Mark Latham Commodity Equity Intelligence Service

Monday 1st June 2015
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    Chicago PMI crashes.

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    Image titleInvestor appetite for U.S. stocks has slumped to its lowest level in more than seven years. Though the  S&P 500 has hit three new highs in May, the region has suffered its biggest drop in equity allocation since September 2008, with the number of investors overweight U.S. equities declining to a net 19% in May, according to Bank of America Merrill Lynch’s monthly fund manager survey.

    Equity allocations have fallen in all of the P7 markets. Equity allocations by Japanese pension funds have decreased from 48% in 2004 to 33% in 2013 while equity allocations by UK pension funds have fallen from 67%to 44% in the same period. While in the Netherlands equity allocations fell from 39% to 30% and Canada’s allocation to equities fell from 51% to 41%. Australian pension funds have maintained the highest allocation to equities over time, reaching 51% in2014.  

    MGL: Global investors are underweight equity, and underweight the two largest economies: US+ China. If you can find 5% dividend yields covered by cash flow (EBITDA - Capex), then that could be be the simplest strategy for making returns.

    Image titleImage titleHundreds of people crowded 42nd Street in hopes of recording the event.

    MGL: We're increasingly fascinated by the iconic in this the age of aquarius. What possible meaning has Manhattenhenge?  The OECD political climate is increasingly 'isolationist', and its a foreign affairs view that reflects the 'inner' focussed zeitgeist.

    Almost 1,000 illegal immigrants landed in Italy yesterday after threatening to throw babies into the sea if their rusting ship was turned back.

    The 240ft Monica had been spotted in international waters during the night.

    When Italian coastguard boats drew alongside, the crews were shocked to see men and women on board begin dangling the infants over the side.Image title

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    Image titleMGL:  The acute failure of the emerging world to grow is causing havoc, not just in the commodity space, but also in the political space. Immigration in both the EU and the USA has exploded out of obscurity these last ten years to being a defining issue.  If the political or economic environment at home won't allow you to succeed, then you leave.  This seems to be matched by capital flows, here's China for example:
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    Oil and Gas

    Homeless Atlantic oil cargoes deepen global glut

    A shadowy build up of oil has intensified in the Atlantic Basin with homeless cargoes of crude turning into unintentional floating storage - another sign the global surplus has some way to go before clearing.

    Off the coast of West Africa and in the waters of the North Sea, vessels holding millions of barrels of oil have become, in effect, accidental storage, as their owners fight for buyers.

    These are competing with new loadings, as well as time-chartered cargoes that major trading houses such as Unipec and Trafigura booked to store crude months ago and are now selling.

    "It's pretty bad," one West African crude oil trader said. "There is a lot floating there that wasn't meant to be."

    The development highlights the diverging fates of crude grades as U.S. shale oil shuts light, sweet West African crudes out of North America, while state-of-the-art refinery additions worldwide are geared towards heavy crudes.

    Nigerian surplus in particular amplifies the yawning disconnect between futures and physical markets. "The country is a good barometer for global oversupply, with its exports to Asia, Europe and the Americas fluctuating with regional demand," analysts JBC said in a note on Friday.

    Traders said there are around six million barrels of crude from Nigeria's May programme available - some already loaded onto vessels. Cargoes such as the Front Ariake, which loaded in late April, are only now sailing out of the region.

    That joins more than 65 million barrels left in June and July for Nigeria alone, leaving producers looking to extra-high run rates at European refineries for salvation.

    In the North Sea, four expected June VLCC (very large crude carrier) bookings to Asia dwindled to one confirmed fixture, leaving Europe to absorb almost the entire Forties programme.

    Meanwhile, trader Unipec has reoffered Forties crude from Aframaxes the Thornbury and the British Falcon. Such ship-to-ship transfers are another symptom of the glut, as this is crude that failed to find a home weeks after it would normally have. Traders said that unless demand intensifies, these types of distressed sales would continue.

    "This is the worst North Sea market for a long time," one trader said.

    This has weighed heavily on prices; Forties traded at the lowest differential to dated Brent since December 2008 this week, whilst Ekofisk traded at a nine-year low. Differentials for Nigerian grades were trading near five-year lows.

