Mark Latham Commodity Equity Intelligence Service

Wednesday 25th November 2015
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    Putin Accuses Turkey Of "Backstabbing", Funding ISIS, Sees "Serious Consequences" To Ties

    Moments ago Putin delivered a brief statement following the downing of the Russian jet by Turkish forces during a press conference with the King of Jordan. Here are the highlights:


    Putin makes it quite clear that Turkey, a NATO state, is responsible for ISIS funding:


    And the first official diplomatic escalation:

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    Brazil Tycoon Arrested as Police Probe Development Bank Loans

    Brazil’s biggest-ever corruption probe spread to the country’s development bank Tuesday and inched closer to former President Luiz Inacio Lula da Silva, as police visited the BNDES to request information about operations involving a sugar and ethanol business whose owner was arrested.

    A spokesman for the bank said the institution is cooperating with a request from three police officials who visited its headquarters in Rio de Janeiro to request documents related to the bank’s operations with Sao Fernando Acucar e Alcool Ltda. The sugar and ethanol business is owned by Jose Carlos Bumlai, a magnate from Mato Grosso do Sul state who was arrested in Brasilia Tuesday before he could appear for a scheduled hearing in a congressional inquiry into the bank’s loans.

    In his order for preventive detention of Bumlai, judge Sergio Moro cited testimony by former Petrobras manager Eduardo Musa that Bumlai brokered the pardoning of a debt owed to Banco Schahin by the ruling party. The order also cited testimony by lobbyist Fernando Soares that Bumlai helped broker a Petroleo Brasileiro SA rig contract that was awarded to the Schahin group, and that Bumlai had said he enlisted then-President Lula, his close friend, to help secure the deal.

    Federal police said 140 police and 23 auditors worked on 25 search and seizure operations Tuesday in the latest phase of so-called Carwash, a corruption probe that led to the arrest of more than 100 people since March 2014, including top executives at state oil company Petroleo Brasileiro, CEOs of some of Brazil’s biggest construction conglomerates, and the sentencing of the ex-treasurer of the ruling worker’s party.

    The development bank’s website shows that Sao Fernando contracted two loans for a total 395 million reais ($106 million) in 2008 and 2009, for a mill in the city of Dourados. Sao Fernando Energia I Ltda contracted 102 million reais for a bioenergy plant in July 2012. BNDES said there were no irregularities in any of the Sao Fernando loans.

    Moro ordered Bumlai’s arrest on suspicion of illegally making resources available to a political party, and for using a contract of a state company to obtain undue advantages.

    “All that was aggravated by the undue use of the name of the authority of the ex-President of the Republic, who, while no longer in his position, was still one of the most powerful people in the country,” the arrest order said.

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    India opposes deal to phase out fossil fuels by 2100 at climate summit

    India would reject a deal to combat climate change that includes a pledge for the world to wean itself off fossil fuels this century, a senior official said, underlying the difficulties countries face in agreeing how to slow global warming.

    Almost 200 nations will meet in the French capital on Nov. 30 to try and seal a deal to prevent the planet from warming more than the 2 degrees Celsius that scientists say is vital if the world is to avoid the most devastating effects of climate change.

    To keep warming in check, some countries want the Paris agreement to include a commitment to decarbonise -- to reduce and ultimately phase out the burning of fossil fuels like coal, oil and gas that is blamed for climate change -- this century.

    India, the world's third largest carbon emitter, is dependent on coal for most of its energy needs, and despite a pledge to expand solar and wind power has said its economy is too small and its people too poor to end use of the fossil fuel anytime soon.

    "It's problematic for us to make that commitment at this point in time. It's certainly a stumbling block (to a deal)," Ajay Mathur, a senior member of India's negotiating team for Paris, told Reuters in an interview this week.

    "The entire prosperity of the world has been built on cheap energy. And suddenly we are being forced into higher cost energy. That's grossly unfair," he said.

    Mathur said India, whose position at climate talks is seen by some in the West as intransigent, was committed to the 2 degrees ceiling as a long-term goal and was confident a deal would be reached.

    But he said Prime Minister Narendra Modi's government wanted an agreement that required countries like India to do more over time as they become wealthier, rather than an "ideology-driven process" committing everyone to ending carbon usage.

    India also wants to see rich nations' pledges to cut greenhouse gas emissions subjected to tougher reviews than those of developing nations, and Mathur warned against an "external penal regime that will only turn people back".

    India, whose 1.2 billion people produce far lower emissions per capita than the world average, in October committed to slow the rate of growth in its carbon output by a third over the next 15 years.

    While the pledge was welcomed by some environmentalists, others worry that India's huge population and rapid industrialisation mean heavy future use of carbon will tip the balance in the global fight against climate change.

    Read more at Reuters

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    Largest Coal to Natural Gas Plant Conversion in US Happening In PA

    Panda Power Funds will make one of the largest coal to natural gas plant conversions in the US, capable of producing more power with less emissions.

    This project is being built by Panda Power Funds at the retired Sunbury coal-fired power plant near Shamokin Dam in Snyder County, PA. It will be a 1,124 megawatt combined cycle plant. It will use Marcellus gas and is said it will generate enough power for approximately 1 million homes. It is expected to supply large power markets including the Philadelphia and the New York metropolitan areas. It should be in operation by the first quarter of 2018.

