Mark Latham Commodity Equity Intelligence Service

Tuesday 14th March 2017
Background Stories on

News and Views:

Attached Files


    China's economy gets off to strong start in 2017 as investment rebounds

    China issued a raft of upbeat data on Tuesday showing the economy got off to a strong start to 2017, supported by strong bank lending, a government infrastructure spree and a much-needed resurgence in private investment.

    Solid growth is welcome news for China's policymakers as they turn their focus to containing risks from a sharp build-up in debt ahead of a major leadership reshuffle later this year.

    But economists are not sure how long the pace can be sustained as the central bank takes a tighter stance on credit and exporters brace for a surge in U.S. protectionism.

    Fixed-asset investment expanded more strongly than expected in the first two months of the year as growth in private investment more than doubled from 2016, while surging demand for steel for new roads, bridges and homes lifted factory output.

    That added to readings last week showing robust imports, particularly of commodities such as iron ore, and a sharp rise in producer prices which is boosting industrial profits.

    "Today's data appeared to be mainly driven by infrastructure spending and a rebound in the real estate sector," said Zhou Hao, a Singapore-based economist at Commerzbank.

    China has cut its growth target to around 6.5 percent this year to give policymakers more room to push through painful reforms to reduce financial risks created by years of debt-fuelled stimulus. The world's second-largest economy grew 6.7 percent last year, the slowest pace in 26 years.

    China's first-quarter economic growth could accelerate to 7 percent year-on-year, from 6.8 percent in the last quarter, economists at OCBC wrote in a note last week.

    But OCBC and many other China watchers expect that pace will begin to slow starting in spring as the payoff from last year's stimulus spree begins to fade.

    "This strength remains heavily reliant on rapid investment growth that will be difficult to sustain given clear signals that the fiscal and monetary policy stance will be less supportive this year," says Julian Evans-Pritchard, a Singapore-based China Economist at Capital Economics.

    China's new loans fell sharply in February from near-record levels the previous month but were still higher than expected.

    ANZ said the rapid credit expansion might trigger further hikes in short-term interest rates, following two early this year, as policymakers remain concerned about high leverage in the economy.


    Analysts singled out an unexpectedly strong rebound in investment as particularly encouraging for China's outlook.

    Fixed-asset investment growth accelerated to 8.9 percent in January and February from the same period last year, largely due to strong property and infrastructure construction.

    Economists had expected investment growth of 8.2 percent, quickening from 8.1 percent in the whole of 2016.

    Growth in private investment quickened to 6.7 percent, more than twice the pace of last year, suggesting private firms are growing more optimistic about the business outlook.

    Sheng Laiyun, a spokesperson for the statistics bureau, attributed the rebound largely to better implementation of Public-Private Partnership (PPP) projects, which the government has been pushing to attract more private capital into traditionally state-dominated areas.

    Private investment had cooled sharply last year, with many smaller firms facing tough access to financing, tight profit margins and a crowding out by big state companies. Private investment accounts for about 60 percent of overall investment in China.

    Industrial output rose 6.3 percent, slightly more than expected and the best pace in nearly a year.

    China's steel mills are churning out as much metal as possible, enjoying their best profits in years, even as they worry that a year-long rally in prices is running out of steam, executives said.

    China combines January and February activity data in a bid to smooth out seasonal distortions caused by the timing of the long Lunar New Year holidays, which began in late January this year but fell in February last year.


    While activity data suggested generally resilient growth, analysts pointed out two potential areas of concern.

    Real estate data was mixed, with some hints that the sector may be showing signs of heating up again, despite a slew of government curbs since October to tame sharp home price rises.

    China's property sales by area surged 25.1 percent in the first two months from a year ago, well above the annual rate last year which was the fastest in seven years. It was also a marked surge from December.

    Real estate investment growth moderated but only slightly, to 8.9 percent from 11.1 percent in December, according to Reuters' calculations. It rose 6.9 percent in all of 2016.

    A rebound in the sector could risk another round of cooling measures which could drag on broader growth.

    Retail sales also disappointed.

    Sales grew 9.5 percent in the first two months of the year, the slowest pace in nearly two years and cooling from 10.9 percent in December.

    But the statistics bureau's Sheng told reporters "there is no problem with consumption in China", stressing weaker growth is mainly due to a slowdown in auto sales after the government rolled back tax breaks on small cars.


    China's economic outlook is also being clouded by increasing fears of protectionism under U.S. President Donald Trump.

    Trump plans to host President Xi Jinping at a summit next month, according to media, as his administration seeks to smooth relations which have got off to a rocky start.

    During the election campaign, Trump had threatened to label China a currency manipulator and impose huge tariffs on imports of Chinese goods.

    He has not followed through on either move yet, but the U.S. Treasury will issue its semi-annual currency report in April.
    Back to Top

    Chinese watchdogs to conduct strict environmental checks in April

    Chinese watchdogs will launch strict environmental checks on 15 provinces in April, including Hunan, Anhui, Xinjiang Uygur autonomous region, Tibet, Guizhou, Sichuan, Shanxi, Shandong, Tianjin, Hainan, Liaoning, Jilin, Zhejiang, Shanghai and Fujian, said Chen Jining, minister of the Environmental Protection Ministry.

    Relevant environmental inspections have been finished in a total of 16 provinces, which were aimed at strengthening local governments' responsibility of environmental protection, tackling environmental problems and establishing effective long-term environmental systems.

    Inspired by the central government's thorough checks, China's 21 provinces have rolled out documents to detail responsibilities of protecting environment, and 24 provinces revealed provincial plans of safety checks.

    A total of 24 provinces have released detailed regulations of accountability for any behaviours disrupting ecological environment.

    Environmental inspection panel sent by the central government conducted air-quality checks on Beijing, Tianjin, Hebei, Shanxi, Shandong and Henan between February 15 and March 15 this year.
    Back to Top

    Dow CEO: Chemical sector started manufacturing boom that can continue under Trump

    The shale boom offered a “lease on life” for the petrochemical sector to create new manufacturing in the U.S., and a broader manufacturing boom could continue under President Donald Trump, said Andrew Liveris, the longtime chairman and CEO of Dow Chemical.

    Recently tapped by Trump to lead his Manufacturing Jobs Initiative, Liveris said he sees the potential for an “American manufacturing renaissance” — one that embraces technology while training workers for the future.

    Speaking at the end of the CERAWeek by IHS Markit conference in Houston, Liveris promoted fair and open global trade, but he noted the understandable resistance to globalization.

    Liveris said he supported the notion of a globalization “pause,” but hopefully one that doesn’t last long. There’s a need to recalibrate and ensure that global growth doesn’t come at the expense of American workers. “It’s so important to not leave a substantial part of humanity behind,” he said.

    Liveris is taking more of a lead with Trump in part because he’s retiring later this year after the $130 billion Dow merger with DuPont is completed. DuPont CEO Ed Breen will be the CEO of the merged DowDuPont.