    Asian tenders that were the salvation of West African crude this spring have in the past week been awarded from floating storage, to Unipec and Trafigura, or pulled due to prices made expensive, partly by freight.

    "We see the overhang of Atlantic crude as supportive for both VLCCs and suezmaxes and as such remain positive near term despite the lack of a real contango curve which would renew interest in floating storage," Stavseth said.

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    Eni talks on Mozambique sale sticking in oil slide

    Talks between Eni and suitors including Chinese state utility Huadian for a stake of around 15 percent in the Italian oil major's prized Mozambique gas field are dragging on due to differences over price, industry and banking sources said.

    State-controlled Eni is looking to sell around 8 billion euros ($8.8 billion) of assets in the next five years to fund growth in new markets and help ringfence dividends.

    The biggest foreign oil producer in Africa plans to raise around a quarter of these proceeds from the sale of minority stakes in top acreage such as Mozambique, Congo and Ghana, without giving up operatorship.

    In Mozambique, Eni is looking to sell down its 50 percent stake in its Area 4 field. But its insistence on remaining operator is likely to exclude majors such as Exxon and Shell who tend to favour controlling investments in big oil and gas projects, the sources said.

    "Eni's been talking to Huadian for a while, though there are other interested parties too. The aim is to close this year," one source with knowledge of the matter said.

    Eni declined to comment. Huadian did not immediately reply to an email for comment.

    Area 4 is located in Mozambique's Rovuma Basin, where gas in place amounts to some 85 trillion cubic feet -- one of the richest gas discoveries in recent times.

    Plans are to convert it into liquefied natural gas, or LNG, using onshore refrigeration plants so that it can be loaded onto tankers and shipped to consuming markets in Asia.

    "There is interest ... it remains to be seen if Eni has readjusted its pricing expectations," another banker familiar with the matter said.

    The field's huge productive capacity attracted peak valuations two years ago, when Eni sold 20 percent to China's CNPC for $4.2 billion, amid strong competition for reserves that could underpin one of the world's biggest gas export plants.

    But a halving of oil and gas prices since then, combined with an upcoming surge in global LNG export capacity and slowing demand, has dampened buyers' enthusiasm while Eni has been reluctant to budge on price, sources said.

    An oil analyst familiar with the Italian major said he calculated a 15 percent stake in the Mozambique field would be worth just $1.5 billion at today's oil prices.

    "Given the price uncertainty, Eni could end up selling down its Congo acreage first since that is all oil, easy to extract and very fast to get to market," the analyst said.
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    China LPG: Falls further on lower Asian spot prices, bearish outlook

    * Around 154,000 mt of imported LPG arrives in South China
    * Demand from petrochemical plants continues to shrink
    * Buying interest wanes ahead of Saudi Aramco's June CPs

    Imported and domestically produced LPG fell for the fourth consecutive week across southern and eastern China this week on the back of lower Asian prices and bearish outlook, traders said Friday.

    In the Asian spot market, prices fell to four-month lows on regional supply glut and weaker crude futures Thursday.

    CFR South China refrigerated LPG was assessed at $468/mt for propane and $503/mt for butane, down 6%-7% from last Thursday's $497/mt and $540/mt, respectively, Platts data showed.

    Traders also expect Saudi Aramco to set its June term Contract Prices for propane and butane in the range of $410-$425/mt and $440-$460/mt, respectively, both down from $465/mt and $475/mt for May.

    This also exerted downward pressure on spot prices this week, traders added.

    In China's southern Guangdong province, domestically produced LPG was heard to have traded lower at around Yuan 3,800-Yuan 3,900/mt ($620.96-$637.30/mt) Friday, down Yuan 50/mt from last week.

    Imported LPG cargoes of mixed propane and butane were expected to trade at around Yuan 3,850-Yuan 3,950/mt Friday, also down Yuan 50/mt from last week, local traders noted.

    "Several refineries and small terminals lowered their prices by Yuan 50-Yuan 100/mt for domestically produced LPG Friday morning, which is believed to have put pressure on the price of imported grade," a trader in the Pearl River Delta said, adding that the price of imported LPG was around Yuan 3,850-Yuan 4,000/mt earlier this week.

