Mark Latham Commodity Equity Intelligence Service

Tuesday 31st May 2016
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    Hollande says won't let protesters choke economy as police clear fuel picket

    French riot police removed picketers and barricades blocking access to a large fuel distribution depot as President Francois Hollande warned anti-reform protesters on Friday he would not let them strangle the economy.

    The police operation to free up a fuel depot near the Donges oil refinery in western France followed similar swoops at other depots this week to ease petrol shortages caused by picketers fighting planned labor law reforms.

    Although concerns were mounting about potential disruption to the Euro 2016 soccer tournament which begins in two weeks time, evidence elsewhere in the energy sectorindicated a slightly less tight supply compared with the previous day. Some 741 of oil major Total's 2,200 filling stations were out of fuel compared with 784 a day earlier.

    In the Seine Maritime region north of Paris, local government prefect Nicole Klein said the number of petrol stations without fuel had fallen significantly and lifted rationing orders.

    Nevertheless at the Fos-Lavera oil port in southern France, the country's biggest, about 38 oil tankers were queued up waiting to unload, up from 12 the previous day, a port authority spokeswoman said.

    Separately, the hardline CGT union said its members at the CIM oil terminal at the port of Le Havre, which handles 40 percent of French crude oil imports, had voted to extend their strike until Monday.

    Speaking in Japan after a summit with other world leaders, Hollande said France's economy was starting to pick up and should not be derailed by opponents of a reform designed to make hiring and firing easier to boost employment.

    "I will stay the course because this is a good reform and we must go all the way to adoption," the Socialist leader said. "This is not the time to put the French economy in difficulty."

    Hollande's appeal was directed above all at the CGT union, which is leading street protests, public transport strikes and fuel supply pickets that also risk disrupting the European soccer tournament France is hosting next month.
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    Bitcoin Surges To 2016 Highs On Rising Chinese Demand; Decouples From Gold

    Ever since last September, when we explained that as a result of China's crackdown on capital controls, the one clear winner (in addition to Vancouver real estate) would be bitcoin, the digital currency has more than doubled in dollar terms, rising from $230 and surging as high as $500 a few months later. Overnight bitcoin, which had traded in a stable range with little of its characteristic volatility in recent months, made its latest breakout, surging nearly 5% from a $440-level, to a fresh 2016 high of $480, and has since retracted the move modestly, trading at $475 at last check.

    This pushed bitcoin's price to the highest since its sharp breakout in early November, when it breifly topped $500.

    The rally started late last night, with bitcoin trading at around $450 when a 30-minute jump saw bitcoin price trading at $461. Before long, bitcoin price was hovering near the $470 mark.

    According to Cryptcoinnews, the increase in price can be attributed to the growing demand from the Chinese market, as predicted here almost a year ago when the price was 50% lower, as a result of the recent Yuan devaluation. CCN elaborated on the BTC/CNY exchange charts in yesterday’s analysis piece, speculating that the price will eventually strike out for $500.

    The last rally in bitcoin occurred last month to this very day, with trading hitting a high of $470 in the days following the release of the Segregated Witness (SegWit) code by developers.

    A notable observation about the recent breakout in bitcoin is that the digital currency, which for a period had tracked moves in gold, now appears to have officially decoupled from the precious metal.
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    Noble Group CEO quits unexpectedly, raising doubts over strategy

    Noble Group's CEO Yusuf Alireza quit on Monday, a surprise move that comes just weeks after he secured crucial financing for Asia's biggest commodity trader and raises questions about its future strategy.

    The embattled company named its president William Randall, and Jeff Frase, global head of oil liquids, as co-CEOs and said it would begin a sale process for Noble AmericasEnergy Solutions, which it had indicated to be valued at over $1.25 billion in August 2015. The changes are with immediate effect.

    The sale move is aimed at boosting the balance sheet of Singapore-listed Noble, which has been battered since early last year by a bruising accounting dispute and weak commodity markets.

    "The first task is to stabilize the situation and convey stability and continuity," said Nirgunan Tiruchelvam, an analyst at Religare Capital Markets. "That would be the immediate task of somebody in this business which has volatility," he said.

    Noble was accused in February 2015 by Iceberg Research of overstating its assets by billions of dollars, claims which Noble rejected. Since then, Noble's market value has plunged by about 75 percent, or over S$6 billion ($4.35 billion), to S$1.8 billion and its debt costs have risen as it lost its investment grade rating and battled the worst commodity price rout in decades.

    Alireza, a former Goldman Sachs Asia co-head who joined Noble four years ago, steered it into selling assets and cutting business lines as part of a radical transformation to become a company which did not own bulky assets.

