged from a multi-year deflationary trap," ANZ said in a note.

    While some heavy industries such as coal mining, steel mills and metal processors saw the biggest rebound, official data on Friday showed the price recovery was also becoming more broad-based, with more sectors emerging from deflation.

    Consumer inflation also picked up more than expected to 2.3 percent from a year earlier, the highest since April, due to higher food prices.

    Though the price gains were modest, they reinforced views that the central bank will be in no rush to loosen monetary policy again any time soon, and even fueled speculation as to when the People's Bank of China may start tightening conditions.

    China's central bank has not cut interest rates since October 2015, when worries about deflation were more pressing, opting instead for regular injections of funds into the financial system and targeted infusions of cash into the weakest parts of the economy, such as rural areas.

    "While there remains no immediate pressure on the central bank to raise interest rates, the uptick in inflationary pressures in November, combined with downward pressure on the renminbi-exchange rate, highlight the risk that monetary policy tightening may begin earlier than The EIU currently expects," said Dan Wang, China analyst at The Economist Intelligence Unit.

    Wang currently expects the PBOC will start to raise interest rates from the fourth quarter of next year.

    Analysts polled by Reuters had expected producer prices to rise by a more modest 2.2 percent, up from 1.2 percent in October, while consumer prices had been expected to pick up marginally to 2.2 percent from 2.1 percent.

    "Today's data shows future (PBOC) easing is even less likely. I don't see any need for a RRR cut," Capital Economics' China economist Julian Evans-Pritchard said, referring to a cut in banks' reserve requirements.

    "With what is going on with China's declining foreign reserves, if PBOC injects liquidity to replenish it, it is already kind of tightening without having to resort to such high-profile measures," he said, adding that the PBOC has plenty of tools at disposal to adjust liquidity in the market.

    The central bank said in its third-quarter monetary policy implementation report it will maintain ample liquidity in the financial system while taking steps to prevent asset bubbles in an increasingly leveraged economy.


    China's producer prices rose in September for the first time in nearly five years thanks to a rebound in commodity prices.

    A construction boom led by higher government spending and a blistering housing market rally have boosted prices for materials from steel and copper to glass and cement, with speculators adding fuel to a months-long rally in China's commodity futures markets.

    Government efforts to reduce excess capacity in industrial and mining sectors have also buoyed prices by creating shortages in some areas, such as coal. That helped boost industrial profits 9.6 percent in October from a year earlier.

    Chinese steel and iron ore futures rose for a sixth straight session on Friday, spurred by upbeat trade data on Thursday and worries over tighter supply as Beijing intensifies efforts to cut excess steel capacity.

    Futures prices for steel reinforcement bars used in construction have surged to 31-month highs, while iron ore is at its strongest since late 2014.

    China's November imports expanded 6.7 percent on-year, the fastest in more than two years, as factories replenished inventories of raw materials, helping to lift commodity prices globally.


    ANZ estimates that higher prices of metals, mainly steel, and coal account for nearly half of the PPI changes, and says prices could continue to rise well into 2017.

    ANZ market economist David Qu in Shanghai said PPI will rise by 2.5 percent next year, though momentum will wane in the second half.

    Qu said the government has shown that it is more determined to cut excessive capacity than people thought, and the property market, while cooling, would still support demand for a while longer.

    "While (home) sales may have already cooled, construction starts and property investment will still be strong in the first half of 2017, which would continue to boost steel prices," Qu said.

    ANZ maintains the broader-based producer price index has a higher correlation with economic activity and interest rates than consumer prices, which are primarily driven by food prices and underestimate housing costs.

    China's economy expanded at a steady 6.7 percent in the third quarter and looks set to hit Beijing's full-year target, fueled by stronger government spending, record bank lending and a red-hot property market that are adding to its growing pile of debt.

    But the world's second-largest economy is expected to slow next year, as effects from previous stimulus start to fade.
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    International investors buy pipeline stake from National Grid for £14bn

    National Grid has agreed to sell a 61% stake in Britain’s £13.8 billion gas pipe network to a team of global investors including Chinese and Qatari buyers.

    The deal will see a consortium led by Australian investment bank Macquarie – and including China’s sovereign wealth fund – take control of the network serving 11 million homes and businesses.

    UK power network operator National Grid pledged to return £4 billion to shareholders after the deal and will hand out a £150 million payment to benefit British energy customers.

    It will receive £3.6 billion cash for the stake in its gas arm, as well as a further £1.8 billion in debt financing.

    National Grid will retain a 39% stake in the business, but said it was also in talks with the consortium over the sale of a potential further 14% shareholding.

    It comes after the Government launched a review in September of how overseas investment in UK infrastructure is scrutinised and whether ministers should have stronger powers to intervene.

    National Grid chief executive John Pettigrew sought to allay fears over security of supply and said the Government and energy regulator Ofgem had been closely involved in the sale process.

    He told the Press Association: “The consortium will have exactly the same obligations going forward in terms of security, reliability and safety as National Grid has had.

    “It involves a group of investors who have a long track record of investing in critical infrastructure in the UK.”

    National Grid has around 82,000 miles (more than 130,000km) of pipeline, which delivers gas to regions including London and the East of England, the West Midlands and north-west England.

    It employs nearly 5,700 staff.

    Mr Pettigrew said the gas network management team will remain in place, while staff will see their terms, conditions and pension rights remain the same.