    "In addition to lower Asian values, ample supply of imported grade and weak seasonal demand also exerted downward pressure on LPG prices," he noted.
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    Total's CEO expects funds for Yamal LNG to be unblocked by end-2015

    Total's chief executive said on Friday he expected funding for the $27 billion Yamal LNG project it is developing in Russia with Novatek to be made available by lenders before the end of the year.

    "It's progressing well. We think we'll get the funds before the end of the year," Patrick Pouyanne told reporters on the sidelines of the French oil major's annual general meeting.

    The liquefied natural gas (LNG) project in the Yamal peninsula in Siberia was barred from raising funds in U.S. dollars after the United States imposed sanctions on Russia. Total, Novatek and China's CNPC are now seeking funds in euro, yuan and rouble.
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    DNO produces daily 170,000 barrels of oil from the Tawke field

    DNO ASA announced a new daily record of 170,000 barrels of oil produced from the Tawke field in the Kurdistan region of Iraq, of which 30,000 barrels were sold into the local market and the balance allocated for export.

    Tawke production in the first quarter of 2015 was 104,925 barrels of oil per day (bopd), of which 8,679 bopd was sold into the local market. In the current quarter to date, production has averaged 146,309 bopd, including 26,027 bopd sold into the local market.

    The company's realized prices for local sales currently average around USD 40 per barrel, with payments received upfront and revenues split 50/50 with the Kurdistan Regional Government.

    'We are ramping up production, export and local sales following the recently completed Tawke capacity expansion,' said Bijan Mossavar-Rahmani, DNO's Executive Chairman. 'We will dust off investment plans as our revenue stream continues to grow,' he added.
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    Xcite Confirms $35-per-Barrel Costs for Bentley Field

    UK North Sea-focused junior oil Xcite Energy reported its first quarter results Friday, confirming that full-field costs for its Bentley field development work out at $35 per barrel.

    Xcite made a net loss of $0.5 million during the three months to March 31, 2015, compared to a loss of $0.1 million in 1Q 2014.

    The company previously announced on April 30 the results of a reserves and resources assessment report (RAR) that showed 2P reserves for the Bentley field of 265 million barrels of oil – which was an increase of some eight million barrels on the RAR reported on February 25. A further 21 million barrels of P50 contingent resources were also assigned to the Bentley field.

    In a statement Friday, Xcite CEO Rupert Cole commented:

    "The reserves report is significant for us, as it incorporates much of the work we have completed over the past year with the development group, providing external validation to the recovery of the field, the development plan and execution strategy. Full field unescalated costs are expected to be approximately $35 per barrel have been underpinned by third-party quotes and estimates in order to increase the visibility of the robust economics of this development plan for the Bentley project.

    "We remain focused on developing the funding required to crystallize value from this asset."

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    Texas Railroad data..late payments??

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    Thursday offered a case in point. The first March data to be released showed average monthly U.S. crude production at 9.5 million barrels a day, the highest level since 1972 and higher than indicated by the weekly data released in March. The weekly data showed that output peaked in mid-March around 9.4 million barrels a day, then declined, which boosted prices at the time.

    The production data for February and January were also revised higher. The EIA now reports production of roughly 9.4 million barrels a day for both months, up from last month’s figures of 9.2 million barrels a day for January and 9.3 million barrels a day for February.

    The updated figures suggest that the glut of oil in the U.S. may not shrink as quickly as bullish traders have expected. U.S. producers have gotten more efficient, and their service costs have dropped. Some producers now say that if prices stabilize around $60 or $65 a barrel, they can increase output.

    “Threshold oil prices required to drive production growth are considerably lower than what people thought,” said Bill Herbert, managing director at Simmons & Co. International. Shale-oil production is only about five years old, he noted, and its resiliency in a low-price environment has never been tested before. “We are going to be learning an awful lot in the next three to six quarters.”

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    Fracklog status?

