Mark Latham Commodity Equity Intelligence Service

Monday 14th March 2016
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    Brazil prosecutors seek $2 bln from Odebrecht, Petrobras executives

    Brazilian prosecutors late on Saturday accused executives from construction conglomerate Odebrecht and state-run oil company Petrobras of misconduct and demanded they pay 7.3 billion reais ($2 billion) in damages.

    Prosecutors accused Odebrecht of paying bribes to win multibillion-dollar contracts with Petrobras as part of a corruption scheme that implicated dozens of politicians and top executives.

    Odebrecht is currently under investigation for its involvement in the graft and influence-peddling scandal at Petrobras known as "Operation Car Wash." Family member Marcelo Bahia Odebrecht, who ran the company from 2008 until recent months, was sentenced on Tuesday to about 19 years in prison in connection with the scandal.

    In a written statement, the prosecutors of the task force investigating the scheme said they had evidence that Odebrecht paid bribes to win contracts at the oil refineries Getulio Vargas and Abreu e Lima as well in a Rio de Janeiro petrochemical plant and the Gasduc gas pipeline.

    Odebrecht said in a statement it was surprised by the accusations, saying the compensation values were "inconsistent."

    "Any hypothetical requirement arising from the case depends on due process, with decisions of all competent courts" said the statement, adding Odebrecht's construction arm, Construtora Norberto Odebrecht, would respond to the accusations.

    The scandal has undercut Odebrecht's access to financing, and the group, which has more than a dozen business units, is seeking to ease a swelling debt burden.

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    Brazil's Rousseff benefited from Belo Monte dam graft: report

    Graft money skimmed from overpriced contracts to build the Belo Monte hydroelectric dam in the Amazon funded President Dilma Rousseff's 2010 and 2014 election campaigns, a ruling Workers' Party senator has testified according to newsweekly IstoE.

    If confirmed and accepted as legal evidence, the testimony of Senator Delcidio do Amaral will deepen a political crisis that threatens to topple Rousseff, whose opponents are seeking to impeach her or annul her re-election due to corruption.

    In plea bargain statements to prosecutors, Amaral said a graft scheme mounted during the government of Rousseff's predecessor, Luiz Inacio Lula da Silva, funneled 45 million reais (12.5 million) from Belo Monte contracts into the campaign coffers of the ruling Workers' Party and its ticket partner, the Brazilian Democratic Movement Party (PMDB), IstoE reported.

    A spokesman for Lula declined to comment on the report. Calls to Rousseff's office were not returned while Amaral's spokesman said the senator would not comment of the magazine report.

    Lula was charged this week with money laundering by Sao Paulo state prosecutors in connection with the massive bribery and kickback scandal surrounding state-run oil company Petrobras that has led to the jailing of executives from top engineering firms, such as Odebrecht, Andrade Gutierrez and OAS, companies that have the biggest stakes in the consortium building Belo Monte.
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    Shenhua Ningxia coal-to-oil project may face loss after operation

    China’s coal giant Shanhua’s 4-million-tonne coal-to-oil project may face a deficit when it goes into operation in 2017 as planned, given the current low oil price.

    The 55-billion-yuan ($8.5-billion) project, located in northwestern Ningxia, is one of the world’s largest chemical projects based on one-time investment scale.

    The project kicked off construction in September 2013, and will produce 4.05 million tonnes of oil products and consume 24.61 million tonnes of coal per year, respectively.

    However, the project has become unprofitable, as the international crude oil price has dropped below $40 per barrel, lower than the break-even point of $55 per barrel for coal-to-oil products.

    Ningxia’s parliamentary delegates have recently submitted a proposal to cut or exempt consumption tax for the project during the ongoing two sessions. Experts considered it unlikely for the government to adjust tax for just one project. Moreover, the tax cut will not save the project.

    Total investment into the project has reached 31.6 billion yuan by end-2015, the parliamentary delegates said.
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    BoE backs a state sponsored bitcoin?

    Computer scientists have devised a digital crypto-currency in league with the Bank of England that could pose a devastating threat to large tranches of the financial industry, and profoundly change the management of monetary policy.

    The proto-currency known as RSCoin has vastly greater scope than Bitcoin, used for peer-to-peer transactions by libertarians across the world, and beyond the control of any political authority.

    The purpose would be turned upside down. RSCoin would be a tool of state control, allowing the central bank to keep a tight grip on the money supply and respond to crises. It would erode the exorbitant privilege of commercial banks of creating money out of thin air under a fractional reserve financial system.  

    “Whoever reacts too slowly to these developments is going to take it on the chin. They will lose their businesses,” said Dr George Danezis, who is working on the design at University College London.

    "My advice is that companies should play very close attention to what is happening, because this will not go away," he said.  Layers of middlemen in payments systems face a creeping threat across the nexus of commerce, stockbroking, currency trading or derivatives. Many risk extinction over time.