    Following the deal, National Grid plans to return most of the £4 billion to shareholders through a special dividend in the second quarter of 2017.

    It will also work with Ofgem to decide how best to use the £150 million payout to benefit energy customers.

    The auction for the gas network has been running for just over a year and saw the Macquarie consortium fight off a raft of competitors, including a team led by Chinese investors.

    For the bid, Macquarie teamed up with China Investment Corporation – a subsidiary of China’s sovereign wealth fund – as well as the Qatar Investment Authority, financial services giant Allianz Capital Partners, UK-based Hermes Investment Management and British fund managers Dalmore Capital and Amber Infrastructure Limited/International Public Partnerships.

    Macquarie and China Investment Corporation will hold the two largest stakes, at 14.5% and 10.5% respectively, followed by Allianz with a 10.2% stake.

    The Qataris will hold an 8.5% stake.

    Macquarie owns Thames Water, but is currently looking for a buyer to take on the utility giant, while others in the consortium have also invested in the Tideway Tunnel and Heathrow.

    But trade union Unison claimed Macquarie was an “unsuitable” owner given its track record with Thames Water.

    Unison general secretary Dave Prentis said: “Macquarie has poor form already – in building up huge company debt, repatriating massive dividends to the southern hemisphere and charging customers more for a much poorer service.

    “The company has already proved it can’t be trusted with the nation’s water supply, but now it is to be in charge of gas pipes to millions of homes and businesses.”
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    Oil and Gas

    China teapots to extend oil buying spree into 2017

    China's small, independent refiners are set to raise their crude oil imports again in 2017 on expectations that Beijing will keep their intake quotas steady, market participants said, a move that should help eat up some of the global supply glut.

    Officials at three independent refineries and an official involved in national import policy said they expected the government to keep next year's crude oil import quotas for independents unchanged to slightly higher.

    Called "teapots" due to the small capacities of their plants compared with the big state-run refineries, the independents made up nearly 90 percent of China's crude oil import growth this year, helping to put the world's No.2 economy on course to challenge the United States as the top importer.

    Next year, teapots will contribute 200,000-400,000 barrels per day (bpd) to China's crude import growth, out of an overall import rise of 500,000-700,000 bpd, according to estimates from research consultancy Energy Aspects.

    "For the teapots, crude imports (and ensuing product sales and exports) are also an opportunity to expand their share of the domestic retail market and to develop a regional footprint in Asia and potentially beyond," said Michal Meidan, an Energy Aspects analyst.

    In 2016, China has raised its imports by nearly 900,000 bpd on average, more than enough to supply the whole of the Netherlands, thanks largely to 17 new teapot buyers.

    Thomson Reuters Research and Forecasts estimates teapots will import about 5 million tonnes of crude oil in December, or 1.18 million bpd, highest since the independents were allowed to staring importing crude in mid-2015.

    That compares with an average of 31.3 million tonnes of total crude imports a month for the first 11 months of the year.

    Shandong Chambroad Petrochemicals Co, a teapot granted with 3.31 million tonnes in annual import quotas (66,000 bpd), said it expects little change in quota policy for the coming year.

    "It was a major policy decision for the government to let teapots import foreign crude, and we have not noted any change," said Chambroad's spokeswoman Sun Chaoyang.

    An official with China Petroleum and Chemical Industry Federation, which screens potential new importers, agreed, saying the agency expected to grant one or two new approvals before year-end.

    Teapots now have some 1.26 million bpd in crude quotas, and their rise in the market has forced state refiners to scale back some refinery operations and sent China's fuel exports surging to record highs.
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    Brazil's audit court asks Petrobras to pause new asset sales

    Brazil's federal auditing court (TCU) asked state-controlled oil company Petrobras on Wednesday to temporarily suspend its divestiture program while the court reviews asset sales procedures.

    The decision could delay Petrobras efforts to raise $15.1 billion from asset sales by the end of 2016 as a way to reduce its huge debt -- the largest in the global oil industry.

    The company wants to raise $19.5 billion more in 2017 and 2018.

    The court said five ongoing Petrobras asset sales that are nearing conclusion can be finalized, accounting for around $3.3 billion, but asked the company to refrain from signing any new sale plans 'until new order.'

    There is no date set for a final ruling by the court.

    TCU's decision follows recommendations from its experts about procedures used by Petroleo Brasileiro SA, as the company is formally known, on the asset sales.

    According to the decision published on Wednesday, the court thinks the company should be much more transparent in its divestiture program as it is a state-controlled entity.

    Laws governing public entities in Brazil require ample disclosure of business information.

    There is a debate among lawyers regarding to what degree those laws would apply to a company that is also owned by private investors, as is the case with Petrobras.

    Petrobras said the TCU ruling is positive in a sense, since it allows the firm to close deals that were near completion. It said it plans to comply with the court's determination.

    "The company is already reviewing its divestment procedures and is committed to following the court's recommendations for improvements," Petrobras said in a statement.

    Petrobras reaffirmed its targets to raise $15.1 billion by end-2016 and $19.5 billion more in the next two years.

    Although the TCU said it would let Petrobras conclude deals that are already well-advanced, it is not clear how many of the recent transactions the oil company would be able to finalize if it strictly follows the court's order.

    Petrobras's Chief Executive Officer Pedro Parente said 10 days ago that the firm had raised close to $11 billion in asset sales so far and that it intended to reach the $15.1 billion target by the end of December.