    • Image titlePeak record Saudi crude production has maintained oil prices below profitable levels for major U.S shale oil producers.
    • The result is fracklog, a backlog of 4,731 wells put on hold.
    • Shale producers CLR, WLL, PXD and EOG have reported crude price levels that would enable them to be profitable with continued improvement in efficiencies that reduce operational costs per barrel.
    • With current crude prices within a consolidation level, investors can balance supply against an expected greater summer demand for oil and watch for higher price movements if they occur.
    • Data are provided for the companies mentioned in this article to indicate oil price levels where they can be profitable.


    Fracklog is a term that is used to describe the number of wells waiting to be hydraulically fractured. If you think the U.S. is awash in oil now, think again, and thank the fracklog that it isn't worse. An analysis by Bloomberg Intelligence puts the backlog of wells at 4,731, with 322,000 barrels a day kept underground. To provide perspective, that is as much oil as Libya has been pumping this year and represents a tripling of wells that could be pumping oil. This crude is kept off the market with U.S. storage facilities now the fullest they have been since 1930.

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    US rig count declines 10 units, falls below nadir of 2008-09 downturn

    The US drilling rig count dropped 10 units during the week ended May 29 to settle at 875 rigs working, falling below the nadir of the 2008-09 downturn by a single unit, according to data from Baker Hughes Inc.

    Although an uptick from the mere 3 units lost last week, the loss of 10 units represents the second-smallest decline of the 25-week period.

    Raymond James & Associates Inc.’s energy research team noted this week that most oil field services companies with which it speaks are saying “the bottom is in” for US drilling following last week’s rise in the US onshore count for the first time since last November. The analyst noted, however, that “it’s difficult to envision a ‘V-shaped’ recovery motivated by sub-[$60/bbl] crude—even if it is $15 higher than the bottom.”

    Oil-directed rigs lost 13 units to 646, down 969 from a recent peak on Oct. 10, 2014, and 890 year-over-year. Gas rigs gained 3 units to 54.

    Land-based rigs dropped 9 units to 844, down 948 year-over-year. They were up 3 last week after 25 straight weeks of losses. Following a mere 2-unit loss last week, rigs engaged in horizontal drilling fell 9 units to 674, down 698 from a recent peak on Nov. 21, 2014, and 577 year-over-year. Rigs drilling directionally gained 5 units to 90.

    Rigs drilling in inland waters edged down a unit to 2. Offshore rigs were unchanged at 29.

    Canada’s rig count, meanwhile, recorded its largest gain since January, jumping 26 units to 98, still down 342 from a recent peak on Jan. 16 and 100 year-over-year. The sudden jolt came from a 20-unit rise in oil-directed rigs to 44. Gas-directed rigs rose 6 units to 54.

    After no movement in Texas last week, the first week in which the state hadn’t lost a unit in 25 weeks, the count declined 4 units to 369, down 537 from a recent peak on Nov. 21 and 525 year-over-year. The Eagle Ford, however, led all major basins with a 3-unit rise to 110. That marks its second rise in three weeks.

    In the wake of the Santa Barbara oil spill, California fell 3 units to 10. Louisiana, Pennsylvania, and Arkansas each fell 2 units to 67, 47, and 6, respectively. The Marcellus fell 3 units to 63. North Dakota edged down a unit to 77.
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    SandRidge Energy, Inc. Updates Shareholders on Liquidity and Flexibility

    SandRidge Energy, Inc. (the "Company") (SD) announced that it is entering into transactions which will increase current liquidity to approximately $1.4 billion, including a revised revolving bank credit facility containing leverage covenants that are less restrictive than under its current credit facility and a private offering of $1.25 billion of senior secured second lien notes ("Second Lien Notes"). Pricing detail of the $1.25 billion private offering of Second-Lien Notes has been previously disclosed by the Company.

    The Company will, concurrently with the issuance of its Second Lien Notes, revise its first lien credit facility, lowering its initial borrowing base availability from its current $900 million to $500 million, subject to maintenance of a first lien leverage ratio of not more than 2.0 times (senior first lien secured debt/ LTM pro forma EBITDA) and a minimum current ratio (including available borrowing capacity) of at least 1.0 times.
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    Alternative Energy

    Worlds largest solar park

    Karnataka, which entered the global power map by setting up Asia’s first hydroelectric station, is now embarking on another milestone mission of setting up a mega solar power park, said to be the world’s biggest. The park, with a capacity of 2,000 MW, will come up on 10,000 acres of land in the parched Pavagada taluk of Tumakuru district.

