Mark Latham Commodity Equity Intelligence Service

Wednesday 3rd February 2016
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    China and Oil: front and centre.

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    First, while the US embraces market mechanisms (mostly) and really believes that they tend to work (mostly), China really doesn’t like or trust them. The result, as in the wider economy, is festering instability.

    Second, China’s equity market woes aren’t about technicalities, but reflect an array of underlying problems, which have undermined confidence. Stock prices are probably still expensive, both on conventional measures and more specifically because most listed companies, including banks, are vulnerable to the lingering and worsening problems of over-capacity, indebtedness, and slowing growth. Successful global Chinese companies such as Alibaba are listed in Hong Kong, not the mainland.

    Third, China’s reform agenda, the backbone of what the government has trumpeted as economic transformation to a new economic development model, is stuck in the mud. Many reforms have succumbed to pushback or inertia, and even the political top brass appear to be downplaying reform now in favour of keeping the economy running at an unsustainably high rate.

    The Chinese expression, “loud thunder, small raindrops,” describes perfectly the progress of these reforms, since they was launched with great fanfare in 2013. Many useful and necessary things have been done, notably in the finance sector, but in incremental steps that don’t really alter the institutional ways in which the economy works. For example, there is some reform of state enterprises, but not in ways that alter ownership structures or the pervasive nature of state monopolies. There is judicial reform going on, but it’s not possible to have an independent judiciary and the rule of law. More advanced reforms in finance, without parallel changes in the real economy, have exposed the economy to greater capital flight and financial instability.

    Fourth, the volatility in China’s stock market cannot be divorced from what’s going on with the its currency, the renminbi. Last year’s mini-devaluation of 2 per cent was followed by about $250bn of market intervention to push the currency back up again, and for a while it stabilised at around RMB6.40 to the US dollar. Stability was certainly essential to strengthen the government’s successful case to get the renminbi admitted to the IMF’s Special Drawing Right late last year (an accounting unit, comprising the US dollar, Yen, Euro and Pound and now the renminbi, but one that carries status). But the authorities also introduced a series of restrictions on the ability of Chinese residents, companies and banks to export capital, and then launched a new currency index, comprising 13 currencies, as a reference rather than a target. The not so veiled implication was that the renminbi would be allowed to drop against a higher US dollar, if that should happen.

    ~George Magnus

    "You hear talk about the Russians wanting to reduce supply. They can't possibly because a good three-quarters of where they produce their oil is in very cold areas in Siberia. They don't have those pipes insulated, they have to continue to pump crude oil through there," Gartman said. "The Iranians and the Saudis hate each other. They have, for lack of a better term, a war going on — a gas price war. They're not going to let go." 

    The most important incentive to many of these countries is free cash flow, Gartman said. 

    "When you need cash flow, you produce and you don't really care where the end price is. You keep producing it."

    In the longer term, Gartman sees oil in a $27-$47 range with many of the volatile swings behind it. 

    "The bear market has not ended in oil," said Gartman. "If we start to go sideways for four, five months, companies will become profitable again at these levels."


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    Fed asks Banks on negative interest rates.

    As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.

    In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.

    "The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities," the central bank said in announcing the stress tests last week.

    In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.

    Three-month bill rates have slipped slightly below zero several times in recent years, including in September after the Fed delayed rate liftoff amid global financial market turmoil, touching a low of minus 0.05 percent on Oct. 2.

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    Here is the letter the world's largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere

    Larry Fink, the chief executive at BlackRock, the world's biggest investor with $4.5 trillion, just sent a letter to chief executives at S&P 500 companies and large European corporations.

    The letter focuses on short-termism both in corporate America and Europe, but also in politics, and asks CEOs to better articulate their plans for the future.

    Business Insider managed to get a hold of the letter and is running it in full below (emphasis ours):

    Over the past several years, I have written to the CEOs of leading companies urging resistance to the powerful forces of short-termism afflicting corporate behavior. Reducing these pressures and working instead to invest in long-term growth remains an issue of paramount importance for BlackRock’s clients, most of whom are saving for retirement and other long-term goals, as well as for the entire global economy.

    While we’ve heard strong support from corporate leaders for taking such a long-term view, many companies continue to engage in practices that may undermine their ability to invest for the future. Dividends paid out by S&P 500 companies in 2015 amounted to the highest proportion of their earnings since 2009. As of the end of the third quarter of 2015, buybacks were up 27% over 12 months. We certainly support returning excess cash to shareholders, but not at the expense of value-creating investment. We continue to urge companies to adopt balanced capital plans, appropriate for their respective industries, that support strategies for long-term growth.

    We also believe that companies have an obligation to be open and transparent about their growth plans so that shareholders can evaluate them and companies’ progress in executing on those plans.