    With the transformation process now largely complete, Alireza considered that the time was right for him to move on, Noble said. Alireza did not immediately respond to a request for comment. 

    Under his watch, Noble made small investments in commodity producers to secure marketing and supply rights, in some cases for as long as 20 years, according to sources.

    The company enlisted a team of quantitative analysts to design structured trades and business models involving long term commodity contracts, sources familiar with the situation have told Reuters.

    Critics have said the company booked profits upfront on some of the contracts, which were based on overly-optimistic assumptions about commodity prices. Noble has defended its accounting policies, and board-appointed consultants PricewaterhouseCoopers found it had complied with international accounting rules.

    Earlier this month, Noble finalised $3 billion in credit facilities, a crucial move allowing it to refinance all of its debt maturing this year as it reported a 62 percent fall in quarterly profit.
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    Trump and Brexit: watching the bookies.

    Image titleImage titleThat's a bull market! From 150 to 1 to evens in 2 years. 

    Image titleBrexit meanwhile is clearly  a short, despite polls which are volatile, inconsistent, and 'close'

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    Oil and Gas

    Iraq joins Mideast rivals raising oil exports ahead of OPEC meeting

    Iraq will supply 5 million barrels of extra crude to its partners in June, industry sources familiar with the issue said, joining other Middle East producers by lifting market share ahead of an OPEC meeting this week.

    Iraq, which is the second-largest producer in the Organization of Petroleum Exporting Countries, had already been targeting record crude export volumes from southern terminals next month of 3.47 million barrels per day.

    Saudi Arabia, Kuwait, Iran and the United Arab Emirates, also plan to raise supplies in the third quarter.

    A recovery in global oil prices from 12-year lows to above $50 a barrel and rivalry between Saudi Arabia and Iran have dampened expectations that OPEC will rein in supplies at Thursday's meeting.

    While additional exports could make up for shrinking output and supply disruptions elsewhere, the new supplies also risk delaying a re-balancing of a global market still awash with oil.

    "OPEC is indeed increasing supplies, practicing their market share first strategy," said Victor Shum, managing director of downstream energy consulting at IHS, referring to a Saudi-led drive to boost OPEC's production to take back market share.

    He said that additional oil from Saudi and Iraq may slow down a re-balancing of the global market, although this could be countered by supply disruptions from other places and strong seasonal demand.
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    Oil States Expected To Stick With Saudis: OPEC Reality Check

    Oil States Expected To Stick With Saudis: OPEC Reality Check

    OPEC members gathering in Vienna June 2 are expected to go along with a Saudi Arabia-led policy focused on squeezing out rivals amid signs the strategy is working. That means the meeting may be less fraught than the previous summit in December, which ended with public criticism of the Saudi position from Venezuela and Iran.

    By allowing prices to fall, high-cost producers are being forced out, easing the supply glut and spurring a rally of 80 percent since January to about $50 a barrel. All but one of 27 analysts surveyed by Bloomberg said the Organization of Petroleum Exporting Countries will stick with the strategy. An alternative proposal -- to freeze output -- was finally rejected in Doha last month.

    The group may also choose a secretary-general to replace Abdalla El-Badri, whose term has been extended after members failed to agree on a successor. In recent months, three new hopefuls have emerged to try and break the impasse: Nigeria’s Mohammed Barkindo, Indonesia’s Mahendra Siregar and Venezuela’s Ali Rodriguez.

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    Will Russia’s crude output levels surprise on the upside again?

    Russia’s oil sector has shown a surprising resilience to low oil prices and western sanctions over the past two years. The country’s output repeatedly hit new record highs despite various negative outlooks.

    This surprising pattern could well be repeated both this year and next should certain projects overcome delays and greenfields ramp up output.

    Independent research group Vygon Consulting, in its May study, said oil production in Russia is likely to continue growing not only this year — as was forecast by many market observers — but also next year.

    On top of this, the consultancy sees Russian crude production hitting the 11.3 million b/d level next year. If so, it will get close to Russia’s all-time high, recorded in 1987. This is well above other most optimistic estimates.

    A general consensus sees Russia’s crude production continuing to grow this year by around 100,000 b/d or even slightly above this figure. The growth is supported by investments made in previous years.

    Next year, however, output is expected to remain flat or even drop by around the same 100,000 b/d, as greenfields no longer compensate for growing natural decline at mature fields in West Siberia. This view is shared by many market experts both in Russia and abroad, although forecasted figures do differ somewhat.

    Russian and international estimates are not directly comparable due to use of different conversion factors for Russian crude and condensate volumes reported in mt.

    The International Energy Agency, for example, has warned that while Russia’s oil resource base is weakening, the commissioning of new fields is likely to be delayed in the coming years due to capex constraints and rising fiscal pressures, making it increasingly challenging for oil producers to maintain crude output.

