Mark Latham Commodity Equity Intelligence Service

Friday 10th July 2015
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    Morgan Stanley thinks global economy accelerating.

    You wouldn’t know it given the noise from
    China and Greece, but the world economy is picking up steam.
    Morgan Stanley predicted on Thursday global expansion of almost 4 percent in the second half of this year, up from 2.9 percent in the first six months.

    The firm says monetary stimulus is taking hold and will even be extended by 18 central banks this year, enough reason for optimism despite it also forecasting a protracted slowdown in China and 75 percent risk of Greece leaving the euro.

    “The strength of domestic demand in developed economies will be the key engine of growth,” Chetan Ahya and Elgan Bartsch, Morgan Stanley’s co-chief economists, told clients.

    “We expect the global economy to continue on the path of gradual recovery.”

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    The Greek Key: A cipher for the worlds ills.

    ATHENS — In the wealthy, northern suburbs of this city, where summer temperatures often hit the high 90s, just 324 residents checked the box on their tax returns admitting that they owned pools.

    So tax investigators studied satellite photos of the area — a sprawling collection of expensive villas tucked behind tall gates — and came back with a decidedly different number: 16,974 pools.

    That kind of wholesale lying about assets, and other eye-popping cases that are surfacing in the news media here, points to the staggering breadth of tax dodging that has long been a way of life here.

    Such evasion has played a significant role in Greece’s debt crisis, and as the country struggles to get its financial house in order, it is going after tax cheats as never before.

    Image titleMGL: These folks voted yes in the vote. 

    Why have women played such a crucial role in the crisis? To put it simply, they voted overwhelmingly to reject the bail-out package suggested for their country. Almost two in three women – or 62.3 per cent – voted “No in the referendum, a figure higher than their male counterparts.

    This is intriguing.

    I had assumed that women would be less likely than men to vote No (which serves as a reminder to never assume anything before checking the facts). As a generalisation, women tend to lean towards the status quo in referendums, and to be less risk averse than men.

    In the Scottish referendum, for instance, women were significantly less likely to vote for independence than men. According to the biggest study of the results, by Edinburgh University, 56.6 per cent of women voted No compared to 46.8 per cent of men.

    MGL: Women voted 'no', apparently because they are largely unemployed, and have nothing to lose from a Greek exit.

    Greek premier Alexis Tsipras never expected to win Sunday's referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

    He called the snap vote with the expectation - and intention - of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 "ultimatum" and suffer the opprobrium.

    • Greece crisis live on Wednesday

    This ultimatum came as a shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors' cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

    Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

    MGL: Tsipras was playing poker with the vote, and received a shock.

    What was breathtaking, however, was how in a matter of hours the entire dynamic in the Greek crisis seemed to shift, from apocalyptic warnings of a Zimbabwe in the Balkans, to a fresh optimism that the basics of a deal could be worked out.

    MGL: And suddenly they want a deal.

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    Value vs growth

    NYSE INDEX APPEARS TO HAVE COMPLETED A WAVE THREE... They say when you start to feel seasick you should focus on the horizon. Daily market swings are starting to make me feel seasick. So in line with that nautical theme, I'm going to focus on the market's long-term horizon by using Elliott Waves to try to put things into perspective. I'll explain what that is as I go along. Chart 1 plots weekly bars for the NYSE Composite Index since the 2009 bottom. It looks to me like the six-year rally has completed three major upwaves. Hence the three blue numerals. Elliott Wave Analysis holds that a bull market is comprised of five major waves -- three up waves (1,3,5) interrupted by two corrective waves (2 and 4). It seems clear that the first major upwave ended in 2011. Hence the number 1. A nearly 20% correction that year certainly qualified as a wave 2 correction. The market rallied for four years since late 2011 with only minor corrections. I believe that four-year rally has traced out a five-wave pattern of its own. If I'm right about that, the market has completed its three wave and is due for a wave four correction. Let's take a closer look.Image title
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    Greek energy minister unveils plan for €2bn gas deal with Russia - FT

    Greece has mapped out details of a planned landmark €2bn gas project with Russia in a move that could stir tensions with Brussels just as Athens is seeking a third bailout.

