Mark Latham Commodity Equity Intelligence Service

Tuesday 17th January 2017
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    China 2016 power consumption up 5pct on year, NEA

    China consumed 5,919.8 TWh of electricity in 2016, increasing by 5% year on year, showed data from the National Energy Administration (NEA) on January 16.

    Of this, 805.4 TWh was consumed by the residential segment, gaining 10.8% from a year earlier, data showed.

    For the non-residential segment, the primary industries – mainly the agricultural sector – used 107.5 TWh last year, rising 5.3% from the previous year.

    The secondary industries – mainly the industrial sector, consumed 4,210.8 TWh, increasing 2.9% year on year.

    Power consumption by tertiary industries – mainly the service sector – increased 11.2% on the year to 796.1 TWh.

    Meanwhile, the average utilization hours of power generating units across the country was 3,785 hours, down 203 hours from a year ago, according to the NEA data.

    Of this, hydropower plants logged average utilization of 3,621 hours, an increase of 31 hours; the average utilization of thermal power plants decreased 199 hours on year to 4,165 hours.

    In 2016, China added 120.61 GW of power generating capacity, including 11.74 GW of new hydropower and 48.36 GW of new thermal power capacity.
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    China's Xi says Chinese economy to keep growing steadily

    China's economy will remain stable and keep growing steadily while resisting protectionism, President Xi Jinping told Swiss executives on Monday.

    "We are confident" Xi said, adding that there were headwinds facing the global economy, which is still weak.

    "Overall China's economy is performing steadily. In 2016, last year, GDP is expected to grow by 6.7 percent on a year-on-year basis, and that means we missed our set target, but that expectation according to some international institutions will be among the highest among major economies."

    "Protectionism, populism and de-globalization are on the rise. It’s not good for closer economic cooperation globally," he said.

    Xi, on a state visit to Switzerland before a keynote speech at the World Economic Forum in Davos, said China's economy, with growth expected at 6.7 percent in 2016, was entering a "new normal", and Swiss firms could help it improve quality, and become more efficient, equitable and sustainable.

    “The restructuring of China’s economy and the upgrading of our industries will generate huge new demand.” Xi said.

    "In terms of intellectual manufacturing, finance, insurance, energy conservation, environmental protection, energy generation, electricity, food and medicine, Switzerland has advanced technology and... expertise and could be a new partner for innovation for China.”

    China owed its economic development to opening up, and Switzerland and China would work together to reject all forms of protectionism, he said.

    “We will expand the openness of our service sector and general manufacturing industry to provide more investment opportunities for foreign businesses and create a sound legal and policy environment a legal playing field.”

    China has become Swiss engineering company ABB's (ABBN.S) second biggest single market, behind only the United States, amid demand for high voltage transmission equipment for the country's burgeoning power grid and factory robots for the Middle Kingdom's car industry.

    Elevator maker Schindler has designs on rivaling bigger Kone and Otis, a unit of U.S.-based United Technologies, in China, where it has made acquisitions and expanded manufacturing facilities for elevators and escalators.

    China is the world's biggest elevator market, accounting for about 60 percent of all new equipment orders, and Schindler said it is scouting for more acquisitions.

    Swiss drug and chemical makers are also fanning out in China. Novartis (NOVN.S) just completed a $1 billion research campus in Shanghai, while Clariant (CLN.S) is pinning its hopes on rising Chinese consumer demand for products including ingredients for soaps.

    Meanwhile, China's state-owned China Construction Bank got its Swiss banking license in 2015 and signed a renminbi clearing agreement with Swiss-based Zuercher Kantonalbank just last September. Switzerland is seeking to become a hub of renminbi trading, as China seeks to internationalize its currency and reduce reliance on other nations' money for trade.

    Attached Files
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    Henan to cap energy consumption this year

    China's central province of Henan planned to cap total energy consumption within 245 million tonnes of standard coal equivalent in 2017, a year-on-year rise of 2.9%, as part of its efforts to realize low-carbon development, according to local officials at a meeting.

    Total energy output across the province is expected to gain 6.7% from a year ago to 110 million tonnes of standard coal equivalent this year, while its dependence on outbound energy supply will be some 50%.

    The province will invest more than 68 billion yuan ($9.86 billion) into energy projects in 2017, in a bid to accelerate upgrading of its energy structure and ensure energy supply.

    Last year, the province plowed over 70 billion yuan into major energy projects, with 38 billion yuan into power grid and 12.5 billion yuan into renewable projects, both hitting a record high.
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    Singapore’s Export Growth Beats Forecasts for Second Month

    Non-oil exports up 9.4% in Dec with strong electronics sales
    Exports to China rose 40%, while demand from U.S. fell 17%

    Singapore’s exports surged above economists’ forecasts for a second consecutive month, signaling a recovery in the trade-dependent economy.

    Key Points

    Non-oil domestic exports rose 9.4 percent in December from a year ago, International Enterprise Singapore said in a report. The median estimate of 15 economists surveyed by Bloomberg was for a 5.8 percent increase.
    Electronics exports increased 5.7 percent in the period, after a 3.5 percent gain in November.
    Non-oil exports rose 1 percent in the month, compared with a median forecast for a 5.5 percent contraction.

    Big Picture

    A slowdown in global trade and lower oil prices have undermined growth in the export-driven economy, but a strong reading in November, when exports soared 11.5 percent despite a forecast for a small decline, has given hope for some improvement. The economy is expected to continue a modest pace of expansion, Ravi Menon, managing director of the Monetary Authority of Singapore, said Monday, with authorities forecasting growth of 1 percent to 3 percent for this year. Trade-oriented industries should benefit from a mild upturn in global and regional electronics, he said. Earlier this month, the trade ministry said preliminary data showed the economy expanded an annualized 9.1 percent in the three months to December from the previous quarter.

    Economist Takeaways

    “Given Singapore is the canary in the coal mine, today’s positive non-oil domestic exports print corroborates with recent trade data which showed a notable rebound in exports in most Asian countries. This suggests the tentative end of the trade recession which has plagued the region since late 2014,” Australia & New Zealand Banking Group Ltd. analyst Weiwen Ng said in a note. “While this development is encouraging, we are cognizant of the risk that the rebound in non-oil domestic exports is in its nascent stage and could be dampened or even derailed by geopolitical tensions and rise in protectionism.”
    “There are signs of improvement but the improvement will be gradual,” Julian Wee, a Singapore-based senior market strategist at National Australia Bank Ltd., said by phone. “Cyclically, there is a recovery in China but you’re definitely not going back to 8 percent growth. Quarter to quarter there may be some improvement, and that’s what you’re seeing. There will be a deceleration in China’s growth overall.”

    Other Details

    Pharmaceuticals exports rose 7.3 percent in December from a year ago
    Petrochemicals surged 28.5 percent
    Exports to China increased by 40 percent from December last year, while those to the U.S. fell 17 percent

    Attached Files
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    India's Reliance Industries Q3 net profit up 10 pct, beats estimate

    India's oil-to-telecoms conglomerate Reliance Industries Ltd beat analysts' estimates to post a 10 percent increase in third-quarter standalone net profit, as high margins from its core business of crude oil refining helped bolster earnings.

    The "standalone" profit and revenue figures include the company's refining and petrochemicals business and oil and gas exploration in India.

    Standalone net profit rose to 80.22 billion rupees ($1.18 billion) for the three months to Dec. 31 from 72.96 billion rupees reported a year earlier, Reliance, controlled by India's richest man Mukesh Ambani, said in a statement on Monday.

    Analysts on average had expected a standalone profit of 78.5 billion rupees, according to data compiled by Thomson Reuters.

    Its standalone revenues for the quarter came in at $9.8 billion, up 9 percent from a year ago due to higher margins from selling petrol and diesel.

    Refining and petrochemicals contribute around 90 percent to overall revenue and profit.