    Vygon Consulting, however, believes that several new projects that are scheduled for commission both this and next year are unlikely to be delayed as they are ready to launch and key capital investments have already been committed to them.

    These projects include the Filanovskogo field in the Caspian Sea and the Messoyakha field in northern Siberia, set to come online by the end of this year and a number of new fields expected to start in 2017.

    In addition, already commissioned greenfields, including in the Arctic, could increase output to become drivers of crude production growth next year.
    As a result, the consultancy estimates, crude production from greenfields is likely to jump to nearly 1.5 million b/d, or 85%, in 2017, from its 2015 level, which would fully compensate for the natural decline elsewhere.

    Indeed, this outlook is much higher than the level of natural decline at old fields in Russia, with different estimates putting output at between 100,000 b/d and 400,000 b/d in 2015.

    The problem is that crude production in West Siberia is falling by around 3.5-4% a year, despite the sharp increase in drilling and wider use of enhanced oil recovery technologies seen last year. If those operations are reduced due to companies’ financial constraints, the natural decline could accelerate drastically.

    So far, however, production drilling — including the drilling of horizontal wells — is still on the rise as oil companies’ operations are supported by flexible taxation and the forex rate of ruble to dollar, mitigating cuts in oil prices.

    But there is the risk that Russia’s authorities could opt to increase the tax burden on oil companies to resolve budget problems.

    And while at present governmental officials have said there are no plans to raise these taxes, a different approach might prevail when the government considers how to meet the 2017 budget in the autumn.

    If the tax burden is increased, the outlook for Russia’s crude production could be quite different from that of current forecasts.
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    Gazprom explores cooperation possibilities with CNOOC and CNPC

    Gazprom has announced that a working meeting has taken place in Sochi, Russia, between the Chairman of the Gazprom Management Committee, Alexey Miller, and the Chairman of the Board of Directors of China National Petroleum Corp. (CNPC), Wang Yilin.

    The meeting focused on planned gas supplies to China through both eastern and western routes. It also looked at possibilities regarding cooperation in underground gas storage and gas-fired power generation, as well natural gas vehicles (NGVs).

    An additional meeting was held between Miller and the President of China National Offshore Oil Corp. (CNOOC), Liu Jian. This meeting looked at the possibility for cooperation in hydrocarbon exploration and production, as well as in the LNG industry.
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    Two More Militant Attacks on Nigerian Crude Pipeline

    In two simultaneous attacks late on Thursday, the Niger Delta Avengers (NDV) have targeted a state-run crude pipeline near the Batan oilfield.

    The oil and gas pipeline is near the Batan oilfield in Warri, and is operated by the state-run Nigerian National Petroleum Corporation (NNPC).

    African media suggest that the attack differed strategically from the series of attacks that preceded it because this pipeline was heavily guarded by state security forces and militants were demonstrating their reach and capabilities.

    The NDA claimed responsibility for the attack via its Twitter feed, its established method.

    "At 11:45pm on [email protected] blew up other #NNPC Gas and Crude trunkline close to Warri. Pipeline that was heavily guarded by Military," the group tweeted.

    The group rejected a meeting recently convened in Abuja by the federal government, warning of its readiness to carry out an attack that will "shock the whole world".

    "The Niger Delta stakeholder's meeting is an insult to the people of Niger Delta. What we need is a Sovereign State not pipeline Contracts,” NDA said.

    "To the IOC's, Indigenous Oil Companies and Nigeria Military. Watch out something big is about to happen and it will shock the whole world."

    Related: Why Canada’s Oil Sand Producers Will Recover Quickly From The Wildfires

    On Wednesday, the militant group blew up the main electricity feed pipeline at Chevron’s Escravos terminal, taking the terminal offline.

    Nigeria’s oil production has plunged by 40 percent, falling to just 1.4 million barrels per day, the lowest level in decades

    Last week, Italian oil giant Eni declared force majeure after another attack on its AGIP pipeline took oil offline. Earlier this month, Shell also declared force majeure on its exports of Bonny Light crude, evacuating staff from its Eja OML 79 production facility.

    The first week of May saw militants attack one of Chevron’s offshore platforms, the Okan facility, disrupting 90,000 barrels per day of oil production. The Okan facility, which it operates in conjunction with the Nigerian National Petroleum Corp., is also a gathering point for production from several fields, so the attack knocked off output from all of them at once.
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    Pemex Turmoil Batters Bond Traders Again as Supplier Defaults

    Pipeline builder Arendal S de RL has become the latest casualty of Mexico’s state-owned oil producer.