    Panayotis Lafazanis, the firebrand leftist energy minister, presented preliminary plans for the project to Greek energy executives in Athens on Thursday in a defiant speech, vowing the government would not be pushed around by EU institutions.

    EU policy makers are concerned that Russia could take advantage of the crisis to pull Greece deeper into its orbit, and pipeline politics is critical to relations between the two nations.

    Athens and Moscow say the new project, the so-called South European Pipeline, will bring 47bn cubic metres annually of Gazprom’s gas into Europe after 2018. Mr Lafazanis — the political patron of Greece’s biggest public sector company, the Public Power Corporation, which holds a near-monopoly of its electricity market — pledged it would create 20,000 much-needed jobs in Greece.

    The promised deal with Russia is a sharp rebuke to Brussels, which wants to reduce EU dependence on Gazprom and argues that southeastern Europe should diversify its supply by prioritising gas from Azerbaijan.

    Opening his remarks with pugnacious references to the eurozone crisis, Mr Lafazanis said Greece was aiming to secure a deal with Brussels as quickly as possible. But he warned EU institutions that Athens was not about to roll over.
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    BRICS vow to coordinate actions to protect their economies

    The BRICS emerging nations said on Thursday they were worried about the volatility of global financial markets and oil prices and agreed to coordinate efforts to keep their economies stable.

    Leaders of Brazil, Russia, India, China and South Africa finally launched the group's largest initiatives to date -- a development bank and a currency pool -- and called at a summit for a swift deal on curbing Iran's nuclear programme.

    For Russian President Vladimir Putin, hosting the summit in the city of Ufa, the launch of the bank and the pool had been a key priority, as was the group's ability to sound more unified than at some previous meetings.

    "We are concerned about the instability of the markets, the high volatility of energy and commodity prices, and the accumulation of sovereign debt by a number of countries," Putin said.

    "These imbalances affect the growth rate and our economies. In these circumstances, the BRICS states intend to actively use their own resources and internal resources for development," he added, without giving details.

    Frantic efforts by Beijing to stem a stock market rout helped Chinese shares bounce back on Thursday after tumbling for more than a week, but the costs of the heavy-handed state intervention are likely to weigh on the market for a long time.

    Chinese President Xi Jinping refrained from comments about the slump, saying only that there are "difficulties" in the global economy, but urged the BRICS to increase coordination.

    "Let's go hand-in-hand to build a great BRICS partnership," he told the group.

    The BRICS account for a fifth of the world's economic output and 40 percent of its population.
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    France's Fabius says "difficult issues" remain in Iran nuclear talks

    France's foreign minister said on Thursday major powers and Iran would continue negotiating overnight to try to resolve the "difficult issues" that remained in nuclear talks.

    "There are difficult points that remain, but things are all the same going in the right direction," Laurent Fabius told reporters. "Due to these conditions, I have decided to stay and work tonight and tomorrow morning. I hope we will be able to complete the metres that need to be run."

    "There are good things, but there are difficult things that still need to be worked on."
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    Oil and Gas

    Global oil demand to slow in 2016: IEA

    Global oil demand will slow in 2016, the International Energy Agency (IEA) said in its latest monthly report, as it warned that the rebalancing of supply and demand in oil markets "has yet to run its course."

    Crude oil prices fell to their lowest point in nearly three months in early July, pressured by "ever rising supply" and not helped by the financial turmoil in Greece and China which has unsettled world markets, the IEA said Friday.

    Global oil prices fell around 60 percent earlier this year, from around $114 a barrel last June, on the back of a glut in supply and lack of demand amid an uncertain global growth outlook. On Friday, benchmark Brent crude was trading at $59.44 a battle and U.S. light crude was around $53.62.

    On the back of this volatility, the IEA forecast that global oil demand growth would slow to 1.2 million barrels a day (mb/d) in 2016, from around 1.4 mb/d this year.

