Mark Latham Commodity Equity Intelligence Service

Monday 9th January 2017
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    No Free Ride for Bitcoin in China

    Anyone wondering how serious China is about stemming the outflows that brought its currency reserves to their lowest since February 2011 need only to look at bitcoin.

    The cryptocurrency has plunged more than 18 percent since Jan. 4, as news began to leak that it had attracted the attention of regulators in China. The Shanghai branch of the People's Bank of China and the city's financial office met with bitcoin exchange executives and admonished them to deal with "abnormal fluctuations" in prices, according to a central bank statement on Friday. The State Administration of Foreign Exchange has also scrutinized several bitcoin platforms to understand how the digital currency can be used to transfer assets overseas, reported.

    Two days before the string of warnings, bitcoin had hit $1,140, close to its highest level ever, before closing the day at $1,091.

    Bitcoin dropped 18 percent since news leaked that Beijing was zeroing in on the cryptocurrency

    It's unclear how widespread the use of bitcoin is to circumvent China's rules on moving money offshore. What is clear is that, for all the claims of bitcoin being free from the shackles of any central authority, Beijing holds a lot of influence over it.

    China is home to two-thirds of bitcoin mining power and 98 percent of trades in the past six months were conducted using yuan. The irony should not escape bitcoin's libertarian cheerleaders: The currency may not be issued by any government but is effectively under the control of the world's most powerful single-party system.

    The joke appears to be on investors now, as China's government focuses on keeping its money at home. The nation's foreign-exchange reserves fell to $3.01 trillion at the end of December, eroded by government efforts to stem the yuan's steepest annual slide in more than two decades.

    The reality, in any case, is that bitcoin is a terrible tool for anonymous transfers. Unlike paper money, transactions in the digital currency can be traced back to the original owner. If a bitcoin exchange hands over data on its clients, authorities can easily tell whether they have been moving money out of the country.

    The reason why many Chinese investors may have chosen to use bitcoin to move money across borders is because it remains a tiny part of the financial system. The total supply of bitcoin (which has yet to be reached) is capped at 21 million coins. At $1,000 apiece, that's a notional value of $21 billion -- or less than 0.7 percent of China's remaining foreign-exchange reserves.

    Such a small and funky outlet for capital outflows would barely merit the PBOC's attention, the thinking may have gone. Clearly, that reasoning was wrong.

    Beijing is so serious about plugging the leaks that no target is too small now.
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    Beijing sets up ‘environmental police’ squad to tackle smog

    Officials in Beijing have announced a new environmental police squad to root out illegal burning, the latest government response to the widespread public anger over China’s persistent problems with smog.

    Beijing’s acting mayor, Cai Qi, said at a meeting on Saturday that the force would target open-air barbecues, garbage incineration and the burning of wood and other biomass, according to the state-run Xinhua news agency.

    Cai announced several other measures, including a target of cutting the use of coal by 30 per cent in 2017 to shutting down 500 higher-polluting factories and upgrading 2,500 more.

    About 300,000 high-pollution vehicles will also be restricted from entering the city starting next month, he said.

    Beijing and dozens of cities in China spend many winter days under a thick, gray haze, with air pollution levels that routinely exceed World Health Organisation guidelines. Beijing spent part of last week under an “orange alert,” the second-highest level in China’s four-tiered air alert system. More than 20 cities were on the highest “red alert”.

    Smog is an acutely felt issue in China’s cities, where a “red alert” can lead to the closure of schools and businesses, flight cancellations and shutdowns of highways to keep cars off the roads.

    During a red alert in Beijing last month, the authorities banned construction crews from spray-painting and even seized the charcoal grills from some restaurants.

    But enforcement remains an issue. China’s environmental ministry said during last week’s red alert that its inspection teams found companies resuming production despite a government ban. Many factories remain under severe pressure to meet production targets regardless of air pollution.

    Cai blamed polluting activities like burning garbage or wood on “the result of lax supervision and weak law enforcement”.

    But China’s pollution is caused chiefly by its thousands of coal-burning factories and a surplus of older, inefficient vehicles. While it tries to answer the loud public calls to tamp down on pollution, China’s Communist government is also grappling with an economic slowdown and the challenge of maintaining growth.
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    China Reserves Slumped $320 Billion Last Year as Yuan Tumbled

    China’s foreign currency holdings fell for a sixth month in December, bringing last year’s drop to $320 billion as the yuan posted its steepest annual slide in more than two decades.

    Reserves decreased $41.1 billion to a fresh five-year low of $3.01 trillion, the People’s Bank of China said Saturday. That was in line with estimates in Bloomberg’s survey of economists.

    The central bank’s effort to stabilize the yuan was the main reason for the drop last year, the State Administration of Foreign Exchange said in a statement. The world’s largest stockpile has fallen for 10 straight quarters from a record $4 trillion in June 2014, while eroding confidence in the yuan has pushed the currency to the lowest levels in eight years.

    “Looking ahead, China should and probably will continue implementing strict capital controls,” Yu Xiangrong, an economist at China International Capital Corp. in Hong Kong, wrote in a report. “Reserves may fall below $3 trillion in January. Although this will not change the basic situation of its reserve adequacy as measured by various metrics,” it will “have a psychological impact and may induce additional market pressures,” Yu said.

    Deterioration in the currency and reserves contrast with strengthening momentum in other benchmark economic indicators. Manufacturing and services both ended 2016 on relatively robust notes that signal expansion is strong enough for policy makers to keep pushing for reforms in 2017. Economists have been raising their estimates for 2016 and 2017 growth.

    The decline of foreign exchange reserves in December was mainly because the PBOC supplied funds to maintain balance in the foreign exchange market and depreciation of non-U.S. dollar currencies, according to the statement from SAFE, which executes currency policy.

    Policy makers intensified measures at the beginning of the new year to reduce capital outflows, including extra requirements for citizens converting yuan into foreign currencies after the annual $50,000 quota for individuals reset Jan. 1.

    “The combination of policy-induced yuan stabilization and higher reporting requirements for households buying FX will buy the PBOC a little breathing room, preventing escalating outflows in the first month of the year,” Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report.

    The currency has had greater volatility, with the offshore rate notching up its biggest two-day gain on record just days after posting its worst yearly performance against the dollar. The yuan fell 0.9 percent last month, capping a 6.5 percent drop over the year.

    Policy makers now may prefer using capital controls instead of burning through their foreign exchange reserves to defend the yuan, according to Gao Yuwei, a researcher at the Bank of China Ltd.’s Institute of International Finance in Beijing.