    The company defaulted on a $100 million bond that was due last week after Petroleos Mexicanos deferred plans to build two pipelines and delayed payments to suppliers. Arendal depends on Pemex, as the oil giant is known, for about 80 percent of its income. In February, Fitch Rating said that Pemex owed Arendal 1.8 billion pesos ($97.4 million).

    Battered by low oil prices and sinking output, Pemex owed suppliers $7.2 billion at the end of the first quarter, more than any other company in Latin America. It has extended the amount of time it takes to pay suppliers to 180 days from 20 as it cuts costs in the wake of 14 straight quarterly losses. Pemex, which has $95 billion of debt, has also slashed the day rates it pays to rent rigs, a move that triggered a default by supplier Oro Negro last year. The notes of fellow rig operator Offshore Drilling Holding SA fell to a record 29.5 cents on the dollar May 23, signaling investors are concerned it will struggle to repay the debt.

    “The delays in accounts receivable pressured their working capital,” Francisco Gutierrez, an analyst at S&P Global Ratings, said, referring to Arendal. “About 90 percent of Arendal’s projects are with Pemex, which shows how vulnerable they are.”

    Pemex didn’t reply to a request for comment on Arendal’s default and its treatment of its suppliers. Arendal declined to comment.

    On May 16, Pemex said it had cut its debt to suppliers by 92 billion pesos. The oil producer said it prioritized payments to companies it owed less than 85 million pesos each, which covered 90 percent of the companies it was indebted to.
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    Japan's LNG imports slip 3.3% on year in April; Qatar, Nigeria imports lower

    Japan's LNG imports reached 6.4 million mt in April, down 3.3% from a year ago, led by lower supply from Qatar and Nigeria, data released Friday by the Ministry of Finance showed.

    On a month-on-month basis, LNG imports also dropped 21.7% from March as the country entered shoulder months.

    Shipments from Australia reached 1.8 million mt in April, up 23.2% from a year ago.

    It was the largest LNG supplier with its volume representing 28% of Japan's overall imports.

    Malaysia came in second, supplying 1.18 million mt in April, rising 7% from a year earlier.

    Imports from Qatar plunged 30.6% year on year to 841,520 mt in April, making Qatar the third-largest LNG supplier for the month.

    Shipments from Nigeria also fell 22.3% from a year earlier to 143,347 mt in April.

    Japan received no reloads from Europe and the number of exporting countries to Japan shrank to 10 in April, from 14 a year ago, with Yemen LNG shut since April 2015 amid increasing security concerns around the facility.

    The Japan Customs Cleared crude oil price was $36.957/b in April, down 34.1% from a year earlier but rose 15.5% from March.

    Some of Japan's long-term LNG contracts are linked to the JCC crude price but with a lag of a few months, so fluctuations in oil prices typically take time to be reflected in LNG prices.

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    Hercules Offshore to file for bankruptcy a second time

    Hercules Offshore Inc said it planned to file for prepackaged Chapter 11 bankruptcy, just six months after the rig contractor emerged from bankruptcy protection.

    The company said it had entered into a restructuring support agreement with some lenders, which will eventually allow it to place all its unsold assets into a wind-down vehicle until they can be sold.

    Hercules Offshore said its international units would not be included in the bankruptcy filing, but would be a part of the sale process.

    The company said in February that it was considering strategic options, including selling itself.

    Hercules filed for Chapter 11 bankruptcy protection in August 2015 and emerged from bankruptcy in November.

    "Since this time, the ongoing decline in oil prices, the consolidation of its U.S. customer base and the addition of new capacity have negatively impacted dayrates and demand for Hercules's services," the company said in a statement.
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    Weekly U.S. Oil Rig Count: Some Rig Repositioning

    The decline in domestic oil rigs resumed, with two rigs out of the count compared to last week. Total U.S. rig count remained flat with an increase of two natural gas rigs. The most interesting development was the appearance of new rigs in some of the lesser oil plays, which probably signals that producers are getting comfortable with $50/bbl oil as the baseline going forward.

    But there are some new rigs in lesser plays, which probably signals that producers are getting comfortable with oil staying at the $50 level.

    One new rig in Arkoma, Woodford, which went from zero rigs, to one rig.
    Two new rigs in Granite Wash.


    The oil rig count resumed its decline, with the domestic oil rig count down by two. There's some newfound confidence by producers, consistent with $50/bbl oil, as displayed by the appearance of new rigs in some of the lesser plays, which goes against the long term trend of moving rigs to the most productive regions. Overall, however, not that much new information in this report.
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    Suncor resumes oil-sands operations after wildfire shutdown

    Suncor Energy Inc. restarted oil-sands operations in the Regional Municipality of Wood Buffalo, an area in Canada that includes wildfire-ravaged Fort McMurray. It’s a move that enables thousands to return to work.