    The company said its gross refining margin, or profit earned on each barrel of crude processed - a key profitability gauge for a refiner - was $10.8 per barrel for the quarter.

    On a consolidated basis, which includes its telecom, retail and U.S. shale gas operations, its net profit came in at 75.67 billion rupees.

    Reliance commercially launched its fourth-generation (4G) telecoms network, Reliance Jio, on Sept. 1 offering free voice and data service to its subscribers until the end of March.

    The telecoms venture, in which the company has invested approximately $20 billion, had built a subscriber base of 72.4 million by Dec. 31, Reliance said.

    Reliance's flagship refining operations, with a 1.2 million barrels per day crude oil refinery in the western state of Gujarat, reported a 4.3 percent fall in profitability for the December quarter to $912 million.

    The petrochemicals business saw a 25.5 percent jump in profit to $486 million, Reliance said. ($1 = 68.0999 Indian rupees)
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    Datang Int'l Power predicts over 2.5 bln yuan loss in 2016

    Datang International Power Generation Co., Ltd, a listed arm of China Datang Group, predicted a loss of 2.5-2.8 billion yuan in 2016, compared with net profit of 2.81 billion yuan in 2015, said the company in a statement released on January 14.

    The separation of its coal chemical business was cited for the deficit by the company, which reduced earnings of 5.52 billion yuan during the period.

    According to the statement, the government's curtailment of on-grid coal-fired power tariff early last year and a surge of domestic coal prices in the second half of 2016 all led to a year-on-year decline in earnings from the company's power business.
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    Rio Tinto payout hopes brighten on solid outlook for 2017

    Global miner Rio Tinto could be in a position to reward shareholders with a strong dividend hike or even a share buyback next year as it benefits from a sharp rise in metals prices, fund managers and analysts said on Tuesday.

    Rio Tinto's decision last year to pursue "value over volume" at its mines to ensure maximum shareholder returns has put the world's second biggest mining company at the forefront of the commodities price revival.

    It reported output and shipments for 2016 in line with its guidance on Tuesday and kept its targets for 2017 intact, expecting to ship 330 million-340 million tonnes of iron ore.

    "Our disciplined approach remains in place in 2017, with the continued focus on productivity, cost reduction and commercial excellence," Rio Tinto Chief Executive Jean-Sébastien Jacques said in releasing the company's full-year operations report.

    Two fund managers said Rio Tinto's 2016 performance and outlook for 2017 could prompt the board to consider boosting shareholders' returns, including buybacks.

    "Depending on what commodity prices are like through the end of the year and what options they have in terms of reinvestment, we may see some form of capital return," said Arnhem Investment Management portfolio manager Neil Boyd-Clark.

    Iron ore prices last year defied forecasts, rising sharply as Chinese steel production was stronger than expected, but most forecasters doubt prices will remain high over 2017.

    Iron ore, Rio Tinto's biggest earner, is selling for more than $83 a ton, up 6 percent in the past two weeks following an 81 percent gain over 2016.

    That's more than double the record low price of $38.30 a ton in December 2015, which led the company to dump its policy of never cutting dividends after suffering an $866 million loss for 2015.

    For 2016, Rio Tinto is forecast to report net profit of $4.6 billion, according to Thomson Reuters I/B/E/S, and has committed to pay out at least $1.10 per share. Analysts tip Rio will pay a dividend of $1.34 for 2016, rising to $1.76 for 2017.

    Prices of copper and aluminum, two other key drivers, rose 25 percent and 12 percent respectively in 2016 and continue to climb this year.

    Shaw & Partners analyst Peter O'Connor believes Rio Tinto could generate as much as $6 billion in free cash this year and again in 2018, setting the stage for higher returns to investors.

    "Couple that with gearing at the low end of the guidance range, we expect that some pretty chunky capital management is on the agenda, i.e. dividend payout to head towards the higher end of the 40-60 percent band and a share buyback or two," he said in a note.
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    Protests In Mexico Push Country To Brink Of Revolution And Nobody’s Talking About It

    Long-simmering social tensions in Mexico are threatening to boil over as failing neoliberal reforms to the country’s formerly nationalized gas sector are compounded by open corruption, stagnant standards of living, and rampant inflation.

    The U.S. media has remained mostly mute on the situation in Mexico, even as the unfolding civil unrest has closed the U.S.-Mexico border in San Diego, California, several times in the past week. Ongoing “gasolinazo” protests in Mexico over a 20 percent rise is gas prices have led to over 400 arrests, 250 looted stores, and six deaths. Roads are being blockaded, borders closed, and government buildings are being sacked. Protests have remained relatively peaceful overall, except for several isolated violent acts, which activists have blamed on government infiltrators.

    The few mainstream news reports that have covered the situation blame rising gas prices but fail to examine several other factors that are pushing Mexico to the brink of revolution.

    ‘Narco-state’ corruption

    The narco-state, or as Mexican activists say, “el narco-gobierno,” is a term used to describe the open corruption between the Mexican government and drug cartels. The narco-state has been in the headlines lately over the kidnapping and presumed murder of 43 Ayotzinapa students in Iguala, Guerrero, in 2014. This has been a source of continuous anti-government protests ever since.

    Though the kidnappings remain officially unsolved, members of the Guerrero Unidos drug cartel have admitted to colluding with local police forces to silence the student activists. Twenty police officers have been arrested in association with the kidnapping. Former Iguala police chief Felipe Flores has been arrested and “accused of offenses including organized crime and kidnapping the students,” the AP reports. The corruption apparently goes all the way to the top, as federal authorities say former Iguala mayor José Luis Abarca personally ordered the kidnappings.

    One Mexican activist who wished to remain anonymous told Anti-Media that “a lot of people think it’s only the gasoline prices, but the price of gas is just the straw that broke the camel’s back. It all started with Ayotzinapa.”

    Much like the U.S., the Mexican government is susceptible to corporate influence. It just so happens that the most influential corporate entities in Mexico are drug cartels — and it’s hard for the government to rein in entities that fund and infiltrate it. Similar to the phenomenon of “regulatory capture,” the Mexican government is at least partially funded and co-opted by drug cartels. This festering problem is an underlying factor in the current civil unrest in Mexico.

    Neoliberal policies left the working class behind

    NAFTA was a contentious issue in the 2016 U.S. presidential election, but it’s just as controversial in Mexico, if not more so. The grand 1994 “free trade” scheme, signed into law by Bill Clinton, saw a dramatic redesign of both the U.S. and Mexican economic landscapes. Corn farmers, long a vital factor in Mexico’s peasant farming economy, were wiped out by low-priced corn subsidized by the U.S. government, which immediately flooded Mexican markets after NAFTA was passed. The Mexican immigration crisis at the U.S.’ southern border soon followed.

    Meanwhile, manufacturing plants soon began moving into Mexico from the U.S. to take advantage of extremely cheap labor — leaving many workers in the U.S. out of a job. American agricultural corporations like Driscoll’s have recently come under fire for employing slave-like labor conditions to produce boutique organic fruit for U.S. consumers. Protests for workers rights in Mexico, which recently raised its minimum wage to 80 pesos (~$4) per day, are often met with heavy-handed police crackdowns.

    Incoming President Trump has capitalized on two issues caused by NAFTA — the immigration crisis and outsourcing of U.S. jobs — and his reactionary protectionist economic policies will undoubtedly make Mexico’s predicament even worse.

    Mexico’s nationalized oil conglomerate, Pemex, has been plagued by falling production for years. Corruption, which is inherent to state-run institutions, has condemned Mexico’s gas industry to inefficiency and stalled innovation. Theft has become a widespread issue, and oil workers were recently caught red-handed siphoning gas directly out of pipelines.