    There are still uncertainties facing the yuan as to whether the resurgent dollar will continue its rally in January and the Federal Reserve’s future U.S. interest-rate hikes, said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing.

    Gold reserves stood at $67.9 billion in December, little changed from $69.8 billion a month earlier. Officials kept them unchanged at 59.24 million troy ounces for a second month in December, the first time it halted purchases for two consecutive months since disclosing holdings as of June 2015.

    “China’s government is well positioned to control outflows more effectively if it wants to, though it may not want to be seen as reversing China’s ‘opening’ strategy,” Wang Tao, head of China economic research at UBS Group AG in Hong Kong, wrote in a recent note. “In the long run, it may not have much choice if FX reserves fall more sharply on the back of intensifying capital outflow pressures.”
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    Oil and Gas

    Saudis, Russia to diverge on speed of oil output cuts

    OPEC and non-OPEC members have pledged to cut their combined oil production by an average of just over 1.7 million barrels per day (bpd) in the first six months of 2017.

    Saudi Arabia and its Gulf allies are expected to implement most of their cuts immediately, but other producers both within and outside the Organization of the Petroleum Exporting Countries are likely to phase in the reductions gradually.

    The collective cut should increase progressively over the first half of 2017 and have its biggest impact on the supply-demand balance from the second quarter onwards.

    Market tightening should be felt at the start of summer as output cuts are fully phased in, U.S. refineries ramp up for the driving season, and crude combustion in Saudi Arabia and Iraq starts to rise.

    Compounding this effect, continued underlying growth in oil consumption in both OECD and non-OECD economies during the first six months should also help progressively tighten the supply-demand balance.

    OPEC and non-OPEC members also have given themselves the option to extend the cuts for a further six months depending on prevailing market conditions.

    If they decide on an extension, the supply-demand balance could tighten even more quickly in the second half of 2017.


    Most traders expect market rebalancing to be backloaded, with futures prices trading in contango in the first half of 2017 but then moving to level or backwardation in the second half.

    The structure of prices is consistent with a gradual phase-in of cuts during the first semester and their extension into the second (“Brent curve signals oil tanks will start emptying in second half of 2017”, Reuters, Dec. 21).

    But the different pace of production cuts for different countries increases the risk of non-compliance, especially toward the end of the first half and in the second half of 2017.

    If the agreement succeeds in raising prices and drawing down excess inventories, some countries may not deliver all the cuts they have promised.

    Compliance is likely to be greatest by Saudi Arabia and its allies at the start of the period, and least by countries such as Russia toward the end.


    In most cases, a new well will produce its highest daily output in the first days, weeks and months after completion, when the natural pressure in the reservoir is greatest.

    Daily production tends to decline progressively thereafter as pressure falls (“Petroleum geology, exploration, drilling and production”, Hyne, 2001).

    Production rates can be described by a decline curve (“The decline and ultimate production of oil wells”, Beal, 1919).

    Oil producers employ several methods to offset production declines from existing wells and maintain field output.

    New wells can be drilled to replace declining production from existing holes (either within the same reservoir or from a new one).

    Surface pumps or downhole pumps can be employed to raise more oil from old wells by providing artificial lift to replace natural field pressure.

    And production from old wells can be stimulated by injecting water, gas and chemicals into the producing formation to sweep more of the remaining oil toward the well bores and help it flow more easily.

    Most producing countries have a mix of old and new wells, of varying vintages and at various stages of decline, some on artificial lift or being stimulated by secondary and tertiary recovery techniques.

    Producers therefore have a menu of options for cutting output by shutting in or choking back existing wells, discontinuing artificial lift, ceasing to drill new holes, or scaling back secondary and tertiary recovery.

    Hinting at the importance of these options, non-OPEC countries have committed “to reduce their respective oil production, voluntarily or through managed decline, in accordance with an accelerated schedule”, OPEC said.


    Saudi Arabia and its allies are likely to cut production by shutting in or possibly choking back output from older wells in older fields.

    Saudi Arabia shut in more than 1,000 wells during the last round of OPEC cuts in 2008/9, according to an analysis of well data (“Annual Statistical Bulletin”, OPEC, 2016).

    Most of those were less productive (and presumably older) because the number of wells still in production dropped much more than the decline in actual output.

    Production per active well rose sharply, indicating older and less productive wells were shut while newer and more productive ones continued to flow.

    Much of Saudi Arabia’s famed output flexibility comes from the kingdom’s ability to shut in or reopen hundreds of older wells in older fields.

    Shutting old fields and wells makes economic sense because it can extend their lives and increase the amount of oil ultimately recovered from them.

    Conversely, Saudi Arabia can boost output by bringing old wells back into production, but at the cost of lower ultimate recovery (“Cost of pump-at-will oil policy spurred Saudi OPEC U-turn”, Reuters, Dec. 15).

    So this time around Saudi Arabia is likely to meet most of its output-cutting commitment by resting older wells and older fields, which can be implemented fairly quickly.

    Kuwait and the United Arab Emirates are likely to employ a similar strategy that will deliver production cuts quickly.

    Saudi Arabia has already implemented its cuts fully, a Gulf source familiar with Saudi oil policy said on Thursday (“Saudi Arabia cut oil output in Jan to 10.058 million bpd”, Reuters, Jan. 5).


    Onshore and shallow offshore wells in Saudi Arabia and its Gulf allies are relatively straightforward to close, but shutting in wells in other countries will be more difficult.

    Russia, in particular, has warned it cannot close some existing wells in Arctic and sub-Arctic regions without risking irreversible damage.

    Oil comes up from deep underground at high temperatures and helps prevent damage to wells and field equipment in the frozen north.

    The problem of shutting in existing wells is obviously greatest during the northern winter, when it affects the maximum number of wells.

    Russia is therefore relying on natural decline and a reduction in new well drilling to meet its commitments under the deal.

    Relying on field declines rather than shutting existing wells also makes it easier for Russia to secure the assent of its myriad private producers.


    In recognition of these problems, Russia and other non-OPEC producers secured the right to phase in cuts and average them over the entire six-month period.

    Officials in Moscow have repeatedly said cuts will be phased in gradually, meaning Russia is likely to deliver its deepest reductions only at the end of the six months.

    Backloading creates a temptation to cheat, however, since the full extent of any non-compliance will become evident only in the second half of 2017.