    “Deep in the markets there are dark pools buying and selling shares, and entities that facilitate that foreign exchange. There are Visa, Master, and PayPal. These are the sorts of guys that we are going to disrupt,” he said.

    University College drafted the plan after being encouraged by the Bank of England last year to come up with a radical design for a secure digital currency. The Bank itself has an elite four-man unit grappling with the implications of crypto-currencies and blockchain technology.

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    Google and Ti Vo attack the set top box.

    The Federal Communications Commission held an initial vote last month on the rules,meant to give consumers more choice in accessing pay-TV content. Viewers typically use a set-top box rented from their cable or satellite provider or log in via that company’s app on another device. Under the proposed rules, they would be able to view content using devices, apps or software made by others, including Alphabet’s Google or TiVo.

    Pay-TV providers are staunchly opposed. Clearly, roughly $20 billion a year in rental fees are an issue. The bigger concern is it would distance them from customers and put viewing data into the hands of companies like Google, which see TV advertising as the next frontier.

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    E Book sales contract?

    The Bookseller magazine says that each of the five biggest general trade publishers in the UK – Penguin Random House, Hachette, HarperCollins, Pan Macmillan and Simon & Schuster – saw their ebook sales fall in 2015. At Penguin Random House, the UK’s largest trade publisher, ebook totals slipped by 0.4% in 2015, down from 16.17m to 16.1m. At Hachette, they were down 1.1% to 14.5m, while at HarperCollins, when sales from Harlequin Mills & Boon are excluded (the company was acquired halfway through 2014), ebook sales were down 4.7%. The slip at Pan Macmillan was 7.7%, and at Simon & Schuster it was 0.3%.

    “For those who predicted the death of the physical book, and digital dominating the market by the end of this decade, the print and digital sales figures from the big five for 2015 might force a reassessment,” wrote the Bookseller’s features editor Tom Tivnan. “Sales have dropped. Or at the very least, we can without a shadow of a doubt say that ebook volume slid for the big five publishers for the first time since the digital age began.”

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    Oil and Gas

    Iran set to join oil freeze talks after output at 4 mbpd: ISNA

    Asked whether Russian Energy Minister Alexander Novak would try to convince Iran to join an oil output freeze during a visit this week, Zanganeh said Iran may join the freeze after its production reaches 4 million bpd.

    "They should leave us alone as long as Iran's crude oil has not reached 4 million. We will accompany them afterwards," Zanganeh was quoted as saying.

    Iran has rejected freezing its output at January levels, put by OPEC secondary sources at 2.93 million barrels per day, and wants to return to much higher pre-sanctions production.

    It is working to regain market share, particularly in Europe, after the lifting of international sanctions in January. The sanctions had cut crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years.

    Iran's oil exports are due to reach 2 million bpd in the Iranian month that ends on March 19, up from 1.75 million in the previous month, he said.

    A meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20, sources familiar with the matter said last week, as OPEC member Iran is yet to say whether it would participate in such a deal.
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    CNPC targets LNG price cuts from Qatar

    China National Petroleum Corporation is reportedly next in line in an attempt to rework the LNG import deal terms with Qatar.

    Chairman Wang Yilin, CNPC’s chairman said the company is looking for the possibility of renegotiating the pricing method with Qatar.

    Earlier in the year, India’s Petronet managed to almost halve the price of the liquefied natural gas it pays to Qatar’s RasGas under a long-term deal signed in 1999.

    Wang did not reveal whether the initial deal with Qatargas has a pricing review clause.

    Global supply glut has pushed the LNG spot prices to lowest levels in the last five years, making the long-term deals, that are usually linked to the crude oil, vulnerable.

    Buyers have recently started looking for options to gain the upper hand in negotiations over LNG supply prices.

    Jera, the joint venture of Tokyo Electric Power and Chubu Electric, is looking to join forces with Chinese and South Korean companies and form an LNG alliance.

    It was also noted that countries like India and China that have a predicted long-term demand growth for LNG could be in the best position to seek price renegotiations.

    CNPC has, through its unit PetroChina, in 2010 signed a deal with Qatargas and Shell for the delivery of 3 million tons of LNG per year from Qatar to China for a period of 25 years
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    Eni succeeds with first production test of Zohr field

    Eni successfully performed the production test of Zohr 2X, first appraisal well of Zohr discovery, which is estimated in a deliverability of up to 250 MMScfd in production configuration.

    San Donato Milanese (Mi), 10 March 2016 - Eni successfully performed the production test of Zohr 2X, first appraisal well of Zohr discovery, in the Shorouk block, offshore Egypt.

    During the test, 120 m of the reservoir were opened to production. The well, constrained by surface facilities, delivered up to 44 million standard cubic feet of gas per day (MMscfd). The comprehensive set of data collected and analyzed have proved that the well has a great production capacity, which is estimated in a deliverability of up to 250 MMScfd in production configuration (about 46 thousand barrel of oil equivalent per day).