    It is being built on a 192 acre site of the retired coal plant and should also support additional investment at the site. “The natural gas revolution has arrived in the heart of coal country,” said Todd W. Carter, president and senior partner of Panda Power Funds. “I’m proud Panda is leading the way toward clean natural gas-fueled generation. We’re ready to take what we’ve learned in Pennsylvania and apply it to other coal-fired projects across the nation.”

    It is being financed in part by Goldman Sachs, ICBC and Investec with loans totaling $710 million dollars. These loans will be combined with funds by Panda Power Funds. Siemens Financial Services will also be investing $125 million for a total of $6 billion in combined capitol to build the plant. Panda Power Funds has selected Siemens Energy Inc. and Bechtel Power Corp. to construct the plant and it’s components.

    Siemens will provide the natural gas turbines, steam turbine, generators, heat recovery steam generators, and instrumentation and controls systems. They will manufacture the turbines at their manufacturing facility in Charlotte, North Carolina. Bechtel will do the engineering, construction, installation and commissioning of the plant.
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    Oil and Gas

    Oil hits 2-week highs on Mideast tensions, U.S. gasoline rally

    Oil prices hit two-week highs on Tuesday, rising about 3 percent, after a spike in Middle East tensions from Turkey's downing of a Russian warplane and a rally in U.S. gasoline futures.

    Russian President Vladimir Putin called Turkey's shooting of its fighter jet a "stab in the back" that could have "serious consequences." Middle East tensions have already been heightened by Russian air raids over Syria to punish those it blamed for the downing of a Russian passenger jet over Egypt last month.

    U.S. gasoline futures jumped 6 percent on an expected rise in road travel around Thursday's Thanksgiving holiday.

    Gasoline supplies in New York Harbor, the delivery point for gasoline futures, were also tight amid lower imports and the delayed restart of the 70,000 barrels-per-day gasoline-making unit at Irving's St. John, New Brunswick refinery.

    Refining margins for gasoline rose by about $1 a barrel in both the United States and Europe.

    Brent settled up $1.29, or 2.9 percent, at $46.12 a barrel, after hitting a two-week high at $46.50.

    U.S. crude's West Texas Intermediate (WTI) futures finished the session up $1.12, or 2.7 percent, at $42.87. It hit $43.46 earlier, its highest since Nov. 11.

    Some of those gains came off in post-settlement trade after industry group American Petroleum Institute (API) reported a 2.6 million-barrel U.S. crude build for last week, double that expected by analysts in a Reuters poll.

    Traders have bet since last week that WTI will fall below the 6-1/2-year low of $37.75 set on August, and that Brent will tumble as well, as worries about a global oil glut resurfaced.

    But heightened Middle East tensions now could delay that, some analysts said.

    Crude could also see support from speculation that Saudi Arabia was keeping options open for price cooperation with other oil producers at a Dec. 4 OPEC meeting.

    "Ultimately, we still see a drop to around $37.75, but such a development is not expected until the market gets through the OPEC meeting at the end of next week and when increasingly bearish global supply balances place additional pressure on the WTI curve," said Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates.

    Market intelligence firm Genscape reported a 2.2 million-barrel build last week at the Cushing, Oklahoma delivery point for U.S. crude futures.

    Analysts will look out Wednesday on whether U.S. government data matches, exceeds or falls short of the nationwide build of 2.6 million barrels reported by API.

    Read more at Reuters

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    Norway drilling 'slashed' in 2016

    There should be a steep drop in the number of rigs deployed for exploration of oil and gas reserves offshore Norway, national statistics show.

    Lower crude oil prices are influencing exporting and importing nations alike. For Norway's citizens, the number of jobs in the energy sector decreased by half from third quarter 2014 to third quarter 2015.

    Data gathered by Statistics Norway find total investments in oil, gas, manufacturing, mining and electricity for 2015 so far are $27.4 billion, down 9.4 percent year-on-year. For oil and gas alone, the year-on-year decline was 11.8 percent.

    Brent crude oil, the global benchmark price, is about 45 percent lower than this time last year. The decline acts as a form of economic stimulus for national economies that import most of their sources of energy, but depresses economies like Norway that depend on revenue from oil and natural gas sales.

    Economic growth has been slow for most of the year for Norway, with gross domestic product increasing by slightly less than 1 percent for the past four quarters combined.

    For October, oil field services company Baker Hughes finds the number of rigs deployed internationally are down 2.5 percent year-on-year. Rig counts serve as a barometer for the health of the upstream energy sector, the part of the industry focused on exploration and production.

    Statistics Norway said rigs serve as the "most important input factor" when considering upstream strength.

    "Due to low oil prices and operators' processes to cut rig costs, the number of active rigs on the Norwegian Shelf is expected to decrease in 2016," it said. For next year, the government body said there should be a "sharp decline" in the upstream sector.

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    PTT postpones spot LNG delivery

    PTT of Thailand reportedly delayed a tendered LNG cargo for early December due to current low consumption.

