Mark Latham Commodity Equity Intelligence Service

Monday 4th April 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Who Needs Helicopters? Draghi Plans


    ”A common mistake when trying to design something completely fool-proof is to underestimate the ingenuity of complete fools..”

    First day of a new quarter, and it feels like we have an answer to the all-important question of the modern age: how many Euro 100 notes can you squeeze into a Chinook (a very big and noisy helicopter). The second part of the question is – what’s the right height to optimally helicopter drop an economy? I discern a disturbance in the force as a mounting number of learned articles discuss these critical issues.

    Yet, the answer may be extraordinarily simple.

    For the last couple of months rumours have been circulating of “extraordinary” monetary policy discussions within the bowels of the ECB. We’ve been told “radical” new measures will build upon, and complete, the work already achieved over the last 5-yrs by the ECB in supporting European stability and growth. (Growth? Really?)

    We’ve heard it all before: the ECB promises much and delivers less..

    However, yesterday’s widely circulated leaks from within the Frankfurt behemoth suggest the ECB’s new secured consumer lending programme could be transformational.Yesterday’s ECB leak highlights the gnomes of Frankfurt may have stumbled on the ultimate truth of helicopter economics – you don’t actually need a helicopter.

    Apparently, Draghi has even secured grudging support from Wolfgang Schauble for the proposed extension to their Asset Purchase programmes. The leaked preamble guffs about how it “build on the measures announced at the last meeting”. The rest suggests the new consumer asset backed asset purchase programme, CABAPP, will be announced by Draghi following the April 21 meeting – but probably won’t be enacted until early Q4.

    While efforts to stimulate lending to Europe’s SME sector through securitisation programmes have proved difficult because of the blocks imposed by regulators on ABS, its certain borrowers will be more receptive to the much simpler new consumer lending finance package.

    Following yesterday’s leaks, ECB spokesperson Vabara Hasiin declined to provide further details of the ECB’s plan to directly buy secured consumer lending assets originated through European banks and platform lenders - but by then the cat was out the proverbial bag.

    Yesterday’s leaks confirm the ECB’s plans will effectively give Europe’s consumer lenders access to unlimited zero-cost finance – going far further than the free money showered on them by the multiple previous TLTRO financial packages.

    Under the proposed scheme, European banks have the option to issue their clients a new branded European Banking Union debit card – which will have a raised ECB logo to make it meet EU regulations for visually-impaired users. Although these will still bear the names and logos of the “originating banks”, these will be directly financed from the ECB on a pass-thru basis. Banks will be paid a minimal fee for “labelling” and originating the new ECB debit cards.

    At first glance, it looks like European retail repayment risk goes straight onto the ECB’s books – which would be “extraordinary” indeed. But, one of the cornerstones of the new CABAPP policy will be credit loss control.

    While banks will be free to choose the rate they charge new card holders, the actual interest rate will be close to zero. The ECB will make it clear to banks they are expected to stimulate consumer spending through the lowest possible personal lending rates. One earlier proposal was for the ECB to issue its own debit cards off a new Fin-Tech lending platform, but this was opposed by French and Italian regulators on the basis of protecting existing European retail institutions.

    German objections to the ECB effectively taking long-dated consumer lending risk were overcome via two points. Firstly, losses will be transferred off the ECB’s balance sheet by the ECB itself buying NPLs off the programme and holding these to maturity on the bank’s banking book. The ECB could then write these off at a stroke of a pen on their imaginary cheque book as an inflation management tool. The second concession to Berlin is the establishment of a new EU-wide Financial Recovery and Advisory Group to be based in Berlin: FRAG.

    Of course the ECB’s true genius lies in the creation of digital helicopter money. By making the fixed interest rate on the cards effectively zero, the duration of the debit card loans effectively perpetual, and giving borrowers an interest only repayment option… well… there will effectively be no substantial losses.

    http://www.zerohedge.com/news/2016-04-01/who-needs-helicopters-draghi-plans-fool-proof-ecb-backed-debit-card

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    The Sum of all Fears.

    Shannon McConaghy, a portfolio manager with Horseman Capital Management, a London-based$2.75 billion hedge fund, says that it will be Japan's banking-industry collapse that "blindsides the market."

    "I do think there will be a banking crisis in Japan," McConaghy told Business Insider.

    And according to him, it will likely be a global event too.

    He said:

    We have seen Japan have banking crises in the past without destroying global economic trends, but at this moment I think the emerging market fragility and low growth could see a crisis in Japanese banks trigger sustained risk-off in global markets, particularly given the importance of Japan as the world's largest net foreign creditor.

    Risk-off suggests that we would enter an environment where risk assets fall and safe assets rally. Historically, Japan tends to fall more when markets move in to risk-off mode.

    "In the last four major risk-off environments — Asia financial crisis, tech bubble, global financial crisis, euro crisis — Japan fell more. Japan always falls more," McConaghy said.

    A bear among bulls


    Regional banks remain the fund's largest short grouping. Investors I meet tend to think they have missed the opportunity to short Japanese regional banks. I feel there is substantial downside remaining as real earnings and book values are likely negative for many. They are poorly understood with limited analyst coverage and are a very non-consensus shorts with limited reported short interest.

    Before he joined Horseman in 2014, McConaghy spent his career working in the treasury, credit, and risk-management departments of investment banks, giving him a glimpse into how they work. At Horseman, he's spent the last year and a half digging into the Japanese banking system.


    "I worry for Japan's economic outlook as I compiled the complete picture of the bank system," he told Business Insider, adding, "I get queasy at the idea of how this is going to play out."

    A ticking 'time bomb' 

    According to McConaghy, there's a confluence of factors at play, including regional banks overstating recurring earnings, a shrinking mortgage market because of demographic changes, rising competition from semi-government players, the impact of monetary policy causing cash hoarding among households to accelerate, and a massive amount of hidden nonperforming loans that will be a "time bomb" as baby boomers start to turn 70.

    McConaghy said that he has come to the conclusion that, in the last year, Japan's regional banks have vastly overstated their core recurring earnings with one-off equity gains. As interest rates have fallen in the last four years under the Bank of Japan's quantitative easing, he noticed that the regional banks have somehow reported an increase in "Interest and Dividends on Securities."

    It's especially surprising, according to McConaghy, because 75% of the regional-banks securities holdings are in fixed income: 53% government bonds and 22% corporate bonds. Interest rates have fallen to essentially zero.

    McConaghy said that banks have been using private-investment trusts' profits from equities to hide the decline in core-interest income. This will backfire now that equity markets have fallen. Japan's Topix index has fallen nearly 11%, while the Nikkei has more than 9.4%.

    Kim Kyung Hoon/Reuters

    "To me, it seems clear that the recurring earnings that the banks have been reporting are unsustainable and, in fact, may now become negative if they correctly reflect the equity lossesthey have," he said.

    Another factor at play is that the regional banks are likely to see their largest market — mortgages — decline significantly because of demographic changes. Japan has a low birthrate and an aging population.

    He wrote in another note:

    Japan's regional banks face an accelerating population decline. Some will see their key mortgage market (30-49 year olds) decline by over 20% over the next 10 years. As the playing field shrinks, regional banks will also now face a reinvigorated Japan Housing Finance Authority and a new mega-contender in Japan Post Bank. Many will not be able to stay in the ring.

