Mark Latham Commodity Equity Intelligence Service

Tuesday 4th October 2016
Background Stories on

News and Views:

Attached Files


    Hitachi Construction offers A$689m for Australia’s Bradken

    Hitachi Construction Machinery, the world’s biggest maker of giant excavators, made a A$689-million offer to acquire Bradken, an Australian supplier of miningequipment.

    The company will offer A$3.25 per share to buy theNewcastle, New South Wales-based company, the Japanese manufacturer said in a statement on Monday. That’s a 34% premium over Bradken’s closing share price on Friday, according to Bloomberg calculations. The offer was recommended by Bradken’s board, according to a separate statement.

    The acquisition would enable Hitachi Construction Machinery to supplement its parts business for miningequipment and boost earnings, the Tokyo-based company said. The announcement comes about two months after its larger domestic rival, Komatsu said it agreed to buy US-basedJoy Global for $2.89-billion, signalling the company is optimistic that demand for shovels and drills will rebound after years of declining commodity prices.

    Hitachi Construction Machinery plans to start a tender offer for Bradken for six weeks from mid to late-October, according to its statement. The Australian company last year rejected a A$428-million offer from Koch Industries andPacific Equity Partners, saying it didn’t reflect the fair value.

    The Japanese company will use funds on hand as well asbank borrowing to finance the acquisition, it said. The company is Japan’s second-biggest maker of constructionand mining equipment, while it has the biggest global share of giant excavators used in mining.

    The plan was announced after the Japanese stock market closed on Monday. Hitachi Construction Machinery, half owned by Hitachi, closed 0.6% higher at 2 011 yen in Tokyo, extending its gain this year to 6%.
    Back to Top

    Oil and Gas

    OPEC oil output hits record on Iraq, Libya boost

    OPEC's oil output is likely to reach its highest in recent history in September, a Reuters survey found on Friday, as Iraq boosted northern exports and Libya reopened some of its main oil terminals.

    The increase comes despite lower output in top exporter Saudi Arabia and this week's agreement by the Organization of the Petroleum Exporting Countries in Algeria to limit supply to support prices, its first such decision since 2008.

    Supply from OPEC has risen to 33.60 million barrels per day (bpd) in September from a revised 33.53 million bpd in August, according to the survey based on shipping data and information from industry sources.

    The rise in output could add to scepticism about OPEC's ability to allocate its new production target of between 32.50 million and 33 million bpd, a task ministers left until a meeting in November. Oil rallied towards $50 a barrel on Thursday but was trading near $49 on Friday.

    "The agreement still leaves hard and difficult negotiations for the individual caps to be set," said Bjarne Schieldrop, chief commodities analyst at SEB.

    "Now, with an OPEC curb on the cards for the first time in eight years, Brent crude is not even able to lift above $50. At least not yet."

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

    The membership changes have skewed historical comparisons. September's supply from OPEC excluding Gabon and Indonesia, at 32.65 million bpd, is the highest in Reuters survey records starting in 1997.

    In September, the increase was led by Iraq and Libya. Iraqi state oil firm SOMO and Iraq's semi-autonomous region of Kurdistan began jointly exporting crude from the Kirkuk oilfield again. This lifted Iraqi supply to market to 4.43 million bpd in September, according to the survey.

    In Libya, the National Oil Corporation opened three previously blockaded ports, allowing AGOCO, an NOC subsidiary that operates mainly in eastern Libya, to boost output.

    Supply in Saudi Arabia has edged down from the record high reached earlier in the summer, sources in the survey said.

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

    Angolan output slipped because the Plutonio field was shut for part of the month.

    There was no sign yet of higher supply from Nigeria, where attacks on oil installations have cut output. Supply should rise in October if efforts for a restart of Qua Iboe and Forcados crude exports come to fruition.

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

    Iran oil exports hit pre-sanctions high on run-up in condensate shipments

    Iran's total crude oil and condensate sales likely reached around 2.8 million barrels per day in September, two sources with knowledge of the matter said, nearly matching a 2011 peak in shipments before sanctions were imposed on the OPEC producer.

    The run-up from shipments of around 2.5 million bpd in August comes mainly from condensate, a light oil excluded from OPEC supply quotas that is often produced with natural gas and can be used to make naphtha for petrochemical production.

    Iran sold 600,000 bpd of condensate for September, including about 100,000 bpd shipped from storage, to meet robust demand in Asia, the two sources said. September crude exports increased slightly from the previous month to about 2.2 million bpd, they said.

    Iran, along with Libya and Nigeria, is allowed to produce "at maximum levels that make sense" as part of any output limits in a surprise deal reached last week by the Organization of the Petroleum Exporting Countries (OPEC).

    Still, the Middle Eastern producer has surprised the market by ramping up its oil output faster than expected, to 3.63 million bpd in August, according to OPEC, up a quarter from end-2015 since sanctions were lifted in January.

    "Iran cannot produce much more than the present, so around 3.7 million bpd may be the max," said Fereidun Fesharaki, chairman of consultancy FGE.

    Even if Iran's output hit 3.8 million bpd - as an oil official said it had in September - it would not be able to sustain that volume as decline rates at its oilfields are about 400,000 bpd each year, Fesharaki said.

    National Iranian Oil Co (NIOC) officials did not immediately respond to an emailed request for comment.

    Iran has said it plans to raise its output to 4 million bpd, although other analysts agreed production has probably peaked for now because investments to pump out more oil are lagging.


    Condensate instead of crude oil will drive Iran's export growth for the remainder of 2016, thanks to developments at its giant South Pars gas field, the sources said.

    NIOC drew on condensate stocks from floating storage and onshore tanks in September to help meet growth in demand from China, South Korea, Japan and India.

    Iranian ports loaded 2.153 million barrels of crude and 486,000 bpd of condensate in September, according to Thomson Reuters Supply Chain and Commodities Research. That put the month's total at 2.639 million bpd - excluding the condensate loaded out of storage - up from 2.472 million bpd in August, the Reuters data showed.

    Condensate sales could reach 800,000 bpd in October, in excess of production at about 550,000 bpd, one of the sources said, suggesting further draws from floating tankers.

    "Korea was the main demand driver for the growth. Japanese and Indian plants were also raising imports," said one of the two sources with knowledge of the matter from Beijing, adding that China's Sinopec has also boosted its offtake of condensate since August.

    Iran will sell another 2 million barrels, or about 66,000 bpd, of South Pars condensate each month to Hyundai Chemical in Daesan between October and December, the two sources said.