    Platts cited sources as saying that PTT bought two cargoes from separate sources through a tender that closed at the end of September.

    The first cargo was delivered on November 11 from the QCLNG facility on Curtis Island near Gladstone in Australia.

    The second LNG cargo was scheduled for delivery in the second half of November, but lower demand from the power generation sector and mild temperatures meant the cargo was deferred to December.

    Due to an ailing economy, PTT is not expected to buy any spot cargoes in December and January, while the company expects the deliveries from Qatar to reach 2 million tons of LNG by the end of 2015. These deliveries are part of a 20-year LNG supply deal signed with Qatargas in 2012.
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    Rosneft Reports Third-Quarter Profit on Currency Differences

    Rosneft OJSC, Russia’s largest oil producer, reported a third-quarter profit after break-even results a year earlier because of a foreign currency gain even as oil prices fell.

    Net income attributable to shareholders reached 112 billion rubles, the Moscow-based company said in a statement on its website. It reported a foreign currency gain of 83 billion rubles as opposed to a loss of 95 billion rubles a year earlier. Revenue fell 8.4 percent to 1.27 trillion rubles.

    Russian oil and gas producers Novatek OJSC, Gazprom Neft PJSC and Bashneft PJSC have reported losses or a slump in profit this quarter after crude prices fell to about half of the previous year’s level. Sanctions limiting borrowing have also put pressure on Rosneft as it attempts to reduce debt raised for the $55 billion acquisition of TNK-BP in 2013.

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    China's teapot oil refineries set to export fuel for the first time -sources

    Beijing will allow independent refineries to export refined fuel next year for the first time, sources said, freeing up 20 percent of China's refining capacity for sales abroad as the government aims to cut a local glut and boost investment.

    The move will allow independent refineries, also known as "teapots" such as Dongying Yatong Petrochemical and Panjin Beifang Asphalt Fuel, to enter the lucrative international market for the first time, raising concerns about a fresh flood of excess diesel and other fuels into Asia.

    Currently only state-owned refiners, Sinopec Corp and PetroChina and some smaller state oil firms are allowed to sell abroad.

    In a rare meeting last week, attended by several provincial trade officials and teapot refinery executives, the Ministry of Commerce told the plants they can now apply for first-quarter fuel export quotas, according to three sources with direct knowledge of the matter.

    "It's an encouraging development as we will be allowed the same playing field as the big firms to export fuel," said a refinery executive who was at the meeting.

    The move will likely add further pressure to Asian oil product prices that are already sagging under the weight of excess barrels from mega Middle Eastern plants.

    China had this year also raised the dominant state refiners' export quotas for diesel, jet fuel and gasoline to thin swelling domestic inventories as refinery output outpaced demand in a cooling, manufacturing-heavy economy.

    While it's not clear how many teapots will apply for permits, traders estimated it could mean an additional 3 million-5 million tonnes (24 million-40 million barrels) of products will be sold abroad next year, in addition to the roughly 30 million tonnes assigned to the country's state-owned refiners this year.

    The combined exports of about 700,000 barrels per day (bpd) would be equivalent to nearly 7 percent of China's total oil use.

    "The message has been sent that there will be no ceiling for the amount they (the teapots) want to ship out," said one senior trader who was briefed on the meeting.

    "The curtain has been raised for the face-off between the big and small refineries."

    The government, however, will police the new system by checking if shipments actually take place and withdrawing any permits that companies don't fully use, according to a briefing document on the meeting seen by Reuters.

    Teapot exports will fall under the same category as that applied to state-oil companies' shipments, meaning they will be exempt from consumption and value-added taxes, the document also showed.

    Some sources downplayed concerns about the impact of the potential onslaught of teapot exports, as most of the smaller refineries don't have facilities such as export terminals and lack experience dealing in the global market.

    Coming after Beijing opened crude oil imports to independent refiners this year, the move towards fuel exports could pave the way for China's long-awaited crude futures contract, and eventually towards benchmark pricing for oil products, market participants say.

    Read more at Reuters

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    ScottMadden Report: Getting Marcellus/Utica Gas to Market

    ScottMadden, Inc., a top energy consulting firm, recently released the latest edition of their twice-per-year report called The Energy Industry Update. The current report, titled “Strange Brew: Adapting to Changing Fundamentals”, offers insights into major events and emerging trends in the energy industry.

    This particular edition takes a close look at the natural gas industry–in particular how ever-increasing gas resources can find adequate infrastructure to make their way to market. We really like this report, for a couple of reasons. First, it gives you the wider context. Natural gas (and oil) doesn’t exist on its own. It is part of a complex tapestry of energy options and needs to be viewed that way.

    This report helps contextualize natural gas–helps you see the natgas puzzle piece in the larger energy puzzle. Second, we like the deep dive they do on natural gas. Not so long ago the estimates were that with shale gas in the U.S.–particularly in the Marcellus/Utica–we have a “100 year supply” of natural gas. Now? That number has risen to 140 years of supply. And it keeps growing.

    The report looks at rig counts and well productivity, pipelines that are (or will) move gas from the northeast to other markets, regulations and more. Take time to read it!…
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    EIA: Shale Rockets U.S. Proved O&G Reserves to New Records

    Our favorite government agency, the U.S. Energy Information Administration (EIA), yesterday released their annual report of proved oil and natural gas reserves in the United States for 2014.