    If the supply-demand balance has started to tighten by that stage, the market may be able to absorb a level of non-compliance without so much impact on prices.

    However, if OPEC and non-OPEC deliver their promised cuts, including backloading, and extend them into the second half of the year, oil inventories could shrink rapidly later in 2017.
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    Nigeria militants say readying fighters to hit 'enemy' in Niger Delta

    A Nigerian militant group, which has claimed a wave of attacks on oil pipelines in the Niger Delta, said on Friday that it had asked its fighters to prepare to fight the "enemy" as authorities were not ready for dialogue.

    The Niger Delta Avengers had declared a ceasefire last year after staging major attacks on oil facilities crippling the OPEC member's oil output in a fight for more oil revenues to give dialogue with authorities a chance.

    The government has been holding talks for more than six months with Niger Delta leaders to address grievances of poverty and oil pollution in the southern region but former militants have complained that no progress has been made.

    "It has been evidently clear that the Nigerian state is not ready for any form of dialogue and negotiation," the Niger Delta Avengers said in a statement posted on their website.

    "All fighters and commands are hereby placed on high readiness in your webs of operations to hit and knock the enemy very hard," the group said.

    It declared the start of an "Operations Walls of Jericho and Hurricane Joshua ... to reclaim our motherland" but did not say whether this meant an end of the ceasefire or gave any details.

    The Avengers, like other militant groups, has split into different factions, which struggle to control their fighters, unemployed young men who work for anybody who pays them.

    Another former militant group, the Movement for the Emancipation of the Niger Delta (MEND), which had agreed to lay down arms in 2009, had said a week ago it had lost trust in the government to bring peace to the region.

    Those behind the pipeline attacks, which began in early 2016, say they want a greater share of Nigeria's energy wealth to go to the southern region. The frequency of attacks has diminished since President Muhammadu Buhari held talks with community leaders but there are sporadic attacks, most recently in late November.

    The attacks cut Nigeria's oil production, which stood at 2.1 million barrels per day (bpd) at the start of 2016, by more than a third in the summer although the oil minister said in December pipeline repairs lifted output to nearly 1.8 million bpd.
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    Platts: Oil stock overhang could disappear by 3Q 2017

    With 2016 behind us, energy intelligence groups have begun dishing out their takes on the energy sector for 2017.

    One of them, S&P Global Platts, an independent provider of information and benchmark prices for the commodities and energy markets, has shared its view on what to watch this year when it comes to oil market.

    In its forecast on Friday, Platts says that the recent OPEC-led global production cut – first in 15 years -underpins an emerging but fragile recovery, with 2017 set to see a huge stock overhang disappear by the third quarter and the oil market move from over-supply to a more balanced supply/demand situation.

    Great deal of optimism

    With Saudi Arabia and Russia joining forces to cut production by almost 800,000 barrels a day in the first half of 2017, and other oil producers under pressure to comply with their share of cuts to bring the total close to 1.8 million b/d, there remains a great deal of optimism in some quarters that the pace of rebalancing will be accelerated; in others there is skepticism that OPEC and its non-OPEC associates can really deliver, the intelligence group added.

    However, Platts has pointed out that the pace of the rebalancing of the oil market will also depend on the discipline to enforce and maintain the cuts across “a disparate group” of oil producers, especially with “crisis-ravaged” OPEC members Libya and Nigeria exempted from the agreement, but with the potential to see large additions in output.


    Moreover, Platts said, the speed of return by US shale producers could ultimately keep a lid on prices. Most oil companies appear generally optimistic that prices will rise to a more sustainable level in 2017, but spending is likely to stay modest for now and production growth moderate. Caution is likely to dominate the North Sea oil industry, with a mini-revival in production in the last two years juxtaposed against years of decline since production peaked in 1999, Platts said.

    Paul Hickin, Oil Editorial Director, S&P Global Platts: “The next few years will be shaped by the relationship between US shale and OPEC, Russia and other key oil producers. This landmark agreement between OPEC and non-OPEC is providing a floor to oil prices and US shale is providing the ceiling. Compliance to the deal until the stock overhang disappears, most likely by the third quarter of 2017, according to Platts estimates, will be pivotal to ensuring the price floor holds, while the speed of return of US shale will determine how low the ceiling becomes.”

    Marked increase for U.S. exports

    Reflecting large production cost reductions and productivity gains, Platts Well Economics Analyzer estimates that if US crude benchmark West Texas Intermediate reaches $65/b, leading US production areas have an internal rate of return of between 35 and 40%. The Permian Basin could be the biggest beneficiary of expected double-digit increases in capital budgets in 2017. Platts Analytics forecasts that production in the West Texas/New Mexico basin will reach 2.226 million b/d in 2017 up from slightly below 2 million b/d in 2016.

    “An increase in US crude production and a wider WTI-Brent spread since the end of 2016 are raising hopes that 2017 will be the year when US crude exports see a marked increase.” Platts said.

    Also, the energy intelligence group forecasts that, for the third year in a row, India’s oil demand growth will outpace China’s. Platts Analytics is forecasting a 7% rise to 4.13 million b/d in Indian oil demand in 2017, compared with a 3% rise in Chinese oil demand to 11.50 million b/d.

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    BP creates more than 500 North Sea jobs

    BP has today renewed its commitment to the North Sea – by announcing the creation of more than 500 jobs.

    It comes as the oil giant completed a “once in a lifetime” double win for the region, with the installation of all the major modules for its Clair Ridge platform and the imminent arrival of Glen Lyon FPSO to the west of Shetland.

    In his first sit-down interview since being named BP’s North Sea president, Mark Thomas said: “This is our home. This is where BP has matured and we feel this is our backyard.”

    This week, BP will have completed the installation of the modules for Clair Ridge and its Glen Lyon FPSO will arrive in the west of Shetland, unlocking a combined one billion barrels of oil over the next 40 years.

    Speaking exclusively to Energy Voice, Mr Thomas said: “It’s not very often in an oil and gas basin that in the course of five days you have two major projects basically sailing to the field.

    “It should never be taken for granted.

    “The north-east is a mature basin but we are looking towards the future, particularly in the west of Shetland, and we see that as a growth opportunity.

    “When was the last time you ever heard someone talk about the North Sea as a growth opportunity? And that’s what we’re looking at. West of Shetland is a place we want to invest and be in for the next three or four decades.

    “In this environment people say, ‘Really can you look that far ahead?’

    “And in this environment, absolutely we can.”