    Suncor and other oil-sands operators took offline this month more than 1 million barrels a day of output, as wildfires spread in the region and forced evacuations and the shutdown of pipelines and power supplies. “Cooler weather and several days of precipitation” have improved conditions, Canada’s largest energy company said in a statement on Sunday.

    Alberta lifted mandatory evacuation orders for the last of the accommodation and production sites on Monday, which started the process of inspections by forestry and health officials to make sure they’re safe. Officials say industry facilities are no longer at immediate risk as firefighters take advantage of better weather to keep the flames at bay.

    Suncor said 4,000 employees and contractors are back in the region, including Fort Hills workers, with an additional 3,500 people likely to return in the coming week.

    The company also reported operations are under way at the base plant mine and MacKay River, with initial production expected by the end of this week, according to the statement. No timeline was given for the joint venture with Syncrude Canada Ltd.

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    Alternative Energy

    Bids in for Moroccan solar project: consigning fossil fuels to their death bed.

    Saudi Arabia’s Acwa Power has submitted the lowest tariff price for the Noor solar photovoltaic project in Morocco.

    That bid amounts to 4.797 cents a kilowatt hour but more bids are to come as just three of the 20 prequalified groups submitted so far.

    The project, when built, will be Morocco’s large-scale photovoltaic solar scheme, with a capacity of 135-170 MW.

    Acwa Power, in consortium with the US’ First Solar, submitted a tariff of 4.797 cents a kilowatt hour ($c/kWh) for the project. This was slightly lower than the 4.81$c/kWh tariff submitted by the second-lowest bidder, the Saudi/Spanish FRV/Abdul Latif Jamil team.

    The Noor PV 1 project will be located over three sites: Ouarzazate, Laayoune and Boujdour. The Moroccan Agency for Solar Energy (Masen) has already awarded contracts for more than 500 MW of concentrated solar power (CSP) schemes, for the Noor 1, 2 and 3 projects, at the Ouarzazate site.

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    Offshore wind opportunities for the oil and gas supply chain

    The global oil and gas downturn continues to significantly impact the North Sea oil and gas industry. To help companies consider the opportunities in offshore wind, BVG Associates (BVGA) has produced an 'Oil and Gas Seize the Opportunity: Offshore Wind' guide for Scottish Enterprise. The guide highlights the opportunities for the oil and gas supply chain in the £210 billion global offshore wind CAPEX and OPEX expected by 2025.

    The guide shows how the oil and gas sector can transfer its skills and experience, built up over the last 50 years of working in some of the world's most challenging environments. Packed with case studies, it demonstrates how companies have successfully diversified into offshore wind from the oil and gas sector.

    For example, FoundOcean, the world's largest dedicated offshore grouting specialist, with a European Offshore Service Base in Livingston, first entered the offshore wind industry in 2010 following a 50-year history in oil and gas. The offshore wind sector now accounts for around half of the firm's revenues.

    Andrew Venn, FoundOcean Sales Director said: 'We realised that offshore wind was a market that offered us a diversification opportunity right on our doorstep. We identified that there was a gap in the market for companies, like ourselves, able to offer competitive and innovative solutions. Entering the offshore wind sector is challenging but get it right, and it can be a long-term part of a company's strategic vision with excellent global prospects.'

    Alan Duncan, Senior Associate at BVGA, said 'Scotland is leading the world in floating wind development and has helped the UK become a world leader for deployed offshore wind. Scotland's capable and dynamic oil and gas suppliers can play a key role in the offshore wind drive to increase innovation and reduce costs'.

    'This guide provides an opportunity map based on real examples from our industry engagement work. The offshore wind supply chain is broken down into 35 sub-elements. This allows oil and gas companies to identify where their specific opportunities lie and what they can learn from companies that have already achieved success,' added Duncan.

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    DECC proposes anaerobic digestion subsidy cuts

    The government has proposed to reduce support for anaerobic digestion (AD) projects in the UK.

    It has launched a consultation – open until 7th July – on revised support levels for AD and micro combined heat and power (mCHP) technologies currently eligible for the Feed-in Tariff (FiT) scheme.

    The initiative was launched in 2010 to encourage deployment of small scale low carbon power generation in the country.

    Anaerobic digestion is the process by which organic matter such as animal or food waste is broken down to produce biogas and biofertiliser.

    For projects under 250KW, DECC is proposing to reduce support from 8.21p/kWh to 5.98p/kWh.

    Tariffs for installations between 250KW-500KW would also be cut from 7.58p/kWh to 5.52p/kWh while those larger than 5,000KW would receive no subsidies.