    The programme envisages for 2016 the drill of further three wells. Besides, the onshore gas treatment plant construction works have already started and the bids for the offshore activities launched and nearly completed.

    Eni, through IEOC, holds 100% stake of Shorouk license. Operations are being conducted by Petrobel, which is a joint venture between IEOC and the State partner Egyptian General Petroleum Corporation (EGPC).

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    Poland's Azoty looks to buy more gas from Gazprom-supplied PGNiG

    Poland's largest chemicals firm Grupa Azoty, which beat 2015 profit forecasts on Friday thanks to low gas prices, plans to buy more gas from its main supplier PGNiG.

    State-run Azoty took advantage of gradual gas market liberalisation in Poland to buy gas from other sources, but is rethinking this now that PGNiG offers bonuses to big clients.

    "The current situation at PGNiG and its units means that we could be buying more gas from PGNiG," Azoty deputy head Witold Szczypinski told a news conference following its results.

    Azoty buys 60 percent of its gas directly from PGNiG, which imports most of its gas from Russia's Gazprom..

    "After PGNiG started the bonus policy, we received gas at market prices at the end of 2015 comparable to the European competition," Szczypinski added.

    A fall in the price of gas, which Azoty uses for production, helped it beat forecasts with a 2015 net profit of 609 million zlotys ($157 million) from 231 million zlotys a year earlier and above the 576 million zlotys analysts had expected.

    The group said that gas prices will continue to have a positive impact and saw them at about 12.5 euro per megawatt-hour in the summer months compared to 12 euro currently.

    Mariusz Bober, who was appointed Azoty's chief executive last month as part of a wider reshuffle in state-run companies, said it will maintain its dividend policy which envisages paying out 40 to 60 percent of its stand-alone profit.

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    Glencore taps into Iraqi Kurdistan with $300 mln oil deal

    Glencore has paid Iraqi Kurdistan $300 million as an advance for oil as it seeks to compete with trading houses Vitol and Petraco for profitable business despite disruptions and political instability, industry sources said.

    Glencore, which declined to comment, has made a prepayment in recent days to the government of Iraq's semi-autonomous region which will start allocating it crude from mid-year, the sources told Reuters on condition of anonymity.

    Kurdistan began direct oil sales to world markets in mid-2015 as it said the central government in Baghdad had failed to respect a budget deal, depriving the Kurdistan Regional Government (KRG) of funds to pay state and army salaries as it seeks to defeat Islamic State militants.

    Iraq says the KRG failed to respect a deal to transfer oil to Baghdad.

    Vitol has been the dominant player in Kurdish oil in recent months, exporting as many as 12 cargoes in January, Petraco has had as many as seven, and Swiss-based Trafigura has taken one cargo a month.

    Meanwhile, Glencore's oil trading division has come under increased pressure to generate more profit after a collapse in metal and coal prices wiped out profit at its mining division.

    Relatively cheap Kurdish oil has become a favourite grade for European refiners over the past year, reaching plants from Israel and Croatia in the Mediterranean to Poland and Germany.

    A plunge in oil prices over the past year has triggered a budget crisis in Iraqi Kurdistan and forced the region to slash spending despite rising crude sales, which are being exported via the Turkish port of Ceyhan.

    The KRG borrowed as much as $3 billion from Turkey and trading houses guaranteed by oil exports although the debt repayments are going slower than expected due to lower oil prices.

    The KRG said on Monday it had received $100 million in February from a new prepayment commitment, without saying where it came from.

    Kurdistan has faced severe export disruptions over the past three weeks after Turkey shut a pipeline for security reasons as it carries out a military campaign against Kurdish militants in its southeastern region.

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    India approves new gas pricing formula

    India's government has given the thumbs-up to a new gas pricing formula in a move that is likely to kick-start deep-water development projects off the country's east coast.
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    Rig count falls to new lows

    The number of active rigs fell to the lowest level in at least 70 years this week, as cheap crude oil continued to drive companies from the oil patch.

    The number of rigs chasing crude oil fell by six to a total of 386, oil service company Baker Hughes said Friday. Natural gas drillers idled three rigs, bringing the total rig count to 94. Combined, the rig count fell by nine to 480.

    The previous lowest combined count was 488 rigs on April 23, 1999. The records begin in the early 1940’s.

    The oil rig count is now down 76 percent from its October 2014 peak of 1,609.

    The decline in the rig count has contributed to shrinking U.S. production and a recent rally in crude oil.
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    Oilfield services being offered for free as downturn worsens, charges CEO

    Oilfield services providers are cutting rates to less than cost, renting equipment for nothing and extending credit to customers who aren’t likely to pay to maintain market share, charged the president and chief executive of Total Energy Services Ltd. on Thursday.

    Dan Halyk vowed his company, which offers contract drilling, rental/transportation and compression equipment services, won’t be drawn into unprofitable activities despite pressure by rivals.