    Secretary, Union Ministry of New and Renewal Energy, Upendra Tripathy and Additional Chief Secretary, Karnataka Energy Department, Ravi Kumar, who announced this at a press conference here on Friday, said the work on the proposed park would start soon.

    The 1,000 MW solar park being implemented in Andhra Pradesh is the biggest such project so far in the country. The Centre would support the park by offering a subsidy of Rs. 20 lakh per mega Watt, Mr. Tripathy said.

    According to sources, Pavagada was chosen for the solar park because of a combination of various factors, including high sunlight exposure, backwardness of the area, and lesser demand for land.

    In addition to the park, Karnataka has bigger plans for the renewable energy sector as the State on Friday committed itself to setting up projects to tap green energy to the tune of 16,000 MW in the next five to seven years. The commitment was made at a meeting with Ministry of New and Renewal Energy authorities here where the Centre wanted the States to take up the responsibility of executing green energy project proposals to the tune of 1,75,000 MW received by it during the renewable energy global investors’ meet.

    To facilitate evacuation of such a massive quantum of renewable energy from the generation sites, the Centre has also decided to set up an exclusive pan-India green corridor at a cost of Rs. 36,000 crore, Mr. Tripathy said. To raise resources for renewable energy sector infrastructure, the Centre would float tax-free green bonds to the tune of Rs. 5,000 crore in about three months from now, he said.

    Set up roof-top solar plants with home loans

    Special Correspondent

    Now, you can set up a roof-top solar power plant on your house to take care of your power requirements through bank loans which would be part of home loan or home improvement loan.

    Secretary, Union Ministry for New and Renewable Energy, Upendra Tripathi, who announced this at a press conference here on Friday, said this was possible as the Reserve Bank of India had included renewable energy under the priority lending category. Individuals could borrow a maximum of Rs. 10 lakh under this scheme.

    Also to take care of the service and repair requirements of such roof-top solar power plants, the Centre was set to launch Surya Mithra scheme under which 50,000 rural unemployed youth with a qualification of Class 7 would be given free training in handling solar power plants, he said.

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    India could incentivize rooftop solar projects - Mr Goyal

    Mr Piyush Goyal, Power and New and Renewable Energy, realized that rooftop solar projects in India stand to be incentivized if a proposal made by the Minister for Coal.

    Also, the government is reportedly in talks with banks to provide loans for clean energy initiatives such as solar rooftop installations as part of home loans in future.

    Mr Goyal said that he would discuss introduction of tax incentives for purchase of rooftop solar panels with Finance Minister Arun Jaitely. He made the statement in response to a question raised during Talkathon, a program on state television.

    The minister also added that reduction of interest rates on loans for solar panels would be considered.

    Earlier, the government had introduced FAME, a scheme aimed at promoting the manufacture and use of electric vehicles.

    The initiative is being organized by CII under Green Jobs Sector Skill Council and Surya Mitra Initiative. The government plans to train 50,000 youths to be called Surya Mitras across the country for the purpose.

    Mr Goyal also indicated that construction rules would be amended to facilitate adoption of clean power and energy conservation in large commercial, industrial and residential projects.

    The incumbent government has set a renewable energy expansion target of 175 gigawatts by 2022. The capacity will be comprised of 100 GW solar, 60 GW wind, 10 GW biomass and 5 GW of small hydro projects.
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    Paladin corners Carnarvon basin with Carley Bore uranium acquisition

    Perth-based Paladin Energy on Monday announced that it would buy the Carley Bore uranium project in Western Australia’s Carnarvon basin from Energia Minerals in a A$15.8-million transaction. 

    The acquisition would consolidate Paladin Energy’s control of an emerging uranium province around its Mayingee project, where the company is considering an in-situ recovery (ISR) operation producing two-million pounds a year of uranium oxide (U3O8). 

    “The current low uranium price and sustained sector weakness have created an opportunity to consolidate our portfolio in strategically important regions for the company. This acquisition is certainly a game changer for us in terms of our Australian projects. With this land package, we have cornered a significant portion of the emerging Carnarvon basin uranium province,” commented Paladin MD and CEO John Borshoff. 