    "The rebalancing that began when oil markets set off on an initial 60 percent price drop a year ago has yet to run its course," it said. "Recent developments suggest that the process will extend well into 2016, as shown in our quarterly supply/demand balances for that year."

    There were hopes in May and June that prices were on the path to recovery, as supply was taken out of the market. Numerous rigs were closed in the U.S., where production costs are higher than in the Middle East.

    However, the IEA said that growth in demand appeared to have peaked in the first quarter of 2015, at 1.8 mb/d and, "will continue to ease throughout the rest of this year and into next as temporary support fades."

    The IEA noted, however, that two "curveballs" were contained within its demand forecast: Greece's ongoing financial crisis, to the downside, and Iran – and a potential nuclear deal that could see sanctions on the country lifted -- to the upside.

    "A possible Greek exit from European Monetary Union (euro zone) could dampen not only Greek oil product demand, but also potentially curb deliveries across the continent if macro-economic activity were to weaken," the IEA said.

    "The upside Iranian risk surrounds the possible removal of sanctions and the additional economic growth and oil product demand that could follow."

    Oil prices have not been helped by the decision of the Organization of Petroleum-Exporting Countries (OPEC) not to cut their production ceiling of 30 million barrels a day -- despite the slump in prices and demand.

    Indeed, the IEA said that although global oil demand has not picked up, global supply has actually increased. OPEC crude supply, for instance, rose in June to 31.7 mb/d -- a three-year high led by record output from Iraq, Saudi Arabia and the United Arab Emirates (UAE).

    This decision not to cut production by OPEC, led by Saudi Arabia, has been widely seen as a strategy to defend OPEC's market share and put pressure on rival U.S. shale oil producers.

    And the IEA said this strategy could be working, with "non-OPEC supply growth expected to grind to a halt in 2016, as lower oil prices and spending cuts take a toll."

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    Rosneft strengthens Asian foothold to counter sanctions

    Top Russian oil producer Rosneft has raised the stakes in its battle with Saudi Arabia for market share by securing new Asian markets to hedge against the risk that any new Western sanctions could hit crude sales.

    Rosneft said on Wednesday it had signed a preliminary deal to buy a 49 percent stake in Essar Oil, which controls the Vadinar oil refinery, India's third largest.

    Rosneft also signed a deal to supply the refinery with 200,000 barrels per day for the next 10 years.

    The deal is consistent with Rosneft's goal to send 40 percent of its oil exports to Asian markets by 2019, up from about a third now, following a chill in relations with the West over Moscow's role in the Ukraine conflict.

    "India and China are the two most interesting markets both for crude oil and oil products. Those are colossal markets in terms of population," said Sergei Pigarev, analyst with Rye, Man & Gor securities.

    "The deal will, of course, allow Rosneft to cement its position there and help to get more market share from Saudi Arabia, though we have to look at the prices, how much is Rosneft is paying?"

    Saudi Arabia fell behind Russia and Angola as the biggest crude suppliers to China in May. The OPEC kingpin also lost its spot as India's top oil supplier to Nigeria for the first time in at least four years.

    While Rosneft sends the bulk of its oil to nine large refineries in Russia, it has interests in German and Italian refineries and is looking to get a slice of the market in China.

    "The rationale for the deal appears to be finding a new long-term market for Rosneft's crude outside of the EU to minimise the risk of disruptions," analysts at Russian bank Uralsib Capital wrote in a note.
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    Gulf Keystone gets payments for Shaikan crude; cuts output forecast

    Gulf Keystone Petroleum Ltd said it had received further payments on recent contracts, helping prop up its cash position, and continued to progress towards a regular payment cycle for the oil it produces.

    Shares in the company rose as much as 8 percent to 35 pence on Thursday morning on the London Stock Exchange.

    Gulf Keystone has not just been hurt by the steep fall in crude oil prices but also faced the brunt of political tensions in the Iraqi Kurdistan region, where its primary operations are.

    The company suspended production and trucked exports from its Shaikan oilfield in Iraqi Kurdistan in mid-February over outstanding payments from the Kurdistan Regional Government for its crude oil.