    We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation. Additionally, because boards have a critical role to play in strategic planning, we believe CEOs should explicitly affirm that their boards have reviewed those plans. BlackRock’s corporate governance team, in their engagement with companies, will be looking for this framework and board review.

    Annual shareholder letters and other communications to shareholders are too often backwards-looking and don’t do enough to articulate management’s vision and plans for the future. This perspective on the future, however, is what investors and all stakeholders truly need, including, for example, how the company is navigating the competitive landscape, how it is innovating, how it is adapting to technological disruption or geopolitical events, where it is investing and how it is developing its talent. As part of this effort, companies should work to develop financial metrics, suitable for each company and industry, that support a framework for long-term growth. Components of long-term compensation should be linked to these metrics.

    We recognize that companies operate in fluid environments and face a challenging mix of external dynamics. Given the right context, long-term shareholders will understand, and even expect, that you will need to pivot in response to the changing environments you are navigating. But one reason for investors’ short-term horizons is that companies have not sufficiently educated them about the ecosystems they are operating in, what their competitive threats are and how technology and other innovations are impacting their businesses.

    Without clearly articulated plans, companies risk losing the faith of long-term investors. Companies also expose themselves to the pressures of investors focused on maximizing near-term profit at the expense of long-term value. Indeed, some short-term investors (and analysts) offer more compelling visions for companies than the companies themselves, allowing these perspectives to fill the void and build support for potentially destabilizing actions.

    Those activists who focus on long-term value creation sometimes do offer better strategies than management. In those cases, BlackRock’s corporate governance team will support activist plans. During the 2015 proxy season, in the 18 largest U.S. proxy contests (as measured by market cap), BlackRock voted with activists 39% of the time.

    Nonetheless, we believe that companies are usually better served when ideas for value creation are part of an overall framework developed and driven by the company, rather than forced upon them in a proxy fight. With a better understanding of your long-term strategy, the process by which it is determined, and the external factors affecting your business, shareholders can put your annual financial results in the proper context.

    Over time, as companies do a better job laying out their long-term growth frameworks, the need diminishes for quarterly EPS guidance, and we would urge companies to move away from providing it.Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need. To be clear, we do believe companies should still report quarterly results – “long-termism” should not be a substitute for transparency – but CEOs should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their EPS targets or analyst consensus estimates.

    With clearly communicated and understood long-term plans in place, quarterly earnings reports would be transformed from an instrument of incessant short-termism into a building block of long-term behavior. They would serve as a useful “electrocardiogram” for companies, providing information on how companies are performing against the “baseline EKG” of their long-term plan for value creation.

    We also are proposing that companies explicitly affirm to shareholders that their boards have reviewed their strategic plans. This review should be a rigorous process that provides the board the necessary context and allows for a robust debate. Boards have an obligation to review, understand, discuss and challenge a company’s strategy.

    Generating sustainable returns over time requires a sharper focus not only on governance, but also on environmental and social factors facing companies today. These issues offer both risks and opportunities, but for too long, companies have not considered them core to their business – even when the world’s political leaders are increasingly focused on them, as demonstrated by the Paris Climate Accord. Over the long-term, environmental, social and governance (ESG) issues – ranging from climate change to diversity to board effectiveness – have real and quantifiable financial impacts.

    At companies where ESG issues are handled well, they are often a signal of operational excellence. BlackRock has been undertaking a multi-year effort to integrate ESG considerations into our investment processes, and we expect companies to have strategies to manage these issues. Recent action from the U.S. Department of Labor makes clear that pension fund fiduciaries can include ESG factors in their decision making as well. We recognize that the culture of short-term results is not something that can be solved by CEOs and their boards alone. Investors, the media and public officials all have a role to play.In Washington (and other capitals), long-term is often defined as simply the next election cycle, an attitude that is eroding the economic foundations of our country.

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    German union IG Metall to seek wage increases of up to 5 pct

    Germany's biggest union IG Metall said on Tuesday it would seek wage increases of between 4.5 percent and 5 percent for the 3.8 million metals and electrics sector workers after the German economy grew at its fastest rate for four years in 2015.

    After growth of 1.7 percent last year, the government trimmed its forecast for 2016 last month, saying the growth rate would remain flat this year amid emerging market risks that are dampening export demand.

    IG Metall chief Joerg Hofmann said in a statement that a wage increase would help bolster domestic spending, thereby supporting the economy, Europe's largest.

    "That is a demand that companies are able to finance and that secures a fair and deserved share of the economic success for workers," he said.

    A final decision on the union's demands is due on Feb. 29, with negotiations kicking off in mid-March. The negotiations will take place in a buoyant labour market.