    The 534 jobs are linked to the hook-up and commissioning of the two projects. The work is expected to last 18 months. The jobs, which are being sourced by Amec, need to be filled by July 4.

    “It is nice to give a little bit of economic stimulation to the north-east,” Mr Thomas added.

    “The region could use it right now. And there are some very high-quality resources available, so we’re getting top-notch people to come out to do the construction for us.”

    The jobs boost comes after BP was forced to shed 600 of its 3,000-strong North Sea workforce earlier this year.

    Mr Thomas, who had only been in his post for a few weeks when the cuts were made, said: “We wanted to make sure we could do this once if at all possible. So while our numbers have been quite big – we’ve probably had the biggest announcement of any of the companies – we wanted to make sure when we were through we could take the company to a different level of performance.

    “We wanted to be prepared and well placed for the future as we saw it, and do right for the company. And at the same time do right for the people who remain in the organisation as well as those exiting the company.”

    Despite the job losses, BP continues to invest. Last month, it doubled its stake in the North Sea’s Culzean development. Over the last five years it has invested $10billion in the North Sea. Last year, it invested a $1billion into its aging ETAP field, securing its future through 2030.

    The North Sea president said it was exciting that the Glen Lyon project was finally coming to fruition, and said it would be “magnificent” when it was finally online.

    “Glen Lyon is a project that was years and years in the making and all of sudden it’s there,” Mr Thomas said.

    “It’s going to be in the field this weekend and start hook-up. It will be online towards the end of the this year or early 2017.

    “To have that happen in itself is magnificent.

    “And then over course of five days, to have five big modules together weighing 30,000 tonnes sail-out into the Shetlands and be installed into the jacket flawlessly – I mean that’s a once in a lifetime opportunity. For most project engineers that is the one opportunity in their whole career to see that, and here we’ve seen that twice in the matter of one week.

    “There’s not many other oil and gas basins in the world today that can say they’ve seen that type of activity in such a short time.”
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    Gazprom reports record gas exports as Europe shivers

    Russia's Gazprom said on Saturday its daily supplies of natural gas to countries outside of the former Soviet Union have reached a record high due to cold weather in Europe.

    Gazprom pumped 615.5 million cubic meters of gas to countries outside the former USSR borders on Jan. 6, beating its previous record hit on Jan. 5 by nearly 1 million cubic meters.

    "We have reached a totally new level of gas exports in conditions of a cold snap, lower extraction volumes in Europe and higher demand for gas on the energy market," Gazprom's CEO Alexei Miller said in a statement.

    Gazprom delivers around a third of EU's gas, and the recent spike in European demand boosted Gazprom's supplies through Nord Stream pipeline to an all-time high of 165.2 million cubic meters in the past few days, up from 160.75 million cubic meters on Jan. 1., Gazprom said.

    The current volumes of gas supply, if extrapolated throughout the year, exceed the Nord Stream's projected volumes by 10 percent, Miller said.
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    Libya says will declare force majeure at two ports over smuggling

    Libya's UN-backed government will declare force majeure on two ports to stop fuel smuggling from them, a statement from its presidential council said on Saturday.

    The statement gave no details on when the measure would come into effect, but it comes after officials accused a local armed group of fuel smuggling from Zawiya port. The measure will cover Zawiya and Zuwara ports.

    The armed faction guarding Zawiya port peacefully withdrew from the terminal earlier this week.

    Libya expects its oil production to rise to around 900,000 barrels per day after a series of agreements to reopen major oil ports and oilfields which had been closed for two years by armed factions, fighting and strikes.
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    Asian winter temperature drops boost LNG demand

    Demand for LNG and thermal coal for power generation in North Asia has risen on the back of low winter temperatures.

    Colder-than-usual temperatures in the midst of the heating season push the demand for electricity up which subsequently tightens the market and supports high LNG prices.

    Citing a Tokyo-based analyst, Reuters reports that lower than usual temperatures expected in the next 45 days will push the demand for energy up.

    It is expected that temperatures in Tokyo, Japan, Beijing, China, and Seoul, South Korea, where city gas is used for heating, will drop up to 3 degrees Celsius lower than normal.

    It is expected that consumption of liquefied natural gas in Japan, the world’s largest LNG importer, will reach 10.73 billion cubic meters during January, the highest it has been in a year.

    LNG imports in China have already risen from November to December and the trend is expected to continue, with consumption in South Korea expected to reach 5.23 bcm in January 2017, the highest level since January 2015.

    Reuters further reports that the Asian spot LNG prices were at US$9.5 per mmBtu at the end of December, also the highest it has been since early 2015.
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    US to sell 8 million barrels of sweet crude from three SPR sites

    US to sell 8 million barrels of sweet crude from three SPR sites

    The US government plans to sell up to 8 million barrels of light, sweet crude from three of the Strategic Petroleum Reserve's four sites later in January, with first deliveries planned for as early as February, a Department of Energy official said Friday.

    DOE plans to sell 3 million barrels from its Bryan Mound SPR site and 3 million barrels from its Big Hill site, both in Texas, and 2 million barrels from its West Hackberry site in Louisiana, according to the official, who spoke on the condition of anonymity.

    The crude will be sold at multiple delivery points throughout the SPR system.

    "Companies could make offers for oil coming out of one site only, for all three sites, for pipeline deliveries only for marine vessels or combinations of both," the official said.

    The agency plans to issue a notice of sale by mid-January, according to the official, beginning the process for what is expected to be the first of 18 expected SPR sales through fiscal 2026 that would put nearly 200 million barrels of government-owned crude up for auction.

    The US SPR, the largest government stockpile of crude in the world, currently holds 695.1 million barrels of crude, including 266.1 million barrels of sweet crude.

    The estimated 8 million barrels to be sold this month are part of an appropriation by Congress to sell up to $375.4 million of SPR crude to partially fund an effort to modernize the SPR and add marine terminal capacity.

    Once the notice of sale is issued, companies will have eight days to submit bids. In order to bid, companies need to be registered in the SPR's Crude Oil Sales Offer Program and must submit an offer guarantee of $10 million or 5% of maximum potential contract amount, whichever is less.

    "That's what prevents just anybody from throwing a bid out there," the DOE official said.

    DOE, which can reject any offer made, will notify companies with successful bids 11 days after the notice of sale is released, expected to be by late January, and contracts are expected to be awarded by early February.

    The official said regular deliveries of the crude, once contracted, will be made between March 1 and April 30, but said February deliveries will be accommodated.