    DECC states: “Our tariff-setting methodology considers AD installations claiming RHI [Renewable Heat Incentive] payments, relying on 100% food waste as their feedstock and receiving a gate fee of £20 per tonne. Analysis shows that such installations are able to make sufficient revenues to make the deployment of the plant viable and achieve a 9.1% rate of return without support from the generation tariff.”

    It adds it had projected 100 installations equating to 160MW of capacity by 2020/21 when the FiT scheme was launched.

    However by the end of March this year, the number of installations accredited under the FiT scheme was 250, with an installed capacity of 177MW.

    In contrast, mCHP plants “have not seen a sustained level of deployment”.

    Therefore DECC is proposing to maintain the current tariff for projects under 2KW at 13.61p/kWh.

    The technology was originally included in the FiT scheme as a pilot. The government claims support has been available for up to 30,000 installations, with an capacity of 2KW or less.

    However despite an increase in generation tariffs following the 2011/12 FiT review, deployment of mCHP has remained low with only 501 installations supported under the scheme by the end of 2015, with a further 158 commissioned and awaiting accreditation.

    Annual deployment rates have continued to fall since 2011 with only 18 installations deployed in 2015, DECC adds.

    A deployment cap of 3.6MW to March 2019 has been proposed.
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    EU to propose shorter glyphosate licence renewal -sources

    EU to propose shorter glyphosate licence renewal -sources

    European Union states will meet next week in an effort to agree a far shorter licence renewal for herbicide glyphosate before the current one expires, which would require the phasing out of products such as Monsanto's Roundup.

    The EU executive will put a new proposal for a licence renewal of between one and two years to experts from the EU's 28 nations on June 6, according to EU sources.

    The Commission initially proposed a 15-year authorisation, which it later cut to nine years, amid a transatlantic row over whether glyphosate may cause cancer.

    It twice delayed a vote to extend the licence because it lacked sufficient support, following opposition from France and Germany.

    Glyphosate is widely used by farmers and gardeners, but approval for its use in the EU expires at the end of June.

    It is still unclear whether the Commission will have the qualified majority needed for a binding decision, as Germany has said it would abstain from voting because ministries run by different parties in the ruling coalition are at odds.

    If no decision is reached, manufacturers will have six months to phase out glyphosate products from the market.

    Contradictory findings on its carcinogenic risks by various scientific bodies and public campaigning by citizens groups and non-governmental organisations have thrust glyphosate into the centre of a dispute among EU and U.S. politicians, regulators and researchers.
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    Base Metals

    Chile's copper output drops in April due to heavy rains

    Copper output in world No. 1 producer Chile fell in April as some mines in the central part of the country were hit by heavy rains and ore grades continued to decline, the government said on Monday.

    Chile, which produces one-third of the world's copper, is struggling with dwindling ore grades in many of its aging deposits at a time when mining companies are implementing cost-cutting measures to address a steep drop in metals prices.

    Copper mines in Chile produced 432,277 tonnes of copper in April, an 8.2 percent decrease from the previous year, the INE statistics agency said.

    At the height of the El Nino mid-April rains, Anglo American Plc and state-owned producer Codelco temporarily suspended operations at two major copper mines with combined annual capacity of 880,000 tonnes.

    From January through April, Chilean mines produced 1.83 million tonnes of copper, a 4.7 percent decrease from a year earlier.

    Production of molybdenum, a metal used to harden steel, jumped 21 percent in April to 4,103 tonnes. Output of molybdenum totaled 19,121 tonnes in the January through April period, a 37.9 percent increase from a year earlier.

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    Aluminium producer seeks Q3 premium of $110/T from Japan buyers -sources

    A major aluminium producer has offered Japanese buyers a premium of $110 per tonne for July-September primary metal shipments, down 4-6 percent from the previous quarter, three sources directly involved in pricing talks said on Monday.

    Japan is Asia's biggest importer of the metal and the premiums for primary metal shipments it agrees to pay each quarter over the London Metal Exchange (LME) cash price set the benchmark for the region.

    For the April-June quarter, Japanese buyers agreed to pay producers a premium of $115-$117 per tonne PREM-ALUM-JP, up about 5-6 percent from the prior quarter, due to lower local inventories.

    The latest quarterly pricing negotiations began late last week between Japanese buyers and miners including Rio Tinto Ltd , Alcoa Inc and South32 Ltd, and are expected to continue in June.

    A source at a smelter said the decline mirrored falling inventories in Japan and weaker overseas premiums.

    Aluminium stocks at three major Japanese ports - Yokohama, Nagoya and Osaka - fell 6 percent from a month earlier to 324,800 tonnes at the end of April, according to tradinghouse Marubeni Corp.