    “Price competition has been fierce, with some competitors literally offering certain of their equipment and services for free … we cannot and will not compete with free,” he said on a conference call to discuss fourth-quarter results.

    “Our refusal to pursue unprofitable work and recklessly extend trade credit has undoubtedly had a negative impact on near-term equipment utilization and revenue.”

    Total said its 18 rigs in Western Canada achieved only 15 per cent utilization in the last three months of 2014, down from 49 per cent in a fleet of 17 in the same period of 2014. Major equipment rentals fell to 17 per cent from 44 per cent and revenue from its compression and process services division fell 47 per cent to $36.5 million.

    Analyst Dan MacDonald of RBC Dominion Securities said Total missed estimates for earnings adjusted for one-time items, posting EBITDA of $6.5 million, versus his prediction of $9.9 million and consensus of $9.5 million.

    “Weaker than expected revenues in both rentals/transportation and compression/processing manufacturing were the driver, with consolidated margins coming in about 350 basis points below expectations on lower revenues, weaker pricing,” he wrote in a note to investors.

    Total posted a net loss of $3 million versus a gain of $13 million in the fourth quarter of 2014, as revenue fell 57 per cent to $52 million. Its shares gained 33 cents to $13.33 on Thursday.

    Halyk criticized companies who are cannibalizing equipment for spare parts, boasting that all of Total’s idle gear is ready to go back to work with little notice.

    He said Total has reduced its workforce by 40 per cent in the past year without giving a number. In a regulatory filing last year, it said it employed 1,153 at the end of 2014 — 40 per cent would equate to about 460 people.

    Total reported it reduced capacity in its compression business in 2015 by about 20 per cent, moving out of two leased facilities it is now trying to sublet.

    Halyk said the company signed a significant deal recently to provide compression equipment to a client in Australia.

    Total, which has no debt, confirmed it would continue to pay a dividend. Its $12-million 2016 capital budget includes $3.9 million to buy operating assets of a U.S. oilfield equipment rental company completed effective Jan. 1.

    Last fall, the company cancelled a $108-million hostile takeover bid for Calgary-based Strad Energy Services Ltd. after the target adopted a poison pill defence.

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    Jordan Cove LNG exports- Denied!

    An Oregon LNG export terminal and feeder pipeline proposed by a Calgary company has been rejected by the U.S. energy regulator because it failed to line up customers to demonstrate need.

    In a decision released Friday afternoon, the Federal Energy Regulatory Commission (FERC) denied both Veresen Inc.’s plan to build a $5.3-billion natural gas export terminal at Jordan Cove, Ore., and its Pacific Connector joint proposal with Williams Partners LP to construct a pipeline that would supply it.

    The rejection throws into question the future of a project that has waited almost three years for regulatory approval.

    On its fourth-quarter conference call Thursday, Veresen executives said the company was working to find customers to buy the liquefied natural gas it would produce at Jordan Cove. The six-million-tonne-per-year project is designed to supercool Canadian and U.S.-sourced natural gas to a liquid state for export primarily to Asian markets.

    Veresen president and CEO Don Althoff, in a news release late Friday, said it will request a rehearing of the decision while those negotiations continue.

    “Clearly, we are extremely surprised and disappointed by the FERC decision,” Althoff said.

    “The FERC appears to be concerned that we have not yet demonstrated sufficient commercial support for the projects. We will continue to advance negotiations with customers to address this concern.”

    Analyst Steven Paget of Calgary’s FirstEnergy Capital said the FERC decision was “shocking” but perhaps should not have been given the regulator’s duty to ensure need before giving approval.

    “It’s a huge surprise,” he said. “I thought approval was very likely.”

    He said Veresen now will have to choose between finding a way to appeal the decision or walk away from the project.

    FERC said it was reluctant to allow a project to proceed over landowner protest when it hasn’t demonstrated need.

    “The commission’s issuance of a certificate would allow Pacific Connector to proceed with eminent domain proceedings in what we find to be the absence of a demonstrated need for the pipeline,” it stated in its decision. 

    It left the door open for the companies to try again, however.

    “Our actions here are without prejudice to Jordan Cove and/or Pacific Connector submitting a new application to construct and/or operate LNG export facilities or natural gas transportation facilities should the companies show a market need for these services in the future.”

    Oklahoma City-based Williams didn’t immediately respond to requests for comment.

    In February, Calgary-based AltaGas Ltd. announced it was shelving its Douglas Channel LNG plant proposed for the B.C. coast indefinitely because the company was unable to find customers in Asia for the natural gas.

    On Thursday, Althoff said the collapse in oil and gas prices has reduced the cost of building new energy projects, potentially improving Veresen‘s returns on Jordan Cove.

    “The current downturn in global energy markets has created an opportunity to optimize capital costs for the project,” Althoff said.