    Iranian condensate will meet about 70 percent of the feedstock demand at a new Hyundai Chemical splitter jointly operated by Hyundai Oilbank Co and Lotte Chemical .

    A Hyundai Oilbank spokesman declined to comment.

    According to trade flow data on the Thomson Reuters Eikon terminal for Iran condensate that discharged in September, about one-third went to South Korea, with the rest going to the United Arab Emirates, India, China and Japan.

    Iran's South Pars condensate is usually sold at small premiums to Dubai quotes, free-on-board, much lower than Qatari condensate, which sells at premiums of $2-$3 a barrel, trade sources said.
    Back to Top

    East Libyan oil firm AGOCO says production rises to 320,000 barrels per day

    Libya's Arabian Gulf Oil Company (AGOCO) said on Monday that its production had risen to 320,000 barrels per day (bpd), from 290,000 bpd late last week.

    The increase had come after production at Sarir field rose to around 200,000 bpd, and production at Nafoura had reached 29,000 bpd, spokesman Omran al-Zwai said. He added that AGOCO could reach its year-end target of 350,000 bpd if the Bayda field came back on line.

    AGOCO, a subsidiary of the National Oil Corporation (NOC) that operates mainly in eastern Libya, has roughly doubled production since forces loyal to eastern commander Khalifa Haftar seized blockaded oil terminals last month and the NOC announced it would reopen them for exports.
    Back to Top

    Nigerian Militants Are Getting Ready to Strike Oil Again

    If the Nigerian government wants to fight militants blowing up oil pipelines, it should send troops into the creeks and mangrove swamps of the Niger River delta. Not the city.

    That’s the suggestion of Babalola Olarewaju, a taxi driver who plies the airport route in Port Harcourt, the largest city in the restive oil-rich region.

    “We’re talking about people who blow up pipelines in the night and then disappear,” said Olarewaju, 41, as he perched on the hood of his rickety cab outside the Le Meridien Hotel in the city center, referring to three T-72 tanks, Nigeria’s main battle tank, parked about a mile away. “What has a tank got to do here in the city?”

    Dozens of tanks and 3,000 more troops have joined existing forces in and around Port Harcourt in the past month, a sign the government is pulling out the stops to quell a new wave of violence in Africa’s second-largest oil producer. So worrisome are the attacks that OPEC allowed Nigeria to be exempt from production curbs the cartel agreed on last week, the oil ministry said.

    A six-week-old cease-fire show signs of weakening: The Niger Delta Avengers, responsible for more than 90 percent of all attacks this year, on Sept. 23 claimed responsibility for an attack, its first since July 24, on a key supply pipeline to Royal Dutch Shell Plc’s Bonny export terminal, a few miles outside Port Harcourt, in a statement on its website. The authenticity of the website, which has proved reliable before, couldn’t be verified.

    There’s a lot at stake. Exxon Mobil Corp. is planning to resume some shipments at its Qua Iboe terminal, the country’s largest, at the end of September and expects repairs on the 400,000 barrel-a-day main export line will be completed in December. Shell also expects its Forcados terminal, out since February, to come back on line any time now. The company earlier this month lifted a delivery halt on its Bonny terminal shipments it had imposed in August after saboteurs breached its main supply pipeline.

    The crucial challenge for the government is to appease a plethora of militant groups, some of whom never signed on to the cease-fire, such as the Niger Delta Greenland Justice Mandate. President Muhammadu Buhari, elected last year, is loathe to negotiate with the militants and is skeptical they are adhering to the truce. While Oil Minister Emmanuel Kachikwu, who helped broker the truce and also hails from the delta region, favors peace talks, the country’s security chiefs are averse to negotiation. Army chief Lieutenant-General Tukur Burutai would rather deploy more troops to put down the conflict. At least an additional 10,000 will be sent out in 2017, he said Sept. 9.

    More Troops

    “I do not see a willingness to engage,” said Ledum Mitee, a lawyer and Niger delta minority rights activist who’s part of the peace talks. “The response of the government is to send more troops to the region. There is a growing frustration within various groups that the government is not ready for negotiations and this may lead them back to attacking pipelines.”

    In all, output is now estimated to average about 1.5 million barrels a day “at best,” Kachikwu said on Aug. 12. That’s potentially 23 percent lower than last year.

    The resurgence of armed conflict in the delta mirrors a 2006 to 2009 campaign by the Movement for the Emancipation of the Niger Delta, or MEND. Attempts by then-president Umaru Yar’Adua to quell the militancy using troops escalated the violence. Attacks were curbed only after a state pardon and monthly stipend was granted to fighters willing to disarm. Violence resurfaced after Buhari stopped the payments and ended pipeline security contracts worth millions of dollars that former President Goodluck Jonathan negotiated with the militants.

    Pipeline Knowledge

    This has come to haunt the government. The militants today are more sophisticated and their attacks more precise. Led by the Niger Delta Avengers, the groups, now familiar with the layout of oil pipeline networks from their security operations, have in six months struck companies including Shell, Exxon Mobil, Chevron Corp. and Eni SpA where it hurt most: hard-to-fix export pipelines and oil-gathering hubs. So far this year, Forcados, Qua Iboe, Brass River and Bonny oil terminals have made declarations of force majeure -- a legal term that allows companies to miss export commitments -- after attacks on crude supply pipelines.

    “A resumption of hostilities in the Niger delta would be disastrous for the government,” said Malte Liewerscheidt, senior Africa analyst at U.K. security consultants Verisk Maplecrost. “Sending the military is no solution.”

    Attached Files
    Back to Top

    Strike threat for Norway plants

    Norwegian union Safe is threatening strike action later this week by workers at three onshore plants unless it secures a pay agreement in state-mediated talks with employers, potentially hitting gas supplies to the UK.
    Back to Top

    Progress on opex – but will it stick?

    The last two years have clearly been a challenging and, at times, painful period for everyone in the upstream sector.  The dramatic fall in oil prices has forced the industry to look hard at capex plans and the efficiency of operating assets and functions, with significant downward pressure on rates.

    There is evidence that the industry’s efforts are delivering some significant cost reductions.  We are seeing reductions in both project development costs and in operating efficiency – our analysis shows that opex per boe, for example, has declined by 11% globally between 2014 and 2015.

    As the industry works on plans for 2017, there are two important questions operators must address:  do existing actions and plans go far enough to reset the cost base; and will these actions deliver cost reductions that stick.  As we are seeing signs of an emerging OPEC production agreement, and the associated uptick in oil prices, we think that it is critical to challenge whether the cost reductions of the last 18 months truly are sustainable or whether we are about to see the start of the next upcycle in costs.