    German unemployment fell more sharply than expected in January and the jobless rate dropped to a record low, Federal Labour Office figures released on Tuesday showed, suggesting private consumption will keep growth in the economy steady.
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    U.S. judge says Petrobras investors can sue as group

    A U.S. judge ordered Petrobras, the state-run Brazilian oil company, to face class-action litigation by investors seeking to recoup billions of dollars in losses stemming from a bribery and political kickback scandal.

    In a decision made public on Tuesday, U.S. District Judge Jed Rakoff in Manhattan certified two classes of plaintiffs, saying their claims are similar enough to be pursued as groups.

    One class bought various Petrobras securities from January 2010 to July 2015 and will be led by Universities Superannuation Scheme of Liverpool, England.

    The other bought debt securities from offerings in 2013 and 2014, and will be led by North Carolina's treasurer and the Employees' Retirement System of Hawaii.

    "Petrobras was a massive company with investors around the globe," Rakoff wrote in a 49-page decision. "Notwithstanding Petrobras's size and its numerous and far-flung investors, the interests of the class members are aligned and the same alleged misconduct underlies their claims."

    Class certification can make it easier for investors to recoup larger sums than if they sued individually, though it does not guarantee they will be recover.

    Other defendants include more than a dozen bank underwriters and an affiliate of the auditor PricewaterhouseCoopers. A PwC spokesman could not immediately be reached for comment.

    Petrobras, whose formal name is Petroleo Brasileiro SA, has been accused of inflating the value of more than $98 billion of its stock and bonds through years of corruption.

    Last April, Petrobras took a $17 billion writedown to account for overvalued assets.

    Prosecutors have also said more than $2 billion of bribes were paid over a decade, mainly to Petrobras executives from construction and engineering companies.

    The scandal has contributed to a plunge in Petrobras' market value to below $20 billion from nearly $300 billion fewer than eight years ago, Reuters data show.

    Rakoff appointed the law firm Pomerantz LLP to represent both investor classes. It would share in any recoveries.

    Petrobras' fraud "has eviscerated billions of dollars in shareholder value, as well as hobbled the political and economic structure of Brazil," Jeremy Lieberman, a Pomerantz partner, said in a statement. "Today's ruling represents a significant milestone in Plaintiffs' efforts to recoup a significant portion of the losses incurred."

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    Oil and Gas

    Russia leaves door open to OPEC deal even as output hits high

    Two senior Russian officials talked up potential cooperation with OPEC to prop up
    prices, but data showed oil production in Russia hit a post-Soviet high in January, suggesting the world's top producer was locked in a fierce struggle for market share.

    Russia has in the last week sent mixed signals about possible cooperation with OPEC to support prices. It first suggested it should start talking to OPEC before saying there was no decision to do so.

    On Tuesday, the pendulum swung the other way again. Top oil producer Rosneft, after its head Igor Sechin met Venezuelan oil minister Eulogio Del Pino, said the
    two men had discussed possible join efforts to stabilise global oil markets.

    Foreign Minister Sergei Lavrov also said Moscow was open to further cooperation in the oil market with OPEC and non-OPEC countries.

    Despite the rhetoric, preliminary data from the Energy Ministry on Tuesday showed Russia was actively ramping up production adding to a global glut.      Production hit another post-Soviet high last month of 10.88 million barrels per day (bpd), up from 10.80 million bpd in December, the data showed.      

    "I very much doubt there will be any success in coordination-- there is no consensus inside OPEC itself," said Alexander Kornilov, a senior oil and gas analyst with Aton in Moscow.

    "The growth was expected from Novatek, Bashneft and Gazprom Neft and I believe this trend will continue in the near future. Lukoil was the only one who actively cut drilling, while the picture was the opposite for others," said Kornilov.

    On Monday, Russian Energy Minister Alexander Novak met Venezuela's Del Pino, who is visiting OPEC and non-OPEC countries to try to drum up support for joint action to prop up low crude prices.

    Novatek, co-owned by its CEO Leonid Mikhelson, President Vladimir Putin's ally Gennady Timchenko and France's Total, started to pump oil at the Yarudeyskoye field last month at its full capacity of 3.5 million tonnes a year.

    Gazprom Neft, the oil arm of state gas producer Gazprom, plans to start two new major oil projects, Novoport and Messoyakha later this year. That should help cover declines at other Russian brownfields countrywide.

    Meanwhile, at the Samotlor field in Western Siberia, still one of the world's largest and which produced over 3 million bpd alone at its peak in the 1980s, drilling is under way to maintain production, a senior official told Reuters.

    One of Rosneft's largest fields, Samotlor, produced 21 million tonnes of oil last year.

    "The key task for 2016 is to stabilise production. All the programmes have already been approved," Valentin Mamayev, chief executive of Samotlorneftegaz, told Reuters. He added that Samotlor plans to drill 227 new wells this year, twice as many as in 2014. "If we produce 20 million tonnes a year, this (Samotlor) could last for the next 50 years minimum," Mamayev said.