    Supposedly to ramp up production and lower prices, the Mexican government pushed through neoliberal privatization schemes in 2013 and 2014, which were backed by U.S. oil interests and incubated by the Hillary Clinton-run State Department. President Enrique Peña Nieto promised the reforms would result in increased production and lower fuel prices, though production has fallen and prices spiked 20 percent on January 1st. Prices are expected to rise even further, as fuel subsidies will be completely phased out by March 2017. Peña Nieto claims the prices must go up to match international prices, though consumers in the U.S. currently pay less for gas than Mexicans.

    Peña Nieto’s neoliberal reforms have fallen flat as economic growth has been anemic for years and wealth inequality has grown out of control.

    Rampant inflation in Mexico

    Perhaps the biggest driver of the current civil upheaval in Mexico is out of control inflation coupled with the value of the peso reaching record lows. Mexican workers are already stretched thin financially as minimum wage hovers at four U.S. dollars per day. Food prices, which were on the rise before the gas price increases, are set to climb 20 percent or more as they correlate closely with prices at the pump.

    According to Zero Hedge, in Mexico it currently takes “the equivalent of 12 days of a minimum wage to fill a tank of gas — compared to the U.S.’ seven hours.” People who don’t drive will also feel the pain, as public transportation costs are likely to rise with fuel prices. Rising gas prices also put downward pressure on the rest of the Mexican economy as workers spend more money on gas and less on consumer goods.

    The Mexican government’s deficit spending and Trump’s tough talk on trade have been factors in devaluing the peso, making everything in Mexico more expensive for the working class and driving the general discontent that makes the country a hotbed of unrest.

    Overall, no one factor can be blamed for causing extreme levels of unrest in Mexico. Before the Ayotzinapa student kidnappings, Mexico was already seeing widespread protests, marches, and strikes. The last several presidential elections have been contested, and the current administration of Enrique Peña Nieto has only a 22 percent approval rating. The general feeling of helplessness in the face of narco-state corruption and economic insecurity is not going away with the next election or protest, and wealth inequality in the country is beyond remedy. Mexico is ripe for revolution. Whether it’s triggered now by the gas gouging and subsequent inflation or in the near future, it’s coming — and we should be talking about it.
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    Oil and Gas

    Strong Asian demand props up cash differentials for Mideast medium heavy sour crude

    Strong demand from Asian refiners amid healthy distillate cracks and expected implementations of OPEC production cuts have propped up cash differentials of Middle Eastern medium heavy sour crude for March loading, traders said late last week.

    Spot cargoes of March-loading Qatar Marine crude were heard sold at premiums ranging between 10 cents/b and 20 cents/b to the grade's official selling price, traders said. They added that all spot cargoes for March loading could have been sold.

    "All [Qatar Marine] cargoes [for March loading] are gone," said a North Asian crude trader.

    Apart from Qatar Marine, March-loading Upper Zakum crude cargoes were heard to have changed hands at premiums of between 20 cents/b and 25 cents/b to the grade's OSP.

    Inpex and ExxonMobil were heard to have sold a cargo each to Shell, while some cargoes could have been placed to Japanese end-users, traders said.

    Two March-loading Dubai crude cargoes were also heard to have been placed at premiums of around 20 cents/b to Dubai crude, traders said. Further information on the trades remained unclear.

    Traders indicated that strong cracks for heavy and middle distillates and expected cuts to supply are supporting sentiment for the medium, heavy grades.

    Second-month 180 CST and 380 CST high sulfur fuel oil to Dubai crude swap cracks averaged minus $2.15/b and minus $3.02/b respectively in January to date, the highest since July and June 2012 when they averaged at minus $1.83/b and minus $2.25/b respectively, S&P Global Platts data showed.

    Second-month gasoil and jet fuel to Dubai crude swap cracks, meanwhile, averaged $11.75/b and $12.48/b respectively in January to date, hovering close to the 11-month highs of $12.37/b and $13.02/b in October respectively, the data showed.

    Meanwhile, traders continue to await the issuance of Qatar Petroleum's Al-Shaheen crude tender. Starting from January, QP would undertake all of Qatar's crude and condensate sales process previously conducted by state-owned petroleum and petrochemicals marketing company Tasweeq, following the successful integration of the trading arm into the national oil company, QP said in an email notice earlier this month.

    Last month, Tasweeq was heard to have sold five cargoes of Al-Shaheen crude for loading over February 1-2, February 3-4, February 12-13, February 25-26 and February 26-27 at discounts of around 20-30 cents/b to Platts front-month Dubai assessments, traders said.

    Traders are also awaiting the outcome of Bahrain Petroleum Co.'s tender offering March-loading Banoco Arab Medium which closed on Friday. Traders indicated that there were no tenders from Bapco for February loading Banoco Arab Medium last month because of additional demand from term buyers.

    It was last heard to have sold a January loading cargo of the crude, via tender, to a western trading house at a premium of around 5 cents/b to Saudi Aramco's OSP for Arab Medium.

    Meanwhile, traders said they expected Middle Eastern light sour crude grades to remain under pressure for March loading.

    "[Because of the narrow EFS] arbitrage cargoes [coming to Asia will] mostly [affect demand for] the lighter grades ... Middle East light sour grades are under pressure," said an East Asian crude trader.

    Second-month Brent/Dubai Exchange of Futures for Swaps -- which enables holders of ICE Brent futures to exchange a Brent futures position for a Dubai crude swap -- was assessed at $1.65/b on Friday.

    The second-month EFS averaged $1.81/b in January to date, compared with $2.17/b in December, Platts data showed.

    Attached Files
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    Saudi energy minister: unlikely to extend producers' agreement

    OPEC and non-OPEC producers are unlikely to extend their agreement to cut oil output beyond six months, because of the level of compliance with the deal and the rebalancing of the market, Saudi Arabian Energy Minister Khalid al-Falih said on Monday.

    However Falih, speaking to reporters on the sidelines of an industry event in Abu Dhabi, also said producers would reassess the situation and extend the agreement if necessary.

    "We don't think it's necessary given the level of compliance...and given the expectations of demand," he said.

    "My expectations (are)...that the rebalancing that started slowly in 2016 will have its full impact by the first half."

    Falih said: "Based on my judgment today it's unlikely that we will need to continue (the agreement) - demand will pick up in the summer and we want to make sure that the market is supplied well. We don't want to create a shortage or squeeze.

    "The extension will only happen if there is a need."

    Attached Files
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    Icy conditions, non-OPEC cut could hit Q1 Far East Russian crude exports

    A double whammy of icy conditions in the oil fields in the Russian Far East and the major non-OPEC producer's latest promise to cut production could lead to a decline in Sokol and Sakhalin Blend crude exports in the first quarter, market sources said Monday.

    Heading into the second half of the March trading cycle, clarity over the loading dates for light sweet Far East Russian grades was still lacking and market participants continued to await the release of full loading details for the month.

    The general expectation, however, was that exports of the Far East Russian grades for Q1 may drop from the previous quarter as production and logistics are hampered by extreme cold winter conditions, traders said.

    "Sokol's final [March-loading] program will only be [confirmed by] next Friday ... it's much later than usual," said a source with direct knowledge of the light sweet crude's monthly exports, indicating that monthly loading details for the light sweet crude are typically announced within the first week of every calendar month.

    Abnormally cold weather has prevailed in January in many parts of Siberia, with weather services registering temperatures of around minus 50 C last week, some 15 C below normal.

    Meanwhile, the waters around the DeKastri terminal near Sakhalin Island, as of Sunday, were at sub-zero temperatures, with at least 40% of the sea surface in that area covered in ice, the Hydro-meteorological Centre of Russia website showed Monday.

    "Suppliers selling their [Sokol and Sakhalin Blend] cargoes on a CFR delivered basis need to prepare ice-breaking vessels," a trader with a Japanese refining company said previously.