    We conducted an upstream sector Cost Survey over the last three months. We received over 290 responses from senior people from across the industry, both operators and the supply chain.  The results show that the industry is generally pessimistic when it comes to the sustainability of cost reductions. Less than 45% of respondents believe reductions achieved in the last 12 months to be sustainable and structural – a view shared both by the supply chain and operators. The timing is also interesting as the survey was completed in early September, before this week’s OPEC announcement.

    Image title


    Respondents also indicated that the focus of cost reduction over the next year would be on fundamentally tactical measures, such as retendering and renegotiation of contracts.  There was little evidence that the respondents were expecting to see widespread adoption of measures which would take out cost for all parties in the supply chain.

    The financial health of the supply chain provides an interesting perspective on the sustainability question.  The impact of reductions in rates and activity levels has been a dramatic deterioration in Oil Field Service (OFS) company  margins since 2014. There is no doubt that re-evaluating contracts and renegotiating rates is a rational strategy for operators, but it is questionable whether OFS players will tolerate such low margins when the market recovers.  History suggests that there will be a push towards higher rates.

    It is not only the suppliers who are anticipating a return to price increases. Interestingly 26% of respondents, from operators and the supply chain, expect to see price inflation in 2017 compared to only 8% of our 2015 survey respondents who expected to see inflation in 2016.

    Image title

    Really understanding the composition of the cost reductions over the last two years will be an important step for operators to start to manage this sustainability risk.

    We will be publishing a perspective giving a fuller picture of the cost survey results and our views on the sustainability question in October.  If you would like to discuss how we can help you to explore this question for your organisation, please get in touch.

    Operating cost: has the oil industry really moved the needle? The dramatic fall in oil prices – from over US$100 a barrel in mid-2014 to less than US$30 a barrel in early 2016 – has left the oil industry scrambling to contain the damage. Upstream operators are deferring investment...
    Image title

    Attached Files
    Back to Top

    Qatar's Ras Laffan 2 condensate splitter to launch this month -sources

    Qatargas, the world's largest LNG producer, will start operations at its new Ras Laffan 2 condensate splitter by the end of this month, doubling the Gulf state's capacity to process condensate, two sources with knowledge of the matter said on Monday.

    The 146,000 barrel per day (bpd) facility had been due to open in September but was delayed due to technical problems, traders said.

    It will process deodorized field condensate (DFC) and low sulphur field condensate to extract mostly naphtha and middle distillates.

    Condensate exports from Qatar will drop from 500,000 bpd to about 350,000 bpd when the 146,000-bpd splitter starts operating, an official at Qatar Petroleum, Qatargas's state-owned majority shareholder, has said. That will enable the Gulf state to soak up some of its condensate at home as it faces growing competition for condensate sales overseas from U.S. and Iranian light oil shipments.

    Commissioning of the new splitter is "99 percent" complete and an imminent handover to operator Qatargas is likely to see the plant start up "within the next two weeks," a Doha-based source, who declined to be named because he was not authorised to speak publicly, told Reuters.

    Japan's Chiyoda Corp is building the refinery in a joint venture with Taiwan's CTCI Corp.

    "We are at the final moment. There were no technical problems from our end," Chiyoda's general manager in Qatar, Toshiyuki Ito, told Reuters, but would not confirm a start-up date.

    Qatari state-marketer Tasweeq withdrew offers for at least 1.5 million barrels of prompt November-loading DFC last week, traders with knowledge of the matter said, possibly indicating the splitter is likely to open imminently.

    Initial offers for November-loading cargoes had indicated that the condensate splitter was more likely to start operations in November than October as the oil firm was seen reducing its November feedstock requirements by opting to sell prompt cargoes, traders said.

    Tasweeq sold 2 million barrels of DFC for end-October loading prior to its offers for November-loading condensate supplies.
    Back to Top

    China Gasoline exports reach NY.

    Chinese gasoline will reach the U.S. East Coast for the first time in nine years as a surge in New York prices helps ease a glut in Asia.

    Trafigura Group Pte. is said to be shipping about 375,000 barrels of gasoline to New York from China and Hong Kong aboard the tanker Marylebone, according to a person familiar with the delivery who asked not to be named. The ship delivered Korean alkylate in Houston for the trading company last week before continuing on to the Northeast, U.S. Customs data show.

    Attached Files
    Back to Top

    Petrobras, Statoil extend partnership for old wells - sources

    Petrobras, Statoil extend partnership for old wells - sources

    Petróleo Brasileiro SA and Norway's Statoil ASA are expanding an existing partnership to help the Brazilian state-controlled company arrest declining production at aging wells in the offshore Campos Basin, two people with direct knowledge of the plan said.

    In late August, Petrobras and Statoil signed a memorandum of understanding that has since evolved to targeting aging wells. Both firms are discussing under which terms Statoil could get stakes in some fields in exchange for fresh investment and technological cooperation, the people said.

    Press representatives for Petrobras did not have a comment. The sources asked not to be identified because the talks remain private.

    However, in an emailed statement to Reuters, Oslo-based Statoil acknowledged the plan, adding that it is too early to elaborate on the evolution of the talks.

    The decision underscores steps by Chief Executive Officer Pedro Parente to rationalize capital spending at Petrobras, and cope with the impact of low oil prices and a sweeping corruption scandal involving the company.

    The Campos Basin, which was responsible for about 85 percent of Brazil's oil output five years ago, accounts now for 58 percent. Petrobras produces about 80 percent of Brazil's oil and is responsible for developing massive offshore oil finds in a region known as the Subsalt Polygon, which first produced oil in 2008.

    The move comes two months after Statoil agreed to pay $2.5 billion for a 66 percent stake in Carcará, one of Petrobras' largest oil and gas prospects. Recently, the companies signed a deal in which they said would collaborate on existing fields in Brazil's Campos and Santos Basins..


    The Subsalt Polygon is an offshore region near the coast of Rio de Janeiro, where several of the world's largest recent oil discoveries have been made.

    Last month, Petrobras cut planned investments for the 2017-2021 period by 25 percent in a drive to reduce the largest debt burden among global oil producers, at $130 billion, and revive investor confidence battered by years of over spending.

    Capital spending plans for existing Campos Basin wells suffered the most with the cuts, one of the people said.

    The 2017-2021 business plan lowered the estimate for the rate of decline of production in the Campos Basin to 9 percent a year. Petrobras had a prior estimate of a decline between 12 percent and 15 percent.