    Gulf Keystone is among a handful of oil producers in Iraqi Kurdistan who started selling their oil to domestic buyers after struggling with months of unpaid export bills.

    Gulf Keystone held $72.1 million in cash as of July 8, with further payments expected from its domestic contracts and talks with the Kurdistan government.

    The company said that it expected to start trucking crude from the oilfield to Fyshkhabour on the Turkish border in the near future where it would be injected into the export pipeline to Ceyhan, the transportation hub for Middle Eastern, Central Asian and Russian oil and natural gas.

    The company expects to secure higher prices once its oil makes it into the pipeline as the crude would then be sold as part of internationally traded blend.

    Production rates are now expected at 36,000-40,000 barrels of oil per day (bopd) for the rest of the year, below the 40,000 bopd the company had forecast.

    Gulf Keystone said its daily average production is expected to fall to 30,000 to 34,000 bopd for the year, hurt by a five-week suspension of operations at Shaikan in the first quarter, down from 36,000 expected earlier.
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    Saipem Loses $2.2 Billion Gazprom Deal for Black Sea Link

    Saipem SpA, Italy’s biggest oil-services contractor, lost a $2.2 billion contract to lay a Russian natural-gas pipeline under the Black Sea after its fleet waited seven months for the work to start.

    Russia’s OAO Gazprom canceled the deal because it couldn’t agree with Saipem on terms, Sergei Kupriyanov, a spokesman for the Moscow-based company, said Thursday by phone.

    Saipem had expected to start work on the project, called Turkish Stream, in June. The contract had been transferred from the scrapped South Stream pipeline, which was abandoned at the end of last year as Russia’s relations with the European Union soured over the conflict in Ukraine.

    Saipem, controlled by Italian oil producer Eni SpA, confirmed the cancellation in a statement on Thursday, citing a contractual clause of “termination for convenience.”

    The shares slumped as much as 6.6 percent to 8.19 euros in Milan trading, the lowest intraday price in five months. The stock was at 8.32 euros as of 11:23 a.m. local time, extending its decline this year to 5.1 percent.

    The cancellation comes only a week after Russia approved access for Saipem’s ships to lay pipes in the Black Sea. The government is keen to press ahead with the Turkish Stream project, which it sees as an alternative to South Stream and would run to Turkey instead of through Bulgaria, bypassing Ukraine. Nevertheless, people with knowledge of the matter said talks between Russia and Turkey have stalled.

    Gazprom plans to start talks with potential new contractors for the work soon, it said in a statement on Wednesday. Kupriyanov declined to comment on when construction could begin.

    The Russian company has already been paying Saipem to provide two pipe-laying ships, people with knowledge of the matter said in March. Gazprom declined to comment on the costs. Kommersant newspaper reported that Saipem was getting about 25 million euros ($27.6 million) a month as its vessels stood idle.

    The Turkish Stream contract would have added about 85 million euros to the company’s earnings before interest, taxes and other items in 2015 and 150 million euros next year, Sanford C. Bernstein & Co. forecast in May.

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    Petrobras Said to Draw Interest From Mitsui for Gaspetro

    Suitors including Mitsui & Co. and Marubeni Corp. are preparing to submit bids as early as next week for a stake in a gas pipeline unit that Brazil’s state-run oil firm is selling as part of a wider divestment plan, said two people with knowledge of the sale.

    Companies from China and Spain are also preparing to deliver proposals to Petrobras for 49 percent of Gaspetro by July 17, several people said, asking not to be identified discussing a private process. Mitsui, Japan’s second-biggest trading house, has been expanding in Brazil since it bought a group of distributors from Enron in 2005.

    Petroleo Brasileiro SA, as the Rio de Janeiro-based producer is formally known, joins major oil companies including Chevron Corp. and ENI Spa who are selling assets amid a rout in oil prices to raise cash and reduce operating costs. Petrobras plans to divest $15.1 billion in assets by the end of next year to meet investment goals and start addressing the oil industry’s biggest debt load.