    "[Production and] loading operations can take longer in frozen environment as well ... there are lots of planning to do," the trader added. Furthermore, "Russia has agreed to cut its output as well," said a North Asian crude trader. "It seems the [very cold] weather [conditions] would naturally help them to implement that [production cut agreement]," he added.

    Late last year, non-OPEC producers, led by Russia, had agreed to cut output by 558,000 b/d in the first half of 2017, with Russia set to cut 300,000 b/d. Russia is one of five countries on a monitoring committee overseeing the implementation of the deal.

    Russia has started reducing its crude output as part of a production-cut deal with OPEC, with the fall in the first 10 days of the year higher than initially expected, energy minister Alexander Novak said last week. FEB, MAR EXPORTS SEEN LOWER VS JAN

    The last Far East Russian loading program seen by S&P Global Platts indicated that a total of 11 cargoes of Sokol crude would be exported in February, less than around 12-13 cargoes expected to load in January. ExxonMobil holds two cargoes for loading around February 8 and February 19, while Rosneft holds four cargoes for February 5, 9, 16 and 24. Marubeni, Itochu and Japex, members of the Tokyo-based Sakhalin Oil and Gas Development Co., also have one cargo each for loading in February.

    India's ONGC Videsh Ltd. sold two cargoes for loading over February 9-15 and February 21-27 via spot tenders in the previous trading cycle.

    Meanwhile, Sakhalin Energy was said to have sold a total of four 730,000-barrel cargo of Sakhalin Blend crude for loading over February 1-7, 9-15, 14-20 and 19-25 to South Korean and Japanese buyers, compared to a total of six cargoes sold for loading in January.

    "Probably the long delay [in the release of March Sokol and Sakhalin program] means the producers are planning some kind of [output] cut, whether it be due to Russia's policy or cold weather or both ... we might see rather low export volume for March," said another North Asian crude trader. Still, traders also pointed out that any Russian output reduction plans would be mostly geared toward the crude grades produced in the country's more productive northern and western regions.

    "[Sakhalin] output is relatively smaller than other regions [in Russia] ... we still might see a cargo or two less [for Sokol and Sakhalin Blend in March compared to February] but the bulk of the Russian production cut [if any] would be in the Siberia and Ural regions," said the first North Asian crude trader.
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    Progressing up the mountain of LNG

    The LNG market is in the earlier stages of an unprecedented ramp up in supply. Global liquefaction capacity is set to rise by more than 50% by 2022. 205 bcma (149 mtpa) of new liquefaction capacity is past the Financial Investment Division (FID) and is under construction or has come onstream since 2015.

    We published an article in early 2016 setting out the characteristics of this mountain of new LNG supply. As we enter 2017, we are only approximately 30% up the mountain. There remains over 145 bcma (101 mtpa) of capacity still to be commissioned across 2017-22. 130 bcma (96 mpta), almost 90% of the remaining volumes, will come online over the next three years alone.  In today’s article we return for a status check.

    Mountain characteristics

    New LNG supply is dominated by two sources:

    Australian LNG liquefaction capacity which reached FID between 2009-12 and is due to come online between 2015-17.
    US LNG export capacity which reached FID between 2012-15 and is due online 2017-20 (in addition to Sabine Pass trains 1 & 2 which were commissioned in 2016).

    Chart 1 shows an updated view of the mountain of supply volume breakdown we showed last year.

    Image title

    Chart 1: 2015-22 Mountain of new LNG supply updated

    Source: Timera Energy

    The 60 bcma (44 mtpa) of capacity delivered to date across 2015-16 has included:

    The three Queensland projects backed by coal bed methane (Curtis Island, Gladstone)
    Sabine Pass Trains 1 & 2
    Indonesia’s Donggi-Senoro plant
    Trains 1 & 2 of the giant West Australian Gorgon project

    The capacity volumes shown in Chart 1 are based on target dates for first cargoes. However the full impact of new supply from the projects commissioned to date has been diluted by project ramp up times and delays.

    The calm before the storm

    As observed in the last LNG supply growth surge in the late 2000s, there is a lag between anticipation and reality. New LNG trains typically have a commissioning ramp up time of 6 to 9 months from first cargo to full capacity. On top of this there have been a number of delays and disruptions to the ramp up of new LNG trains.

    Chevron’s Gorgon terminal has suffered perhaps the most prominent issues, with a series of unscheduled stoppages for maintenance disrupting supply from both Train 1 and 2. These issues, in addition to cold weather in China and nuclear maintenance in South Korea contributed to firming Asian spot LNG prices in Q4 2016. It should be noted however that despite these setbacks, Australian LNG exports for November 2016 were up 44% YoY.

    The remainder of the climb

    The impact of new supply is set to become more pronounced as 2017 progresses. Ramp up and teething issues for existing terminals are likely to recede. In addition the next wave of new projects are due to come online including the Wheatstone, Itchys and Prelude projects in Australia, the 1st train of the Russian Yamal terminal and Sabine Pass Train 3.

    The issue confronting the LNG market from 2017 is that the pace of growth in supply in the next three years is likely to significantly outstrip demand growth. There are likely to be two important implications of this:

    Increasing European imports: LNG cargoes that are surplus to Asian (& emerging market) requirements are likely to end up in Europe, given liquid hubs, flexible contractual structures and an ability for the power sector to absorb gas.
    Further price convergence: Surplus LNG is likely to put downwards pressure on spot price differentials between Asia, Europe and the US. This could see the trans-Atlantic spread between NBP/TTF and Henry Hub compressing to non-sunk variable costs below 1 $/mmbtu.

    Beyond 2017 all eyes shift to the US. There is a committed delivery pipeline of more than 80 bcma of US export capacity, most of which is due to come online in 2018-19. The US is also the most likely next source of new liquefaction FIDs to supply the LNG market in the 2020s. In addition to possible FID’s for Sabine Pass Train 6 and Corpus Christi Train 3, the Golden Pass project, awaiting non-FTA approval could add a further 20 bcma of export capacity if it proceeds.

    Perhaps most importantly, the growing supply glut is set to see a substantial increase in the role of Henry Hub in driving the level of global gas prices as LNG trading arbitrage narrows spreads between key regional price benchmarks.

    Attached Files
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    JKM monthly: Price for Feb delivery jumps 21% on month to $9.488/MMBtu

    The Platts JKM for February delivery averaged $9.488/MMBtu over December 16 to January 13, jumping 20.8% from a month earlier, on limited supply and demand from some end-users as well as traders and portfolio players.

    The shutdown at the Chevron-operated Gorgon LNG Train 1, on Barrow Island in Western Australia, from late November to early January provided support, with cargoes for February delivery heard to be limited.

    As a result, supply tenders concluded at strong levels.

    Chinese CNOOC's sell tender offered one DES cargo each for February and March, which were heard awarded to Trafigura and Glencore, respectively, market sources said.

    The February cargo was heard to be awarded at $9.65/MBtu to $9.70/MMBtu while the March cargo was awarded at $8.45/MMBtu to $8.5/MMBtu, according to the sources.

    Both cargoes were heard to be re-marketed from Shell's long-term contracted LNG supply.

    Demand from India also emerged with Indian Oil Corp., Bharat Petroleum Corp Ltd. and Gail all issuing tenders.

    Gail was looking for one cargo a month for January to March delivery, but in the end only fulfilled its February requirement between the high-$9s/MMBtu and the low-$10s/MMBtu, sources said.

    After ending 2016 at $9.75/MMBtu, the highest since January 9, 2015, the Platts JKM for February delivery came under a little pressure amid emerging new supply.

    Gorgon Train 1 resumed production on January 2 while Angola LNG, which went into a controlled shutdown in late December, resumed offering cargoes via tenders.

    More supply tenders also hit the market, with Abu Dhabi's Adgas launching on January 9 a sell tender for a single FOB cargo for mid-February loading.