    The plan included the need for production partnerships in the Campos Basin, especially to revive output in the basin's Marlim field.
    Back to Top

    Perisai Bondholders Reject Oil Rig Contractor’s Proposal

    Perisai Petroleum Teknologi Bhd., a Malaysian offshore oil rig contractor, failed to convince a group of bond investors to agree to its debt restructuring plan.

    More than 70 percent of investors who voted on Monday rejected the company’sproposal to extend the maturity of the bond to Feb. 3, 2017, according to Cheng Fong Kiew, a bondholder present at the meeting.

    Over 20 bondholders gathered at the basement of an office tower in Singapore’s central business district to vote on the plan to prolong maturity of its S$125 million ($91.6 million), 6.875 percent bond due today. Bond investors last week demanded immediate repayment after talks with the company collapsed.

    “Yes, it’s our responsibility that we bought the bonds but the company can’t just brush us aside,” said Cheng, who owns S$500,000 of Perisai bonds. “Trust has been eroded.”

    Southeast Asia’s oil and gas industry is being hobbled by a decline in crude prices and slowing global economic growth. Swiber Holdings Ltd. roiled the market when it defaulted on S$460 million of local-currency notes, while shippers including Rickmers Maritime are seeking to reorganize debts.

    Perisai’s head of corporate planning Lai Swee Sim, who represented the company at today’s meeting, declined to comment. The notes were last quoted at 55 Singapore cents on the dollar, according to DBS Bank Ltd. prices.

    Shares in Perisai have dropped 24 percent in Sept., outstripping the broader KLCI market that has declined 1.5 percent.
    Back to Top

    Shale Oil Firms Hedge 2017 Prices in ‘Droves’ After OPEC Rally

    Independent oil companies are using the post-OPEC rally to hedge their price risk for next year, banks and consultants said, a trend that’s likely to be viewed with concern from Saudi Arabia to Venezuela.

    The clamor to hedge -- locking in future cash flows and sales prices -- could translate into higher U.S. oil production next year, offsetting an output cut that the Organization of Petroleum Exporting Countries outlined in Algiers last week. Shale firms in particular would enjoy extra income to pay for additional drilling.

    “We are seeing significant producer flows which early estimates suggest could be the highest we have seen all year,” Adam Longson, commodity strategist at Morgan Stanley in New York said in a note to clients.

    Crude futures surged by almost $5 a barrel since OPEC surprised traders by agreeing to trim output at a gathering in Algiers on Sept. 28.

    Harry Tchilinguirian, head of commodity research at BNP Paribas SA in London, said on Friday that OPEC had thrown a “lifeline” to U.S. shale firms, prompting them to hedge “in droves.” The bank has “seen many queries coming through” from producers, he said.

    The West Texas Intermediate 2017 calendar strip -- an average of future prices next year that’s often used as a reference for hedging activity -- rose above $50 a barrel to its highest since August on Monday. “When calendar 2017 pricing rises into the low-to-mid $50s, as it is doing now, producer hedging rises materially,” Longson said.

    U.S. shale producers used a similar rally to hedge their prices in May, when the WTI 2017 calendar strip also rose above $50 a barrel. The current activity comes after industry executives told investors in July and August they planned to use any window of higher prices to lock-in cash flows for next year.

    "We would like to be a little bit further hedged than we are today," Pioneer Natural Resources Co. Chief Executive Officer Tim Dove said back in July, noting his company has locked in prices for up to 55 percent of its 2017 exposure. “I’d like to see us get that number up as we go towards at the end of this year.”

    U.S. independent oil companies have only hedged 16 percent of their price exposure for 2017, compared with 39 percent for the rest of this year, according to Houston-based boutique investment bank Tudor, Pickering, Holt & Co. "We expect hedge book conversations to tick up during the next round of quarterly calls," it said in a note to clients on Friday.

    U.S. shale companies and other independent exploration and production companies usually reveal their level of hedging with a quarter delay. Nonetheless, anecdotal pricing activity already suggests their presence in the market.

    The WTI price curve, for example, has flattened over the last week, with spot prices rising more than prices for delivery next year, suggesting producer selling in 2017 and beyond. The spread between the WTI contract for immediate delivery and a year forward narrowed on Friday to minus $4.12 a barrel, from minus $4.77 a barrel before the OPEC meeting. The trend continues further down the curve too, with the spread between oil for delivery in Dec. 2017 and Dec. 2018 also contracting sharply after the decision in Algiers.

    At the same time, the open interest in the WTI June 2017 contract has jumped nearly 10 percent over the last week, while the December 2018 contract rose 6.5 percent, another indication of hedging activity. Open interest across all WTI contracts rose by 66,000 lots -- the equivalent of 66 million barrels of oil -- from Tuesday to Friday last week, according to preliminary CME data. The total volume of crude futures on ICE and Nymex combined hit a record on Wednesday, the day of the Algiers meeting at which OPEC members agreed on a plan to limit output.

    “Every time prices get above the $50 range we see a lot of activity coming in from producers selling into the rally,” said Hamza Khan, an analyst at ING Bank NV in Amsterdam.
    Back to Top

    Breakthroughs are fuelling up the Bakken

    Operators have been saying the Bakken is getting better and better, but North Dakota Department of Minerals Director Lynn Helms had the numbers to show it. Not only are today’s wells vastly superior to wells of even two years ago, Helms said during the annual conference of the North Dakota Petroleum Council, but they now have a lifespan that is five years longer.

    “Initial production (on new wells) has increased from 1,100 barrels a day to 1,500,” Helms said.

    Coupling that with the additional five-year lifespan, that means 25 percent more recovery from every well bore.

    The new methods that created better productivity are also creating opportunities for economical refracs of old-school wells even at current prices — an “iteration” Helms called amazing.

    An iteration is a successive process in which the next solution is based on the last, but a little bit better than before.

    “You are getting more of the reservoir and using no greater footprint than in 2014,” Helms said. “You are still iterating, and it amazes me.”

    Helms estimated there are between 8,000 and 8,500 wells drilled with older technology, many of which could be good refrac candidates.

    Previous to Helms, a Whiting Oil representative talked about his company’s foray into refracs, and how his company is developing methodologies to determine which wells are good candidates for the process. Prior fracs didn’t use as much sand and had less efficient fractures than what is possible today.

    “Data is mounting for why you want to refrac before you do,” Charles Ohlson, a petroleum engineer with Whiting Petroleum Corporation, said.

    Those kinds of things mean more opportunities for further reiterations, Helms pointed out.

    “There’s just a huge amount of iteration in well design and in well completion that is going on,” he said. “It is far from settled science.”

    Helms has developed several scenarios for the lifespan of the Bakken play.