    “No decision has been made at present,” Mitsui spokesman Shuhei Iwanaga said. Marubeni has also not made any decision on the asset at this point, a company spokeswoman said, declining to be named in line with corporate policy. A Petrobras press official declined to comment.

    Gaspetro has more than 7,000 kilometers (4,300 miles) of gas pipelines in Brazil that supply residential and industrial users, according to Petrobras’s website. Petrobras is cutting spending at peripheral businesses to focus on its most promising oil fields in deep waters of the South Atlantic.

    Mitsui is considered a natural buyer because it has worked with Petrobras in the past and is used to owning non-controlling stakes, according to one of the people familiar with the situation.

    Other companies that received invitations to participate include Gas Natural Fenosa and Engie, the utility formerly known as GDF Suez SA, another person said. Neither company responded to e-mails seeking comment.
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    U.S. gasoline demand roars back to life

    Consumption of gasoline in the United States is surging according to estimates prepared by the Energy Information Administration.

    More than 9.5 million barrels per day (bpd) of gasoline were supplied to domestic customers over the last four weeks.

    Consumption is running about 480,000 bpd above the 2014 level and 250,000 bpd above the 10-year seasonal average (

    The amount supplied to domestic customers has to be estimated from refinery production, imports, exports and stockpiles so it is subject to some estimating errors but the data all paint a consistent picture of strong demand.

    Refineries are running flat out to meet fuel demand from motorists. U.S. refineries have been processing a near-record 16.5 million bpd of crude in recent weeks,1 million bpd higher than the seasonal average (

    Gasoline production is running at almost 10 million bpd, a level only ever exceeded for a few weeks in 2014 (

    But gasoline stockpiles have fallen 25 million barrels, 10 percent, since February and are now just 4 million barrels over 2014 levels and 5 million barrels over their long-term average (

    After almost a decade in which gasoline consumption remained in the doldrums, demand has come back strongly.

    Gasoline consumption peaked in summer 2007 at almost 9.7 million bpd. But then soaring fuel prices and the recession took their toll and sent demand as low as 9.2 million bpd in summer 2009.
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    Canadian crude oil due back online

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    Shell needs US$80 per barrel oil price to restart oilsands projects

    Royal Dutch Shell Plc. may consider restarting mothballed oilsands projects, but not until oil prices return to US$80 per barrel, according to the company’s top executive in North America.

    “It probably needs to be in the US$80 range to be interesting, but it all depends on what it costs,” Marvin Odum, Shell’s director of the upstream Americas said in an interview Thursday. “It is a two–piece variable equation.”

    Like most major players in the oilsands, Shell has seen its costs come down “considerably,” easing the pain of oil prices that have tumbled 40 per cent in the past 12 months.

    The near-term outlook looks unforgiving. Iran may be joining the fray on the supply side. Economic chaos in Greece and stock market convulsions in China are leaning on demand. It’s not clear whether we should turn to Plato or Confucius for wisdom.Read on

    But the European major has also shelved a couple of oilsands projects — the 80,000-barrels per day Carmon Creek development and the 200,000-bpd Pierre River project — due to unfavourable economics. The company has also yet to sanction a 100,000-bpd Jackpine expansion which has secured regulatory approval.

    “There is no particular driver to make that expansion happen right now as we look at other parts of the portfolio,” Odum said, noting that the company’s oilsands expansion “is further back on the burner in terms of where we are investing now.”

    Shell has to navigate the oil downturn at a time when it’s in the midst of a massive US$70-billion takeover of BG Group Plc., expected to be completed in early 2016. The merger could lead to a scuttling of one liquefied natural gas project in British Columbia, as both companies have proposed projects on the West Coast.
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    Sanchez Production Partners Initiates Capital Restructuring with a 1-for-10

    Sanchez Production Partners LP  today announced that it intends to implement a 1-for-10 reverse split on its common units, effective after the market closes on August 3, 2015.