    Other tenders included Australia Pacific LNG offering three DES cargoes for late Q2 to early Q3 delivery, and GLNG issuing a bilateral tender for a February cargo.


    In the US, front-month NYMEX Henry Hub gas futures over December 16 to January 13 averaged $3.443/MMBtu, rising 60.7% year on year, and up 5.1% month on month.

    The Platts FOB Qinhuangdao coal price over the same period averaged at $4.014/MMBtu, surging 61% year on year.

    Platts FOB Singapore 180 CST fuel oil over December 16 to January 13 averaged 10.7% higher month on month and shot up 110.5% year on year at $8.619/MMBtu.
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    South Korean LNG imports boosted by winter demand

    South Korea, the world’s second-largest buyer of LNG, boosted its imports of the chilled fuel by 13.5 percent in December year-on-year, according to the customs data.

    The country imported 4.03 million mt of LNG in December, as compared to 3.55 million mt in the corresponding month the year before.

    It is expected that the demand for LNG for power generation will continue to rise due to the colder-than-usual temperatures in the midst of the heating season.

    South Korea paid about US$1.55 billion for December imports, 3.1 percent down year-on-year, the data showed.

    The world’s largest LNG exporter, Qatar, remained the dominant source of South Korean imports with 1.3 million mt of the chilled fuel imported from Qatar in December.

    Australia was replaced as the second largest exporter to South Korea by Malaysia that exported 653,332 mt, while imports from Australia reached 547,049 mt during the month.

    The remaining volumes imported into South Korea were sourced from Oman, Indonesia, Russia, Nigeria, Brunei, Papua New Guinea, United Kingdom, Norway, and the United States.

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    Russia's Gazprom says exports to Germany hit record high in 2016

    Russian gas producer Gazprom said on Monday its gas exports to Germany hit a record high last year and have surged since the start of this year.

    It said it exported 49.8 billion cubic metres (bcm) of gas to Germany in 2016, surpassing a record 45.3 bcm in 2015.

    Germany is the biggest overseas market for state-run Gazprom, which currently supplies a third of Europe's gas.

    That has raised concern in Europe that the region is too reliant on Russian gas, and those concerns have risen since pricing spats between Moscow and Kiev disrupted supplies in the wake of Russia's seizure of Crimea from Ukraine in March 2014.

    Low oil prices have help spur demand for Russian gas as the prices of Gazprom's long-term gas contracts are pegged to the price of oil with a six- to nine-month time lag.

    The company said earlier this month its exports to countries outside the former Soviet Union had reached record highs since the start of 2017 due to cold weather in Europe.

    On Monday it said its exports to Europe and Turkey increased by 25.5 percent in the first half of this month from a year earlier. Exports to Germany jumped 21 percent during the period.

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    Total sees average gas price realisation up in Q4, OMV price slips

    France's Total said Monday its average global gas price realisation in the fourth quarter was $3.89/MMBtu, up from $3.45/MMBtu in the previous quarter as prices continued to recover from their multi-year lows earlier in 2016.

    While Total saw its Q4 realised price rise, fellow European oil and gas company, Austria's OMV, failed to increase its average realised price. In Q4, OMV saw its average price drop to Eur12.10/MWh -- the equivalent of around $3.76/MMBtu using current exchange rates -- down from Eur13.10/MWh in the previous quarter.

    Both companies' realised prices are down on Q4 2015, however, Total by 12.6% year-on-year and OMV by 17.6%.

    OMV also said its sales volumes in Q4 rose to 29.8 TWh from 28.7 TWh in Q4 2015 and from 22.2 TWh the previous quarter.

    Total's quarter-on-quarter rise in the realised gas price in Q4 came as global oil and gas prices were boosted from the early-year lows.

    Benchmark Brent crude averaged $49.30/b in Q4 compared with an average of just $33.90/b in Q1.

    US gas prices have also rallied, with the Henry Hub price currently running at around $3.40/MMBtu.

    European prices are currently higher still, with the Dutch TTF day-ahead price trading at the equivalent of $6.62/MMBtu, according to Platts' assessments.

    The US Energy Information Administration last week raised its forecast for first-quarter 2017 Henry Hub gas spot prices to $3.65/MMBtu, 29 cents above its December estimate.

    The agency, in its January Short-Term Energy Outlook, projected Henry Hub gas prices would average $3.55/MMBtu across all of calendar-year 2017, up from an average of $2.51/MMBtu in 2016.

    Those European majors with the most exposure to the US gas market remain the hardest hit as prices remain low, driven by the well-supplied market in the continued shale gas boom.

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    Noble Energy to buy Clayton Williams Energy for $2.7 billion

    Noble Energy to buy Clayton Williams Energy for $2.7 billion

    Oil producer Noble Energy Inc  said on Monday it would buy smaller rival Clayton Williams Energy Inc  for about $2.7 billion in a cash-and-stock deal to enhance its presence in the Permian Basin, the top U.S. oil field.

    Noble Energy said the deal includes 71,000 net acres in the core of the Southern Delaware Basin in Reeves and Ward counties in Texas, which are a part of the larger Permian Basin.

    The Permian basin has seen a slew of land acquisitions as producers scramble to gain or expand positions in the oil field, where drilling costs are low, in preparation for recovering oil prices.

    Under the deal's terms, Clayton Williams shareholders would receive 2.7874 shares of Noble Energy common stock and $34.75 in cash for each share of common stock held.

    The value of the transaction, based on Noble Energy's closing stock price as of Jan. 13, is about $139 per Clayton Williams Energy share or $3.2 billion in aggregate, including the assumption of about $500 million in net debt, the company said.

    Houston, Texas-based Noble Energy said its total capital budget for 2017 is now estimated at $2.1 billion-$2.5 billion and sees sales volumes between 410,000-420,000 barrels of oil equivalent per day (boepd)

    Noble Energy said it would fund the cash portion of the acquisition through a draw on its revolving credit facility, which stood untouched at $4 billion at the end of 2016, and expects to raise above $1 billion in 2017 through ongoing portfolio management and optimization.

    Noble Energy said the number of rigs on the new acreage is planned to accelerate to three by the end of this year, from one currently.

    Petrie Partners Securities LLC acted as financial adviser to Noble Energy, while Skadden, Arps, Slate, Meagher & Flom, LLP was the company's legal adviser. Evercore and Goldman, Sachs & Co were financial advisers to Clayton Williams Energy, and Latham & Watkins LLP acted as its legal adviser.

    The deal is expected to close in the second quarter of 2017.

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    Alternative Energy

    Saudi to launch $30-50 billion renewable energy program soon: minister

    Saudi energy minister Khalid al-Falih gestures during the 2017 budget news conference in Riyadh, Saudi Arabia December 22, 2016. REUTERS/Faisal Al Nasser

    Saudi Arabia will launch in coming weeks a renewable energy program that is expected to involve investment of between $30 billion and $50 billion by 2023, Saudi Energy Minister Khalid al-Falih said on Monday.

    Falih, speaking at an energy industry event in Abu Dhabi, said Riyadh would in the next few weeks start the first round of bidding for projects under the program, which would produce 10 gigawatts of power.

    In addition to that program, Riyadh is in the early stages of feasibility and design studies for its first two commercial nuclear reactors, which will total 2.8 gigawatts, he said.

    "There will be significant investment in nuclear energy," Falih said.

    Under an economic reform program launched last year, Saudi Arabia is seeking to use non-oil means to generate much of its additional future energy needs, to avoid running down oil resources which are required to generate foreign exchange through exports.

    Falih said Saudi Arabia was working on ways to connect its renewable energy projects with Yemen, Jordan and Egypt. "We will connect to Africa to exchange non-fossil sources of energy," he said, without elaborating.