    The endpoint of the Bakken shows 65,000 wells and a peak rig count of 150 in 2023. That uses a price of $50 to $60 oil to get there — a price point at which most of the Bakken’s return on investment has been shown to be fairly reasonable, according to state figures shared by Justin Kringstad, with North Dakota Pipeline Authority.

    In a slow year such as this, an estimated 2,500 wells don’t get drilled, Helms said. The question is, when will they get drilled? In one scenario, they are drilled in 2035, but what if they are drilled as soon as oil prices pop back up, say mid 2017?

    “When I go out and talk to communities and students about their anticipated needs for housing, sewer or water, I tell them to keep the scenario in mind, because this is the scenario that brings back crew camps,” Helms said.

    And it also brings revenue for building out infrastructure needs.

    In another scenario, oil stays low for longer and only the core of the Bakken gets drilled.

     Helms couldn’t exhaust the core in a reasonable time frame without adding more rigs to the model. Even then, it still took 15 years to exhaust the core, showing that the play has plenty of life to make it through the downturn.

    Oil in the $50 to $60 range will make the state’s 900 drilled but uncompleted wells highly economic, Helms said, and will ramp up the number of frac crews operating. That number for now is in the range of five to 11. At peak prices, there were 50 frac crews operating in the Bakken.

    “Sixty dollar oil makes the Bakken superior to other plays,” Helms said. “Even to the Permian and Eagle Ford. So that is when you will see drilling rigs go back into service.”

    However, even then, you still won’t see as many rigs, Helms said, and you can thank iteration for that, too. Today’s rigs are now achieving 25 wells in a year, versus eight or nine in 2009.

    “It’s just an indication of what kind of technology is out there,” Helms added.

    Multi-well pads, new bit technology, new motor technology, new mud technology — these are all getting their own iterations, improving the efficiency and lowering the costs of getting along in the Bakken.

    Drill times are now down to an average of 12 days, with three of that waiting for cement to set.

    Attached Files
    Back to Top

    Oxy Permian update or lack of! Company being schtum.

    Image titleImage titleImage title

    Attached Files
    Back to Top

    Marathon Oil sells non-operated assets for $235 million

    Marathon Oil Corporation announced that the Company has signed an agreement for the sale of certain non-operated CO2 and waterflood assets in West Texas and New Mexico for $235 million, excluding closing adjustments. The properties averaged approximately 4,000 barrels of oil equivalent per day in the first half of 2016. The effective date of the transaction is Sept. 1, 2016, and closing is expected by year end.

    Since August 2015, Marathon Oil has announced or closed non-core asset sales in excess of $1.5 billion.
    Back to Top

    Double Eagle and Veritas Energy merge, Forming Premier Midland Basin E&P Operator

    Funds managed by affiliates of Apollo Global Management, LLC (NYSE:APO) (together with its consolidated subsidiaries, “Apollo”) and Post Oak Energy Capital, LP (“Post Oak”) announced today that Double Eagle Lone Star LLC (“Double Eagle”), and Veritas Energy Partners Holdings LLC (“Veritas Energy”) have entered into a definitive merger agreement, creating one of the largest pure play exploration and production companies focused on the Permian’s Midland Basin. Double Eagle was previously a subsidiary of Double Eagle Energy Holdings II LLC (“Double Eagle II”), a portfolio company of Apollo Natural Resources Partners Funds I and II, and Veritas Energy was previously a portfolio company of investment partnerships managed by Post Oak.

    The newly combined company, which is called Double Eagle Energy Permian LLC, has more than 63,000 core Midland Basin net acres (over 70% operated) located predominantly in Midland, Martin, Howard and Glasscock counties, and a team with extensive experience drilling and operating wells in the region.

    Double Eagle Energy Permian will be headquartered in Fort Worth, Texas, and Cody Campbell and John Sellers, the current Co-Chief Executive Officers of Double Eagle II, will serve as the Co-Chief Executive Officers of the new company with Hollis Sullivan, the current President of Veritas Energy, serving as Chairman.

    John Sellers and Cody Campbell commented, “We believe combining the highly complementary Midland Basin acreage positions of Double Eagle and Veritas Energy creates a truly world class asset in the core of the most economic basin in North America.”

    Hollis Sullivan added, “With the strength of the new company’s combined management team and its operated, drill-ready acreage position, Double Eagle Energy Permian is uniquely positioned for rapid growth and expansion in the region.”
    Back to Top

    Mammoth Energy Services, Inc. Announces Launch of Initial Public Offering

    Mammoth Energy Services, Inc. today announced the commencement of its initial public offering of 7,500,000 shares of its common stock at an anticipated initial public offering price of between $15.00 and $18.00 per share.

    Certain selling stockholders named in the registration statement are offering an additional 250,000 shares of common stock. In addition, the underwriters have a 30-day option to purchase up to an additional 1,162,500 shares of common stock, at the same price per share, all of which would be sold by the selling stockholders.

    Mammoth Energy will not receive any of the proceeds from the sale of the shares by the selling stockholders.
    Back to Top

    SM Energy Announces Additional Asset Divestitures

    SM Energy Company announced today that it has engaged Petrie Partners to explore a sale of certain leasehold assets in the Williston Basin. The assets to be sold include approximately 54,500 net acres, consisting of the Raven/Bear Den acreage and effectively all lease-holdings in the basin outside of the Company’s Divide County program.

    President and Chief Executive Officer Jay Ottoson comments: “We have outlined a simple strategy to focus on our Tier 1 assets in the Permian Basin and operated Eagle Ford. As part of this strategy, we are continuing to core up our portfolio, such that we can concentrate investment dollars in the highest return programs and bring that value forward through accelerated activity. Raven/Bear Den is a terrific asset that provides attractive full-cycle returns, and we believe it will be of more value to a company that will actively pursue its near-term development.”

    Separately, the Company has closed on previously announced divestitures of assets located in New Mexico, North Dakota, Montana, and Wyoming, with associated net production of approximately 3,300 Boe per day, for net proceeds after purchase price adjustments and fees of approximately $186.7 million.
    Back to Top

    Alternative Energy

    Sion Power Delivers Next Generation Battery Performance Through Patented Licerion® Technology

    Image titleSion Power announces the achievement of highly pursued next generation battery performance with its patented Licerion® technology. Licerion® is the registered trademark for newly developed battery products designed to meet specific market needs, including unmanned aerial vehicle (UAV) and electric vehicle (EV) markets.