    Then there's also the impact of the Bank of Japan's monetary policy. Regional banks, which make money from lending money at higher rates than they charge to depositors, have been squeezed by low interest rates. There's also been an acceleration of cash hoarding among households, he noted.

    The biggest worry

    What worries McConaghy the most, though, is the huge number of hidden nonperforming loans (NPLs).

    "The ignition point for this time bomb will likely come with the mass retirement of bankrupt 'baby boomer' small to medium size enterprise (SME) owners that have just started turning 70," he wrote in another note to investors.


    Those borrowers are already not making payments on loans, according to McConaghy. As they age, they can no longer run the company, and it has to close because there's no one else who can run the business.

    The regional banks have beenasked to extend credit even though they haven't been getting repaid. As the bankrupt baby-boomer borrowers retire, the banks will have to do a write down of whatever they're not getting paid back, according toMcConaghy.

    He said:

    Japan has been an economy that's living on borrowed time via hidden nonperforming loans and irregular accounting of equity gains as interest income. The inefficient allocation of labor resources to zombie companies amidst a rapidly declining working age population will continue to dampen economic activity until we see a washout of economically unjustified borrowers.

    These are just a few of the "tremendous problems" in the Japanese regional-banking system. A number of these issues are coming to a head, meaning that it's no longer sustainable, according to McConaghy.


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    Biggest Ever Saudi Overhaul Targets $100 Billion of Revenue


    The biggest economic shake-up since the founding of Saudi Arabia would accelerate subsidy cuts and impose more levies, a plan to spread the burden of lower crude prices among a population more accustomed to government largess.

    Outlining his vision in a five-hour interview with Bloomberg News last week, Deputy Crown Prince Mohammed bin Salman said the measures would raise at least an extra $100 billion a year by 2020, more than tripling non-oil income and balancing the budget.

    “It’s a large package of programs that aims to restructure some revenue-generating sectors,” the prince said at the royal compound in Riyadh. Non-oil income rose 35 percent last year to 163.5 billion riyals ($44 billion), according to preliminary budget data.

    It’s a radical shift for a country built on petrodollars since the first Saudi oil was discovered almost eight decades ago. Prince Mohammed, 30, and his top aides said the administration navigated plunging oil prices last year through a series of “quick fixes.” While there are no plans to tax incomes, his policies would bring the kingdom closer to the rest of the world, where governments rely on charges to fund spending.

    Saudi Green Cards

    The prince said authorities are weighing measures that include more steps to restructure subsidies, imposing a value-added tax and a levy on energy and sugary drinks as well as luxury items. Another revenue-raising plan under discussion is a program similar to the U.S. Green Card system that targets expatriates in the kingdom.

    The strategy would complement a plan to sell a stake in Saudi Aramco on the stock exchange and create the world’s largest sovereign wealth fund, steps meant to make the kingdom more reliant on investment income than oil within 20 years. The $2 trillion fund would be big enough to buy the four largest publicly traded companies on the planet.

    The Saudi government is also planning to increase its debt in the meantime to help finance spending and test the market with a dollar bond later this year.

    http://www.bloomberg.com/news/articles/2016-04-04/biggest-ever-saudi-overhaul-targets-100-billion-of-new-revenue

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    Abe meets the big Keynesians Noble Prize winners.

    “Shinzo, my friend,” the prime minister said as he arrived for the lunch meeting, with both leaders in Washington for a two-day nuclear safety conference.

    “Japan and Canada are aligned in focusing on investment as opposed to austerity,” he continued, as they sat down. “I know there will be interesting and useful conversations around the table.”

    The Japanese leader has signalled his intention to stimulate lagging domestic demand. He’s recently met with famous anti-austerity economists Paul Krugman and Joseph Stiglitz amid reports he might delay planned consumption-tax hikes.


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    Unicorns, Social Networks and Righteous Indignation

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    The Panama Papers

    The Panama Papers reveal:

    • Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.
    • A $2bn trail leads all the way to Vladimir Putin. The Russian president’s best friend – a cellist called Sergei Roldugin - is at the centre of a scheme in which money from Russian state banks is hidden offshore. Some of it ends up in a ski resort where in 2013 Putin’s daughter Katerina got married.
    • Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson.
    • Six members of the House of Lords, three former Conservative MPs and dozens of donors to UK political parties have had offshore assets.
    • The families of at least eight current and former members of China’s supreme ruling body, the politburo, have been found to have hidden wealth offshore.
    • Twenty-three individuals who have had sanctions imposed on them for supporting the regimes in North Korea, Zimbabwe, Russia, Iran and Syria have been clients of Mossack Fonseca. Their companies were harboured by the Seychelles, the British Virgin Islands, Panama and other jurisdictions.
    • A key member of Fifa’s powerful ethics committee, which is supposed to be spearheading reform at world football’s scandal-hit governing body, acted as a lawyer for individuals and companies recently charged with bribery and corruption.
    • One leaked memorandum from a partner of Mossack Fonseca said: “Ninety-five per cent of our work coincidentally consists in selling vehicles to avoid taxes.”
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    German engineering firms see sharp slowdown in exports to US this year


    German engineering exports to the United States, their top destination, are likely to slow sharply this year due to drastically lower fracking investments, a weaker global economy and a more stable exchange rate, an industry association said.

    The VDMA, which represents large engineering companies such as Siemens as well as thousands of medium-sized industrial goods makers, said on Friday it expected roughly flat exports this year after an 11 percent jump in 2015.

    "Slower means roughly stable in euro terms," Executive Director Thilo Brodtmann told Reuters on the sidelines of a news conference on the importance of the U.S. market.

    The United States became the biggest market for German engineering exports last year, with sales rising to 16.8 billion euros ($19 bln), while exports to China fell 6 percent to 10.3 billion euros.

    The main factor driving new exports this year is likely to be demand from U.S. carmakers and their suppliers, the VDMA said.

    Sixty percent of German engineering firms plan on making investments in the United States in the next three years, according to 200 responses the VDMA collected in a survey in January and February.

    About half of these investments will be in building and expanding production and assembly facilities.

    The leading German firms in the United States by revenue are Siemens, Robert Bosch, Thyssenkrupp, ZF Friedrichshafen and Linde, the VDMA said.

    However, the VDMA said it was sceptical about a widely held belief that the American economy was being reindustrialised, pointing out that manufacturing's share of U.S. gross domestic product had levelled out at around 12 percent.

    "We don't consider it a trend but a spotty development, which at best prevails in some regions but is not universal," VDMA President Reinhold Festge told the news conference.

    German engineering companies invested 6.8 billion euros in the United States in 2013, the last year for which statistics are available, the VDMA said.

    Since then, European companies including Austrian steelmaker Voestalpine and German chemicals group BASF have invested billions of dollars in the United States, attracted by cheap energy prices following the shale gas boom.

    Most of the companies surveyed by the VDMA expected competition for U.S. business with Chinese rivals and with other foreign manufacturers with local U.S. production to remain tough.

    China is the top exporter of engineering goods to the United States, followed by Japan, Mexico and then Germany.

    "We were never strong in the mass market. We've always been strong in niches," Festge said. "There's very substantial and bitter competition. Anyone familiar with the U.S. market knows you don't get anything for nothing."

    http://www.reuters.com/article/germany-engineering-usa-idUSL5N1742WZ

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    Oil and Gas

    Iran oil minister says will keep raising production


    Iran will continue increasing its oil production and exports until it reaches the market position it enjoyed before the imposition of sanctions, Oil Minister Bijan Zanganeh was quoted by the semi-official Mehr news agency as saying.