    “Since the summer of 2013, we have worked diligently to better position SPP for future growth by initiating a business development relationship with a committed sponsor, executing management service and related agreements, transitioning employees to Sanchez Oil & Gas Corporation, converting SPP to a limited partnership, and executing our first transaction with Sanchez Energy Corporation,” said Gerald F. Willinger, Interim Chief Executive Officer of the general partner of SPP. “With a solid foundation for SPP built, we are now ready to implement the next set of measures necessary for growth. As we look to expand the Partnership’s asset base by pursuing a larger-scale transaction with a view toward resuming distributions in 2015, we are focused on increased visibility and the deliberate expansion of our unitholder base by attracting institutional investors. The reverse split is supportive of these goals, and represents an important component of our overall strategic plan.”

    Pursuant to the reverse split, common unitholders will receive one common unit for every ten common units they own at the close of trading on August 3, 2015. All fractional units created by the reverse split will be rounded to the nearest whole unit. If the fraction created is less than one-half, it will be rounded down to the nearest whole unit. If the fraction is one-half or more, it will be rounded up to the nearest whole unit. Each unitholder will get at least one unit.
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    Alternative Energy

    Statoil Plans To Build World’s First Floating Wind Farm

    Statoil, the Norwegian oil and gas giant, is considering taking a major role in wind power. The state-owned energy company said that it will decide in September whether to invest in a floating wind farm off the east coast of Scotland.

    The company, based in Stavanger, is already experimenting with alternative energy technology, having experimented with a floating wind turbine off Norway. Now it’s considering a farm made up of five 6-megawatt turbines off Aberdeen in a part of the North Sea where the water is about 100 meters deep.

    Wind energy has met some stiff popular resistance, with many people objecting to their marring of rural landscapes. Even offshore turbines that are fixed to foundations have met opposition because they’re restricted to waters of no more than 50 meters deep and thus tend to be near the shore and visible to those on land.

    As a result, Statoil is exploring the possibility of using floating turbines farther out to sea to avoid the negative visual impact. “[T]his could be the first floating wind power park in the world,” Statoil spokesman Morten Eek said in Oslo.

    If the company decides to build the floating wind farm off Aberdeen, the project would include turbines manufactured by the German company Siemens. Its turbines would include blades fully 75 meters long in order to make the most efficient use of the North Sea winds.

    Eek pointed to the single floating turbine that Statoil already has been operating off Hywind, Norway, since 2009. It is mounted on a weighted vertical steel cylinder, is anchored to the sea floor below and uses a navigation system designed by Statoil to remain in position.
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    Aditya Birla Nuvo to bid for solar power projects

    Kumar Mangalam Birla-controlled Aditya Birla Nuvo Ltd has decided to bid for solar power projects

    The USD 4-billion company said in a filing to the BSE on Thursday that its board had approved participation in the bidding process for upcoming central, state and private sector solar power projects.

    Aditya Birla Nuvo said that “With the renewed focus of the Indian government on clean energy and in line with the vision of the company to invest in promising sectors, the company is planning a foray in the solar power business. The board has authorized and approved the formation of special purpose vehicles (SPVs), or subsidiaries, by the company and will evaluate induction of investor(s) in the SPVs and subsidiaries, required.”

    Aditya Birla Nuvo is a part of the Aditya Birla Group, a USD 40-billion Indian multinational company that operates in 36 countries across six continents.

    The move comes at a time when the government is pursuing an ambitious target to generate 175,000 megawatts (MW) of green energy by 2022. Of the total 100,000 MW of solar power capacity planned, 20,000 MW will come from solar parks and 40,000 MW each from roof-top and distributed generation projects. The government plans to set up 25 such solar parks. India has around 300 days of sunshine per year.
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    Cameco's uranium shipments halted due to wildfires

    Cameco stopped shipping yellowcake from its northern Saskatchewan mines due to wildfires.

    During a phone interview with BNN, Cameco CEO Tim Gitzel characterized the action as prudent in the face of potential safety risks.

    "The northern half of the province is pretty much on fire these days," Gitzel told BNN during a phone interview today.

    "We are stockpiling production at the site just waiting for things to calm down in the north a bit. Once the all clear is given, we'll start shipping our yellowcake south."

    Gitzel says all of Cameco mines continue to operate. He said supplies to the mines are intermittent.