    Licerion® technology, a product of Sion Power’s technical collaboration with BASF, the world’s largest chemical company, covers a wide range of chemistries designed to perform with sulfur-based and lithium ion-based cathodes. All Licerion® products incorporate Sion Power’s unique protected lithium metal anodes (PLA), unique electrolyte formulations and engineered cathodes. The graphic is a schematic representation of Sion Power’s Licerion® cell construction.

    Sion Power’s Licerion®-Sulfur products are being commercialized via its partnership with Airbus Defence and Space. An earlier version of the technology was employed in setting a world record for the longest duration unrefueled flight for a high altitude pseudo-satellite (HAPS).

    Based on Sion Power’s 20 Ahr cell design, Sion Power’s Licerion®-Ion system has achieved 400 Wh/kg, 700 Wh/L and 350 cycles under 1C discharge conditions. Details of this remarkable achievement will be presented by Dr. Yuriy Mikhaylik, Sion Power’s Director of Materials, at the upcoming ECS meeting in Honolulu, October 2-7, 2016.

    Sion Power is in the process of expanding its facilities in Tucson, Ariz. for the production of prototype large format Licerion® Ion cells. These cells will be available by December 2017. In the interim, Sion Power is evaluating potential volume manufacturing partners to supplement in-house capacities.

    About Sion Power:

    Privately held Sion Power Corporation is the global leader in the development of next generation high-energy, rechargeable lithium batteries for UAV, military and electric vehicle applications. Sion Power has assembled a world class team dedicated to advancing lithium battery technology. The company has more than 170 U.S. and international patents, and is headquartered in Tucson, Ariz. Further information is available at

    Attached Files
    Back to Top

    Solar business rates may hammer UK supermarkets?

    Valuations Office acts to limit business rates for companies exporting sizeable amount of solar power to the grid, but those using power on site could yet see eight-fold tax increase

    The solar industry appears to have won a partial victory in its push to ensure companies, schools and hospitals that have installed solar arrays are not hit with a huge tax hike next year, although fears remain many organisations could still see business rates for their solar installations increase six to eight fold.

    The Valuations Office Agency (VOA) is today expected to confirm that organisations that 'mainly export' their solar power will see a decrease in business rates to reflect the falling cost of solar technologies and recent cuts to subsidies.

    The cuts will apply to organisations that export over 50 per cent of the power they generate, either by supplying power to the grid or by selling it to the organisation hosting the array through a Power Purchase Agreement (PPA).

    The approach follows the signing of a Memorandum of Agreement between the VOA and the Solar Trade Association (STA), which has been leading the campaign to ensure companies that have installed solar arrays are not hit by sharp increases in business rates next year.

    "The good news for 'export' solar is that, in most cases, the rateable value will fall from 2017, some by as much as half," said Paul Barwell, chief executive of the STA in a statement. "Rates should reflect the true value of the solar asset, as well as the income received. As both of these have fallen dramatically over the last five years for solar power, the rateable value has also fallen: logic has prevailed."

    However, the trade body remains concerned organisations which use the bulk of the solar power they generate directly on site are still on track to face a six to eight fold increase in the business rates they have previously paid for solar, despite consuming power onsite being a highly efficient option.

    Moreover, industry insiders are concerned the promise of cuts in business rates for solar arrays that have a PPA in place means two identical arrays would be taxed differently based on the legal ownership structure for the solar installation.

    The discrepancy raises the prospect of companies or schools setting up a Special Purpose Vehicle (SPV) to take ownership of a solar array and sell the power back to themselves through a PPA in order to take advantage of the lower business rates.

    Business and Energy Minister Jesse Norman said recently the government would "look at it closely" at the situation when the VOA comes forward with its plans for valuing solar arrays.

    Back to Top

    UK solar beats coal over half a year

    The UK’s solar panels generated more electricity than coal across the past six months combined, Carbon Brief analysis shows, rounding off a historic half-year of firsts.

    Saturday 9 April 2016 was the first-ever day where more electricity was generated in the UK by solar than by coal. May 2016 was the first-ever month. The three months from June through to September was the first-ever quarter. And now the six months to September is the first half year.

    These firsts reflect the changing face of UK electricity supplies, with solar capacity having nearly doubled during 2015. They also reflect historic lows for coal-fired generation, driven by changes in wholesale energy markets and the carbon price floor. Carbon Brief runs through the numbers.

    Solar six months

    The UK’s solar panels generated an estimated 6,964 gigawatt hours (GWh) of electricity during quarter two (Q2) and three (Q3) of 2016, from April through to September. (See note below regarding data sources and methodology).

    The solar output was equivalent to 5.2% of UK electricity demand for the half-year period. It was nearly 10% higher than the 6,342 GWh generated by coal, which covered 4.7% of demand.

    Shares of total UK monthly electricity generation met by solar and coal during 2016 (%). Sources: Sheffield Solar and Gridwatch. 

    Starting on 1 July, there were 10 straight weeks when solar output exceeded that from coal.

    Solar output is strongly affected by the UK’s seasonal cycle. Roughly three-quarters of annual UK solar power is generated during the sunnier half-year from April to September. In contrast, coal generation tends to increase in winter when electricity demand peaks.

    First, UK solar capacity has to date reached around 12 gigawatts (GW), according to research by Solar Intelligence, up from around 6GW at the start of 2015. Solar generation is increasing as a result, up 26% in 2016 to date, compared to the same period in 2015.

    (Note that solar capacity additions have fallen this year, following subsidy cuts. Note also that while government figures for new capacity have been consistently too low, independent estimates also show the drop.)

    Total electricity generation from UK solar and coal during calendar months in 2015 and 2016 to date, gigawatt hours (GWh). Sources: Sheffield Solar and Gridwatch. Chart by Carbon Brief using Highcharts.

    Coal generation has fallen rapidly, at a rate that is far beyond its usual annual cycle. Output in 2016 to date was 65% below that in 2015. It was down 76% in Q2 and 82% in Q3 compared to a year earlier.

    This year also saw UK coal generation fall to zero on 9 April, for the first time since 1882, when a coal-fired power station started supplying electricity to the public for the first time. Since then, there have been 199 hours when coal was generating no power in the UK.

    The drop in coal output has come about because of wholesale energy market price shifts being more favourable to gas-fired generators than to coal. In addition, the UK’s carbon floor price doubled in April 2015, again shifting the economics of electricity generation in favour of gas over coal.

    Given these price changes, and the government’s stated intention to phase out all unabated coal by 2025, three coal-fired power stations took the decision to close this spring.

    The key role of the carbon floor price in driving coal off the system is underlined in recent analysis from consultancy Cornwall Energy. This shows that removing the UK’s top-up carbon tax would mean coal plants once again being cheaper to run than gas.