    Zanganeh was speaking at the weekend ahead of an April 17 meeting of OPEC and non-OPEC oil producers in Doha to discuss a possible output freeze to prop up prices, and his comment appeared to further threaten the prospect of an effective agreement at the meeting.

    On Friday, Bloomberg quoted Saudi Arabia's deputy crown prince Mohammed bin Salman as saying Riyadh would agree to freeze crude oil production levels only if Iran and other major producers did so. A global glut has pulled down oil prices by as much as 70 percent since 2014.

    However, Zanganeh was also quoted by Mehr as saying that "the agreement between the world's top OPEC and non-OPEC exporters such as Saudi Arabia and Russia to freeze output at January levels is a positive step".

    On the possibility of his attending the Doha meeting, he said he would certainly attend the meeting "if he had time", Mehr reported.

    OPEC secondary sources put Iran's current output at 2.93 million barrels per day (bpd). It is working to regain market share, particularly in Europe, after the lifting of international sanctions in January. The sanctions had cut crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years.

    http://www.reuters.com/article/iran-oil-opec-idUSL5N1770E8
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    Libyan oil firm NOC says it will work with new unity govt


    Libya's National Oil Corporation said on Saturday it was working with the U.N.-backed unity government, which arrived in Tripoli this week, to coordinate future oil sales and "put a period of divisions and rivalry behind us".

    NOC Chairman Mustafa Sanalla also welcomed the U.N. Security Council's renewal on Thursday of measures to prevent illicit oil exports from Libya, a reference to efforts by Libya's eastern government to sell oil independently.

    "Combined with the recent announcement by the Petroleum Facilities Guard (PFG) that it intends to reopen export ports it has been blockading, I hope NOC and the country's oil resources can provide a solid platform on which the country's recovery can be built," Sanalla said in a statement.

    The new government received the endorsement of the PFG, a semi-official armed faction that controls key oil installations in the east, some of which it has shut down amid political disputes.

    Libya descended into political turmoil and armed conflict following an uprising that toppled long-time strongman Muammar Gaddafi in 2011, with two pairs of rival parliament and governments operating in Tripoli and the country's east.

    Its oil production has been slashed by rivalry between armed factions, attacks by Islamic State militants and labor disputes, falling to less than a quarter of the 1.6 million barrels per day produced before the uprising.

    Hours after Sanalla's statement, two guards were killed in an attack on Bayda field, about 250 km (155 miles) south of the major oil terminals of Es Sider and Ras Lanuf, a guards spokesman said.

    Militants loyal to Islamic State have carried out repeated attacks in the area, but have not taken control of any oil facilities, and spokesman Ali al-Hassi said Saturday's attack had been repelled.

    The unity government emerged from a U.N.-mediated deal signed in December that has faced continuing opposition from hardliners inside Libya.

    Its leaders traveled to Tripoli on Wednesday and have been operating out of a heavily secured naval base in the capital as they seek to gain control of government ministries and financial institutions.

    PFG spokesman Ali al-Hassi said on Thursday that the guard was prepared to reopen eastern oil terminals at Zuetina, Es Sider, and Ras Lanuf, though he could not say when this might happen.

    The latter two ports have been repeatedly attacked and damaged by Islamic State.

    Libya's eastern government issued a statement on Saturday saying that if any ports were reopened, oil should only be exported with the approval of a parallel NOC that it has tried to set up in Benghazi.

    The parallel NOC's efforts to export oil have so far been unsuccessful, with major oil trading firms and the international community continuing to support the NOC in Tripoli.

    However, boosting Libya's oil sales with the support of the east will be a challenge for the new government. It has so far failed to win approval from the parliament in the east, as required by the U.N.-mediated deal, and the eastern government has indicated that it opposes any transfer of power unless such a vote is obtained.

    The U.N. Security Council issued a resolution on Thursday stating that the unity government had the "primary responsibility" for preventing illicit oil sales, urging it to communicate any such attempts to the U.N. committee overseeing Libya-related sanctions.

    The resolution also restated a call for member states to cease contact with any "parallel institutions".

    http://www.reuters.com/article/us-libya-security-idUSKCN0WZ0AJ
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    Russian oil output highest in 30 years ahead of Doha meeting


    Russia's oil production rose 0.3 percent to 10.91 million barrels per day in March, its highest level in nearly 30 years, raising questions over Moscow's commitment to freeze output ahead of a producers' meeting in Doha later in April.

    Energy Ministry data on Saturday showed that in tonnes, oil output reached 46.149 million in March versus 43.064 million, or 10.88 million bpd, in February.

    Leading oil producers, including Russia, are due to meet in Doha on April 17 for talks on how to freeze oil output at the average levels reached in January to support the global market.

    But the increase in Russian output to levels not seen since 1987, when it reached a record high of 11.47 million bpd, suggests it may prove difficult for Moscow to stick to oil output freeze commitments.

    Russian Energy Minister Alexander Novak said the March production would not be an obstacle to the expected agreement on a production freeze, local news agencies reported.


    Some oil industry observers said that it would be hard for Russia to stick to an output freeze since the domestic industry is dominated by several big oil companies, such as Rosneft, Gazprom and Lukoil, each with their own agenda.

    The latest production statistics showed that companies, categorised by the ministry as "small producers" were behind the higher production total, with an increase of 1.5 percent to 4.92 million tonnes (1.16 million bpd) in March.

    An 11.9 percent rise in output from joint ventures with foreign oil companies also contributed to the increase in the total production figure. Oil output under these production sharing agreements, designed in the 1990s to encourage investment by foreign oil companies, rose to 1.51 million tonnes (357,000 barrels per day) last month.

    Output from major Russian oil companies fell last month, lead by a 0.7 percent output decline at world's biggest listed oil producer Rosneft. Output at Lukoil and Surgutneftegaz (SNGS.MM) edged down by 0.1.

    Rosneft has said it plans to keep production unchanged this year after it fell by 1 percent in 2015.

    The data also showed that Russian pipeline oil exports rose to 4.45 million bpd last month from 4.31 million bpd in February.

    Natural gas production was at 53.98 billion cubic metres (bcm) last month, or 1.74 bcm a day, versus 52.92 bcm in February.

    https://mail.google.com/mail/u/0/?shva=1#inbox?compose=153dfceed28e33c8

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    Russia's ESPO crude prices sink as China's buying spree pauses


    A dip in China's appetite of Russia's popular ESPO blend crude is driving the grade's price sharply lower, nearly wiping out the premium it often commands over rival Middle Eastern grades owing to its proximity to North Asian refiners.

    The dramatic plunge in ESPO premiums comes just months after an equally striking rally in the grade's price, and underscores the Asian market's growing sensitivity to the ebb and flow in China's oil demand.

    While China has been influential as Asia's biggest crude importer for years now, the recent emergence of the country's independent refiners as oil importers is adding to its sway in Asia's demand-supply balance and rattling the spot crude oil market.

    Equipped with their recently acquired ability to import crude oil, China's independent refiners, also known as teapots, have been buying up select grades of crude oil, pushing up their prices.

    ESPO has been among the most popular grade among teapots due to its low sulfur content, short haul and a relatively smaller cargo size compared to similar Middle Eastern grades.