    Paladin, which also owns mines in Namibia and Malawi, said the potential to develop a significant mining operation with a mine life extending beyond 20 years in a new mining district was compelling.  However, it would only develop new projects when the uranium price reached at least $70/lb.   

    Paladin said it envisaged Carley Bore as a satellite operation with Manyingee as the main processing hub. 

    “The ability of ISR projects to operate with a central plant supported by numerous satellite deposits typically results in a lower capital cost and highly cost effective development approach. For decades, a similar satellite and central processing hub and spoke strategy has been successful at a number operations in the US and is currently used at Heathgate Resources’ Beverly ISR uranium project, in South Australia, with the Four Mile, Panniken and Pepegoona deposits,” the company said in a statement. 

    The acquisition would increase Paladin’s Joint Ore Reserve Committee-compliant indicated mineral resources in the area by more than 30% to 20.7-million pounds of U3O8 at a grade of 680 parts per million (ppm), and doubled the inferred mineral resources by to 20.9-million pounds at a grade of 415 ppm. Paladin stated that it could potentially increase the resource base by a further 15-million pounds to 25-million pounds. Exploration work in the 2016 financial year would focus on resource extensions to Carley Bore and regional exploration to test potential for additional uranium deposits.
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    Agribusiness nervous as WHO cancer unit analyzes popular pesticide

    The World Health Organization is set to examine a widely used pesticide and agribusiness is bracing for bad news, less than three months after the group classified another popular herbicide as "probably" cancer-causing.

    Twenty-four scientists representing WHO's International Agency for Research on Cancer (IARC) will analyze scientific findings regarding links between cancer in humans and the herbicide known as 2,4-D at a June 2-9 meeting in Lyon, France.

    A separate group of IARC scientists in March unanimously decided to classify glyphosate, the key ingredient in Monsanto Co's Roundup weedkiller, as "probably carcinogenic to humans." The designation prompted outrage and calls for a retraction from Monsanto, and demands by some public officials and consumers for bans on the pesticide.

    Many believe the same could happen for 2,4-D.

    "I do think they are going to upgrade 2,4-D," said Michael Hansen, a senior scientist at Consumers Union who has served on an advisory committee of the U.S. Department of Agriculture as well as an expert on WHO consultation projects.

    "There is just as strong, or even a stronger case (for links to cancer), on 2,4-D than there was for glyphosate," he said.

    IARC's work is of particular concern to Dow AgroSciences, a unit of Dow Chemical Co. The company manufactures 2,4-D and this year is rolling out a product that combines 2,4-D with glyphosate after approval from the Environmental Protection Agency last year.
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    Precious Metals

    Seven diamond miners form group to fight synthetics

    Russia’s Alrosa, Anglo American’s De Beers, Rio Tinto, Lucara, Dominion, Petra and Gem Diamonds are joining forces to market their gems and counter threats such as the expansion of synthetic stones.

    The group, called the Diamond Producers Association (DPA), will promote diamonds as a luxury item for high-end consumers and highlight the attraction of natural diamonds amid concerns that some consumers may soon begin favouring cheaper synthetic rocks.

    The association, which counts with a $6 million yearly budget, claims to be “the first-ever international representative organization to be formed by some of the leading diamond producers,” DPA said in an e-mailed statement.

    The freshly formed entity will step into a role once filled by De Beers, which at one point controlled over 80% of the world’s mined diamonds and pioneered the use of diamonds in engagement rings.

    Industry sources believe DPA's key challenges will be to curb entry of undisclosed man-made diamonds into the market. But for diamond analyst, Paul Zimnisky, such task won’t be a challenging one. At least for now:

    “The pricing of synthetics is not yet attractive enough to convert the indifferent customer, nor is the product accessible enough for the unwilling e-shopper,” he wrote earlier this month. “Until there is at least one display case devoted to synthetics in the national jewellery chains and department stores, synthetics' reach may be limited to being just that of a specialty item."

    In the past year, prices for rough diamonds have fallen 13%, affecting miners everywhere.