    Brazil's audit court asks Petrobras to pause new asset sales
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    Asian LNG prices rise above $8/mmBtu

    Prices for liquefied natural gas (LNG) have increased to their highest since mid-2015 in Asia, boosted by plans by OPEC and Russia to cut crude oil production.

    Spot prices for Asian LNG increased 50 cents from last week to around US$8.1 per million British thermal units (mmBtu), Reuters reported on Thursday.

    The news agency cited traders as saying that the main drivers behind the rise in prices were a deal between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producer Russia to slash crude output to pump up prices, as well as cold weather in northern Asia and Europe that lifted LNG demand for heating and power generation use.

    To remind, these factors also boosted last week’s prices to their highest in 2016 at that time.

    “Higher oil prices will translate into higher LNG import prices for the majority of LNG consumers,” consultancy Wood Mackenzie said in a report on the impact of the OPEC deal on the LNG markets on Thursday.

    “Currently, around 80% of LNG supply is sold on contracts that price LNG as a function of oil. But indexation varies widely. For every $1/bbl increase Brent, expect a $0.07- $0.15/mmbtu increase in oil-indexed LNG contract prices,” Wood Mackenzie said.
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    LNA retake Ben Jawad and Nufliya

    The Libyan National Army (LNA) says it has recaptured the towns of Ben Jawad and Nufliya from the military force that took them early this morning. It says that four of it soliders were killed and eight wounded in the counter-offensive and that eight of the attackers were also died.

    For its part, the Presidency Council and its defence ministry have denied any involvement in today’s moves aimed at seizing the Sirte basin oilfields and terminals from the LNA.

    Meanwhile, there has been wave of condemnations of the events from both sides of the Libyan divide and the National Oil Corporation (NOC) has ordered all non-essential staff to leave the Sidra oil terminal.

    “Our first concern is for the safety of our personnel,” said NOC chairman Mustafa Sanalla who indicated that although there has been no declaration of force majeure in relation to Sidra, it would happen if there were any deterioration in the situation.

    An engineer at the terminal was reported saying that the attackers had fired rockets towards the terminal which is 30 kilomtres from Ben Jawad.

    The initial capture of the two towns was at first said to have been carried out by forces under the control of the Presidency Council’s defence minister Al-Mahdi Al-Barghathi and Petroleum Facilities Guard (PFG) chief Ibrahim Jadhran. The LNA now says that the attackers were members of the militant Benghazi Defence Brigades, the grouping of Benghazi militias that were part of the Benghazi Revolutionaries Shoura Council but forced out of the city earlier this year by the LNA and fled to Tripoli.

    According to Colonel Muftah Al-Magarief, who was appointed by the LNA as head of the PFG in place of Jadhran, the recapture of the two towns followed air strikes on the BDB. In the counter-attack, he added, equipment had been captured as well as a number of the BDB’s commanders. This included, allegedly, a member of the Temporary Security Committee (TSC) set up by the Presidency Council to provide it with an independent military force.

    The PC has denied that it was “in any way involved” in the attacks, although it also said that there has been a decision to set up an operations room to retake the oil crescent. The PC’s defence ministry similarly denied issuing any orders to retake the towns. It had, it added, launched an investigation into who had been involved in the decision to attack. It accused the BRB of undermining the legitimacy of the PC.

    The BRB is part of the alliance of hardliners supported by the grand mufti Sadeq Al-Ghariani which is firmly opposed to the PC and the Libyan Political Agreement.

    Condenation of the attacks came from House of Representatives President Ageela Saleh as well as Misratan politician Belgassem Igzeit, who is a member of the State Council and who said that if it were shown that Barghathi had been involved, he would have to resign.

    UN Special Envoy Martin Kobler has called for calm in the oil crescent area.
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    Petronas’ PFLNG Satu produces first LNG offshore Malaysia

    Petronas’ first floating LNG facility, the PFLNG Satu, has produced first drop of the chilled fuel from the Kanowit gas field offshore Sarawak, Malaysia.

    Designed to last up to 20 years without dry-docking, the 365-meter long PFLNG Satu is expected to be able to produce 1.2 million tonnes of LNG per year.

    “The operational milestone marks a decade long journey for Petronas since conceptualising a floating LNG facility to maximise the potential of remote and stranded gas reserves to deliver a game changer in the global LNG business,” the Malaysian energy giant said in a statement on Friday.

    PFLNG Satu reached its final stages of commissioning and startup with the introduction of gas from the KAKG-A central processing platform at the Kanowit gas field on November 14.

    The gas is treated and liquefied via its Nitrogen-based liquefaction unit – the heart of the FLNG, and processed into the first drop of LNG.

    PFLNG Satu is expected to lift its first cargo and achieve commercial operations in the first quarter of 2017, according to Petronas.
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    Japan's Jera says to receive first US Sabine Pass LNG cargo early Jan

    Japan's Jera says to receive first US Sabine Pass LNG cargo early Jan

    Jera Co, a joint venture between Japan's Chubu Electric and Tokyo Electric Power Co, is expected to receive its first cargo from US Sabine Pass in early January, Jera said Thursday.

    Chubu Electric in 2014 signed a short-term contract with Cheniere Marketing International to buy a total 700,000 mt of LNG from the US Sabine Pass project over July 2016-January 2018.