    Chinese demand for ESPO blend over the last six months has sent the grade's premiums soaring, pushing the Platts M2 ESPO premium to a near two-year high of $5.30/b to front-month Dubai in February.

    Over the years, distillate-rich ESPO had become a staple crude for traditional refiners in China, Japan and South Korea, but the surge in prices has made it nearly unaffordable for other regular buyers in recent months.

    But as quickly as it emerged, the teapots' intense affair with ESPO seems to be losing its ardour, partly because of weaker margins and partly because the relatively smaller refiners may have bought too much oil in too little a time, leading to logistical issues.

    "Chinese ports are congested, the domestic margin is no longer favorable and product stocks are high," said a Singapore-based trader. "Basically teapots don't need ESPO."

    "I don't think teapots are buying like in the past few months. They had been buying a lot with imports at record numbers lately," said a second Singapore-based crude trader.

    Teapots' diminished appetite for ESPO is hammering the grade's premiums at a time when demand in Asia is already on a decline because of upcoming refinery maintenance season and many regular ESPO buyers have been looking to secure alternative grades early in the trading cycle fearing a teapot-driven surge in prices later in the month.

    Several cargoes of May-loading ESPO crude have traded at premiums of $2.50/b over front-month Dubai in recent weeks -- a level similar to Abu Dhabi's rival Murban and Das blend grades.

    Platts on Thursday assessed second-month ESPO at a premium of 5 cents/b to Murban, the lowest in six months. The spread was as wide as a premium of $2.87/b on October 22, rising from a discount of 6 cents/b on September 25.

    "A lot of ESPO was left to trade. There's not much demand at all, no arbitrage to the USWC and we are at June turnaround time," said the first trader.

    Premiums of light sour grades such as Murban and Das blend have plunged in recent weeks alongside ESPO on weak demand ahead of the region's refinery maintenance season.

    The distillate-rich grades have come under further pressure from a steady decline in gasoil cracks last month, reducing their demand from Asian refiners.

    The May-loading program for ESPO is little change with 28 cargoes scheduled to lift a total of 2.82 million mt, compared with 27 cargoes due to load in April carrying 2.75 million mt.

    Despite the recent slump in ESPO prices, expectations for the short-term are mixed, as traders remain cautious of a potential bounce back in premiums if and when the teapots resume the buying binge.

    http://www.platts.com/latest-news/oil/singapore/russias-espo-crude-prices-sink-as-chinas-buying-26408894

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    Brazil's Petrobras says to save $9 bln with voluntary layoffs


    Executives of Brazil's state-run oil producer Petroleo Brasileiro SA approved a voluntary layoff program to cut about 12,000 jobs and save 33 billion reais ($9.20 billion) by 2020, the company said in a statement on Friday.

    The program will cost 4.4 billion reais ($1.23 billion) to be implemented, Petrobras said.

    The layoffs will help Petrobras adjust its workforce to a smaller investment plan, generate value for the company and boost productivity, the company said.

    Petrobras plans to slash its five-year investment plan by about one-fifth to about $80 billion in the 2016-20 period, an average of about $16 billion a year, according to sources a month ago.

    Petrobras had its biggest-ever quarterly loss in the fourth quarter of 36.9 billion reais ($10.2 billion) after booking a large writedown for oil fields and other assets as oil prices slumped and refinery projects faltered.

    A year earlier, writedowns were also the cause of Petrobras losses, although they were largely related to the giant price-fixing, bribery and political kickback scandal that has roiled the company and help fuel calls for the impeachment of Brazilian President Dilma Rousseff.

    http://www.reuters.com/article/petrobras-layoffs-idUSL2N1740JW

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    Big repair bill tipped as Gorgon hits trouble


    Chevron and its Gorgon partners are facing a repair bill tipped to run into the hundreds of millions of dollars after a major mechanical problem flared as soon as the maiden LNG cargo was sent.

    The latest setback for Australia’s biggest resources development, last priced at $US54 billion but set to escalate, means LNG production may not resume until the end of this month.

    Chevron last night would not discuss how long it would take to fix the propane refrigerant circuit, part of the first of Gorgon’s three LNG production lines, nor what it would cost.

    Sources toldWestBusiness the repair bill was likely to far exceed $100 million and Gorgon’s second cargo would not sail until the end of this month. “It’s significant time and significant money,” one source said.

    Chevron Australia managing director Roy Krzywosinski addressed his staff at a regular town hall event yesterday afternoon and is understood to have touched on Gorgon’s teething problems without elaborating.

    A Chevron spokeswoman later said a Gorgon site team was assessing the extent of the problem in the propane refrigerant circuit. “We should know more in the coming week,” she said.

    Although part of Train 1, the propane refrigerant circuit is separated from the natural gas flow, which should remove the risk of any contamination of the liquefaction process. Gorgon’s maiden cargo sailed from Barrow Island last week, almost a fortnight after Chevron declared first LNG production.

    While mega projects like Gorgon are expected to experience teething problems during the start-up phase, the issues that have already emerged are understood to have caused major angst within Chevron and key partners Royal Dutch Shell and ExxonMobil. Under Gorgon’s ownership structure, cargoes are to be sent to customers of Chevron, then Shell, Chevron, ExxonMobil and back to Chevron.

    https://au.news.yahoo.com/thewest/wa/a/31227093/big-repair-bill-tipped-as-gorgon-hits-trouble/?cmp=st

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    U.S. Oil Rig Count Down by 10


    The U.S. oil-rig count fell by 10 to 362 in the latest week, according toBaker Hughes Inc., maintaining a trend of declines.

    The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the sector, has fallen sharply since oil prices began to fall. But it hasn’t fallen enough to relieve the global glut of crude.

    There are now about 72% fewer rigs of all kinds since a peak of 1,609 in October 2014.

    According to Baker Hughes, the number of U.S. gas rigs declined in the latest week by four to 88.

    The U.S. offshore-rig count was 26 in the latest week, down two from the previous week and down five from a year earlier.

    Oil prices tumbled Friday after comments from a Saudi royal family member cast more doubt on a deal for major global exporters to cap output. Saudi Arabia’s deputy crown prince, Mohammed bin Salman, said in an interview with Bloomberg News that the kingdom will freeze its oil output only if Iran and other major producers agree to curb theirs.

    http://www.wsj.com/articles/u-s-oil-rig-count-down-by-10-1459532160
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    Alberta's Great Oil-Sands Boom Is Poised to End in 2018: Chart

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    Cheniere’s Sabine Pass readies for fifth LNG export shipment


    Cheniere’s Sabine Pass LNG export terminal is expected to ship its fifth cargo since start-up as the 162,400 cbm BW GDF Suez Brussels LNG carrier heads towards the Louisiana facility.

    Shipping data reveals that the vessel is scheduled to dock at the Sabine Pass LNG export facility on April 5.

    According to Genscape Inc., that has infrared cameras pointed at the export plant, the fourth cargo departed from the facility aboard Energy Atlantic on March 28.

    The carrier was scheduled to pick up the first Sabine Pass cargo, but has been idling offshore the terminal for months.

    However, the exact destination of the cargo is not known at the moment. The cargo could be heading towards Brazil but also it could be on its way to Kuwait and the Mina Al Ahmadi FSRU terminal, Genscape said.