    However, Liveris, a native of Australia, was critical of Trump early in the presidential campaign, calling it the coming of the “Kardashian presidency.”

    Dow Chemical is buoyed of late by the cheap and ample natural gas feedstock in the U.S., leading to Dow investing more than $6 billion in expansions along the Gulf Coast, primarily south of Houston in Freeport and Lake Jackson.

    “‘We ain’t done yet,’ as Texans say,” Liveris said. “We’ve got more to invest.”

    However, he admitted the merger is largely investor driven. After the merger, DowDuPont will be splintered into three separate companies, including one still named Dow that would continue to own and run the Freeport complex.

    The materials science business would operate under the Dow name, the agribusiness under DuPont and specialty products under a yet-to-be determined brand.

    Not enough investors think long-term and that hurts larger businesses, Liveris said. “It does mean you have to go less diversified or more focused.” So there will be three highly focused DowDupont companies.

    “There’s a lot of money to be made in money,” he said. “The money sector is wanting to measure us.
    Back to Top

    China's 102 SOEs total debt ratio at 66.6%

    China's 102 state-owned enterprises reported total debt ratio at 66.6% presently, down from a ratio of 66.7% last year, said Xiao Yaqing, director of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), at a meeting on March 12.

    It indicated that the debt risks of Chinese state-owned companies are controllable, Xiao added.

    "The fundamental way for enterprises to lower debt ratio is profitability improvement. The blind investment should be strictly capped, while financing through trades for business expansion purpose should be curbed," said Xiao.

    The state-owned enterprises will give priority to deleveraging and reducing debt risks in the near future, and the SASAC will strengthen relevant inspection and supervision.
    Back to Top

    Anglo American plans pay cap after shareholder revolt

    Major miner Anglo American is set to cap executive bonuses, it said on Monday, following a shareholder revolt last year over high payouts even when the company's share price had crashed.

    In its annual report, Anglo American said on Monday it would reduce maximum annual bonuses for Chief Executive Mark Cutifani to 300 percent from 350 percent of basic salary, bringing it in line with other executive directors.

    For Cutifani, the limit is 13.1 million pounds ($16 million).

    The company also said that from this year, the value of long-term incentive plans (LTIP) would be capped at twice the face value of the award at the time of vesting - a response to shareholder concern that executives could gain from share price swings when they were not backed up by improved company strategy.

    "We were determined to address investors' concerns about the potential windfall gains for executive directors," Philip Hampton, chairman of the remuneration committee, wrote in the report.

    Even then, executives would only be eligible for the limit of twice the face value if they met performance targets.

    Cutifani's pay for 2016 was just under 4 million pounds, which included a cash bonus but no LTIP award as targets were not met.

    In addition, Anglo American said it was increasing executive directors' salaries in 2017 by 2 percent after freezing them in 2016 "to recognize the challenges faced by the Company at the beginning of the year".

    The increase in 2017 is in line with pay awards to the overall British employee population, it said.

    The new policy will be voted on at Anglo American's annual general meeting (AGM) in April.

    At last year's AGM, opposition to the remuneration policy was significant at close to 50 percent as shareholders objected to windfalls for directors linked to volatile commodity markets rather than shrewd strategy.

    After a widespread commodity slump at the end of 2015 and in early 2016, Anglo American recovered strongly last year when it was the top performer on the blue chip FTSE, rising around 300 percent.
    Back to Top

    Oil and Gas

    Russian oil major Rosneft says U.S. shale growth imperils OPEC deal

    A recovery in U.S. oil output may deter OPEC and non-OPEC producers from extending production cuts beyond June and might lead to a new price war, Russia's top oil major said on Monday.

    U.S. shale oil production had been in retreat as oil prices tumbled from above $100 a barrel in 2014 to below $30 in 2015, making costly fracking processes less profitable.

    A deal by the Organization of the Petroleum Exporting Countries with Russia and other producers to rein in output by 1.8 million barrels per day (bpd) for six months from Jan. 1 lifted prices but also encouraged U.S. firms to boost supplies.

    "It became evident that U.S. shale oil output has become and will remain a new global oil price regulator for the foreseeable future," Rosneft said in a written response to Reuters.

    "There are significant risks the (OPEC-led) deal won't be extended partially because of the main participants, but also because of the output dynamics in the United States, which will not want to join any deals in the foreseeable future."

    Russia agreed to join OPEC supply curbs late last year despite initial opposition from Rosneft's boss Igor Sechin, one of President Vladimir Putin's closest allies.

    "We think that in the long-term global oil demand dynamics and reduced investment during the period of ultra low prices will balance the market, but that the risk of a price war resuming remains," Rosneft wrote.

    Russia has yet to deliver on the pledged cuts, while Saudi Arabia has cut its production far below the levels it had pledged, compensating for waker compliance by other OPEC states.

    Rosneft said it came as a surprise to many observers that OPEC's compliance with cuts was more than 90 percent, and said the success was because the Saudi position on reducing production had "changed a great deal" from the past.

    The kingdom, the world's biggest oil exporter, had long refused to cut output under veteran oil minister Ali al-Naimi. He was replaced last year by Khalid al-Falih.

    "It was Saudi Arabia which initiated the pricing war in the first place with the aim of radically increasing its market share by squeezing out producers of 'costly' oil," Rosneft said, in a reference to shale producers.

    "This goal became impossible to reach because of the efficiency and viability of the Russian oil industry," it added.

    Naimi had forecast a collapse in output from Russia's mature fields. Instead, production has risen in the past two years to an all-time high of 11.2 million bpd, partly because a devaluation in the rouble reduced production costs.

    Rosneft said the only guaranteed route to balance the market was for all producers to limit supplies, but acknowledged this would not happen because U.S. shale producers would not join any such pact. U.S. law bars them from such action.
    Back to Top

    EU says Gazprom offer to avoid antitrust fines allays worries

    Gazprom is ready to comply with EU rules to end a five-year antitrust case and avoid fines, the bloc's competition commissioner said on Monday, signaling a thaw in business ties between Moscow and Brussels despite tensions over Ukraine.

    Eight member states in the east, all formerly dominated by Moscow, now have until May 4 to object to the EU executive's view and could try to seek changes in Gazprom's offer.

    The Russian state gas exporter, which supplies a third of the EU's gas, has been on the radar of EU regulators since 2012, culminating in charges in April 2015 that it overcharged customers in Central and Eastern Europe and blocked rivals.

    Since then, Gazprom has offered concessions aimed at staving off a potential fine of up to 10 percent of its global turnover.

    EU Competition Commissioner Margrethe Vestager, who has brought actions and levied fines against major U.S. multinationals such as Google, said Gazprom's offer allayed worries and provided "a forward looking solution".

    "Combined we think that these measures are important improvements to ensure the free flow of gas at competitive prices," Vestager said.

    Gazprom has agreed to fixed transparent fees and to allow clients the right to price revisions clauses in long-term contracts, EU regulators said.

    As part of the deal, Gazprom will also adapt contracts to remove barriers on the free flow of gas across borders and drop clauses in its supply contracts with wholesalers and some industrial customers barring them from exporting its gas to other countries.

    Within a bloc divided over its stance on Russia, some EU nations see the move towards a settlement as running counter to calls for more sanctions on Russia over its bombing in Syria.

    "The fundamental question is how friendly are we going to be with Gazprom," one senior EU diplomat said. "To some, it looks strange that the Commission is going after Apple and Google but not Gazprom."

    Vestager insisted during a news conference that her view was purely based on enforcing EU law and not influenced by politics.

    The EU executive is likely to receive tough feedback from the eight states at the heart of the case, with many already locked in a battle with the Commission over what they view as lenient treatment of Gazprom in other cases.

    Poland has said it will "play rough" with the EU across the board after a dispute on another matter last week. The other countries being asked for their views on Gazprom are three Baltic states, Bulgaria, Hungary, Slovakia and the Czech Republic.

    Vestager responded to criticism by saying the decision was divorced from politics and "would be most helpful to have the future behavior of Gazprom changed".

    With a settlement, Russia would accept EU authority in applying competition law - something it has long balked at. If Gazprom failed to comply and meet its commitments, the EU could resort to fines without reopening its case, Vestager said.
    Back to Top

    ‏Genscape Cushing inventory up

    Genscape Cushing +1.7mm bbls W/W

    Back to Top

    U.S. shale oil output to soar in April, Permian to hit fresh record

    U.S. shale oil production in April was set for its biggest monthly increase since October as output in the Permian Basin, America's fastest growing shale oil region, was expected to hit another record high, government data showed on Monday.

    Total shale oil production was expected to rise 109,000 barrels per day to 4.96 million bpd, according to the U.S. Energy Information Administration's drilling productivity report.

    Oil production in the Permian Basin in Texas and New Mexico, the largest U.S. shale oil field, was set to rise 79,000 bpd to 2.29 million bpd, the highest level on records dating back to 2007.

    In the Eagle Ford region in Texas, output was expected to grow nearly 28,000 bpd to 1.14 million bpd, the highest level since November.

    Production in the Bakken, however, was set to drop 10,000 bpd to 964,000 bpd, the only month-on-month decline across all seven basins used in the report. That would be the third consecutive monthly decline in the North Dakota basin.

    Meanwhile, U.S. natural gas production was projected to increase to a record high 49.6 billion cubic feet per day in April, the EIA said.

    That would be up almost 0.6 bcfd from March and would be the fourth monthly increase in a row.

    The EIA projected gas output would increase in all of the big shale basins in April, including the Eagle Ford, where production had been declining since January 2016.

    Output in the Marcellus formation in Pennsylvania and West Virginia, meanwhile, was set to grow by almost 0.2 bcfd to a record high near 19.2 bcfd in April, a sixth consecutive increase.

    EIA also said producers drilled 807 wells and completed 716 in the biggest shale basins in February, leaving total drilled but uncompleted wells (DUCs) up 91 at 5,443, the most since April 2016.

    Attached Files
    Back to Top

    DOE economist talks SPR exports, storage and sales

    The presenter who arguably received the best questions at Wednesday’s Crude Oil Quality Association meeting in New Orleans was the US Department of Energy’s economist, Kenneth Vincent.

    His presentation was part overview, such as the locations of the four salt caverns that hold the more than 700 million barrels of US oil – Texas and Louisiana, and the maximum drawdown capacity – 4.4 million b/d. But there were also some nuggets not found on factsheets such as the how the physical salt caverns are shrinking due to geological pressures and how “distribution issues are a major concern (for the DOE) currently and going forward.”

    Following the presentation, the overflowing room of oil industry participants had plenty of questions for Vincent. And if they didn’t know the answers, and I didn’t know the answers, I reckon you might be interested too:

    Q: Are there any restrictions on who you can sell to? Could you export oil anywhere?

    A: Vincent said since the US oil export ban has been lifted, the office received a legal opinion that it can’t export but it can sell to anyone, who can then export it.

    Q: Do you look at the type of oil you are storing so that it is what we need when the time comes?

    A: “Yes,” Vincent said, which got some chuckles from the crowd.

    After a brief pause he continued to say the strategic petroleum reserve stores about 60% medium sour and 40% sweet crudes that are amalgams from a bunch of different streams.

    “Our goal is to have oil as fungible as possible and support as many types as possible.”

    He said a common question is if the SPR should focus more on heavy oils, which account for a bulk of imports and are consumed by USGC refineries. However, he said no, that SPR isn’t focusing on adding more heavy oils. He said that heavy oil is “really hard” to store for long periods of time and that there is a lot more sweet oil going into the US refinery fleet.

    “We ultimately decided we weren’t going to put a big stake in the ground for changing the type of oil in the reserve but that is something we follow very closely.”

    Q: Do you consider the price of specific crude grades when making sales from the SPR?

    A: “Yes. Absolutely.”

    Vincent said there is a very rigorous process in place in trying to maximize returns for taxpayers.

    Q: Does the DOE have any input on pipeline reversals?

    A: “Absolutely not,” Vincent said. “We have no say.”
    Back to Top

    Proposed Permian Refinery Could Take 50,000 BOPD from West Texas Producers

    It’s small when you compare it to the top ten largest U.S. refineries, most located on the Gulf coast, all having capacities between 300,000 barrels and half a million barrels per day, but a small Texas-based energy company has announced its intention to build a 50,000-barrels per day crude oil refinery in a well-selected location: in the heart of the Permian basin.

    MMEX Resources Corporation (ticker: MMEX) said it will need $450 million to build the proposed refinery 20 miles northeast of Fort Stockton, Texas, near the Sulfur Junction spur of the Texas Pacifico Railroad. MMEX said the 250-acre facility intends to utilize its connection to existing railways to export diesel, gasoline, and jet fuels; liquefied petroleum gas; and crude oil to western Mexico and South America.

    Why is this important?

    Because the Permian basin, and the Midland basin within it, are extremely fast growing oil plays in which many independent E&Ps can drill wells, produce oil economically at today’s commodities prices—or at least at last week’s oil prices. (Prices for West Texas Intermediate dipped below $49 this week after a larger than expected inventory build, following a consistent ride in the $50-$54 per barrel range in recent weeks.) But takeaway capacity is not keeping up with the Permian basin’s growing oil production.

    Calling the Wolfcamp “the largest estimate of continuous oil that the USGS has ever assessed in the United States,” the USGS last fall pegged the Wolfcamp formation in the Midland basin at 20 billion barrels. E&Ps have cemented the reputation by making the Permian a favorite target of M&A and A&D activity. And rig counts have been growing fast.

    MMEX Resources President & CEO Jack Hanks said, “The existing facilities and pipeline networks are largely unequipped to handle this growth and are limiting where products can be transported. By building a state-of-the-art refinery along the region’s existing railway infrastructure, we hope to bring a local and export market for crude oil and refined products.”

    MMEX said it plans to surround the Pecos County refinery with an additional 250 acres of buffer property and leverage state-of-the-art emissions technologies to yield minimal environmental impact. It also expects to feature closed-in water and air-cooling systems, which will require very little local water resources.

    The company anticipates the 18-month construction process will create approximately 400 jobs in the area during peak construction, as well as foster a significant number of indirect jobs and revenue for companies in catering, workforce housing, construction, equipment and other industries.

    Once operational, the facility is expected to provide an estimated 100 permanent jobs and generate substantial tax revenue for Pecos County, the company said.

    MMEX purchased the rights to the project from Maple Resources Corporation. Construction is slated to begin in early 2018, following the permitting process, and the facility is projected to begin operations in 2019.

    MMEX is involved in oil, gas, refining and electric power projects in Texas, Peru, and other countries in Latin America. The company’s ability to build the proposed Permian refinery is subject to the receipt of required governmental permits and completion of required debt and equity financing, MMEX said.
    Back to Top

    WPX Energy: Keeping its Permian Basin Service Costs in Check

    Planning in the supply chain: industry expects service costs to rise 10%-15%, but WPX has a firm handle on costs in the Permian

    Everyone knew it would happen eventually: service costs are going on the rise. Halliburton talked about it as early as July of 2016, and over the course of the EnerCom Dallas oil and gas investment conference we heard it again and again.

    As activity continues to pick up on the drilling side of the equation, E&P companies need more services from the oilfield side of the industry. After two years of layoffs and slower drilling programs that will translate into more demand for fewer crews and less equipment, which is starting to play out in a 10%-15% expected increase in service costs for the coming year, according to a number of sources ranging from E&P decision makers to buyside and sellside analysts.

    Nowhere is this becoming more apparent than in the Permian, where strong returns have attracted a rush of capital and drilling activity outpaces the next most active basin by 4.5 times, according to information from Baker Hughes Industries . Many companies had the forethought to plan ahead, though, and they intend to reap the rewards moving forward.

    WPX Energy operates in the Delaware Basin, right at the heart of the Permian, and the company has been able to contract approximately 70% of its drilling and completion costs through 2017, mitigating the company’s exposure to service cost inflation.

    To better understand how WPX keeps its service costs in check in the most active oilfield in the U.S., Oil & Gas 360® spoke with WPX Director of E&P Services Alan Killion about the company’s supply chain management.

    WPX Energy offers insight into what it takes to manage costs in the Permian Basin

    “WPX has been proactive over the past year to work with the service providers on longer-term partnerships that are shielding WPX from the brisk pace of inflation,” said Killion. “Our goals are to find partners who want to grow with WPX long-term. Contracting with those companies requires an understanding of not only the current marketplace but also an alignment of goals.”

    At WPX, Killion’s group specializes in contracts, negotiating, analytics and technical aspects, such as understanding the pipe market all the way back to the mill, according to WPX. Killion’s experience as both a production engineer and trader for Occidental Petroleum  before moving into his role at WPX made him the right fit to understand markets and develop those partnerships.

    “The environment at WPX is an advantage because there’s so much emphasis on planning and forecasting. Since things are more predictable, we can make more of an impact,” said Killion.”

    Stimulation services and sand look to be the most pressing matters for now

    “The stimulation side of the business has seen the most constraint in the supply chain.  As we know from economics, anytime there’s a constraint in an area we tend to see inflationary dynamics,” explained Killion.

    “Pressure pumping crews are in short supply. We estimate that the market is approximately at a 95% utilization rate.  Until future crews hit the market, pricing in the marketplace will be pressured. We have seen the pressure pumping market increase approximately 250% to 300% for horsepower since Q4 2016.  As companies continue to add crews some of the price inflation will start to subside.”

    Sand will also continue to be a source of cost inflation for many companies moving forward. “Current sand capacity is listed at 110 million tons per year. In 2016, demand was approximately 40 million tons per year.  2017 projections are around 50 million tons per year, with 2018 pushing more toward 80 million tons,” said Killion, but those numbers include all types of sand, not just the fine sand that is in high demand for the increasingly intense frac jobs completed across the United States.

    Sand has seen 75%-100% inflation since late 2016

    “With this move to finer sand types, longer laterals and higher proppant concentrations, the sand market has experienced inflation of 75%-100% since late in 2016,” said Killion. “We see the same dynamics starting to occur in the OCTG (Oil Country Tubular Goods) market as well.”

    Because of the increasing demand in those particular areas, WPX worked to ensure that it would have long-term contracts to mitigate as much inflation as possible, explained Killion. “WPX has hydraulic horsepower and frac sand contracts in place into 2018.”

    Killion and his team expect to see similar increases in service cost across all basins, as well. “We have seen the inflation agnostic to basins at this time.  As frac crews and frac sand is somewhat fungible, these services try to migrate toward the most active basins when possible,” he explained.

    Don’t discount continued improvements in efficiency

    Many E&P companies are already including the 10%-15% increase in service costs in their forward-looking projections, but that does not mean that drilling and completion costs will rise in lock-step with price inflation. Companies continue to improve their drilling designs and increase the speed at which they can drill higher-performing wells.

    “It is somewhat difficult to say [what a 10% to 15% increase in service costs would mean for well economics] because each basin and each formation holds different economics, but it could wind up being a wash when you think about how much better we’re getting on the performance side,” said Killion. “The industry continues to find ways to drill and complete wells that yield reduced drill times and increased EURs.

    “WPX continues to set the bar higher on each of these fronts.

    “Last year we raised EURs in all three of our basins. And we completed a 16-day well in the Permian, and we’re still in the early learning phase. We also reduced drilling times in the Bakken by 5 days from 2015 to 2016. We have seen approximately 10% to 15% increase in the number of stages our stimulation partners can frac in a single day.  These improvements should offset inflation at a minimum,” he said.

    It’s all about communication and credibility

    Successfully finding the sweet spot between supply chain management, operations and vendors will help Killion and his team continue to improve WPX’s supply chain moving forward, he explained.

    “The two most critical pieces to making everything work are the 2 Cs – communication and credibility,” said Killion. “That ongoing, open dialogue is paramount, and the supply chain management team has to be credible and earn the trust of operations. We are not the tail wagging the dog. Our role is to support our asset teams and their business objectives. We make recommendations. They make decisions.”

    Attached Files
    Back to Top

    Shell shelves Prince Rupert LNG project in British Columbia

    The Hague-based LNG giant Shell said on Friday it is ending development of the proposed Prince Rupert liquefied natural gas export project in Canada’s British Columbia.

    BG International Limited, a member of the Shell Group, confirmed in a statement that the company would discontinue development of the proposed LNG project, located on Ridley Island at the Port of Prince Rupert.

    Acquired as part of the Shell and BG Group combination in 2016, the Prince Rupert LNG project has been part of a global portfolio review of combined assets, which resulted in the decision to discontinue further development, the statement said.

    “During the global portfolio review the local project team has continued to engage locally and to support environmental initiative and social investment activities in the area,” the statement said.

    The Prince Rupert office will remain open through May 2017 to complete community engagement.

    Prince Rupert LNG was planned to be developed in two phases with a production capacity of up to 21 million tonnes of LNG per year. Natural gas to the Ridley Island facility would have been received from northeast British Columbia via pipeline.

    The project received authorization in April 2014 from the National Energy Board to export LNG from the proposed liquefaction facility.
    Back to Top

    TransCanada Announces Successful Canadian Mainline Open Season Results

    News Release – TransCanada Corporation (TransCanada) today announced the successful conclusion of a long-term, fixed-price Open Season to transport natural gas on the Canadian Mainline from the Empress receipt point in Alberta to the Dawn hub in Southern Ontario. The company confirmed that its recent Open Season resulted in binding, long-term contracts from Western Canada Sedimentary Basin (WCSB) gas producers to transport 1.5 PJ/d of natural gas at a simplified toll of $0.77/GJ.

    “Today, WCSB producers are facing a much more challenging landscape than they have in the past. This new offering helps our customers compete more effectively by utilizing existing capacity on the Canadian Mainline, and demonstrates the importance and value of this system to deliver their products to markets in Eastern Canada and the Northeast U.S.,” said Russ Girling, president and chief executive officer, TransCanada.

    “This long-term agreement provides significant benefits for our customers, shareholders, communities and governments that depend on the economic benefits that are generated by natural gas exploration, production and transportation,” added Girling. “In addition to utilizing existing capacity and pipelines already in operation, the incremental revenue generated from this offering will make the Canadian Mainline more competitive.”

    Key highlights of the Revised Long-Term Fixed Pricing Open Season:

    Collectively, customers have signed long-term binding contracts to transport 1.5 PJ/d of natural gas from the Empress receipt point in Alberta to the Dawn hub in southern Ontario, at a single toll of $0.77/GJ.
    The term of the contract is 10 years and has early termination rights that can be exercised following the initial five years of service (upon payment of an increased toll for the final two years of the contract).
    The service can be provided entirely with existing facilities.
    The targeted in-service date is November 1, 2017. The company intends to file an application for regulatory approval with the National Energy Board in April 2017.

    Today, TransCanada transports more than 25 per cent of the natural gas consumed across North America, and millions of people rely on the energy we deliver every day to heat and cool their homes, fuel industries and generate reliable sources of power, and the Canadian Mainline is a critical piece of energy infrastructure that allows this to happen. The Canadian Mainline is a regulated cost of service system that currently transports about 20 per cent of the natural gas produced in the WCSB to serve Canadian markets and interconnects with the U.S.
    Back to Top


    Australia okays Mulga Rock uranium mine

    Western Australia may soon have a new uranium mine, after the last environmental hurdle was cleared by Vimy Resources to build its Mulga Rock uranium mine.

    Josh Frydenberg, Australia's minister of environment and energy, approved the development subject to conditions outlined by the Environmental Protection Agency (EPA), Perth-based Vimy announced on March 6. Four days later the company said it has started initial construction, and will expedite developing the project further once the final investment decision is made.

    "This is the final environmental approval required before work can commence," said Vimy chairman Cheryl Edwardes. "This approval has been more than three years in the making and has involved considerable effort on the part of all those involved."

    The process began in July 2013 when Vimy launched an application for the project. In December Western Australia's environment minister approved the mine, with 14 conditions. They include management plans to minimize impacts on flora and fauna, soil, groundwater and Aboriginal heritage sites. The EPA also concluded that potential radiation exposure is within acceptable limits, according to World Nuclear News.

    Located 240 km northeast of Kalgoorlie, in the Great Victoria Desert, the mine would produce 1,360 tonnes of uranium oxide (U3O8) per annum, according to a 2015 prefeasibility study. By comparison, Australia's Olympic Dam mine, the largest uranium deposit in the world, produces 4,500 tonnes of U3O8 per year.

    Mulga Rock has 76.8 million pounds of indicated and inferred uranium throughout four deposits, which will be open-pit mined for an expected life of 17 years. Cobalt, copper, nickel and zinc are also expected to be extracted, through a central processing plant. According to Vimy, Mulga Rock is the third largest undeveloped uranium deposit in Australia.
    Back to Top


    Uralkali sees potash demand picking up after 2016 earnings slump

    The logo of Russian potash producer Uralkali is pictured at the company's stand during the St. Petersburg International Economic Forum 2016 (SPIEF 2016) in St. Petersburg, Russia, June 16, 2016. REUTERS/Sergei Karpukhin

    Russia's Uralkali, the world's largest potash producer, said its core earnings fell 38 percent in 2016 as prices of the crop nutrient tumbled and sales volumes shrank.

    Uralkali, along with other potash producers, has been hit by strong competition and low prices for agricultural commodities, but the company said on Monday that it expects total global potash demand to rise by 1-2 million tonnes this year to 62 million to 63 million tonnes, driven by China.

    Last year the world's top potash importers - India and China - delayed signing new purchase contracts until the end of the second quarter and start of the third quarter, putting downward pressure on the global market.

    "Softening of the key markets, along with a severe export potash price decline resulted in a weaker performance in 2016," Uralkali said in a statement.

    It reported core earnings, or EBITDA, of $1.2 billion for 2016, and said revenues fell 27 percent to $2.3 billion. Its net profit, however, jumped to $1.4 billion from $184 million a year earlier due to a foreign exchange gain and fair value revaluation of swaps, the company said.

    Uralkali forecast China would buy between 14.8 million and 15 million tonnes of potash this year while India would purchase 3.9 million–4.2 million tonnes.

    Lower potash prices and carry-over stocks could lead to higher demand for Chinese imports this year, Uralkali said.

    Expectations for a good monsoon season and also low carry-over stocks are expected to support India's import demand, but India's potash subsidy reduction may be a challenge for demand growth, it said.

    Shares of Uralkali and its global peers rose last week after Belarusian President Alexander Lukashenko said he was ready for a mutually beneficial compromise in cooperation with Uralkali.

    Uralkali quit a trading alliance with Belarusian potash producer Belaruskali in 2013, intensifying competition in the global market. Lukashenko has said several times since then that he was ready to consider resuming cooperation.

    "We have always been and remain committed to constructive relations with Belarus and Belaruskali, but we have not been at the meeting (with Lukashenko) and cannot comment on its results," Uralkali's Chief Executive Dmitry Osipov told a conference call for analysts.