    That inventory has been dropping since hitting a peak in May last year as buyers reduced imports, with the April figure down more than 30 percent from a year earlier.

    "The U.S. and European premiums had weakened earlier this year though they have somewhat recovered since hitting bottoms," the smelter source said.

    U.S. aluminium premiums on the CME are siting at 7.9 cents per pound, down from around 9 cents in late February, while take up of the contract is at record highs, according to open interest which is standing at around 28,000 lots.

    Comex European premiums are standing about $78.30 a tonne, down from $113.80 in late December, but slightly firmer than six-month lows of around $70 a month ago.

    One end-user source said Japanese buyers were not willing to accept the offer, blaming recent spot premiums standing at around $90 per tonne.

    "We have been unhappy about the recent quarterly premiums as they had not reflected real market condition and had stayed above spot premiums," the source said.

    "Some buyers may even want to change the way we negotiate premiums every quarter if producers continue to seek much higher levels than spot market."
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    Alcoa's spin-off plan sparks dispute with Australian partner Alumina

    Australia's Alumina has "serious concerns" about the impact of a demerger plan of US partner Alcoa on the pair's bauxite and alumina production joint venture, the Australian company said on Monday. Alumina said in a statement that it was concerned the plan would "result in a material adverse change in the nature, size, scope and financial wherewithal of Alumina's partner in AWAC (Alcoa Worldwide Alumina and Chemicals)." 

    Alcoa's plan, disclosed in September, would separate the company's plane and car parts business under the name Arconic, while the traditional aluminium smelting operations, including the 60 percent stake in AWAC, would retain the Alcoa name. 

    On Friday, Alcoa filed a lawsuit at the Court of Chancery in Delaware, seeking a declaration that Alumina has no right to block the plan and has no consent rights or rights of first refusal in relation to the plan. "Alcoa's separation does not require Alumina Limited's consent," Alcoa spokeswoman Monica Orbe said in an email on Monday. "We look forward to putting this matter behind us and launching new Alcoa and Arconic in the second half of 2016." 

    Alcoa also asked the court to declare its plan does not entitle Alumina to take over marketing rights in AWAC. "Alumina considers that Alcoa's demerger proposal triggers consent and 'first offer' rights in favour of Alumina under the AWAC arrangements," Alumina said in a statement to the Australian Securities Exchange. 

    "Alumina will vigorously defend the proceedings brought by Alcoa." In its court filing, Alcoa said that following its September announcement, it had received letters from Alumina. 

    Alcoa said in the filing that Alumina threatened to make "public statements about the separation and Defendants' objections to it that would harm Alcoa by casting a cloud over the separation, and disrupting AWAC's operations by purporting to 'assume' marketing rights that Alumina does not have." Alcoa said its demerger plan was similar to when Alumina split from Western Mining more than a decade ago. It said that at that time, Alcoa had no rights of first refusal or right to block the split under AWAC agreements. 

    Alumina has proposed amending AWAC agreements to protect the interests of Alumina shareholders, and said the two sides have been in talks since early this year. At present, Alumina does not have access to AWAC's cash flows and instead receives a dividend. Alumina's biggest shareholder is China's CITIC Resources Holdings Ltd, with a 17.9% stake. 

    Alcoa has yet to disclose how it would allocate debt and liabilities, such as pension and closure liabilities, when it splits. The case is Alcoa Inc v Alumina Limited, Alumina (USA) Inc, and Alumina International Holdings Pty Limited, Case No. 12385-, in the Court of Chancery, Delaware
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    Steel, Iron Ore and Coal

    ChemChina interested in Germany's SGL Carbon: Manager Magazin

    ChemChina is interested in buying SGL Carbon (SGCG.DE), Manager Magazin reported on Friday, one of a growing number of Chinese companies seeking to acquire key German industrial technology.

    Shares in SGL Carbon, which makes graphite electrodes for scrap metal recycling, jumped to a four-month high, trading 11.2 higher at 11.75 euros by 1045 GMT, valuing the company at just over 1 billion euros ($1.12 billion).

    SGL has been seeking a buyer for its graphite-electrode business, which has struggled since Chinese semi-finished steel became cheap enough to compete with scrap, sending demand for recycling equipment plunging.

    China is the world's biggest steel producer and consumer.

    SGL has warned that its operating income will fall markedly this year as prices at its graphite electrode business fall.

    A spokesman for SGL declined to say whether ChemChina was a possible buyer for the graphite electrode business but said that SGL was not seeking to sell the group as a whole.

    A person familiar with the matter said only the sale of that business was under consideration.

    Manager Magazin said that ChemChina would rather buy the whole company.

    Graphite electrodes are SGL's biggest business. SGL also makes other graphite products for the chemical, semiconductor, energy and automotive industries.