    The company has been helping nearby affected communities. Cameco's mine site was turned into an evacuation center.

    Saskatchewan has been facing exceptionally hot, dry and windy conditions, which has created a number of extreme fires. About 13,000 people have been displaced.

    Experts says fires could burn all the way up to the first snowfall.
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    World food prices fall further in June - UN FAO

    Global food prices fell in June, continuing an almost uninterrupted slide since April 2014, led by falling dairy and sugar prices, the United Nations food agency said on Thursday.

    The Food and Agriculture Organization's (FAO) food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 165.1 pointsin June, down 1.5 points or 0.9 percent from May.

    May's reading had been the lowest on the index since September 2009.

    FAO said world cereal production would be "good" in 2015, forecasting overall output at 2.527 billion tonnes, fractionally above a forecast made in May, but still 1.1 percent below last year's record harvest.
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    Precious Metals

    Franco-Nevada sees future mine deals affected by Canada tax move

    Franco-Nevada Corp., a Canadian company that invests in mining, said a government review of how a competitor pays tax on foreign earnings could in future make financing for some mine projects more expensive.

    “It just changes the level of where these deals would get bid,” Franco-Nevada Chief Executive Officer David Harquail said Wednesday in a telephone interview.

    He was referring to so-called streaming arrangements in which companies such as Franco-Nevada help fund a mining company in exchange for a percentage of future revenue from the operation in the form of discounted metals.

    Streaming company Silver Wheaton Corp. said Tuesday the Canada Revenue Agency wants to reassess up to C$715 million ($561 million) in earnings resulting from its foreign subsidiaries. This could result in more than $200 million in back taxes and penalties for the years 2005-2010, Andrew Kaip, a Toronto-based analyst at Bank of Montreal, said in a note Tuesday.

    Harquail said he believes Silver Wheaton will have to factor the tax risk into future streaming bids.

    “I think that’s the way we’ll be bidding them as well,” he said.

    Silver Wheaton said it saw different consequences as a result of the CRA letter.

    “Our approach going forward is, we know this is going to be there but we’re not going to have to start factoring it,” Randy Smallwood said Wednesday by phone. “Tax does not decide if we win or lose. This is not a big enough issue that it has that much impact on our business model.”

    Smallwood also said he believes the risk of the CRA’s proposal becoming fact is extremely low.

    Harquail agreed that offshore streaming deals typically aren’t profitable solely because of tax structure, but said the proposed taxation changes could make deals “less profitable.”

    In contrast to Silver Wheaton, which generates its revenue from streaming arrangements, Franco-Nevada has always preferred to own the property on which the mining takes place, Harquail said. It charges energy and mining companies a percentage of their production as a cost of doing business on the land in a royalty arrangement.

    He said only seven of Franco-Nevada’s more than 385 financing assets are offshore streaming structures.
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    Base Metals

    Chile’s Codelco to issue $2.5 billion in bonds amid copper prices collapse

    The copper giant is in the midst of executing a $25 billion investment plan aimed to expand its aging mines and search for new high-grade deposits.

    Chile's Codelco, the world’s No.1 copper producer, is about to issue a bond deal of up to $2.5 billion over the coming weeks, although it is not clear yet whether it would be in U.S. dollars or Euros, mine minister Aurora Williams said Thursday.

    Analysts think Codelco should have no trouble finding buyers in spite of weaker copper prices. "There are always headwinds, but (Codelco) is a strong credit," a banker told Diario Financiero.

    The copper giant, in the midst of executing a $25 billion investment plan aimed to expand its aging mines and search for new high-grade deposits, was promised a $225 million cash injection from the government last week.

    Though very few talk about it, Codelco is still suffering the consequences of a deal it signed with China's Minmetals back in 2006.

    According to that contract, Codelco agreed to sell Minmetal 55,750 tonnes of copper a year — or about 3% of its annual sales — until 2021, at prices equivalent to what the red metal was trading for in 2005.

    A new mine level being at Codelco’s El Teniente will extend the mine’s life by 50 years.