    A worldwide glut of liquefied natural gas is meanwhile emerging, threatening the economics of export projects such as Jordan Cove being proposed along America’s coasts. As much as half of U.S. LNG export capacity is at risk of being shut in between 2017 and 2020, according to the research and consulting group Wood Mackenzie Ltd.

    Veresen had proposed to build four “trains” at Jordan Cove that would have been capable of producing 6.8 million metric tons of liquefied natural gas a year. The 373-kilometre Pacific Connector gas pipeline proposed to supply the plant would have been owned by Veresen and Williams Partners.

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    Imperial Oil unveils plans for $2-billion Cold Lake oil sands project

    Imperial Oil Ltd. has unveiled plans for a $2-billion oil sands project that it says will harness new technology to cut costs and lower carbon emissions, a sign that the industry’s biggest players are making plans to revive growth despite sputtering crude prices.

    Imperial, which this week sold about 500 retail gas stations in a $2.8-billion deal, said on Friday that it has filed an application with the Alberta Energy Regulator for a new steam-driven oil sands plant located near its existing operations in Cold Lake, Alta.

    The project would pump about 50,000 barrels of bitumen per day from the Grand Rapids area. Construction could start as early as 2019, with first oil in 2022, assuming timely regulatory approvals and “favourable” market conditions, the company said without elaborating.

    Imperial, an affiliate of U.S. giant Exxon Mobil Corp., is seeking approvals for a new oil sands project as competitors retrench to cope with the sharp plunge in crude prices that has rendered new bitumen projects uneconomic.

    It marks the first major commercial test for a technology touted by executives as a tool for curbing the industry’s emissions of planet-warming greenhouse gases, while at the same time lowering overall development costs.

    The technique involves mixing solvents – butane, condensate and other petroleum liquids – with steam at well sites, lowering the amount of energy it takes to loosen underground seams of bitumen buried too deep to mine.

    Imperial says it has piloted the technology at its Cold Lake operations since 2010. Its studies show a 25-per-cent reduction in carbon intensity compared to existing projects with no solvents, although some experts have questioned such claims. A similar reduction in water-use intensity is expected, the company said.

    Imperial is also studying whether to use solvents at its proposed Aspen project, a steam-driven development estimated to cost as much as $7-billion. No decisions have been made to build that project, which could ultimately pump 135,000 barrels per day.

    The company’s application for a new project could throw cold water on speculation that it is building a war chest for a big acquisition following the sale of its retail gas outlets, RBC Dominion Securities Inc. analyst Greg Pardy said in a note.

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    Alternative Energy

    Zimbabwe looks to the sun as drought hits hydropower

    Zimbabwe is pushing forward with plans to build four new solar power plants, amid a drought that has battered its ability to generate hydroelectricity.

    Severe dry conditions - linked to the El Niño weather phenomenon bringing extreme weather around the world - are affecting big and small producers of hydropower alike.

    Phillip Muwungani of Chipendeke village, 70 km southeast of Mutare city, said his community's vision of producing its own clean electricity using water is fading.

    Drought has affected water levels in Chitora River which powers the Chipendeke micro hydro plant, making electricity generation erratic.

    The plant, which supplies electricity to villagers, a school, a clinic and a business centre, was built under a sustainable energy initiative backed by the ZERO Regional Environment Organisation, the Zimbabwe Energy Council and international development groups.

    Experts say the Kariba Dam on the border with Zambia, which provides almost 60 percent of Zimbabwe's power, could lose its ability to generate electricity in around six months' time unless water levels improve.

    With an installed capacity of 750 megawatts (MW), Zimbabwe's Kariba power plant is now generating less than 285 MW.

    The Zimbabwe Power Company says feasibility studies and engineering procurement are underway for three solar projects at Gwanda, Insukamini and Munyati.

    Construction is expected to start this year, at a combined cost of $635 million. Each solar power plant will generate 100 MW.

    The projects have been on the cards for some time now as part of government efforts to boost solar energy, but the tenders were cancelled in 2014 due to irregularities in the bidding process. The contracts were re-issued to new companies last year, as the current drought-induced power crisis jolted the government into action.

    In October, the government signed a deal with Intratrek Zimbabwe to construct the Gwanda solar project in partnership with Chinese company CHINT Electrics, backed by a $202 million loan from the Export-Import Bank of China.

    Tenders to build solar power plants at Munyati and Insukamini have also been awarded to Chinese firms.

    Construction at a fourth solar power project in Marondera, about 70 km east of the capital Harare, will start in September. De Green Rhino Energy, a Zimbabwean joint venture set up by a London-based consultancy, will invest $400 million from German investors in the project, which will start selling electricity to the national grid from the end of 2017 if all goes to plan.

    The Marondera solar project should be able to generate 150 MW when it reaches full capacity, but will start with an initial investment of $113 million to produce 50 MW, according to De Green Rhino Energy CEO Francis Gogwe.