    "Purchasers must make their own transportation arrangements and make sure that terminal and pipeline availability is sufficient for its volumes," the official said.

    The official said additional sales could be held in the future if the agency does not receive the $375.4 million it was authorized to sell from the SPR.

    "If we don't get enough good bids in this sale cycle, we will go out with a second sale cycle," the official said.

    In addition to the $2 billion Congress has authorized for paying for the SPR modernization and new marine capacity, Congress over the past year has approved a biomedical research bill, federal budget and transportation bill that are all partially funded by sales of a combined 149 million SPR barrels.

    On Thursday, in his cabinet exit memo, Secretary Ernest Moniz called the SPR a "critical federal energy security asset," and indicated it was being endangered by many of the crude sales approved by Congress.

    Moniz wrote that through these sales, the SPR was "being used by Congress to cover costs of programs not related to energy security, a shortsighted use of long-term security assets to meet short-term budget goals."
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    Permian Basin again drives rig count growth

    West Texas’ Permian Basin again led the growth of the nation’s drilling rig activity, with Texas and New Mexico each adding three more rigs to oil fields. The Permian extends into southeastern New Mexico.

    The total rig count started 2017 by tacking on seven more rigs nationwide — four primarily seeking oil and three drilling for gas — with oil prices now hovering near $54 a barrel in the U.S. The growing Permian activity accounts for more than half of all the nation’s active oil rigs with 267 rigs drilling in the basin, according to weekly data collected by the Houston-based Baker Hughes oilfield services firm.

    However, the Granite Wash basin in the Texas Panhandle and Oklahoma lost five rigs, keeping the total rig count from growing more.

    The Gulf of Mexico added one offshore rig, while Louisiana represented two of the three gas rigs brought on thanks to more activity in the Haynesville Shale.

    The total rig count is now at 665 rigs, up from an all-time low of 404 rigs in May, according to Baker Hughes. Of the total tally, 529 of them are primarily drilling for oil.

    After the Permian, the next most active area is Texas’ Eagle Ford shale with just 47 rigs.
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    US Army Corps keeps oil pipelines in streamlined permitting rule over protests

    The US Army Corps of Engineers will not remove oil pipelines from the next five-year authorization of its streamlined permitting program, despite opponents of the Dakota Access Pipeline and historic preservation groups calling for more scrutiny in order to prevent spills.

    The agency released a final rule Thursday authorizing the program through March 2022.

    More than 53,000 of the 54,000 comments the Corps received about the wide-ranging program dealt with Nationwide Permit 12, or NWP 12, a provision that allows oil pipelines to avoid much of the federal scrutiny that interstate natural gas pipelines undergo.

    NWP 12 includes oil pipelines in its definition of utility lines that are eligible for streamlined federal permitting authorizing construction, maintenance and repair work in federally regulated waters. Some projects can begin work without prior approval from the Corps.

    Other projects with certain characteristics -- including those that cross a navigable river or run more than 500 feet in a single water body and those that may affect sensitive cultural resources or endangered species -- must get pre-construction authorization from the Corps' regional office that oversees that area of the pipeline and comply with a number of general conditions.

    The Corps decided not to make any major changes to the provision.

    Dakota Access Pipeline opponents like the Standing Rock Sioux Tribe in North Dakota amplified calls to modify or eliminate NWP 12, which would have made it more difficult for companies to site oil pipelines.

    Standing Rock Chairman Dave Archambault said NWP 12 was intended for projects with minimal effect on the environment.

    "However, as events across the country have shown, spills from oil pipelines occur with great frequency, often with devastating environmental effects, particularly when they occur in the aquatic environment," Archambault said in comments on the rulemaking.

    "The Corps should address this fundamental disconnect by expressly recognizing that oil pipelines in waters of the United States require individual permits and are not properly deemed to be utility lines within the meaning of NWP 12," he added.

    Interstate gas pipelines must get permission from the US Federal Energy Regulatory Commission for construction and operation. During the review, FERC looks at environmental impacts, safety standards, market conditions and other factors. The process averages about 12 months for projects that begin a pre-filing process at least seven months before filing for a certificate application, according to a January study by the nonpartisan Congressional Research Service.

    The Corps responded to some of the comments in the final rule, saying it does not regulate oil and gas pipelines per se. Rather its legal authority is limited to regulating discharges of dredged or fill material into federal waters and work done in navigable waters.

    The Corps used the example of Enbridge's 600,000 b/d Flanagan South crude pipeline from Flanagan, Illinois, to Cushing, Oklahoma. It said the segments subject to the Corps' jurisdiction under NWP 12 amounted to just 2.3% of the total pipeline route.

    The Corps said other agencies like the Department of Transportation's Pipeline and Hazardous Materials Safety Administration, the Environmental Protection Agency and the Coast Guard address pipeline operations and spills.

    "We do not have the authority to regulate the operation of oil and gas pipelines, and we do not have the authority to address spills or leaks from oil and gas pipelines," the Corps said.
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    Pipelines Lead Canadian Energy Debt Issuance as Producers Bide Time

    Pipelines will lead the charge in Canadian energy companies in debt issuance this year amid signs the recovery in the industry is solidifying.

    Bank of Montreal sees C$5.5 billion ($4.2 billion) in issuance from oil and gas pipeline companies like TransCanada Corp. in 2017, up from C$3.8 billion last year, as they fund ongoing projects. With oil below $60 a barrel, it’s still too early for companies most closely tied to commodity prices to start spending again. Exploration and production companies are expected to issue about C$1 billion to C$2 billion, largely to refinance existing maturities.

    “A lot of the issuance does come from the pipeline names because of the type of infrastructure they’re building,” Manmit Pandori, an analyst who covers energy companies for Bank of Montreal’s BMO Capital Markets unit, said by phone from Toronto. The explorers and producers are “more in maintenance mode than they are in a broad growth in capital spending.”

    The Canadian energy industry is stabilizing after being roiled by a plummet in oil prices from more than $100 a barrel in New York in June 2014 to $26 in February. Crude is now trading around $52, with forecasters in a Bloomberg survey seeing it holding between $55 to $60 through 2019. As oil rose, the cost of borrowing for Canadian energy companies dropped relative to government debt. Investors now accept a yield spread of around 160 basis points, or 1.6 percentage points, compared with more than 270 in February.

    Best Performance

    That improving picture helped drive highly rated Canadian energy companies to the best performance on the Bank of America Merrill Lynch Canada Corporate Index last year, returning 6.5 percent to investors. The index average was 3.6 percent.