    It was recently reported that Brazil could be the most likely destination of seven of the eight to ten commissioning cargoes from Cheniere’s terminal.

    The report revealed that Sabine Pass LNG commissioning cargoes have a higher ethane content, and Petrobras’ terminal at the Guanabara bay has the infrastructure to handle the high ethane cargoes.

    The Guanabara terminal near Rio de Janeiro received the first cargo shipped from Cheniere’s facility after it was diverted from its initial destination, the Bahia regasification terminal in All Saints’ Bay, Salvador.

    http://www.lngworldnews.com/chenieres-sabine-pass-readies-for-fifth-lng-export-shipment/

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    Goodrich Petroleum headed for Chapter 11 filing


    Houston’s Goodrich Petroleum Corp. has reached an agreement with creditors to use its “best efforts” to file for Chapter 11 by April 15 with a prepackaged plan to reorganize and emerge from court as an operating business.

    The new plan of reorganization would give second-lien lenders an equity stake in the newly reorganized company, according to a statement.

    The agreement comes after Goodrich’s debt-for-equity exchange offer failed to gain enough traction among debtholders. The company extended the offer a final time to April 8. As of March 31, it fell short of the participation levels it required, with only 61 percent of its unsecured notes tendered of the 95 percent needed.

    On March 16, Goodrich delayed releasing its annual report, citing a large loss that auditors have determined may affect the company’s ability to operate as a going concern. The loss comes “mainly as a result of substantial impaired asset writedowns,” Goodrich said in the filing.

    In prepackaged reorganizations, companies win support for their plans from almost all bondholders before filing Chapter 11 and asking a judge to impose the deals on dissidents.

    Its most actively traded debt, $117 million of 8.87 percent unsecured bonds due 2019, last traded at .375 cents on the dollar on Feb. 17, down from as high as 54.5 cents on April 27, 2015, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

    http://fuelfix.com/blog/2016/04/01/goodrich-petroleum-headed-for-chapter-11-filing/#36696101=0
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    Alternative Energy

    Tesla secures 180 000 orders for new EV in 24 hrs,


    Twenty-four hours after launching, US electric vehicle (EV) maker Tesla Motors has secured more than 180 000 orders for its new Model 3 vehicle, making it the biggest driver of potential lithium demand from the auto sector to date. 

    By Friday afternoon, that figure had risen to above 198 000 orders, South Africa-born entrepreneur Elon Musk tweeted. "Thought it would slow way down today, but Model 3 order count is now at 198k. Recommend ordering soon, as the wait time is growing rapidly," he posted to Twitter. 

    “The numbers are really incredible. That’s over $7-billion of potential revenue in one day,” UK-based Benchmark Mineral Intelligence market analyst Simon Moores told Mining Weekly Online. 

    Tesla on Thursday unveiled its latest model EV, saying the most basic version of the Model 3 would start at $35 000, though the first ones delivered could fetch far higher prices, perhaps even as much as $55 000 or $60 000 owing to customers adding more features like a bigger battery pack with greater range. 

    The automaker promised the base model would have a range of nearly 350 km fully charged. Musk estimated the average car would sell for about $42 000, including optional features, for total sales of about $7.5-billion, should all customers who made a deposit complete the order. 

    Moores noted that while Tesla did not discuss the battery size – they were keeping the details for later in the year – based on the assumption that it would be a 60 kWh lithium-ion battery, the pre-orders alone would hypothetically increase demand for lithium hydroxide by 20% to 30%, if Tesla could deliver. 

    The overwhelming demand prompted Musk to comment on Twitter that Tesla was “definitely going to need to rethink production planning…” Moores said the most interesting aspect would be the wider impact the Model 3 will have on other vehicle sales and, most importantly, the auto sectors’ major producers. “They will feel the need to react, perhaps with an even lower priced car,” Moores hypothesised. 

    Now the Gigafactory was open, Moores expected to see rapid progress on raw material deals being made. There had been a resurgence of lithium activity through staking and mergers and acquisition – more a result of the present shortage in the market and lithium prices surging, and Tesla’s plans and its Gigafactory progress had also been an added driver. 

    According to Moores, Australian spodumene projects had seen a surge of activity, starting from around last September. There had also been a rush on Nevada brine projects since the start of the year. “There is of course no guarantee that these mines will come to production – most won’t – but the world does need more lithium,” Moores stressed.

    http://www.miningweekly.com/article/tesla-secures-180-000-orders-for-new-ev-in-24-hrs-drives-auto-sector-demand-for-lithium-2016-04-01
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    Appaloosa raises stake in SunEdison unit TerraForm Power


    Hedge fund Appaloosa LP revealed a higher stake in TerraForm Power Inc, one of the two publicly listed units of SunEdison Inc, as it pursues an overhaul of a committee that oversees TerraForm shareholder rights.

    Billionaire David Tepper-led hedge fund said on Friday it owned 10.88 percent in TerraForm as of March 29, higher than the 9.50 percent it held as of Jan. 1.

    Appaloosa on Tuesday filed an amended lawsuit seeking to overhaul TerraForm's Conflicts Committee, claiming the company's controlling shareholder, SunEdison, has breached its fiduciary duties.

    The fund originally sued to prevent TerraForm from buying some of the assets of Vivint Solar Inc, a solar panel installer SunEdison had agreed to buy.

    Vivint has since scrapped the deal, amid concerns about SunEdison's finances.

    TerraForm Power said on Wednesday Brian Wuebbels stepped down as its chief executive.

    Wuebbels is SunEdison's chief financial officer, but the company has announced that he is being replaced this month.

    http://www.reuters.com/article/sunedison-inc-appaloosa-idUSL3N1743LB
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    Molycorp another step closer to emerging from Chapter 11 protection


    The US Bankruptcy Court for the District of Delaware has confirmed the fourth joint amended plan of reorganisation filed by bankrupt US rare earths producer Molycorp, marking one of the final steps before the company will be able to emerge from Chapter 11 protection as a newly reorganised company. 

    "The plan confirmation is a major step forward for the company. Throughout this nine-month process, we have made every effort to continue to run our business and service our customers and we thank them for our support and patience,” Molycorp president and CEO Geoff Bedford stated. 

    The confirmed plan would allow Molycorp's downstream business units, Chemicals & Oxides, Magnequench, and Rare Metals to reorganise under new ownership with a significantly stronger balance sheet. 

    Under the confirmed plan, which entailed a settlement agreement between an affiliate of funds managed by Oaktree Capital Management, a secured creditor, and unsecured creditors, Oaktree would receive 92.5% of the equity and the unsecured creditors would receive 7.5% of the equity in the reorganised company.  

    Molycorp had also reached a settlement also was reached with an ad hoc group of the company's 10% secured noteholders to buy through a credit bid the mineral rights and certain intellectual property of Molycorp. The group of 10% secured noteholders was the last significant secured creditor group with which the company had not reached a settlement in a mediation process that spanned several months. 

    Molycorp advised that its flagship Mountain Pass mine was excluded from the plan, and the equipment and surface property rights at the mine were excluded from the sale. When the plan becomes effective, Molycorp will emerge as a privately held company with a sustainable balance sheet and strong financial partners, the company stated.

    http://www.miningweekly.com/article/molycorp-another-step-closer-to-emerging-from-chapter-11-protection-2016-04-01
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    Agriculture

    China's grain reforms to boost depressed corn processing industry


    China's plan to let the market set corn prices is bad news for international grain exporters, but should boost the country's struggling corn processors that use the grain in products ranging from food additives to paper and textiles.