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    Precious Metals

    Gold output slump triggers Kyrgyz GDP and exports fall

    Kyrgyzstan's gross domestic product fell 7.8 percent year-on-year in January and February as gold and silver production, which accounts for most of its industrial output, dropped 56.5 percent, the state statistics committee said on Friday.

    By contrast, in the first two months of 2015, the Central Asian country's GDP rose 8.9 percent.

    Kyrgyz exports tumbled 39.9 percent in January 2016 as shipments of gold fell by more than three-quarters year-on-year.

    Kumtor Gold Company, which operates Kyrgyzstan's biggest gold mine, said in January it planned to produce between 14.9 and 16.5 tonnes of gold in 2016, versus 16.2 tonnes last year.

    But this will be weighted to the second half of the year, because of the geological structure of the deposit, it said.

    Excluding Kumtor, Kyrgyzstan's GDP shrank 0.1 percent year-on-year in January-February, the statistics committee said.

    Apart from gold mining, Kyrgyzstan depends heavily on remittances from its migrant workers in Russia, whose own economy is in recession.

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    China should set up gold logistics centre in the east

    China should set up gold logistics centre in the east
    Thanks the massive inflow of gold from foreign countries and regions in recent years, China's gold processing industry has been ranked first in the world. According to a recently issued blue book, China should now follow the trend and set up a gold logistics center, China News Service reports.

    In 2014, China processed 886.09 tons of gold, leading the world and accounting for 30 percent of the world's total, despite a 24.68 percent decline from the previous year. This information comes from the blue book, which was published by the Ping An Bank funds operations center.

    In recent years, a large amount of gold from Switzerland, the United Kingdom, North America, South Africa, plus other Asian countries and regions has been flown into China. Although Europe is still the biggest gold trading center, accounting for 80 percent of the global share, the distribution of China's gold has already shown a significant "west to east" trend, according to the blue book.

    In 2014, the supply of gold in the Chinese gold market amounted to 2,106 tons. Although that number is lower than that of Switzerland, the world leader in gold transactions at 2,208.1 tons, China's gold exports only accounted for 13.17 percent of its supply this year, which means more than 80 percent of the gold has not been traded ¡ª 3.94 times that of Switzerland. So it is realistic for China to become a new gold logistics center.

    In addition, the blue book pointed out China's other advantages, such as strong demand and a convenient, nearly completed logistics system.

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    Base Metals

    Chilean labour bill clears Senate, but rebels knock down key part

    Chile's Senate passed most parts of a controversial labor reform bill on Thursday night, but struck down one key provision in a sign of hardening divisions within the ruling coalition.

    President Michelle Bachelet has pledged to reform labor relations and give unions more of a say as part of her agenda to tackle deep inequality in Chile, the top copper exporter.

    But the reform has put considerable strain on her governing Nueva Mayoria bloc, which takes in communists to centrist Christian Democrats. Many senators in the latter have joined business leaders and the right-wing opposition in fighting against some aspects of the bill.

    Of the three most disputed parts of the reforms, two provisions were passed by the Senate after being watered down by Christian Democrats and other centrists. One will allow unions rather than companies to distribute benefits resulting from collective bargaining agreements, and the other will restrict the replacement of striking workers.

    A third provision, which would have required employers to negotiate with workers that unite across companies, was struck down as four Christian Democratic senators rebelled.

    Though the bill was modified, its passage in the Senate, where it had been stuck since October amid fractious negotiations, is a significant step forward.

    It is now expected to face a constitutional challenge by the opposition and will likely need to be reconciled with a version of the bill that passed the lower house. Both processes could be messy and will take weeks, if not months, analysts said.

    Conservative members of the increasingly fractured Christian Democrats have said they want to use the opportunity to make provisions more employer-friendly, while left-wingers have pledged to try to reinstall more worker-friendly provisions that were scrapped in Senate negotiations.

    "From what I've seen of the government's modifications, I don't think the lower house will accept the changes," said Josue Vega, a lawyer for Chile's largest labor union.

    Excessive delays, analysts have warned, could cause the already-unpopular Bachelet to lose bargaining power at a time when she is trying to push through other reforms, including an overhaul of the constitution and a rewrite of its strict abortion laws.

    "The worse thing that could happen for Bachelet is losing the support of the parties," said political analyst Kenneth Bunker.

    "That brings about a scenario where she lacks the legitimacy to pass other programs."
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    Peru's Fujimori would not back mines without community support: adviser

    Peru's presidential frontrunner Keiko Fujimori would work to push out new mines faster if elected, but only for companies that have community backing, her economic adviser said on Friday.

    Jose Chlimper, who is also the center-right politician's running mate, said Newmont Mining Corp (NEM.N) and Southern Copper Corp (SCCO.N) did not do enough to build local support for their proposed mines Conga and Tia Maria.

    The companies, which suspended the projects because of local protests, had revised their plans to ease worries about environmental impacts and are investing in social programs.