    Manager Magazin said ChemChina Chairman Ren Jianxin had held talks with SGL Chief Executive Juergen Koehler and with Quandt family heiress Susanne Klatten, who owns 27 percent of SGL.
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    Glencore bids for Anglo American’s coal mines in Australia

    Glencore and Apollo Minerals are said to have made a joint bid for Anglo American's metallurgical coal mines in Australia, valued at up to $1.5 billion.

    According to The Australian, the companies are offering $1 billion for both Grosvenor and Moranbah mines, only days ahead of the June 6 deadline set by Anglo for final bids.

    The Queensland-based operations have been up for sale since February, when chief executive officer Mark Cutifani singled out the assets the firm had decided to offload after a prolonged commodities rout left it with high levels of debt.

    He said at the time that Anglo American expected to generate between $3bn and $4bn from asset sales this year.

    Other firms have also circled the coal mines at various stages of the process, including BHP Billion, South32 and X2, with varying reports as to which remain in contention.

    From those, Glencore is the one that has been more vocal about its intentions to take advantage of the merger and acquisitions opportunities in the market at the moment. In March, CEO Ivan Glasenberg said he was “looking at everything,” as long as the asset purchases wouldn’t undermine the company’s balance sheet.

    Last month, Anglo sold its 70% stake in Foxleigh coal mine, also located in Queensland, to a consortium led by Taurus Fund Management, an Australian fund manager that invests in the commodities industry. The total amount was not disclosed.
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    China’s coal industry Jan-Apr profits down 92.2pct on year

    China's coal mining and washing industry profits plunged 92.2% from last year to 960 million yuan ($146.6 million) over January-April, according to data released by the National Bureau of Statistics (NBS) on May 27.

    During the same period, the coal mining and washing industry realized revenue of 653.3 billion yuan, dropping 14.8% from a year ago, data showed.

    Total profit of the country’s entire mining industry also declined 104.8% on year to the loss of 4.03 billion yuan during the same period.

    Meanwhile, profit in ferrous and non-ferrous metal mining industry fell 9.4% and 8.1% on year to 10.17 billion and 11.63 billion yuan, respectively.

    The profit of the power and heat generation industry dipped 0.5 % from the year prior to 149.23 billion yuan.
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    China’s coal price climbs to eight-month high amid supply cut

    China’s benchmark coal prices climbed to the highest since September as government steps to curb supply amid a glut and it started to take effect.

    Spot 5,500 Kcal/kg coal at the port of Qinhuangdao, China’s benchmark grade, rose 10 yuan/t to an average 395 yuan/t ($60) as of May 29, according to data from the china Coal Transport and Distribution Association in Beijing.

    The world’s largest coal producer is seeking to ease a glut of industrial capacity as it shifts toward consumer-led growth and tries to curb pollution. The nation’s coal production fell 11% to 268 million tons in April. That’s the biggest slump in data going back to April 2015, when the bureau resumed releasing coal production figures.

    "We believe the supply-side reform impacts are kicking in and should sustain," said Michelle Leung, a Hong Kong-based analyst at Bloomberg Intelligence. "Demand is still weak."

    Qinhuangdao coal prices may rise 20%t to 450 yuan/t by December, Citigroup Inc. analysts Jack Shang and Claire Jie Yuan wrote in a research note last week. The government has asked domestic miners to cut output by 16% and reduce their operating days to 276 from 330 annually, according to the report.
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    China’s key steel mills daily output at 1.75 mln T in mid-May

    The daily crude steel output of China’s key steel mills climbed 2.23% from ten days ago to 1.75 million tonnes in mid-May, hitting a new high since late-June last year, according to data released by the China Iron and Steel Association (CISA).

    China’s daily crude steel output is expected to be 2.35 million tonnes in mid-May, up 2.05% from ten days ago, CISA forecasted.

    Price of Tangshan steel billets dropped 23.5% to 1,820 yuan/t by May 30, compared with 2,380 yuan/t at the start of the month. Price of rebar in Shanghai stood at 2,300 yuan/t on the same day, falling 500 yuan/t from ten days ago and down 830 yuan/t from early May.

    By May 20, stocks of steel products in key steel mills rose 0.33% from ten days ago to 13.98 million tonnes; social stocks of steel products stood at 9.5 million tonnes by May 27, dropping 26.53% on year and down 0.78% on week.

    Analysts said the rainy season in eastern China may reduce purchase of steel products, and the volume of social stocks will mainly depend on the demand from downstream sectors in the future.

    Many steel makers turned profitability into losses again amid the steep monthly drop of steel prices in May. Domestic steel market is expected to stabilize in the short run.

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