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    Base Metals

    Asian Warehouses 1/10 LME costs

    Traders who normally make money as middlemen shipping commodities around the world are increasingly shifting their metals holdings from London Metal Exchange-approved warehouses to cheaper, less well-documented locations, analysts say.

    The traders’ main aim is to reduce storage costs, a big chunk of their expenses. Warehouses in places such as Malaysia, South Korea and Singapore typically charge storage rates that are as low as one-tenth of those levied by official LME warehouses.

    But while the LME publishes daily data about stock levels in its warehouses, little is certain about the size of metal stockpiles held outside its network.

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    Steel, Iron Ore and Coal

    India douses century-old coal fires as Modi seeks output boost

    Prime Minister Narendra Modi is determined to move more than 100,000 people living near coalfields in eastern India to new homes, making it easier to douse underground fires that have burned for a century and mine huge reserves of premium coal.

    Reviving output from India's nationalised coal sector has been one of Modi's most tangible achievements during his first year in office, one that he hopes will secure continuous power to all and eat into an annual coal import bill of $15 billion.

    The burning deposits of Jharia, in Jharkhand state, are particularly prized because they are the only source of top quality steelmaking coal in the country. India spends $4 billion a year on importing that grade alone.

    Modi travelled to Jharkhand in February and urged the chief minister to speed up work on putting out the fires and shifting the people living there.

    "The fact that the prime minister is directly involved shows that the government is very serious about it," Coal Secretary Anil Swarup said in New Delhi. "It's a huge task but the good news is that we have started moving in the right direction."

    For some of the thousands living in run-down settlements around the coal deposits, the urgency is clear.

    Shakili Devi, 60, has lost count of the number of huts she inhabited over the years that caved in because of intense heat and shifting ground around her.

    "We're scared, but what can we do?," she asked, her shack standing next to a crack in the ground leaking hot gas. "We can only wait for the government to find us a new home."

    Until then, Devi and others like her are stuck. Many families are squatters who rely on casual work from contractors working the mines and on free water pumped to the settlements.

    The glowing coals and rising smoke date back to 1916, a quarter of a century after private firms began to mine the field. India nationalised most coal assets in the 1970s.

    According to experts, those firms failed to backfill mines after digging, exposing them to the open air and allowing fires to start by spontaneous combustion.

    Bootleggers who used abandoned mine areas made things worse, because some failed to put out fires they lit to run the stills.

    BCCL accounts for about 7 percent of Coal India's output and has projected growth of 54 percent to 53 million tonnes in five years, according to a company document seen by Reuters.

    Its success will help decide how close Coal India gets to its ambitious target of output of 1 billion tonnes by 2019/20.

    Previous attempts to control the fires by sealing the surface, trenching and pumping in inert gases had limited success and were blamed for driving BCCL close to bankruptcy.
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    Alpha no longer qualifies for mine cleanup insurance subsidy

    Alpha Natural Resources Inc no longer qualifies for a government program that subsidizes a share of mine cleanup insurance, requiring the coal company to find another way to cover roughly $400 million in liabilities, Wyoming officials said on Friday.

    State officials told Alpha that it has failed financial tests that have allowed the company to defer a share of mine cleanup costs in the case of bankruptcy under a program called "self bonding."

    "At the end of the day, the rules for self bonding are very clear," said Keith Guille, a spokesman for the Wyoming Department of Environmental Quality.

    Wyoming formally warned Alpha in April that it did not meet self-bond requirements and the company did nothing to change that view in the weeks that followed, Guille said.

    Alpha said it disputes the ruling, but is "investigating a range of options" to satisfy the regulator that it can cover cleanup costs.

    The company had earlier warned that losing its right to self bond and the increased costs of surety bonds could weigh on its balance sheet.

    In April, Reuters reported that the national mine industry regulator was examining the federal self-bond program for abuses.

    Investors have lately shunned U.S. coal stocks as weak global demand, an abundance of natural gas and costly regulations have hammered the sector.