    Its finances strained by low oil prices, Riyadh wants to conduct many of its future infrastructure projects through partnerships in which private companies from within the kingdom and abroad would bear much of the cost and risk.
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    Morocco: 170 MW of solar PV to be built at €0.042/kWh

    PV magazine previously reported that in November Morocco’s public agency for the renewable energies, Masen, signed a 20-year power purchase agreement (PPA) with Acwa Power for the development of 170 MW of solar PV plants.

    The new capacity regards the Noor PV 1 program, that consists of a 70 MW photovoltaic plant located in Ouarzazate, a 80 MW plant located in Laayoune and a 20 MW plant located in Boujdour.

    Masen told pv magazine that “the combined kilowatt hour (kWh) rate of the three projects making up the Noor PV 1 program (with an aggregate capacity of about 170 MW) is 0.46 dirhams (€0.042).”

    Morocco does not have a feed-in tariff yet.

    Saudi Arabia’s Acwa Power was selected after an international tender to develop, build and operate the three plants under a BOOT (Build, Operate, Own and Transfer) scheme.

    Masen has also confirmed that “the three PV plants should be transferred to Masen (not to the ONEE which is the national utility) at the end of the power purchase agreement.” This is 20 years after the date of commissioning the plants, which is expected in early 2018.

    Meanwhile, the PV sector is awaiting the results of the tender concerning the first phase of the Noor Midelt solar complex (‘Noor Midelt Phase 1 Projects’).

    Masen has previously told pv magazine that “this phase would cover two hybrid PV and CSP power plant projects with storage. The CSP gross capacity is expected to be between 150 MW and 190 MW for each project. The PV capacity is to be proposed by developers based on request for proposal (RfP) requirements.
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    Australian wheat to dominate Asian market in H1 2017 on competitive pricing: traders

    Australian wheat is expected to dominate Asia's market in the first half of 2017, as a large export surplus will pressure prices to be more competitive and attract buyers, traders said late last week.

    The world's fourth-largest wheat exporter is set to produce a record harvest of around 33 million mt for the 2016-2017 season (October-September), tipping record harvest of about 29.9 million mt set five years ago.

    Given higher production, exportable volume from Australia is estimated at 24.5 million mt for the 2016-2017 season, up 52.2% from the 2015-2016 season, which would exert tremendous pressure on producers to find outlets, according to traders.

    "Australian wheat sellers will have whole year round to clear its big crop, and quickly too, to avoid head-on-head bumps with other wheat origins, particularly Black Sea's new crop in Q2," commented a Singapore-based trader.

    Already, prices were lower for new crop in Australia, with the export value of Australian Premium White wheat with minimum 10.5% protein, transacted at $199/mt FOB Kwinana on January 12, down from $212-$213/mt FOB a year ago, according to S&P Global Platts data.

    Lower protein wheat, Australian Standard White with minimum 9% protein, was trading at around $186/mt FOB Kwinana, or about $200/mt CFR Indonesia, which was $5-$10/mt below the value of Black Sea 11.5% protein wheat.

    ASW is typically priced above Black Sea wheat. Over the 2015-2016 season, ASW was at a premium of $10-$15/mt over Black Sea wheat.

    Apart from an ample supply of ASW, the flip in the relative value between ASW and Black Sea wheat also stemmed from a rise in delivered prices of Black Sea wheat.

    "Higher shipping rates in November and [the] reluctance of farmers to sell, contributed to the higher Black Sea value to Southeast Asia," commented a trader.

    With the current ASW prices, there is "really no incentive" for buyers to switch to other origins, said millers and traders.

    Over November to January, more than 800,000 mt of ASW for February-April shipment were sold, with Southeast Asia being the predominant destination, according to Platts data.

    "With such a big crop this year, Australian exporters have had to buy back demand from the Black Sea and price to be more competitive in global markets," said James Foulsham, CBH's wheat trading manager in its weekly comment on January 13. CBH is the largest grain seller in Western Australia, the country's largest wheat exporter state.

    An ample global wheat supply, with the world's production expected to rise 2.34% from last year's record harvest to 752.7 million mt, have added further downward pressure to the market.

    Major exporting countries -- Black Sea, US and Canada -- are also sitting on large volumes of exportable wheat because of a big crop. This would imply tougher competition among major exporters, who would continue to eye the Asian market due to consumption growth.

    Platts assessed APW at $201/mt FOB Western Australia on January 13, while Russian 12.5% was assessed at $183/mt FOB Black Sea.

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    Base Metals

    Aluminium Disaster, as per Huffington Post.

    This devastation to workers, families, communities and corporations occurred even after Ormet had shuttered a smelter in Ohio in 2013, destroying 700 jobs and Century closed its Hawesville, Ky., smelter, killing 600 jobs, in August of 2015.

    It all happened as demand for aluminum in the United States increased.

    That doesn’t make sense until China’s role in this disaster is explained.

    That role is the reason the Obama administration filed a complaint against China with the World Trade Organization (WTO) last week. In this case, the President must ignore the old adage about speaking softly. To preserve a vital American manufacturing capability against predatory conduct by a foreign power, the administration must speak loudly and carry a big aluminum bat. 

    The bottom line is this: American corporations and American workers can compete with any counterpart in the world and win. But when the contest is with a country itself, defeat is virtually assured.

    In the case of aluminum, U.S. companies and workers are up against the entire country of China. That is because China is providing its aluminum industry with cheap loans from state-controlled banks and artificially low prices for critical manufacturing components and materials such as electricity, coal and alumina.

    By doing that, China is subsidizing its aluminum industry. And that is fine if China wants to use its revenues to support its aluminum manufacturing or sustain employment – as long as all of the aluminum is sold within China. When state-subsidized products are sold overseas, they distort free market pricing. And that’s why they’re banned.

    China agreed not to subsidize exports in order to get access to the WTO. But it has routinely and unabashedly flouted the rules on products ranging from tires to paper to steel to aluminum that it dumps on the American market, resulting in closed U.S. factories, killed U.S. jobs and bleak U.S. communities.

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    Australia government, Alcoa say making progress in aluminium smelter talks

    Plans to provide government support to keep open a 30-year-old aluminium smelter in Australia owned by Alcoa have made "progress", parties involved in talks said on Monday without giving details.

    The government is offering financial support to help supply the Portland smelter in southern Australia with sufficient power in the wake of a blackout late last year that left it running at only one-third of its 300,000-tonnes-per-year capacity. However, details are still being discussed.

    "Significant progress has been made over the weekend, with great demonstrations of good faith from all parties working to find a solution for the future of the Portland smelter," Australia's industry minister, Greg Hunt, and Victoria state treasurer Tim Pallas said in a joint statement.

    Alcoa and AGL Energy, which supplies the smelter with power, confirmed progress had been made in the latest discussions, but declined to elaborate.

    The smelter directly employs about 700 workers.

    The secretary of the Australian Workers Union in Victoria, Ben Davis, said the talks were a sign the smelter had a good chance of staying open.

    "I believe Alcoa wants to keep this smelter running," he said. "If they wanted to fold up the tent, they would have done it when they lost two-thirds of its capacity."

    Alcoa, the majority owner, has previously said it would continue to implement cost saving measures at the plant, but its future would be decided by an ability to remain internationally competitive.

    A rise in electricity prices had added to pressure on the smelter, which is also battling a glut in the aluminium market.
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    Steel, Iron Ore and Coal

    2017 regional de-capacity goals released to optimise coal, steel industries

    China's several provinces successively released their 2017 capacity cut goals for both coal and steel sectors, in order to further eliminate surplus capacity and optimize the industries.

    Coal-rich Shanxi province planned to slash 20 million tonnes per annum (Mtpa) of coal capacity and 1.7 Mtpa of steelmaking capacity this year. After curtailment of 23.25 Mtpa of coal capacity last year, overcapacity reduction and outdated capacity replacement will remain the top priority of the province in 2017.