    Infrastructure companies are expected to tap the debt markets this year whereas last year they may have issued more equity, relied on credit facilities, or delayed a project or investment, Pandori said. Enbridge Inc.’s Line 3 pipeline replacement, TransCanada’s NGTL gas-pipeline system, and North West Redwater’s refinery construction are some of the projects with big spending, he said.

    “It’s obviously a sigh of relief when you’re seeing some of the bigger guys with the balance sheets starting to spend again,” said Chris Kresic, portfolio manager in Toronto at Jarislowsky Fraser Ltd., which has C$6.5 billion in fixed-income assets. “That’s obviously a sign of confidence in the industry.”

    Taking Steps

    Some high-grade producers did tap the bond markets in the second half of last year, but those were for maintenance and refinancing, as opposed to new growth, Pandori said. Select Canadian large energy companies began announcing expansion projects at the end of last year.

    “They’ve taken a lot of steps, to the industry’s credit, to make sure that their balance sheets are in order, they’re not getting downgraded below investment grade,” he said. Producers were taking advance of borrowing costs that had narrowed significantly since February.

    TransCanada spokesman Mark Cooper declined by e-mail to comment.

    Enbridge spokeswoman Suzanne Wilton declined by e-mail to speak specifically to Line 3, but noted that the project was part of a growth program that still had outstanding capital requirements that will be funded with debt and equity. Cost of capital is a “significant determinant” in when and where Enbridge chooses to fund from, she said.

    Doug Bertsch, North West Redwater’s vice president of regulatory and stakeholder affairs, confirmed through a spokeswoman that the partnership expects to issue Canadian-dollar debt this year, and monitors for market conditions that may affect timing and amount issued.

    ‘Cheap Overall’

    Surer signs of health in the energy industry would see explorers and producers ramping up along with the infrastructure companies, which will need to fill their pipes with something. It’s still too early to see much spending beyond the healthy, investment-grade producers, Jarislowsky Fraser’s Kresic said.

    “Even if the price goes back to $60 a barrel, it’ll be tough for the amount of financing that was done before to reach those levels again any time soon,” he said.

    Energy companies have also seen stock prices stage a dramatic recovery through 2016, leading the S&P/TSX Composite Index to the best performance among 24 developed markets. Given the recent jump in interest rates, companies are more likely to head to the equity market this year for financing, according to Rafi Tahmazian at Canoe Financial LP.

    “My inclination would be that debt’s a tougher game to play now,” Tahmazian, senior portfolio manager in Calgary for Canoe, which has C$1 billion in energy assets, said by phone.

    With the oil recovery, a better U.S. economic outlook and a need pipeline capacity in Canada, Kresic sees a window for infrastructure companies looking to finish projects started years ago.

    “They’ll still be coming to market,” he said. “Debt is cheap overall."
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    Alternative Energy

    U.S. solar lobbying group names 'bridge builder' as new leader

    The U.S. solar industry's top lobbying group named energy policymaker Abigail Ross Hopper as its new chief executive, pledging pragmatism as the sector prepares to work with an incoming president who has expressed doubts about its importance.

    Hopper joins the Washington-based Solar Energy Industries Association after serving as director of the Bureau of Ocean Energy Management for two years. At the BOEM, Hopper was responsible for leasing and permitting oil, gas and offshore wind projects.

    She replaces Rhone Resch at SEIA, who stepped down in May after 12 years at the group's helm.

    In a statement, Hopper said she had spent her career "working with all sides of the political and ideological spectrum to arrive at pragmatic approaches to energy policy."

    Prior to her role at BOEM, Hopper held a range of energy policy roles in Maryland, including serving as energy advisor to former Governor Martin O'Malley.

    SEIA has been instrumental in garnering federal government support for solar power, including winning a five year extension of the industry's federal tax credit at the end of 2015.

    The industry, which has grown dramatically in the last decade, has received support from many Democratic and Republican lawmakers in recent years in part because it employs hundreds of thousands of workers.

    But U.S. President-elect Donald Trump has said solar and wind are too expensive. He has also called global warming a hoax and promised to quit a global accord to cut greenhouse gas emissions, prompting concern among renewable energy proponents.

    SEIA Board Chairman Nat Kreamer said Hopper was chosen in part for her "brige-building talents."

    Hopper will take up her role with SEIA on Jan. 17.
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    Precious Metals

    Palladium jumps on bets government spending, tax cuts will boost car sales

    Palladium has soared away from its peers this week on bets that the autocatalyst metal, sold down at the end of last year, will benefit if tax cuts and higher government spending in the major car markets of China and the United States boost auto sales.

    The metal, mainly mined in Russia and South Africa and bought by carmakers for use in emission-controlling catalytic converters, has risen nearly 10 percent this week, outstripping gains in gold, copper, and even its sister metal platinum, itself up 7 percent.

    While this in part reflects a correction in the market after a bout of fund selling drove prices lower in late December, prices are buoyant after climbing by more than a fifth last year, their biggest annual rise since 2010.

    "(The) main driver for the solid performance is that palladium has the best fundamentals within precious metals," Giovanni Staunovo, commodities analyst with UBS Wealth Management, said.

    "With supply stalling and demand rising, driven by strong car sales in the U.S. and China, 2017 is likely to be the sixth consecutive deficit year."

    Investors appear to be responding to that story. The recent price move is likely to have been driven by positioning in NYMEX palladium futures, analysts said, while palladium exchange-traded funds, which saw huge outflows last year, reported their first inflows in a month on Thursday.

    Donald Trump's victory in the U.S. presidential election in November sparked a rally in industrial metals on his commitment to lower taxes and increase spending.

    U.S. new car and truck sales had already hit record levels in 2016, with strong consumer confidence and relatively low fuel prices boosting the industry's outlook.

    "Although a few months ago we were conscious that sales may be topping out, the incoming Trump administration may change that," Mitsubishi analyst Jonathan Butler told the Reuters Global Gold Forum on Thursday.

    "The president-elect's plans for tax cuts and fiscal stimulus should improve consumer confidence and may increase consumer spending on big-ticket items such as cars."

    Commodity markets are also reflecting hopes for increased government spending in China, the world's biggest consumer of industrial metals. Like the United States, China is a big buyer of gasoline-fueled cars.

    Catalysts in gasoline-powered vehicles use a higher amount of palladium than diesel cars, favored in Europe, which contain more platinum.