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    Russia says ready to meet key OPEC members

    Russia is ready to meet the main oil producers within the Organization of the Petroleum Exporting Countries (OPEC) if a consensus on such a meeting is reached with them, RIA news agency quoted Russia's foreign minister as saying on Wednesday.

    "We consider it important to understand what is going on on the markets. The markets are being influenced by many factors, and old mechanisms are unlikely to work. I think we all understand this," Sergei Lavrov was quoted as saying during a visit to Oman.
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    Asia’s spot LNG prices rise on Sakhalin outage

    The prices of spot liquefied natural gas in Asia are climbing after hitting a 6-year low in late January, due to production problems at Russia’s LNG export facility located on Sakhalin Island.

    The Platts March JKM rose 30 cents/MMBtu to $5.35/MMBtu Tuesday, and bids emerged close to $6/MMBtu by early Wednesday, with at least one deal concluded for late February or early March delivery at around $6/MMBtu DES, Platts reported on Wednesday.

    The Sakhalin-2 project reported production problems last week at its 9.6 mtpa LNG export facility located in Russia’s Far East region. The LNG project declared force majeure on 28 January due to a power outage at the Sakhalin-2 liquefaction plant.

    By January 29, LNG production at the facility had been reduced by 50 percent, Platts said in the report.

    The events at Sakhalin have also resulted in extra demand from at least one portfolio seller, and prompted some of the facility’s long-term customers — Kogas of south Korea and several Japanese gas and power utilities — to review their LNG inventories, already affected by a recent cold snap in the region, the report added.

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    Exxon Mobil Profit Declines as Crude Oil, Gas Markets Crash

    Exxon Mobil Corp. posted its fifth-straight quarterly profit decline after crude oil and natural gas lost more than 40 percent of their value because of global oversupplies.

    Fourth-quarter net income fell to $2.78 billion, or 67 cents a share, from $6.57 billion, or $1.56, a year earlier, the Irving, Texas-based company said in a statement on Tuesday. The per-share result beat the 63-cent average profit estimate of 19 analysts in a Bloomberg survey.

    A $538 million loss in the company’s U.S. oil and gas business was cushioned by a near doubling in profit from Exxon’s refineries, according to the statement. Output of crude and gas jumped 4.8 percent. The company cut natural gas production throughout the Americas and Europe.

    Exxon is the latest of the super-major oil companies to disclose dismal fourth-quarter results amid the worst energy market downturn in a generation. The benchmarks for international crude and U.S. gas both dropped 42 percent during the final three months of 2015 as global production continued to overwhelm demand. Oil is trading below $35 a barrel.

    Brent crude futures averaged $44.69 a barrel during the fourth quarter, compared with $77.07 as year earlier, according to data compiled by Bloomberg. U.S. gas averaged $2.235 per million British thermal units during the period, down from $3.829 a year earlier. Oil and liquid byproducts comprise about 60 percent of output from Exxon’s wells; the rest is gas.

    Worldwide oil demand growth probably will slow to 1.3 percent this year from a 1.9 percent rate of expansion in 2015, according to the International Energy Agency in Paris. For Exxon, that contraction is expected to slash full-year 2016 profit to less than $13 billion, based on the average of 19 analysts’ estimates in a Bloomberg survey, which would be the lowest since 2002.

    Exxon’s stock dropped by 16 percent last year for the worst annual performance since 1981. In December, Exxon’s board promoted refining boss Darren Woods to the position of president of the corporation, signaling he’s in line to succeed Chief Executive Officer Rex Tillerson as leader of the world’s biggest oil explorer by market value. Tillerson will reach Exxon’s mandatory retirement age of 65 in March 2017.

    Exxon sees capital spending at around $23.2 billion this year, a 25 percent drop from 2015.

    During the fourth quarter of 2015, ExxonMobil purchased 9.4 million shares of its common stock for the treasury at a gross cost of $754 million. These purchases included $500 million to reduce the number of shares outstanding, with the balance used to acquire shares to offset dilution in conjunction with the company’s benefit plans and programs. In the first quarter of 2016, the corporation will continue to acquire shares to offset dilution in conjunction with its benefit plans and programs, but does not plan on making purchases to reduce shares outstanding.

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    BP CEO Says Debt Can Rise to Sustain Dividend During Oil Slump

    BP Plc is happy to let its debt rise this year to maintain dividends during the slump in oil prices, Chief Executive Officer Bob Dudley said in an interview.

    Speaking after disclosing a record annual loss, Dudley said that a leverage ratio as high as 25 percent, compared with 21.6 percent at the end of last year, wouldn’t make him “nervous.”