    Tom Edwards, Cornwall Energy senior consultant writes:

    “This would return the market to the position seen in 2014 when coal-fired generators were running baseload [all the time] and gas-fired stations were pushed to the margin.”

    It’s worth noting that while gas-fired power stations have replaced most of the reduction in coal output, the total supplied by the two fossil fuels is also falling. This is because of increases in electricity supplied by renewables and imports, along with falling demand.

    Attached Files
    Back to Top


    Cameco to court over tax bill

    Canada’s biggest uranium producer, Cameco, is set to appear in court on Wednesday to dispute accusations of setting up a subsidiary in Zug, Switzerland for the purpose of avoiding taxes.

    Canada Revenue Agency contends whether the Saskatoon-based corporation wanted to dodge its fiscal duties by signing a 17-year agreement in 1999 with its Swiss arm to sell uranium at the fixed price of about US$10 per pound.

    The practice is seen as ‘unfair’ given that the price of uranium rose to over US$130 a pound by 2007 and, despite the fact it has been in a steep downward trend ever since, still trades at over US$20 a pound today.

    According to the CBC, the CRA is looking to shift an estimated $7.4 billion in foreign earnings between 2003 and 2015 back to Canada.

    The current case, which has been moving slowly through appeals and legal motions since 2009, is dealing specifically with tax years 2003, 2005 and 2006. But the company has always said that its management had a compelling business case for having a marketing arm in Europe.

    Back in 2013, Cameco’s CFO Gran Isaac told investors: "We believe that it was established in accordance with sound business principles and in accordance with relevant laws and regulations."

    Meanwhile, Cameco spokesman Gord Struthers repeated the statement in a recent email to theCanadian Press: "We followed all of the rules and paid all taxes owed under Canadian law. There is a sound business rationale for Cameco's corporate structure and related transfer pricing arrangements and we remain confident that our position will be upheld by the court."

    The world's number one listed uranium producer doesn't expect the actual trial to wrap up until March 2017, with a ruling six to 18 months after that.
    Back to Top


    Glyphosate has become lightning rod for environmental activists - Farm Press

    The latest chapter in the glyphosate wars began to unfold on Sept. 28 when a group of toxicology experts published a paper in Critical Reviews in Toxicology. The Expert Panels paper examined the International Agency for Research on Cancer’s assessment of glyphosate.

    At last count more than 160 countries have approved uses of glyphosate-based herbicide products. According to most scientists, the active ingredient in Roundup and other herbicides is a relatively benign product as pesticides go.

    So why has glyphosate become the pesticide environmental activists love to hate? One reason: It was developed by Monsanto, the company often referred to as the “Great Satan” when activists are lashing out at what they call “industrial agriculture.”

    (If you want to see just how absurd the attacks on Monsanto have become, click on this website It’s the website for a group of organizations that are planning to “hold Monsanto accountable for human rights violations, for crimes against humanity and ecocide” in a tribunal that is scheduled in the Hague, Netherlands, Oct. 14-16.)

    The latest chapter in the glyphosate wars began to unfold on Sept. 28 when a group of toxicology experts published a paper in Critical Reviews in Toxicology. The Expert Panels paper examined the International Agency for Research on Cancer’s assessment of glyphosate.

    Basically, the experts said a monograph the IARC published in March of 2015 concluding that glyphosate is “probably carcinogenic to humans,” is a bunch of nonsense.

    Yes, the panel’s review of the IARC monograph was financed by Monsanto, but, unlike the authors of the IARC document, the panel was made up of actual scientists with reputations for scholarly work to protect.

    So why bother? “Every day I read an article from an activist-captured media source that quotes the IARC glyphosate position and ignores the negative reactions from institutions such as the European Food Safety Authority,” said one blogger who writes frequently about the pesticide debate.

    “It would be nice if we could ignore IARC’s erroneous excursions into anti-industry activism, but the NGO campaigners and organic food lobbyists have sanctified their glyphosate monograph to Biblical proportions. They are regularly attacking the scientific establishment in their campaign to ban glyphosate.”

    Glyphosate isn’t the only pesticide being targeted by activists, who seem convinced we can feed 8 billion people with organically grown crops. But it’s becoming the lightning rod in a fight society must win if the world’s farmers are to continue feeding and clothing its population.
    Back to Top

    Precious Metals

    Goldcorp starts controlled shutdown of operations at a Mexico mine

    Canada's Goldcorp Inc said it was undertaking a controlled shutdown of operations at its Peñasquito gold mine in northern Mexico, following a blockade by a trucking contractor that began on last Monday.

    Goldcorp said on Monday the contractor was concerned about losing business after the company's recent efforts to diversify its local transportation supply chain.

    The company said it had taken legal steps, including filing criminal charges against the protesters. The company also said it was ready to talk with the contractor's representatives.

    The world's third-biggest gold producer by market value said it did not expect the shutdown to impact overall production or cost estimate for 2016.

    The Peñasquito mine produced 860,300 ounce of gold in 2015.
    Back to Top

    Implats, NUM sign two-year wage deal

    The National Union of Mine workers (NUM) and Impala Platinum (Implats) have reached a two-year wage deal, effective July 2016 until June 2018, for workers at Implats' refinery operation, in Springs.

    The 1 000 workers at the operation, of which about half are NUM members, will now see a basic wage increase of 7.5% to 10% over the two-year agreed period.

    “The NUM elected to initiate industrial action on Tuesday last week, and we ultimately concluded the wage agreement on Friday evening,” Implats spokesperson Johan Theron said.

    Entry level B-lower and B-upper employees will receive a 10% hike a year, while B5 workers will receive an 8.5% increase backdated to July 2016 and again in July 2017.

    The B7 and C-lower workers will receive a 8% hike in the first year starting July 2016 and a 7.5% increase in 2017.

    Medical subsidies will also increase from the current R490 to R524 in 2016 and R561 in 2017, with subsidies increasing to R377 and R228 respectively for the first dependant and other dependants by 2017.

    Accommodation allowances have also increased, with B-lower and B-upper workers receiving a R2 460 allowance, up from the current R2 365, before increasing to R2 632 in 2017.

    B5 and B7 workers get an increase from R2 870 to R2 985 in 2016 and to R3 194 in 2017, while C-lower workers will not receive an increase on the current R5 343 allowance in 2016, but will receive an increase to R5 557 in 2017.

    The parties also agreed that the four-shift cycle shift allowance will increase from the current 13% to 13.5%.