    Global automakers, such as General Motors, recorded stronger-than-expected sales last year in China.

    Some commentators caution though that the metal's rise may run out of steam if expectations for reflationary policies, such as tax cuts and higher government spending, do not translate into higher demand.

    "Reflation is positive for commodities, but palladium, although it is sensitive to global economic conditions, has quite a specific demand source -- cars," Macquarie analyst Matthew Turner said. "Just because the economy is doing better, it doesn't mean to say car sales will. That's why we think there could be some weakness to come."
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    Steel, Iron Ore and Coal

    China top coal province sets out consolidation plan

    China's Shanxi province, the country's top coal producer, plans to cap output and consolidate the industry around big producers over the next four years in a bid to boost efficiency, according to a blueprint by the provincial government.

    Major producers will be set up with a separate focus on thermal coal, coking coal and anthracite, while smaller producers will be merged into larger ones, the local authority said on its official website (

    The province's annual coal output would be capped by 2020 at 1 billion tonnes and capacity at 1.2 billion tonnes annually by 2020. Shanxi produced nearly 1 billion tonnes of coal in 2015.

    Shanxi, in the country's north, accounts for about a quarter of coal production in China, which has been working to curb overcapacity and a supply glut of the fossil fuel as part of a longer term plan to shift to cleaner fuels.

    For thermal coal, which is used in power generation, Datong Coal Mining Group and China Coal Pingshuo Group will become the top hubs, each with an annual capacity of 100 million tonnes, the province said.

    Shanxi's central region was expected to become a coking coal base. Shanxi Coking Coal [SHANXA.UL] would be the top producer, operating 107 mines with an annual capacity of 181 million tonnes. It also has coal washing capacity of 120 million tonnes.

    The province currently supplies coking coal to China's top steel mills and also exports to Japan and Korea.

    Shanxi's eastern regions will focus on anthracite, a high quality coal with fewest impurity and highest calorific value. Yangquan Coal Industry Group, Lu'an Mining Industry Group and Jincheng Anthracite Mining Group will be the top three producers tapping the province's largest mine Qinshui, the report said.
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    Hebei to cut 31.86 mln tonnes of steel and iron capacity in 2017-Xinhua

    China's biggest steelmaking province Hebei plans to slash 31.86 million tonnes of steel and ironmaking capacity for this year, the official Xinhua news agency quoted a provincial official as saying on Sunday.

    Hebei, a province in the north of the country near the capital Beijing, accounts for nearly a quarter of China's total steel output and has pledged to cut steel capacity by 31.17 million tonnes by 2017 and by 49.13 million tonnes by 2020.

    Xinhua reported Hebei provincial governor Zhang Qingwei as saying in a government work paper that Hebei is aiming to eliminate 15.62 million tonnes of steel capacity, 16.24 million tonnes of ironmaking capacity by the end of this year.

    Hebei had cut 14.62 million tonnes of steel capacity by the end of October, achieving 2016's target of 14.22 million tonnes ahead of schedule.

    Zhang also said four "zombie firms" in Heibei would be shut down this year. He did not specify which firms.

    "(The) process of reducing all ironmaking and steel production capacity in cities of Langfang, Baoding and Zhangjiakou will be accelerated this year," Zhang was quoted as saying.

    In addition, there are plans to cut 7.42 million tonnes of coal capacity, 1.1 million tonnes of cement capacity and an additional 5 million weight cases of flat glass in 2017.

    Tangshan, China's biggest steel producing city, which is in Hebei province, aims to close 8.6 million tonnes of steel capacity in 2017, the local government said on Thursday, part of its efforts to "upgrade" its highly-polluting heavy industrial economy.
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    Nearly 70pct listed coal cos likely to post profit

    Nearly 70% of the 12 listed coal enterprises that have released performance forecast are likely to post a profit last year, data showed.

    Of the 12 companies, six may swing to profit, one may remain in the black, and one may see increased profit from a year prior.

    On December 14, Inner Mongolian Huolinhe Coal Industry Group, owning one of China's five largest opencast coal mines, adjusted up its 2016 profit forecast for the fifth time to 900 million yuan from initial 390 million yuan, with profit of its coal business forecast at 690 million yuan from 140 million yuan.

    On January 4, Henan-based Shenhuo Group Co. Ltd. expected to make profit in 2016, with profit of its coal business rising 242.25% from the year-ago level to 553 million yuan, thanks to rallied coal prices and improved demand.

    Coal prices climbed and the market turned better last year, as the government firmly led a nation-wide supply-side structural reform to tackle overcapacity in the coal industry.

    On December 30, 2016, the Fenwei CCI Thermal Index assessed domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port at 617 yuan/t FOB with 17% VAT, a rise of 251.5 yuan/t from 365.5 yuan/t in the beginning last year.

    On the same day, the price of domestic 5,000 Kcal/kg NAR coal was assessed at 550 yuan/t, FOB basis with 17% VAT, increasing 222 yuan/t from the year-ago level.

    Meanwhile, data showed that profit of China's above-sized coal enterprises stood at 57.31 billion yuan in the first ten months last year, surging 112.9% from the corresponding period in 2015.

    Despite the fact most listed coal enterprises have not reported their annual performance yet, above figures indicate an end of the sluggish year of 2015, when the coal industry was troubled with losses.
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    China Nov rail coal transport up 11.9pct on year

    China's rail coal transport increased 11.9% from the previous year and up 2.9% on the month to 175 million tonnes in November last year, showed the latest data from the China Coal Transport and Distribution Association.

    Of this, 129 million tonnes or 73.7% of the total were railed to power plants, a year-on-year increment of 18.4% and up 7.5% from the month before, data showed.

    In January-November last year, China's railways transported a total 1.72 billion tonne of coal, falling 5.7% year on year, with thermal coal transport at 1.22 billion tonnes or 70.8% of the total, down 2.5%.

    Coal-dedicated Daqin line transported 312.84 million tonnes of coal during the same period, down 14.1% on the year, with November volume up 28.6% on the year and up 3.2% from October to 37.59 million tonnes.
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    Coal India FY2017-18 production seen at 660 mln T

    State-owned Coal India Ltd (CIL), the world's largest coal miner, is expected to raise its production to 660 million tonnes in fiscal year 2017-18 (April-March), the coal secretary said on January 6.

    The miner is expected to achieve its 2016-17 production target of 575 million tonnes and aims to raise output to 1 billion tonnes by 2020, Reuter repoted, quoting Susheel Kumar.