    The cargo loaded on the Oak Spirit left Sabine Pass on Wednesday and is expected to arrive the Joetsu terminal in Japan in early January, the utility said.

    An official at Jera said Sabine Pass cargoes have no destination restrictions and therefore some of the future Sabine Pass cargoes Jera will receive under the contract could be diverted, but he did not give details.
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    Which US Independents will increase production in 2017?

    A slow pick-up in the price of oil comes with a gradual recovery of prices.  But companies have spent much of 2016 cutting costs and de-leveraging assets.  We looked at what it will take for US Independents to grow production in 2017 and how that translates into commercial opportunities.

    Cash-flow neutrality is the name of the game

    Cash-flow neutrality means living within your means and not using any debt to fund your day-to-day operations.  Debt seems to be a way of life for companies these days.  We examined the oil price required for companies to achieve the elusive cash-flow neutrality. Growth and cash-flow neutrality are mutually exclusive goals for all but a handful at US$50/bbl WTI, but most companies could self-fund 10% growth at US$60/bbl.

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    We believe that the pace of growth of tight oil will be the biggest wild card in 2017

    -Kris Nicol, Principal Analyst Corporate Research

    A return to material self-funded growth requires >US$55/bbl

    We estimate that our peer group of the 17 largest US Independents requires an average of US$50/bbl WTI in 2017 to be cash-flow neutral and replace production declines; US$57/bbl and US$63/bbl is required to grow at 5% and 10%, respectively. Three companies can achieve self-funded double-digit growth in 2017 at
    Production could decline even with increased spending

    We estimate that half of the companies’ production would decline if capex remained flat from 2016 to 2017; several require >40% increases just to offset declines. Southwestern and Chesapeake face the biggest challenge. Companies with inventories of high-impact wells (Pioneer and Range) and those with production support from international assets (Marathon, ConocoPhillips, Hess) require less capital to generate growth. Delivering 10% growth across the peer group in 2017 would require US$19 billion more capex than 2016 and translate to a US$11 billion cash-flow deficit in our base-price scenario.

    Flexibility will be incorporated into 2017 planning process

    Several companies have already provided preliminary 2017 guidance, much of which aligns with our analysis. But we expect activity plans to remain dynamic, with activity ultimately determined by oil and gas prices, capital availability, M&A activity, hedging activity, shifting cost structures, and development optimisation.

    To find out which companies are best positioned to grow in 2017, fill in the form on this page to watch our exclusive video.

    Find out about the outlook for Diversified Independents on our post, Diversified Independents: How diverse can they remain?

    Attached Files
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    US oil production unlikely to rise much through all of 2017: Hamm

    US production of crude oil will take around 18 months to recover to the multi-decade highs seen in 2015, and total US production is unlikely to change much throughout 2017 from the current rate of around 8.6 million b/d, Harold Hamm, chairman and CEO of energy group Continental Resources, said Thursday.

    Speaking at the S&P Global Platts Global Energy Outlook Forum in New York, Hamm said OPEC appeared to be targeting a crude oil price of between $50/b and $65/b, as part of its broad agreement to curtail production from 2017, and noted that WTI and Brent crude futures had been trading at around $55/b in recent days.

    "At those prices it's going to be slow. You need about 18 months before you see some recovery [in US crude production] at $50-$55 oil," said Hamm. "I don't see it changing meaningfully from this year," he added, when asked where US production was likely to be at the end of 2017.

    The US Energy Information Administration forecast Tuesday that US crude production would average 8.86 million b/d in 2016, up 20,000 b/d from last month's forecast, and 8.78 million b/d in 2017, up 50,000 b/d from last month's prediction and 740,000 b/d higher than the Energy Information Administration's US supply forecast from April.
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    Harold Hamm om Bakken IRR's

    Harold Hamm at PlattsGEOF: Continental Resources gets 40% IRR in their core plays in the Bakken at $40/b-$50/b oil.

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    South Korea top of the list as US' Continental mulls oil exports

    South Korea is at the top of the list for Continental Resources as it mulls over potential export destinations for crude and condensates, chairman and CEO Harold Hamm said Thursday.

    Hamm said exports of oil were a feature of Continental's longer term production growth plan, as US producers in general are looking to increase production amid higher crude oil prices.

    South Korean buyers have been among the friendliest buyers reaching out to US producers, since the US lifted an effective ban on exports at the end of 2015.

    "The first people that called me to congratulate on lifting the ban was South Korea," said Hamm, adding that the country was top of the list of possible lifters going forward.

    Hamm said Continental wouldn't completely rely on traders buying crude for export and bringing the oil to export destinations through arbitrage in the spot markets. "Continental is capable of making those deals without other parties," said Hamm.

    After hitting a record high in September, US crude exports fell 201,000 b/d to 491,000 b/d in October as Suezmax freight spiked and the Brent/WTI spread narrowed, an S&P Global Platts analysis of US Census Bureau data released earlier this week showed.

    As a result of rising freight and the narrowing Brent/WTI spread, US crude exports to Europe fell from a record 209,000 b/d in September to just 68,000 b/d in October. In September, the US recorded 99,000 b/d in shipments to Singapore -- another record -- but the flow dried up completely in October.
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    With depressed oil prices, producers find solace in the Viking play

    The Viking play in western Canada has become a staple for oil producers seeking low-cost, high-quality oil production.