    The report, titled “U.S. Crude Oil and Natural Gas Proved Reserves, 2014” shows proved reserves for natural gas rose by 34.8 trillion cubic feet (Tcf), or 10%, to a record high of 388.8 Tcf in 2014. Oil reserves rose 3.4 billion barrels, or 9%, to 39.9 billion barrels. That’s the highest oil reserves have been since 1972!

    This is the second year in a row for a new natural gas proved reserves record high, and the sixth year in a row for oil proved reserves (see last year’s report, EIA: Proved Reserves for Natgas Up 10% Last Year, Marcellus Leads). As a quick reminder, proved reserves are, according to the EIA, “those volumes of oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.”

    That is, proved reserves are what’s in the ground now, can be gotten out, and we can prove it. This is a great report, full of excellent data and interesting charts and graphs…

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    Alternative Energy

    Brazil Sets Rules for $4.6 Billion Hydropower Auction

    Brazil is planning to auction more than 6 gigawatts of hydroelectric dams Wednesday, offering the chance to add billions of reais in anticipated licensing fees to help reduce a widening budget gap.

    Brazil’s Senate approved Tuesday rules for the event, where the government is expected to sell the rights to operate the 29 existing power plants. The vote was 44 for to 20 against.

    The auction will test the country’s ability to attract investment amid an economic recession, the widest budget deficit on record and uncertainty over President Dilma Rousseff’s political survival. The government expects to raise 11 billion reais ($3 billion) in concession fees from the auction in the current fiscal year and another 6 billion reais next year.

    "The auction is important and we expect to have a good result," Planning Minister Nelson Barbosa told reporters in Sao Paulo Tuesday.

    The proceeds of the auction, however, won’t be booked by the government until next year, according to the senator responsible for the revenue report of the 2016 budget bill.

    “I spoke this afternoon with Energy Minister Eduardo Braga and he said the 17 billion reais in revenue from the auction of hydroelectric dams will be effective only in 2016,” Senator Acir Gurgacz said after the vote.

    The press offices for Minister Braga and the Finance Ministry weren’t immediately available to comment after usual business hours.


    The vote comes as the government recovered some support in Congress in recent weeks, after members of the ruling coalition balked at approving Finance Minister Joaquim Levy’s proposals to boost taxes and cut spending.

    The auction was initially planned for September and has been postponed three times. The concession contracts have already expired or are about to do so. The hydropower plants were previously managed by companies that didn’t accept contract renewals in 2012 when the government changed some rules in an effort to reduce power prices.

    The dams in the states of Goias, Minas Gerais, Parana, Santa Catarina and Sao Paulo have been divided into five groups. The largest includes the 1.5-gigawatt Jupia and the 3.4 gigawatt Ilha Solteira dams, previously managed by Cia Energetica de Sao Paulo.

    Companies that submit the lowest bids will win 30-year contracts to operate the dams. They must pay the entire amount in advance and will recover their investment over the three-decade period.

    Spot market

    The government is letting foreign companies compete for the contracts and also will permit winners to sell 30 percent of the energy on the spot market, starting in 2017.

    "The new rule that allows companies to sell in the spot market is attractive for investors," Thais Prandini, director at the energy consulting Thymos Energia, said in a telephone interview. "Companies can take good profit from the spot market in Brazil." Spot power prices have increased in Brazil since a record drought hit the country in 2013.

    China Three Gorges Corp., the worlds’ biggest dam operator, is considering bidding. Banco do Brasil said Oct. 26 that some banks are planning a pool to finance the bids.
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    SunEdison plans to offload 400 MW of solar power capacity in India - sources

    U.S. solar company SunEdison Inc said it would sell projects in India with generating capacity of 425 megawatts (MW) to its "yieldco" TerraForm Global Inc for $231 million.

    Heavily indebted SunEdison said earlier this month that it would stop selling projects to its two yieldcos - dividend-paying units that hold generating assets of a parent solar or wind power company - until market conditions improved.

    "We'll go through evaluation of good opportunities and wherever it makes sense we'll continue to transact with the cash available in our yieldcos already," Pashupathy Gopalan, SunEdison Asia Pacific's president, told Reuters on Tuesday.

    Shares of the company, which also said a unit had repaid almost all money related to a margin loan with Deutsche Bank, rose as much as 16.3 percent.

    "We believe a significant portion of the recent volatility around the company and its subsidiaries has been attributed to the margin loan," SunEdison Chief Executive Ahmad Chatila said in a statement.

    Up to Monday's close, SunEdison's shares had lost nearly 69 percent of their value since Oct. 7 when the company said it would stop sales of renewable energy assets to its "yieldcos" and sell more projects to third parties. Sales to third-parties generally mean higher prices for the assets.

    SunEdison, which grew quickly through acquisitions, has been plagued by liquidity concerns, and the company reported a bigger-than-expected quarterly loss earlier this month.

    TerraForm Global, whose shares fell as much as 7.5 percent to $5.02 on Tuesday, has canceled plans to buy other assets to buy SunEdison's projects, SunEdision said.