    "We’ll be flexible around the gearing levels, we’ll see what oil prices do," he said in an interview with Bloomberg Television on Tuesday from BP’s headquarters in central London.

    Dudley is walking a fine line, trying to reassure equity investors that payouts aren’t in danger while avoiding a significant credit rating downgrade that would spook bondholders and increase financial costs. With prices below $31 a barrel, earnings dropping more than expected and waning margins in the company’s refining business, that task is becoming more difficult.

    Standard & Poor’s on Monday put BP on negative outlook, suggesting it may cut BP’s rating this month.

    “We now believe many major oil and gas companies’ current and prospective core debt coverage metrics are likely to remain below our rating guidelines for two or three years as the industry adjusts to lower prices," S&P said.

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    Statoil Seen Deepening Cuts to Keep Dividends Amid Crude Slump

    Statoil ASA will maintain dividend payments this year, betting it can ride out a slump in crude prices by deepening investment cuts and adding debt, analysts predict.

    Norway’s biggest oil company, which will present an update of its strategy along with fourth-quarter earnings on Feb. 4, will pay about 7.2 kroner a share in 2016, the same as in 2015, according to the median of a Bloomberg survey of 35 analysts. Statoil declares dividends in dollars as of the third quarter, while the estimates were provided in kroner. Bloomberg’s dividend forecast in dollars is also for an unchanged 88 cents this year.

    “Our base case is that the dividend level is maintained,” Kjetil Bakken, an analyst at Carnegie AS, said in a Jan. 12 note to clients. “The company has been very firm on this ambition.”

    Statoil’s Chief Executive Officer Eldar Saetre has insisted over the past year that a policy of raising dividends in line with long-term earnings “stands firm” and isn’t affected by lower oil prices, matching competitors such as Royal Dutch Shell Plc and BP Plc who have also made shareholders a priority even as profits tumble. Even so, uncertainty has grown about Statoil’s ability to keep up dividends as its spending cuts send shock waves through the Norwegian economy.

    “The current share price, in our view, reflects a 30 percent to 40 percent reduction in the dividend,” said Christian Yggeseth, an analyst at Arctic Securities ASA, in a note to clients. He still believes Statoil will present a strategy that will allow it to maintain the current dividend level, “which should come as a big relief.”

    Statoil is expected to further cut capital expenditure to $13.9 billion this year, Bloomberg’s survey showed. The company has said 2015 spending will fall to about $16.5 billion from $20 billion, though analysts expect the final figure for last year to be about $15.6 billion.

    As a consequence of unchanged dividends and a dwindling cash flow due to lower oil prices, net debt is expected to soar to 174 billion kroner at the end of 2016 from 121 billion kroner at the end of last year. Statoil’s CEO has said that a targeted range of 15 percent to 30 percent for the company’s net-debt-to-capital-employed ratio should be viewed as a “reference” and that breaching it wouldn’t trigger “desperate action.” Standard & Poor’s said this week it may cut Statoil and other European oil companies’ ratings.

    Teodor Sveen Nilsen, an analyst at Swedbank AB, said that while he expected Statoil to keep the dividend unchanged for the fourth quarter, there is “substantial risk” for a cut in 2016 and 2017 since a “lower dividend on lower oil prices makes sense.”

    Statoil’s adjusted net income, which excludes financial and other items, is expected to drop 33 percent to 2.9 billion kroner in the fourth quarter, according to estimates of 17 analysts. BP on Tuesday reported a 91 percent decline in fourth-quarter adjusted profit, missing analyst estimates.
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    Imperial Oil Fourth-Quarter Profit Sinks Amid Lower Crude Price

    Imperial Oil Fourth-Quarter Profit Sinks Amid Lower Crude Price

    Imperial Oil Ltd., the Canadian affiliate of Exxon Mobil Corp., said profit in the fourth quarter sank as oil remained near 12-year lows amid rising production.

    Net income in the quarter fell to C$102 million ($73 million), or 12 cents a share, from C$671 million, or 79 cents a year earlier, Imperial said Tuesday in a statement. The company’s upstream operations recorded a loss in the quarter of C$289 million compared with a gain of C$218 million a year ago.

    Imperial Oil, based in Calgary, operates three refineries, Esso-brand gas filling stations and is a producer of bitumen from oil-sands mining and thermal technology in Alberta. The company is boosting output at its Kearl mine and at leases in the Cold Lake area. Revenue from Imperial refineries helped offset lower crude prices that weighed on production.

    Output in the quarter averaged 400,000 barrels per day, compared with 315,000 barrels in the year-earlier period, the company said.

    Imperial Oil has slashed capital expenditure 50% for this year as the company saw net profit plunge in 2015 despite a significant output hike.