    The miner is still trying to wriggle out of such deal, but chief executive Nelson Pizarro doesn’t think the solution is that simple. "I do not think a contract review would be easy (…) I also think it is unlikely to happen soon,” he was quoted as saying by El Pulso(in Spanish).

    Copper was trading around $1.50 a pound at the time versus a market price of roughly $2.56 today, which means the tonnage iscurrently worth over $310 million versus $182 million 10 years ago.

    The government has said it would evaluate during the second half of the year "how the investment plan has moved forward to define how much additional capital (will be given to Codelco) this year."
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    Steel, Iron Ore and Coal

    Shenhua a step closer to building new coal mine in Australia

    China’s coal giant China Shenhua Energy Co., Ltd has won approval from the state government of New South Wales in Australia to build the Watermark coal mine, and is awaiting a green light from Canberra to start construction, the company said July 8.

    The mine, to be located 25 kilometres south-east of the northern NSW town of Gunnedah, was invested 8.53 billion yuan ($1.39 billion). It is expected to produce 10 million tonnes of coal each year during its 24-year life.

    China Shenhua bought the thermal and semi-soft coking coal project six years ago just before a peak in coal prices, which have since slumped to more than five-year lows.

    Winning state approval for the Shenhua Watermark mine, which would be the company's first new large-scale mine, involved six years of assessments and included modifications in response to concerns raised by farmers. The state has in the past year rejected other coal projects for environmental reasons.

    "Since Shenhua acquired the exploration license in 2008, we have worked tirelessly to demonstrate the project strikes the right balance to unlock the economic and social benefits of mining while ensuring the valuable agricultural production on the Liverpool Plains continues uninterrupted," project manager Paul Jackson said in a statement.

    The federal approval process is expected to take a few months. The company will then begin work on detailed design and management plans.

    With these elements in place, the mine may commence construction during 2015-2016, Jackson said.

    Coal production would begin towards the end of 2017 at the earliest, a spokesman said.
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    Iron ore price rockets 9.5%

    The price of iron ore surged, regaining much of yesterdays lost territory as authorities in top consumer China step in to calm markets rocked by steep declines on the country's equity markets.

    The benchmark 62% Fe import price including freight and insurance at the Chinese port of Tianjin jumped $4.20 or 9.5% to $48.30 a tonne according to data provided by The SteelIndex, the biggest one day jump on record.

    The resurgence comes just a day after a precipitous drop that saw the spot price reach an all-time low of $44.10 a tonne in a knee-jerk reaction to the chaos on Chinese equity markets.

    After almost halving in 2014, the price of iron ore is down 30% this year and amid all the gloom it's easy to forget just how much today's 1.3 billion tonnes seaborne trade has changed in just the last decade.

    The SteelIndex, a unit of Platts, first started tracking the spot price only in November 2009. Before the emergence of quarterly contract pricing and eventually a spot price, the seaborne trade was controlled by the Big 3 producers – Vale, Rio Tinto and BHP Billiton – which set prices during secretive negotiations with Japanese steelmakers and signed annual contracts.
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    Shanxi steel giant to pilot ecological design

    Shanxi's steel giant, Taiyuan Iron and Steel (Group) Co became a pilot enterprise of industrial ecological design, on the decision of the Ministry of Industry and Information Technology, according to the province¡¯s State-owned assets supervision and administration commission on July 7.

    During the pilot period, Taiyuan Iron and Steel Group will invest 800 million yuan ($128.88 million) for research and development of ecological products and green industrial chain. It will work for an entire circular industrial chain to get full use of solid waste and cyclic utlization of wastewater, and the ecological design system will be established in the enterprise.

    Early in 2013, the Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Environmental Protection jointly proposed guidance on ecological design, which declared that ecological design is significant to cut resource consumption and pollution during a product's life cycle.

    An initiative to establish pilots for ecological design was proposed by the Ministry of Industry and Information Technology the following year. 41 enterprises from eight sectors, including steel, construction materials and electronic and electrical products, stood out as pilots. Taiyuan Iron and Steel Group is the only one located in Shanxi.
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