    New demand from corn processing companies, as well as the feed and ethanol industries, will be vital to help China start cutting the 250 million tonnes of corn reserves built up under stockpiling policies, or more than the country can consume in a year.

    In its biggest grain reforms in a decade, China said this week it will stop stockpiling corn and halt price support schemes, narrowing the gap between international <0#C:> and local prices <0#DCC:> and encouraging the use of local grain rather than imports of cheaper substitutes, such as sorghum and the ethanol byproduct distillers' grains (DDGS).

    Food processors use corn to make starch, syrup and alcohol, but China's corn starch industry has been running losses over the past three years, with more than half of its capacity lying idle.

    "It is good news for the industry," said Fan Chunyan, secretary general of the China Corn Starch Association

    "More companies would raise production and become profitable and some companies may be able to export their products," said Fan, adding that utilization rates could recover to about 70 percent, up from as low as 40 percent in recent years.

    Corn starch is used to make thousands of products, including the food additives lysine and citric acid, which China once was the world's largest exporter, as well as corn syrup, which can replace natural sugar in the production of soft drinks and cakes.

    Major players in the industry include COFCO Co Ltd[CNCOF.UL], Global Bio-chem Technology Group Co. Ltd and the Xiwang Group.

    Global agribusinesses Cargill [CARGIL.UL] and Wilmar International also run some corn starch joint ventures in China.

    IMPORTS TO EXPORTS?

    The decade-old corn stockpiling policy, which will be scrapped from the autumn, has pushed domestic corn prices up to 50 percent above international prices, saddling feed mills and food processors with higher costs.

    "Many plants were dead because of the stockpiling policy. For those which are still alive, definitely there is a chance," an executive at a corn processor in the province of Liaoning told Reuters.

    The industry had been suffering losses for many years and his own company's plant had shut, said the executive, who declined to be identified.

    Chinese feed mills bought a record volume of foreign feed grains in 2015, which together with corn imports, replaced more than 42 million tonnes of domestic corn production, about a quarter of annual consumption.

    Beijing controls quotas on low-tariff corn imports, which encourages users in China to seek out lower priced substitutes once the quotas have been reached.

    Cheap imports of cassava and cassava starch have largely been used instead of domestic corn in refineries, whose main products include ethanol and corn syrup. Chinese imports of cassava hit nearly 10 million tonnes in 2015.

    "With the drop in domestic corn prices, soft-drink makers will increase their use of corn syrup to help cut costs," said Lief Chiang, an analyst with Rabobank.

    The policy change will also slash feed costs for China's pig industry and boost profits of ethanol producers.

    "The feed grain price drop would prolong the high breeding margins for hog breeders, which are now recovering their herds, while for the corn processing industry, some products can be competitive globally," said Chiang.

    China's appetite for cheap U.S. ethanol could also wane this year as domestic companies increase production, said an official at the China Alcohol Industry Association. China imported a record volume of ethanol in 2015 due to expensive domestic corn.

    "A drop in raw material prices would increase ethanol output and imports would shrink," said the official, who declined to be identified.

    "China may be able to export ethanol to other countries, including South Korea and Southeast Asia, and compete with the United States and Brazil," the official added.

    http://www.reuters.com/article/us-china-corn-foodprocessing-idUSKCN0WY42S

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    Precious Metals

    Silver Is A Coiled Spring, Poised To Catch And Surpass Gold


    Silver was battered so low in recent years’ gold bear that it’s spent 2016 trading near stock-panic levels relative to gold. Such super-low prices aren’t sustainable.

    So silver is due for a massive mean reversion higher as investors start to return. Their lagging buying finally began in March, and will soon accelerate and become self-feeding.

    These big new capital inflows squeezing into such a small market will drive up silver prices faster than gold’s, eventually catching then surpassing gold's gains as in the past.

    Silver's reluctant, sluggish participation in early 2016's powerful gold rally has been glaringly obvious. Instead of amplifying the yellow metal's big gains as in the past, silver largely failed to even keep pace. The lack of silver confirmation for gold's big move has certainly raised concerns. But despite silver's vexing torpidity in recent months, it is a coiled spring ready to explode higher to catch and surpass gold.

    Silver has always been something of an investing enigma, somehow combining attributes of a highly-speculative investment, a conventional industrial commodity, and an alternative currency. Silver trades like each from time to time, stymieing attempts to classify it. Silver tends to grind sideways boringly for long periods of time, and then skyrocket higher in bulls of such magnitude that they are celebrated for years.

    Silver's primary driver has always been the price of gold. While silver can decouple over the short term, these two precious metals have very-high correlations across most multi-year spans. This is the result of silver's unique supply-and-demand profile. Silver's industrial demand, including all fabrication, jewelry, and silverware, accounts for around 4/5ths of total global demand. This tends to be fairly constant over time.

    Thus the relatively-static lion's share of silver demand has little impact on its price. But while investing is responsible for just the other 1/5th, it varies wildly depending on sentiment. So it effectively sets silver's price at the margin. And the overwhelmingly-dominant driver of how bullish or bearish investors feel about silver is the price of gold. Silver effectively acts like a gold sentiment gauge, mirroring gold's action.

    http://seekingalpha.com/article/3962602-silver-coiled-spring-poised-catch-surpass-gold
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    Mag Silver & Fresnillo: Bonanza deposit much larger.

    Image title
    Four new exploration step-out holes were targeted approximately 100 metres below the existing "Deep Zone" Indicated and Inferred Resources (see press release dated May 27, 2014). The four holes were drilled on 150 metre centres over a strike length of approximately 500 metres below the en echelon overlap zone between the East and West Valdecañas Veins and include the three widest and deepest intercepts to date on the property (see Table 1). This new zone appears to be the extension of the southwest dipping Valdecañas Vein system and it remains open to depth along the entire strike length within the Joint Venture boundary.

    These intercepts widen progressively up to 32.09 metres (true widths) towards the east in the central portion of the property, significantly extending the widening Deep Zone to depth. The intercepts also show significant amounts of calc-silicate (skarn) alteration in and around the veins and the first significant copper values for the entire area; both indications of higher temperature mineralization conditions. The high silver and gold in Holes P2 and P3 coincide with zones of overprinted quartz veins that cut across earlier base-metal rich calc-silicate vein stages, indicating superimposition of an additional precious-metals rich vein stage. 

    "We are extremely pleased to see such a dramatic widening in tandem with strong grades in the Valdecañas Vein at these depths. The geological providence of this system continues to deliver significant results." said George Paspalas, President and CEO of MAG Silver.


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    Base Metals

    The Largest Copper Gold Deposits in the World.

    Image title

    Property

    Company

    Reserves & Resources (Au Oz.)