    Wells producing Viking oil can been drilled for as low as $620,000–in the case of Whitecap Resource’s Saskatchewan property. Typically, wells are drilled, completed and tied-in for $0.75 – $1.2 million. These low cost wells offer lower risk opportunities for producers compared to prolific tight oil plays which get higher production rates, but at much higher costs. Viking oil is also high quality with an API of 36-40 degrees.

    These factors have kept drilling into this formation remarkably resilient during the oil price downturn. So far this year, over 1,000 Viking wells have been drilled. Teine Energy and Raging River Exploration have been dominant in the play, drilling over 300 locations each.

    The play has also experienced tremendous M&A activity with over $1.2 billion in transactions completed year to date. The average deal fetches a respectable $50,000-$60,000 per boe/d.
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    Alternative Energy

    Solar buzz: QUT team inspired by fly’s eye to boost solar cell efficiency

    Queensland University of Technology researchers have taken inspiration from the humble fly, in the eternal quest to boost the efficiency of solar cells.

    As Dr Karl Kruszelnicki explained on ABC Radio late last year, “some 45 million years ago, on our planet there was a fly that (we think) was active in the dim light around dawn and dusk.

    “One particular fly got caught in the slowly flowing sap of a tree, and ended up both dying and being almost perfectly preserved in what became a block of solid amber.

    “Some 45 million years after it died, modern scientists looked at it with a high-powered electron microscope …(and) noticed some very fine regular corrugations on the front of the fly’s eyes. These corrugations were a regular 250 nanometres apart — less than half the wavelength of blue light.”

    The effect these nano-structures, he added, was that when light was shined on the fly’s eye, no colours were emitted and no light at all was reflected. All the light landing on the front surface of the fly’s eye was entering the eye.

    And, as Dr Karl put it, “here’s where we can learn from nature.”

    The QUT researchers have mimicked the fly eye design to create a three-zone nanomaterial that captures energy across a wider solar spectrum than conventional solar cells, using only one material – zinc oxide.

    According to Dr Ziqi Sun, a senior research fellow at QUT’s Science and Engineering Faculty, the fly-eye solution comes “very close to perfection,” and could readily be incorporated into modern solar cells for an impressive boost in energy harvesting.

    Dr Sun is talking about the underlying technology that he and his colleagues have developed to make nano-structures using sheets of metal oxides at this week’s Physics Congress in Brisbane, and the new solar cell design will be published in Materials Today Chemistry.
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    Precious Metals

    China bank ICBC seals first debt-for-equity swap with Shandong Gold

    Industrial and Commercial Bank of China (ICBC) , the country's biggest lender by assets, said on Friday it has signed a 10 billion yuan ($1.45 billion) debt-for-equity swap with Shandong Gold Group to reduce the company's debt burden.

    This deal marked ICBC's first debt-for-equity swap since Beijing launched the scheme in October in a bid to reduce its $18 trillion in corporate debt, equivalent to 169 percent of domestic output.

    Shandong Gold Group, China's second biggest in terms of gold production and gold reserves, will see its corporate leverage lowered by 10 percentage points after the debt swap, ICBC said in a statement.
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    South Africa's Sibanye Gold to buy Stillwater Mining for $2.2 bln

    Sibanye has entered into a definitive agreement to acquire all of the outstanding common stock of Stillwater Mining for $18.00 per share in cash, a 23 percent premium on the firm's closing price on Thursday, the South African firm said in a statement.
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    Big drop in South Africa platinum output

    On Friday, palladium and platinum prices continued to drift lower with Nymex contracts for March delivery down slightly to exchange hands for $736 and $934 an ounce respectively.

    While gold is down nearly $180 an ounce since Donald Trump's victory in the US presidential elections and silver and platinum have both dropped, palladium has gained more than 10% over the same period. Measured from its January low palladium is up more than 56%.

    Platinum has underperformed the precious metals complex and now trades only 7.7% for the better in 2016 following a 28% slide over the course of last year.

    Together Russia and South Africa control between 70% and 80% of the world’s supply of PGMs, with the latter dominating platinum and rhodium output.

    Statistics released on Thursday show South African PGM production fell by 5.7% year on year and 4.5% month on month in October, but a new note from Capital Economics sees the fall in output doing little to support prices:

    It is possible that the recent weakness in platinum prices – prices were 9% m/m lower in rand terms and 8% m/m lower in US dollar terms on average during the month – is starting to weigh on miners’ profitability, incentivising them to cut output.

    Indeed, there were no reports of any major disruption that could justify such a big drop in production. That said, output is now only down 1.2% year-to-date, which might not be sufficient to rebalance the market. Above-ground stocks remain abundant and demand might not grow as strongly once the effects of China’s stimulus in the first half of this year start fading.
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    Base Metals

    Peru asks Las Bambas copper mine to resubmit environmental plan

    The government of Pedro Pablo Kuczynski has asked MMG Ltd's copper mine Las Bambas to seek fresh approval for its environmental plan to correct any possible shortcomings, the vice president said Wednesday.

    Martin Vizcarra said Las Bambas, one of the world's biggest copper pits, would be able to operate as usual while it prepares an "integral" environmental impact study - part of the new government's bid to rebuild trust with local communities following deadly protests that suspended exports in October.

    Previous governments approved the mine's original environmental plan and subsequent modifications that allowed its concentrates to be transported to port on local roads instead of through a pipeline as initially proposed.