    Hebei province in northern China will step up efforts to complete its de-capacity target set since 2013, which required 60 Mtpa of steel capacity, 61 Mtpa of cement capacity, 40 Mtpa of coal capacity to be cut by 2017.

    It meant the province will reduce coal and steel capacity of 7.42 Mtpa and 31.86 Mtpa this year.

    Jilin province voiced resolve in continuing de-capacity campaign in the new year, responding to the nation's supply-side structural reform. It planned to shed 3.14 Mtpa of coal capacity in 2017, and shut coal mines with annual capacity below 0.15 million tonnes.

    Meanwhile, Jilin-based Tonghua Iron and Steel Co., Ltd will be responsible for iron capacity elimination of 0.8 Mtpa in 2017.

    Guizhou province in southwestern China will close 120 coal mines this year, cutting 15 Mtpa of surplus capacity. The province also encouraged restructuring of coal producers, which required the number of coal mines to be halved and restructured producers to have annual production capacity of 0.3 million tonnes or more.

    Hubei province planned to shut all of its coal mines in the next two years, following coal capacity reduction of 10.11 Mtpa last year. A total of 15,429 layoffs will be resettled over 2016-2018.
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    Coal India's Central Coalfields raises coking coal prices

    Indian state-owned Coal India Limited's subsidiary Central Coalfields Limited has raised its coking coal prices with effect from Saturday.

    CIL did not specify how much prices had been raised in a filing to the Bombay Stock Exchange, saying only that it may help CIL earn Rupee 8.99 billion ($13.1 million) in additional revenue in the balance of fiscal 2016-17 -- January 13-March 31 -- and Rupee 2.22 billion in the next fiscal year.

    The increase in price was the result of subsuming a washery recovery charge or WRC, which was charged separately on non-linked washery grade coking coal, it said.

    CIL's unit Bharat Coking Coal Limited has also raised coking coal prices, by about 20%, which will help CIL earn additional revenue of Rupee 7.02 billion for the remainder of fiscal 2016-17 and Rupee 29.86 billion in fiscal 2017-18, the company said.

    Sources said the hikes added to cost pressures on Indian steelmakers already grappling with subdued demand and high import prices for coking coal.
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    Peabody Equity holders vs Creditors.

    A former lobbyist for Peabody and past chairman of the World Coal Association, Palmer naturally believes that coal’s prospects have rekindled with the administration of President-elect Donald J. Trump and Asia’s future growth. He points to the 20% rise in shares of rival Arch Coal (ARCH) since its October emergence from bankruptcy (see also “Arch Coal’s Shares Could Catch Fire,” Dec. 3, 2016) as a foretaste of the windfall he thinks Peabody’s reorganization plan would give to his former colleagues in management and to the investors who’d become the company’s new owners—prominent among them, Elliott Management, Discovery Capital Management, and Aurelius Capital Management.

    It’s not quite so clear whether Peabody’s postbankruptcy stock will taste sweet or like ash. The company didn’t respond to our queries and the hedge funds declined to comment. In recent weeks, the spot price for the coking coal used in metallurgy has receded 40%, and next quarter’s contract price will drop. Unsecured Peabody debt, which would convert into most of the new company’s equity under the reorganization plan, has traded down from 65 cents on the dollar to around 40. Expectations for Peabody’s resurgence have apparently cooled.

    Peabody’s current stock has meanwhile returned from $16 to $4.92, leaving it with an equity market valuation of $91 million. Shareholders like Palmer will ask the bankruptcy judge to appoint a committee to represent them in Peabody’s proceeding. But even with an equity holders’ committee, it’s unlikely that the bankruptcy will leave anything for existing stockholders. In bankruptcy, creditors rule and most Peabody creditors have already agreed to support the plan that cancels the stock.

    Before it sought bankruptcy protection last year, Peabody had been in the coal business for 133 years. Its stock market capitalization was around $20 billion in 2011 when it laid on debt to acquire the Australian metallurgical coal resources of Macarthur Coal to supplement its thermal coal business in the U.S. Thermal coal might sell for $50 a ton for the steam boilers of power plants, but scarcer coking coal shot above $250 a ton in 2008 and again in 2010–luring many coal companies to buy “met” coal resources.

    UNFORTUNATELY FOR MINERS, prices for both kinds of coal started a multiyear slump in 2012. Thermal coal’s share of U.S. power generation fell from nearly 50% to 30% as natural gas became abundant and cheap, thanks to fracking. As shown in the chart above, met coal prices also sank as China mined more, but then decided to decelerate its steel output. Peabody shares dropped with coal’s price. Last April, Peabody started bankruptcy proceedings to reduce the more than $7 billion in debt owed by its U.S. companies. Although its mines were still cash flow positive, Peabody lost money in 2015 and said restructuring would let it ride out “the storm that has beset the coal industry.”

    As disgruntled shareholders now point out, the storm soon passed. Not long after Peabody published an August 2016 business plan that forecast a price of just $95 a ton for met coal in 2017, market prices for both met and thermal coal staged a dramatic recovery. Benchmark contract prices for the largest steel mills rose to $200 for 2016’s fourth quarter—twice Peabody’s guidance–because of production bottlenecks in Australia and cutbacks Beijing imposed on miners. By December, the benchmark for 2017’s first quarter was set at $285 and spot pricing neared $300.

    On Dec. 8, hedge fund Mangrove Partners asked the judge to give existing shareholders a seat at the table, arguing that resurgent coal prices lifted the miner’s cash flows sufficiently to raise Peabody’s enterprise value above the $7.8 billion owed creditors, leaving equity holders “in the money” if only they could get a piece of the reorganized business. Otherwise, Mangrove’s motion warned that Peabody’s creditors would get a windfall like the one yielded by Arch Coal’s bankruptcy. In July, Arch’s advisors estimated that the stock market value of a reorganized company wouldn’t exceed $666 million–but in October, Arch exited bankruptcy at a $1.5 billion market cap and is now valued near $2 billion.

    Mangrove wouldn’t comment, but the equity holder’s concerns were shared in another court filing by a group of five fund managers who acquired Peabody debt that’s just above equity in the company’s capital structure.

    Just before Christmas, the company filed its reorganization plan with the court. It took passing note of the rise in coal prices, and nudged up its forecast to an average of $135 a ton for met coal in 2017. Even so, the plan stipulated an enterprise value for Peabody of just $4.3 billion. Because that number is billions less than the company’s debt, the plan provides nothing for current stockholders. Instead of cash, the plan would give unsecured creditors like Elliott most of the stock in a new Peabody. Top management, which owned less than 1% of the current stock, stands to get up to 10% of the new shares.

    Creditors have lined up behind the plan, to the disappointment of shareholders like Mark Gottlieb, a trader who notes that bondholders were offered deep discounts on the new Peabody’s stock if they quickly agreed to the plan.

    Shareholders may fight about the value of the Peabody enterprise–as shareholders did last year in the contentious bankruptcy of zinc producer Horsehead Holding. The judge in that case gave careful consideration to the stockholders’ arguments. Then he approved the reorganization plan that wiped them out. 

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    China halts over 100 coal-fired power projects

    China has ordered 11 provinces to stop 101 coal-fired power projects, some of which are under construction, with a combined installed capacity of more than 100 GW and an investment around 430 billion yuan ($62.30 billion), Caixin reported on January 17.

    In a document issued on January 14, the National Energy Administration (NEA) announced to suspend coal projects already under construction in some provinces and autonomous regions including Xinjiang, Inner Mongolia, Shanxi, Gansu, Ningxia, Qinghai, Shaanxi and other northwestern regions. These projects would no longer go ahead as part of measures outlined in the country's 13th Five Year Plan of Electricity Development.

    According to the document, China committed to cap coal-fired capacity below 1,100 GW by 2020, however, the new builds would have taken that figure to 1250 GW, breaching the government-set limit.