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    Cabot O&G 2016 Operating Plan and Capital Budget Update

    In response to the decline in both crude oil and natural gas prices since releasing its preliminary 2016 budget in October 2015, Cabot has reduced its 2016 capital budget to $325 million, which represents a reduction of 47 percent from the preliminary budget of $615 million and a reduction of 58 percent from the 2015 capital program of $774 million. Drilling, completion and facilities capital will account for approximately 92 percent of the capital budget, with approximately 70 percent allocated to the Marcellus Shale and approximately 30 percent allocated to the Eagle Ford Shale. The Company expects to drill approximately 30 net wells in 2016, including 25 net wells in the Marcellus Shale and 5 net wells in the Eagle Ford Shale. The Company anticipates completing approximately 55 net wells in 2016, including 40 net wells in the Marcellus Shale and 15 net wells in the Eagle Ford Shale. Cabot plans to reduce its rig count to one rig company-wide by mid-February 2016. As a result of the significant reduction in planned operating activity, the Company’s 2016 production growth guidance range is being reduced at the top-end from 2 – 10 percent to 2 – 7 percent.

    In addition to the $325 million capital budget associated with development activities, Cabot anticipates between $80 million and $150 million of contributions to its equity method investments in the Constitution and Atlantic Sunrise pipelines, which will ultimately be dependent on the regulatory approval process and the corresponding impact on the timing of construction activities.

    Based on current market indications for commodity prices at the time of this press release, Cabot expects its natural gas price realizations before the impact of hedges to average $0.75 below NYMEX for the full year of 2016, an improvement relative to the preliminary guidance provided in October 2015 of $0.85 below NYMEX. For further disclosure on the Company’s updated cost guidance for 2016, please see the current Guidance slide in the Investor Relations section of the Company’s website.

    “Consistent with our philosophy of disciplined capital investment through all commodity cycles, we have reduced our 2016 capital program in response to the lower commodity price environment and its anticipated impact on our operating cash flow for the year,” said Dan O. Dinges, Chairman, President and Chief Executive Officer. “Our reduction in capital spending reflects our commitment to maintaining a strong balance sheet and highlights the capital efficiency of our asset base.” Dinges added, “Given the productivity of our assets in the Marcellus Shale, we will be prepared to accelerate our production growth in a capital efficient manner when market conditions warrant, as we anticipate over 1.3 billion cubic feet (Bcf) per day of new firm transport capacity and firm sales by the third quarter of 2017 and an incremental 425 Mmcf per day by the third quarter of 2018.”
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    Alternative Energy

    China's new wind power capacity hits record high

    China's newly installed wind power capacity reached a record high in 2015 amid increasing efforts from the government to boost clean energy.

    The new wind power capacity jumped to 32.97 gigawatts last year, more than 60 percent higher than 2014, the National Energy Administration (NEA) said on Tuesday.

     Wind power generated 186.3 terawatt hour of electricity in 2015, or 3.3 percent of the country's total electric energy production, data showed.

    Promoting non-fossil energy including wind power, China is in the middle of an energy revolution to power its economy in a cleaner and sustainable manner. The government aims to lift the proportion of non-fossil fuels in energy consumption to 20 percent by 2030 from present around 11 percent.

    However, the NEA warned of the suspension of wind farms in Inner Mongolia, Xinjiang and Jilin. The phenomenon occurs in the early stage of wind power capacity construction due to the mismatching of new installation and local power grid.

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    US Renewable energy forecast to grow 9 percent in 2016

    The  surge in renewable energy in the United States will continue for another year, the U.S. Energy Information Administration said in a report Tuesday.

    The government forecasts growth in wind, solar, and hydroelectric power will push generation from renewable sources up 9 percent in 2016.

    On a percentage basis the largest gains are expected to come in solar energy, which is anticipated to grow 28 percent. Generation from wind turbines is anticipated to increase 16 percent.

    The report follows a vote in Congress last year to extend federal tax credits for renewables, but the EIA said “most utility-scale plants” beginning operation this year were already under development.

    Hydroelectric dams, which account for more than a third of the renewable electricity in this country, are also expected to gain from what is anticipated to be a wet year due to the El Nino weather cycle. Generation from those dams is expected to grow 5 percent this year.

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    Total buys stakes in solar power start-ups

    French oil and gas company Total said on Tuesday that it had taken stakes in two solar power start-ups via its $100 million Total Energy Ventures venture capital fund as it expands in renewable energy.

    Total said the deals involved no more than 15 percent of Tanzania- and California-based Off Grid Electric, and California-based Powerhive.

    Total did not disclose the value of the deals, but a spokeswoman said they would typically be worth between $1 and $10 million. Total Energy Ventures has stakes in some 20 firms.

    "Their systems are expected to speed up electrification in Africa and could be as much a game changer as mobile phones were in their field," Total Chief Executive Patrick Pouyanne said in a statement.