    But residents in the highland region of Apurimac have said they were not consulted on the revisions and have protested pollution from hundreds of trucks carrying copper concentrates on unpaved roads near their communities every day.

    "We've asked the company to start the process of modifying its environmental impact study within three months," Vizcarra told Reuters after visiting Apurimac to hold talks with local leaders. "We want to prevent and correct all the mistakes or deficiencies that may have occurred."

    Vizcarra has been leading the government's efforts to ease tensions near the Chinese-owned mine but said it was too early to specify how its environmental plan might be revised, saying only that "everything that has been changed" was on the table and that local communities would be involved.

    Las Bambas representatives did not immediately respond to requests for comment outside of normal working hours.

    Vizcarra, who is credited with helping resolve a dispute over another large copper project when he was governor of an important mining region, helped end a stalemate with protesters near Las Bambas in October when a province-wide road blockage threatened to shut the mine down completely.

    A key road has remained blocked by four Quechua-speaking communities but the company has continued to use alternate routes to transport its concentrates, Vizcarra said.

    The government has proposed buying the land that the blocked road passes through from the towns for about 17 million soles ($5 million), Vizcarra said. That road and two others would then be paved.

    The centrist government of former investment banker Kuczynski, who took office in July, has also proposed about 2 billion soles ($588 million) in social and development plans to help poverty-stricken towns near Las Bambas, Vizcarra said.

    Attached Files
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    Stars may align for giant Papua New Guinea copper mine

    After nearly 50 years on the drawing board, the latest backers of Papua New Guinea's $3.6 billion Frieda River copper project say the time may finally be right for the giant mine - even if some hurdles remain.

    Regarded as one of world's largest untapped copper-gold resources, the deposit has sat dormant as successive owners, including some of the world's biggest mining houses, proved unwilling or unable to spend the billions of dollars needed to construct a mine in remote jungle far from the country's coast.

    Current owner PanAust Ltd, a former listed Australian miner now a unit of China's Guangdong Rising Assets Management (GRAM) [GDRAM.UL], has submitted an application for a special mining license to the PNG government for an initial $3.6 billion project.

    PanAust managing Director Fred Hess points to the success of ExxonMobil's $19 billion liquefied natural gas plant, which has been running for two years in a country known for its difficult terrain, lack of infrastructure and sometimes fractious landowners.

    "It gives the backers of Frieda River the confidence that we can get all of this together and finally make it a reality," Hess told Reuters at a mining conference on investment in the Pacific country.

    Bankers, too, are penciling in Frieda River as one of a number of projects likely to be needing financing.

    "The first stage of Frieda River is $3.6 billion. The second phase is another $2.3 billion on top of it," said Wai Mun Lum, ANZ's head of mining and resources infrastructure, project and export finance.

    "We do really feel quite excited about opportunities in PNG that will be coming up in the project financing space."

    Analysts say factors in the project's favor include a forecast world shortage of copper in coming years, China's desire to secure supplies and the sheer scale of the project.

    "Now more than any time before, Frieda River could see the light of day," said Gavin Wendt, analyst for MineLife in Sydney, who ranks the deposit among the next generation of mega-projects.


    Papua New Guinea once supplied millions of tonnes of copper ore to smelters in Asia and Europe in the 1980s and 1990s.

    Rio Tinto was run off the restive Bougainville Island in 1990 by residents who wanted to reintroduce an agrarian society.

    A decade later BHP Billiton relinquished ownership in the Ok Tedi mine to a government trust following claims by landowners over toxic mine waste in local waterways.

    PNG Prime Minister Peter O'Neill, facing an election in mid-2017, has made foreign investment in new resource projects a priority for his administration as he seeks to boost growth .

    "Frieda River is a very important project for my country," O'Neill told Reuters at the conference.

    But hardheaded financing decisions are still to be made.

    PanAust says it is unlikely to be issued a special mining license needed to proceed to the initial phase of development, before next year's election.

    "Our timing hasn't been all that good," said Hess. "Once the election is over and there is a mandate from the government, things will begin to move smoothly," he said, but added the caveat that there was "quite a way to go" before an investment decision was made.

    Bankers also cautioned that proposed changes to mining laws are creating uncertainty, while the project will need deep pockets to build port and power facilities and an air strip, with the likely backers unlikely to have the funding capacity of an ExxonMobil.

    Even with a quick go-ahead, Highlands Pacific, which has a 20 percent stake in the project, says the current timeline would include two years for approvals and six years for construction, meaning first production no earlier than 2024/25.
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    China ex-works Shanxi alumina rallies Yuan 50/mt to Yuan 2,900/mt

    Chinese spot alumina prices rallied further on Wednesday as offers continued to rise on strong sentiment, driven by a combination of tight spot supply, prevailing transport issues, increased costs, seasonal restocking, environmental inspections, and anticipated heavy snow this winter.

    The Platts China daily alumina assessment ex-works Shanxi basis stood at Yuan 2,900/mt ($421/mt) full cash terms on Wednesday, up Yuan 50/mt from Tuesday, and also up Yuan 100/mt on the week and Yuan 220/mt on the month.

    On Wednesday, a south central China smelter reported buying 20,000-30,000 mt at Yuan 2,900/mt cash ex-works Shanxi basis.

    "We have no choice, offers are all going up and prices will likely reach Yuan 3,000/mt soon, and we'll probably have to keep paying," a source from the south central China smelter said.