    Pebble

    Northern Dynasty Minerals

    107,630,000

    Potchefstroom Goldfield

    Sibanye Gold

    76,149,204

    KSM

    Seabridge Gold

    75,282,000

    Sukhoi Log

    Government of Russia

    61,729,000

    Baimskaya

    Millhouse Capital

    49,834,000

    Donlin

    Novagold Resources, Barrick Gold

    45,000,000

    Reko Diq

    Antofagasta, Balochistan Dev. Authority, Barrick Gold

    41,373,000

    Klerksdorp

    Sibanye Gold

    39,671,492

    ERPM Extension

    DRDGold

    39,112,207

    Natalka

    Polyus Gold

    36,800,000

    Snowfield

    Pretium Resources

    35,097,000

    La Colosa

    AngloGold Ashanti

    33,150,000

    Cerro Casale

    Barrick Gold, Kinross Gold

    32,607,000

    Armgold/Orkney

    Black Economic Empowerment

    31,764,000

    Oyu Tolgoi

    Turquoise Hill Resources, Government of Mongolia

    30,126,300

    Evander

    Pan African Resources

    29,743,000

    Tujuh Bukit

    Private Interest, PT Indo Multi Niaga

    29,531,250

    Wafi-Golpu

    Newcrest Mining, Harmony Gold Mining

    28,458,000

    Las Cristinas

    Crystallex De Venezuela

    27,061,000

    Caspiche

    Exeter Resource

    25,081,600

    Lookout Hill

    Turquoise Hill Resources, Entrée Gold, Sandstorm Gold

    24,667,000

    Buffelsfontein

    Village Main Reef

    23,156,000

    Pascua Lama

    Barrick Gold, Silver Wheaton

    22,818,000

    Frieda River

    Guangdong Rising Assets Manage, Highlands Pacific

    20,497,020

    Bougainville

    Rio Tinto, Private Interest, Government of Papua New Guinea

    20,175,850

    Livengood

    International Tower Hill Mines

    20,147,087

    Metates

    Chesapeake Gold

    19,827,900

    Far Southeast

    Gold Fields, Lepanto Consolidated Mining

    19,800,000

    Elang-Dodo

    Newmont Mining, Sumitomo

    19,711,000

    Barlevsky

    Supatcha Resources, Local Interest

    19,700,000



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    Supply the differentiator for base metals in first quarter

    Supply the differentiator for base metals in first quarter

     After last year's collective slump base metals showed signs of bottoming out over the first three months of 2016.

    Even the worst performer among the LME's major contracts, lead, ended the quarter down by just 2.3 percent.

    The two best performers were tin and zinc, both up almost 16.0 percent, a double manifestation of the current overriding narrative in the industrial metals world.

    With all the base metals reeling from the shock of slowing demand growth in China, the differentiator of price performance right now is supply.

    DEFICIT NOW...

    The reason tin and zinc were the out-performers in the first quarter is down to faltering supply in both markets, a clear and present danger for tin, a looming threat for zinc.

    The LME tin contract, the smallest and least liquid of the core metals traded on the London market, has been plagued by low stocks and tight spreads for much of the last three months.

    The benchmark cash-to-three-months period CMSN0-3 flexed out to $220 per tonne backwardation in late February.

    That has sucked some metal into the LME warehouse system but at a current 4,810 tonnes, registered inventory is still down 14 percent on the start of the year and cash was still commanding a modest $29 premium as of Thursday's close.

    As ever with tin, this is all about Indonesia, the world's largest exporter of the soldering metal.

    Exports slumped by 45 percent over the first two months of 2016, largely due to yet another tightening of the regulatory screw on the hub of independent producers operating on the Bangka and Belitung islands.

    Exports should recover over the coming period but that low level of LME stock is indicative of a market facing structural supply issues.

    ...DEFICIT TOMORROW

    Zinc bulls are pinning their hopes on similar structural supply issues resulting from the closure of some of the world's biggest mines.

    There is tangible evidence the raw materials supply chain is starting to tighten, even if there remains considerable uncertainty as to when that will feed through into metalavailability.

    But with tin too small a playground for the market's bigger players, zinc is the best bullish supply story in town.

    Encapsulating the high hopes for this market was a report issued this week by Leon Westgate, analyst at ICBC Standard Bank.

    "Refined deficits of 550,000 tonnes in 2016 and 660,000 tonnes in 2017, representing nearly 5 percent of refined consumption, will rapidly destock the zinc market and will provide the foundations for zinc to reach record high prices in the next 24 months." 

    The previous record high was $4,580 all the way back in 2006, which still looks a long, long way up from the current price of $1,850.

    Zinc has, however, re-established a premium over sister metal lead, the laggard of the LME base metals pack.

    This is partly seasonal. Lead is moving out of the period of seasonally strong winter demand for replacement automotive batteries.

    But it may also partly reflect the conflicting signals emanating from LME stock movements.

    These have been distorted by a long-running battle for units between warehouse operators. The resulting loss of visibility on the real state of the physical lead market has not been helped by a still-to-be clarified reporting error in LME stocks held at the Dutch port of Vlissingen.

    COPPER CONFUSION

    Copper was the third-best base metals performer of the quarter with gains of around 5.0 percent.

    It was doing better until a week or so ago when the Shanghai Futures Exchange (SHFE) contract started coming under renewed bear attack, a running feature of the copper market for many months.

    Chinese investors may well take a negative view of copper's prospects given the huge build in SHFE stocks this year. Even with a sharp drop over the last week, they have still more than doubled to 368,725 tonnes.

    LME stocks, by contrast, are low and still falling. Open tonnage, meaning that not earmarked for physical load-out, is hovering around two-year lows and front-month spreads are tightening accordingly.

    The cash-to-three-months spread CMCU0-3 ended March valued at $32 per tonne backwardation, the tightest the period's been since August last year.

    Is this market in feast or famine? Rather confusingly, it appears to be showing symptoms of both depending on where you look.

    SURPLUS WEIGHT

    No such doubts as to either the nickel or aluminium markets. Both are burdened by high stocks and excess production.

    Nickel's supply side has proved curiously inelastic to low prices with most producers hanging on in there in the hope that Chinese nickel pig iron (NPI) producers will close first.

    China's NPI sector is being squeezed by low prices and low availability of the nickel ore it uses as a raw feed and there is mounting evidence that run-rates are now steadily declining.

    The problem is that supply everywhere else is running too strong and stocks are still building, particularly in Shanghai.

    Even if the global market does move into deficit, it will take a long time to translate into tangible tightness.

    Such considerations explain why the LME nickel price is doing no more than tread water at its current bombed-out levels. It ended the quarter flat on where it started at $8,500.

    Aluminium fared better with a 3.0 percentage gain after a run-up over the last half of March.

    That may have been a reaction to a strong rally in Shanghai, itself a possible sign of improving dynamics in China, the source of the global market's problems of excess capacity and over-production.

    Chinese production appeared to drop sharply over December and January which would help explain the strength of the local rally in prices.

    But everyone's wary of Chinese production figures around the end of the year, both calendar and lunar, and those for February remain conspicuous by their absence.

    The LME market itself, meanwhile, has been more about spreads than outright prices. The latest spasm of tightness has passed but the aftermath is still playing out in the form of massive cancellations of LME stocks prior to physical load-out.

    This metal is largely on its way to cheaper off-market storage and as it moves, at the new faster rates stipulated by LME rules, the store of available tonnage in LME warehouses is going to tumble sharply.

    Another bout of spread contraction looks to be just a matter of time.

    If so, it will merely extend the contradiction sitting at the heart of the aluminium market, namely its increasing tendency towards technical tightness even at a time of huge stock overhang.

    http://www.reuters.com/article/lme-metals-ahome-idUSL5N1742D4
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    Copper set for worst run since January on China demand worries


    Copper is sinking. The metal used in wiring and plumbing is headed for the longest losing streak in more than two years amid concern that a global glut will persist as miners press on with cost cuts and banks including Barclays forecast further losses.