    With coal accounting for about 70% of India's power generation, the country is the world's third-biggest producer and importer of the fuel, and government wants to boost domestic output to cut imports.

    Coal India, however, has failed to meet its output targets for years due to several reasons including strikes, accidents and protests.

    During April-December last year, Coal India produced 378 million tonnes, lagging behind its target for this financial year ending in March.
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    Whitehaven cuts NSW coal mine guidance by 6pct

    Whitehaven Coal has lowered the production guidance for its Narrabri mine in NSW by about 6% after encountering "adverse geotechnical conditions" at the site, the Australian Associated Press (AAP) reported on January 9.

    The company did not provide specific details but said the revised guidance was a result of production impacts associated with managing the adverse conditions.

    The east coast miner now expects its lowest cost and most productive mine to produce 7.5-7.8 million tonnes of coal in 2016/17, down from its previous estimate of 8-8.3 million tonnes. It had produced 6.9 million tonnes of coal in 2015/16.

    The company is in the midst of a face widening project at the site, as it looks to expand production there. It said on January 9 those changes were on track, with production expected to start in the longwall early in the June quarter.

    Whitehaven insisted it is still on track to achieve overall full-year production guidance of 20-22 million tonnes despite the issues at Narrabri and the impact of earlier wet weather.

    The miner also said sales of metallurgical coal - used as a steelmaking ingredient - jumped to 22% of total sales in the December quarter, compared to its normal average of 16% in the previous three months.

    It has set a medium-term target of increasing the proportion of the higher margin met coal to a third of its output.

    Whitehaven will detail its December quarter production report on January 16.
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    Shandong 2016 coal output down 11pct

    Eastern China's Shandong province produced 128.61 million tonnes of raw coal in 2016, falling 11.31% from 2015 due to the government-led capacity cut campaign, showed the latest data from the Shandong Administration of Coal Mine Safety.

    Of this, 99.00 million tonnes were produced by provincial-owned mines, up 9.83% year on year, while that from mines owned by municipal and lower-level government stood at 29.61 million tonnes, rising 34.17% from a year ago.

    In December, the province produced 10.32 million tonnes of coal, falling 6.03% from November and down 16.78% year on year.
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    South African Nov thermal coal exports up 19.8pct on mth

    South Africa exported 7.36 million tonnes of thermal coal in November, increasing 6.82% year on year and up 19.84% month on month, hitting the highest since December of 2014, the latest customs data.

    Over January-November, thermal coal exports of South African totaled 65.98 million tonnes, down 4.73% from the year-ago level.

    India remained the largest taker of South African thermal coal, importing 3.1 million tonnes in November, falling 4.56% on the year and down 0.78% from October.

    Shipments to European countries surged 72.44% month on month and rose 12.36% year on year to 838,400 tonnes, after two straight monthly declines, with shipments to Italy at 269,300 tonnes and that to Netherlands up 59.07% on the year and 198.02% from October to 497,100 tonnes.

    Exports to South Korea stood at 922,000 tonnes, the highest since 2014.

    Thermal coal exports to Pakistan gained 61.13% from the year-ago level and 67.92% from the month prior to 535,600 tonnes, while that to Sri Lanka increased 1.8% on the year and 39.37% on the month to 333,100 tonnes.

    Attached Files
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    Iron ore exports to China from Australia's Port Hedland hit record

    December iron ore shipments to China from Australia's Port Hedland terminal hit a record 37.4 million tonnes in December, boosted as users such as BHP Billiton and Fortescue Metals Group ramped up production.

    Overall shipments from the world's biggest iron ore export terminal also climbed to a record 43.9 million tonnes last month, according to the Pilbara Ports Authority.

    The previous record for iron ore exports to China was 35.5 million tonnes, while the overall record was 42.9 million tonnes. Both were set last August.

    "We saw records in both categories in December," a port spokesman said. "It was a very active month."

    Iron ore prices soared 80 percent in 2016 as economic stimulus in China helped sustain steel output. China imports the vast majority of the world's sea-traded iron ore.

    Compared to November, December shipments were up 11 percent to China and 7 percent overall, port figures showed.

    Analysts expect both BHP and Fortescue to report near-record quarterly production figures later this month.

    Attached Files
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    Australia sees iron ore price heading sharply lower

    Australia has forecast a steep decline in the price of iron ore, it's most valuable export commodity, calling an end to an unexpected rally fuelled by strong demand from China.

    The forecast average price in 2017 of around $52 a tonne - down from about $80 a tonne at present - comes as big miners are set to report bumper profits in coming months, while smaller rivals are still getting back on their feet.

    "If the iron ore price starts to go down, the high performance of last year, won't be replicated this year," said Shaw & Partners mining analyst Peter O'Connor. "It could be a trainwreck for the smaller, marginal producers."

    In a closely watched release, Australia's Department of Industry, Innovation and Science on Monday predicted iron ore to average just $51.60 a tonne this year, easing further to $46.70 in 2018.

    The 2017 forecast was still up from its previous estimate of $44.10, reflecting last year's rally, and broadly in line with major banks on doubts that China's industrial growth will continue to support 1 billion tonnes of annual iron ore imports.

    A Reuters poll in mid-December put the average price of iron ore at $54.70 per tonne CFR China in 2017, while Barclays expects prices to tumble as low as $50 a tonne by the third quarter of 2017.

    Iron ore has already recoiled by 9 percent since mid-December after rising by 81 percent over 2016.

    The Australian forecast put last year's price lift down to a temporary rise in Chinese steel output and run-ps caused by speculative commodities trading in China.

    "The rally reflects a combination of fundamental drivers and speculative trading," the department said in its latest commodities outlook paper, "However, with the likely moderation of these factors over the outlook period, the iron ore price is still forecast to decline."

    The department also dropped its forecast for exports of iron ore by 2 percent to 832.2 million tonnes in fiscal 2016-17 from 851 million previously, though this is still a 5.9 percent rise year-on-year. Australia is the world's top supplier of iron ore.

    December iron ore shipments to China from Australia's Port Hedland terminal hit a record 37.4 million tonnes in December.

    Analysts expect Rio Tinto, BHP Billiton and Fortescue Metals Group, which together control 70 percent of world iron ore trade, to report sharply stronger profits next month after iron ore prices raced up 80 percent in 2016.

    Smaller miners, such as Atlas Iron are just now recovering after almost going bankrupt when iron ore slipped as low as $38 a tonne last year.
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