    "They have to look at their community relations plans and win back the legitimacy that they lack today," Chlimper said in an interview with Reuters.

    "We're going to support the effort of serious companies to make big projects viable, but the ones that have not acted properly will not have our support," he said.

    Peru's next president will likely inherit an economic recovery driven by surging copper output from new mines, but no major projects are set to come on line in coming years.

    Chlimper said center-right Fujimori would create a legal framework to help miners turn local communities into shareholders in their projects - a tool to build support for new mines that some companies in Peru have already implemented.

    Fujimori, the daughter of imprisoned ex-president Alberto Fujimori, has railed against President Ollanta Humala for fanning anti-mining sentiment as a candidate. Humala narrowly defeated her in her first presidential bid in 2011.

    This year's race has been shaken by the electoral board's disqualification of two leading candidates a month before the April 10 vote. Fujimori's closest rival, Julio Guzman, was barred because his party did not comply with electoral procedures - a decision he calls "fraud" that threatens to tarnish the legitimacy of the next president.

    Peru is set to become the world's second biggest copper supplier, but concerns about the impacts of mining near farming communities threaten to hurt new investments. Fujimori has pledged stiff fines for miners that pollute as she seeks votes on a populist platform in Andean regions.

    Chlimper said Fujimori would study whether the corporate tax rate that Humala lowered as growth slowed had helped draw investments. The rate will gradually slide to 26 percent in 2019 from 30 percent in 2014.
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    Chinese alumina prices rangebound despite refinery restart news

    Chinese spot alumina prices were steady Thursday in thin trade, with offer levels also rangebound despite news of a planned refinery restart in South China.

    The Platts ex-works Shanxi alumina spot assessment continued Thursday at Yuan 1,890/mt ($290/mt) full cash payment terms, with Henan spot alumina also unchanged at Yuan 1,920-1,930/mt cash.

    Sellers' offers were stable at mostly Yuan 1,950/mt cash in both provinces.

    Down south in Guangxi, refiners' quotes also continued at Yuan 1,850/mt cash, with tradeable prices pegged around Yuan 1,800/mt.

    Galuminium Group, which operates an 800,000 mt/year smelter grade alumina refinery in Guangdong province, completely shut down in December 2015 due to poor market conditions to conduct an overhaul.

    It now plans to restart 400,000 mt/year capacity in April, a company source said.

    "The news of the restart has put a halt on spot alumina offers rising further, but there is no sign of prices going down yet," a South China smelter source said. "We'll have to wait and see how that impacts the market in the near term."

    A Beijing trader said Galuminium's restart impact would be "minimal, as the quantity is small...the majority of the refinery shutdowns earlier were all in the north, in millions of mt, and there's no news of any restarts there yet, so prices can still edge higher."

    A Shanxi refiner said Thursday he was currently sold out of March spot alumina, and would only offer spot for April delivery at the end of the month. He expects offers can likely reach Yuan 2,000-2,100/mt by then.

    Attached Files
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    Steel, Iron Ore and Coal

    Changes in coking coal sector cast uncertainty over pricing

    A revolution is threatening behind the scenes in coking coal, pointing to heightened uncertainty in one of the most conservative of markets.

    The move towards spot pricing that has been embraced in iron ore, and increasingly dominates thermal coal trade, has been until now largely sidestepped in coking coal, where buyers demand at least medium-term visibility on prices for different grades of product that are closely matched with steel mills.

    But that could be about to change, at least in a scenario put forward by industry consultancy IHS.
    Anglo American's surprise decision in February to exit its high-quality Moranbah North and Grosvenor mines in Queensland, a deal regarded as fetching potentially $2 billion ($2.68 billion) or more, could hasten the end of the system, clients at an IHS seminar heard this week in Sydney.

    The current system of setting a quarterly benchmark price for coking coal, which is then accepted across the industry, is led by Anglo, with its coal regarded as comparable with the top-tier brands of BHP Billiton, which doesn't engage in that process.

    But with Anglo heading for the exit door and none of the large miners likely to be interested in those mines, the prospect arises of a buyer taking over – private equity, perhaps – that has no appetite to lead the critical pricing talks, IHS's senior coal analyst Marian Hookham says.

    While others, such as Teck, have tried in the past, those attempts have failed because few parties would accept the deal as a benchmark. That leaves the potential for a vacuum that could lead to a collapse of the whole quarterly benchmark system, Hookham says.
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    China coal mining strikes grow

    In what is being seen as a direct challenge to Beijing's authority, thousands of Chinese coalminers have taken to the streets to protest over unpaid wages, Reuters reports.

    Employees at the Shuangyashan mine, owned by the Longmay Group, have been protesting for 3-days over owed pay and wages cuts from 1,000 yuan-a-month to 800 yuan.