    Both start-ups offer solar power for use in areas with little or no access to electricity power grids, especially in emerging markets such as Africa.

    Off Grid Electric develops and distributes home solar systems and battery storage to power small appliances, while Powerhive develops and operates solar power microgrids with battery storage and local distribution.

    Total said in September that it planned to invest $500 million per year in new energies including solar and biomass to take advantage of the growing market. Renewables make up 3 percent of Total's current portfolio and are expected to reach 10 percent by 2030.

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    Tesla’s Elon Musk confirms Powerwall 2.0 is on the way

    Elon Musk has confirmed Tesla will bring out a new version of its Powerwall home energy storage battery system this summer. While “step changes” can be expected, he declined to elaborate on the new product.

    At a private event for Tesla car owners held in Paris last Friday, Tesla CEO, Elon Musk announced the second version should reach the market around this July or August.

    “The Tesla Powerwall and Powerpack – we have a lot of trials underway right now around the world … seen very good results,” he told the audience. “We’re expecting to come out with version two of the Powerwall probably around July, August this year, which will see further step changes hopefully.”

    He did not elaborate on what the step changes may be, but there has been plenty of speculation. Some sources state, for instance, that the new Powerwall will be designed to use Gigafactory batteries.

    In a Q3 shareholder letter, issued last November 3, Tesla said construction and production were ahead of schedule at the five million square foot factory, located in Nevada, with the first cells expected to be produced there at the end of this year, “several quarters” ahead of the initial plan. Overall, it is expected to reach annual production of 35 GWh by 2020.

    Tesla has seen demand for its home battery solutions surge, with the result that following the announcement of the Powerwall last April 30, the company received reservations totaling around US$800 million, according to Bloomberg Business, or for 38,000 systems. As such, the system is said to be sold out until at least mid-2016.
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    ChemChina to buy Syngenta

    China's state-owned ChemChina will make an agreed $43 billion bid for Swiss seeds and pesticides group Syngenta, the companies said on Wednesday, marking the largest ever overseas acquisition by a Chinese firm.

    The deal accelerates a shakeup in the global agrochemicals industry and is a setback for U.S. seed company Monsanto , which made an unsuccessful $45 billion move for Syngenta last year.

    The offer, at $465 per share, will allow for dividend payments to Syngenta shareholders of up to 16 francs per share, including a special dividend of 5 Swiss francs to be paid conditional on closing, they added.

    The offer is equivalent to 480 Swiss francs per share, Syngenta said.

    "The discussions between our two companies have been friendly, constructive and co-operative, and we are delighted that this collaboration has led to the agreement announced today," ChemChina Chairman Ren Jianxin said.

    "We will continue to work alongside the management and employees of Syngenta to maintain the company's leading competitive edge in the global agricultural technology field."

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    Base Metals

    U.S. zinc producer Horsehead files for bankruptcy

    Horsehead Holding Corp, a large U.S. zinc producer, filed for Chapter 11 bankruptcy on Tuesday due to a slump in metals prices and a shortage of cash.

    The Pittsburgh-based company is the latest victim of a commodity price crash that has claimed scores of U.S. energy exploration companies, miners and metals producers. Commodity prices have slumped due to an economic slowdown in China and other formerly fast-growing markets.

    Horsehead's filing came weeks after it said it was idling its state-of-the-art zinc production facility in Mooresboro, North Carolina, which it broke ground on in 2011. The company blamed a lack of liquidity and a seven-year low in the price of zinc.

    Horsehead and its affiliates have been in the zinc industry for more than 150 years, and also recycle nickel-bearing waste and nickel-cadmium batteries. The company operates six U.S. facilities and one in Canada.

    In January, Horsehead missed a $1.9 million interest payment on its secured notes due in 2017.

    The company said it will seek court permission to borrow up to $90 million from holders of the secured notes. Horsehead said it urgently needs cash as a number of significant vendors and suppliers have cut off or threatened to cut the company off due to its dwindling funds.

    The loan will commit Horsehead to produce a plan of reorganization in 40 days that is acceptable to its lenders and a group of secured noteholders, according to court documents.

    The company estimated its assets were worth $1 billion and its liabilities were worth $545 million as of Sept. 30.

    The company's largest stockholders are Hotchkis & Wiley Capital Management, Greywolf Capital Management and Vanguard Group, according to court records.

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    Steel, Iron Ore and Coal

    Coal India may buy back shares worth at least $368 mln from govt - source

    Coal India Ltd is likely to buy back shares worth at least 25 billion rupees ($368 million) from the government, a source familiar with the matter said, as the finance ministry looks to state firms for cash ahead of the union budget.

    The government has also written to aluminium maker NALCO (NALU.NS), asking it to buy back 25 percent of its shares from the government worth 32.5 billion rupees ($478 million).