    A Shanxi refiner agreed, indicating offer levels in Shanxi ranging at Yuan 2,950-3,000/mt cash currently, up from Yuan 2,900-2,950/mt.

    "We are also offering Yuan 3,000/mt cash now, and we believe tradeable levels will reach that by end-December," the refiner said.

    Tradeable spot alumina prices in Henan province were also indicated higher Wednesday at Yuan 2,900-2,950/mt cash, up from mostly around Yuan 2,900/mt cash previously.

    A Henan refiner said he heard a trade done at Yuan 2,970/mt ex-works Henan at partial credit terms, while a South China smelter heard deals may have been concluded even higher around Yuan 3,000/mt cash. Both potential deals were unconfirmed Wednesday.

    "Nothing is available below Yuan 2,900/mt now, prices are all about the same, be it in Shanxi, Henan or Guangxi ... demand is just very strong while spot supply is tight," the South China smelter said.

    Another South China smelter agreed, adding that, "We've even been approached by Xinjiang smelters recently, asking if we had extra alumina to sell ... we have some, which we are now quoting Yuan 3,000/mt cash as well."

    Ex-works Guangxi alumina prices were heard tradeable at Yuan 2,900-2,950/mt cash on Wednesday, up from Yuan 2,850-2,900/mt.

    The front-month primary aluminum contract on the Shanghai Futures Exchange closed at Yuan 13,450 mt on Wednesday, down from Yuan 13,680/mt last week, and also from Yuan 13,960/mt a month ago.
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    Steel, Iron Ore and Coal

    Coking coal price savaged – biggest drop in 17 months

    While the price of futures trading in China and Singapore were swinging wildly in recent weeks, the benchmark for the seaborne market – Australia free-on-board premium hard coking coal tracked by the Steel Index – seemed to consolidate above $300 a tonne.

    Japanese steel mills will be wary of making panic buys during this period in order to avoid pushing the indices higher

    But now it seems volatility has returned to the spot market and the multi-year high of $308.80 for PHCC first hit a month ago may have been the peak. On Thursday the price dropped 2.5% to $291.70 a tonne. It was the steepest decline since July 2015.

    Still, the steelmaking raw material is up fourfold in value over the past year and quarterly contract negotiations between producers and steelmakers could turn out to be the best indicator of where coking coal is heading.

    In its monthly coking coal review TSI says December will mark the start of the quarterly benchmark negotiations, with rumours are floating around that teams from the major miners will arrive in Japan around the second week of the month to kick-off discussions:

    On the 1st Dec 2016, the spread between the FOB PHCC index and Q4’16 benchmark differed by US$108/t, and the Japanese steel mills—”JSMs” – will be wary of making panic buys during this period in order to avoid pushing the indices higher.

    A quick survey revealed that market participants expect the Q1’17 benchmark price to range anywhere between US$250-280/t.
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    Russia posts rises in coal output, exports over Jan-Nov

    Coal-rich Russia produced 348.73 million tonnes of coal over January-November this year, a year-on-year rise of 5.13%, showed data from the Energy Ministry of Russian Federation.

    The country's coal output in November edged up 1.36% from October to 33.9 million tonnes. But the volume was 3.24% lower from the year-ago level, data showed.

    During the first eleven months, the country exported 149.05 million tonnes of coal, increasing 13.2% compared to the corresponding period a year ago.

    Its coal exports stood at 13.83 million tonnes in October, rising 8.98% from the year-ago level but down 2.12% from October.

    Coal output and exports of Russia in 2015 totaled 371.67 million and 151.42 million tonnes, respectively.
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    China Nov coal exports soar 133pct on year

    China exported 0.82 million tonnes of coal in November, soaring 132.95% year on year but down 8.89% from October, showed data from the General Administration of Customs (GAC) on December 8.

    The value of coal exports was $73.42 million, increasing 166.5% from a year ago and gaining 17.67% from the previous month. That translated to an average price of $89.54/t, up $19.48/t year on year and $12.71/t from October.

    Over January-November, coal exports of the country surged 63.7% from the year before to 8.02 million tonnes. The value totaled $610.66 million, up 33% from a year ago.
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    China banks agree debt restructuring deal with Sinosteel -Bank of China

    Bank of China and five other Chinese banks have signed a debt restructuring deal with troubled steelmaker Sinosteel, in what is among the first significant restructuring deals involving a state-owned enterprise.

    In a statement on Friday, Bank of China outlined details of the agreement with Sinosteel, which could be the formula used for other major overhauls of struggling state-owned enterprises.

    Sinosteel became one of the first state-owned firms to encounter bond repayment problems in 2015. The State Council approved the deal in September, according to an announcement by a Sinosteel unit at the time.

    Debt has emerged as one of China's biggest challenges, with the country's total load rising to 250 percent of GDP last year. Chinese companies sit on $18 trillion in debt, equivalent to about 169 percent of GDP, according to figures from the Bank for International Settlements. Most of it is held by state-owned firms.

    Sinosteel's bailout will be divided into two parts, including a business rehabilitation plan and a debt restructuring plan, the bank said.

    The first phase of the debt restructuring will be for more than 60 billion yuan ($8.70 billion) of debt, including principal and interest. That debt will be divided into two parts. One part will be kept by financial creditors.

    For the rest, Sinosteel will set up a stake holding vehicle to issue convertible debt to creditors to swap existing debt, and creditors will have the option to swap convertible debt into equity under certain conditions.