    SunEdison operates Indian solar plants with capacity of about 450 MW. It has another 800 MW of capacity under development and recently won a tender for a 500 MW plant in the state of Andhra Pradesh.

    "We continue to expand in India ... It will become a country of even more importance for us," Gopalan told reporters earlier on Tuesday.

    India is targeting 100 gigawatts of solar power by 2022, or about 33 times today's level, to help to address chronic power shortages.

    Gopalan said SunEdison continued to look at selling projects in various countries to raise capital.

    "To grow you need capital. Our balance sheet does not have the necessary capital," he said.

    SunEdison has terminated a deal to buy Continuum Wind Energy, which has most of its assets in India, he said.

    Read more at Reuters

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    Base Metals

    Antofagasta may cut costs more if copper price stays low

    Chilean mining company Antofagasta will likely have to further cut costs if the price of copper does not recover within the next month, CEO Diego Hernandez said on Tuesday. Some cuts had already been made, said Hernandez, speaking on the sidelines of a mining forum in Santiago. 

    The price of copper, which is Chile's top export, hit its lowest in more than six years on Monday as a firmer dollar compounded pressure from ebbing demand from key buyer China. It recovered slightly on Tuesday to trade at around $4 597 a tonne. "It is still very premature to know if the price is going to stabilize at these lower levels, or if it will rebound," Hernandez told journalists. "But effectively, if the price stays like this for the next 30 days probably we will have to do a new revision (to costs)." 

    The trough in the copper price was already a "crisis," he said, adding that there was still much uncertainty about a recovery, given the signs that China was entering a new phase of weaker demand growth. London-listed Antofagasta cut its 2015 copper output forecast for the third time last month, and said it was reducing its workforce by about 7%. The head of its operational division told Reuters on Nov. 20 it would try to reduce costs next year, but that lower ore grades limited its room to maneuver.
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    Glencore’s Zambia copper unit lays off 4 300 workers – sources

    Glencore’s Zambian unit has laid off 4 300 workers, union and company sources said on Tuesday, as the mining and trading company deepens cuts in copper output to support flagging prices.

    “The company started giving out the letters of redundancy yesterday and has continued with the exercise today,” one union official said, referring to Glencore unit Mopani Copper Mines.

    The union source said around 5 000 employees working for contractors would also lose their jobs as Mopani would only maintain two contractors specialised in the sinking of shafts.

    Mopani had said in a letter dated October 21 giving notice of redundancy to mine unions that the firm was still losing millions of dollars and had to take action to secure its long term viability.

    Mining companies are under Zambian law required to give labour unions at least one month’s notice before laying off employees.

    Zambia’s President Edgar Lungu said earlier this month he would not allow Glencore’s unit to lay off workers.

    Mopani was expected to pay the  4,300 workers a total of $33 million, two company sources with knowledge of the retrenchment plan told Reuters.

    Swiss-based Glencore has pledged to cut its net debt to $20 billion by the end of 2016 to regain the trust of investors after its shares tumbled to record lows this year.
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    Alcoa to get aid from NY state to keep aluminium smelter open

    Alcoa Inc will receive almost $70 million in aid over 3-1/2 years from New York state to keep the Massena West, New York, aluminium smelter open, under a deal announced on Tuesday.

    The smelter had been slated for curtailment.

    The state's power authority will provide $30 million in power assistance, and the Empire State Development Corporation will provide $38.8 million in capital and operating expenses to modernize the plant, Governor Andrew Cuomo said at a news conference at the plant.

    The plant will keep operating at full capacity of 130,000 tonnes per year, an Alcoa spokeswoman confirmed. The deal will save around 600 jobs, and New York state may penalize Alcoa if the number of employees at the plant falls below that before March 2019, Cuomo said.

    Three weeks ago Alcoa announced plans to curtail the Massena plant along with two smelters in Washington state, leaving it with just one operating smelter in the United States. Depressed aluminium prices prompted the decision, with London Metal Exchange (LME)aluminium near 6-1/2 year lows.

    "We understand the price of aluminium is down. We get it, and we want to help," Cuomo said, adding that when he heard the "traumatic" news of the planned curtailment the state "really scrambled" to reach a deal to keep the plant open.

    News of those plans prompted a modest rise in the Midwest premium paid on top of the LME price for physical delivery AL-PREM. This announcement could limit those gains somewhat in the near-term, said Edward Meir, senior metals analyst at INTL FCStone.

    "It's better to have the units than not to have the units," Meir said. "It doesn't change the underlying premise: smelters are finding it increasingly uneconomic to produce in the West."

    Both Alcoa Washington state plants slated for curtailment by the end of the first quarter of 2016 - 279,000 tonne-per-year Intalco and 184,000 tonne-per-year Wenatchee - produce substantially more primary aluminum than Massena.

    In addition, the Midwest premium still has more room to rise as rising U.S. demand, particularly in the auto sector, will necessitate more imports from the Middle East, where primary output is growing, Meir said, noting that those imports involve higher costs of shipping.