    The Chinese govt has said it will set aside $US15.4B to “resettle” coal and steel workers as part of a plan to cut unproductive capacity. For the first 2-months of 2016, Chinese production of thermal coal and steel both fell 16 %, while coking coal output dropped 10%.
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    China Jan-Feb coal industry FAI down 30.2pct on year

    China’s fixed-asset investment (FAI) in coal mining and washing industry amounted to 10.2 billion yuan ($1.57 billion) over January-February, slumping 30.2% from the year prior, showed data from the National Bureau of Statistics (NBS) on March 12.

    Private investment in the sector stood at 6.7 billion yuan, falling 20.7% year on year.

    In the same period, fixed-asset investment in all mining industry in the country posted a yearly slump of 29.5% to 39 billion yuan; of this, private investment in mining industry stood at 24.9 billion yuan, dropping 13.2% from the previous year.

    Meanwhile, the total fixed-asset investment in ferrous mining industry over January-February also witnessed a yearly slump of 32.6% to 4.2 billion yuan; while that in oil and natural gas industry plummeted 59.4% on year to 6.2 billion yuan, according to the NBS data.

    The fixed-asset investment in non-ferrous mining industry stood at 6.5 billion yuan during the same period, dropping 14.1% from the year-ago level, data showed.
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    China Jan-Feb crude steel output at 121.07 mln T

    China’s Crude Steel output reached 121.07 million tonnes in January-February this year, down 5.7% year on year, according to data released by the National Bureau of Statistics on March 12.

    Steel products output during the same period dropped 2.1% year on year to 162.28 million tonnes; while pig iron output posted a 7.0% decline to 105.39 million tonnes, data showed.

    China has planned to close 100-150 million tonnes of poorly performing steel capacity in the next five year, according to a statement issued in late January.

    China’s crude steel output witnessed the first yearly drop of 2.3% to 803.83 million tonnes in 2015, the NBS data showed.
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    ArcelorMittal outlines terms of $3bn rights issue

    ArcelorMittal on Friday outlined the terms of a $3bn rights issue designed to reduce its $16bn debt pile at a time of turbulence in the global steel industry.

    Shareholders in the world’s largest steelmaker will be able to receive seven new shares for each 10 they own at €2.20 apiece. That represents a discount of about 40 per cent to the company’s undisturbed share price before the rights issue was announced last month.

    On Friday morning, ArcelorMittal’s shares were up 4 per cent at €4.42 on the Euronext Amsterdam exchange.

    Amid the commodities downturn, ArcelorMittal reported a $7.9bn net loss for 2015 last month after recording large writedowns booked on its iron ore mining and steelmaking businesses. The shares have lost half their value since the start of 2015.

    A global glut made steel cheaper last year than at any other point in the past decade, weighing heavily on earnings at other big producers such as US Steel and Posco of South Korea. In the UK, this has precipitated an existential crisis in the industry that has claimed thousands of jobs and cast doubt over its future.

    Lakshmi Mittal, chief executive of ArcelorMittal, recently told the Financial Times he believed market conditions would improve as China started to shut down steel factories as part of an initiative dealing with excess industrial capacity. Its steel mills are accused of dumping surplus output on to international markets at lowball prices.

    Luxembourg-based ArcelorMittal will use the proceeds of its rights issue — along with €875m from a disposal — to reduce its net debt by 26 per cent to $11.7bn. Net debt stood at $15.7bn at the end of December.

    After suspending its dividend last year, the company is embarking on a drive to increase core profits by $3bn a year by 2020. Some analysts question whether the plan will succeed, partly because, amid intense competition, they say planned cost savings could be passed on to customers in the form of lower steel prices.

    The Mittal family, which is the biggest shareholder in ArcelorMittal with a 37 per cent stake, has signed up to its entitlement in the rights issue, worth about $1.1bn.

    Attached Files
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    Brazil's Usiminas says shareholders willing to inject capital

    Brazilian steelmaker Usinas Siderurgicas de Minas Gerais SA said on Friday that shareholder Nippon Steel & Sumitomo Metal Corp was ready to inject up to 1 billion reais ($274.58 million) as part of a proposed capital increase.

    Usiminas' other controlling shareholder, Italy's Techint Group, has notified the companythat it would buy up to 500 million reais in shares for the capital increase. As conditions of the Techint proposal, Usiminas must strengthen its cash position with resources from a mining arm, and creditors must agree in restructuring its debt.

    Usiminas said in a statement that it was still discussing a potential loan standstill agreement with banks.

    Nippon Steel has been pressing hard to approve a capital increase for Usiminas, threatening to sue fellow shareholders if they block the motion, a source said last week.

    Nippon Steel is hoping approval of the capital increase will convince Usiminas' main creditors to refinance the debt and grant a short-term grace period, helping the company to avoid filing for bankruptcy protection.

    Nippon and Techint have been at odds over management of Usiminas for more than a year. A board meeting in February ended with no agreement on the capital increase.
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