    Attached Files
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    Asian steel makers' profitability to weaken in 2017, Moody's

    Asian steel makers are likely to see weakening profitability in 2017 amid spiraling oversupply, after favorable earnings recorded in mid-2016, according to a report released lately by Moody's Investors Service.

    The region's steelmakers will find it difficult to pass on rising raw material costs to customers as demand is expected to slow down during the course of the year, it said.

    The steel production in Asia is expected to decline in 2017, mainly due to contraction in steel demand from China, which accounts for three fourths of total output in the region.

    The proposed tightening of regulatory measures by the Chinese administration may impact property sales volumes in the country, and a drop in China's GDP may stall manufacturing activities, which in turn will curtail steel demand.

    The trade restriction by other regions including the Europe and the U.S. is likely to curb exports from the Asian region. Asian countries, including Japan, South Korea among others, export nearly 40-50% of their steel output.

    Yet Moody's predict that India will turn out to be a bright spot amid all worries. The country will see domestic demand rising significantly in the next year, and the steel protectionist measures such as Minimum Import Price (MIP) and imposition of anti-dumping duties will contribute to an increase in its steel output, said Jiming Zou, vice president and senior analyst of Moody's.

    It must be noted that the country's government has imposed MIP on 66 steel products and anti-dumping duties on various grades of imported steel, he added.

    The increased steel output by India will be inadequate to offset the decline in Asian output, as the country accounts for only around 8% of the regional steel production.
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    U.S. Steel could restore up to 10,000 U.S. jobs

    United States Steel Corp could be looking at restoring up to 10,000 jobs in the United States, Chief Executive Mario Longhi told CNBC on Wednesday, without providing a timeline for the additions.

    "I'm more than happy to bring back the employees that we were forced to lay off during the depressing period," Longhi said in an interview on CNBC.

    U.S. President-elect Donald Trump emphasized his desire to renegotiate trade deals and restore jobs during his election campaign.

    U.S. Steel has cut jobs and idled plants in the country as it tried to keep a lid on costs to tackle a steep fall in steel prices due to a global surplus.

    The company had about 21,000 employees in North America as of Dec. 31, down from about 28,000 in 2007.

    The steelmaker is hoping to accelerate its investments in the United States in near future as improvements to regulation and tax laws would significantly drive growth, Longhi said in the interview.

    Trump put forth a plan in September to simplify the tax code and slash the corporate tax rate to 15 percent from 35 percent.

    Investors have put fresh bets on steel company shares on a positive sentiment in the industry that has been fueled by the Nov. 8 election.

    "I have not felt an environment of positive optimism, where forces are converging to provide for better environment in quite a while," Longhi was quoted as saying in the interview.

    U.S. Steel did not immediately respond to a request for a comment on the job restoration plan.

    The company's shares closed up 4.3 percent at $37.49 on Wednesday. The stock has risen 79 percent since Trump's victory.
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    ThyssenKrupp secrets stolen in 'massive' cyber attack

    Technical trade secrets were stolen from the steel production and manufacturing plant design divisions of ThyssenKrupp AG (TKAG.DE) in cyber attacks earlier this year, the German company said on Thursday.

    "ThyssenKrupp has become the target of a massive cyber attack," the industrial conglomerate said in a statement.

    In breaches discovered by the company's internal security team in April and traced back to February, hackers stole project data from ThyssenKrupp's plant engineering division and from other areas yet to be determined, the company said.

    ThyssenKrupp, one of the world's largest steel makers, attributed the breaches to unnamed attackers located in southeast Asia engaged in what it said were "organized, highly professional hacker activities".

    Globally, cyber attacks on banks, retailers and other businesses have led to widespread consumer data breaches and mounting financial losses in recent years, but revelations of industrial espionage are rare.

    ThyssenKrupp's belated disclosure came a week after an attack on nearly 1 million routers caused outages for Deutsche Telekom customers.

    German business magazine Wirtschafts Woche reported the attacks hit sites in Europe, India, Argentina and the United States run by the Industrial Solutions division, which builds large production plants. The Hagen Hohenlimburg specialty steel mill in western Germany was also targeted, the report added.

    The company declined to identify specific locations which were infected or why it had not previously disclosed the attack. It said it could not estimate the scale of the intellectual property losses.

    A criminal complaint was filed with police in the state of North Rhine-Westphalia and an investigation is ongoing, it said. State and federal cyber security and data protection authorities have been kept informed, as well as Thyssen's board.

    Secured systems operating steel blast furnaces and power plants in Duisburg, in Germany's industrial heartland in the Ruhr Valley, were unaffected, the company said.

    No breaches were found at its marine systems unit, which produces military submarines and warships. The infected computer systems have been cleansed and are now subject to constant monitoring against further cyber attacks.

    A previous cyber attack caused physical damage to an unidentified German steel plant and prevented the mill's blast furnace from shutting down properly.

    The country's Federal Office for Information Security (BSI) revealed two years ago that the attack caused "massive damage", but gave no further technical details and the location of the plant has remained shrouded in mystery.

    Subsequent media reports identified the target as a ThyssenKrupp facility, but the company has denied it was hit.

    The company, a major supplier of steel to Germany's automotive sector and other manufacturers, is looking to merge its European steel operations with Indian-owned Tata Steel (TISC.NS) to combat over-capacity in the sector.
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