    The metal dropped as much 0.9% to $4 791 a metric ton on the London Metal Exchange, the lowest in more than a month, and traded at $4 795 at 2:45pm in Singapore. Prices are lower for a seventh straight day, set for the longest run of declines since February 2014.

    While prices capped a quarterly gain last week for the first time in almost two years after some producers including Glencore reined in supply, the head of Chile’s Codelco has warned there are few signals of improving demand and it doesn’t see a recovery starting until 2018. Barclays reiterated its bearish outlook on Monday, saying prices would drop this quarter. Weaker currencies in producer nations and lower oil prices are helping suppliers trim costs, curbing the need to make output cuts, according to Societe Generale SA.

    “On the ground level, the mines and the producers are not under the pressure to cut supply that one might think they’d be under,” said  Mark Keenan, Societe Generale’s head of commodities research for Asia in Singapore. “Demand growth is going to be subdued relative to what we’ve been historically used to, as a function of the slowdown in China.”

    Yesterday’s Story

    Prices dropped 2.2% last week even as China’s official factory gauge released on Friday showed improving conditions for the first time in eight months. The encouraging data results from China may turn out to be yesterday’s story, not evidence of a turn, Barclays said in a report, noting surging stockpiles in the largest user.

    “Prices have converged with our view that the recent rally was unsustainable, as it was built on transient technical factors and poor fundamentals,” Barclays analyst Dane Davis said. “In the second quarter, we see copper continuing to weaken, as the seasonal uptick in Chinese economic activity is not enough to offset strong inventory levels and a worrisome medium-term outlook.”

    While inventories in LME sheds have dropped this year, they’ve surged in China. Stockpiles in LME-tracked warehouses stood at 143 400 tons last week, the lowest since August 2014 and 39% down this year. Holdings monitored by the Shanghai Futures Exchange soared to a record last month, and Bloomberg Intelligence estimates the amount in bonded warehouses is now the highest in seven months.

    Codelco chief executive officer Nelson Pizarro said last week that the market is susceptible to a pullback. The recent rally is very vulnerable to losing steam as a strong structural reason doesn’t appear to be there, Pizarro said in an interview with Bloomberg News.

    http://www.mineweb.com/news/base-metals-and-minerals/copper-sinks-as-codelco-warning-resonates-and-miners-cut-costs/

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    Steel, Iron Ore and Coal

    Shanxi power installed capacity to reach 100 GW by 2020


    Northern China’s coal-rich shanxi province plans to boost its installed capacity of power generation to 100 GW or so by 2020, the ending year of "13th Five-Year Plan" period (2016-2020), state media Xinhua News Agency reported.

    The move was part of the province’s efforts to advance the supply-side structural reform in its coal industry, which has been hit hard by a plummet in prices of the fossil fuel, to absorb its surplus coal production capacity and help miners get out of the red.

    Shanxi had total coal capacity of 1.46 billion tonnes per annum by November last year, with excess capacity reaching 400-500 million tonnes per annum.

    The coal industry across the province has been in overall deficits presently, and coal producers are burdened with great pressure amid high debt ratios.

    Pinglu district in Shanxi’s Shuozhou city, ranking top three of counties across the nation in terms of its raw coal output saw its coal output drop 20% on year to 92 million tonnes last year, with losses averaging 40 yuan/t.

    "Fifty out of the total fifty-one operating coal companies in the district were in deficit, with combined losses amounting to 4.8 billion yuan ($744.4 million)," said Wang Haifu, assistant of the district’s head.

    Major thermal power producers in Shanxi, on the contrary, turned losses into profitability, a robust support for the province to further implement the coal-electricity integration.

    By end-February this year, the province’s installed capacity of power generation reached 70.2 GW, ranking 8th in China.

    Shanxi has started construction on nine UHV power transmission projects. By 2017, the province will see four UHV lines connecting the Central China Grid, Beijing-Tianjin-Tangshan Grid, Shandong Grid and Eastern China Grid, with outbound transmission capacity reaching 45.8 GW.

    Additionally, Shanxi will accelerate direct power sales to end users inside the province and pilot trans-provincial and trans-regional direct power sales, allowing the market to determine the electricity sales price.

    More market participants will be seen entering the power generation and sales arena, which will increase competition, and perfect the market-determined electricity pricing mechanism.

    http://en.sxcoal.com/0/143682/DataShow.html

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    Australia's green groups keep heat on Adani after mine approval


    Environmental campaigners say they hope two outstanding court cases can still stop India's Adani Enterprises Ltd from developing a A$10 billion ($7.6 billion) coal project, even after it received a key state government approval.

    The granting of a mining lease by the state government marked another step in Adani's long-running bid for approval to mine and ship an estimated 11 million tonnes of coal reserves, building roads, power lines and pipelines to do so.

    But activists - some 200 of which protested outside the Queensland parliament on Monday - say the ongoing federal court challenges could still throw Adani's plans into doubt.

    Benedict Coyne, a lawyer for the Wangan and Jagalingou people, who have rejected a land use agreement with Adani, said he was surprised a decision had come while the cases were still in process.

    "If it is found that the decision was not made lawfully, then any (further) decisions are called into question," he said.

    Adani said in a statement on Sunday that it had a "clear and positive" commitment from the government and welcomed the approval as an important milestone.

    The group said it expected appeals to be resolved in 2016, allowing construction to begin in 2017.

    Adani, which has battled opposition from green groups since work on the project began five years ago, will now need to resolve its financing, with banks under increased pressure not to provide loans for coal in particular.

    Several international banks have said they will not provide financing for coal mining in the Galilee Basin, while Standard Chartered and Commonwealth Bank of Australia pulled out of the project in August.

    Adani has said tough market conditions should not put pressure on the project because most of its coal is already earmarked for Adani-owned power plants in India, rather than for sale on the open market.

    http://www.reuters.com/article/adani-ent-australia-coal-idUSL3N17718M
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    Anglo American continues coal divestment's


    Diversified major Anglo American on Monday announced plans to divest of its 70% interest in the Foxleigh metallurgical coal mine, in Queensland. 

    The company has entered into a sale and purchase agreement with a consortium led by Taurus Fund Management. The transaction would be effected through a share sale in Anglo American subsidiaries, which hold the Foxleigh mine. 

    While the terms of the transaction remained confidential, Anglo American noted that the transaction was subject to a number of conditions precedent. Anglo American in 2007 spent $620-million to acquire a 70% interest in the Foxleigh opencut mine, which delivered 1.86-million tonnes of saleble production to Anglo American’s bottom line in 2015. 

    Korean steel company POSCO and the Japanese trading and mining investment company Itochu hold the remaining 20% and 10% interests respectively. The divestment of the Foxleigh mine comes after Anglo American earlier announced a re-focus on its core diamond, platinum group metal and copper assets, with the miner pointing out that it would dispose of its Moranbah and Grosvenor metallurgical coal projects. 

    Anglo American in January this year entered into a sales agreement for its Callide thermal coal mine, also in Queensland, selling the asset to Batchfire Resources. It also sold its Dartbrook coal mine, in New South Wales, to Australian Pacific Coal, in December of last year, in a deal valued at A$50-million.

    http://www.miningweekly.com/article/anglo-american-continues-coal-divestments-2016-04-04
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