    Read more at Reuters
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    Steel, Iron Ore and Coal

    China's coal output continues to drop

    Coal output in China, the world's largest coal producer, continued to decline in the first ten months of 2015, as the impact of clean air and renewable energy policies began to weigh on the industry, official data showed on Tuesday.

    China's coal production fell 3.6 percent year on year to 3.05 billion tonnes in the first ten months, according to figures from the National Development and Reform Commission (NDRC).

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    China Oct thermal coal imports down 26.5pct on year

    China’s imports of thermal coal—including bituminous, sub-bituminous coals and lignite -- plunged 26.5% year on year and down 20.6% on month to 9.18 million tonnes in October this year, according to the latest data released by the General Administration of Customs.

    Of this, imports from Australia fell 49.3% on year and down 35.7% on month to 2.45 million tonnes.

    Imports from Indonesia rose 2.8% on year but decreased 16.8% on month to 5.69 million tonnes.

    China’s didn’t import thermal coal from Russia during the same month.

    Lignite imports in October were 3.61 million tonnes, down 9.2% from the year prior and down 22.09% from the month before.

    China’s thermal coal imports over January-October amounted to 110.11 million tonnes, falling 34.2% from a year ago.

    Lignite imports during the same period were 40.94 million tonnes, down 24.5% from the year prior, with imports from top supplier Indonesia at 38.7 million tonnes, down 23.3% year on year.

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    China’s Oct coking coal imports at 3.08 mln T down 43.4% on year

    China’s coking coal imports fell 43.4% year on year and down 22.2% from September to 3.08 million tonnes in October – the third straight monthly and the second consecutive yearly drop, showed the latest data from the General Administration of Customs (GAC).

    Imports from top supplier Australia dropped 47.9% from the previous year and down 24.4% from a month ago to 1.63 million tonnes in October – the fourth consecutive month-on-month fall.

    Buying interests of Australian materials were negatively impacted by the cancelation of Australian import tariff from January 1, 2016, which may cut CIF cost by 10-20 yuan/t.

    Coking coal imports from Mongolia – China’s second largest supplier – fell 19.5% on month and down 40.4% on year to 0.69 million tonnes during the same month.

    Canada exported 0.51 million tonnes of coking coal to China in October, down 30.7% on month and down 7.5% on year.

    Over January-October, China’s coking coal imports fell 20.8% on year to 39.48 million tonnes.

    Top supplier Australia exported a total 21.23 million tonnes of coking coal to China during the same period, down 11.8% year on year.

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    Australia urges China to speed up standard test on coal imports

    Australia has urged China's leadership to speed up the environmental testing of coal imports amid concerns from Australian exporters that the new standards were acting as a barrier to trade, sources reported, citing talks between Prime Minister Malcolm Turnbull and Chinese Premier Li Keqiang on the sidelines of the East Asia Summit.

    China has imposed new standards on the coal it uses for power generation to try to cut emissions of sulphur dioxide, nitrogen oxides, particulate matter and mercury, and reduce the nation's chronic and severe air pollution.

    "China has imposed – and we respect their doing so – strong environmental limits, regulations on coal, principally directed at reducing the level of sulphur in the coal that they burn to counter pollution," Mr. Turnbull said.

    Mr. Turnbull went in to bat for Australian coal, pointing out its high quality and stressing Australia wanted to avoid "delays" in the annual $9 billion in coal exports to China caused by the new testing regime.

    "Australian coal generally has very low sulphur, so there's no bad news in that for Australian coal exporters.

    During the talks, Li assured the Prime Minister that China's economy would continue to grow at "about 7%" and that there would be an ongoing demand for Australia's resources, including coal, even as his economy became more consumption driven.

    "There have, however, been some administrative difficulties in a way that the testing has been managed and the Premier Li Keqiang and I had a very good discussion about that and how we may be able to expedite the testing so that Australian coal exporters and, indeed, Chinese importers of Australian coal, will not be inconvenienced or have their activities disrupted."

    Mr. Li accepted these concerns when he "acknowledged the high quality" of Australian coal, officials said, and gave a commitment towards "streamlining" the testing process.

    Both Mr. Turnbull and Mr. Li also assured each other that their respective domestic processes were in train to ratify the China-Australia Free Trade Agreement and have it in force before Christmas.
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    Missing climate goals, Dutch mull closing coal plants

    With the Netherlands on track to miss its climate goals for 2020, the Dutch government is coming under pressure to order the closure of the nation's coal plants.

    A group of 64 climate scientists on Monday called for the shuttering of all 11 plants, including three that came online this year and cost 5.5 billion euros ($5.85 billion).

    Dutch coal use is at a record high in 2015 and it supplies up to a third of the country's electricity needs.

    "It's high time the Netherlands finally sends a clear signal on sustainability," the scientists wrote in an open letter. "It will put an end to the paradox that one of the countries that has the most to lose from climate change is doing the least about it."

    Two-thirds of the country's 17 million population lives below sea level and would be vulnerable to rising sea levels in a warming world.

    The new coal plants were built during a period of economic stagnation as the government slashed subsidies for renewable energy and looked to cheap sources, including relatively efficient coal plants and plants powered by gas from the Groningen field, Europe's largest.