    “NUM members at Impala Platinum Refineries are quite pleased and excited that the wage agreement was concluded without any strike, violence, intimidation and loss of life,” NUM said in a statement.

    “We are pleased to have secured a negotiated settlement following the industrial action last week. The wage agreement, in our opinion, provides a reasonable compromise between worker expectations, wage inflation in our economy and the economic realities that dictate the financial sustainability of our business,” the company said on Monday.
    Back to Top

    South Africa's Sibanye Gold shuts mine after union violence

    Work at Sibanye Gold's South African Cooke mine has been suspended after two members of the National Union of Mineworkers were left in a critical condition after being attacked, a spokesman for the company said on Tuesday.

    "We cannot have the mines operating when we cannot guarantee the safety of our workers. No one went underground last night and no shifts began this morning," Sibanye spokesman James Wellsted said.

    NUM spokesman Livhuwani Mammburu said the miners were attacked by members of the rival Association of Mineworkers and Construction Union in a dispute over union numbers. AMCU officials could not immediately be reached for comment.

    The incident is the latest flare-up between the unions. The arch rivals have been locked in a turf war which has killed dozens since AMCU dislodged NUM as the dominant union on South Africa's platinum belt in 2012.

    In the first half of 2016, the three working shafts at Cooke produced around 100,000 ounces of gold, about 13.5 percent of the group's total gold production.
    Back to Top

    Base Metals

    Olympic Dam still on care and maintenance

    Olympic Dam still on care and maintenance

    Operations at the Olympic Dam copper, gold and uranium mine, in South Australia, remained on care and maintenance, mining giant BHP Billiton said.

    Operations were suspended and the site de-mobilised following a severe storm in South Australia, which resulted in state-wide power outages.

    BHP said at the time that back-up generators were providing power to critical infrastructure, which would allow a restart of operations when power was restored.

    The miner said in a statement that the Olympic Dam mine was now receiving some power from the grid, after power was restored to the Roxby Downs township, and added that with the additional generation capacity sourced and connected, it would ensure asset stability and integrity of the operations, until full power was restored and the operations could resume as normal.

    BHP was expected to release the production impacts of the power outage during its September quarterly report.
    Back to Top

    Steel, Iron Ore and Coal

    US' Arch Coal to emerge from Chapter 11 bankruptcy with $311 million cash: filing

    Arch Coal is projected to have $311 million in cash on the balance sheet and a "sustainable capital structure" when it emerges from Chapter 11 bankruptcy protection, the company said.

    The outlook looks rosier for Arch, the St. Louis-based producer that filed for bankruptcy protection in January and could emerge as early as this week.

    Upside for Arch includes a steep increase in metallurgical coal prices and higher forecast natural gas prices, which would increase demand for thermal coal.

    "We expect to emerge with over $300 million of cash on the balance sheet," the company said in an investor presentation Friday. "Arch expects to be cash flow positive after emergence."

    The company will have eliminated nearly $5 billion in debt to $363 million and reduced interest expenses by $329 million to $33 million through bankruptcy, it said.

    It will have removed its self-bonding obligations in Wyoming and other states, replacing them with $550 million in surety bond liabilities with "favorable collateral terms and rates."

    Arch's assets include both high and low A and B mines in Appalachia, along with bituminous and subbituminous thermal coal mines in the Illinois, Uinta and Powder River basins.

    Its largest mine, Black Thunder in the Southern PRB, produced nearly 100 million st in 2015.

    Higher metallurgical coal prices have given US met coal producers an advantage, particularly US high-vol coal into Europe. Arch said. The company expects to produce 7 million-7.5 million st of met coal in 2017, most of which is "uncommitted and exposed to rising prices," it said.

    Opportunities for thermal coal have returned as natural gas prices have rebounded to levels approaching $3/MMBtu, moving more Powder River Basin mines into the money.

    "The consensus forecast shows natural gas averaging above $3 in future years," the company said.

    Additionally, Arch and other producers could regain lost market share as coal-fired power plants are operating at below a 50% capacity factor and could run at "much higher levels if market forces allow," the company said.

    "Higher natural gas prices and stronger power demand should spur a rebound in coal use," Arch said.

    Coal plant retirements and increased use of renewables will limit gains, however, the company said.

    Attached Files
    Back to Top

    Iron miners face test of discipline as China challenge looms

    The world’s largest iron ore producers will need to exert tight control over supplies to keep prices at about $45 a metric ton as China’s drive to weed out unwanted steel capacity poses risks to demand, according to Singapore-based DBS Group Holdings.

    The commodity’s rally in 2016 may come under pressure as consumption in China is poised to weaken in the coming years, chief investment officer Lim Say Boon said in a quarterly report. Iron ore was last at $55.86 a dry ton, and hasn’t traded below $45 since February, according to Metal Bulletin.

    Iron ore sagged in September, eroding this year’s surprise advance, on resurgent concern that supply growth will again swamp the market even as some miners say they are now prioritizing the value of exports over volumes. With Brazil’s Vale set to start a four-year ramp-up of its S11D project, banks from Citigroup to Morgan Stanley, as well as miner BHP Billiton, have said the additional output will probably contribute to weaker prices.

    “Although the price of iron ore has been in an uptrend since the start of the year, it could be difficult for the market to sustain those gains,” Lim wrote in the report, which was received on Monday. It didn’t list specific price forecasts. “Australian and Brazilian producers will have to maintain tight shipment discipline to keep the price” at about $45, he said.

    Rising Production

    Ore with 62% content delivered to Qingdao lost 5.3% in September, capping the first back-to-back monthly loss since November 2015, according to Metal Bulletin. It remains 28% higher in 2016 after a three-year tumble marked by rising production and persistent global oversupply.

    Australia’s two biggest producers have slowed the pace of supply growth as a decade-long expansion nears an end. BHP Billiton, the world’s largest miner, has forecast that its mines in Australia may expand annual output by as little as 3% in the 12 months to June 30, it said in July.

    Rio Tinto Group’s Jean-Sebastien Jacques, who was appointed chief executive officer in July, said the following month that its iron ore strategy “is not about volume, it’s about value.” The world’s second-biggest exporter is adding to full-year shipments at the slowest rate since 2012, while its annual output from Australia may be unchanged in 2017 as it addresses difficulties completing an autonomous train program.

    Still, plenty of banks have flagged prospects of rising low-cost supply from the largest-producing nations. Shipments from Australia will expand to 934 million tons in 2020 from 835 million this year, while Brazilian cargoes rise to 480 million tons from 371 million, Citigroup said last month. The bank reiterated its outlook for ore dropping to $45 next year and $38 in 2018.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP