Mark Latham Commodity Equity Intelligence Service

Tuesday 28th June 2016
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    Temer named in new bribery allegations

    New evidence has reportedly been brought forward against Brazil's interim President Michel Temer who is accused of allegedly taking bribes from engineering player Engevix.

    Under these latest allegations, Temer is said to have received $1 million reals ($296,000) from Engevix's boss Jose Antunes Sobrinho, Brazilian magazine Epoca reported.

    According to the report, the allegations were made by Antunes in an effort to secure a plea bargain with federal authorities, as he is currently under house arrest over corruption charges.

    In his proposed plea bargain, Antunes reportedly alleges that Temer received bribes from the owner of Sao Paulo-based architecture firm Argeplan, Joao Batista Lima, in exchange for contracts.

    Antunes said that he can bring evidence to support his allegations, as Argeplan was awarded a contract to build Angra III, a unit of Brazil's sole nuclear power plant, Epoca reported.

    Antunes is under investigation for allegedly bribing officials of Eletronuclear, the nuclear-generation unit of Eletrobras, to win contracts.

    Temer has already been caught up in Brazil's massive corruption involving bribes and kickback schemes at state-run player Petrobras.

    He denied earlier this month accusation brought forward by the former president of Petrobras' transport division Transpetro, Sergio Machado, who has been giving plea bargain evidence to prosecutors in the investigation.

    Machado told prosecutors that Temer, among others, had asked him for illegal campaign contributions. Machado, who is himself accused of corruption, said Temer requested the donation for his Brazilian Democratic Movement Party (PMDB) party's candidate's campaign in the mayoral elections in Sao Paulo in 2012.

    Temer, who took office after President Dilma Rousseff was suspended to face an impeachment trial, denied asking for illegal contributions to his party's electoral campaigns.

    So far, there have been no statements from Temer's office regarding the latest corruption allegations against him.
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    SEC adopts rule on oil, mining payments to foreign governments

    The U.S. Securities and Exchange Commission on Monday approved a rule requiring oil, gas and mining companies to disclose payments made to foreign governments, capping a process stalled in the courts for years.

    The rule requires companies to state publicly starting in 2018 how much they pay governments in taxes, royalties and other types of fees for exploration, extraction and other activities.

    It will "provide enhanced transparency," SEC Chair Mary Jo White said in a statement.

    Frustrated with delays, human rights group Oxfam in 2014 sued the SEC over the rule, which was mandated by the Dodd-Frank Wall Street Reform Law passed four years earlier. In September, a federal judge ordered the commission to fast-track the rule, setting Monday as a deadline. Regulators released a draft in December.

    "After six years, we are very pleased to see the SEC release final rules that align with those in other markets by requiring fully public, company-by-company, project-level reporting with no categorical exemptions,” said Ian Gary, associate policy director at Oxfam America, in a statement. "This is a huge victory for investors and for citizens in resource-rich countries around the world who wish to follow the money their governments receive from oil and mining companies."

    The rule will cover major corporations such as Exxon, Chevron and Shell, as well as state-owned companies in China and Brazil, according to Oxfam.

    Under the final rules, "resource extraction" companies must disclose payments made to further the commercial development of oil, natural gas or minerals and that total more than $100,000 during a single fiscal year for each of their projects. Those payments can include taxes, royalties, fees, bonuses, dividends and social responsibility payments. Companies must disclose payments made by their subsidiaries, or any other entities they control, as well.

    The rule exempts a company from reporting payment information for a firm it has acquired in the first year after the acquisition, and also allows companies to delay disclosure for a year on payments related to exploration.

    The SEC said its new regulation is in line with approaches used in the European Union and Canada. The Dodd-Frank Wall Street reform law included a requirement for extraction companies to report annually on their payments to foreign governments as a way to combat corruption in places where oil drilling and mining dominate the local economy.
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    Volkswagen's U.S. diesel emissions settlement to cost $15 billion: source

    Volkswagen AG's settlement with nearly 500,000 U.S. diesel owners and government regulators over polluting vehicles is valued at more than $15 billion cash, two sources briefed on the matter said on Monday.

    The settlement, to be announced on Tuesday in Washington, includes $10.033 billion to offer buybacks to owners of about 475,000 polluting vehicles and nearly $5 billion in funds to offset excess diesel emissions and boost zero emission vehicles, the sources said.

    A separate settlement with nearly all U.S. state attorneys general over excess diesel emissions will be announced on Tuesday and is expected to be more than $500 million and will push the total to over $15 billion, a separate source briefed on the matter said.

    Spokeswomen for U.S. Environmental Protection Agency and Volkswagen declined to comment.

    Speaking on condition of anonymity, due to court-imposed gag rules, the first sources said that owners of 2.0 liter diesel VW 2009-2015 cars will receive at least $5,100 compensation along with the estimated value of the vehicles as of September 2015, before the scandal erupted. Some owners will get as much as $10,000 in compensation, the first sources said, depending on the value of the car.

    The $10.033 billion is the maximum VW could pay if it had to buyback all vehicles, but the actual amount VW will pay could be significantly less if a large number of owners take buybacks.

    Prior owners will get half of current owners, while people who leased cars will also get compensation, said the first sources.

    Owners would also receive the same compensation if they choose to have the vehicles repaired, assuming U.S. regulators approve a fix at a later date.

    The settlement includes $2.7 billion in funds to offset excess diesel emissions and $2 billion in VW investments in green energy and zero emission vehicle efforts, the first sources said. The diesel offset fund could rise if VW has not fixed or bought back 85 percent of the vehicles by mid-2019, the first sources said.

    The $2 billion in green energy and zero emission efforts will be spent over 10 years, the first sources said, and will include zero emission vehicle infrastructure.

    The settlement, the largest ever automotive buyback offer in U.S. history and most expensive auto industry scandal, stems from the German automaker's admission in September 2015 that it intentionally misled regulators by installing secret software that allowed U.S. vehicles to emit up to 40 times legally allowable pollution.

    The company's top U.S. executive, Michael Horn, was summoned to testify before Congress and in the days after the emissions scandal broke he said the company had been dishonest. "In my German words: We totally screwed up. We must fix those cars," said Horn, who left the company in March.

    VW still must reach agreement with regulators on whether it will offer to buyback 85,000 larger 3.0 liter Porsche, Audi and VW cars and SUVs that emitted up to nine times legally allowable pollution and how much it may face in civil fines for admitting to violating the Clean Air Act.

    Erik Gordon, a University of Michigan business professor, said "VW had little negotiating power, given the evidence. The costs of the remedies should make automakers cautious about misleading people in ways that give prosecutors the ability to bring criminal charges. Potential criminal charges mean you open your wallet in the civil actions, hoping to receive leniency instead of jail time."

    Reuters reported earlier the initial VW settlement would not include civil penalties under the U.S. Clean Air Act or address about 85,000 larger 3.0 liter Audi, Porsche and VW vehicles that emitted less pollution than 2.0 liter vehicles. A deal covering the 3.0 liter vehicles may still be months away.

    The settlement does not address lawsuits from investors or a criminal investigation by the Justice Department.

    Regulators will not immediately approve fixes for the 2.0 liter vehicles – and may not approve fixes for all three generations of the polluting 2009-2015 vehicles, sources previously told Reuters.

    Owners will have until December 2018 to decide whether to sell back vehicles and fixes may not eliminate all excess emissions.

    VW cannot resell or export the vehicles bought back unless EPA approves a fix, Reuters reported last week.

    VW, the world's second largest automaker, has seen U.S. VW brand sales suffer in the wake of the crisis. VW brand sales are down 13 percent in the United States in 2016, while sales of its luxury Audi and Porsche units have risen.

    U.S. District Judge Charles Breyer in San Francisco will hold a hearing on July 26 to decide on whether to grant preliminary approval to the settlements. If granted he would hold a later hearing to give final approval. Buybacks are likely to start no earlier than October, the first sources said.

    In April, VW set aside $18.2 billion to account for the emissions scandal.

    VW had said the scandal impacted 11 million vehicles worldwide and led to the departure of CEO Martin Winterkorn.

    Last week, Germany's financial watchdog called on prosecutors to investigate VW's entire former management board over the time it took to disclose the carmaker's emissions test cheating, a person familiar with the matter told Reuters.

    German prosecutors said this month they are investigating Winterkorn and a second unidentified executive over whether they effectively manipulated markets by delaying the release of information about the firm's emissions test cheating.
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    Oil and Gas

    ARAMCO briefing on the Shale Gas. 600tcf. 23bcf per day target.

    600 Tcf Shale Gas Reserves
    “Saudi Arabia will be the next frontier after the U.S., where shale and unconventionals will make a significant contribution to our energy mix, especially gas,” he said, according to Reuters. His predecessor as minister, Ali al-Naimi, also had gone on record last year stating that Saudi Arabia estimated it had about 16.9 Tcm (600 Tcf) of shale gas reserves, which would put it in fifth place in the world rankings for total unconventional reserves.

    It’s been less than five years since Aramco launched its unconventional gas initiative, which among other things eventually saw it open in late 2014 its Aramco Research Center in Houston. Operated by Aramco Services Co., the facility’s objective was and remains to conduct unconventional upstream research in exploration, drilling, field development and project management. Its location means it has been able to access world-leading U.S. drilling and production expertise.

    That know-how already is paying dividends. Over the last two years the company has in particular been focused on potential reserves in its frontier Northern Region, where it is committed to developing shale gas to feed a planned 1,000-MW power generation plant. 

    Exploration Program
    An exploration program in the kingdom’s northwest, South Ghawar and Rub’ al-Khali (Empty Quarter) area has seen promising results emerge in parts, particularly from the Jafurah gas basin. Jafurah is located southeast of Ghawar, the world’s largest conventional oil field. 

    “Our exploration efforts have resulted in finding big volumes of shale gas in the Jafurah Basin, close to Al-Ahsa [a town in eastern Saudi Arabia]. They are highly promising quantities and economically feasible as they contain a high rate of liquids; activities to evaluate the reserves are ongoing,” Amin Nasser, Aramco’s CEO, said at an industry event in the kingdom in March, according to Reuters.

    Part of Saudi Arabia’s increased focus on unconventional gas is because it wants to step up its ability to manufacture more specialty petrochemicals rather than lower value petrochemicals. The country is already one of the largest producers of petrochemicals in the world. But its continued plan to expand its downstream capabilities needs to be fed by a corresponding expansion of its upstream gas resources.

    23 Bcf/d Gas Goal
    Nasser said earlier this year that Aramco plans to almost double its total gas production to 651 MMcm/d (23 Bcf/d) within a decade. Up to 113 MMcm/d (4 Bcf/d) of that could come from unconventional gas sources.

    The advances in the Jafurah shale gas play have given it increased confidence that it can deliver on this promise despite the challenges that it faces there. According to a technical paper given at the SPE Asia Pacific Unconventional Resources Conference late last year, sweet spot identification within the Jurassic Tuwaiq Mountain Formation in the Jafurah Basin “represents a major challenge as it requires a large number of wells drilled over a wide geographical area with high associated costs.”

    Knowing that innovative drilling, completion and stimulation practices were required, a study was carried out to identify and maximize potential frack stages and placements. The initial results from vertical wells drilled in the basin have proved, according to the paper, that proppant can be successfully placed and indicated the presence of a potential gas-rich play within the same source rock.

    “Subsequent horizontal wells were the first liquid-rich gas carbonate horizontal wells with ultralow shale permeability in Saudi Arabia. The first horizontal wells had excellent gas production with significant amounts of condensate. By further building on experience from the drilled and stimulated wells, the lessons learned provide a foundation for the completion of future unconventional gas wells in the Jafurah Basin,” it stated.

    Contracts Awarded
    This talk of “potential” resources is not just hot air, however. Real-world contracts already have been awarded for various pilot-stage projects.

    In August 2015 Japan’s JGC Corp. was awarded a contract to build shale gas facilities, including processing facilities, wellheads and pipelines, at Turaif in northwest Saudi Arabia. Called “System A” and estimated to be worth nearly $200 million, the project will be located near a large mining project called Waad al-Shamal currently under development.

    JGC will build the facilities for Saudi Aramco with capacity put at 1.8 MMcm/d (66 MMcf/d). Although not formally confirmed by Saudi Aramco, a separate press release by Maloney Metalcraft confirmed it had secured a $2 million contract from JGC Gulf International Co. to supply gas treatment packages.

    Aramco is developing the infrastructure for processing shale gas from the Jalamid Field in the Al-Jouf and Northern Border Regions, according to Maloney’s press release. “The first phase of this project (System A) will involve gathering gas from the ST-53A area of these fields, routing it to an engineered surface facility location [and] then transporting it about 30 km [18.6 miles] via pipeline to a customer. The contract with JGC Gulf International, which is contracted by Saudi Aramco, covers the initial four gas treatment separation and filtration packages in System A.”

    System B of the project was, it continued, due to be tendered as an engineering, procurement and construction contract in second-quarter 2016 and would require four times the number of packages as System A. 

    Austen Adams, managing director of the energy division of Maloney’s parent company Avingtrans, said in the release the contract was its first shale gas project and demonstrated “that new business opportunities are available for companies with the recognized experience and expertise necessary to design and build performance-critical components.”

    The full project, including both systems, is projected to supply up to 5.6 MMcm/d (200 MMcf/d) of unconventional gas by 2018.

    Early-stage Projects
    These early-stage projects, along with Saudi Aramco’s continued push to overcome the many technological and environmental challenges that remain—not least of which is the need to find enough water in the middle of the Arabian desert to help it carry out the required levels of hydraulic fracturing—means that the pace of unconventional activity in the kingdom will be sustained, both in terms of R&D work and exploration and appraisal programs. That also will entail further work on both adopting and adapting techniques and know-how developed by shale producers in North America such as the factory approach to drilling.

    Saudi Arabia’s consistent long-term strategic approach to oil and gas is clearly guiding its approach to shale. With domestic demand for gas in the kingdom set to almost double from its 2011 level of 99.1 Bcm/year (3.5 Tcf/year) by 2030 and with the costs of unconventional gas production likely to continue to fall, the country’s shale resources remain increasingly attractive.

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    Traders to fill Asia oil storage in Q3 as maintenance crimps demand

    Oil traders plan to fill storage tanks and ships with crude in the third quarter to ride out a low demand season in Asia, hoping to cash out in the fourth quarter when prices rise, shipping and trading sources said on Tuesday.

    At least two trading houses have chartered supertankers to store crude off Singapore, taking advantage of lower freight rates and spot crude prices. More oil is expected to head into regional tanks ahead of the September to November refinery maintenance season.

    "Traders are trying to bottom-fish (for crude bargains) and store for one to two months before re-selling," a trader with a western firm said.

    Clearlake, the tanker chartering arm of Gunvor, has chartered the 308,596 deadweight tonne (dwt) Very Large Crude Carrier (VLCC) Arenza XXVII at $33,000 per day for one to four months, a Singapore-based shipbroker said. VLCCs can hold up to 2 million barrels.

    ST Shipping, Glencore's shipping arm, booked the 300,133 dwt Plata Glory for a month at $22,000 a day and has the option to extend at daily rates of $26,000 and $29,000 for the second and third month, brokers said.

    Rates for a one-year VLCC charter have fallen by almost $20,000 since January, to between $38,000 and $42,000 a day last week, according to shipping services firm Clarkson. They were $47,500 per day a year ago, Clarkson data showed.


    Crude supply disruptions and strong global consumption have sped up the pace of a market re-balancing, narrowing the gap between prompt and future-dated prices, leading traders to release stored oil starting in June.

    The number of tankers used for oil storage around Singapore fell to 30 this month from 40 in May, live shipping data on the Eikon terminal compiled by the Reuters Oil and Analytics team showed.

    Unsold crude cargoes for loading in August have piled up as Asian refiners head for maintenance. Spot differentials for August-loading cargoes have dropped after monthly prices from Middle East crude sellers rose. About 1 million barrels a day of processing capacity in Asia will be shut for maintenance in October, according to Reuters calculations.

    Russian ESPO crude and Abu Dhabi's Murban are seen as prime candidates for storage as traders bet on a price rebound.

    Still, the current contango structure might not fully cover storage costs, making it risky to hold onto oil for long.

    "They will need to manage oil in storage actively since the contango has only widened for prompt months," a Singapore-based trader said.

    Attached Files
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    Exxon's Liza is 700mb?

    ExxonMobil hit hydrocarbons in its first appraisal of the Liza 2 oil find offshore Guyana, according to the country’s natural resources minister.

    Guyana energy minister Raphael Trotman told the Associated Press that the Liza-2 appraisal well had encountered hydrocarbons and that ExxonMobil was planning the next well in its drilling campaign.

    Such a result was not unexpected and ExxonMobil indicated it planned to perform a production test on the appraisal well to learn more about the performance of the Liza reservoir following the initial discovery in 2015, which some have said could be upwards of 700 million barrels.

    The partners located the Liza-2 well on the structure’s flank and planned to sidetrack it back towards the centre of the reservoir for the production test, which has already started.

    US partner Hess said drillship Stena Carron will then move about 32 kilometres north-west on the Stabroek block, where the partners are targeting “look-alike” structures on prospects tentatively named Skipjack and Payara.

    ExxonMobil operates Liza on the Stabroek block with a 45% stake with Hess holding 30% and China National Offshore Oil Corporation-owned Nexen on 25%.

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    Woodside, Mitsui to invest $1.9 billion in Greater Enfield oil development

    Australia's Woodside Petroleum Ltd and Japanese trading firm Mitsui & Co Ltd said on Monday that they would invest $1.9 billion to develop the Greater Enfield reserves, a group of oil fields off Western Australia.

    The move is the latest indicator that some life is returning to the drained offshore oil and gas drilling sector, which was all but knocked out by a 70 percent slump in oil prices between 2014 and early 2016. But with prices up nearly 30 percent this year, activity is starting to pick up.

    "With development costs of less than $28 a barrel, Greater Enfield is an attractive project in a low-price environment," Woodside Chief Executive Peter Coleman told Reuters in an email.

    The recoverable reserves of the new Laverda oil fields and the Cimatti fields in the Greater Enfield development are estimated at 69 million barrels of oil equivalent, a little more than twice the daily output of the OPEC.

    Woodside, which holds a 60 percent stake in Greater Enfield, and Mitsui that owns the rest will invest in drilling production wells and constructing subsea facilities, with an aim to start crude oil production by around mid-2019.

    "We've made a final decision as development costs have fallen due to sliding oil prices," a Mitsui spokeswoman said.

    The new oil fields can use the floating production storage and offloading facilities currently in use in the existing Vincent oil field, further cutting expenses, she added.

    Earlier in the day, commodities giant BHP Billiton said it planned to boost its fiscal 2016 exploration budget, focusing on offshore developments in the Gulf of Mexico and off the coast of Western Australia.

    Oil futures are now near $50 per barrel, off more than 12-year lows plumbed earlier this year but still far below their 2014 peaks of above $100. The price uncertainty is, however, far from over, especially with Britain's decision to leave the European Union dragging on sentiment. [O/R]

    Weak energy markets had forced Woodside and its partners, in March, to shelve plans for the $30-billion Browse floating liquefied natural gas (LNG) project off Australia.

    Coleman subsequently said future LNG projects would likely be phased, rather than big one-off developments.

    U.S. gas prices have also risen more than 10 percent this year, prompting Japan's Tokyo Gas to buy a 25 percent stake in an Eagle Ford shale gas formation.

    Attached Files
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    Iran's new oil investment contract to be ready this summer - minister

    The first of Iran's new oil and gas investment contracts for international companies will be launched this summer and will invite bids to develop 10-15 fields, oil minister Bijan Zanganeh was quoted by the SHANA news agency as saying.

    The Iran Petroleum Contract (IPC) is a cornerstone of the country's plan to raise crude production to the pre-sanctions level of four million barrels per day (bpd), and the OPEC member desperately needs $200 billion in foreign money to reach the goal.

    Its launch has been postponed several times as hardline rivals of pragmatist President Hassan Rouhani resisted any deal that could end a buy-back system dating back more than 20 years under which foreign firms have been banned from booking reserves or taking equity stakes in Iranian companies.

    Zanganeh said a final draft for the contracts will be approved by the government shortly after some amendments to appease both critics and foreign companies.

    "Some of the critics were accusing us of treason. We could not have a discussion with them. The other group had raised some issues on the model of these contracts and we held meetings with them," Zanganeh said.

    Zanganeh said that the contracts were amended to enable Iran to develop the oil and gas fields either through a buy-back system or other methods. He did not elaborate.

    Oil majors have said they would go back to Iran if it made major changes to the buy-back contracts of the 1990s, which companies such as France's Total or Italy's Eni said made them no money or even incurred losses.

    Attached Files
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    Total wins stake in Qatar's Al-Shaheen oilfield

    Total has won a 30 percent stake in a new 25-year contract to operate Qatar's largest offshore oilfield, officials said on Monday, in the second major upstream development deal for the French oil firm in the Gulf region in as many years.

    State-owned Qatar Petroleum (QP) will keep the remaining 70 percent in the new joint venture for the Al-Shaheen field, which is 80 km (50 miles) off Qatar's coast and currently produces around 300,000 barrels per day (bpd).

    Six international oil firms including BP (BP.L) and Royal Dutch Shell Plc (RDSa.L) have bid to operate the oilfield.

    The deal announcement on Monday is a blow to Denmark's A.P. Moller-Maersk, which has been operating the oilfield since 1992.

    For years it was expected that Maersk Oil would renew its 25-year production agreement on Al-Shaheen field when its license runs out in 2017. But the Gulf state surprised the company last year by putting out a tender for the field.

    Maersk submitted a new bid for the field but Total has made the best offer.

    "Total was the best bidder, we are happy to see Total wins that process," Saad al-Kaabi, CEO of state-owned Qatar Petroleum (QP) said at a news conference in Doha on Monday.

    Total plans to invest more than $2 billion in developing the Al-Shaheen oilfield over five years, the company's chief executive said.

    "We have a plan to invest for five years 2017-2022, more than $2 billion in that field in order to integrate technology," Total's CEO Patrick Pouyanne told the news conference in Doha.

    "Our first objective is to maintain 300,000 barrels a day. Currently that's not a given as there's a natural decline (in production) as its a complex field," Pouyanne said.

    "If we have opportunities to increase production we will, there are parts of the field which have not been developed," he added.

    Total will be in charge with operating the oilfield starting July 14, 2017, and a new company named North Oil Company will be created to manage the joint venture, Kaabi said.

    The new deal is a boost for Total, which in January last year, it became the first oil major to renew a 40-year onshore concession in the United Arab Emirates, putting its peers under pressure to improve terms after the French firm made the best offer.

    In a statement Maersk Oil said it will be "redeploying a number of its employees which today are based in Qatar elsewhere in its global organization."

    "The majority of remaining employees in Qatar are expected to be offered employment by the new operator," it added.

    QP's Kaabi said all of Maersk Oil's employees in Qatar will be guaranteed a job in the new company created for the venture.
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    Venezuela’s Oil Output Decline Accelerates as Drillers Go Unpaid

    Venezuela’s oil output, already the lowest since 2009, is set to slide further this year as contractors scale back drilling after the cash-strapped country fell more than $1 billion behind in payments.

    The Latin American nation’s oil production, which generates 95 percent of export revenue, will decline by about 11 percent to 2.1 million barrels a day by the end of the year, Barclays Plc estimates. Output is falling largely because oil-services companies aren’t being paid, according to the International Energy Agency.

    Venezuela’s economy has been in crisis since crude prices slumped, with sporadic looting as the desperate population fights for food and other essentials. President Nicolas Maduro has pledged to continue payments to bondholders, while the partners of state-run oil company Petroleos de Venezuela SA, known as PDVSA, aren’t paid. Further output decline in the OPEC nation, combined with disruptions in fellow members Nigeria and Libya, could leave the oil market short of supply next year.

    “The situation is becoming more and more difficult for oil services in Venezuela,” Baptiste Lebacq, an analyst at Natixis SA in Paris, said by phone. As long as oil prices are at current levels, it’ll be “very difficult” for PDVSA to pay the contractors, he said.

    Schlumberger Ltd., the world’s largest oil-services company by market value, was owed $1.2 billion by PDVSA as of March 31, according to an April 27 filing. Halliburton Co. said last month the amount it was owed rose 7.4 percent in the first quarter to $756 million.

    The number of rigs drilling for oil in Venezuela fell by 10 to 59 in May, the lowest level in more than a year, according to Baker Hughes Inc.

    Schlumberger has reduced activity in line with the drop in payments, the company’s president, Patrick Schorn, told investors last week at the Wells Fargo West Coast Energy Conference. It still works in the country and could boost operations if “new payments models” are implemented, he said.
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    Norway trade unions say 755 oil workers could go on strike

    About 755 Norwegian oil workers could go on strike from Saturday if employers and unions fail to agree a new wage deal before a Friday deadline that would limit output from Western Europe’s top producer, trade unions said on Monday.

    A final round of mandatory talks will be hosted by a state mediator on June 30 and July 1 in an effort to avoid a conflict that could start the following day..

    Employers have argued that a plunge in oil prices since 2014 must be accompanied by cost cuts and flexible work practices to help make the industry stay competitive. Unions say members should receive pay increases matching those in other industries.

    The Industri Energi union said it would take out 524 members if the talks break down, affecting the Statoil-operated <STL.OL> Oseberg, Gullfaks and Kvitebjoern fields.

    The SAFE union said it would take out 156 workers on ExxonMobil’s <XOM.N> Balder, Jotun and Ringhorne fields.

    In addition, 75 workers on Engie’s <ENGIE.PA> Gjoea field would also go on strike, the smaller union Lederne said.

    A protracted strike may ultimately result in more than 7,400 workers going on strike, data from the state mediator’s office showed.

    “We do of course wish for the mediation to lead to a deal, so that a conflict is avoided,” the Safe union said in a statement.

    The three labour unions will negotiate on behalf of the oil workers, while Norwegian Oil and Gas will represent oil and gas firms.

    In 2012, a 16-day strike among some of Norway’s oil workers cut the country’s output of crude by about 13 percent and its natural gas production by about 4 percent.
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    Argentina oil workers go on strike, warn of longer walkout

    Argentina oil workers go on strike, warn of longer walkout

    Oil workers in much of Argentina launched a 48-hour strike Monday, with a labor union saying the action could be extended if demands for higher wages are not met.

    If oil producers and services companies do not agree to increase wages by at least 30% before the end of Tuesday, the strike will continue through Wednesday, Jorge Avila, secretary general of the Union of Private Oil and Gas Workers in Chubut, said in a statement over the weekend.

    If there is still no response by the end of Wednesday, then the walkout will go on "indefinitely", he said.

    The strike had originally been planned for much of Patagonia, a southern region that produces most of the country's oil and natural gas. But it gained adherence by unions elsewhere in the region as well as in the northwestern province of Salta, according to the statement.

    This means the strike is affecting about 99% of Argentina's 530,000 b/d of oil production and 88% of its 123 million cu m/d of gas, according to data from industry group Argentine Oil and Gas Institute.

    Avila said workers at two oil-loading terminals in Patagonia also walked off the job, interrupting crude shipments for domestic and international delivery.

    Argentina exports about 10% of its crude production, and ships the rest domestically to refiners, most of them in the central region of Buenos Aires.

    Oil companies have offered to raise wages by around 20%, half of the 40% that workers want in line with an annual inflation rate of 42% in May.

    "There are workers earning 15,000 or 18,000 [Pesos per month] ($1,000-$1,200) who cannot make it to the end of the month," Avila said.

    The national government will seek to negotiate a truce between oil companies and the unions at a meeting Tuesday in Buenos Aires.

    In a statement cited by the Argentina press, the Chamber of Hydrocarbon Exploration and Production, an industry group, said the strike will hit oil and gas production "in the entire country".
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    Modi's $27B Oil Quest Gives Services Firms A Lifeline

    India is offering global oilfield service providers starved of new contracts a $27 billion lifeline as the government's ambition to cut fuel imports drives fresh investment.

    (Bloomberg) -- India is offering global oilfield service providers starved of new contracts a $27 billion lifeline as the government’s ambition to cut fuel imports drives fresh investment.

    Spending plans are ratcheting up and stalled projects restarting after the government in March announced pricing freedom for natural gas from deepsea fields that begin production this year. Coming at a time when the cost of rigs and services has halved, that’s prompted India’s largest explorer Oil and Natural Gas Corp. to launch its biggest development campaign yet. Reliance Industries Ltd. is preparing to restart work at four offshore oil and gas blocks.

    The flurry of activity is providing some respite to services companies including Schlumberger Ltd., Technip SA and Halliburton Co. that were stung last year by more than $100 billion in slashed spending by explorers as oil collapsed. Investments in India are growing to meet Prime Minister Narendra Modi’s target of cutting import dependence by 10 percent over six years as increased consumption puts the nation on track to become the world’s third-largest oil consumer.

    “In India, there are two to three major identified projects and they are probably bigger than anything else going on in rest of the world,” Technip India’s Managing Director Bhaskar Patel said in an interview. “India is a place where there is work available.”

    India’s hydrocarbon resources still remain highly undeveloped and the government’s new liberal approach is nudging companies to invest in tapping them. The measures are expected to boost gas output by 35 million standard cubic meters a day and unshackle projects worth 1.8 trillion rupees ($27 billion), Oil Minister Dharmendra Pradhan had said when the policy changes were announced.

    About 90 percent of the new spending would go to companies that provide services from drilling to testing and the laying of infrastructure.

    Halliburton is positioned to participate in “the country’s ambitious plans to increase its domestic production,” the company said in an e-mailed response to questions. “India plays a crucial role for sustained development in the region for Halliburton.”

    The Indian government’s initiatives will increase the pace of exploration, ONGC Chairman Dinesh Kumar Sarraf said.

    ONGC will contract deepwater drill ships and dozens of jack-up rigs for a $5-billion development program in the Krishna-Godavari Basin, he said. The company intends to spend 11 trillion rupees by 2030 to raise output.
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    Squamish Nation approves Woodfibre LNG feeder pipeline

    Squamish First Nation approved the environmental assessment agreement for the proposed pipeline that will supply natural gas to the Woodfibre LNG project.

    The Squamish Nation chiefs and council voted to approve the environmental assessment agreement for the proposed Eagle Mountain – Woodfibre Gas pipeline project and issued an environmental certificate to FortisBC.

    Woodfibre LNG said in its statement that Squamish Nation conducted an “independent environmental review” of the project. The First Nation also approved the use of the Mount Mulligan location near Squamish for FortisBC’s natural gas compressor station. It has already approved the Woodfibre LNG project in October last year.

    The Eagle Mountain – Woodfibre Gas pipeline project is an expansion of FortisBC’s existing Vancouver Island natural gas transportation system to provide natural gas service to the Woodfibre LNG project. The project includes building about 47 kilometres of pipeline between Coquitlam, British Columbia and the Woodfibre LNG site.

    The Woodfibre LNG project is a proposed natural gas liquefaction and export facility located at the former Woodfibre Pulp and Paper Mill, about seven kilometres southwest of Squamish.

    The project is expected to start production in 2020 with an annual capacity of approximately 2.1 million tons of liquefied natural gas.
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    Alternative Energy

    Australian company buys 50% stake in “game-changing” graphene battery storage technology

    Australian energy technology company LWP Technologies has bought a 50 per cent share in a new, graphene-based battery storage technology that the ASX-listed company believes could “change energy markets and the way the world commutes.”

    The $1.6 million deal, described by LWP on Wednesday as a ”major value-adding step” for the company, will see it enter into a joint venture to commercialise the patent pending aluminium-graphene synthesis and battery technology with its Australian-based inventor.

    The battery – which comprises an Aluminium-Graphene-Oxygen chemistry – is said to be safer and more stable than lithium-ion batteries, and is shown to have vastly superior energy density.

    But perhaps even more significant is the patent that describes the chemical synthesis process to manufacture highest quality graphene on a commercial scale – one of the key barriers to the successful use of graphene in both battery storage applications and in solar cell development.

    LWP says funds invested will be spent on developing prototypes for the first of three patents that have been lodged, with an initial focus on the battery technology – including an “ultra fast” rechargeable aluminium-graphene-ion battery.

    The JV partners intend to license the technology to battery manufacturers and other industry participants.

    The Russian born Australian scientist behind the technology, Victor Volkov, has completed internal laboratory testing of the Al-Graphene-Oxygen battery, which has demonstrated the capacity to deliver significant benefits over lithium-ion technology, which you can see in the table below.
    Image title

    Volkov, who describes the technologies as his “life’s work”, said he was thrilled to be working with LWP to commercialise the them.

    “I look forward to creating the revolutionary prototype batteries together with LWP who have a proven track record in developing energy-related technologies from laboratory to commercial scale,” he said.

    Attached Files
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    Belarus to sell India potash at lowest price in a decade

    Belarus has agreed to sell potash to India at the lowest price in a decade and about a third less than last year's level as global supplies of the crop nutrient exceed demand.

    One of India's biggest fertiliser importers, Indian Potash Limited (IPL), has agreed to buy 700,00 tonnes of potash at $227 per tonne on a cost and freight (CFR) basis with a credit period of 180 days, Belarusian Potash Company, Belarus's state-controlled trader of this fertiliser, said in a statement on Monday.

    India and China, the world's biggest fertiliser consumers, usually sign contracts earlier in the year. This year, deals were delayed as high stocks held by farmers meant there was no rush to agree a deal.

    India's deal is a rare instance of the country signing a potash supply contract with a major producer before China.

    The Indian buyers confirmed the contract signing. The price is sharply down from last year's price of $332.

    "After lengthy negotiation Belarus has agreed to supply potash at $227," one of the Indian buyers told Reuters.

    IPL said it would pass on part of the benefits from lower import prices to farmers by slashing the retail price of potash by 4,000 rupees per tonne ($59).

    The contract price is fair and reflects the current conditions in the global potash market, Elena Kudryavets, director general of Belarusian Potash Company (BPC), said in a statement.

    "The contract reflects interests of producers, importers and consumers of potash fertilisers," she added.

    Belarus' contract price is likely to become the benchmark for other suppliers to India, such as the powerful North American trading group Canpotex Ltd, owned by Potash Corp of Saskatchewan, Mosaic Co and Agrium Inc.

    "Since one supplier has agreed on the price, others have to follow. Uralkali is likely to be next to sign the deal, followed by Canpotex," said a senior official at a leading Indian fertiliser company.

    Attached Files
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    K+S Q2 profit slumps on lower potash prices

    German potash and salt miner K+S said operating profit in the second quarter plunged to 10 million euros ($11 million) from 179 million euros a year earlier on lower potash prices, sending its shares down 10 percent.

    K+S, which last year rejected a takeover approach from Canadian rival Potash Corp, had said last month that operating profit would fall significantly this year.

    Average selling prices of potash products so far over the quarter to June 30 have been "significantly lower", it warned in an unscheduled earnings statement based on preliminary results on Monday.

    K+S shares, which were already down about 5 percent before the announcement, extended losses to trade 10.3 percent lower at 18.96 euros by 1154 GMT - less than half the 41 euros per share that Potash Corp had offered.

    Potash prices are at their weakest in nearly a decade. A surplus of mining capacity, and weak currencies in consuming countries like Brazil, have extended the industry's slump.

    K+S also cited North American users of de-icing salt holding back on pre-season purchases because of high inventory levels, and high production outages due to a limited provisionary permit for waste water disposal in Germany as a contributing factor.

    A regional environmental regulator last year gave only provisional approval for the disposal of waste water via deep-well injection into porous layers of rock and imposed strict limits.

    This has resulted in a production shortfall of more than 400,000 tonnes so far, which the mining group will likely not be able to make up for at a later stage.

    "Supply shortages cannot be ruled out within the following months," it added.
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    Base Metals

    Workers to vote on strike at Chile's El Soldado copper mine

    Workers at the El Soldado copper mine in central Chile have called for a ballot on a strike after pay talks ended without agreement.

    In a statement Friday, the Copper Workers Federation said the last offer from management included no pay increase.

    The workers "have been preparing for this outcome for some time and expect an improved offer" if a strike was to be avoided, the federation said.

    In 2015, the mine produced 35,840 mt of copper in cathode and concentrates.

    Anglo American has put its 50.1% stake in the mine up for sale. State-owned Chilean copper company Codelco plus Mitsui and Mitsubishi of Japan own the balance of the shares.
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    Alumina files counter-claim against Alcoa

    Australian company Alumina has filed a counterclaim against US group Alcoa, which last month turned to a Delaware court to prevent its partner in Alcoa Worldwide Alumina and Chemicals (AWAC) from blocking a demerger plan. Alumina said on Monday that its counterclaim sought court declarations to prevent Alcoa from taking further steps in its separation plan, announced in September, without complying with certain obligations under the AWAC agreements. 

    The counterclaim also sought to stop the US group from receiving offers to acquire its interest in the various AWAC companies, citing Alumina’s ‘first option rights’. Alcoa's demerger plan would separate the company's aeroplane and aviation parts business under the name Arconic, while the traditional aluminium smelting operations, including the 60% stake in AWAC, would retain the Alcoa name. 

    Alumina stated that, under Alcoa’s planned separation, the US group would exit AWAC and would substitute a new unaffiliated legal entity to hold its existing interests in the JV. Alumina believed Aloca had to obtain its consent to assign its rights and obligations to a new legal entity. 

    “The AWAC joint venture agreements have governed our relationship with Alcoa for over 20 years. We consider that Alcoa’s plan to substitute a new entity into the joint venture without our consent is a clear breach of these fundamental agreements. “We understand how important the resolution of this matter is for Alcoa’s separation and have tried to negotiate with Alcoa to reach an agreement that is commercially acceptable for both parties. 

    Alcoa has chosen instead to bring this matter before the courts,” commented Alumina CEO Peter Wasow. AWAC has two bauxite mines and three refineries in Western Australia, as well as two smelters in Victoria. A trial date has been set for September 20.
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    A new threat to China's nickel pig iron producers?

    What sort of threat does the election of a new government in the Philippines pose to China's nickel pig iron (NPI) sector?

    Incoming President Rodrigo Duterte has already fired several warning shots at the country's mining sector, calling on local operators to "shape up" and stop "the spoiling of the land".

    His actions speak as loud as his words. He has just appointed a committed environmentalist, Gina Lopez, as Secretary of the Department of Environment and Natural Resources, a position with broad oversight of the mining sector.

    The Philippines produces a wide range of minerals but the immediate focus is on the huge amounts of nickel ore it ships every month to Chinese producers of nickel pig iron (NPI).

    China's NPI sector, an integral part of the country's stainless steel supply chain, has become increasingly dependent on Philippine ore since 2014, when its previous main supplier, Indonesia, banned all exports of unprocessed minerals.

    Since nickel ore is largely produced by open pit mining, likely to be specifically targeted by the new Philippine administration, there is a ripple of bullish expectation running through the nickel market.

    China's NPI sector was already supposed to have imploded by now, crushed by the loss of Indonesian ore and increased production costs associated with treating lower-grade material from the Philippines.

    The fact that it hasn't says much about the resilience of Chinese NPI producers.

    And as long as they continue operating, other nickel producers will be tempted to hang on in there rather than curtail output, limiting the potential for a sustained rebound from current low prices.

    China's imports of Indonesian nickel ore collapsed almost immediately after the ban on exports of unprocessed ore came into effect at the start of 2014.

    Imports plummeted from 41 million tonnes in 2013 to 10.6 million tonnes in 2014 and to just 174,000 tonnes in 2015. The latter may have been no more than a misclassification of iron ore with relatively high nickel by-product content.

    Philippine ore producers stepped up their production and exports in response. Chinese imports accelerated from 29.7 million tonnes in 2013 to 36.4 million tonnes in 2014 and largely held steady last year.

    The scale of that response surprised just about everyone in the nickel market and was probably the single biggest factor in halting the post-Indonesia price rally that saw the London three-month price peak at over $20,000 per tonne in the middle of 2014.

    Chinese imports from the Philippines are running lower this year, even allowing for the "normal" seasonal impact of the rainy season on output and shipping (see graphic above).

    The reason is the current low price environment rather than the environment.

    The Philippines Nickel Miners Association warned in March its members planned to reduce output by as much as 20 percent this year as prices slid to 13-year lows of $7,550 per tonne in February.

    National output of mined nickel slumped 38 percent year-on-year to 75,300 tonnes in the January-April period, according to the International Nickel Study Group. Chinese imports of Philippine ore were down by 27 percent in the first five months of the year.

    No alternative supplier has so far emerged to pick up the renewed supply slack, although one renewed appearance in China's nickel import profile is worth noting.

    Imports of ore from New Caledonia have restarted after a gap of three years. This is a displacement effect resulting from the well-publicised troubles of Clive Palmer's Queensland Nickel, a major buyer of New Caledonian material.

    The Australian plant is currently shuttered and New Caledonia has exempted two local nickel producers from a long-standing ban on exports of China, albeit with a maximum ceiling of 700,000 tonnes.

    China imported 113,200 tonnes of ore from New Caledonia over the February-May period, a trickle by comparison with the Philippines but one which may gather pace in the coming months.

    All of which begs the question as to how China's NPI sector is still operating at all with no Indonesian ore, reduced flows of Philippine ore and only marginal offset from new suppliers.

    But not only is it doing so, all the indications are that the worst of any contraction may be over.

    Analysts at the Beijing office of research house CRU expect national production rates to hit 300,000 tonnes this year after sliding from a peak of over 500,000 tonnes in 2013.

    But they are then expected to "stabilise and increase again in 2017."

    CRU estimates, for example, that China's NPI production costs have fallen by a staggering 25 percent since the start of last year and that margins were still positive up until the start of this year.

    Imports of such Indonesian material, higher purity than ore but lower purity than ferronickel, totalled 256,000 tonnes in the first five months of 2016.

    Tsingshan has just started up a stainless steel plant in Indonesia, which may serve to reduce NPI shipments to China but which should serve as a warning of how Chinese stainless producers are integrating NPI flows into their core operations.

    And despite all the rhetoric from the Philippines' new administration about cleaning up mining and potentially following Indonesia in its resource nationalist policies, any wholesale change in the country's mining law could still be years away.
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    Steel, Iron Ore and Coal

    China to cut coal capacity by 280 mln T this year: state planner

    China plans to cut coal output capacity by 280 million tonnes and lower steel production capacity by 45 million tonnes this year, the head of the country’s top economic planner said on June 26 during Davos World Economic Forum in the northern city of Tianjin.

    The capacity cuts would involve relocating 700,000 workers in the coal sector and 180,000 workers in the steel industry, said Xu Shaoshi, chairman of the National Development and Reform Commission.

    Xu was “very confident” that China would achieve the 2016 targets.

    The government has vowed to tackle price-sapping supply gluts in major industrial sectors and said in February that it would close between 50-100 million tonnes of steel capacity and 500 million tonnes of coal production within three to five years.

    The government plans to allocate 100 billion yuan ($15.2 billion) to help local authorities and state-owned firms finance layoffs in the two sectors this year and in 2017, with 20% of the total used to reward high achievers.

    Layoffs from the two sectors are expected to total 1.8 million workers, according to official estimates.

    Xu said China’s overall leverage levels were under control and the government may roll out policy steps to “actively and steadily” reduce corporate debt levels.

    The government would forge ahead with supply-side reforms while appropriately expanding aggregate demand to ensure economic growth was within a reasonable range, Xu said.

    He reiterated that the government’s target was to achieve annual average growth of at least 6.5% between 2006 and 2020.

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    Transnet pares back capex as commodity slump impacts demand

    State-owned freight logistics group Transnet has pared back its 2016/17 capital expenditure (capex) plan in line with its strategy of “validating” demand ahead of moving ahead with major investments. The rail, ports and pipelines utility expects to invest around R22.8-billion during the 2017 financial year, having already reduced its capex in 2016 to R29.6-billion, from a peak of R33.6-billion in 2015. 

    However, CEO Siyabonga Gama stressed at the group’s results announcement on Monday that it would still invest R340-billion to R380-billion over the coming ten years, as part of its much vaunted market demand strategy (MDS) to expand capacity ahead of demand. 

    He also underlined that Transnet had invested R124-billion since the start of the MDS in 2012, despite lower than assumed volumes and gross domestic product (GDP) growth. Nevertheless, the immediate outlook had been affected mainly by lower commodity prices, which, in turn, had led to a deferment of a number of planned investments, particularly in relation to coal and iron-ore. 

    CFO Garry Pita said that R12.1-billion of iron-ore-related capex had been deferred to the outer years of the MDS, owing to lower validated demand from the sector, while Gama indicated that two major coal-related investments would materialise later than initially anticipated. 

    The plan to open up the coal export line to the Waterberg coalfields was now only expected to materialise in 2021/22, while the trigger had not yet been pulled on the Swazi Rail Link – a proposal to invest in a new line through Swaziland in an effort to liberate additional capacity on the Richards Bay corridor for additional coal exports. 

    Transnet expects coal volumes to recover modestly in the current financial year to 75-million tons from 72.1-million tons, but to remain below the 76.3-million railed in 2015. The 2012 MDS, meanwhile, had assumed that coal volumes would have been climbed to 84-million tons in 2016/17. Likewise, iron-ore volumes were expected to fall well short of the 70-million tons assumed for 2016/17, having slumped 3% in 2015/16 to 58-million tons. 

    Gama indicated that the group’s immediate focus was on capturing greater general-fright market share from road, while diversifying away from its current reliance on mined commodities.
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    Monthly coal use for U.S. power falls to lowest since 1978: EIA

    Coal used to generate U.S. power fell in April to its lowest monthly level since 1978, the U.S. Energy Information Administration said in a report.

    Coal-fired power plants generated just 72.2 million megawatt hours in April, their lowest since April 1978, according to EIA data released on Friday. One megawatt is enough to power about 1,000 U.S. homes.

    Natural gas, meanwhile, surpassed coal as the United States' top fuel source for the third straight month, producing 100.0 million MWh in April, the EIA said.

    Of the total 293.3 million MWh generated in April, gas accounted for 34 percent and coal just 25 percent.

    The EIA said gas produced a record 1.362 billion MWh, or about 34 percent of the total, in the year through April 30, compared with 1.250 billion MWh, or 31 percent, for coal.

    Other major sources of power production over the year were nuclear at 20 percent, and non-hydro and solar renewables, such as wind, at 7 percent, the EIA said.

    The agency has previously forecast generators would burn more gas than coal in 2016 for the first year.

    Coal has been the primary fuel source for U.S. power plants for the last century, but its use has been declining since peaking in 2007. That was around the same time drillers started pulling gas out of shale formations.

    Ten years ago, coal produced 50 percent of the nation's power supply, while gas accounted for just 19 percent. Now both fuel about a third, according to the EIA.

    After shutting a record 17,500 MW of coal-fired power plants in 2015, energy companies said they planned to close more than 13,000 MW this year as weak gas and power pricesmake it impractical to upgrade older coal plants to meet increasingly strict federal and state environmental rules.

    Spot prices at the Henry Hub benchmark have averaged $2.03 so far this year, while futures for the balance of 2016 were fetching $2.83. That compares with $2.61 in 2015, the lowest since 1999.
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    Brazil's Usiminas says has raised 1 bln reais in capital plan

    Brazil's Usiminas said on Monday that after the second round of a capital injection plan the firm has raised 999.98 million reais ($243 million), a key step in helping the steelmaker refinance debt and fight its worst crisis in decades.
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    China’s steel makers’ profit reaches 64 mln yuan over Jan-Apr, CISA

    China’s large and medium-sized steel makers turned losses into profitability, realizing a total 64 million yuan ($9.63 million) of profit over January-April, said Wang Liqun, vice president of China Iron and Steel Association (CISA), in a meeting on June 24.

    It was mainly thanks to the surging steel prices during the period, with a rise of 18% and 22% in March and April respectively, and the profit of steel products is as much as 100-1,000 yuan/t, Wang added.

    Consolidated gross profit margins of these companies increased from 3.67% in the first three months of last year to 7.39% in the first quarter of this year.

    In the first half of the year, steel production and the apparent steel consumption were on the decrease on the whole, and steel exports were climbing.

    However, there are still 32 out of these medium and large steel makers in China or 32.32% of the surveyed steel mills that are suffering losses, according to the data.

    In the first quarter, however, 36 iron and steel smelters listed on the stock markets registered revenue of 202.1 billion yuan, down 21% from the same period last year. The decrease was much lower than the 31% year-on-year decrease in the fourth quarter of 2015.

    The fast increase in steel prices is not sustainable because it depends on growing real estate construction demand. As idle capacity resumes production, supply will keep growing, but demand is unlikely to grow as fast. Therefore, iron and steel prices still face downward pressure in the near future.
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    China threatens WTO case over U.S. steel duties

    China could file suit at the World Trade Organization in order to protect its steel industry, the Commerce Ministry said on Tuesday, after the United States said some steel imports from China were hitting U.S. producers.

    The U.S. International Trade Commission said on Friday that imports of corrosion-resistant steel from China and four other countries were harming U.S. producers, the final step in the imposition of U.S. anti-dumping and anti-subsidy duties.

    The U.S. Commerce Department had already slapped duties of up to 450 percent on the steel products from China and duties ranging from 3 percent to 92 percent on corrosion-resistant steel from Italy, India, South Korea and Taiwan.

    The ministry said Washington's large anti-dumping and anti-subsidy duties would force Chinese companies to pull this type of steel product out of the U.S. market.

    "China's steel industry export interests will suffer a serious impact and the Chinese steel industry is strongly opposed to this," the ministry said in a statement posted to its website.

    "With regard to the United States' mistaken methods that violate WTO rules, China is and will continue to take all measures, including filing suit at the WTO, to strive for fair treatment for enterprises and safeguard their export interests," it said.

    Steel mills in China, the world's biggest producer and consumer of the metal, have raised production and beefed up exports despite the government's efforts to cut overcapacity. This has escalated trade spats between China and other steel producing nations, such as Japan, India and the United States.

    The Commerce Ministry has said that it is deeply concerned about protectionism in the U.S. steel sector. It argues that the difficulties facing the global steel sector have resulted from falling demand, and that trade protectionism from the U.S. will intensify conflicts and disputes.

    Attached Files
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    Shanghai steel extends gains to seven-week top amid low China inventory

    Shanghai rebar steel futures advanced on Tuesday, touching a fresh seven-week peak and adding to sharp gains from the session before amid low inventories that pointed to firm demand.

    Shanghai rebar surged by the maximum 6 percent allowed by the exchange on Monday, following weekend news of a planned restructuring by leading Chinese steelmakers Baosteel Group and Wuhan Iron and Steel Group.

    The announcement reflects China's efforts to consolidate its massive steel sector to improve efficiency amid global calls for Beijing to address its overcapacity.

    Falling steel inventories in China also suggest firm appetite. In the week ended June 24, Chinese steel stockpiles dropped 1.4 percent from the prior week to 8.84 million tonnes, said Argonaut Securities analyst Helen Lau.

    Steel inventory has fallen for the past five weeks and the current level is 47 percent lower than a year ago, said Lau, adding that the utilization rate at China's blast furnaces is also 9 percentage points below the same period last year.

    "Against these low steel inventory and low utilization rates, there is room for steel prices to increase in our view, given that current steel prices are around 30 percent lower than the same period last year," Lau said in a note.

    The most-traded rebar on the Shanghai Futures Exchange was up 2.1 percent at 2,257 yuan ($340) a tonne by 0206 GMT. The construction steel product touched 2,286 yuan earlier, its highest since May 9.

    Benefitting from firmer steel prices, the most-active iron ore on the Dalian Commodity Exchange rose as far as 420.50 yuan per tonne, also its strongest since May 9.

    It was last up 3.6 percent at 416 yuan, adding to Monday's nearly 6-percent spike.

    But price gains in the steelmaking raw material may not last as iron ore stockpiles at China's ports stay high, traders say.

    Inventory of imported iron ore at major Chinese ports stood at 101.5 million tonnes as of June 24, the most since December 2014, according to data tracked by SteelHome consultancy.
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