    Parliament is due to debate with Prime Minister Mark Rutte strategy for the U.N. climate summit that starts in Paris on Monday and a majority is now backing the scientists' call.

    Rutte's conservative VVD Party opposes the idea while its junior coalition partner Labour has endorsed it.

    Just 5.6 percent of Dutch energy came from renewable sources in 2014, according to an annual energy review published in October, and the country will miss a "binding" 2020 target of 14 percent.

    The Netherlands' target was set below the European Union-wide renewables target for 2020 of 20 percent, a concession granted due to the relatively large Dutch industrial base, centred around the port of Rotterdam. Neighbouring Germany, with a similar profile, reached 30 percent from renewables in 2014.

    In June, a court found the Dutch government had also fallen behind on its goals under the Kyoto protocol on CO2 emissions and ordered it to cut output by 25 percent from 1990 levels by 2020 -- a more ambitious target than the 17 percent Rutte's government had been following.

    Read more at Reuters

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    Indonesia to miss coal production target this year

    According to officials at the Energy and Mineral Resources Ministry, Indonesia's coal miners are cutting production by 20 percent this year, battered by persistently weak prices for the fossil fuel around the world.

    Mr Bambang Gatot, the ministry's director general of minerals and coal, said that "It doesn't seem like we will achieve the target of 425 million metric tons of production this year. As long as commodity prices are still low, production will be under pressure."

    The government's benchmark price of coal has fallen nearly 15 percent since the start of the year to USD 54.42 per ton, marking the biggest decline since 2009.

    Mr Adhi Wibowo, the ministry's director of coal business development, said that the drop in demand was mostly seen in orders from overseas, with local demand for the commodity holding steady.

    Neither official would identify the companies that had opted to cut production.

    According to ministry data, coal production in Indonesia reached 322.5 million tons between January and October this year, down 13 percent from the same period last year.
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    No reprieve: iron ore glut defies Samarco dam disaster

    Premiums for iron ore pellets - the highest-quality steelmaking raw material - have sunk this month despite the loss of a fifth of global supplies after a Brazil mine disaster, underscoring the industry's deep glut.

    Even a permanent closure at the flood-hit Samarco mine would be unlikely to boost pellet premiums, analysts and traders said, with other miners able to boost supply and Chinese steel mills eager to cut costs by using cheaper ore.

    "It's probably the least sensitive time for a supply issue," said Mark Pervan, global head of commodity research at ANZ.

    Iron ore prices .IO62-CNI=SI have tumbled nearly 40 percent this year, hitting a decade low at $43.40 a tonne on Tuesday on oversupply and falling Chinese steel demand.

    The premium that steel mills pay for pellets has also been falling, and has continued to slide since a tailings dam owned by Samarco burst on Nov. 5, unleashing 40 million cubic meters of mud on the valley below and killing 11 people with 12 still missing.

    Samarco, jointly owned by BHP Billiton and Vale SA, produces between 25-30 million tonnes a year of iron ore, mainly pellets, selling to China, Europe, the Middle East and Japan.

    The premium for iron ore pellet for delivery to China fell to $12.25 per dry metric tonne as of Nov. 18, continuing a steep decline from early October when it stood at $19.30, according to pricing agency Platts.

    Voluntary output cuts in other industrial commodities have had little impact. A pledge by major Chinese zinc smelters to slash nearly 20 percent of total production next year had a short-lived boost to prices that are still near multi-year lows.


    "If there was ever an excuse for prices to rise it would have been now, but things are that bad that the market brushes this news aside," said a London-based trader on the Samarco disruption.

    Pellets, processed ore that can be fed directly to a blast furnace, are a high-end product and make up only a tiny proportion of the seaborne iron ore trade. China imported 19 million tonnes last year, or 2 percent of its total purchases, according to commodity consultancy CRU.

    Widening losses among Chinese steel mills has prompted them to look to cheaper ore, cutting costs despite reduced productivity, said a Singapore trader.

    "Mills that are under long-term contracts with Samarco will be quite happy to see Samarco stop supplying," said a Shanghai-based trader.

    Outside China, Japan's biggest steelmaker, Nippon Steel and Sumitomo Metal Corp, has secured alternative suppliers, a spokesman said, but declined to give details. Japan's second-ranked JFE Steel declined to disclose backup plans.

    Vale could ramp up pellet production from other mines to fill any gap arising from Samarco, while other suppliers such as Russia's Metalloinvest and Bahrain Steel could bridge any shortfall, said Mitchell Hugers, analyst at BMI Research.

    Read more at Reuters

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    Why a lower iron ore price is good for BHP and Rio

    While equity markets are pre-occupied with what is, in the longer term, ultimately a trivial question of whether or not BHP Billiton and Rio Tinto can maintain their dividends in the face of commodity prices that are in a fresh tail-spin, the real issue is what the renewed bout of low-price pressure means for second and third-tier players.

    The iron ore spot price fell again yesterday, to $US43.89 a tonne, its lowest level in about six years, prompting more fears of an industry apocalypse (even though the average price for the three decades to 2007, before the financial crisis and China’s massive stimulus program, was about $US32 a tonne).