    Uralkali expects its 2017 capital expenditures to be flat at around $320 million and plans to refinance up to $1.4 billion of its debt, it told the call.
    Back to Top

    Precious Metals

    India gold recycling plan fails to tempt households

    India's ambitious plan to recycle thousands of tonnes of gold lying idle in temples and households looks to have foundered on concerns over high costs and slight returns, in a blow to government hopes of cutting imports of the metal.

    After 16 months, temples and households have turned over just seven tonnes of gold out of the 24,000 tonnes believed to be in private hands, two industry sources and a government official said, with almost all the gold coming from temples.

    Families that hold about 80 percent of the idle gold have largely shunned the scheme, with some four dozen government-approved centers that opened to test purity still to process a single gram of household gold, said Harshad Ajmera, president of the Indian Association of Hallmarking Centres.

    "You hardly earn anything but you have to do so many things to deposit gold under the scheme. Why should I take all this pain?" said 54-year-old clerk Ganpat Shelke, who considered depositing 50 grams of gold.

    The struggling scheme was launched with much fanfare by Prime Minister Narendra Modi in November 2015, with India seeking ways to stem the spending of billions of dollars on a non-essential commodity that accounted for 27 percent of its trade deficit in the year to March, 2016.

    The country is the world's second-biggest gold importer behind China, buying about 800 tonnes a year for wedding gifts, religious donations and as an investment. (For a graphic on India's gold market click

    The plan was for holders of idle gold to lodge it with banks in return for interest and cash at redemption. The government would melt the gold and auction or rent it to jewelers, reducing the need for imports.

    But the scheme logistics mean the owners of the gold must shoulder the cost of testing its purity and melting it down, while the interest rate on offer of just 2.5 percent compares with 7-8 percent that banks offer for cash deposit rates.

    "If a consumer wants to have 25 grams jewelry converted the cost of converting and purity testing takes 3-4 percent of total value away," said Shekhar Bhandari, executive vice-president of Kotak Mahindra Bank.


    Even when holders of the precious metal want to take part in the scheme they have run into hurdles.

    "I visited four banks several times to deposit gold but they could not accept it," said Kushal Chatterjee, a businessmen from the eastern city of Kolkata. "They said they did not know the process."

    At least five bank branches visited by Reuters this week in Mumbai said they could not accept gold under the scheme as they had not been given directions by their head offices.

    A senior official with the Indian Banks' Association said the current scheme offered banks little or no profit.

    "There should be an incentive for banks," said the official, who declined to be named when commenting on a sensitive issue.

    Banks are also concerned that provisions allowing gold to be deposited for up to 15 years will raise currency and liquidity risks, the India Gold Policy Centre in a recent report.

    A finance ministry spokesperson declined to comment on the gold program.

    Gold refiners, who more than doubled capacity in recent years in anticipation of higher scrap supplies, are operating at well below capacity, said James Jose, secretary of the Association of Gold Refineries and Mints.

    "Except for the banks, all other stakeholders like purity centers, refiners are ready, but they are helpless without banks' participation," he said.

    The India Bullion and Jewellers Association urged the government to revisit the scheme, clearing doubts for consumers and putting pressure on banks to participate.

    "Otherwise Indian imports will not fall," said Association secretary Surendra Mehta.

    Attached Files
    Back to Top

    Base Metals

    Antofagasta full year EBITDA shine on higher prices

    Higher metals prices and lower cash costs helped push full year earnings before interest, tax, depreciation and amortisation at Antofagasta up 78.7% to $1.6bn.

    Group revenue in 2016 was $3.62bn, up 12.3% higher than in 2015. The final dividend for the year is 15.3 cents a, bringing the total dividend for the year to 18.4 cents.

    Group copper production in 2017 is expected to be in the range of 685,000 - 720,000 tonnes, similar to the 709,400 tonnes produced in 2016.

    "This year has started strongly following the upturn in the last quarter of 2016, bolstered by the continued improvement in sentiment towards copper and the production problems at some of the world's largest copper mines," the company said.

    "It seems that there is now a reflationary environment and this is positive for commodities. As many continue to adjust their forecasts for China, the group is confident that consumption there will continue to grow as they support their power and infrastructure requirements."

    "The higher level of mine disruptions experienced since the beginning of the year should keep pressure on refined copper availability and support the fundamentals for copper in the months to come. As a result, the Group does not foresee copper returning to the lows of 2016."

    "In the medium term the group expects to see a steady shift from a market in balance to a slight deficit, leading to a further improvement in prices. There are wild cards of course, but these are more likely to be positive for the copper price than negative. Potential higher demand in the US under the new administration is one, increased disruptions to supply is another."
    Back to Top

    Auction for Peru metals smelter draws zero bids in first auction

    No company placed a bid on Peru's nearly 100-year-old polymetallic smelter La Oroya in the first of three public auctions held on Friday, the head of the bidding committee said.

    The minimum price for the smelter and a small copper mine will be reduced by 15% from about $270-million in the second auction on March 21, said Pablo Peschiera, the head of consulting firm Dirige that is tasked with finding a new buyer.
    Back to Top

    Iran says inks $1 billion deal to develop Mehdiabad zinc mine

    Iran has signed a $1 billion deal with private investors to develop Mehdiabad, one of the world's largest zinc mines, which it expects will go on stream in the next four years and produce 800,000 tonnes of zinc concentrate per year.

    The Iranian Mines and Mining Industries Development and Renovation Organisation (IMIDRO) said in a weekend statement it signed the deal with a consortium of six private companies, led by Iran's Mobin Mining and Construction Company.

    IMIDRO, a state-owned mines and metals holding company, said Mobin was also talking to international mining firms in Switzerland and Spain about joint ventures to develop the Mehdiabad mine, located in Iran's Yazd Province.

    Iran has struggled to lure foreign investors since the lifting of international sanctions against it following a historic deal signed in 2015 with six world powers in return for curbing its nuclear programme.

    As recently as January, the United States voted to extend its sanctions against Tehran, the latest of several such post-nuclear deal moves that have deterred western banks from financing trade or investment in Iran.

    Mehdiabad, a world class zinc, lead and silver deposit, has 154 million tonnes of proven reserves, according to IMIDRO, which expects the concentrate reserves to reach up to 700 million tonnes once exploration is completed.

    The private consortium will run the mine for 25 years, though their contract could be extended.

    On top of the targeted 800,000 tonnes of zinc concentrate, Mehdiabad is also expected to produce 80,000 tonnes of lead and silver concentrate a year, IMIDRO said.

    According to industry data, 13.2 million tonnes of ore with zinc content was mined globally last year.

    The Mehdiabad project has been under consideration since the 1990s but has faced multiple delays.
    Back to Top

    Vale to mothball century-old Ontario nickel mine

    Living past 100 is no mean feat for any mine, but for the Stobie operation in Sudbury, Ontario, the end finally came on Friday.