    It would be difficult for cash-strapped mining companies to acquire surety bonds or offer collateral to backstop current reclamation obligations, said Robert Duke, chief counsel for the Surety & Fidelity Association of America.
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    Australian Iron Ore mining costs crackdown reaps AUD 20 billion

    Image Source: The AustralianThe Australian reported that there is nothing like a massive price crunch to stir management in to action to bring down costs and protect margins. That is what has been happening in the iron ore industry in the past eight months.

    The industry’s attack on costs and productivity has clawed back an estimated AUD 20 billion in margins that evaporated when iron ore began a steep retreat from USD 90 a tonne in September last year to a low of USD 46.70 a tonne on April 2.

    Analysis by UBS shows that the break even all in cash cost of the entire local industry is currently at least sitting comfortably below the spot price of USD 61.40 per tonne.

    UBS said that iron ore producers had worked hard to reduce costs in response to iron ore’s price crash from an average of USD 135 per tonne in 2013 to USD 97 per tonne in 2014 and this year’s running average of USD 59.60 per tonne. Aussie juniors had also done an impressive job lowering their cash costs by 20% plus. It has been a case of do or die for Australia’s higher cost producers.

    Already this year we saw Atlas suspend operations when the price fell to USD 47 a tonne as it was losing about USD 15 per tonne. But now, with the help of its suppliers and contractors, Atlas has lowered its break even price to about USD 50 per tonne. Compared to eight months ago, our universe of iron ore producers have managed to lower their break-even costs by USD 20 to USD 30 a tonne.
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    British workers at Tata Steel's biggest union vote to strike

    Tata Steel UK's biggest trade union voted on Friday to go on strike, setting the scene for the biggest labour action in the British steel sector in three decades.

    Members of the trade union Community voted 88 percent in favour of going on strike, a statement said.

    The union members are locked in a dispute with the company about its proposal to change their pension scheme.

    "Steelworkers are determined to stand up to Tata," said Roy Rickhuss, general secretary of Community.

    "We stand on the brink of the first national strike in the steel industry for over 30 years," said Rickhuss, also chair of the National Trade Union Steel Co-ordinating Committee.

    The union, which did not give a date for a strike, said it was calling for Tata to return to negotiations.

    Unions have been balloting some 17,000 members for industrial action. Results from the GMB and UCATT unions were expected later on Friday while a ballot by Unite is due to close next Friday.

    Tata Steel did not have any immediate comment about the vote, but previously has said that its actions were aimed at developing an affordable and sustainable pension scheme through changes that were balanced and fair.

    An open letter to employees released earlier on Friday said Tata's UK operations as a whole were still losing money and that the pension scheme had a shortfall of up to 2 billion pounds.

    Profitability in Britain's steel sector has become difficult due to cheap imports and sluggish demand, which has yet to recover to pre-2008 levels.

    The UK steel sector's labour, logistics and energy costs are higher even than mainland Europe, which itself struggles to compete globally.

    The company's parent, India's Tata Steel Ltd, posted a $889 million quarterly loss on May 20, inflated by a hefty impairment on its UK business.
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    China May steel sector PMI hit 16-mth low

    The Purchasing Managers Index (PMI) for the Chinese steel sector hit a 16-month low of 42.4 in May, down from 48.2 in April, showed data from the China Federation of Logistics and Purchasing (CFLP) on June 1.

    It was the 14th consecutive month below the 50-point threshold separating growth from contraction, indicating persisting sluggishness in the sector.

    The output sub-index dropped 8.7 from April to 40.7 in May, as steel mills reduced output amid low profit, shortage of fund and huge environmental protection pressure.

    Daily crude steel output of key Chinese steel producers fell 1.65% from ten days ago to 1.778 million tonnes over May 1-10; China’s total daily output during the same period was estimated at 2.269 million tonnes, down 3.5% from ten days ago, showed data from the China Iron and Steel Association (CISA).

    The new order sub-index dropped to 37.6 in May from April’s 45.5, the 11th consecutive month below the 50-point threshold, indicating persisting bleak domestic demand.

    However, the new export order index rebounded 3.7 from April to 43.7 in May, reflecting improved demand from the international market.

    China’s net exports of steel products were 7.34 million tonnes in April, up 17.6% on year and up 13.1% from March; total net exports over January-April surged 42.5% from the year before to 29.88 million tonnes, customs data showed.
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