    The source of the collapse in iron ore prices, as it is for much of the depressed nature of commodity prices more generally, is the weakening of China’s demand for the raw materials of its industrialisation as a combination of a shift in its economic strategies and the loss-making over-production generated by its previous strategies coincide.

    The impact on iron ore, the commodity of arguably the most significance to Australia, is being leveraged by the still-growing production of the commodity even as demand is shrinking.

    BHP and Rio are the companies most obviously, or at least most visibly, affected because of their status as two of the three big seaborne iron ore producers; a position exacerbated for BHP in particular by the debate about its progressive dividend policy and its sustainability.

    The ultimate reality for both companies is that their dividends are discretionary. BHP has made it clear, and Rio has said similar things (albeit under less pressure), that its dividend policy is flexible and can be ditched under pressure. Its balance sheet and credit rating are the priority.

    That gives BHP, and Rio, a lot of flexibility to respond to big adverse shifts in the direction of their cash flows.

    Both have very high-quality balance sheets and both are at the low end of the cost curve and at the upper end of the quality curve in almost everything they produce. In the case of iron ore, they are the low-cost producers.

    In some respects, while it will cause them some pain (in the form of lower earnings and cash flows and potentially an even greater backlash from investors if they abandon their dividend policies) BHP and Rio might not mind the latest break in already-depressed commodity prices, particularly iron ore.

    There are a lot of higher-cost producers across the suite of commodities, but particularly in iron ore, that have kept producing despite prices that have tumbled below their overall costs.

    Positive operating cash flows and the costs of closure have kept a lot of uneconomic and sub-economic production in the market even as a lot more new low-cost volume has kept entering it.

    A big fall in prices, sustained for six months to a year, might not be good news for the BHPs and Rios in the short term but would bring forward the much-needed rebalancing of supply and demand in the longer term.

    Higher-cost producers with weak balance sheets won’t survive if commodity prices stay where they are or fall further -- which they will unless those weaker producers disappear.

    The iron ore market illustrates the wider picture.

    A price below $US40 a tonne isn’t inconceivable – it would represent a return to the long-term trends that long-established producers like Rio and BHP used to predicate their investment on. At those levels, only Rio and BHP would generate meaningful profits – but those profits would still be high-margin and would still be very meaningful.

    That’s why it would be in their interests for the price to fall, in the short term, to whatever level is necessary to drive out excess and higher-cost supply and re-balance the market.
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    Indian steel majors call for floor price mechanism to thwart cheap imports

    ET reported that a delegation of Indian steel majors comprising of SAIL, JSW, Tata Steel, Bhushan Steel, RINL and Essar etc met commerce and industry minister Ms Niramala Sitharaman on Tuesday to discuss issues arising out of dumping of steel by China, Japan and Korea and sought more measures to counter the flood of steel products.

    The delegation wants the government to fix a floor price for steel imports as it alleged that domestic steel firms had no relief despite the government imposing safeguard duties in September, anti-dumping duty in June and raising import duty in August.

    The delegation said that China reduced steel prices by 40%, after India imposed a 20% safeguards duty on some imported steel products in September

    Citing the steel sector's outstanding debt at INR 600,000 crore, members of the delegation said the sector's previous quarter losses amounted to INR 4,000 crore.

    A commerce mintsry official said “However, the minister has asked these companies to substantiate the need for more support by data and asked them to work towards making the sector more competitive.”

    He added that Ms Sitharaman told the delegation that the interest of the user industry has also to be balanced. He said that the government has not given any immediate assurances to the steel companies due to lack of data.
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    ArcelorMittal South Africa prices cash call at big premium

    ArcelorMittal’s South African unit priced its fully-underwritten R4.5 billion ($320 million) equity cash call at more than a 50% premium on Tuesday, sending its shares soaring.

    The unit of the world’s largest steel maker will sell nearly 700 million new shares at R6.50 each, a 56 premium to ArcelorMittal South Africa’s closing price on Monday.

    Shares in ArcelorMittal jumped 40% to R5.84 shortly after the announcement.
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    Forex hit pushes Russian pipe producer TMK to net loss in Q3

    TMK, Russia's largest maker of steel pipes for the oil and gas industry, said on Tuesday it made a net loss of $74 million in the third quarter due to a $94 million hit from adverse foreign exchange rate moves.

    Financial results of TMK, controlled by businessman Dmitry Pumpyansky, have been dented in dollar-terms by the rouble weakening and lower pipe sales in the United States.

    For 2015 as a whole, TMK said it expected a decrease in overall pipe sales, revenue and earnings before interest, taxation, depreciation and amortisation (EBITDA).

    Its third-quarter revenue was down 21 percent quarter-on-quarter to $917 million, with EBITDA down 27 percent to $125 million. Net debt fell by $238 million from the end of June to $2.6 billion at the end of September.

    For the final quarter of 2015, however, the company expects stronger financial results compared with the third quarter, partially due to seasonally higher demand for OCTG - pipes for the oil and gas industry in Russia.

    U.S. demand for OCTG will remain low until the end of 2015 as drilling volumes continue to decline, TMK said. It added a gradual recovery of the North American pipe market was not expected until the second half of 2016, subject to oil price growth, increase in drilling volumes and inventory reduction.

    Read more at Reuters

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