    The nickel mine in Sudbury began as an open-pit mine in 1890, then started underground mining in 1914. Producing 375 million tonnes of copper and nickel ore over its lifetime, Stobie and neighbouring Frood mine have been the most productive mines in the prolific Sudbury Basin.

    “The low grades at Stobie are no longer economical to mine in today’s challenging price environment”: Stuart Harshaw, Vale’s vice-president of Ontario operations

    Vale said a combination of factors led to the closure decision, including metals prices, unprofitable low-quality ore, and recent seismic activity that prevented workers from mining below the 3,000-foot level. About 230 jobs could be affected.

    “This is a necessary decision but a sad one,” Stuart Harshaw, Vale’s vice-president of Ontario operations, said in a statement. “Stobie has a rich history and has been integral to our success for more than a century. However, after more than 100 years of operation, the mine is approaching the end of its natural life. The low grades at Stobie are no longer economical to mine in today’s challenging price environment.”

    However union officials are hoping that some positions could be saved, through mine employees replacing current contractors on site, as per the collective agreement, Northern Ontario Business reported. Some older miners could be offered pensions. Other employees could be reassigned to other Vale operations in Ontario – Coleman, Totten and Copper Cliff – or the South mine if Vale follows through on plans to re-open it.

    The Stobie mine is expected to be put on care and maintenance later this year. In 2013 Brazil-based Vale received a record $1.05 million fine for an accident at Stobie that took the lives of two young men. The workers were buried by a torrent of wet mud and ore on June 8, 2011.
    Back to Top

    Philippines' Duterte links miners to destabilisation plot, wants mining ban

    Philippine President Rodrigo Duterte on Monday accused some miners of funding efforts to destabilise his government as he talked about a possible plan to impose a ban on mining given the environmental damage producers have caused.

    "I know that some of you are giving funding to the other side to destabilize me," Duterte told a media briefing, referring to companies in the mining sector he did not name.

    Duterte, who has previously said the Southeast Asian nation can survive without a mining sector, added at the Monday briefing that it may be "worthwhile" for Environment Secretary Regina Lopez to implement a ban on mining.

    Duterte said he's looking at a total mining ban "and then we'll talk."

    There is currently no ban on mining in the Philippines, the world's top nickel ore supplier.

    Lopez last month ordered the closure of 23 of the country's 41 mines to protect watersheds. She also suspended another five for environmental infringements.

    Duterte said he wants to meet with local miners so they can explain to him what led to the destruction of the environment in areas where they operate.

    The firebrand leader has said the government can live without an estimated 70 billion Philippine pesos ($1.39 billion) a year in revenue from the mining sector.

    "You think you can live with it (environmental degradation) because of the 70 billion (pesos) or because they contributed to campaign funds? Not me," Duterte said, while showing pictures of the environmental harm mining has caused.
    Back to Top

    Steel, Iron Ore and Coal

    Tightening supply supports near record thermal coal prices

    China's thermal coal prices rose to the highest level since mid November due to tightening supply, shrugging off concerns that prices will fall after policy makers delay introducing radical production controls.

    Benchmark thermal coal prices at the port of Qinhuangdao rose 2.5 percent this month to $87.6 on March 10, nearing the $90 per tonne record reached in November. Average prices in March also recorded their highest levels in at least three years.

    The upward momentum in coal prices was due in part to a ban on explosives used by coal producers and expectations that Beijing will impose strict limits to cut overcapacity this year.

    Analysts said China's state planning agency called the first meeting with producers on Monday to discuss coal supply as well as capacity cut plans.

    The informal ban on explosives affected both large scale and small producers in top producing region Inner Mongolia, as well as Shanxi and Sha'anxi provinces, forcing utilities to buy more expensive coal on the spot market as the supply of cheaper coal under long term contracts fell.

    The contract price is at a 60 yuan discount to the spot market, according to traders.

    An executive with Shandong Energy Group said the fourth largest producers by revenue can only meet 70 percent of the volumes required by their long term contract clients. Shenhua Group, one of China's largest coal producers, halted sales of spot cargo, at some north ports, including Qinhuangdao.

    Producers and utilities are expecting prices to fall when the ban expires at the end of this week.

    "Overall the market is in oversupply. In addition, we have more power supply from hydro power in the second quarter. Considering the policy market has not introduced the output limit, I think the price is very likely to fall starting April," Li Jinping, president of Luoan Mining Industrial Group told Reuters on the sidelines of the annual parliament meeting.

    Attached Files
    Back to Top

    China's Jan-Feb coal output dips despite push to raise supplies

    China's coal output fell 1.7 percent in the first two months of the year, even after Beijing urged miners to ramp up output to replenish supplies during the cold winter months, reversing tough measures to cut the country's reliance on fossil fuels.

    Miners produced 506.78 million tonnes of coal in January and February, the National Bureau of Statistics said. That compares with 513.5 million tonnes in the first two months of 2016 and 546.5 million tonnes in 2015.

    The Statistics Bureau provided information for January and February together to smooth the impact of the Lunar New Year holiday, and did not give a separate monthly breakdown.

    In November, the government lifted a limit on the number of days thermal coal miners can operate each year, in a bid to meet surging demand from utilities during the months-long winter heating season.

    Major coal miners have since been pushing for Beijing to reinstate the limits on output after the key winter heating season due to weakening demand and growing supply.

    The country's state planner signaled last week that it will not introduce such drastic measures this year, chastened by last year's wild markets.

    Even so, Beijing continues to crack down on the country's inefficient and ageing excess mining capacity. The world's top coal consumer has vowed to cut more than 150 million tonnes of excess capacity this year.

    Attached Files
    Back to Top

    Shanxi delegation suggests controlling coal imports

    Shanxi delegation suggested during the recent parliamentary sessions to control import of low-priced inferior coal and increase use of domestic clean coal, local media reported.

    The delegation called for stricter control on the quality of imported coal, and encouraging large coastal state-owned power plants to take the lead to cut coal imports.

    The inflow of imported coal squeezed space of demand for domestic market and weakened the effect of the government's de-capacity drive, said the delegation.

    Impacted by the capacity cut last year, China's coal production slumped 9.4% year on year to 3.36 billion tonnes last year.

    However, China's coal imports surged 25.2% from the previous year to 256 million tonnes last year.

    The share of low-CV, high-ash and high-sulphur coal, including lignite, was high in the total imports, which is harmful for the environment.

    Most imported coal came from Indonesia and Australia, and most Indonesia thermal coal was lignite with calorific value below 4,500 Kcal/kg NAR, data showed.
    Back to Top

    India's Adani applies to Aus govt fund for coal mine railway financing

    India's Adani Enterprises has applied for financing from an Australian infrastructure fund to build a rail line that is part of a $16 billion coal project in the state of Queensland, Australia's resources minister said on Monday.

    Financing from the A$5 billion Northern Australian Infrastructure Facility (NAIF) would offer a boost to Adani after some major banks said they would not participate in the controversial coal project.