    Authorities asked provinces and multiples to stop approving coal plants back in March 2016, and in April implemented a "traffic light" approval system that shot down plans for 90% of upcoming plants. On September 23, 2016, the NEA suspended 15 coal-fired projects in nine provinces with combined capacity of 12.40 GW. In October, the NEA said it would postpone construction of some coal-fired plants that already had approvals.

    On November 7, 2016, the National Development and Reform Commission and the NEA jointly released the 13th Five Year Plan of Electricity Development, in which the country vowed to reduce coal-fired installed capacity to 55% of the total by 2020. To achieve the commitment, China should scrap and postpone coal-fired projects with capacity totaling over 150 GW during 2016-2020.

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    Whitehaven reports solid coal sales

    Whitehaven Coal, which mines in New South Wales' Gunnedah basin, has reported record quarterly and half-year metallurgical coal sales for the three and six months ended December.

    The miner reported on Monday that quarterly metallurgical coal sales had reached 1.2-million tonnes in the three months to December, and two-million tonnes in the interim period.

    Total coal sales for the quarter increased by 7% on the previous corresponding period to 5.3-million tonnes, with Whitehaven reporting that run-of-mine (RoM) coalproduction had reached 5.5-million tonnes during the quarter, up 2% on the previous corresponding period.

    Whitehaven told shareholders that the Maules Creek minedelivered 2.46-million tonnes of coal in the December quarter, 40% higher than the 1.75-million tonnes produced in the previous corresponding period.

    Production at the Narrabri mine was adversely impacted by geotechnical conditions during the quarter under review, with RoM production dropping by 24% on the previous corresponding period, to 1.87-million tonnes.

    The three Gunnedah opencut mines produced 1.13-million tonnes RoM coal during the quarter, and some 2.31-million tonnes in the six months to December. The Tarrawonga mineproduced 639 999 t, the Rocglen mine 242 000 t and the Werris Creek mine 246 000 t during the three months to December.
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    Iron-ore opens 2017 with a bang after flaying skeptics last year

    Iron-ore has carried last year’s bullish momentum into the start of 2017, with prices rallying to a two-year high amid speculation that China’s demand for overseas ore will hold up even as the world’s largest miners bring on new capacity.

    Ore with 62% content in Qingdao in China climbed 3.9% to $83.65 a dry metric ton, according to Metal Bulletin The commodity has risen 6.1% in 2017 after surging more than 80% last year.

    iron-ore has more than doubled since bottoming in December 2015 amid better-than-expected consumption in China after government stimulus. The latest upswing has been supported by signs that policy makers in the world’s top steelmaker are redoubling efforts to clamp down on outdated mill capacity, lifting steel prices and buttressing iron-ore. The advance has come even as banks including Barclays outline the case for weaker prices later in the year, and as Brazil’s Vale SA starts up output at its largest mine.

    “One of the major factors driving iron-ore prices at present is the greater emphasis by Chinese authorities on high-end steel products,” said Gavin Wendt, founding director and senior resource analyst at MineLife. “The balance of production is shifting toward premium steel products. China requires more imported iron-ore from Brazil and Australia to meet its requirements.”

    Earlier in Asia, SGX AsiaClear futures in Singapore jumped as much as 6.4% to $82.12 a metric ton, the highest level since October 2014, as the most-active contract in Dalian soared 7.6%. Rio Tinto Group rose as much as 2.4% in London while BHP Billiton added 0.9%.


    “Fundamentals do not explain the full price movement since last week, and that’s why I think speculation is playing the main role,” said Di Wang, an analyst at researcher CRU Group in Beijing. Steel and iron-ore futures climbed last week after the government vowed to continue capacity-cutting measures.

    Figures on Friday showed that China imported a record 1.024-billion tons in 2016, up 7.5% from a year earlier, with most cargoes from Australia and Brazil, the world’s top shippers. Purchases last month totaled about 89-million tons, compared with 96.3-million tons a year earlier.More supply is on the way, and stockpiles at ports in China are already at a record. In Brazil, Vale has been loading the first ore from its new S11D mine since Thursday, according to North Port Operations Manager Walter Pinheiro Filho. The $14-billion venture is the industry’s largest project.

    iron-ore is probably destined to retreat later this year as seaborne supply expands and demand plateaus or eases, according to Barclays. Current levels aren’t sustainable, analyst Dane Davis told Bloomberg in a January 12 interview.

    “Our key call, and the message we’re putting forward, is that the $80 price level does not represent a new normal for iron-ore prices, instead it’s a temporary blip,” New York-based Davis said in an interview. “I’m an analyst, not a psychic. But I do think over time, demand should start to slow down.”
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    Vale loads first iron-ore shipment from giant new S11D mine

    The world’s biggest iron-ore miner, Vale, has loaded the first ore from its largest-ever mine, the S11D project, in Canaã dos Carajás, southeast of Pará, at the Ponta de Madeira docks.

    On Friday, Vale loaded its first 26 500 t of commercial ore produced at the $14.4-billion mine in Brazil, divided into three vessels with capacity ranging between 73 000 t and 380 000 t.

    Vale noted that the surplus vessel capacity was filled with high-grade iron-ore fines from other mines in its northern operations – Carajás IOCJ. Carajás IOCJ, with 65% of iron content, represents 40% of Vale's sales. Until 2020, Carajás IOCJ will account for more than half of Vale’s output.

    The high quality of the ore extracted from the new mine will give the company flexibility to blend it in ports in Malaysia, China and Oman, with product produced in the so-called south and southeast systems, in Minas Gerais, improving the pricing of the final product, as well as extending the life of the mines in that state.

    S11D is expected to reach full output by 2018, enough to fill 225 Valemax ships – the largest cargo carriers in the world. The S11D mine will boost Vale’s current 109-million-ton capacity to 230-million tons a year, while having a smaller environmental footprint than existing operations.

    The S11D project does not include tailings dams owing to a combination of the high-quality ore and state-of-the-art beneficiation technology. The beneficiation process does not need water, making environment-friendly dry-stacking tailings disposal methods feasible.

    The project has adopted other technologies such as the implementation of a truckless system, in which ore is mined without the need to use "off-road trucks", which reduces greenhouse gas emissions and particulate matter.
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    Baosteel 2016 profits to surge 600-800pct on year

    Profit in Shanghai-based Baoshan Iron and Steel Co., Ltd. (Baosteel) was expected to surge 600-800% from the previous year in 2016, said the company lately.

    In 2015, Baosteel's profit stood at 1.013 billion yuan ($14.7 million), slumping 82.5% from the year prior, data showed.

    Meanwhile, Jiangsu Shagang Co., Ltd. and Fujian Sangang Minguang Co., Ltd. turned from losses to profit in 2016.

    Fujian Sangang Minguang predicted its net profit to be 538.6-742.9 million yuan in 2016, surging 180% year on year.

    The increase in profit was mainly attributed to rising steel prices and firm raw material prices, along with supply-side reform, a recovery in demand, and cost reduction at steel mills.

    During January-November last year, total profit at China's 99 major steel makers stood at 33.15 billion yuan, compared with a loss of 52.91 billion yuan in the same period of 2015.
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    China revises scrap processing guidelines in bid to starve induction furnaces

    China unveiled updated regulations for entry into the iron and steel scrap processing industry Friday, its latest move as part of a battle waged against induction furnace operators -- this time by starving them of a key raw material: scrap.

    The sale of scrap to induction furnace-based producers of construction steel will be forbidden, according to regulations that take effect from March 31, 2017, released by the Ministry of Industry and Information Technology.

    Selling scrap to operators of electric arc furnaces smaller than 30 mt will also become illegal, with with exception of high-alloy EAFs, the ministry said.

    China has set the complete elimination of induction furnaces as the cornerstone of this year's supply side structural reforms in steel, China Iron & Steel Association chairman Ma Guoqiang said last week.

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