    NALCO Chairman Tapan Kumar Chand told Reuters on Tuesday the company would likely appoint state-controlled SBI (SBI.NS) to advise it before a board meeting on Feb. 11 to consider the government's request.

    Coal Secretary Anil Swarup declined to comment on the Coal India buyback and so did Finance Ministry spokesman D.S. Malik. But the source cited above said a decision would be taken by the company's board in a few days.

    A Coal India spokesman could not be immediately reached for comment.

    The buybacks will help the government partly make up for a funds shortfall in its ambitious divestment target for state companies ahead of the federal budget later this month.

    India's cabinet last year planned a slew of divestments in state-owned companies, including sales of 10 percent each in Coal India and NALCO. But the programme failed to get traction as a commodities downturn cut investor appetite.

    The government currently owns 79.65 percent in Coal India, which has a market value of more than $30 billion, according to Thomson Reuters data. The request for buybacks would amount to a stake of more than 1 percent at current prices.

    Coal India had more than $9 billion in cash and short-term investments as of the September quarter, according to Thomson Reuters data.

    Still, a buyback would put pressure on the world's largest coal miner, which is fast burning through its cash horde as it expands aggressively to meet the government-set target of doubling output this decade.
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    Indian power plant thermal coal stocks reach new high: CEA

    Combined stocks of thermal coal at 101 Indian power plants rose to a new record of 34.2 million tonnes on January 27, up 11% from a month ago and more than double the 16.2 million tonnes on stock at the same time last year, according to data released on January 29 by India's Central Electricity Authority.

    Stock levels reached a previous record high of 30.63 million tonnes on August 23 last year, but dropped to 23.7 million on October 28 before reaching a new all-time high of 30.8 million tonnes on December 28, with levels increasing since.

    The data showed Indian power plants had enough supply for 25 days of coal burn on January 27, up from 23 a month ago and 11 at the same time last year.

    Despite record high stock levels, the volume of imported coal on the stocks were 7.2% lower on the month at 2.1 million tonnes, also falling 2.5% year on year, according to the data.

    Rising costs of South African and high-CV Indonesian thermal coal have hindered buying interest from Indian buyers for imported thermal coal, with price volatility and narrowing discounts also resulting in reluctance to conclude deals, according to sources.

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    China key steel mills daily output down 3.5pct in mid-Jan

    China’s key steel mills saw their average daily crude steel output post a 3.48% ten-day drop to 1.51 million tonnes in mid-January, the lowest ten-day level since the early October in 2012, according to the latest data from the China Iron and Steel Association (CISA).

    This drop was mainly due to the shrinking demand amid economic slowdown and accelerated reform in its supply side.

    China’s daily crude steel output in mid-January was estimated at 2.05 million tonnes, down 2.06% from ten days ago.

    Stocks in key steel mills stood at 12.50 million tonnes by January 20, up 1.15% from early January but down 14.75% from the month before.

    Domestic prices of six major steel products witnessed monthly declines in mid-January, with rebar price averaging 1,904.6 yuan/t, down 1.3% from early-January, showed data from the National Bureau of Statistics (NBS).

    In the same period, daily output of pig iron in key steel mills averaged 1.48 million tonnes, dropping 3.36% from ten days ago; and that of steel products decreased 1.3% to 14.52 million tonnes.

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    China key steel mills 2015 net loss at 64.5 bln yuan

    China’s key steel mills suffered a total net loss of 64.5 billion yuan ($9.80 billion) in 2015, slumping 385.69% from the net profit of 22.59 billion a year prior, showed data from China Iron & Steel Industry Association (CISA) on January 29.

    The sales revenue of key steel mills stood at 2.89 trillion yuan during the same period, down 19.05% on year, data showed.

    Key steel mills in losses accounted for 50.5% of the registered enterprises, with their steel output taking 46.91% of the total.

    Fixed-asset investment (FAI) in steel industry was also on the decrease. In 2015, FAI in steel industry reached 452.39 billion yuan, a yearly decline of 13.83% or 72.62 billion yuan.

    Of this, FAI in steel-making industry decreased 1.26% year on year; while that in iron-making industry posted a yearly rise of 5.97%.    

    The severe loss in domestic steel mills was mainly caused by persisting decrease in steel prices over recent years. It may hard to see any obvious increase in steel prices in the later period, analysts said.

    In 2015, China’s crude steel output decreased 2.23% on year to 803.82 million tonnes, the first decrease since 1981.

    Pig iron output also dropped 3.45% on year to 691.41 million tonnes, while that of steel products edged up 0.56% to 1.12 billion tonnes, showed data from the National Bureau of Statistics.

    China will cut crude steel production capacity by 100 to 150 million tonnes, and reduce coal capacity by "a relatively large margin", said Premier Li Keqiang on January 22.

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