    Since starting work on the Carmichael development over five years ago, Adani has battled opposition from green groups who say it will contribute to global warning.

    "(NAIF) is considering Adani's proposal at the moment," Matthew Canavan told Reuters in an interview in Tokyo on Monday, when asked if the Indian company had approached the infrastructure fund.

    Canavan, visiting the Japanese capital to meet with buyers of Australian commodities, said Adani had not yet asked for financing for parts of the project other than the rail line. He did not disclose how much funding Adani had requested.

    Adani's Australian unit was not immediately available for comment.

    NAIF was set up by the Australian government last year to promote the economic development of Australia's north by offering loans for infrastructure projects including airports ports and railroads.

    Adani, which has secured the major state and federal government approvals it needs for Carmichael, has still to announce funding for the project.

    Environmentalists have lobbied banks not to provide loans and a number, including Germany's Deutsche Bank and Commonwealth Bank of Australia, have stated they will not participate in the project.

    The Indian company wants to start construction in the middle of this year, Adani Australia chief executive Jeyakumar Janakaraj told reporters in December, when he announced an agreement with the Queensland state government to hire local workers.

    Comprising six open-cut pits, five underground collieries and the rail line, to the Queensland coast, environmentalists also fear the mine will produce so much coal for export to India that it will require a mega-port expansion into the Great Barrier Reef World Heritage Area.

    Adani has said the project would not threaten the reef, while creating thousand of jobs and providing India with cleaner burning coal only found in Australia.
    Back to Top

    CNOOC to construct 4 bcm coal-to-gas project in Shanxi

    China National Offshore Oil Corporation (CNOOC), a major state-owned oil and gas producer, signed contract with Shanxi's leading miner Datong Coal Mine Group to construct a coal-to-gas project in the province, state media reported.

    The project is located in Zuoyun coal chemical base of Datong. It's one of the nation's key projects during the 13th Five-Year Plan period ended in 2020.

    Total investment into the project was estimated to reach 25.85 billion yuan ($3.7 billion).

    The project, with designed annual capacity at 4 billion cubic meters, will produce clean gas to replace polluted fuels such as Sanmei, inferior coal and petroleum coke.
    Back to Top

    Top iron miners' cash juggernaut set to survive price crash

    The world’s biggest iron ore miners will be able to withstand the expected plunge in prices because their race to cut production costs has dramatically lowered the industry’s margin pressure point, allowing them to keep fueling a cash juggernaut that’s revived the mining sector.

    More than 90% of producers in the global seaborne market can generate profits at a benchmark price of $60 a metric ton, Adrian Doyle, a Sydney-based senior consultant at researcher CRU Group, said by phone. That compares with about 65% of suppliers able to avoid losses at the same price point three years ago, he said.

    “There have been fantastic cost reductions in a lot of instances,” while producers have also been boosted by lower oil prices, Doyle said. “If we were thinking of a pressure point where we’d start to see a bit of stretching in the industry, previously it would’ve been around $60/t, now it’s closer to $50/t-to-$45/t to stress test everyone but the majors.”

    Benchmark iron ore dropped under $90 a metric ton last week for the first time since Feb. 10 amid rising supply in the 1.4 billion ton seaborne market and surging stockpiles in China. Ore with 62% content in Qingdao was at $86.72 a dry ton Friday, according to Metal Bulletin Ltd. Prices rallied to $94.86/t on Feb. 21, the highest since August 2014. Futures in Dalian surged 4.3% to 684.5 yuan/t on Monday, the highest at close since March 3.

    Producers including BHP Billiton and Fortescue Metals Group have warned prices are poised to retreat after they reported a surge in profits last month fueled by the price rally and their cost cuts. Perth-based Fortescue has more than halved cash costs in the past two years to about $12.54/t in the last quarter, while BHP lowered them by more than 25% to $15.05/t in the final six months of last year, according to filings.

    Prices are likely to move closer to $60/t by the end of this year, Sally Auld, chief economist and head of fixed-income and currency strategy for Australia at JPMorgan Chase & Co., told Bloomberg TV in an interview. They will drop to $56.89/t in the final quarter of 2017, according to the median estimate among 14 analysts surveyed by Bloomberg.

    About 14% of global producers lose cash at $60/t, according to Deutsche Bank analysts including Paul Young and Anna Mulholland. At $40, around 31% of the sector are loss-making, they wrote in a March 8 note. With prices at $90/t, only 1% of miners fail to generate profits.

    “The fundamentals all point in the direction of a softening of that iron ore price,” BHP’s CFO Peter Beaven said Thursday at a Sydney conference. “Supply continues to increase, particularly from Brazil,” and there’s a waning impact on demand from China’s fiscal stimulus. The third-largest exporter is prepared for a “much lower iron ore price.”

    Brazil’s Vale SA, the biggest exporter, is delivering its first cargoes to China from its $14-billion S11D mine and has cash costs that are likely to fall below $10/t, according to Australia’s Department of Industry, Innovation and Science. Rival producers including Rio Tinto Group, BHP, Fortescue and Roy Hill Holdings would all remain profitable at prices below $50/t, the department said in a report published in January.
    Back to Top

    China Jan-Feb steel output rises 5.8 pct from year ago -stats bureau

    China's steel output in the first two months of 2017 rose 5.8 percent from the same period a year ago, data showed on Tuesday, as mills boosted production amid higher prices and firm demand as Beijing moves to cut excess capacity in the sector.

    China's steel output for January and February combined rose to 128.77 million tonnes, the National Bureau of Statistics (NBS) said. The NBS provided information for January and February together to smooth the impact of the Lunar New Year holiday, and did not give a separate monthly breakdown.

    Steel output gained this year as China's policy to shut excess steel production has pushed up prices for lower-quality rebar, used mainly in construction. Rebar futures on the Shanghai Futures Exchange have climbed 23 percent since the beginning of this year.

    Steel mills are currently making a profit of up to 800 yuan ($115.74) a tonne by producing rebar, the strongest level since 2011, analysts said.

    "Production in the first two months of last year was low as soft prices discouraged mills to produce. But high profits has driven mills to churn out more metal," said Qiu Yuecheng, an analyst with the steel trading platform Xiben New Line E-Commerce in Shanghai.

    China, the world's top steel producer, started the policy to shut output last year and for 2017 plans to cuts 50 million tonnes of capacity as the world's No. 2 economy deepens efforts to tackle pollution and curb excess supply.

    China produced 808.4 million tonnes of crude steel output in 2016, up 1.2 percent.
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    Company Incorporated in England and Wales, Partnership number OC334951 Registered address: Highfield, Ockham Lane, Cobham KT11 1LW.

    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority.

    The material is based on information that we consider reliable, but we do not guarantee that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have 'long' or 'short' positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.

    © 2018 - Commodity Intelligence LLP